CREDIT AGREEMENT


          This
CREDIT AGREEMENT is dated as of March 29, 2007 and entered into by and among
(i) XLNT VETERINARY CARE, INC., a Delaware corporation (the “Lead Borrower”)
and ADLER VETERINARY GROUP, INC., a California corporation, ANIMAL CLINIC OF
YUCCA VALLEY, INC., a California corporation, ANIMAL EMERGENCY CLINIC OF THE
DESERT, INC., a California corporation, ANIMAL MEDICAL HOSPITAL, INC., a
California corporation, BONITA PET HOSPITAL, INC., a California corporation,
BRENTWOOD PET CLINIC, INC., a California corporation, ELDORADO ANIMAL HOSPITAL,
INC., a California corporation, JERAULD L. WOODRING, INC., a California
corporation, LAWRENCE PET HOSPITAL, INC., a California corporation, MCCONNELL
& FENTON CORPORATION, a California corporation, RAINBOW HAWK, INC., a
California corporation, SAN CARLOS VETERINARY HOSPITAL, INC., a California
corporation, SOUTH BAY VETERINARY SPECIALISTS, INC., a California corporation,
SOUTH COUNTY EMERGENCY ANIMAL CLINIC, INC., a California corporation, STANFORD
PET CLINIC, INC., a California corporation, TARVIN & LENEHAN, INC., a
California corporation, VETS & PETS, INCORPORATED, a California
corporation, YUBA-SUTTER VETERINARY HOSPITAL, INC., a California corporation,
CALIFORNIA ANIMAL HOSPITAL VETERINARY SPECIALTY GROUP, INC., a California
corporation, and VETSURG, INC., a California corporation (jointly and
severally, individually and collectively, the “Borrower”) and (ii) FIFTH STREET
MEZZANINE PARTNERS II, L.P., a Delaware limited partnership (“Lender”). In consideration
of the mutual covenants contained herein and benefits to be derived herefrom
Borrower and Lender hereby agree as follows (all capitalized terms herein shall
have the meanings ascribed thereto in Annex A hereto): 


SECTION 1

AMOUNTS AND TERMS OF LOAN


          1.1
Loan. Subject to the terms and conditions of this Agreement and in reliance
upon the representations and warranties of Borrower contained herein:  


	
 

	
 


	
 

	
          (a)
 Term Loan. Lender agrees to lend to Borrower in one draw on the
 Closing Date, a term loan in the amount of Twelve Million and No/100 Dollars
 ($12,000,000.00) (the “Loan”). Amounts borrowed under this Agreement and
 repaid may not be reborrowed. 


	
 

	
 


	
 

	
          (b)
 Unconditional Obligation to Pay. Borrower hereby unconditionally
 promises to pay to Lender all Obligations as and when due hereunder. 


	
 

	
 


	
 

	
          (c)
 Note. The Loan shall be evidenced by a certain Term Note in the form
 executed by Borrower this date (as the same may be amended, restated,
 supplemented, replaced, or otherwise modified, the “Note”). Neither the
 original nor a copy of the Note shall be required, however, to establish or
 prove any Obligation. In the event that the Note is ever lost, mutilated, or
 destroyed, Borrower shall execute a replacement thereof and deliver such
 replacement to the Lender upon demand by Lender. 










	
 

	
 


	
 

	
          (d)
 Purpose. The proceeds of the Loan shall be used to solely fund working
 capital for each Borrower and such other lawful purposes that are not
 otherwise prohibited by this Agreement. 


	
 

	
 


	
 

	
1.2 Interest
 and Payment Terms.


	
 

	
 


	
 

	
          (a)
 Rate. Interest shall accrue on the outstanding balance of the Loan at
 a fixed rate of twelve percent (12.0%) per annum and shall be payable monthly
 in arrears, on the first day of each month (the “Payment Date”). The initial
 Payment Date hereunder shall be April 1, 2007. 


	
 

	
 


	
 

	
          (b)
 Calculation of Payments. If any payment on the Loan becomes due and
 payable on a day other than a Business Day, the maturity thereof will be
 extended to the next succeeding Business Day and, with respect to payments of
 principal, interest thereon shall be payable at the then applicable rate
 during such extension. Interest under the Loan shall be calculated on the
 basis of a 360 day year for the number of days elapsed in each interest
 period. 


	
 

	
 


	
 

	
          (c)
 Default Rate. So long as an Event of Default has occurred and is
 continuing under Section 6.1(a) (“Payment Defaults”) and without notice of
 any kind, the interest rate applicable to the Loan shall be increased by four
 percentage points (4%) per annum above the rate of interest otherwise
 applicable hereunder (“Payment Default Rate”), and all outstanding monetary
 Obligations shall bear interest at the Payment Default Rate. So long as any
 other Event of Default has occurred and is continuing and without notice of
 any kind, the interest rate applicable to the Loan shall be increased by two
 percentage points (2%) per annum above the rate of interest otherwise
 applicable hereunder (“Other Default Rate”), and all outstanding monetary
 Obligations shall bear interest at the Other Default Rate. Interest at the
 Payment Default Rate or Other Default Rate shall accrue from the initial date
 of such Event of Default until that Event of Default is waived and shall be payable
 upon demand, but in any event, shall be payable on the next regularly
 scheduled payment date set forth herein for such Obligation. 


	
 

	
 


	
 

	
          (d)
 Maximum Lawful Rate. Notwithstanding anything to the contrary set
 forth in this Section 1.2, if a court of competent jurisdiction determines in
 a final non-appealable order that the rate of interest payable hereunder
 exceeds the highest rate of interest permissible under law (the “Maximum
 Lawful Rate”), then so long as the Maximum Lawful Rate would be so exceeded,
 the rate of interest payable hereunder shall be equal to the Maximum Lawful
 Rate; provided, however, that if at any time thereafter the rate of interest
 payable hereunder is less than the Maximum Lawful Rate, Borrower shall
 continue to pay interest hereunder at the Maximum Lawful Rate until such time
 as the total interest received by Lender, is equal to the total interest that
 would have been received had the interest rate payable hereunder been (but
 for the operation of this paragraph) the interest rate payable since the
 Closing Date as otherwise provided in this Agreement. Thereafter, interest
 hereunder shall be paid at the rate(s) of interest and in the manner provided
 in Sections 1.2(a) through (c), unless and until the rate of interest again
 exceeds the Maximum Lawful Rate, and at that time this paragraph shall again
 apply. In no event shall the total interest received by Lender pursuant to
 the terms hereof 





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exceed the
 amount that Lender could lawfully have received had the interest due
 hereunder been calculated for the full term hereof at the Maximum Lawful
 Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph,
 such interest shall be calculated at a daily rate equal to the Maximum Lawful
 Rate divided by the number of days in the year in which such calculation is
 made. If, notwithstanding the provisions of this Section 1.2(d) a court of
 competent jurisdiction shall determine by a final, non-appealable order that
 Lender has received interest hereunder in excess of the Maximum Lawful Rate,
 Lender shall, to the extent permitted by applicable law, promptly apply such
 excess as specified in Section 1.7 and thereafter shall refund any excess to
 Borrower or as such court of competent jurisdiction may otherwise order. 


	
 

	
 


	
 

	
1.3 Fees.
 


	
 

	
 


	
 

	
          (a)
 Funding Fee. Borrower shall pay to Fifth Street Capital LLC a funding
 fee in the amount of $180,000 in immediately available funds, payable on or
 before the date hereof, which fee shall be deemed fully earned on the date due,
 and shall not be credited to any other payment required hereunder. 


	
 

	
 


	
 

	
          (b)
 Servicing Fees. Borrower shall pay to Fifth Street Capital LLC a
 Servicing Fee equal to $2,250 per month (the “Servicing Fee”) during the term
 of the Loan, payable in advance on each Payment Date, which fee shall be
 deemed fully earned on the date due. In addition to the monthly Servicing
 Fee, Borrower shall pay to Fifth Street Capital LLC an initial Servicing Fee
 of $2,250 on the Closing Date. 


	
 

	
 


	
 

	
          (c)
 Prepayment. 


	
 

	
 


	
 

	
                    (i)
 Borrower may not voluntarily prepay any amounts outstanding on the Loan on or
 before March 31, 2008 (the “Lock-Out Period”). Lender shall not be required
 to accept any such prepayment amounts made during the Lock-Out Period. If
 Borrower pays after acceleration or prepays all or any portion of the Loan,
 whether voluntarily or involuntarily and whether before or after acceleration
 of the Obligations as permitted hereby, at any time prior to March 31, 2009,
 Borrower shall pay to Lender, as liquidated damages and compensation for the
 costs of being prepared to make funds available hereunder, an amount equal to
 the Applicable Percentage (as defined below) multiplied by the sum of the
 portion of the principal amount of the Loan paid after acceleration or
 prepaid. As used herein, the term “Applicable Percentage” shall mean two
 percent (2.0%) of the amount prepaid. Borrower acknowledges that Lender shall
 suffer damages on account of the early payment of the Loan and that the Applicable
 Percentage is a reasonable calculation of Lender’s lost profits in view of
 the difficulties and impracticality of determining actual damages resulting
 from prepayment. Notwithstanding the foregoing but subject to the following
 sentence, Borrower may prepay, in whole or in part, without premium or fee,
 any amounts outstanding under Loan from and after April 1, 2009. No voluntary
 prepayment hereunder shall be (a) in an amount less than $100,000.00 and/or
 (b) made upon less than twenty (20) days prior written notice. 





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          (d)
 Expenses and Attorneys’ Fees. Borrower agrees to promptly pay all
 fees, charges, costs and expenses (including reasonable attorneys’ fees and
 expenses incurred by Lender in connection with any matters contemplated by or
 arising out of the Loan Documents), in connection with the examination,
 review, due diligence investigation, documentation, negotiation, closing and
 syndication of the transactions contemplated herein and in connection with
 the continued administration of the Loan Documents including any amendments,
 modifications, subordination or intercreditor agreements, consents and
 waivers. Borrower agrees to promptly pay reasonable documentation charges
 assessed by Lender for amendments, modifications, subordination or
 intercreditor agreements, waivers, consents and any of the documentation
 prepared by Lender’s attorneys. Borrower agrees to promptly pay all fees,
 charges, costs and expenses (including reasonable fees, charges, costs and
 expenses of attorneys, auditors (whether internal or external), appraisers,
 consultants and advisors incurred by Lender in connection with any Event of
 Default, work-out in respect of the Loan or action by Lender to enforce any
 Loan Document or to collect any payments due from Borrower hereunder. All
 fees, charges, costs and expenses for which Borrower is responsible under
 this Agreement shall be deemed part of the Obligations when incurred, payable
 upon demand and secured by the Collateral. 





          1.4
Payments. All payments by Borrower of the Obligations shall be without
deduction, defense, setoff or counterclaim and shall be made in Dollars and in
same day funds and delivered to Lender by wire transfer to the account of
Lender specified on the signature page hereof or such other place as Lender may
from time to time designate in writing to Borrower. Borrower shall receive
credit on the day of receipt for funds received by the applicable Lender by
12:00 noon (New York Time). In the absence of timely receipt, such funds shall
be deemed to have been paid on the next Business Day. Whenever any payment to
be made hereunder shall be stated to be due on a day that is not a Business
Day, the payment may be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the amount of
interest and Fees due hereunder. 


          1.5
Maturity. In all events, and under all circumstances, unless sooner
paid, all Obligations shall be immediately due and payable in full on the
Maturity Date. Borrower shall have, however, a one time opportunity to extend
the Maturity Date for an additional one (1) year period if the following
conditions precedent are met: 


	
 

	
 


	
 

	
          (a)
 Borrower makes a written request to Lender for such extension on or before
 December 1, 2009; 


	
 

	
 


	
 

	
          (b)
 The payment to Lender of an earned upon receipt, non-refundable extension fee
 in the amount of $100,000; 


	
 

	
 


	
 

	
          (c)
 No Default or Event of Default has occurred and is continuing at any time
 from the date Borrower has requested such extension through the first day of
 the requested extension period; and 


	
 

	
 


	
 

	
          (d)
 All representations and warranties in the Loan Documents shall continue to be
 true and correct in all material respects through the first day of the requested
 





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extension
 period; or Borrower shall have disclosed any material changes in matters
 covered by such representations and warranties and Lender shall have approved
 such changes in its sole and absolute discretion. 





          1.6
Continuing Liens. Until the Termination Date, Lender shall retain the
security interests in the Collateral granted under the Collateral Documents and
the ability to exercise all rights and remedies available to it under the Loan
Documents and applicable laws. 


          1.7
Application and Allocation of Payments. So long as no Default or Event
of Default has occurred and is continuing, (i) payments made to the Lender
shall be applied, first, to Fees and reimbursable expenses of Lender then due
and payable pursuant to any of the Loan Documents; (ii) payments matching
specific scheduled payments then due shall be applied to those scheduled
payments; and (iii) payments made when a Default or Event of Default has
occurred and is continuing shall be applied in accordance with Section 6.4.
Borrower hereby irrevocably waives the right to direct the application of any
and all payments received from or on behalf of Borrower, and Borrower hereby
irrevocably agrees that Lender shall have the continuing exclusive right to apply
any and all such payments against the Obligations of Borrower as Lender may
deem advisable, notwithstanding any previous entry by Lender in the Loan
Account or any other books and records. 


          1.8
Loan Account. Lender shall maintain a loan account (the “Loan Account”)
on its books to record: all credit extensions, all payments made by Borrower,
and all other debits and credits as provided in this Agreement with respect to
the Loan or any other Obligations. All entries in the Loan Account shall be made
in accordance with Lender’s customary accounting practices as in effect from
time to time. The balances in the Loan Account, as recorded on Lender’s most
recent printout or other written statement, shall, absent manifest error, be
presumptive evidence of the amounts due and owing to Lender by Borrower;
provided that any failure to so record or any error in so recording shall not
limit or otherwise affect Borrower’s duty to pay the Obligations. Lender shall
render to Borrower a monthly accounting of transactions with respect to the
Loan setting forth the balances of the Loan Account for the immediately
preceding month. Unless Borrower notifies Lender in writing of any objection to
any such accounting (specifically describing the basis for such objection), within
forty-five (45) days after the date thereof, each and every such accounting
shall, absent manifest error, be deemed final, binding and conclusive on
Borrower in all respects as to all matters reflected therein. Only those items
expressly objected to in such notice shall be deemed to be disputed by
Borrower. Notwithstanding any provision herein contained to the contrary,
Lender may elect (which election may be revoked) to dispense with the issuance
of the Note to Lender and may rely on the Loan Account as evidence of the
amount of Obligations from time to time owing to it. 


          1.9
Taxes. 



	
 

	
 


	
 

	
          (a)
No Deductions. Any and all payments or reimbursements made hereunder or
under any Note by Borrower shall be made free and clear of and without
deduction for any and all Charges, taxes, levies, imposts, deductions or
withholdings, and all liabilities with respect thereto of any nature whatsoever
imposed by any taxing authority, excluding such taxes to the extent imposed on
Lender’s net income by the jurisdiction in which 







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Lender is
 organized. If Borrower shall be required by law to deduct any such amounts
 from or in respect of any sum payable hereunder to Lender, then the sum
 payable hereunder shall be increased as may be necessary so that, after
 making all required deductions, Lender receives an amount equal to the sum it
 would have received had no such deductions been made. 


	
 

	
 


	
 

	
          (b)
 Changes in Tax Laws. In the event that, subsequent to the Closing
 Date, (1) any changes in any existing law, regulation, treaty or directive
 from any Governmental Authority or in the interpretation or application
 thereof by any Governmental Authority, (2) any new law, regulation, treaty or
 directive from any Governmental Authority enacted or any new interpretation
 or application thereof, or (3) compliance by Lender with any directive
 (whether or not having the force of law) from any Governmental Authority made
 or issued after the Closing Date: 


	
 

	
 


	
 

	
                    (i)
 does or shall subject Lender to any tax of any kind whatsoever with respect
 to this Agreement, the other Loan Documents or the Loan made hereunder, or
 change the basis of taxation of payments to Lender of principal, fees,
 interest or any other amount payable hereunder (except for net income taxes
 or franchise taxes imposed generally by federal, state or local taxing
 authorities with respect to interest or commitment Fees or other Fees payable
 hereunder or changes in the rate of tax on the overall net income of Lender);
 or 


	
 

	
 


	
 

	
                    (ii)
 does or shall impose on Lender any other condition or increased cost in
 connection with the transactions contemplated hereby or participations herein
 (except for net income taxes or franchise taxes imposed generally by federal,
 state or local taxing authorities with respect to interest or commitment Fees
 or other Fees payable hereunder or changes in the rate of tax on the overall
 net income of Lender); 


	
 

	
 


	
 

	
and the
 result of any of the foregoing is to increase the cost to Lender of making or
 continuing the Loan hereunder, as the case may be, or to reduce any amount
 receivable hereunder, then, in any such case, Borrower shall promptly pay to
 Lender, upon its demand, any additional amounts necessary to compensate
 Lender, on an after-tax basis, for such additional cost or reduced amount
 receivable, determined by Lender with respect to this Agreement or the other
 Loan Documents. If Lender becomes entitled to claim any additional amounts
 pursuant to this Section, it shall promptly notify Borrower of the event by
 reason of which Lender has become so entitled. A certificate as to any
 additional amounts payable pursuant to the foregoing sentence submitted by
 Lender to Borrower shall, absent manifest error, be final, conclusive and
 binding for all purposes. Notwithstanding the foregoing, Borrower may, at its
 option, prepay the Loan in full without premium or penalty in lieu of paying
 such additional amounts. 


	
 

	
 


	
 

	
1.10 Joint
 and Several Liability; Waivers. 


	
 

	
 


	
 

	
          (a)
 Notwithstanding anything in this Agreement or any other Loan Document to the
 contrary, each Borrower hereby accepts joint and several liability hereunder
 and under the other Loan Documents in consideration of the financial
 accommodations to be provided by Lender under this Agreement and the other
 Loan Documents, for the mutual 





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benefit,
 directly and indirectly, of each Borrower and in consideration of the
 undertakings of the other Borrower to accept joint and several liability for
 the Loan and the other Obligations hereunder. Each Borrower, jointly and
 severally, hereby irrevocably and unconditionally accepts, not merely as a
 surety but also as a co-debtor, joint and several liability with the other
 Borrower, with respect to the payment and performance of all of the
 Obligations (including, without limitation, any Obligations arising under
 this Section), it being the intention of the parties hereto that all the
 Obligations shall be the joint and several obligations of each of the
 Borrowers without preferences or distinction among them. If and to the extent
 that any Borrower shall fail to make any payment with respect to any of the
 Obligations as and when due or to perform any of the Obligations in
 accordance with the terms thereof, then in each such event each other
 Borrower will make such payment with respect to, or perform, such Obligation.
 Subject to the terms and conditions hereof, the Obligations of each Borrower
 under the provisions of this Section constitute the absolute and
 unconditional, full recourse Obligations of each Borrower enforceable against
 each Borrower. 


	
 

	
 


	
 

	
          (b)
 The provisions of this Section are made for the benefit of Lender and its
 successors and assigns, and may be enforced by Lender from time to time
 against any Borrower as often as occasion therefor may arise and without
 requirement on the part of the Lender or such successors or assigns first to
 marshal any of its or their claims or to exercise any of its or their rights
 against any Borrower or to exhaust any remedies available to it or them
 against any Borrower or to resort to any other source or means of obtaining
 payment of any of the Obligations hereunder or to elect any other remedy. The
 provisions of this Section shall remain in effect until all of the
 Obligations shall have been paid in full and this Agreement has terminated. 


	
 

	
 


	
 

	
          (c)
 Each Borrower hereby agrees that it will not enforce any of its rights of
 contribution or subrogation against the other Borrower with respect to any
 liability incurred by it hereunder or under any of the other Loan Documents,
 any payments made by it to Lender with respect to any of the Obligations or
 any Collateral until such time as all of the Obligations have been paid in
 full in cash. Any claim which any Borrower may have against the other
 Borrower with respect to any payments to Lender hereunder or under any other
 Loan Documents are hereby expressly made subordinate and junior in right of
 payment, without limitation as to any increases in the Obligations arising
 hereunder or thereunder, to the prior payment in full in cash of the
 Obligations and, in the event of any insolvency, bankruptcy, receivership,
 liquidation, reorganization or other similar proceeding under the laws of any
 jurisdiction relating to any Borrower, its debts or its assets, whether
 voluntary or involuntary, all Obligations shall be paid in full in cash
 before any payment or distribution of any character, whether in cash,
 securities or other property, shall be made to the other Borrower therefor.
 Each Borrower hereby waives and relinquishes any and all suretyship defenses
 and all rights and remedies accorded by applicable law to sureties or
 guarantors. 


	
 

	
 


	
 

	
          (d)
 Each Borrower hereby designates the Lead Borrower as that Borrower’s agent to
 obtain the Loan hereunder, the proceeds of which shall be available to each
 Borrower for those uses as those set forth in Section 1.1(d). As the
 disclosed principal for its agent, each Borrower shall be obligated to Lender
 on account of the Loan so made 





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hereunder as
 if made directly by Lenders to that Borrower, notwithstanding the manner by
 which the Loan is recorded on the books and records of Lead Borrower and of
 any Borrower. Each Borrower recognizes that credit available to it hereunder
 is in excess of and on better terms than it otherwise could obtain on and for
 its own account and that one of the reasons therefor is its joining in the
 credit facility contemplated herein with all other Borrowers. Consequently,
 each Borrower hereby assumes and agrees to discharge all Obligations of all
 other Borrowers as if the Borrower so assuming were each other Borrower. 





SECTION 2

AFFIRMATIVE COVENANTS


          Borrower
agrees that from and after the date hereof and until the Termination Date: 


          2.1
Payment and Performance of Obligations. Borrower shall pay each payment
Obligation when due (or when demanded, if payable on demand) and shall
promptly, punctually, and faithfully perform each other Obligation. 


          2.2
Perfection Certificate.  


	
 

	
 


	
 

	
          (a)
 Borrower hereby affirms all of the disclosures and other matters set forth in
 the Perfection Certificate and acknowledges and agrees that the Perfection
 Certificate has been relied upon by Lender, shall be for the benefit of
 Lender and is incorporated into this Agreement by reference. 


	
 

	
 


	
 

	
          (b)
 The Collateral, and the books, records, and papers of Borrower pertaining
 thereto, shall be kept and maintained solely at those locations which are
 listed on the Perfection Certificate. 





          2.3
Compliance With Laws and Contractual Obligations. Borrower will (a)
comply with and shall cause each of its Subsidiaries to comply with (i) the
requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority (including, without limitation, laws, rules, regulations
and orders relating to taxes, employer and employee contributions, securities,
employee retirement and welfare benefits, environmental protection matters and
employee health and safety) as now in effect and which may be imposed in the
future in all jurisdictions in which Borrower or any of its Subsidiaries is now
doing business or may hereafter be doing business and (ii) the obligations,
covenants and conditions contained in all Contractual Obligations of Borrower
or any of its Subsidiaries, other than, with respect to the foregoing clauses
(i) and (ii), those laws, rules, regulations, orders and provisions of such
Contractual Obligations the noncompliance with which could not be reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, and (b) maintain or obtain and shall cause each of its Subsidiaries to
maintain or obtain all licenses, qualifications and permits now held or
hereafter required to be held by Borrower or any of its Subsidiaries, for which
the loss, suspension, revocation or failure to obtain or renew, could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. This Section shall not preclude Borrower or its
Subsidiaries from contesting any taxes or other payments, if they are being
diligently contested in good faith in a manner which stays enforcement thereof
and if appropriate 


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expense
provisions have been recorded in conformity with GAAP. Borrower represents and
warrants that it (i) is in compliance and each of its Subsidiaries is in
compliance with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority and the obligations, conditions and
covenants contained in all Contractual Obligations other than those laws,
rules, regulations, orders and provisions of such Contractual Obligations the
noncompliance with which could not be reasonably expected to have, either
individually or in the aggregate, a Material Adverse Effect, and (ii) maintains
and each of its Subsidiaries maintains all licenses, qualifications and permits
referred to above. 


          2.4 Maintenance of Properties; Insurance.
Borrower will maintain or cause to be maintained in good working order and
condition (ordinary wear and tear excepted) all properties used in and material
to the business of Borrower and its Subsidiaries and will make or cause to be
made all appropriate repairs, renewals and replacements thereof. Borrower will
maintain or cause to be maintained, with financially sound and reputable
insurers, public liability and property damage insurance with respect to its
business and properties and the business and properties of its Subsidiaries
against loss or damage of the kinds customarily carried or maintained by
corporations of established reputation engaged in similar businesses and in
amounts reasonably acceptable to Lender and will deliver evidence thereof to
Lender. Borrower will maintain business interruption insurance in amounts
reasonably required by Lender from time to time. Borrower shall cause Lender,
pursuant to endorsements and/or assignments in form and substance reasonably
satisfactory to Lender, to be named as lender’s loss payee in the case of
casualty insurance, additional insured in the case of all liability insurance
and assignee in the case of all business interruption insurance, in each case
for the benefit of Lender. Borrower represents and warrants that it and each of
its Subsidiaries currently maintains all material properties as set forth above
and maintains all insurance described above. In the event Borrower fails to
provide Lender with evidence of the insurance coverage required by this
Agreement and such failure continues for ten (10) days after Lender’s request
therefor, Lender may purchase insurance at Borrower’s expense to protect
Lender’s interests in the Collateral. This insurance may, but need not, protect
Borrower’s interests. The coverage purchased by Lender may not pay any claim
made by Borrower or any claim that is made against Borrower in connection with
the Collateral. Borrower may later cancel any insurance purchased by Lender,
but only after providing Lender with evidence that Borrower has obtained
insurance as required by this Agreement. If Lender purchases insurance for the
Collateral, Borrower will be responsible for the costs of that insurance,
including interest and other Charges imposed by Lender in connection with the
placement of the insurance, until the effective date of the cancellation or
expiration of the insurance. The costs of the insurance may be added to the
Obligations. The costs of the insurance may be more than the cost of insurance
Borrower is able to obtain on its own. 


          2.5
Inspection; Lender Meeting. Subject to the next sentence of this Section
2.5, upon reasonable notice, Borrower shall permit any authorized
representatives of Lender to visit, audit, appraise and inspect the Collateral
and Borrower’s and its Subsidiaries’ financial and accounting records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and business with its and their officers and certified public
accountants, at such reasonable times during normal business hours and as often
as may be reasonably requested; provided that while any Event of Default has
occurred and is continuing no notice to Borrower shall be required. Any such
visits, audits, collateral audits, appraisals and inspections shall be at 


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Borrower’s
sole cost and expense; provided, however, so long as no Default or Event of
Default has occurred and is continuing, the aggregate cost to Borrower of any
such visits (exclusive of any collateral audits or appraisals) shall not exceed
Five Thousand Dollars ($5,000.00) per calendar year, with such amount prorated
for calendar year 2007. Without in any way limiting the foregoing, Borrower
will participate and will cause its key management personnel and those of its
Subsidiaries to participate in a meeting with Lender at least once during each
year, which meeting shall be held at such time and such place as may be
reasonably requested by Lender. 


          2.6
Organizational Existence. Borrower will and will cause its Subsidiaries
to at all times preserve and keep in full force and effect its organizational
existence and all rights and franchises material to its business. 


          2.7
Environmental Matters. Borrower shall and shall cause each Person within
its control to: (a) conduct its operations and keep and maintain its Real
Estate in compliance in all material respects with all Environmental Laws and
Environmental Permits; (b) implement any and all investigation, remediation,
removal and response actions that are appropriate or necessary to maintain the
value and marketability of the Real Estate or to otherwise comply with
Environmental Laws and Environmental Permits pertaining to the presence,
generation, treatment, storage, use, disposal, transportation or Release of any
Hazardous Material on, at, in, under, above, to, from or about any of its Real
Estate; (c) notify Lender promptly after Borrower or any Person within its
control becomes aware of any violation of Environmental Laws or Environmental
Permits or any Release on, at, in, under, above, to, from or about any Real
Estate; and (d) promptly forward to Lender a copy of any order, notice, request
for information or any communication or report received by Borrower or any
Person within its control in connection with any such violation or Release or
any other matter relating to any Environmental Laws or Environmental Permits,
in each case whether or not the Environmental Protection Agency or any
Governmental Authority has taken or threatened any action in connection with
any such violation, Release or other matter. If Lender at any time has a
reasonable basis to believe that there may be a violation, in any material
respect, of any Environmental Laws or Environmental Permits by Borrower or any
Person under its control or any material Environmental Liability arising
thereunder, or a Release of Hazardous Materials on, at, in, under, above, to,
from or about any of its Real Estate, then Borrower and its Subsidiaries shall,
upon Lender’s written request cause the performance of such environmental
audits including subsurface sampling of soil and groundwater, and preparation
of such environmental reports, at Borrower’s expense, as Lender may from time
to time reasonably request, which shall be conducted by reputable environmental
consulting firms reasonably acceptable to Lender and shall be in form and
substance reasonably acceptable to Lender. 


          2.8
Landlords’ Agreements, Mortgagee Agreements, Bailee Letters and Real Estate
Purchases. Borrower shall obtain a landlord’s agreement, mortgagee
agreement or bailee letter, as applicable, from each lessor of leased property,
mortgagee of owned property or bailee with respect to any warehouse or other
location where at least 10% or more of the Collateral (based upon book values)
is stored or located, which agreement or letter shall contain a waiver or
subordination of all Liens or claims that the landlord, mortgagee or bailee may
assert against the Collateral at that location, and shall otherwise be
reasonably satisfactory in form and substance to Lender. After the Closing
Date, no real property or warehouse space shall be leased by Borrower or any
Subsidiary, other than leases in effect as of the Closing Date, and no
Inventory 


-10-






shall be
shipped to a processor or converter under arrangements established after the
Closing Date without the prior written consent of Lender or, unless and until a
satisfactory landlord agreement or bailee letter, as appropriate, shall first
have been obtained with respect to such location. Borrower shall and shall
cause its Subsidiaries to timely and fully pay and perform their obligations
under all leases and other agreements with respect to each leased location or
public warehouse where such material portion of the Collateral is or may be
located. 


          2.9
Meetings; Board Observer Rights. 


	
 

	
 


	
 

	
          (a)
  Borrower will hold meetings of its board of directors on an as-needed basis,
  but not less frequently than once per Fiscal Quarter. 


	
 

	
 


	
 

	
          (b)
  Borrower will permit Lender to elect to have one representative present
  (whether in person or by telephone) in an observer capacity at all meetings
  of Borrower’s board of directors, exclusive of any executive sessions and of
  board committee meetings. Borrower shall send to such observer representative
  all of the notices, information and other materials that are distributed to
  the directors of Borrower (excluding any materials that may be subject to
  attorney-client or other privileges which could be compromised if such
  materials were disclosed to such observer representative) and shall provide
  such observer representative with a notice and agenda of each meeting of the
  board of directors of Borrower all at the same time and in the same manner as
  such notices, agenda, information and other materials are provided to the
  members of Borrower’s board of directors. Such Lender representative shall
  have only the board observation rights specifically described herein and
  shall not have the right to compensation or the right to vote. Borrower shall
  reimburse Lender for the reasonable travel expenses incurred by such Lender
  in attending the meetings of the board of directors. 





          2.10
Further Assurances. Borrower shall, from time to time, execute such guaranties,
financing statements, documents, security agreements and reports as Lender at
any time may reasonably request to evidence, perfect or otherwise implement the
guaranties and security for repayment of the Obligations contemplated by the
Loan Documents. 


SECTION 3 

NEGATIVE COVENANTS


          Borrower
agrees that from and after the date hereof until the Termination Date unless
otherwise agreed to by the Lender: 


          3.1
Indebtedness. Borrower shall not and shall not cause or permit its
Subsidiaries directly or indirectly to create, incur, assume, or otherwise
become or remain directly or indirectly liable with respect to any
Indebtedness, other than: 


	
 

	
 


	
 

	
          (a)
  the Indebtedness under this Agreement, 


	
 

	
 


	
 

	
          (b)
  the Indebtedness under the Permitted Mezzanine Debt, 


	
 

	
 


	
 

	
          (c)
  Indebtedness pursuant to a Contingent Obligation permitted under Section 3.4,
  





-11-






	
 

	
 


	
 

	
          (d)
  permitted Indebtedness as set forth on Schedule 3.1, 


	
 

	
 


	
 

	
          (e)
  purchase money Indebtedness (which may take the form of capitalized leases)
  in an amount up to the maximum aggregate amount of Capital Expenditures
  permitted under Section 4.4), 


	
 

	
 


	
 

	
          (f)
  unsecured Subordinated Debt; 


	
 

	
 


	
 

	
          (g)
  Seller Debt,


	
 

	
 


	
 

	
          (h)
  Mortgage Debt, and 


	
 

	
 


	
 

	
          (i)
  other unsecured Indebtedness up to a maximum outstanding at any time of
  $200,000.00. 





          3.2
Liens and Related Matters. 


	
 

	
 


	
 

	
          (a)
  No Liens. Borrower shall not and shall not cause or permit its Subsidiaries
  to directly or indirectly create, incur, assume or permit to exist any Lien
  on or with respect to any of Borrower’s or such Subsidiary’s property or
  assets, whether now owned or hereafter acquired, or any income or profits
  therefrom, except Permitted Encumbrances (including, without limitation,
  those Liens constituting Permitted Encumbrances existing on the date hereof
  and renewals and extensions thereof, as set forth on Schedule 3.2), and Liens
  securing purchase money Indebtedness and Mortgage Debt permitted under
  Section 3.1 (subject to limits outlined therein). 


	
 

	
 


	
 

	
          (b)
  No Negative Pledges. Borrower shall not and shall not cause or permit
  its Subsidiaries to directly or indirectly enter into or assume any agreement
  (other than the Loan Documents) prohibiting the creation or assumption of any
  Lien in favor of Lender upon its properties or assets, whether now owned or
  hereafter acquired. 


	
 

	
 


	
 

	
          (c)
  No Restrictions on Subsidiary Distributions to Borrower. Except as
  provided herein, Borrower shall not and shall not cause or permit its
  Subsidiaries to directly or indirectly create or otherwise cause or suffer to
  exist or become effective any consensual encumbrance or restriction of any
  kind on the ability of any such Subsidiary to: (1) pay dividends or make any
  other distribution on any of such Subsidiary’s Stock owned by Borrower or any
  other Subsidiary; (2) pay any Indebtedness owed to Borrower or any other
  Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or
  (4) transfer any of its property or assets to Borrower or any other
  Subsidiary. 





          3.3
Investments. Borrower shall not and shall not cause or permit its
Subsidiaries to directly or indirectly make or own any Investment in any Person
except: 


	
 

	
 


	
 

	
          (a)
  Borrower and its Subsidiaries may make and own Investments in cash or cash
  equivalents acceptable to Lender subject to control agreements in favor of
  Lender; 


	
 

	
 


	
 

	
          (b)
  Subject to Section 3.21, Borrower may consummate the New Acquisitions; 





-12-






	
 

	
 


	
 

	
          (c)
  Borrower and its Subsidiaries may make loans and advances to employees for
  moving, entertainment, travel and other similar expenses in the ordinary
  course of business not to exceed $100,000 in the aggregate at any time outstanding;
  and 


	
 

	
 


	
 

	
          (d)
  Borrower may also make minority investments in pet care related companies not
  to exceed $1,000,000 in the aggregate during the term of this Agreement,
  provided that (i) after such investment the Borrower’s Tangible Net Worth is
  greater than or equal to Borrower’s Tangible Net Worth prior to such
  investment, (ii) no Default or Event of Default then exists hereunder, and
  (iii) Borrower is in pro-forma financial performance covenant compliance
  taking into account such proposed investment. 





          3.4
Contingent Obligations. Borrower shall not and shall not cause or permit
its Subsidiaries to directly or indirectly create or become or be liable with
respect to any Contingent Obligation except: 


	
 

	
 


	
 

	
          (a)
  those resulting from endorsement of negotiable instruments for collection in
  the ordinary course of business; and 


	
 

	
 


	
 

	
          (b)
  those existing on the Closing Date and described in Schedule 3.4. 





          3.5
Restricted Payments. Borrower shall not and shall not cause or permit
its Subsidiaries to directly or indirectly declare, order, pay, make or set
apart any sum for any Restricted Payment, except that wholly-owned Subsidiaries
of Borrower may make Restricted Payments to Borrower. Notwithstanding the
foregoing, Borrower may, prior to the SPAC Merger, make one or more cash
redemptions of its Stock in an amount not to exceed $1,500,000 in the
aggregate, provided that (i) no Default or Event of Default then exists
hereunder, and (ii) Borrower is in proforma financial performance covenant
compliance taking into account such redemption. 


          3.6
Restriction on Fundamental Changes. Borrower shall not and shall not
cause or permit its Subsidiaries to directly or indirectly: (a) amend, modify
or waive any term or provision of its organizational documents, including its
articles of incorporation, certificates of designations pertaining to preferred
stock, by-laws, partnership agreement or operating agreement in any manner
which changes the number of members of the Board or which negatively affects
Lender; (b) enter into any transaction of merger or consolidation; (c)
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); or (d) acquire by purchase or otherwise all or any substantial
part of the business or assets of any other Person, except that, subject to the
terms of this Agreement, Borrower may consummate New Acquisitions.
Notwithstanding the foregoing, (x) Lead Borrower may merge with a subsidiary of
a publicly traded special purpose acquisition company (the “SPAC”) provided
that (i) the net proceeds to Borrower of such transaction are at least
$20,000,000.00 and (ii) Lead Borrower is the surviving legal entity (the “SPAC
Merger”), and (y) Subsidiaries of Lead Borrower may merge or consolidate with
each other. 


          3.7
Disposal of Assets. Borrower shall not and shall not cause or permit its
Subsidiaries to directly or indirectly convey, sell (including, without
limitation, enter into sale/leaseback transactions), lease, sublease, transfer
or otherwise dispose of, or grant any Person 


-13-






an option to
acquire, in one transaction or a series of related transactions, any of its
property, business or assets, whether now owned or hereafter acquired, except
for (i) sales and/or leases of Inventory in good faith to customers for fair
value in the ordinary course of business, (ii) dispositions of obsolete
Equipment not used or useful in the business, and (iii) sale transactions
provided that (A) after such sale transaction the Borrower’s Tangible Net Worth
is greater than or equal to Borrower’s Tangible Net Worth prior to such sale;
(B) no Default or Event of Default then exists hereunder, and (C) Borrower is
in pro-forma financial performance covenant compliance taking into account such
proposed disposition. 


          3.8
Transactions with Affiliates. Borrower shall not and shall not cause or
permit its Subsidiaries to directly or indirectly enter into or permit to exist
any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any management, consulting, investment banking,
advisory or any other services) with or among Borrower, or any Affiliate of any
of them, or with any director, officer or employee of any of them, except (a)
as set forth on Schedule 3.8, (b) transactions in the ordinary course of and
pursuant to the reasonable requirements of the business of either Borrower or
any of its Subsidiaries and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to any Borrower or any of its
Subsidiaries than would be obtained in a comparable arm’s length transaction
with a Person that is not an Affiliate, and (c) payment of reasonable
compensation in the ordinary course to officers in accordance with levels determined
by the Compensation Committee of Borrower’s board of directors. 


          3.9
Conduct of Business. Borrower shall not and shall not cause or permit
its Subsidiaries to directly or indirectly engage in any business other than
businesses of the type presently conducted by Borrower or any Subsidiary, or
reasonably related thereto or otherwise to the pet care industry. 


          3.10
Changes Relating to Indebtedness. Borrower shall not and shall not cause
or permit its Subsidiaries to directly or indirectly change or amend the terms
of any of its Indebtedness permitted by Section 3.1 if the effect of such
amendment is to: (a) increase the interest rate on such Indebtedness or the
principal amount thereof; (b) accelerate the dates upon which payments of
principal or interest are due on or increase the principal amount of such
Indebtedness; (c) make more restrictive any event of default or add or make
more restrictive any covenant with respect to such Indebtedness; (d) change the
redemption or prepayment provisions of such Indebtedness; (e) change the
subordination provisions thereof (or the subordination terms of any guaranty
thereof); (f) change or amend any other term if such change or amendment would
materially increase the obligations of the obligor or confer additional
material rights on the holder of such Indebtedness in a manner adverse to
Borrower or Lender; or (g) increase the portion of interest payable in cash
with respect to any Indebtedness for which interest is payable by the issuance
of payment-in-kind notes or is permitted to accrue. Notwithstanding the
foregoing, Borrower may convert any Indebtedness into equity (and make any
required call notices in connection therewith), subject to any anti-dilution
restrictions or other restrictions in any equity or warrant documents between
Borrower and Lender (or its affiliates). 


          3.11
Fiscal Year. Borrower shall not change its Fiscal Year or permit any of
its Subsidiaries to change their respective fiscal years, except in order to
conform to Lead Borrower’s fiscal year. 


-14-






          3.12
Press Release; Public Offering Materials. Borrower agrees that neither
it nor its Affiliates will in the future issue any press releases or other
public disclosure, including any prospectus, proxy statement or other materials
filed with any Governmental Authority relating to a public offering of the
Stock of Borrower, using the name of Lender or its Affiliates or referring to
this Agreement, the other Loan Documents or the Related Transactions Documents
without at least two (2) Business Days’ prior notice to Lender and without the
prior written consent of Lender, as applicable, unless (and only to the extent
that) Borrower or such Affiliate is required to do so under law and then, in
any event, Borrower or such Affiliate will consult with Lender, as applicable,
before issuing such press release or other public disclosure. Borrower consents
to the publication by Lender of a tombstone or similar advertising material
relating to the financing transactions contemplated by this Agreement and to
the inclusion in the proxy statement/prospectus relating to the SPAC Merger of
such information regarding the Lender, this Agreement, the other Loan Documents
and the Related Transaction Documents as may be required by applicable law,
rule or regulation. Lender reserves the right to provide to industry trade
organizations information necessary and customary for inclusion in league table
measurements; provided that such information shall contain no specific
references to Borrower or its Affiliates. 


          3.13
Subsidiaries. As of the date hereof, each Subsidiary of any Borrower is
a Borrower. Without the prior written consent of Lender, Borrower shall not and
shall not cause or permit its Subsidiaries to directly or indirectly establish,
create or acquire any new Subsidiary. Notwithstanding the foregoing, Borrower
may create or acquire a new Subsidiary in connection with a New Acquisition,
subject to the conditions set forth in Section 3.21. 


          3.14
Bank Accounts; Cash Management. On each business day, Borrower and each
of its Subsidiaries shall cause all amounts in each of Borrower’s and its
Subsidiaries’ bank accounts (other than a minimum operating amount, not to
exceed $5,000 per account) to be swept to the Concentration Account. Borrower
shall, on or before thirty (30) days from the Closing Date, cause the bank
holding the Concentration Account to enter into a tri-party agreement regarding
the Concentration Account pursuant to which such bank acknowledges the security
interest of Lender in such bank account, agrees to comply with instructions
originated by Lender directing disposition of the funds in such bank account
without further consent from Borrower, and agrees to subordinate and limit any
security interest the bank may have in the bank account on terms satisfactory
to Lender (a “Control Agreement”). Other than the bank accounts swept daily in
accordance with this Section, Borrower shall not and shall not cause or permit
its Subsidiaries to establish any new bank accounts without prior written
notice to Lender and unless Lender and the bank at which the account is to be
opened have entered into a Control Agreement regarding such bank account. 


          3.15
Hazardous Materials. Borrower shall not and shall not cause or permit
its Subsidiaries to cause or permit a Release of any Hazardous Material on, at,
in, under, above, to, from or about any of the Real Estate where such Release
would (a) violate or form the basis for any Environmental Liabilities by Borrower
or any of its Subsidiaries under, any Environmental Laws or Environmental
Permits, or (b) otherwise adversely impact the value or marketability of any of
the Real Estate or any of the Collateral. 


-15-






          3.16
ERISA. Borrower shall not and shall not cause or permit any ERISA
Affiliate to, cause or permit to occur an ERISA Event to the extent such ERISA
Event could reasonably be expected to have a Material Adverse Effect. 


          3.17
Prepayments of Other Indebtedness. Borrower shall not, directly or
indirectly, voluntarily purchase, redeem, defease or prepay any principal of,
premium, if any, interest or other amount payable in respect of any
Indebtedness, other than (i) subject to the terms hereof, the Obligations and
(ii) inter-company Indebtedness reflecting amounts owing to Borrower. 


          3.18
Changes to Material Contracts. Borrower shall not and shall not cause or
permit any of its Subsidiaries to change or amend any material terms of any
Material Contract. 


          3.19
Guaranties. Borrower shall not assume, guarantee, endorse or otherwise
become directly or contingently liable in connection with any obligations of
any other Person, except that Borrower may endorse checks in the ordinary
course of its business and enter into guarantees of up to $50,000 in the
aggregate at any one time. 


          3.20
Organization. Borrower shall not change its jurisdiction of
organization; any organizational identification number assigned to Borrower; or
Borrower’s federal taxpayer identification number. 


          3.21
New Acquisitions. Notwithstanding the restrictions set forth herein with
respect to mergers and acquisitions, Lender hereby agrees that Borrower may,
from time to time, with prior written notice to Lender, acquire new veterinary
clinics or other pet care related businesses consistent with its current
business plan and create or acquire new Subsidiaries (each a “New Subsidiary”)
in connection therewith (each, a “New Acquisition”) provided that the following
conditions are met: 


	
 

	
 


	
 

	
          (a)
  No Default or Event of Default shall be continuing under the Loan Documents; 


	
 

	
 


	
 

	
          (b)
  Borrower shall be in compliance with the financial performance covenants
  provided in Section 4.3 on a proforma basis taking into account the proposed
  New Acquisition; 


	
 

	
 


	
 

	
          (c)
  Borrower’s Tangible Net Worth is greater than or equal to Borrower’s Tangible
  Net Worth prior to such New Acquisition; 


	
 

	
 


	
 

	
          (d)
  Borrower shall not incur any Indebtedness in connection with such acquisition
  other than Seller Debt not to exceed thirty-five percent (35%) of the gross
  purchase price paid by Borrower or its Subsidiary in connection with such New
  Acquisition; and 


	
 

	
 


	
 

	
          (e)
  Borrower shall, within sixty (60) days after the consummation of such new
  Acquisition: (i) cause each New Subsidiaries to guaranty the Obligations (or
  otherwise join this Agreement as a Borrower) and to grant to Lender a Lien in
  all personal property of such Person to secure the Obligations, which Lien
  shall be subject to all Permitted Encumbrances. The documentation for such
  guaranty, joinder and security shall be 





-16-






	
 

	
 


	
 

	
substantially
  similar to the Loan Documents executed concurrently herewith with such
  modifications as are reasonably requested by Lender. The requirements of this
  subsection (e) shall terminate at such time as Borrower shall have obtained
  additional equity capital of at least $20,000,000.00 in connection with the
  SPAC Merger or otherwise. 





SECTION 4

FINANCIAL COVENANTS/REPORTING 


          Borrower
covenants and agrees that from and after the date hereof until the Termination
Date, Borrower shall perform and comply with all covenants in this Section 4. 


          4.1
Financial Statements and Other Reports. Borrower will maintain, and
cause each of its Subsidiaries to maintain, a system of accounting established
and administered in accordance with sound business practices to permit
preparation of Financial Statements in conformity with GAAP (it being
understood that quarterly Financial Statements are not required to have
footnote disclosures and are subject to year-end adjustments). Borrower will
deliver each of the Financial Statements and other reports described below to
Lender, all in form reasonably acceptable to Lender. 


	
 

	
 


	
 

	
          (a)
  Quarterly Financials. As soon as available and in any event within
  forty-five (45) days after the end of each Fiscal Quarter, Borrower will
  deliver to Lender electronically in Microsoft Excel format the consolidated
  balance sheets of Borrower and its Subsidiaries, as at the end of such Fiscal
  Quarter, and the related consolidated statements of income, profits and
  losses, stockholders’ equity and cash flow for such quarter and for the
  period from the later of: (i) the beginning of the then current Fiscal Year
  of Borrower and (ii) the Closing Date. 


	
 

	
 


	
 

	
          (b)
  Year-End Financials. As soon as available and in any event within one
  hundred twenty (120) days after the end of each Fiscal Year of Borrower,
  Borrower will deliver to Lender (1) the consolidated and consolidating
  balance sheets of Borrower and its Subsidiaries, as at the end of such year,
  and the related consolidated statements of income, and statement of retained
  earnings for such Fiscal Year, (2) a report with respect to the consolidated
  Financial Statements from a firm of Certified Public Accountants selected by
  Borrower and reasonably acceptable to Lender, which report shall be prepared
  in accordance with Statement of Auditing Standards No. 58 (the “Statement”)
  “Reports on Audited Financial Statements” and such report shall be
  “Unqualified” (as such term is defined in such Statement). 


	
 

	
 


	
 

	
          (c)
  Accountants’ Reports. Promptly upon receipt thereof, Borrower will
  deliver to Lender copies of all material reports and “management letters” or
  similar letters submitted by Borrower’s firm of certified public accountants
  in connection with each annual, interim or special audit or review of any
  type of the Financial Statements or related internal control systems of
  Borrower and its Subsidiaries made by such accountants, including any comment
  letter submitted by such accountants to management in connection with their
  services. 





-17-






	
 

	
 


	
 

	
          (d)
  Projections. As soon as available and in any event no later than sixty
  (60) days after the last day of each of Borrower’s Fiscal Years, Borrower
  will deliver to Lender Projections of Borrower and its Subsidiaries for the
  forthcoming one (1) fiscal year, for the forthcoming fiscal year, quarter by
  quarter. 


	
 

	
 


	
 

	
          (e)
  Filings and Press Releases. Promptly upon their becoming available,
  Borrower will deliver copies of (1) all Financial Statements, reports,
  notices and proxy statements sent or made available by Borrower or any of its
  Subsidiaries to their Stockholders, (2) all regular and periodic reports and
  all registration statements and prospectuses, if any, filed by Borrower or
  any of its Subsidiaries with any securities exchange or with the Securities
  and Exchange Commission, any Governmental Authority or any private regulatory
  authority, and (3) all press releases and other statements made available by
  Borrower or any of its Subsidiaries to the public concerning developments in
  the business of any such Person. 


	
 

	
 


	
 

	
          (f)
  Events of Default, Etc. Promptly upon any officer of Borrower obtaining
  knowledge of any of the following events or conditions, Borrower shall
  deliver copies of all notices given or received by Borrower or any of its
  Subsidiaries with respect to any such event or condition and a certificate of
  Borrower’s chief executive officer specifying the nature and period of
  existence of such event or condition and what action Borrower or any of its
  Subsidiaries has taken, is taking and proposes to take with respect thereto:
  (1) any condition or event that constitutes, or which could reasonably be
  expected to result in the occurrence of, an Event of Default or Default; or
  (2) any notice that any Person has given to Borrower or any of its
  Subsidiaries or any other action taken with respect to a claimed default or
  event or condition of the type referred to in Section 6.1(b). 


	
 

	
 


	
 

	
          (g)
  Litigation. Promptly upon any officer of Borrower obtaining knowledge
  of (1) the institution of any action, charge, claim, demand, suit,
  proceeding, petition, governmental investigation, tax audit or arbitration
  now pending or, to the best knowledge of Borrower, after due inquiry,
  threatened against or affecting Borrower or any of its Subsidiaries or any
  property of Borrower or any of its Subsidiaries (“Litigation”) not previously
  disclosed by Borrower to Lender, or (2) any material development in any
  action, suit, proceeding, governmental investigation or arbitration at any
  time pending against or affecting Borrower or any property of Borrower that,
  in each case under the preceding clauses (1) and (2), could reasonably be
  expected to have a Material Adverse Effect, Borrower will promptly give
  notice thereof to Lender and provide such other information as may be
  reasonably available to Borrower to enable Lender and its counsel to evaluate
  such matter. 


	
 

	
 


	
 

	
          (h)
  Notice of Corporate and other Changes. Borrower shall provide prompt
  written notice of (1) any change after the Closing Date in the authorized and
  issued Stock of Borrower or any Subsidiary of Borrower or any amendment to
  their articles or certificate of incorporation, by-laws, partnership
  agreement or other organizational documents; (2) any Subsidiary created or
  acquired by Borrower or any of its Subsidiaries after the Closing Date, such
  notice, in each case, to identify the applicable jurisdictions, capital
  structures or Subsidiaries, as applicable, and (3) any other event that
  occurs after the Closing Date which would cause any of the representations
  and warranties in Section 





-18-






	
 

	
 


	
 

	
5 of this
  Agreement or in any other Loan Document to be untrue or misleading in any
  material respect. The foregoing notice requirement shall not be construed to
  constitute consent by the Lender to any transaction referred to above which
  is not expressly permitted by the terms of this Agreement. 


	
 

	
 


	
 

	
          (i)
  [Intentionally Omitted.] 


	
 

	
 


	
 

	
          (j)
  Other Debt. Borrower shall provide copies of all certificates
  (including borrowing base certificates), notices and other information
  delivered to the lender(s) pursuant to the Permitted Mezzanine Debt
  contemporaneously with Borrower’s delivery of such items to such lender(s)
  and Borrower shall also deliver to Lender copies of all notices and other
  information delivered from the lender(s) pursuant to the Permitted Mezzanine
  Debt within five (5) Business Days of Borrower’s receipt thereof. 


	
 

	
 


	
 

	
          (k)
  Other Information. With reasonable promptness, Borrower will deliver
  such other information and data with respect to itself or any Subsidiary as
  from time to time may be reasonably requested by Lender. 


	
 

	
 


	
 

	
          (l)
Compliance Certificate. As soon as available and in any event within
forty-five (45) days after the end of each Fiscal Quarter (including the last
Fiscal Quarter of Borrower’s Fiscal Year), Borrower will deliver to Lender a
fully and properly completed Compliance Certificate (in substantially the
same form as Exhibit 4.1)(the “Compliance Certificate”) electronically in
Microsoft Excel format, followed by a hard copy signed by Borrower’s chief
executive officer or chief financial officer.  


	
 

	
 


	
 

	
          (m)
  Taxes. Borrower shall provide Lender prompt written notice of (i) the
  execution or filing with the IRS or any other Governmental Authority of any
  agreement or other document extending, or having the effect of extending, the
  period for assessment or collection of any Charges by Borrower or any of its
  Subsidiaries and (ii) any agreement by Borrower or any of its Subsidiaries or
  request directed to Borrower or any of its Subsidiaries to make any
  adjustment under IRC Section 481(a), by reason of a change in accounting
  method or otherwise, that could reasonably be expected to have a Material
  Adverse Effect. 





          4.2
Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
accordance with GAAP as in effect from time to time. Financial Statements and
other information furnished to Lender pursuant to Section 4.1 or any other section
(unless specifically indicated otherwise) shall be prepared in accordance with
GAAP as in effect at the time of such preparation subject in the case of any
interim Financial Statements to year-end adjustments and the absence of
footnotes; provided that no Accounting Change shall affect financial covenants,
standards or terms in this Agreement unless such change is required to comply
with GAAP; provided further that Borrower shall prepare footnotes to the
Financial Statements required to be delivered hereunder that show the
differences between the Financial Statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). All such adjustments described in
clause (c) of the definition of the term Accounting 


-19-






Changes
resulting from expenditures made subsequent to the Closing Date (including
capitalization of costs and expenses or payment of pre-Closing Date
liabilities) shall be treated as expenses in the period the expenditures are
made. 


          4.3
Financial Covenants and Ratios. Beginning with the Fiscal Quarter ending
December 31, 2007 for any quarterly tests, Borrower shall comply with and
maintain each of the financial covenants and ratios as set forth on Exhibit 4.3. Borrower’s compliance with the financial covenants and ratios shall be
measured in accordance with GAAP and using the information set forth in the
Financial Statements provided by Borrower in accordance with Section 4.1. In
addition to such quarterly tests, Borrower shall have as of March 31, 2007 cash
or cash equivalents (acceptable to Lender) of at least $1,000,000, as
determined in accordance with GAAP, and in connection therewith Borrower shall
deliver to Lender, on or before May 15, 2007, a satisfactory balance sheet of
Borrower evidencing same.  


          4.4
Capital Expenditures. Borrower shall not incur or contract to incur
Capital Expenditures of more than $5,000,000.00 in the aggregate during any
Fiscal Year. 


          4.5
Notice to Lender of Certain Events. Borrower shall provide Lender with
written notice promptly upon the occurrence of any of the following events,
which written notice shall be with reasonable particularity as to the facts and
circumstances in respect of which such notice is being given: 


	
 

	
 


	
 

	
          (a)
  Any change in Borrower’s chief executive officer or chief financial officer
  (without regard to the title(s) actually given to the Persons discharging the
  duties customarily discharged by officers with those titles). 


	
 

	
 


	
 

	
          (b)
  Any material adverse change in the business, operations, or financial affairs
  of Borrower. 


	
 

	
 


	
 

	
          (c)
  Any intention on the part of Borrower to discharge Borrower’s present
  independent accountants or any withdrawal or resignation by such independent
  accountants from their acting in such capacity. 





SECTION 5 

REPRESENTATIONS AND WARRANTIES


          To
induce Lender to enter into the Loan Documents and to make the Loan, Borrower
represents, warrants and covenants to Lender that the following statements are,
after giving effect to the Related Transactions, will remain true, correct and
complete until the Termination Date: 


          5.1
Disclosure. No representation or warranty of Borrower contained in this
Agreement, the Financial Statements referred to in Section 5.5, the other
Related Transactions Documents or any other document, certificate or written
statement furnished to Lender by or on behalf of any such Person in connection
with the closing of the Loan contains any untrue statement of a material fact
or omitted, omits or will omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading in light of the
circumstances in which the same were made, it being recognized by Lender that
the projections 


-20-






and forecasts
provided by Borrower to Lender in good faith and based upon reasonable
assumptions are not to be viewed as facts and that actual results during the
period or periods covered by any such projections and forecasts may differ from
the projected or forecasted results. 


          5.2
No Material Adverse Effect. Since February 9, 2007 there have been no
events or changes in facts or circumstances affecting the business of Borrower
which individually or in the aggregate have had or could reasonably be expected
to have a Material Adverse Effect and that have not been disclosed herein or in
the attached Disclosure Schedules. 


          5.3
No Conflict. The consummation of the Related Transactions does not and will
not violate or conflict with any laws, rules, regulations or orders of any
Governmental Authority applicable to the Borrower, or violate or conflict with,
result in a breach of, or constitute a default (with due notice or lapse of
time or both) under any Contractual Obligation or organizational documents of
Borrower or any of its Subsidiaries except if such violations, conflicts,
breaches or defaults could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect and except as to
which applicable consents or waivers have been obtained. 


          5.4
Organization, Powers, Capitalization and Good Standing. 


	
 

	
 


	
 

	
          (a)
  Organization and Powers. Borrower and each of its Subsidiaries is duly
  organized, validly existing and in good standing under the laws of its
  jurisdiction of organization and qualified to do business in all states where
  such qualification is required except where failure to be so qualified could
  not reasonably be expected to have a Material Adverse Effect. Borrower and
  each of its Subsidiaries has all requisite organizational power and authority
  to own and operate its properties, to carry on its business as now conducted,
  to enter into each Related Transactions Document to which it is a party and
  to incur the Obligations, grant liens and security interests in the
  Collateral and carry out the Related Transactions. 


	
 

	
 


	
 

	
          (b)
  Capitalization. As of the Closing Date: (i) the authorized Stock of
  each of Borrower and each of its Subsidiaries is as set forth on Schedule
  5.4(b); (ii) all issued and outstanding Stock of Borrower and each of its
  Subsidiaries is duly authorized and validly issued, fully paid,
  nonassessable, free and clear of all Liens, and such Stock was issued in
  material compliance with all applicable state, federal and foreign laws
  concerning the issuance of securities; (iii) the identity of the holders of
  the Stock of Borrower and each of its Subsidiaries and the percentage of
  their fully diluted ownership of the Stock of each of Borrower and each of
  its Subsidiaries is set forth on Schedule 5.4(b); and (iv) no Stock of
  Borrower or any of its Subsidiaries, other than those described above, is
  issued and outstanding. Except as provided in Schedule 5.4(b), as of the
  Closing Date, there are no preemptive or other outstanding rights, options,
  warrants, conversion rights or similar agreements or understandings for the
  purchase or acquisition from Borrower or any of its Subsidiaries of any Stock
  of any such entity. 


	
 

	
 


	
 

	
          (c)
  Binding Obligation. This Agreement is, and the other Related
  Transactions Documents when executed and delivered will be, the legally valid
  and 





-21-






	
 

	
 


	
 

	
binding
  obligations of Borrower, each enforceable against Borrower in accordance with
  its terms, subject to the effect of: (i) the exercise of judicial discretion
  in accordance with general principles of equity and (ii) applicable
  bankruptcy, insolvency, reorganization, moratorium and other similar laws
  affecting the rights of creditors generally. 





          5.5
Financial Statements and Projections. All Financial Statements
concerning Borrower and its Subsidiaries which have been or will hereafter be
furnished to Lender pursuant to this Agreement, including those listed below,
have been or will be prepared in accordance with GAAP consistently applied
(except as disclosed therein or as otherwise set forth on Schedule 5.5) and do
or will fairly present in all material respects the financial condition of the
entities covered thereby as at the dates thereof and the results of their
operations for the periods then ended, subject to, in the case of unaudited
Financial Statements, the absence of footnotes, and normal year end
adjustments. The Projections delivered on or prior to the Closing Date and the
updated Projections delivered pursuant to Section 4.1(d) represent and will
represent as of the date thereof the good faith estimate of Borrower and its
senior management concerning the most probable course of its business.
Notwithstanding the foregoing, Lender and Borrower acknowledge that the
Financial Statements delivered prior to the date hereof are Borrower’s internal
financial statements, are unaudited, were not prepared in accordance with GAAP,
to the extent provided therein, and are subject to management’s review and
adjustment for certain items including, without limitation, a non-cash charge
for certain options and warrants issued by Borrower and which are required to
be expended pursuant to GAAP. 


          5.6
Intellectual Property. Borrower and each of its Subsidiaries owns, is
licensed to use or otherwise has the right to use, all Intellectual Property
used in or necessary for the conduct of its business as currently conducted
that is material to the financial condition, business or operations of Borrower
and its Subsidiaries and all such Intellectual Property owned by Borrower that
is registered or the subject of a pending application is identified on Schedule
5.6. Except as disclosed in Schedule 5.6, to Borrower’s knowledge, the use of
such Intellectual Property by Borrower and its Subsidiaries and the conduct of
their businesses does not and has not been alleged by any Person in writing to
infringe on the rights of any Person. 


          5.7
Investigations, Audits, Etc. As of the Closing Date, except as set forth
on Schedule 5.7, neither Borrower nor any of its Subsidiaries is the subject of
any review or audit by the IRS or any governmental investigation concerning the
violation or possible violation of any law. 


          5.8
Employee Matters. Except as set forth in Schedule 5.8, neither Borrower
nor any of its Subsidiaries nor any of their respective employees is subject to
any collective bargaining agreement, (b) no petition for certification or union
election is pending with respect to the employees of Borrower or any of its
Subsidiaries and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of Borrower or any
of its Subsidiaries, (c) there are no strikes, slowdowns, work stoppages or controversies
pending or, to the best knowledge of Borrower after due inquiry, threatened
between Borrower or any of its Subsidiaries and its respective employees, other
than employee grievances arising in the ordinary course of business which could
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect and (d) hours worked by and payment made to employees 


-22-






of Borrower
and each of its Subsidiaries comply in all material respects with the Fair
Labor Standards Act and each other federal, state, local or foreign law
applicable to such matters. 


          5.9
Solvency. Each of Borrower and its Subsidiaries is Solvent, both before
and after giving effect to the transactions contemplated by this Agreement and
the other Loan Documents. 


          5.10
Litigation; Adverse Facts. Except as set forth on Schedule 5.10, there
are no judgments outstanding against Borrower or any of its Subsidiaries or
affecting any property of Borrower or any of its Subsidiaries, nor is there any
Litigation pending, or to the best knowledge of Borrower threatened, against
Borrower or any of its Subsidiaries. 


          5.11
Margin Regulations; Use of Proceeds. 


	
 

	
 


	
 

	
          (a)
  No part of the proceeds of the Loan will be used for “buying” or “carrying”
  “margin stock” within the respective meanings of such terms under Regulation
  U of the Board of Governors of the Federal Reserve System as now and from
  time to time hereafter in effect or for any other purpose that violates the
  provisions of the regulations of the Board of Governors of the Federal
  Reserve System. If requested by Lender, Borrower will furnish to Lender and
  each Lender a statement to the foregoing effect in conformity with the
  requirements of FR Form G 3 or FR Form 0 1, as applicable, referred to in
  Regulation U. 


	
 

	
 


	
 

	
          (b)
  Schedule 5.11 contains a description of Borrower’s sources and uses of funds
  as of the Closing Date, including the loans to be made or incurred on that
  date, and a funds flow memorandum detailing how funds from each source are to
  be transferred for particular uses. 





          5.12
Ownership of Property; Liens. As of the Closing Date, the real estate
(“Real Estate”) listed in Schedule 5.12 constitutes all of the real property
leased, subleased, or used by Borrower or any of its Subsidiaries. Borrower and
each of its Subsidiaries holds valid leasehold interests in all of its leased
Real Estate, all as described on Schedule 5.12, and copies of all such leases
or a summary of terms thereof reasonably satisfactory to Lender have been
delivered to Lender. Borrower and each of its Subsidiaries also has good and
marketable title to, or valid leasehold interests in, all of its personal
property and assets (subject to Permitted Encumbrances). Other than Permitted
Encumbrances, as of the Closing Date, none of the properties and assets of
Borrower or any of its Subsidiaries are subject to any Liens, and there are no
facts, circumstances or conditions known to Borrower that are reasonably likely
to result in any Liens (including Liens arising under Environmental Laws)
against the properties or assets of Borrower or any of its Subsidiaries.
Borrower and each of its Subsidiaries has received all deeds, assignments,
waivers, consents, nondisturbance and attornment or similar agreements, bills
of sale and other documents, and has duly effected all recordings, filings and
other actions necessary, in Borrower’s reasonable opinion, to establish,
protect and perfect Borrower’s or such Subsidiary’s right, title and interest in
and to all such material properties and assets. As of the Closing Date, no
portion of Borrower’s or any of its Subsidiaries’ Real Estate has suffered any
material damage by fire or other casualty loss that has not heretofore been
repaired and restored in all material respects to its original condition or
otherwise remedied. As of the Closing Date, all material permits required to
have been issued or appropriate to enable the Real Estate to be 


-23-






lawfully
occupied and used for all of the purposes for which it is currently occupied
and used have been lawfully issued and are in full force and effect. 


          5.13
Environmental Matters. 


	
 

	
 


	
 

	
          (a)
  Except as set forth in Schedule 5.13, as of the Closing Date: (i) to
  Borrower’s knowledge, the Real Estate is free of contamination from any
  Hazardous Material; (ii) neither Borrower nor any of its Subsidiaries has
  caused or suffered to occur any Release of Hazardous Materials on, at, in,
  under, above, to, from or about any of their Real Estate; (iii) to Borrower’s
  knowledge, Borrower and its Subsidiaries are and have been in compliance, in
  all material respects, with all Environmental Laws; (iv) Borrower and its
  Subsidiaries have obtained, and are in compliance, in all material respects,
  with, all Environmental Permits required by Environmental Laws for the
  operations of their respective businesses as presently conducted and all such
  Environmental Permits remain in full force and effect; (v) neither Borrower
  nor any of its Subsidiaries is involved in operations or knows of any facts,
  circumstances or conditions, including any Releases of Hazardous Materials;
  (vi) there is no Litigation to which Borrower is a party or regarding any
  property owned or leased by Borrower arising under or related to any Environmental
  Laws, Environmental Permits or Hazardous Material; (vii) no notice has been
  received by Borrower or any of its Subsidiaries identifying any of them as a
  “potentially responsible party” or requesting information under CERCLA or
  analogous state statutes, and to the knowledge of Borrower, there are no
  facts, circumstances or conditions that are reasonably likely to result in
  any of Borrower or its Subsidiaries being identified as a “potentially
  responsible party” under CERCLA or analogous state statutes; and (viii)
  Borrower has provided to Lender copies of all existing environmental reports,
  reviews and audits and all written information pertaining to actual or
  potential Environmental Liabilities relating to Borrower or its Subsidiaries.
  


	
 

	
 


	
 

	
          (b)
  Borrower hereby acknowledges and agrees that Lender (i) is not now, and has
  never been, in control of any of the Real Estate or affairs of Borrower or
  its Subsidiaries, and (ii) has the capacity through the provisions of the
  Loan Documents or otherwise to influence Borrower’s or its Subsidiaries’
  conduct with respect to the ownership, operation or management of any of
  their Real Estate or compliance with Environmental Laws or Environmental
  Permits. 


	
 

	
 


	
 

	
5.14 ERISA.
  


	
 

	
 


	
 

	
          (a)
  Schedule 5.14 lists all Plans and separately identifies all Pension Plans,
  including Title IV Plans, Multiemployer Plans, ESOPs and Welfare Plans,
  including all Retiree Welfare Plans. Copies of all such listed Plans,
  together with a copy of the latest form IRS/DOL 5500-series for each such
  Plan have been made available to Lender. To the Borrower’s knowledge, nothing
  has occurred, which would cause the loss of the qualified status of any
  Qualified Plan. Each Plan is in material compliance with the applicable
  provisions of ERISA and the IRC, including the timely filing of all reports
  required under the IRC or ERISA. Neither Borrower nor any ERISA Affiliate has
  failed to make any contribution or pay any amount due as required by either
  Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan.
  Neither Borrower nor any 





-24-






	
 

	
 


	
 

	
ERISA
  Affiliate has engaged in a “prohibited transaction,” as defined in Section
  406 of ERISA and Section 4975 of the IRC, in connection with any Plan, that
  is reasonably likely to subject Borrower to a material tax on prohibited
  transactions imposed by Section 502(i) of ERISA or Section 4975 of the IRC. 


	
 

	
 


	
 

	
          (b)
  Except as set forth in Schedule 5.14: (i) Borrower does not maintain or
  sponsor any Title IV Plan; (ii) there are no pending, or to the knowledge of
  Borrower, threatened claims (other than claims for benefits in the normal
  course), sanctions, actions or lawsuits, asserted or instituted against any
  Plan or any Person as fiduciary or sponsor of any Plan; and (iii) neither
  Borrower nor any ERISA Affiliate has incurred or reasonably expects to incur
  any liability as a result of a complete or partial withdrawal from a
  Multiemployer Plan. 





          5.15
Brokers. Except with respect to the engagement of Commonwealth Associates
L.P., no broker or finder acting on behalf of Borrower or its Affiliates
brought about the obtaining, making or closing of the Loan or the Related
Transactions, and neither Borrower nor its Affiliates have any obligation to
any Person in respect of any finder’s or brokerage fees in connection
therewith. 


          5.16
Deposit and Disbursement Accounts. Schedule 5.16 lists all banks and
other financial institutions at which Borrower maintains deposit or other
accounts as of the Closing Date, and such Schedule correctly identifies the
name, address and telephone number of each depository, the name in which the
account is held, a description of the purpose of the account, and the complete
account number therefor. 


          5.17
Agreements and Other Documents. As of the Closing Date, Borrower has
provided to Lender or its counsel accurate and complete copies (or summaries)
of all of the following agreements or documents to which it is subject and each
of which is listed in Schedule 5.17: supply agreements and purchase agreements
not terminable by Borrower within sixty (60) days following written notice
issued by Borrower and involving transactions in excess of $10,000 per annum;
leases of Equipment having a remaining term of one year or longer and requiring
aggregate rental and other payments in excess of $10,000 per annum; licenses
and permits held by Borrower, the absence of which could reasonably be expected
to have a Material Adverse Effect; instruments and documents evidencing any
Indebtedness or Guaranteed Indebtedness of Borrower and any Lien granted by
Borrower with respect thereto; and instruments and agreements evidencing the
issuance of any equity securities, warrants, rights or options to purchase
equity securities of Borrower. 


          5.18
Insurance. Schedule 5.18 lists all insurance policies of any nature
maintained, as of the Closing Date, for current occurrences by Borrower, as
well as a summary of the key business terms of each such policy such as
deductibles, coverage limits and term of policy. 


          5.19
ADA Compliance. Except as set forth on Schedule 5.19, Borrower is in
material compliance with the Americans with Disabilities Act of 1990 (“ADA”).
If at any time any renovations of Borrower’s facilities or modifications of
Borrower’s employment practices shall be required to bring them into material
compliance with the ADA, Borrower shall notify Lender 


-25-






 immediately and Borrower shall submit to
Lender its plan to come into compliance, which plan is subject to review and
approval of Lender. 


          5.20
Patriot Act. Borrower certifies that, to the Borrower’s knowledge,
neither Borrower nor any of its Subsidiaries has been designated, and is not
owned or controlled, by a “suspected terrorist” as defined in Executive Order
13224. Borrower hereby acknowledges that Lender seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, Borrower hereby represents, warrants and agrees
that: (i) none of the cash or property that Borrower or any of its Subsidiaries
will pay or will contribute to Lender has been or shall be derived from, or
related to, any activity by Borrower or any of its Subsidiaries that is
criminal under United States law; and (ii) no contribution or payment by
Borrower or any of its Subsidiaries to Lender, to the extent that they are
within Borrower’s and/or its Subsidiaries’ control shall cause Lender to be in
violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. Borrower shall promptly notify Lender if any of these representations
ceases to be true and accurate regarding either Borrower or any of its
Subsidiaries. Borrower agrees to provide Lender any additional information
regarding either Borrower or any of its Subsidiaries that Lender deems
necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. Borrower understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, Lender may undertake
appropriate actions to ensure compliance with applicable law or regulation.
Borrower further understands that Lender may release confidential information
about either Borrower and its Subsidiaries and, if applicable, any underlying
beneficial owners, to proper authorities if Lender, in its sole discretion,
determines that it is in the best interests of Lender in light of relevant
rules and regulations under the laws set forth in subsection (ii) above. 


SECTION 6 

DEFAULT, RIGHTS AND REMEDIES


          6.1
Event of Default. “Event of Default” shall mean the occurrence or
existence of any one or more of the following: 


	
 

	
 


	
 

	
          (a)
  Payment. Failure to pay any installment or other payment of principal
  of any Loan, any interest on any Loan or any other amount due under this
  Agreement or any of the other Loan Documents when due; provided, however,
  during the term of Loan, Borrower may make one (1) regularly scheduled
  interest payment due hereunder up to three (3) business days past the Payment
  Date; or 


	
 

	
 


	
 

	
          (b)
  Default in Other Agreements. (1) The occurrence and continuance of any
  event of default under the Permitted Mezzanine Debt that results in an
  acceleration, (2) Borrower or any of its Subsidiaries fails to pay when due
  or within any applicable grace period any principal or interest on
  Indebtedness (other than the Loan) or any Contingent Obligations, or (3)
  breach or default of Borrower or any of its Subsidiaries, or the occurrence
  of any condition or event, with respect to any Indebtedness (other than the
  Loan) or any Contingent Obligations, if the effect of such breach, default or
  occurrence is 





-26-






	
 

	
 


	
 

	
to cause or
  to permit the holder or holders then to cause, Indebtedness and/or Contingent
  Obligations having an individual principal amount in excess of $250,000 or
  having an aggregate principal amount in excess of $250,000 to become or be
  declared due prior to their stated maturity; or 


	
 

	
 


	
 

	
          (c)
  Breach of Certain Provisions. Failure of Borrower to perform or comply
  with any term or condition contained in Section 2.4 (Insurance), Section 2.5
  (Inspection), Section 3 (Negative Covenants), Section 4.1 (Financial
  Reports), or Section 4.3 (Financial Covenants/Ratios), Section 4.4 (Capital
  Expenditures), or Section 4.5 (Notice to Lender); or 


	
 

	
 


	
 

	
          (d)
  Breach of Warranty. Any representation, warranty, certification or
  other statement made by Borrower or any Guarantor in any Loan Document or in
  any certificate at any time given by such Person in writing pursuant or in
  connection with any Loan Document is false in any material respect (without
  duplication of materiality qualifiers contained therein) on the date made; or
  


	
 

	
 


	
 

	
          (e)
  Other Defaults Under Loan Documents. Borrower defaults in the
  performance of or compliance with any term contained in this Agreement or the
  other Loan Documents (other than occurrences described in other provisions of
  this Section 6.1 for which a different grace or cure period is specified, or
  for which no cure period is specified and which constitute immediate Events
  of Default) and such default is not remedied or waived within thirty (30)
  days after the earlier of (1) receipt by Borrower of notice from Lender of
  such default or (2) the date which Borrower actually knows of such default;
  or 


	
 

	
 


	
 

	
          (f)
  Involuntary Bankruptcy; Appointment of Receiver, Etc. (1) A court
  enters a decree or order for relief with respect to Borrower or any Guarantor
  in an involuntary case under the Bankruptcy Code, which decree or order is
  not stayed or other similar relief is not granted under any applicable
  federal or state law; or (2) the continuance of any of the following events
  for sixty (60) days unless dismissed, bonded or discharged: (a) an
  involuntary case is commenced against Borrower or any Guarantor, under any
  applicable bankruptcy, insolvency or other similar law now or hereafter in
  effect; or (b) a decree or order of a court for the appointment of a
  receiver, liquidator, sequestrator, trustee, custodian or other officer
  having similar powers over Borrower, or over all or a substantial part of its
  property, is entered; or (c) a receiver, trustee or other custodian is
  appointed without the consent of Borrower, for all or a substantial part of
  the property of Borrower; or 


	
 

	
 


	
 

	
          (g)
  Voluntary Bankruptcy; Appointment of Receiver, Etc. (1) Borrower
  commences a voluntary case under the Bankruptcy Code, or consents to the
  entry of an order for relief in an involuntary case or to the conversion of
  an involuntary case to a voluntary case under any such law or consents to the
  appointment of or taking possession by a receiver, trustee or other custodian
  for all or a substantial part of its property; or (2) Borrower or any
  Guarantor makes any assignment for the benefit of creditors; or (3) the Board
  of Directors of Borrower or any Guarantor adopts any resolution or otherwise
  authorizes action to approve any of the actions referred to in this Section
  6.1(g); or 





-27-






	
 

	
 


	
 

	
          (h)
  Business Failure. Any act by, against, or relating to Borrower, or its
  property or assets, which act constitutes the determination, by Borrower, to
  initiate a program of partial or total self liquidation; application for,
  consent to, or sufferance of the appointment of a receiver, trustee, or other
  person, pursuant to court action or otherwise, over all, or any part of
  Borrower’s property; the granting of any trust mortgage or execution of an
  assignment for the benefit of the creditors of Borrower, or the occurrence of
  any other voluntary or involuntary liquidation for Borrower; the offering by
  or entering into by Borrower of any composition, extension, or any other
  arrangement seeking general relief from or extension of a substantial portion
  of the debts of any Borrower; or the initiation of any judicial or non
  judicial proceeding or agreement by, against, or including Borrower which
  seeks or intends to accomplish a reorganization or arrangement with
  creditors; and/or the initiation by or on behalf of Borrower of the
  liquidation or winding up of all or any part of any Borrower’s business or
  operations; or 


	
 

	
 


	
 

	
          (i)
  Judgment and Attachments. Any money judgment, writ or warrant of
  attachment, or similar process (other than those described elsewhere in this
  Section 6.1) involving (1) an amount in any individual case in excess of
  $250,000 or (2) an amount in the aggregate at any time in excess of $250,000
  (in either case to the extent not adequately covered by insurance in Lender’s
  sole discretion as to which the insurance company has acknowledged coverage)
  is entered or filed against Borrower or any of its assets and remains, in the
  case of either (1) or (2) above, undischarged, unvacated, unbonded, or
  unstayed for a period of thirty (30) days or in any event later than five (5)
  Business Days prior to the date of any proposed sale thereunder; or 


	
 

	
 


	
 

	
          (j)
  Dissolution. Any order, judgment or decree is entered against Borrower
  or any Guarantor decreeing the dissolution or split up of Borrower and such
  order remains undischarged or unstayed for a period in excess of ten (10)
  days; or 


	
 

	
 


	
 

	
          (k)
  Solvency. Borrower or any Guarantor ceases to be Solvent, fails to pay
  its debts as they become due or admits in writing its present or prospective
  inability to pay its debts as they become due; or 


	
 

	
 


	
 

	
          (l)
  Invalidity of Loan Documents. Any of the Loan Documents for any
  reason, other than a partial or full release in accordance with the terms
  thereof, ceases to be in full force and effect or is declared to be null and
  void, or Borrower or any Guarantor denies that it has any further liability
  under any Loan Documents to which it is party, or gives notice to such
  effect; or 


	
 

	
 


	
 

	
          (m)
  Change of Control. A Change of Control (other than the merger
  described in clause (x) of Section 3.6) occurs; or 


	
 

	
 


	
 

	
          (n)
  Loss of Key Management. Mr. Robert Wallace shall cease to be employed or engaged by Borrower and
  Borrower shall have failed to employ or engage a replacement approved by
  Lender within one hundred twenty (120) days; or 


	
 

	
 


	
 

	
          (o)
  Subordinated Indebtedness. The failure of Borrower or any creditor of
  Borrower or any of its Subsidiaries to comply with the terms of any
  subordination or 





-28-






	
 

	
 


	
 

	
intercreditor
  agreement or any subordination provisions of any note or other document
  running to the benefit of Lender, or if any such document becomes null and
  void or any party denies further liability under any such document or
  provides notice to that effect; or 


	
 

	
 


	
 

	
          (p)
  Loss of Material Contract. Any Material Contract shall be terminated
  for any reason; or 


	
 

	
 


	
 

	
          (q)
  Payment to Affiliates. Any payment is made to any Affiliate of
  Borrower, unless such payment has been pre-approved in writing by Lender or
  as otherwise expressly permitted in this Agreement, and except for
  transactions that are in the ordinary course of Borrower’s business, upon
  fair and reasonable terms that are no less favorable to Borrower than would
  be obtained in an arm’s length transaction with a non-affiliated Person; or 


	
 

	
 


	
 

	
          (r)
  Uninsured Casualty Loss. The occurrence of any uninsured loss, theft,
  damage, or destruction of or to any portion of the Collateral, which
  uninsured loss, theft, damage or destruction could reasonably be expected to
  have a Material Adverse Effect; or 


	
 

	
 


	
 

	
          (s)
  Material Adverse Change. The occurrence of any material adverse
  change, as determined by Lender in good faith, in (a) the business, assets,
  operations, prospects or financial or other condition of Borrower taken as a
  whole enterprise, (b) Borrower’s ability to pay the Loan or any of the other
  Obligations in accordance with the terms of the Agreement and the other Loan
  Documents, (c) the value of the Collateral or the priority of the Lender’s
  Liens therein. 


	
 

	
 


	
 

	
          (t)
  Termination of Guaranty. The termination or attempted termination of
  any Guaranty by any Guarantor. 


	
 

	
 


	
 

	
6.2 Acceleration
  and other Remedies. 


	
 

	
 


	
 

	
          (a)
  Upon the occurrence of any Event of Default described in Sections 6.1(f) or
  6.1(g), all of the Obligations shall automatically become immediately due and
  payable, without presentment, demand, protest, notice of intent to
  accelerate, notice of acceleration or other requirements of any kind, all of
  which are hereby expressly waived by Borrower. 


	
 

	
 


	
 

	
          (b)
  Upon the occurrence and during the continuance of any Event of Default other
  than described in Sections 6.1(f) or 6.1(g), Lender may, at its option,
  declare all or any portion of the Loans and all or any portion of the other
  Obligations to be, and the same shall forthwith become, immediately due and
  payable, without presentment, demand, protest, notice of intent to
  accelerate, notice of acceleration or other requirements of any kind, all of
  which are hereby expressly waived by Borrower. 


	
 

	
 


	
 

	
          (c)
  Upon the occurrence of any Event of Default, Lender may exercise any other
  remedies which may be available under the Loan Documents or applicable law,
  including all remedies provided under the Code. 





-29-







	
 

	
 


	
 

	
          (d)
 Except as otherwise provided for in this Agreement or by applicable law,
 Borrower waives: (i) presentment, demand and protest and notice of
 presentment, dishonor, notice of intent to accelerate, notice of
 acceleration, protest, default, nonpayment, release, compromise, settlement,
 extension or renewal of any or all commercial paper, accounts, contract
 rights, documents, instruments, chattel paper and guaranties at any time held
 by Lender on which Borrower may in any way be liable, and hereby ratifies and
 confirms whatever Lender may do in this regard, (ii) all rights to notice and
 a hearing prior to Lender’s taking possession or control of, or to Lender’s
 replevy, attachment or levy upon, the Collateral or any bond or security that
 might be required by any court prior to allowing Lender to exercise any of
 its remedies, and (iii) the benefit of all valuation, appraisal, marshaling
 and exemption laws. 





          6.3
Performance by Lender. If Borrower shall fail to perform any covenant,
duty or agreement contained in any of the Loan Documents, Lender may perform or
attempt to perform such covenant, duty or agreement on behalf of Borrower after
the expiration of any cure or grace periods set forth herein. In such event,
Borrower shall, at the request of Lender, promptly pay any amount reasonably
expended by Lender in such performance or attempted performance to Lender,
together with interest thereon at the Payment Default Rate for Payment Defaults
or Other Default Rate for any other Event of Default, from the date of such
expenditure until paid. Notwithstanding the foregoing, it is expressly agreed
that Lender shall not have any liability or responsibility for the performance
of any obligation of Borrower under this Agreement or any other Loan Document. 


          6.4
Application of Proceeds. Notwithstanding anything to the contrary
contained in this Agreement, upon the occurrence and during the continuance of
a Default or Event of Default, (a) Borrower irrevocably waives the right to
direct the application of any and all payments at any time or times thereafter
received by Lender from or on behalf of Borrower, and Lender shall have the
continuing and exclusive right to apply and to reapply any and all payments
received at any time or times after the occurrence and during the continuance
of an Default or Event of Default against the Obligations in such manner as
Lender may deem advisable, consistent with the terms hereof, notwithstanding
any previous application by Lender and (b) in the absence of a specific
determination by Lender with respect thereto, the proceeds of any sale of, or
other realization upon, all or any part of the Collateral shall be applied:
first to the payment of Fees and expenses pursuant to Section 1.3(d) then due
and payable, second, to accrued interest on the Loan (including any interest
which but for the provisions of the Bankruptcy Code, would have accrued on such
amounts), third, to reduce the outstanding principal balance of the Loan; and
fourth to any other obligations of Borrower owing to Lender under the Loan
Documents. Any balance remaining shall be delivered to Borrower or to whomever
may be lawfully entitled to receive such balance or as a court of competent
jurisdiction may direct. 


SECTION 7 

CONDITIONS TO THE LOAN


          7.1
Conditions to the Loan. Lender shall not be obligated to make the Loan
on the Closing Date, or to take, fulfill, or perform any other action
hereunder, until the following 


-30-






conditions
have been satisfied or provided for in a manner reasonably satisfactory to
Lender, or waived in writing by Lender: 


	
 

	
 


	
 

	
          (a)
 Credit Agreement; Loan Documents. This Agreement or counterparts
 hereof shall have been duly executed by, and delivered to, Borrower and
 Lender; and Lender shall have received such documents, instruments,
 certificates, agreements and legal opinions as Lender shall reasonably
 request in connection with the transactions contemplated by this Agreement
 and the other Loan Documents, including each of the documents, instruments,
 certificates, agreements and legal opinions set forth on the closing agenda
 annexed hereto as Exhibit 7.1, all in form and substance reasonably
 satisfactory to Lender in all respects. 


	
 

	
 


	
 

	
          (b)
 Approvals. Lender shall have received (i) satisfactory evidence that
 Borrower has obtained all required consents and approvals of all Persons
 including all requisite Governmental Authorities, to the execution, delivery
 and performance of this Agreement and the other Loan Documents and the
 consummation of the Related Transactions and the operation of Borrower’s
 business, or (ii) an officer’s certificate in form and substance reasonably
 satisfactory to Lender affirming that no such consents or approvals are
 required. 


	
 

	
 


	
 

	
          (c)
 Payment of Fees. Borrower shall have paid the Fees required to be paid
 on the Closing Date in the respective amounts specified in Section 1.3, and
 shall have reimbursed Lender, and their respective counsel, for all fees,
 costs and expenses of closing presented as of the Closing Date in accordance
 with and to the extent required under Section 1.3(d). 


	
 

	
 


	
 

	
          (d)
 Capital Structure; Other Indebtedness; Material Contracts; Tax Effect.
 The capital structure and governing documents of Borrower and the terms and
 conditions of all Indebtedness and all other material contracts of Borrower
 and all documentation relating to the structure of the Borrower and the tax
 effects after giving effect to this Agreement shall be acceptable to Lender
 in its reasonable discretion. 


	
 

	
 


	
 

	
          (e)
 Due Diligence. Lender shall have completed its legal due diligence,
 including, without limitation, legal, contractual, insurance and other
 reviews, and the results thereof shall have been satisfactory in form and
 substance to Lender in its sole discretion. 


	
 

	
 


	
 

	
          (f)
 Distribution of Proceeds Statement. Lender shall have received a
 statement of the planned distribution of proceeds from the Loan. 


	
 

	
 


	
 

	
          (g)
Pro Forma Balance Sheet. Lender shall have received a Pro Forma opening
balance sheet for Borrower, which shall indicate an opening cash balance of
not less than $1,000,000 and otherwise are satisfactory in form and substance
to Lender in its sole discretion.  


	
 

	
 


	
 

	
          (h)
 Representations and Warranties. All representations and warranties
 contained herein shall be true and correct, in all material respects. 





-31-






	
 

	
 


	
 

	
          (i)
 No Default. No Default or Event of Default shall exist hereunder. 


	
 

	
 


	
 

	
          (j)
 No Adverse Change. No event shall have occurred or failed to occur,
 which occurrence or failure is or could reasonably be expected to have a
 materially adverse effect upon the Borrower’s financial condition when
 compared with such financial condition at the date of the most recently
 delivered financial statements. In addition, no event shall have occurred or
 failed to occur since February 9, 2007 which materially adversely affects any
 market, economic or political conditions, as determined by Lender in its sole
 discretion. 


	
 

	
 


	
          7.2
 Condition to Loan. The obligation of Lender to make a Loan on the
 occasion of a borrowing by Borrower shall be subject to the further
 conditions precedent that 


	
 


	
 

	
          (a)
 The conditions in Section 7.1 have been satisfied. 


	
 

	
 


	
 

	
          (b)
 The representations and warranties contained herein are true and correct, in
 all material respects as of the date of such borrowing. 


	
 

	
 


	
 

	
          (c)
 No Event of Default or Default shall exist hereunder. 





SECTION 8

MISCELLANEOUS


          8.1
Indemnities. Borrower agrees to indemnify, defend, pay, and hold Lender,
and its officers, directors, employees, agents, and attorneys (the
“Indemnitees”) harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs and expenses
(including all reasonable fees and expenses of counsel to such Indemnitees) of
any kind or nature whatsoever that may be imposed on, incurred by, or asserted
against the Indemnitee as a result of such Indemnitees being a party to this
Agreement or the transactions consummated pursuant to this Agreement or
otherwise relating to any of the Related Transactions including all costs,
expenses, liabilities, and damages as may be suffered by any Indemnitee in
connection with (i) the Collateral; (ii) the occurrence of any Default or Event
of Default; or (iii) the exercise of any rights or remedies under any of the
Loan Documents (each of claims which may be defended, compromised, settled, or
pursued by the Indemnitee with counsel of its selection, but at the expense of
Borrower) other than any claim as to which a final determination is made in a
judicial proceeding (in which the Indemnitee has had an opportunity to be
heard), which determination includes a specific finding that the liability,
obligation, loss, damage, penalty, action, judgment, suit, claim, cost and
expense was caused by the Indemnitee seeking indemnification and such
Indemnitee had acted in a grossly negligent manner, with willful misconduct or
in actual bad faith. This indemnification shall survive payment of the Loan
and/or any termination, release, or discharge executed by the Lender in favor
of the Borrower. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, Borrower agrees to make the maximum contribution to
the payment and satisfaction thereof which is permissible under applicable law.



          8.2
Amendments and Waivers. Except for actions expressly permitted to be
taken by Lender as specifically set forth herein, no amendment, modification,
termination or waiver of any provision of this Agreement or any other Loan
Document, or any consent to any departure 


-32-






by Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Borrower and Lender. 


          8.3
Notices. Any notice or other communication required shall be in writing
addressed to the respective party as set forth below and may be personally
served, telecopied (with hard copy to follow by U.S. mail), sent by overnight
courier service or U.S. mail and shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by fax, on the date of
transmission if properly transmitted on a Business Day before 4:00 p.m. New
York Time; (c) if delivered by overnight courier, one (1) Business Day after
delivery to the courier properly addressed; or (d) if delivered by U.S. mail,
four (4) Business Days after deposit with postage prepaid and properly
addressed. 


	
 

	
 

	
 

	
 


	
 

	
Notices
 shall be addressed as follows:


	
 

	
 

	
 

	
 


	
 

	
If to any
 Borrower:

	
 

	
XLNT Veterinary
 Care, Inc.


	
 

	
 

	
 

	
560 South
 Winchester Boulevard, Suite 500


	
 

	
 

	
 

	
San Jose, CA
 95128


	
 

	
 

	
 

	
Attn: Robert
 Wallace, Chairman & CEO


	
 

	
 

	
 

	
Fax: (408)
 236-7421


	
 

	
 

	
 

	
 


	
 

	
With a copy
 to:

	
 

	
Powell
 Goldstein LLP


	
 

	
 

	
 

	
1201 West
 Peachtree Street, NW, 14th Floor


	
 

	
 

	
 

	
Atlanta, GA
 30309-3488


	
 

	
 

	
 

	
Attn: Rick
 Miller


	
 

	
 

	
 

	
Fax: (404)
 572-6999


	
 

	
 

	
 

	
 


	
 

	
If to
 Lender:

	
 

	
c/o Fifth
 Street Capital, LLC


	
 

	
 

	
 

	
White Plains
 Plaza


	
 

	
 

	
 

	
445 Hamilton
 Avenue, Suite 1103


	
 

	
 

	
 

	
White
 Plains, NY 10601


	
 

	
 

	
 

	
Attn:
 General Counsel


	
 

	
 

	
 

	
Fax: (914)
 328-4214


	
 

	
 

	
 

	
 


	
 

	
With a copy
 to:

	
 

	
Rutan &
 Tucker, LLP


	
 

	
 

	
 

	
611 Anton
 Boulevard, Suite 1400


	
 

	
 

	
 

	
Costa Mesa,
 CA 92626-1931


	
 

	
 

	
 

	
Attn:
 William F. Meehan, Esq.


	
 

	
 

	
 

	
Fax: (714)
 546-9035





          8.4
Obligations Absolute; Failure or Indulgence Not Waiver; Remedies Cumulative.
The payment and performance by Borrower of all of the Obligations shall be
absolute and unconditional, irrespective of any defense or rights of set-off,
recoupment or counterclaim Borrower might otherwise have against the Lender,
and Borrower shall pay and perform all of the Obligations, free of any
deductions and without abatement, diminution, recoupment, counterclaim or
set-off. Until payment in full of all of the Obligations, Borrower shall (a)
not suspend or discontinue any payments required pursuant to the Note, this
Agreement or any other Loan Document; and (b) perform and observe all of the
other terms and provisions of this 


-33-






Agreement or
any other Loan Documents. No failure or delay on the part of Lender to
exercise, nor any partial exercise of, any power, right or privilege hereunder
or under any other Loan Documents shall impair such power, right, or privilege
or be construed to be a waiver of any Default or Event of Default. All rights
and remedies existing hereunder or under any other Loan Document are cumulative
to and not exclusive of any rights or remedies otherwise available. 


          8.5
Marshaling; Payments Set Aside. Lender shall not be under any obligation
to marshal any assets in payment of any or all of the Obligations. To the extent
that Borrower makes payment(s) or Lender enforces its Liens or Lender exercises
its right of set-off, and such payment(s) or the proceeds of such enforcement
or set-off is subsequently invalidated, declared to be fraudulent or
preferential, set aside, or required to be repaid by anyone, then to the extent
of such recovery, the Obligations or part thereof originally intended to be
satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or set off had not occurred. 


          8.6
Protection of Assets. The Lender, in the Lender’s discretion, and from
time to time, may discharge any tax or Lien (other than Permitted Encumbrances)
on any of the Collateral or, upon and during the continuance of a Default or
Event of Default, take any other action which the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any
of the Collateral. The Lender shall not have any obligation to undertake any of
the foregoing and shall have no liability on account of any action so
undertaken except where there is a specific finding in a judicial proceeding
(in which the Lender has had an opportunity to be heard), from which finding no
further appeal is available, that the Lender had acted in actual bad faith or
in a grossly negligent manner. The Borrower shall pay to the Lender, on demand,
all amounts paid or incurred by the Lender pursuant to this Section. 


          8.7
Severability. The invalidity, illegality, or unenforceability in any
jurisdiction of any provision under the Loan Documents shall not affect or
impair the remaining provisions in the Loan Documents. 


          8.8
Headings. Section and subsection headings are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purposes or be given substantive effect. 


          8.9
Applicable Law. THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS
WHICH DOES NOT EXPRESSLY SET FORTH APPLICABLE LAW SHALL BE GOVERNED BY AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. 


          8.10
Successors and Assigns. This Agreement and the other Loan Documents
shall be binding on and shall inure to the benefit of Borrower, Lender and
their respective successors and permitted assigns (including, in the case of
Borrower, a debtor-in-possession on behalf of such Borrower), except as otherwise
provided herein or therein. Borrower may not assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the other Loan Documents without the prior express written consent of
Lender. Any such purported assignment, transfer, hypothecation or other
conveyance by Borrower without the 


-34-






prior express
written consent of Lender shall be void. The terms and provisions of this
Agreement are for the purpose of defining the relative rights and obligations
of Borrower, or Lender with respect to the transactions contemplated hereby and
no Person shall be a third party beneficiary of any of the terms and provisions
of this Agreement or any of the other Loan Documents. 


          8.11
No Fiduciary Relationship; Limited Liability. No provision in the Loan
Documents and no course of dealing between the parties shall be deemed to
create any fiduciary duty owing to Borrower by Lender. Borrower agrees that
Lender shall have no liability to Borrower (whether sounding in tort, contract
or otherwise) for losses suffered by Borrower in connection with, arising out
of, or in any way related to the transactions contemplated and the relationship
established by the Loan Documents, or any act, omission or event occurring in
connection therewith, unless and to the extent that it is determined that such
losses resulted from the gross negligence or willful misconduct of the party
from which recovery is sought as determined by a final non-appealable order by
a court of competent jurisdiction. Lender shall not have any liability with
respect to, and Borrower hereby waives, releases and agrees not to sue for, any
special, indirect or consequential damages suffered by Borrower in connection
with, arising out of, or in any way related to the Loan Documents or the
transactions contemplated thereby. 


          8.12
Construction. Lender and Borrower acknowledge that each of them has had
the benefit of legal counsel of its own choice and has been afforded an
opportunity to review the Loan Documents with its legal counsel and that the
Loan Documents shall be construed as if jointly drafted by Lender and Borrower.



          8.13
Confidentiality. Lender agrees keep confidential any non-public
information delivered pursuant to the Loan Documents and identified as such by
Borrower and not to disclose such information to Persons other than to
potential assignees or participants or to Persons employed by or engaged by
Lender, Lender’s limited partners, or Lender’s assignees or participants
including attorneys, auditors, professional consultants, rating agencies,
insurance industry associations and portfolio management services. The
confidentiality provisions contained in this Section shall not apply to
disclosures (i) required to be made by Lender to any regulatory or governmental
agency or pursuant to legal process, (ii) consisting of general portfolio
information that does not identify Borrower or (iii) to the extent reasonably
required in connection with a Securitization Transaction, provided, however,
that information reasonably required in connection with a Securitization
Transaction shall not be made publicly-available except to the extent (x)
Lender provides Borrower with reasonable prior notice and (y) Borrower
specifically provides such information for use in a Securitization Transaction
at the request of Lender, which information, upon the making of a reasonable
request therefor, shall be promptly provided and not unreasonably withheld. If
Borrower fails to respond to a request from Lender under subsection (iii)(y)
above within ten (10) days after receipt of such request, then Lender shall be
entitled to use the applicable information to the extent reasonably required in
connection with the Securitization Transaction that gave rise to Lender’s
request. The obligations of Lender under this Section shall supersede and
replace the obligations of Lender under any confidentiality agreement in
respect of this financing executed and delivered by Lender prior to the date
hereof. Notwithstanding the foregoing, Lender may use the name of the Borrower
and 


-35-






its logo and
other Trademarks in connection with Lender’s marketing materials and may
identify Borrower as a portfolio company of Lender. 


          8.14
CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK AND IRREVOCABLY
AGREE THAT, SUBJECT TO LENDER’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE
LITIGATED IN SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER, AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN
(10) DAYS AFTER THE SAME HAS BEEN POSTED. IN ANY LITIGATION, TRIAL, ARBITRATION
OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF BORROWER
SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF BORROWER FOR PURPOSES OF
ALL APPLICABLE LAW OR COURT RULES REGARDING THE PRODUCTION OF WITNESSES BY
NOTICE FOR TESTIMONY (WHETHER IN A DEPOSITION, AT TRIAL OR OTHERWISE). BORROWER
AGREES THAT LENDER’S COUNSEL IN ANY SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE
ANY OF THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY
DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING AS IF IT WERE AN
EVIDENCE DEPOSITION. 


          8.15
WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS. BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND
THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
BORROWER AND LENDER WARRANT AND REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF
REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS. 


          8.16
Survival of Warranties and Certain Agreements. All agreements, representations
and warranties made herein shall survive the execution and delivery of this
Agreement, the making of the Loan and the execution and delivery of the Note.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower set forth in Sections 1.3, 1.7 and 8.1 shall survive
the repayment of the Obligations and the termination of this Agreement. 


-36-






          8.17
Entire Agreement. This Agreement, the Note and the other Loan Documents
embody the entire agreement among the parties hereto and supersede all prior
commitments, agreements, representations, and understandings, whether oral or
written, relating to the subject matter hereof, and may not be contradicted or
varied by evidence of prior, contemporaneous, or subsequent oral agreements or
discussions of the parties hereto. All Exhibits, Schedules and Annexes referred
to herein are incorporated in this Agreement by reference and constitute a part
of this Agreement. 


          8.18
Counterparts; Effectiveness. This Agreement and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one in the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto. 


          8.19
Delivery of Termination Statement. Upon payment in full in cash and
performance of all of the Obligations (other than indemnification Obligations),
and a release of all claims against Lender, and so long as no suits, actions
proceedings, or claims are pending or threatened against any Indemnitee asserting
any damages, losses or liabilities that are indemnified liabilities hereunder,
Lender shall deliver to Borrower termination statements and other documents
necessary or appropriate to evidence the termination of the Liens securing
payment of the Obligations, all at the expense of Borrower. 


          8.20
Participation. Borrower acknowledges that Lender may, at its option,
sell participation interests in, or assign all of its interest in, the Loan,
provided that if no Event of Default then exists, Borrower shall have the right
to consent to such sale or participation. Borrower agrees with each present and
future participant or owner of the Loan that if an Event of Default should
occur, each present and future participant or owner shall have all of the rights
and remedies of Lender with respect to any deposit due from any participant to
the Borrower. The execution by a participant of a participation agreement with
Lender, and the execution by the Borrower of this Agreement, regardless of the
order of execution, shall evidence an agreement between Borrower and said
participant in accordance with the terms of this Section. 


          8.21
Protection of Collateral. Lender has no duty as to the collection or
protection of the Collateral beyond the safe custody of such of the Collateral
as may come into the possession of the Lender or otherwise required by
applicable law. 


          8.22
Additional Waivers. 


	
 

	
 


	
 

	
          (a)
 Borrower (and all guarantors, endorsers, and sureties of the Obligations)
 make each of the waivers included in Section (b), below, knowingly,
 voluntarily, and intentionally, and understands that Lender, in establishing
 the loans and other financial accommodations to or for the account of
 Borrower as provided herein, whether not or in the future, is relying on such
 waivers. 


	
 

	
 


	
 

	
          (b)
 EACH BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY RESPECTIVELY
 WAIVES THE FOLLOWING: 





-37-






	
 

	
 


	
 

	
                    (i)
 Except as otherwise specifically required hereby, notice of non payment, demand,
 presentment, protest and all forms of demand and notice, both with respect to
 the Obligations and the Collateral. 


	
 

	
 


	
 

	
                    (ii)
 Except as otherwise specifically required hereby or applicable law, the right
 to notice and/or hearing prior to the Lender’s exercising of the Lender’s
 rights upon default. 


	
 

	
 


	
 

	
                    (iii)
 Any defense, counterclaim, set off, recoupment, or other basis on which the
 amount of any Obligations, as stated on the books and records of the Lender,
 could be reduced or claimed to be paid otherwise than in accordance with the
 tenor of and written terms of such Obligation. 


	
 

	
 


	
 

	
                    (iv)
 Any claim to consequential, special, or punitive damages.





          8.23
Severance of Loan. Lender shall have the right, at any time and at
Lender’s expense, to (a) cause each Note and the Security Agreement to be
severed and/or split into two or more separate notes and security agreements so
as to evidence one or more loans, (b) create one or more notes secured by the
Security Agreement, (c) create multiple components of the Note (and allocate or
re-allocate the outstanding principal amount of the Loan among such components)
or (d) otherwise sever the Loan into two or more loans secured by the Security
Agreement (a “Bifurcation”); provided, however, that in each such case (i) the
outstanding principal amount of all the notes evidencing the Loan (or
components of such notes) immediately following such Bifurcation shall be equal
to the outstanding principal amount of the Loan immediately prior to such
Bifurcation, (ii) the weighted average of the interest rate with respect to the
aggregate outstanding principal balance of all loans immediately after such
Bifurcation shall not exceed the weighted average of the interest rate with
respect the aggregate outstanding principal balance of the Loan set forth in
the Note delivered hereunder (as such interest rates are subject to adjustment
from time to time in accordance with this Agreement) and (iii) the principal payments
payable following such Bifurcation shall not exceed those that are payable
under the terms set forth in this Agreement prior to such Bifurcation. If
requested by the Lender, the Borrower shall executed within ten (10) days after
such request, a severance agreement or amendments to this Agreement and the
other Loan Documents as reasonably requested by Lender to evidence and/or to
effectuate such Bifurcation. 

[The remainder of this page is intentionally
left blank

-38-





          Witness
the due execution hereof by the respective duly authorized officers of the
undersigned as of the date first written above.


	
   

  	
   

  	
   

  
	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  
	
   

  	
XLNT
VETERINARY CARE, INC., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  	
   

  
	
   

  	
ADLER
VETERINARY GROUP, INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
ANIMAL
CLINIC OF YUCCA VALLEY, INC.,
a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
ANIMAL
EMERGENCY CLINIC OF THE DESERT, INC., a California
corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  








	
   

  	
   

  	
   

  
	
   

  	
ANIMAL
MEDICAL HOSPITAL, INC., 

a California corporation 

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
BONITA
PET HOSPITAL, INC., 

a California corporation

 
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
BRENTWOOD
PET CLINIC, INC., 

a California corporation

 
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
ELDORADO
ANIMAL HOSPITAL, INC., 

a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
JERAULD
L. WOODRING, INC.,

a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  








	
   

  	
   

  	
   

  
	
   

  	
LAWRENCE
PET HOSPITAL, INC., 

a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
MCCONNELL
& FENTON CORPORATION, 

a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
RAINBOW
HAWK, INC., 

a California corporation

 
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
SOUTH
BAY VETERINARY SPECIALISTS, INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
SAN
CARLOS VETERINARY HOSPITAL, INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  








	
   

  	
   

  	
   

  
	
   

  	
SOUTH
COUNTY EMERGENCY ANIMAL CLINIC, INC., a California
corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
STANFORD
PET CLINIC, INC., 

a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
TARVIN
& LENEHAN, INC., 

a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
VETS
& PETS, INCORPORATED, 

a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  
	
   

  	
YUBA-SUTTER
VETERINARY HOSPITAL, INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  








	
   

  	
   

  	
   

  
	
   

  	
CALIFORNIA
ANIMAL HOSPITAL VETERINARY SPECIALTY GROUP, INC., a
California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
VETSURG,
INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
 

  
	
   

  	
  Name:

  
	
   

  	
 

  
	
   

  	
  Title:

  
	
   

  	
 

  
	
   

  	
   

  
	
   

  	
LENDER:

  
	
   

  	
   

  
	
   

  	
FIFTH STREET MEZZANINE PARTNERS II, L.P., 

a Delaware limited partnership

  




	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  Fifth Street Mezzanine Partners II GP, LLC,

a Delaware limited liability company, 

its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  
	
   

  	
 

  
	
   

  	
   

  	
  Name: Bernard D. Berman

  
	
   

  	
  

  	
  Title:   Executive Vice President and Secretary

  










ANNEX A


to


CREDIT AGREEMENT


DEFINITIONS 


          Capitalized
terms used in the Loan Documents shall have (unless otherwise provided
elsewhere in the Loan Documents) the following respective meanings and all
references to Sections, Exhibits, Schedules or Annexes in the following
definitions shall refer to Sections, Exhibits, Schedules or Annexes of or to
the Agreement: 


          “Account
Debtor” means any Person who may become obligated to Borrower under, with
respect to, or on account of, an Account, Chattel Paper or General Intangibles
(including a payment intangible). 


          “Accounting
Changes” means: (a) changes in accounting principles required by GAAP and
implemented by Borrower; (b) changes in accounting principles recommended by
Borrower’s certified public accountants and implemented by Borrower; and (c)
changes in carrying value of Borrower’s or any of its Subsidiaries’ assets,
liabilities or equity accounts resulting from (i) the application of purchase
accounting principles (A.P.B. 16 and/or 17 and EITF 88 16 and FASB 109) to the
Related Transactions or (ii) as the result of any other adjustments that, in
each case, were applicable to, but not included in, the Pro Forma. 


          “Accounts”
means all “accounts,” as such term is defined in the Code, now owned or
hereafter acquired by Borrower, 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 Borrower’s rights in, to and under all purchase orders or
receipts for goods or services, (c) all of Borrower’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
Borrower 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 Borrower or in connection with any other transaction (whether or
not yet earned by performance on the part of Borrower), 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. 


          “Accrued
Interest” has the meaning specified in Section 1.2(a). 


          “ADA”
means is defined in Section 5.19. 


-1-






          “Affiliate”
means, with respect to any Person, (a) each Person that, directly or
indirectly, owns or controls, whether beneficially, or as a trustee, guardian
or other fiduciary, 5% or more of the Stock having ordinary voting power in the
election of directors of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person, (c) each of such
Person’s officers, directors, joint venturers and partners and (d) in the case
of Borrower, the immediate family members, spouses and lineal descendants of
individuals who are Affiliates of Borrower. For the purposes of this
definition, “control” of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise; provided, however, that the term “Affiliate” shall specifically
exclude Lender. 


          “Agreement”
means this Credit Agreement (including all schedules, subschedules, annexes and
exhibits hereto), as the same may be amended, supplemented, restated or
otherwise modified from time to time. 


          “Applicable
Percentage” has the meaning ascribed to it in Section 1.3(c). 


          “Bankruptcy
Code” means the provisions of Title 11 of the United States Code, 11 U.S.C. §§
101 et seq. or any other applicable bankruptcy, insolvency or similar laws. 


          “Borrower”
has the meaning ascribed to it in the Preamble. 


          “Business
Day” means any day that is not a Saturday, a Sunday or a day on which banks are
required or permitted to be closed in the State of New York. 


          “Capital
Expenditures” means all expenditures for any fixed assets or improvements or
for replacements, substitutions or additions thereto, that have a useful life
of more than one (1) year and which are required to be capitalized under GAAP,
including the total principal portion of Capital Lease Obligations. 


          “Capital
Lease” means, with respect to any Person, any lease of any property (whether
real, personal or mixed) by such Person as lessee that, in accordance with
GAAP, would be required to be classified and accounted for as a capital lease
on a balance sheet of such Person. 


          “Capital
Lease Obligation” means, with respect to any Capital Lease of any Person, the
amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of such Capital
Lease. 


          “Change
of Control” means any event, transaction or occurrence resulting in (a) the
Sponsor, either directly or indirectly, ceasing to own and control all of the
voting rights associated with greater than fifty percent (50%) of all classes
of the outstanding voting stock of Borrower; (b) the effectiveness of a public
offering of Stock or debt securities of Borrower, (c) those Persons that
currently have the power to direct or cause the direction of management and
policies of the business and affairs of the Borrower no longer have such power,
or (d) the sale, transfer or other disposition of all or substantially all of
the assets of Borrower. 


          “Charges”
means all federal, state, county, city, municipal, local, foreign or other
governmental taxes (including premiums and other amounts owed to the PBGC at
the time due 


-2-






and payable),
levies, assessments, charges, liens, claims or encumbrances upon or relating to
(a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or
gross receipts of Borrower, (d) Borrower’s ownership or use of any properties
or other assets, or (e) any other aspect of Borrower’s business. 


          “Chattel
Paper” means any “chattel paper,” as such term is defined in the Code,
including electronic chattel paper, now owned or hereafter acquired by
Borrower, wherever located. 


          “Closing
Date” means March 29, 2007. 


          “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 Loan 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, Lender’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”
means the property covered by the Security Agreement and the other Collateral
Documents and any other property, real or personal, tangible or intangible, now
existing or hereafter acquired, that may at any time be or become subject to a
security interest or Lien in favor of Lender to secure the Obligations or any
portion thereof. 


          “Collateral
Documents” means the Security Agreement, any Guaranties (together with any
collateral therefor) and all similar agreements entered into guaranteeing
payment of, or granting a Lien upon property as security for payment of, the
Obligations or any portion thereof. 


          “Compliance
Certificate” has the meaning ascribed to it in Section 4.1(l). 


          “Concentration
Account” means Account No. 2501021 maintained with Heritage Bank of Commerce. 


          “Contingent
Obligation” means, as applied to any Person, any direct or indirect liability
of that Person: (i) with respect to Guaranteed Indebtedness and with respect to
any Indebtedness, lease, dividend or other obligation of another Person if the
purpose or intent of the Person incurring such liability, or the effect
thereof, is to provide assurance to the obligee of such liability that such
liability will be paid or discharged, or that any agreements relating thereto
will be complied with, or that the holders of such liability will be protected
(in whole or in part) against loss with respect thereto; (ii) with respect to
any letter of credit issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of drawings; (iii) under any
foreign exchange contract, currency swap agreement, interest rate swap
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or interest rates,
(iv) under any agreement, contract or transaction involving commodity options
or future contracts, (v) to make take-or-pay or similar payments if 


-3-






required
regardless of nonperformance by any other party or parties to an agreement,
(vi) pursuant to any agreement to purchase, repurchase or otherwise acquire any
obligation or any property constituting security therefor, to provide funds for
the payment or discharge of such obligation or to maintain the solvency,
financial condition or any balance sheet item or level of income of another or
(vii) earnouts and similar payment obligations while they are contingent. The
amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if not a fixed and
determined amount, the maximum amount so guaranteed. 


          “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
Related Transactions Documents. 


          “Copyright
License” means any and all rights nor owned or hereafter acquired by Borrower
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
Borrower: (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 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. 


          “Default”
means any event that, with the passage of time or notice or both, would, unless
cured or waived, become an Event of Default. 


          “Disclosure
Schedules” means the Schedules prepared by Borrower and denominated as
Schedules in the Index of Appendices to the Agreement. 


          “Dollars”
or “$” means lawful currency of the United States of America. 


          “EBITDA”
means consolidated net income for an accounting period before provision for
payment of Interest Expense and Federal, state, local and foreign income taxes,
plus depreciation and amortization to the extent deducted from such net income
during such accounting period, plus to the extent deducted in the computation
of such net income, one-time non-recurring costs and expenses related to the
SPAC Merger and any New Acquisitions paid on or before March 31, 2008, not to
exceed $5,000,000.00 in the aggregate. 


          “Environmental
Laws” means all applicable federal, state, local and foreign laws, statutes,
ordinances, codes, rules, standards and regulations, now or hereafter in
effect, and any applicable judicial or administrative interpretation thereof,
including any applicable judicial or administrative order, consent decree,
order or judgment, imposing liability or standards of conduct for or relating
to the regulation and protection of human health, safety, the environment and
natural resources (including ambient air, surface water, groundwater, wetlands,
land surface or subsurface strata, wildlife, aquatic species and vegetation).
Environmental Laws include the 


-4-






Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§
9601 et seq.) (“CERCLA”); the Hazardous Materials Transportation Authorization
Act of 1994 (49 U.S.C. §§ 5101 et seq.); the Federal Insecticide, Fungicide,
and Rodenticide Act (7 U.S.C. §§ 136 et seq.); the Solid Waste Disposal Act (42
U.S.C. §§ 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. §§ 2601 et
seq.); the Clean Air Act (42 U.S.C. §§ 7401 et seq.); the Federal Water
Pollution Control Act (33 U.S.C. §§ 1251 et seq.); the Occupational Safety and
Health Act (29 U.S.C. §§ 651 et seq.); and the Safe Drinking Water Act (42
U.S.C. §§ 300(f) et seq.), and any and all regulations promulgated thereunder,
and all analogous state, local and foreign counterparts or equivalents and any
transfer of ownership notification or approval statutes. 


          “Environmental
Liabilities” means, with respect to any Person, all liabilities, obligations,
responsibilities, response, remedial and removal costs, investigation and
feasibility study costs, capital costs, operation and maintenance costs,
losses, damages, punitive damages, property damages, natural resource damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of
or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute or common law, including any
arising under or related to any Environmental Laws, Environmental Permits, or
in connection with any Release or threatened Release or presence of a Hazardous
Material whether on, at, in, under, from or about or in the vicinity of any
real or personal property. 


          “Environmental
Permits” means all permits, licenses, authorizations, certificates, approvals
or registrations required by any Governmental Authority under any Environmental
Laws. 


          “Equipment”
means all “equipment,” as such term is defined in the Code, now owned or
hereafter acquired by Borrower, wherever located and, in any event, including
all Borrower’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. 


          “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time, and any regulations promulgated thereunder. 


          “ERISA
Affiliate” means, with respect to Borrower, any trade or business (whether or
not incorporated) that, together with Borrower, are treated as a single
employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC. 


-5-






          “ERISA
Event” means, with respect to Borrower or any ERISA Affiliate, (a) any event
described in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the
withdrawal of Borrower or ERISA Affiliate from a Title IV Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or
partial withdrawal of Borrower or any ERISA Affiliate from any Multiemployer
Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the
treatment of a plan amendment as a termination under Section 4041 of ERISA; (e)
the institution of proceedings to terminate a Title IV Plan or Multiemployer
Plan by the PBGC; (f) the failure by Borrower or ERISA Affiliate to make when
due required contributions to a Multiemployer Plan or Title IV Plan unless such
failure is cured within 30 days; (g) any other event or condition that might
reasonably be expected to constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Title IV
Plan or Multiemployer Plan or for the imposition of liability under Section
4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under
Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer
Plan under Section 4241 or 4245 of ERISA; or (i) the loss of a Qualified Plan’s
qualification or tax exempt status; or (j) the termination of a Plan described
in Section 4064 of ERISA. 


          “ESOP”
means a Plan that is intended to satisfy the requirements of Section 4975(e)(7)
of the IRC. 


          “Event
of Default” has the meaning ascribed to it in Section 6.1. 


          “Fair
Labor Standards Act” means the Fair Labor Standards Act, 29 U.S.C. §201 et seq.



          “Fees”
means any and all fees payable to Lender pursuant to the Agreement or any of
the other Loan Documents. 


          “Financial
Statements” means the consolidated and consolidating income statements, statements
of cash flows and balance sheets of Borrower and its Subsidiaries delivered in
accordance with Section 4.1. 


          “Fiscal
Quarter” means any of the three (3) month periods ending on March 31, June 30,
September 30 and December 31 of each year. 


          “Fiscal
Year” means any of the annual period ending on December 31 of each year. 


          “Fixed
Charge Coverage Ratio” with respect to any period, the ratio of (i) EBITDA minus the non-financed portion of Capital Expenditures, plus all management,
sponsor, consulting and similar fees paid in cash during such period to (ii)
Fixed Charges, all as determined for such Person for such period in accordance
with GAAP. 


          “Fixed
Charges” means for any fiscal period, the consolidated aggregate of all (i)
cash Interest Expense included in the determination of such Person’s net
earnings (or loss) for such period, plus (ii) required payments of principal
with respect to such Person’s indebtedness for such period (including the
principal portion of scheduled payments of Capital Lease Obligations) paid or
due within such period, plus (iii) Federal income and franchise taxes paid by
such Person during such period, plus (iv) distributions and dividends paid by
such Person during such period, 


-6-






plus (v) all
management, sponsor, consulting and similar fees paid in cash by such Person
during such period. 


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


          “Free
Cash Flow” means, with respect to any Person for the period of determination,
an amount equal to (i) net income for such period, plus (ii) non-cash charges
(including depreciation and amortization) included in the calculation of such
Person’s net income for such period, plus (iii) federal income and franchise
taxes as shown on such Person’s financial statements for such period, minus (iv) the sum of (a) the non-financed portion of Capital Expenditures, (b)
without duplication of the foregoing subpart (a), the principal portion of
scheduled payments of indebtedness and Capital Lease Obligations paid or due
within such period, (c) without duplication of the foregoing subparts (a) and
(b), payments required to be made by Borrower under the Permitted Mezzanine
Debt, (d) distributions and dividends paid during such period, and (e) federal
income and franchise taxes paid during such period, all as determined for such
Person in accordance with GAAP.  


          “GAAP”
means generally accepted accounting principles in the United States of America,
consistently applied. 


          “General
Intangibles” means “general intangibles,” as such term is defined in the Code,
now owned or hereafter acquired by Borrower, including all right, title and
interest that Borrower 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 Borrower or any computer bureau or service company from time to
time acting for Borrower. 


          “Governmental
Authority” means any nation or government, any state or other political
subdivision thereof, and any agency, department or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government. 


-7-






          “Guaranteed
Indebtedness” means, as to any Person, any obligation of such Person
guaranteeing, providing comfort or otherwise supporting any Indebtedness,
lease, dividend, or other obligation (“primary obligation”) of any other Person
(the “primary obligor”) in any manner, including any obligation or arrangement
of such Person to (a) purchase or repurchase any such primary obligation, (b)
advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
condition of the primary obligor, (c) purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, (d) protect the beneficiary of such arrangement from loss (other
than product warranties given in the ordinary course of business) or (e)
indemnify the owner of such primary obligation against loss in respect thereof.
The amount of any Guaranteed Indebtedness at any time shall be deemed to be an
amount equal to the lesser at such time of (x) the stated or determinable
amount of the primary obligation in respect of which such Guaranteed
Indebtedness is incurred and (y) the maximum amount for which such Person may
be liable pursuant to the terms of the instrument embodying such Guaranteed
Indebtedness, or, if not stated or determinable, the maximum reasonably
anticipated liability (assuming full performance) in respect thereof. 


          “Guaranties”
or “Guaranty” means, collectively, any guaranty (together with any related
security agreements or other documents executed in connection therewith)
executed by any Guarantor in favor of Lender in respect of the Obligations, as
the same may be amended, restated, supplemented, replaced, or otherwise
modified from time to time. 


          “Guarantors”
means any Person that executes a guaranty or other similar agreement in favor
of Lender in connection with the transactions contemplated by the Agreement and
the other Loan Documents. 


          “Hazardous
Material” means any substance, material or waste that is regulated by, or forms
the basis of liability now or hereafter under, any Environmental Laws,
including any material or substance that is (a) defined as a “solid waste,”
“hazardous waste,” “hazardous material,” “hazardous substance,” “extremely
hazardous waste,” “restricted hazardous waste,” “pollutant,” “contaminant,”
“hazardous constituent,” “special waste,” “toxic substance” or other similar
term or phrase under any Environmental Laws, or (b) petroleum or any fraction
or by product thereof, asbestos, polychlorinated biphenyls (PCB’s), or any
radioactive substance. 


          “Indebtedness”
means, with respect to any Person, without duplication (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of property
payment, but excluding accounts payable incurred in the ordinary course of
business that are unsecured and on usual terms, (b) all reimbursement and other
obligations with respect to letters of credit, bankers’ acceptances and surety
bonds, whether or not matured, (c) all obligations evidenced by notes, bonds,
debentures or similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all Capital Lease Obligations and
the present value (discounted at the rate of 10%) of future rental payments
under all synthetic leases, (f) all obligations of such Person under commodity
purchase 


-8-






or option
agreements or other commodity price hedging arrangements, in each case whether
contingent or matured, (g) all obligations of such Person under any foreign
exchange contract, currency swap agreement, interest rate swap, cap or collar
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or interest rates,
in each case whether contingent or matured, (h) all Indebtedness referred to
above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon or in property
or other assets (including accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the payment of
such Indebtedness, and (i) “earnouts” and similar payment obligations that have
been earned in full as of such date and are not contingent. 


          “Indemnitees”
has the meaning ascribed to it in Section 8.1. 


          “Initial
Payment Date” is defined in Section 1.2(a). 


          “Instruments”
means all “instruments,” as such term is defined in the Code, now owned or
hereafter acquired by Borrower, 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. 


          “Interest
Expense” means, for any period, all amounts accrued by Borrower, whether as
interest, late charges, service fees or other charge for money borrowed on
account of or in connection with Borrower’s Indebtedness or with respect to
which Borrower or any of its respective properties are liable by assumption,
operation of law or otherwise, including, without limitation, any Capital
Leases. 


          “Inventory”
means any “inventory,” as such term is defined in the Code, now owned or
hereafter acquired by Borrower, wherever located, including inventory,
merchandise, goods and other personal property that are held by or on behalf of
Borrower 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 Borrower’s business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including all supplies and embedded software. 


          “Investment”
means (i) any direct or indirect purchase or other acquisition by Borrower or
any of its Subsidiaries of any Stock, or other ownership interest in, any other
Person, and (ii) any direct or indirect loan, advance or capital contribution
by Borrower or any of its Subsidiaries to any other Person, including all
indebtedness and accounts receivable from that other Person that are not
current assets or did not arise from sales to that other Person in the ordinary
course of business. 


          “Investment
Property” means all “investment property,” as such term is defined in the Code,
now owned or hereafter acquired by Borrower, wherever located, including: (i)
all 


-9-






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 Borrower,
including the rights of Borrower 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 Borrower; (iv) all
commodity contracts of Borrower; and (v) all commodity accounts held by
Borrower. 


          “IRC”
means the Internal Revenue Code of 1986, as amended, and all regulations
promulgated thereunder. 


          “IRS”
means the Internal Revenue Service. 


          “Lender”
has the meaning ascribed to it in the Preamble. 


          “Leverage
Ratio” with respect to the period of determination, the ratio of (i)
Indebtedness of a Person and its Subsidiaries at the end of such period to (ii)
EBITDA of a Person and its Subsidiaries at the end of such period, all as
determined for such Person and its Subsidiaries on a Consolidated basis and in
accordance with GAAP. 


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


          “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). 


          “Litigation”
has the meaning ascribed to it in Section 4.1(g). 


          “Loan
Account” has the meaning ascribed to it in Section 1.8 


          “Loan
Documents” means the Agreement, the Note, the Collateral Documents, and all
other agreements, instruments, documents and certificates executed and
delivered to, or in favor of, Lender and including all other pledges, powers of
attorney, consents, assignments, contracts, notices, and all other written
matter whether heretofore, now or hereafter executed by or on behalf of
Borrower, or any employee of Borrower, and delivered to Lender in connection
with the Agreement or the transactions contemplated thereby. Any reference in
the Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements,
supplements, replacements or other modifications thereto, and shall refer to
the Agreement or such Loan Document as the same may be in effect at any and all
times such reference becomes operative. 


          “Loan”
has the meaning ascribed to it in Section 1.1(a) 


-10-







          “Material
Adverse Effect” means a material adverse effect on (a) the business, assets,
operations, prospects or financial or other condition of Borrower taken as a
whole enterprise, (b) Borrower’s ability to pay the Loan or any of the other
Obligations in accordance with the terms of the Agreement and the other Loan
Documents, (c) the Collateral or Lender’s Liens on the Collateral or the
priority of such Liens, or (d) Lender’s rights and remedies under the Agreement
and the other Loan Documents. 


          “Material
Contracts” means any contract or License the termination of which could
reasonably be expected to have a Material Adverse Effect. 


          “Maturity
Date” means March 8, 2010 as may be extended pursuant to Section 1.5.


          “Maximum
Lawful Rate” has the meaning ascribed to it in Section 1.2(d).


          “Mortgage
Debt” means Indebtedness in an amount not to exceed $3,000,000 secured solely
by Real Estate.


          “Multiemployer
Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA,
and to which Borrower or any ERISA Affiliate is making, is obligated to make or
has made or been obligated to make, contributions on behalf of participants who
are or were employed by any of them.


          “Note”
has the meaning ascribed to it in Section 1.1(d).


          “Obligations”
means all loans, advances, debts, liabilities and obligations, for the
performance of covenants, tasks or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, or such
amounts are liquidated or determinable), owing by Borrower to Lender, and all
covenants and duties regarding such amounts, of any kind or nature, present or
future, whether or not evidenced by any note, agreement or other instrument,
including, without limitation, arising under the Agreement or any of the other
Loan Documents. This term includes all principal, interest (including all
interest that accrues after the commencement of any case or proceeding by or
against Borrower in bankruptcy, whether or not allowed in such case or
proceeding), Fees, Charges, expenses, attorneys’ fees and any other sum
chargeable to Borrower under the Agreement or any of the other Loan Documents.


          “Other
Default Rate” is defined in Section 1.2(c).


          “New
Acquisition” is defined in Section 3.21.


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


          “Patents”
means all of the following in which Borrower 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


-11-






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
Date” is defined in Section 1.2(a).


          “Payment
Default” is defined in Section 1.2(c).


          “Payment
Default Rate” is defined in Section 1.2(c).


          “PBGC”
means the Pension Benefit Guaranty Corporation.


          “Pension
Plan” means a Plan described in Section 3(2) of ERISA.


          “Perfection
Certificate” means individually and collectively the Perfection Certificate
issued by each Borrower in connection with the Security Agreement.


          “Permitted
Encumbrances” means the following encumbrances: (a) Liens for taxes or
assessments or other Charges of any Governmental Authority not yet due and
payable or which are being contested in good faith by appropriate proceedings
and with adequate reserves; (b) Liens incurred or deposits made securing
statutory obligations under workmen’s compensation, unemployment insurance,
social security or public liability laws or similar legislation or securing the
performance of tenders, bids, leases, contracts (other than for the repayment
of Indebtedness) and other similar obligations (excluding Liens under ERISA);
(c) pledges or deposits of money securing bids, tenders, contracts (other than
contracts for the payment of money) or leases to which Borrower is a party as
lessee made in the ordinary course of business; (d) inchoate and unperfected
workers’, mechanics’ or similar liens arising in the ordinary course of
business, so long as such Liens attach only to Equipment, Fixtures and/or Real
Estate; (e) carriers’, warehousemen’s, suppliers’ or other similar possessory
liens arising in the ordinary course of business and securing liabilities in an
outstanding aggregate amount not in excess of $50,000 at any time, so long as
such Liens attach only to Inventory; (f) deposits securing, or in lieu of,
surety, appeal or customs bonds in proceedings to which Borrower is a party;
(g) any attachment or judgment lien not constituting an Event of Default under
Section 6.1; (h) zoning restrictions, easements, licenses, or other
restrictions on the use of any Real Estate or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not
materially impair the use, value, or marketability of such Real Estate; (i)
presently existing or hereafter created Liens in favor of Lender; (j) Liens
existing on the date hereof and renewal, and extensions (without increase in
underlying Indebtedness) thereof which Liens are set forth on Schedule 3.2; and
(k) Liens to secure the Seller Debt, subject to the terms hereof.


          “Permitted
Mezzanine Debt” means Borrower’s indebtedness in the aggregate amount not to
exceed $3,500,000 to Huntington Capital, LP and St. Cloud Capital Partners, LP.


          “Person”
means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).


-12-






          “Plan”
means, at any time, an “employee benefit plan,” as defined in Section 3(3) of
ERISA, that Borrower or any ERISA Affiliate maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by Borrower.


          “Pro
Forma” means the unaudited consolidated balance sheets of Borrower and its
Subsidiaries prepared in accordance with GAAP as of the Closing Date after
giving effect to the Related Transactions. 


          “Projections”
means Borrower’s forecasted consolidated and consolidating: (a) balance sheets;
(b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all prepared on a Subsidiary by Subsidiary or
division-by-division basis, if applicable, and otherwise consistent with the
historical Financial Statements of Borrower, together with appropriate
supporting details and a statement of underlying assumptions.


          “Qualified
Plan” means a Pension Plan that is intended to be tax-qualified under Section
401(a) of the IRC.


          “Real
Estate” has the meaning ascribed to it in Section 5.12


          “Related
Transactions” means the borrowing of the Loan, the payment of all Fees, costs
and expenses associated with all of the foregoing in each case as contemplated
herein and the execution and delivery of all of the Related Transactions
Documents.


          “Related
Transactions Documents” means the Loan Documents and all other agreements or
instruments executed in connection with the Related Transactions.


          “Release”
means any release, threatened release, spill, emission, leaking, pumping,
pouring, emitting, emptying, escape, injection, deposit, disposal, discharge,
dispersal, dumping, leaching or migration of Hazardous Material in the indoor
or outdoor environment, including the movement of Hazardous Material through or
in the air, soil, surface water, ground water or property.


          “Restricted
Payment” means, with respect to Borrower (a) the declaration or payment of any
cash dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of Stock; (b) any
payment on account of the purchase, redemption, defeasance, sinking fund or
other retirement of Borrower’s Stock or any other payment or distribution made
in respect thereof, either directly or indirectly, other than any such payment
made to redeem securities of the Borrower held by a terminated employee; (c)
any payment or prepayment of principal or premium, if any, or interest, fees or
other charges on or with respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment and any claim for rescission with
respect to the Loan (except in accordance with the terms hereof) or any
Subordinated Debt; (d) any payment made to redeem, purchase, repurchase or
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire Stock of Borrower now or hereafter outstanding, other
than any such payment made to redeem securities of the Borrower held by a
terminated employee; (e) any payment of a claim for the rescission of the purchase
or sale of, or for material damages arising from the purchase or sale of, any
shares of Borrower’s Stock or of a claim for reimbursement, indemnification or
contribution arising out of or related to any such claim for damages or
rescission; (f) any


-13-






payment, loan,
contribution, or other transfer of funds or other property to any Stockholder
of Borrower other than payment of compensation approved by Lender to
Stockholders who are employees of Borrower and other senior management of
Borrower or severance payments approved by Lender upon the termination thereof;
(g) any prepayment of principal with respect to any Indebtedness of Borrower
not otherwise permitted by this Agreement; and (h) any payment of management
fees (or other fees of a similar nature), or out-of-pocket expenses in
connection therewith by Borrower to any Stockholder of Borrower or its
Affiliates. 


          “Retiree
Welfare Plan” means, at any time, a Welfare Plan that provides for continuing
coverage or benefits for any participant or any beneficiary of a participant
after such participant’s termination of employment, other than continuation
coverage provided pursuant to Section 4980B of the IRC and at the sole expense
of the participant or the beneficiary of the participant.


          “Securitization
Transaction” shall mean any financing transaction undertaken by Lender or an
Affiliate of Lender that is secured, directly or indirectly, by the Note or any
portion thereof or any interest therein, including any sale, whole loan sale, commercial
paper warehouse transaction, asset securitization, secured loan or other
transfer. 


          “Security
Agreement” means the Security Agreement of even date herewith entered into by
and among Lender and Borrower, as the same may be amended, restated,
supplemented, replaced, or otherwise modified from time to time.


          “Seller
Debt” means the financing provided to Borrower by sellers pursuant to prior
acquisitions which has been approved by Lender and in the amounts shown on
Schedule 3.1 hereto and any financing provided by sellers in connection with
any New Acquisition, subject to the restrictions set forth in Section 3.21.


          “Servicing
Fee” is defined in Section 1.3(b).


          “Solvent”
means, with respect to any Person on a particular date, that on such date (a)
the fair value of the property of such Person is greater than the total amount
of liabilities, including subordinated and contingent liabilities, of such
Person; (b) the present fair saleable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of
such Person on its debts and liabilities, including subordinated and contingent
liabilities as they become absolute and matured; (c) such Person does not
intend to, and does not believe that it will, incur debts or liabilities beyond
such Person’s ability to pay as such debts and liabilities mature; (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
an unreasonably small capital; and (e) if such Person is not “insolvent” as
defined in the Code. The amount of contingent liabilities (such as Litigation,
guaranties and pension plan liabilities) at any time shall be computed as the
amount that, in light of all the facts and circumstances existing at the time,
represents the amount that can be reasonably be expected to become an actual or
matured liability.


          “SPAC
Merger” is defined in Section 3.6.


          “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,


-14-






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).


          “Stockholder”
means, with respect to any Person, each holder of Stock of such Person.


          “Subordinated
Debt” means any Indebtedness of Borrower subordinated to the Obligations in a
manner and form satisfactory to Lender in its sole discretion, as to right and
time of payment and as to any other rights and remedies thereunder.


          “Subsidiary”
means, with respect to any Person, (a) any corporation of which an aggregate of
more than 50% of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether, at the time, Stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any contingency)
is at the time, directly or indirectly, owned legally or beneficially by such
Person or one or more Subsidiaries of such Person, or with respect to which any
such Person has the right to vote or designate the vote of 50% or more of such
Stock whether by proxy, agreement, operation of law or otherwise, and (b) any
partnership or limited liability company in which such Person and/or one or
more Subsidiaries of such Person shall have an interest (whether in the form of
voting or participation in profits or capital contribution) of more than 50% or
of which any such Person is a general partner or may exercise the powers of a
general partner. Unless the context otherwise requires, each reference to a
Subsidiary shall be a reference to a Subsidiary of Borrower.


          “Tangible
Net Worth” means, as of any date, the amount by which a Person’s total assets
exceeds its total liabilities, less any intangible assets (as defined by GAAP),
less deferred charges.


          “Taxes”
means any present or future income, excise, stamp or franchise taxes and other
taxes, assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto of any nature whatsoever
imposed by any taxing authority, but excluding franchise taxes and taxes
imposed on or measured by any lender’s net income or receipts. 


          “Termination
Date” means the date on which (a) the Loan has been indefeasibly repaid in
full, (b) all other Obligations (other than contingent indemnification
Obligations to the extent no claim giving rise thereto has been asserted in
accordance with the terms of this Agreement) under the Agreement and the other
Loan Documents have been completely discharged; and (c) Borrower shall not have
any further right to borrow any monies under the Agreement.


          “Title
IV Plan” means a Pension Plan (other than a Multiemployer Plan), that is
covered by Title IV of ERISA, and that Borrower or any ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.


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


-15-






          “Trademarks”
means all of the following now owned or hereafter adopted or acquired by
Borrower: (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.


          “Welfare Plan”
means a Plan described in Section 3(1) of ERISA.


          Rules
of construction with respect to accounting terms used in the Agreement or the
other Loan Documents shall be as set forth or referred to in this Annex A. All
other undefined terms contained in any of the Loan Documents shall, unless the
context indicates otherwise, have the meanings provided for by the Code to the
extent the same are used or defined therein; in the event that any term is
defined differently in different Articles or Divisions of the Code, the
definition contained in Article or Division 9 shall control. Unless otherwise
specified, references in the Agreement or any of the Appendices to a Section,
subsection or clause refer to such Section, subsection or clause as contained
in the Agreement. The words “herein,” “hereof” and “hereunder” and other words
of similar import refer to the Agreement as a whole, including all Annexes,
Exhibits and Schedules, as the same may from time to time be amended, restated,
modified or supplemented, and not to any particular section, subsection or
clause contained in the Agreement or any such Annex, Exhibit or Schedule.


          Wherever
from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
feminine and neuter genders. The words “including”, “includes” and “include”
shall be deemed to be followed by the words “without limitation”; the word “or”
is not exclusive; references to Persons include their respective successors and
assigns (to the extent and only to the extent permitted by the Loan Documents)
or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; and all references to statutes and related
regulations shall include any amendments of the same and any successor statutes
and regulations. Whenever any provision in any Loan Document refers to the
knowledge (or an analogous phrase) of Borrower, such words are intended to
signify that Borrower has actual knowledge or awareness of a particular fact or
circumstance or that Borrower, if it had exercised reasonable diligence, would
have known or been aware of such fact or circumstance.


-16-







EXHIBIT 4.1


COMPLIANCE CERTIFICATE


	
 

	
 


	
TO:

	
FIFTH STREET
 MEZZANINE PARTNERS II, L.P., as Lender under the Agreement (the “Lender”)


	
 

	
 


	
FROM:

	
[________________________________]
 (the “Borrower”)





The
undersigned authorized officer of Borrower hereby certifies that in accordance
with the terms and conditions of the Credit Agreement among, Borrower and
Lender (the “Agreement”),
(i) Borrower is in complete compliance for the period ending
_______________ with all required covenants, including without limitation Section
4.3, except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date. Attached herewith are the
required documents supporting the above certification, including without
limitation, a completed Microsoft Excel spreadsheet used to calculate each of
the financial covenants contained in Exhibit 4.3 in the form provided to
Borrower by Lender. The Officers further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.


	
 

	
 

	
 

	
 

	
 

	
 


	
Comments Regarding Exceptions:
 See Attached.

	
 

	
LENDER USE ONLY

	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
Received by:
 

	
 

	
 


	
 

	
 

	
 


	
Sincerely,

	
 

	
AUTHORIZED
 SIGNER

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
Date: 

	
 

	
 


	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
Verified: 

	
 

	
 


	
 

	
 

	
 


	
SIGNATURE

	
 

	
AUTHORIZED
 SIGNER

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
Date: 

	
 

	
 


	
 

	
 

	
 


	
TITLE

	
 

	
 

	
 

	
 


	
 

	
 

	
Compliance
 Status

	
Yes

	
No


	
 

	
 

	
 

	
 

	
 


	 

	
 

	
 

	
 

	
 


	
DATE

	
 

	
 

	
 

	
 





- 1 -






EXHIBIT 4.3


FINANCIAL COVENANTS AND RATIOS


          Borrower
shall continuously maintain the following: 


          1.
Free Cash Flow. Borrower shall have Free Cash Flow to be tested as of
the end of each Fiscal Quarter on a trailing twelve month basis of greater than
$500,000.00.


          2.
Fixed Charge Coverage Ratio. Borrower shall have a Fixed Charge Coverage
Ratio to be tested as of the end of each Fiscal Quarter on a trailing twelve
month basis, of not less than 1.2 to 1.0.


          3.
Leverage Ratio. Borrower shall have a Leverage Ratio to be tested as of
the end of each Fiscal Quarter on a trailing twelve month basis of not greater
than:


          (a)
8.0 to 1.0, for the Fiscal Quarters ending December 31, 2007 and March 31,
2008;


          (b)
5.0 to 1.0 (or, in the event that the SPAC Merger was consummated by June 30,
2008 but was not consummated prior to February 15, 2008, 8.0 to 1.0), for the
Fiscal Quarter ending June 30, 2008; 


          (b)
5.0 to 1.0, for the Fiscal Quarter ending September 30, 2008 and for each
Fiscal Quarter thereafter.


- 1 -






EXHIBIT 7.1


CLOSING AGENDA


[See Attached.]


-ii-






CREDIT AGREEMENT


DATED AS OF MARCH 29, 2007


by and between


XLNT VETERINARY
CARE, INC.


and


ADLER VETERINARY GROUP, INC.,
ANIMAL CLINIC OF YUCCA VALLEY, INC.,
ANIMAL EMERGENCY CLINIC OF THE DESERT, INC.,
ANIMAL MEDICAL HOSPITAL, INC., BONITA PET HOSPITAL, INC., BRENTWOOD PET CLINIC, INC., ELDORADO ANIMAL
HOSPITAL, INC., JERAULD L. WOODRING, INC., LAWRENCE PET HOSPITAL, INC., MCCONNELL & FENTON CORPORATION,
RAINBOW HAWK, INC., SAN CARLOS VETERINARY HOSPITAL, INC., SOUTH BAY VETERINARY SPECIALISTS, INC., SOUTH COUNTY
EMERGENCY ANIMAL CLINIC, INC., STANFORD
PET CLINIC, INC., TARVIN &
LENEHAN, INC., VETS & PETS,
INCORPORATED, YUBA-SUTTER
VETERINARY HOSPITAL, INC., CALIFORNIA ANIMAL HOSPITAL VETERINARY SPECIALTY
GROUP, INC., AND VETSURG, INC.


collectively, Borrower


and


FIFTH
STREET MEZZANINE PARTNERS II, L.P.

as Lender






INDEX OF APPENDICES


Annexes


	
 

	
 

	
 


	
Annex A

	
-

	
Definitions


	
 

	
 

	
 


	
Exhibits

	
 

	
 


	
 

	
 

	
 


	
Exhibit 4.1

	
-

	
Compliance
 Certificate


	
Exhibit 4.3

	
-

	
Financial
 Covenants and Ratios


	
Exhibit 7.1

	
-

	
Closing
 Agenda


	
 

	
 

	
 


	
Schedules

	
 

	
 


	
 

	
 

	
 


	
Schedule 3.1

	
-

	
Indebtedness


	
Schedule 3.2

	
-

	
Liens


	
Schedule 3.4

	
-

	
Contingent
 Obligations


	
Schedule 3.8

	
-

	
Affiliate
 Transactions


	
Schedule
 5.4(b)

	
-

	
Capitalization


	
Schedule 5.5

	
-

	
Financial
 Statements


	
Schedule 5.6

	
-

	
Intellectual
 Property


	
Schedule 5.7

	
-

	
Investigations
 and Audits


	
Schedule
 5.10

	
-

	
Litigation


	
Schedule
 5.11

	
 

	
Use of
 Proceeds


	
Schedule
 5.12

	
-

	
Real Estate


	
Schedule
 5.13

	
-

	
Environmental
 Matters


	
Schedule
 5.14

	
-

	
ERISA


	
Schedule
 5.16

	
-

	
Deposit and
 Disbursement Accounts


	
Schedule 5.17

	
-

	
Agreements
 and Other Documents


	
Schedule
 5.18

	
-

	
Insurance


	
Schedule
 5.19

	
-

	
ADA
 Compliance





- 4 -







TABLE OF CONTENTS


	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
 

	
Page


	
 

	
 

	
 

	
 

	
 

	 


	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
SECTION 1

	
 

	
AMOUNTS AND
  TERMS OF LOAN

	
 

	
1

	
 


	
 

	
1.1

	
 

	
Loan

	
 

	
1

	
 


	
 

	
1.2

	
 

	
Interest and
  Payment Terms

	
 

	
2

	
 


	
 

	
1.3

	
 

	
Fees

	
 

	
3

	
 


	
 

	
1.4

	
 

	
Payments

	
 

	
4

	
 


	
 

	
1.5

	
 

	
Maturity

	
 

	
4

	
 


	
 

	
1.6

	
 

	
Continuing
  Liens

	
 

	
5

	
 


	
 

	
1.7

	
 

	
Application
  and Allocation of Payments

	
 

	
5

	
 


	
 

	
1.8

	
 

	
Loan Account

	
 

	
5

	
 


	
 

	
1.9

	
 

	
Taxes

	
 

	
5

	
 


	
 

	
1.10

	
 

	
Joint and
  Several Liability; Waivers

	
 

	
6

	
 


	
 

	
 

	
 

	
 

	
 

	
 


	
SECTION 2

	
 

	
AFFIRMATIVE
  COVENANTS

	
 

	
8

	
 


	
 

	
2.1

	
 

	
Payment and
  Performance of Obligations

	
 

	
8

	
 


	
 

	
2.2

	
 

	
Perfection
  Certificate

	
 

	
8

	
 


	
 

	
2.3

	
 

	
Compliance
  With Laws and Contractual Obligations

	
 

	
8

	
 


	
 

	
2.4

	
 

	
Maintenance
  of Properties; Insurance

	
 

	
9

	
 


	
 

	
2.5

	
 

	
Inspection;
  Lender Meeting

	
 

	
9

	
 


	
 

	
2.6

	
 

	
Organizational
  Existence

	
 

	
10

	
 


	
 

	
2.7

	
 

	
Environmental
  Matters

	
 

	
10

	
 


	
 

	
2.8

	
 

	
Landlords’
  Agreements, Mortgagee Agreements, Bailee Letters and Real Estate Purchases

	
 

	
10

	
 


	
 

	
2.9

	
 

	
Meetings;
  Board Observer Rights

	
 

	
11

	
 


	
 

	
2.10

	
 

	
Further
  Assurances

	
 

	
11

	
 


	
 

	
 

	
 

	
 

	
 

	
 


	
SECTION 3

	
 

	
NEGATIVE
  COVENANTS

	
 

	
11

	
 


	
 

	
3.1

	
 

	
Indebtedness

	
 

	
11

	
 


	
 

	
3.2

	
 

	
Liens and
  Related Matters

	
 

	
12

	
 


	
 

	
3.3

	
 

	
Investments

	
 

	
12

	
 


	
 

	
3.4

	
 

	
Contingent
  Obligations

	
 

	
13

	
 


	
 

	
3.5

	
 

	
Restricted
  Payments

	
 

	
13

	
 


	
 

	
3.6

	
 

	
Restriction
  on Fundamental Changes

	
 

	
13

	
 


	
 

	
3.7

	
 

	
Disposal of
  Assets

	
 

	
13

	
 


	
 

	
3.8

	
 

	
Transactions
  with Affiliates

	
 

	
14

	
 


	
 

	
3.9

	
 

	
Conduct of
  Business

	
 

	
14

	
 


	
 

	
3.10

	
 

	
Changes
  Relating to Indebtedness

	
 

	
14

	
 


	
 

	
3.11

	
 

	
Fiscal Year

	
 

	
14

	
 


	
 

	
3.12

	
 

	
Press
  Release; Public Offering Materials

	
 

	
15

	
 


	
 

	
3.13

	
 

	
Subsidiaries

	
 

	
15

	
 


	
 

	
3.14

	
 

	
Bank
  Accounts

	
 

	
15

	
 


	
 

	
3.15

	
 

	
Hazardous
  Materials

	
 

	
15

	
 


	
 

	
3.16

	
 

	
ERISA

	
 

	
16

	
 


	
 

	
3.17

	
 

	
Prepayments
  of Other Indebtedness

	
 

	
16

	
 





-i-






	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
 

	
Page


	
 

	
 

	
 

	
 

	
 

	 


	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
 

	
3.18

	
 

	
Changes to
  Material Contracts

	
 

	
16

	
 


	
 

	
3.19

	
 

	
Guaranties

	
 

	
16

	
 


	
 

	
3.20

	
 

	
Organization

	
 

	
16

	
 


	
 

	
 

	
 

	
 

	
 

	
 


	
SECTION 4

	
 

	
FINANCIAL
  COVENANTS/REPORTING

	
 

	
17

	
 


	
 

	
4.1

	
 

	
Financial
  Statements and Other Reports

	
 

	
17

	
 


	
 

	
4.2

	
 

	
Accounting
  Terms; Utilization of GAAP for Purposes of Calculations Under Agreement

	
 

	
19

	
 


	
 

	
4.3

	
 

	
Financial
  Covenants and Ratios

	
 

	
20

	
 


	
 

	
4.4

	
 

	
Capital
  Expenditures

	
 

	
20

	
 


	
 

	
4.5

	
 

	
Notice to
  Lender of Certain Events

	
 

	
20

	
 


	
 

	
 

	
 

	
 

	
 

	
 


	
SECTION 5

	
 

	
REPRESENTATIONS
  AND WARRANTIES

	
 

	
20

	
 


	
 

	
5.1

	
 

	
Disclosure

	
 

	
20

	
 


	
 

	
5.2

	
 

	
No Material
  Adverse Effect

	
 

	
21

	
 


	
 

	
5.3

	
 

	
No Conflict

	
 

	
21

	
 


	
 

	
5.4

	
 

	
Organization,
  Powers, Capitalization and Good Standing

	
 

	
21

	
 


	
 

	
5.5

	
 

	
Financial
  Statements and Projections

	
 

	
22

	
 


	
 

	
5.6

	
 

	
Intellectual
  Property

	
 

	
22

	
 


	
 

	
5.7

	
 

	
Investigations,
  Audits, Etc

	
 

	
22

	
 


	
 

	
5.8

	
 

	
Employee
  Matters

	
 

	
22

	
 


	
 

	
5.9

	
 

	
Solvency

	
 

	
23

	
 


	
 

	
5.10

	
 

	
Litigation;
  Adverse Facts

	
 

	
23

	
 


	
 

	
5.11

	
 

	
Margin
  Regulations; Use of Proceeds

	
 

	
23

	
 


	
 

	
5.12

	
 

	
Ownership of
  Property; Liens

	
 

	
23

	
 


	
 

	
5.13

	
 

	
Environmental
  Matters

	
 

	
24

	
 


	
 

	
5.14

	
 

	
ERISA

	
 

	
24

	
 


	
 

	
5.15

	
 

	
Brokers

	
 

	
25

	
 


	
 

	
5.16

	
 

	
Deposit and
  Disbursement Accounts

	
 

	
25

	
 


	
 

	
5.17

	
 

	
Agreements
  and Other Documents

	
 

	
25

	
 


	
 

	
5.18

	
 

	
Insurance

	
 

	
25

	
 


	
 

	
5.19

	
 

	
ADA
  Compliance

	
 

	
25

	
 


	
 

	
5.20

	
 

	
Patriot Act

	
 

	
26

	
 


	
 

	
 

	
 

	
 

	
 

	
 


	
SECTION 6

	
 

	
DEFAULT,
  RIGHTS AND REMEDIES

	
 

	
26

	
 


	
 

	
6.1

	
 

	
Event of
  Default

	
 

	
26

	
 


	
 

	
6.2

	
 

	
Acceleration
  and other Remedies

	
 

	
29

	
 


	
 

	
6.3

	
 

	
Performance
  by Lender

	
 

	
30

	
 


	
 

	
6.4

	
 

	
Application
  of Proceeds

	
 

	
30

	
 


	
 

	
 

	
 

	
 

	
 

	
 


	
SECTION 7

	
 

	
CONDITIONS
  TO THE LOAN

	
 

	
30

	
 


	
 

	
7.1

	
 

	
Conditions
  to the Loan

	
 

	
30

	
 


	
 

	
7.2

	
 

	
Condition to
  Loan

	
 

	
32

	
 


	
 

	
 

	
 

	
 

	
 

	
 


	
SECTION 8

	
 

	
MISCELLANEOUS

	
 

	
32

	
 


	
 

	
8.1

	
 

	
Indemnities

	
 

	
32

	
 





-ii-






	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
 

	
Page


	
 

	
 

	
 

	
 

	
 

	 


	
 

	
 

	
 

	
 

	
 

	
 

	
 


	
 

	
8.2

	
 

	
Amendments
  and Waivers

	
 

	
32

	
 


	
 

	
8.3

	
 

	
Notices

	
 

	
33

	
 


	
 

	
8.4

	
 

	
Obligations
  Absolute; Failure or Indulgence Not Waiver; Remedies Cumulative

	
 

	
33

	
 


	
 

	
8.5

	
 

	
Marshaling;
  Payments Set Aside

	
 

	
34

	
 


	
 

	
8.6

	
 

	
Protection
  of Assets

	
 

	
34

	
 


	
 

	
8.7

	
 

	
Severability

	
 

	
34

	
 


	
 

	
8.8

	
 

	
Headings

	
 

	
34

	
 


	
 

	
8.9

	
 

	
Applicable
  Law

	
 

	
34

	
 


	
 

	
8.10

	
 

	
Successors
  and Assigns

	
 

	
34

	
 


	
 

	
8.11

	
 

	
No Fiduciary
  Relationship; Limited Liability

	
 

	
35

	
 


	
 

	
8.12

	
 

	
Construction

	
 

	
35

	
 


	
 

	
8.13

	
 

	
Confidentiality

	
 

	
35

	
 


	
 

	
8.14

	
 

	
CONSENT TO
  JURISDICTION

	
 

	
36

	
 


	
 

	
8.15

	
 

	
WAIVER OF
  JURY TRIAL

	
 

	
36

	
 


	
 

	
8.16

	
 

	
Survival of
  Warranties and Certain Agreements

	
 

	
36

	
 


	
 

	
8.17

	
 

	
Entire
  Agreement

	
 

	
37

	
 


	
 

	
8.18

	
 

	
Counterparts;
  Effectiveness

	
 

	
37

	
 


	
 

	
8.19

	
 

	
Delivery of
  Termination Statement

	
 

	
37

	
 


	
 

	
8.20

	
 

	
Participation

	
 

	
37

	
 


	
 

	
8.21

	
 

	
Protection
  of Collateral

	
 

	
37

	
 


	
 

	
8.22

	
 

	
Additional
  Waivers

	
 

	
37

	
 


	
 

	
8.23

	
 

	
Severance of
  Loan

	
 

	
38

	
 





-iii-