Unassociated Document


    LOAN
      AND SECURITY AGREEMENT

    


    


    THIS
      LOAN AND SECURITY AGREEMENT
      dated
      July 25, 2008 by and among PET
      EXPRESS SUPPLY, INC.,
      a
      corporation organized and in good standing in the State of Nevada (the
“Corporation”),
      whose
      address is 59
      West
      19th
      Street,
      6th
      Floor,
New
      York,
      NY 10011; MKM
      OPPORTUNITY MASTER FUND, LTD.
      (“MKM”);
      and
      those Persons who have executed or shall subsequently execute this Agreement
      under the heading “Additional
      Lenders”.
      MKM
      and
      the
      Additional Lenders are
      sometimes collectively referred to herein as “Lender”
or
      the
“Lenders”.

    


    WHEREAS,
      Lender wishes to lend to the Corporation, and the Corporation wishes to borrow
      from Lender and repay Lender on the terms set forth herein. 

    


    Now,
      therefore, the parties agree as follows: 

    


    1. LOAN
      AND TERMS OF PAYMENT.

     

    (a) The
      Corporation shall borrow from Lenders hereunder an aggregate principal amount
      which does not exceed Five Million U.S. Dollars (U.S. $5,000,000). All loans
      made by Lenders hereunder shall be evidenced by Notes (as hereinafter defined),
      to be executed and delivered by the Corporation to the applicable Lender on
      the
      closing date of such loan. Such loan shall be repaid in accordance with the
      terms of the Note, and will be convertible as provided in the Note.


    


    (b) The
      Corporation promises to pay Lender the unpaid principal amount of all loans
      made
      by any of the Lenders hereunder and interest on the unpaid principal amount
      thereof in accordance with the terms of the Notes.

    


    (c) 
      Loans
      made hereunder accrue interest on the outstanding principal balance thereof
      in
      accordance with the applicable Note at a per annum rate of six percent (6%).
      Interest on the unpaid and unconverted principal balance of each of the Notes
      shall accrue at the rate of 6% per annum from the date of original issuance
      thereof (the “Issuance
      Date”)
      until
      the same becomes due and payable on the Maturity Date, or such earlier date
      upon
      acceleration or by conversion, redemption or repayment in accordance with the
      terms hereof or of the other Agreements. Interest on each of the Notes shall
      accrue daily commencing on the Issuance Date and shall be computed on the basis
      of a 360-day year, 30-day months and actual days elapsed and shall be payable
      in
      accordance with the terms of the applicable Note.

    


    2. WARRANTS.
      The
      Corporation hereby grants to each of the Lenders warrants pursuant to which
      each
      Lender may purchase Common Stock, $0.001 par value per share, of PETX (“Shares”)
      up to a maximum amount of Shares equal to seventy-five (75%) percent of the
      number of Shares into which such Lender’s Note may be converted, at an exercise
      price of $4.50 per Share. The warrants will be in the form attached hereto
      as
      Exhibit B.


    
      
        
        

      

      
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    3. PREPAYMENT.
      The
Corporation
      shall prepay (such payment a “Mandatory
      Prepayment”)
      all or
      part of the Notes then outstanding in the event that Corporation shall complete,
      subsequent to the consummation of the transactions contemplated in this
      Agreement, an offering or offerings of new equity or an instrument convertible
      into equity, and the proceeds of such financing(s) shall exceed $4,000,000,
      in
      which case all of the proceeds of such financing(s) in excess of $4,000,000
      shall be used to prepay the Notes, with
      all
      holders of Notes prepaid proportionately with respect to the Mandatory
      Prepayment pursuant to this provision.
      The
      Corporation shall deliver to each of the Lenders a written notice (a
“Prepayment
      Notice”),
      specifying the principal amount of Notes to be prepaid, and each of the holders
      of Notes shall have the right to voluntarily convert. Such notice must be given
      no less than ten (10) Business Days prior to the effective date of such
      Mandatory Prepayment (the “Prepayment Date”), and each holder of a Note shall
      have the right to voluntarily convert such Note prior to the Prepayment Date.
      

    


    4.
      GRANT OF SECURITY INTEREST 

    


    4.1 GRANT
      OF SECURITY INTEREST. The
      Corporation grants Lender a continuing security interest in all presently
      existing and later acquired Collateral to secure all Obligations and performance
      of each of the Corporation’s duties under the Loan Documents. Except for
      Permitted Liens, such security interest will be a first priority security
      interest in the Collateral. If this Agreement is terminated, Lender’s lien and
      Lender’s security interest in the Collateral will continue until the Corporation
      fully satisfies its Obligations. 

    


    4.2
      AUTHORIZATION TO FILE. The Corporation
      authorizes Lender to file financing statements without notice to Corporation,
      with all appropriate jurisdictions within the United States, as Lender deems
      appropriate, in order to perfect or protect Lender’s interest in the Collateral.
      Lender agrees that it shall, upon the request of the Corporation, following
      the
      termination of the Term Loan and the payment in full of the Obligations (a)
      terminate all such financing statements and (b) take such other action to
      evidence termination of the Lender’s Security Interest as Corporation may
      reasonably request. 

    


    5.
       REPRESENTATIONS
      AND WARRANTIES . The
      Corporation represents and warrants as follows: 

    


    5.1
       DUE
      ORGANIZATION AND AUTHORIZATION. The
      Corporation and each Subsidiary is duly existing and in good standing in its
      state of incorporation and qualified and licensed to do business in, and in
      good
      standing in, any state in which the conduct of its business or its ownership
      of
      property requires that it be qualified, except where the failure to do so would
      not reasonably be expected to cause a Material Adverse Change. The Corporation
      and each Subsidiary’s exact legal name are as set forth on the first page of
      this Agreement. The execution, delivery and performance of the Loan Documents
      have been duly authorized, and do not conflict with the Corporation’s formation
      documents, nor constitute an event of default under any material agreement
      by
      which Corporation is bound. The Corporation is not in default under any
      agreement to which, or by which it is bound, in which the default would
      reasonably be expected to cause a Material Adverse Change. 


    
      
        
        

      

      
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    5.2
       COLLATERAL.
      The
      Corporation has good title to the Collateral, free of Liens except Permitted
      Liens. The Accounts are bona fide, existing obligations, and the service or
      property has been performed or delivered to the account debtor or its agent
      for
      immediate shipment to and unconditional acceptance by the account debtor.
      Corporation has no notice of any actual or imminent Insolvency Proceeding of
      any
      account debtor. All Inventory is in all material respects of good and marketable
      quality, free from material defects 

    


    5.3
       LITIGATION.
      Except
      as
      shown in the Schedule, there are no actions or proceedings pending or, to the
      knowledge of the Corporation’s Responsible Officers, threatened by or against
      the Corporation or any Subsidiary in which a likely adverse decision would
      reasonably be expected to cause a Material Adverse Change. 

    


    5.4
       FINANCIAL
      STATEMENTS. All
      consolidated financial statements for the Corporation, and any Subsidiary,
      delivered to Lender fairly present in all material respects the Corporation’s
      consolidated financial condition and Corporation’s consolidated results of
      operations as of the date and for the period then ended. There has not been
      any
      Material Adverse Change in the Corporation’s consolidated financial condition
      since the date of the most recent consolidated financial statements submitted
      to
      Lender. 

    


    5.5
       REGULATORY
      COMPLIANCE. The
      Corporation is not an “investment
      company”
      or a
      company “controlled”
      by an
“investment
      company”
      under
      the Investment Company Act. Corporation is not engaged as one of its important
      activities in extending credit for margin stock (under Regulations T and U
      of
      the Federal Reserve Board of Governors). To its knowledge, the Corporation
      has
      complied in all material respects with the Federal Fair Labor Standards Act.
      The
      Corporation has not violated any laws, ordinances or rules, the violation of
      which would reasonably be expected to cause a Material Adverse Change. None
      of
      the Corporation’s or any Subsidiary’s properties or assets has been used by
      Corporation or any Subsidiary, in disposing, producing, storing, treating,
      or
      transporting any hazardous substance other than legally. The Corporation and
      each Subsidiary has timely filed all required tax returns and paid, or made
      adequate provision to pay, all material taxes, except those being contested
      in
      good faith with adequate reserves under GAAP. The Corporation and each
      Subsidiary has obtained all consents, approvals and authorizations of, made
      all
      declarations or filings with, and given all notices to, all government
      authorities that are necessary to continue its business as currently conducted,
      except where the failure to do so would not reasonably be expected to cause
      a
      Material Adverse Change. 

    


    5.6
       SUBSIDIARIES.
      The
      Corporation does not own any stock, partnership interest or other equity
      securities except for its investment in its sole subsidiary, C J Vision
      Enterprises, Inc. 

    


    5.7
       FULL
      DISCLOSURE. No
      written representation, warranty or other statement of the Corporation in any
      certificate or written statement given to Lender (taken together with all such
      written certificates and written statements to Lender) contains any untrue
      statement of a material fact or omits to state a material fact necessary to
      make
      the statements contained in the certificates or statements not misleading (it
      being recognized by Lender that the projections and forecasts provided by the
      Corporation in good faith and based upon reasonable assumptions are not viewed
      as facts and that actual results during the period or periods covered by such
      projections and forecasts may differ from the projected and forecasted results).
      


    
      
        
        

      

      
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    6. CONDITION
      OF CLOSING; AFFIRMATIVE COVENANTS.
      The
      Corporation will do all of the following for so long as Lender has an obligation
      to make any Advance, or there are outstanding Obligations: 

    


    6.1 CONDITION
      OF CLOSING.
      The
      obligation of Lenders to enter into this Agreement and to consummate the
      transactions contemplated herein shall be conditioned on (i) the prior
      consummation of the Exchange
      Agreement dated July 25, 2008 by and among the Corporation, C
      J
      Vision Enterprises, Inc.,
      a
      Delaware corporation, and the other parties thereto;
      and
      (ii) the loan of an aggregate principal amount of no less than $800,000 by
      the
      Lenders hereunder.

    


    6.2
      LENDER’S RIGHT TO PARTICIPATE IN FUTURE FINANCING. For
      a
      period commencing on the date hereof and continuing until the second anniversary
      of this Agreement, each of the Lenders shall have the right to participate
      in
      any financing transaction by the Corporation, to the extent required to maintain
      such Lender’s proportionate stake on a fully diluted basis. 

    


    6.3 GOVERNMENT
      COMPLIANCE. The
      Corporation will maintain its and all Subsidiaries legal existence and good
      standing as a Registered Organization in their respective states of
      incorporation and maintain qualification in each jurisdiction in which the
      failure to so qualify would reasonably be expected to cause a material adverse
      effect on the Corporation’s business or operations. The Corporation will comply,
      and have each Subsidiary comply, with all laws, ordinances and regulations
      to
      which it is subject, noncompliance with which would reasonably be expected
      to
      cause a Material Adverse Change. 

    


    6.4
      TAXES. The
      Corporation will make, and cause each Subsidiary to make, timely payment of
      all
      material federal, state, and local taxes or assessments (other than taxes and
      assessments which the Corporation is contesting in good faith, with adequate
      reserves maintained in accordance with GAAP). 

    


    6.5
      INSURANCE. The
      Corporation will keep its business and the Collateral insured for risks and
      in
      amounts as the Board of Directors shall reasonably determine in good faith;
      provided, however, that the risks covered and the amount of coverage shall
      not
      be less than in effect on the date hereof. Insurance policies will be in a
      form
      and with companies as the Board of Directors of the Corporation shall determine
      in good faith consistent with past practice. 

    


    6.6
      FURTHER ASSURANCES. The
      Corporation will execute any further instruments and take further action as
      Lender reasonably requests to perfect or continue Lender’s security interest in
      the Collateral or to effect the purposes of this Agreement. 


    
      
        
        

      

      
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    7. NEGATIVE
      COVENANTS. The
      Corporation will not do any of the following without Lender’s prior written
      consent, for so long as there are any outstanding Obligations: 

    


    7.1
      DISPOSITIONS. Convey,
      sell, lease, transfer or otherwise dispose of (collectively “Transfer”),
      or
      permit any of its Subsidiaries to Transfer, all or any part of the Collateral,
      except for Transfers (a) of Inventory in the ordinary course of business; (b)
      of
      licenses and similar arrangements for the use of the property of the Corporation
      or its Subsidiaries in the ordinary course of business; or (b) of worn-out,
      obsolete or fully depreciated Equipment. 

    


    7.2
       SUBSEQUENT
      DEBT. So
      long
      as any Principal Amount of Notes is outstanding, the Corporation and its
      subsidiaries shall not directly or indirectly, without the affirmative vote
      of
      the holders of at least 75% of the outstanding Principal Amount of the Notes
      then outstanding, incur or permit to exist additional indebtedness which is
      senior to the Notes, or incur, assume or permit to exist any lien, mortgage,
      security interest or encumbrance (other than statutory liens imposed by law
      incurred in the ordinary course of business for sums not yet delinquent or
      being
      contested in good faith, if such reserve or other appropriate provision, if
      any,
      as shall be required by GAAP shall have been made in respect thereof) on any
      of
      its assets, except for Permitted Liens.

    


    8.
      EVENTS OF DEFAULT. Any
      one
      of the following is an Event of Default: 

    


    8.1
      PAYMENT DEFAULT. If
      the
      Corporation fails to pay any of the Obligations within five (5) days after
      their
      due date. 

    


    8.2
      COVENANT DEFAULT. If
      the
      Corporation does not perform any obligation in Section 6 or violates any
      covenant in Section 7 or if the Corporation does not perform or observe any
      other material term, condition or covenant in this Agreement, any Loan
      Documents, or in any agreement between the Corporation and Lender and as to
      any
      failure to perform or observe, violation or default under a term, condition
      or
      covenant that can be cured, has not cured the default within ten (10) days
      after
      it comes to the attention of an officer of the Corporation, or if the failure
      to
      perform or observe, violation or default under a term, condition or covenant
      cannot be cured within ten (10) days or cannot be cured after the Corporation’s
      attempts within such ten (10) day period, and the default may be cured within
      a
      reasonable time, then the Corporation has an additional period (of not more
      than
      thirty (30) days) to attempt to cure the default. During the additional time,
      the failure to cure the default is not an Event of Default. 

    


    8.3
      MATERIAL ADVERSE CHANGE. If
      there
      (i) occurs a material adverse change in the business, operations, or condition
      (financial or otherwise) of the Corporation and its Subsidiaries taken as a
      whole, or (ii) is a material impairment of Corporation’s ability to repay the
      outstanding Obligations in their entirety or (iii) is a material impairment
      of
      the value or priority of Lender’s security interests in the Collateral;


    


    8.4
      ATTACHMENT. If
      any
      material portion of the Corporation’s assets is attached, seized, levied on, or
      comes into possession of a trustee or receiver and the attachment, seizure
      or
      levy is not removed in thirty (30) days, or if the Corporation is enjoined,
      restrained, or prevented by court order from conducting a material part of
      its
      business or if a judgment or other claim becomes a Lien on a material portion
      of
      the Corporation’s assets, or if a notice of lien, levy, or assessment is filed
      against any of Corporation’s assets by any government agency and not paid within
      thirty (30) days after the Corporation receives notice. These are not Events
      of
      Default if stayed or if a bond is posted pending contest by the Corporation;
      


    
      
        
        

      

      
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    8.5
      INSOLVENCY. If
      the
      Corporation becomes insolvent or if the Corporation begins an Insolvency
      Proceeding or an Insolvency Proceeding is begun against the Corporation and
      not
      dismissed or stayed within sixty (60) days; 

    


    8.6
      OTHER AGREEMENTS. If
      there
      is a default in any agreement between the Corporation and a third party that
      gives the third party the right to accelerate any Indebtedness 

    exceeding
      $250,000 or that would cause a Material Adverse Change; 

    


    8.7
      JUDGMENTS. If
      a
      money judgment(s) in the aggregate of at least $250,000 is rendered against
      the
      Corporation and is unsatisfied and unstayed for thirty (30) days; 

    


    8.8
      MISREPRESENTATIONS. If
      the
      Corporation or a Responsible Officer makes any material misrepresentation or
      material misstatement now or later in any warranty or representation in this
      Agreement or in any writing delivered to Lender or to induce Lender to enter
      this Agreement or any Loan Document; 

    


    8.9
       SUBSIDIARIES.
      If
      any
      circumstance described in Sections 8.3, 8.4, 8.5 or 8.7 occurs to any Subsidiary
      of the Corporation which results in a Material Adverse Change to the Corporation
      and its Subsidiaries taken as a whole; 

     

    9.
      LENDER’S RIGHTS AND REMEDIES 

    


    9.1
      RIGHTS AND REMEDIES. When
      an
      Event of Default occurs and continues Lender may, without notice or demand,
      do
      any or all of the following: 

    


    (a)
      Declare all Obligations immediately due and payable (but if an Event of Default
      described in Section 8.5 occurs all Obligations are immediately due and payable
      without any action by Lender); 

    


    (b)
      Settle or adjust disputes and claims directly with account debtors for amounts,
      on terms and in any order that Lender considers advisable; 

    


    (c)
      Make
      any payments and do any acts it considers necessary or reasonable to protect
      its
      security interest in the Collateral. The Corporation will assemble the
      Collateral if Lender requires and make it available as Lender designates. Lender
      may enter premises where the Collateral is located, take and maintain possession
      of any part of the Collateral, and pay, purchase, contest, or compromise any
      Lien which appears to be prior or superior to its security interest and pay
      all
      expenses incurred. The Corporation grants Lender a license to enter and occupy
      any of its premises, without charge, to exercise any of Lender’s rights or
      remedies; 

    


    (d)
      Apply
      to the Obligations any amount held by Lender owing to or for the credit or
      the
      account of the Corporation; 


    
      
        
        

      

      
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    (e)
      Ship,
      reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
      for sale, and sell the Collateral. Lender is granted a non-exclusive,
      royalty-free license or other right to use, without charge, the Corporation’s
      rights in its labels, patents, copyrights, rights of use of any name, trade
      secrets, trade names, trademarks, service marks, and advertising matter, or
      any
      similar property as it pertains to the Collateral, in completing production
      of,
      advertising for sale, and selling any Collateral and, in connection with
      Lender’s exercise of its rights under this Section, the Corporation’s rights
      under all licenses and all franchise agreements inure to Lender’s benefit;
      provided, however, that (i) Lender shall act in good faith to preserve the
      value
      of any property it shall use pursuant to such license or right in the exercise
      of its remedies hereunder, and (ii) upon the completion of the sale of all
      collateral by Lender and the completion by Lender of its exercise of its
      remedies hereunder, such license shall terminate); 

    


    (f)
      Dispose of the Collateral according to the Code. 

    


    9.2
      ACCOUNTS COLLECTION. When
      an
      Event of Default occurs and continues, Lender may notify any Person owing the
      Corporation money of Lender’s security interest in the funds and verify the
      amount of the Account. Corporation must collect all payments in trust for Lender
      and, if requested by Lender, immediately deliver the payments to Lender in
      the
      form received from the account debtor, with proper endorsements for deposit.
      

    


    9.3
      LENDER’S LIABILITY FOR COLLATERAL. If
      Lender
      complies with reasonable lending practices and the Code, it is not liable for:
      (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
      (c) any diminution in the value of the Collateral; or (d) any act or default
      of
      any carrier, warehouseman, bailee, or other person. The Corporation bears all
      risk of loss, damage or destruction of the Collateral. 

    


    9.4
      REMEDIES CUMULATIVE. Lender’s
      rights and remedies under this Agreement, the Loan Documents, and all other
      agreements are cumulative. Lender has all rights and remedies provided under
      the
      Code, by law, or in equity. Lender’s exercise of one right or remedy is not an
      election, and Lender’s waiver of any Event of Default is not a continuing
      waiver. Lender’s delay is not a waiver, election, or acquiescence. No waiver is
      effective unless signed by Lender and then is only effective for the specific
      instance and purpose for which it was given. 

    


    9.5
      DEMAND WAIVER. The
      Corporation waives demand, notice of default or dishonor, notice of payment
      and
      nonpayment, notice of any default, nonpayment at maturity, release, compromise,
      settlement, extension, or renewal of accounts, documents, instruments, chattel
      paper, and guarantees held by Lender on which the Corporation is liable.


    


    10.
      NOTICES. All
      notices or demands by any party about this Agreement or any other related
      agreement must be in writing and be sent by personal delivery, by a nationally
      recognized overnight delivery service, or by certified mail, postage prepaid,
      return receipt requested, to the address, in the case of the Corporation, set
      forth at the beginning of this Agreement, and in the case of Lenders, to each
      Lender’s addresses on the books of the Corporation, and shall be deemed to have
      been given: (a) if delivered in person, when delivered; (b) if delivered by
      recognized national overnight delivery service, one Business Day after delivery
      to such courier properly addressed; or (c) if by certified U.S. Mail, four
      Business Days after depositing in the United States mail, with postage prepaid
      and properly addressed. A party may change its notice address by giving the
      other party written notice. 


    
      
        
        

      

      
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    11.
      CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.
      New York
      law governs the Loan Documents without regard to principles of conflicts of
      law.
      The Corporation and each of the Lenders each submit to the exclusive
      jurisdiction of the State and Federal courts in the State of New York provided,
      however, that if for any reason the Lender can not avail itself of the courts
      of
      the State of New York, Corporation and Lender each submit to the jurisdiction
      of
      the State and Federal Courts in New York County, New York. 

     

    12.
      GENERAL PROVISIONS 

    


    12.1
      SUCCESSORS AND ASSIGNS. This
      Agreement binds and is for the benefit of the successors and permitted assigns
      of each party. The Corporation may not assign this Agreement or any rights
      under
      it without Lender’s prior written consent which may be granted or withheld in
      Lender’s discretion. Lender has the right, without the consent of or notice to
      the Corporation, to sell, transfer, negotiate, or grant participation in all
      or
      any part of, or any interest in, Lender’s obligations, rights and benefits under
      this Agreement. 

    


    12.2
      INDEMNIFICATION. The
      Corporation will indemnify, defend and hold harmless Lender and its officers,
      employees, and agents against: (a) all obligations, demands, claims, and
      liabilities asserted by any other party in connection with the transactions
      contemplated by the Loan Documents; and (b) all losses or Lender Expenses
      incurred, or paid by Lender from, following, or consequential to transactions
      between Lender and the Corporation (including reasonable attorneys fees and
      expenses), except for losses or Lender Expenses caused by Lender’s gross
      negligence or willful misconduct. 

    


    12.3
      SEVERABILITY OF PROVISION. Each
      provision of this Agreement is severable from every other provision in
      determining the enforceability of any provision. 

    


    12.4
      AMENDMENTS IN WRITING, INTEGRATION. All
      amendments to this Agreement must be in writing and signed by the Corporation
      and Lender. This Agreement represents the entire agreement about this subject
      matter, and supersedes prior negotiations or agreements. All prior agreements,
      understandings, representations, warranties, and negotiations between the
      parties about the subject matter of this Agreement merge into this Agreement
      and
      the Loan Documents. 

    


    12.5
      COUNTERPARTS. This
      Agreement may be executed in any number of counterparts and by different parties
      on separate counterparts, each of which, when executed and delivered, are an
      original, and all taken together, constitute one Agreement. 

    


    12.6
      SURVIVAL. All
      covenants, representations and warranties made in this Agreement continue in
      full force while any Obligations remain outstanding. The obligations
of
      the
      Corporation in Section 12.2 to indemnify Lender will survive until all statutes
      of limitations for actions that may be brought against Lender have run.



    
      
        
        

      

      
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    12.7
      CONFIDENTIALITY. In
      handling any confidential information, Lender will exercise the same degree
      of
      care that it exercises for its own proprietary information, but disclosure
      of information may be made (i) to Lender’s subsidiaries or affiliates in
      connection with their business with the Corporation, (ii) to prospective
      transferees or purchasers of any interest in the loans (provided, however,
      Lender shall use commercially reasonable efforts in obtaining such prospective
      transferee or purchasers agreement of the terms of this provision), (iii) as
      required by law, regulation, subpoena, or other order after notice to the
      Corporation and provided that such disclosure is subject to a protective order,
      if one is available, (iv) as required in connection with Lender’s examination or
      audit and (v) as Lender reasonably considers appropriate exercising remedies
      under this Agreement. Confidential information does not include information
      that
      either: (a) is publicly available or in Lender’s possession when disclosed to
      Lender, or becomes part of the public domain after disclosure to Lender; or
      (b)
      is disclosed to Lender by a third party, unless that third party is permitted
      to
      disclose the information. 

    


    DEFINITIONS

    


    In
      this
      Agreement:

    


    “ACCOUNTS”
      has the
      meaning set forth in the Code and includes all existing and later arising
      accounts, contract rights, and other obligations owed Corporation in connection
      with its sale or lease of goods (including licensing intellectual property
      or
      software and other technology) or provision of services, all credit insurance,
      guaranties, other security and all merchandise returned or reclaimed by the
      Corporation and the Corporation’s Books relating to any of the foregoing.


    


    “AFFILIATE”
      of a
      Person is a Person that owns or controls directly or indirectly the Person,
      any
      Person that controls or is controlled by or is under common control with the
      Person, and each of that Person’s senior executive officers, directors, partners
      and, for any Person that is a limited liability company, that Person’s managers
      and members. 

    


    “LENDER
      EXPENSES”
      are all
      audit fees and expenses and reasonable costs and expenses (including reasonable
      attorneys’ fees and expenses) for enforcing the Loan Documents (including
      appeals or Insolvency Proceedings); for the avoidance of doubt, attorneys’ fees
      and expenses incurred in connection with the preparation and negotiation of
      the
      Loan Documents shall be deemed not to be Lender Expenses.

    


    “CORPORATION’S
      BOOKS”
      are all
      the Corporation’s books and records including ledgers, records regarding the
      Corporation’s assets or liabilities, the Collateral, business operations or
      financial condition and all computer programs or discs or any equipment
      containing the information. 

    


    “BUSINESS
      DAY”
      is any
      day that is not a Saturday, Sunday or a day on which the national banks are
      generally closed. 

    


    “CLOSING
      DATE”
      is the
      date of this Agreement. 


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    “CODE”
      is the
      Uniform Commercial Code, in effect in the State of New York as in effect from
      time to time. 

    


    “COLLATERAL”
      is
all
      of
      the Corporation’s assets, whether now owned or existing or hereafter acquired or
      arising and wherever located.
      

    


    “CONTINGENT
      OBLIGATION”
      is, for
      any Person, any direct or indirect liability, contingent or not, of that Person
      for (i) any indebtedness, lease, dividend, letter of credit or other obligation
      of another such as an obligation directly or indirectly guaranteed, endorsed,
      co-made, discounted or sold with recourse by that Person, or for which that
      Person is directly or indirectly liable; (ii) any obligations for undrawn
      letters of credit for the account of that Person; and (iii) all obligations
      from
      any interest rate, currency or commodity swap agreement, interest rate cap
      or
      collar agreement, or other agreement or arrangement designated to protect a
      Person against fluctuation in interest rates, currency exchange rates or
      commodity prices; but “Contingent
      Obligation”
      does not
      include endorsements in the ordinary course of business. The amount of a
      Contingent Obligation is the stated or determined amount of the primary
      obligation for which the Contingent Obligation is made or, if not determinable,
      the maximum reasonably anticipated liability for it determined by the Person
      in
      good faith; but the amount may not exceed the maximum of the obligations under
      the guarantee or other support arrangement. 

    


    “COPYRIGHTS”
      are all
      copyright rights, applications or registrations and like protections in each
      work or authorship or derivative work, whether published or not (whether or
      not
      it is a trade secret) now or later existing, created, acquired or held.


    


    “CREDIT
      EXTENSION”
      is each
      Advance, the Term Loan, or any other extension of credit by Lender for the
      Corporation’s benefit pursuant hereto. 

    


    “EQUIPMENT”
      has the
      meaning set forth in the Code and includes is all present and future machinery,
      equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts
      and
      attachments in which the Corporation has any interest. 

    


    “ERISA”
      is the
      Employment Retirement Income Security Act of 1974, and its regulations.


    


    “EVENT
      OF DEFAULT”
      has the
      meaning set forth in Section 7. 

    


    “GAAP”
      is
      United States generally accepted accounting principles.

    


    “INDEBTEDNESS”
      is (a)
      indebtedness for borrowed money or the deferred price of property or services,
      such as reimbursement and other obligations for surety bonds and letters of
      credit, (b) obligations evidenced by notes, bonds, debentures or similar
      instruments, (c) capital lease obligations and (d) Contingent Obligations.
      

    


    “INSOLVENCY
      PROCEEDING”
      are
      proceedings by or against any Person under the United States Bankruptcy Code,
      or
      any other bankruptcy or insolvency law, including assignments for the benefit
      of
      creditors, compositions, extensions generally with its creditors, or proceedings
      seeking reorganization, arrangement, or other relief. 


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    “INVENTORY”
      has the
      meaning set forth in the Code and includes is present and future inventory
      in
      which the Corporation has any interest, including merchandise, raw materials,
      parts, supplies, packing and shipping materials, work in process and finished
      products intended for sale or lease or to be furnished under a contract of
      service, of every kind and description now or later owned by or in the custody
      or possession, actual or constructive, of the Corporation, including inventory
      temporarily out of its custody or possession or in transit and including returns
      on any accounts or other Proceeds from the sale or disposition of any of the
      foregoing and any documents of title. 

    


    “INVESTMENT”
      is any
      beneficial ownership of (including stock, partnership interest or other
      securities) any Person, or any loan, advance or capital contribution to any
      Person. 

    


    “LIEN”
      is a
      mortgage, lien, deed of trust, charge, pledge, security interest or other
      encumbrance. 

    


    “LOAN
      DOCUMENTS”
      are,
      collectively, this Agreement, the Notes, any note, or notes or guaranties
      executed by the Corporation, and any other present or future agreement between
      the Corporation and/or for the benefit of Lender in connection with this
      Agreement, all as amended, extended or restated. 

    


    “MATERIAL
      ADVERSE CHANGE”
      has the
      meaning set forth in Section 6.3.

    


    “NOTE”
      means
      each of the 6% Convertible Notes executed by the Corporation in favor of each
      of
      the Lenders hereunder, in the form attached hereto as Exhibit A, together with
      all renewals, amendments, modifications and substitutions therefor.


    


    “OBLIGATIONS”
      are
      loans made hereunder, interest, Lender Expenses and other amounts Corporation
      owes Lender, including cash management services, letters of credit and foreign
      exchange contracts, if any and including interest accruing after Insolvency
      Proceedings begin and debts, liabilities, or obligations of the Corporation
      assigned to Lender. 

    


     “PATENTS”
      are
      patents, patent applications and like protections, including improvements,
      divisions, continuations, renewals, reissues, extensions and
      continuations-in-part of the same. 

    


    “PERMITTED
      INDEBTEDNESS” is:
      

     

    (a)
      The
      Corporation’s indebtedness to Lender under this Agreement or any other Loan
      Document; 

     

    (b)
      Indebtedness existing on the Closing Date and shown on the Schedule 1;


    


    (c)
      Subordinated Debt; 

     

    (d)
      Indebtedness to trade creditors incurred in the ordinary course of business;
      and


    


    (e)
      Indebtedness secured by Permitted Liens. 


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    “PERMITTED
      LIENS”
      are:


    


    (a) The
      security interest granted to the holders of the notes
      listed on Schedule 1 attached to this Agreement, issued by the Corporation
      to
      the holders thereof;
      

    


    (b) Indebtedness
      and liens currently outstanding pursuant to agreements as currently in effect
      on
      the date of this Agreement;

    


    (c) Indebtedness
      and liens pursuant to agreements for financing in which the proceeds shall
      be
      principally used for acquisitions by the Corporation of other
      businesses;

    


    (d) 
      Capital
      leases, financing for equipment and purchase money security
      interests;

     

    (e) Liens
      for
      taxes, fees, assessments or other government charges or levies, either not
      delinquent or being contested in good faith and for which the Corporation
      maintains adequate reserves on its Books, if they have no priority over any
      of
      Lender’s security interests;

    


    (f) Liens
      incurred in the extension, renewal or refinancing of the indebtedness secured
      by
      Permitted Liens described above, but any extension, renewal or replacement
      Lien
      must be limited to the property encumbered by the existing Lien and the
      principal amount of the indebtedness may not increase. 

    


    “PERSON”
      is any
      individual, sole proprietorship, partnership, limited liability company, joint
      venture, company association, trust, unincorporated organization, association,
      corporation, institution, public benefit corporation, firm, joint stock company,
      estate, entity or government agency. 

    


    “PROCEEDS”
      has the
      meaning described in the Code as in effect from time to time. 

    


    “REGISTERED
      ORGANIZATION”
      means an
      organization organized solely under the law of a single state or the United
      States and as to which the state or the United States must maintain a public
      record showing the organization to have been organized. 

    


    “RESPONSIBLE
      OFFICER”
      is each
      of the Chief Executive Officer, the President, and the Chief Financial Officer
      of the Corporation. 

    


    “SCHEDULE”
      is any
      attached schedule of exceptions.

     

    “SUBORDINATED
      DEBT”
      is debt
      incurred by the Corporation that is subordinated to the Corporation’s
      indebtedness owed to Lender and which is reflected in a written agreement in
      a
      manner and form acceptable to Lender and approved by Lender in writing.


    


    “SUBSIDIARY”
      is for
      any Person, or any other business entity of which more than 50% of the voting
      stock or other equity interests is owned or controlled, directly or indirectly,
      by the Person or one or more Affiliates of the Person. 


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    “SUPPORTING
      OBLIGATION”
      means a
      Letter-of-credit right, secondary obligation or obligation of a secondary
      obligor or that supports the payment or performance of an account, chattel
      paper, a document, a general intangible, an instrument or investment property.
      

    


    “TOTAL
      LIABILITIES”
      is on
      any day, obligations that should, under GAAP, be classified as liabilities
      on
      the Corporation’s consolidated balance sheet, including all Indebtedness, and
      current portion Subordinated Debt allowed to be paid, but excluding all other
      Subordinated Debt. 

    


    “TRADEMARKS”
      are
      trademark and service mark rights, registered or not, applications to register
      and registrations and like protections, and the entire goodwill of the business
      of the Corporation connected with the trademarks. 

    


    


    [Signatures
      appear on the following page]

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

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

     

    
      	CORPORATION: 	 	 	 
	 	 	 	 
	PET EXPRESS SUPPLY,
              INC. 	 	 	 
	 	 	 	 
	 	 	 	 
	By: 	 	 	 
	
              
                

              

              
                Jonathan
                  Bomser

                Chief
                  Executive Officer

              

            	 	 	
            
	 	 	 	 
	 	 	 	 
	LENDERS: 	 	 	 
	 	 	 	 
	MKM OPPORTUNITY MASTER FUND,
              LTD. 	 	 	 
	 	 	 	 
	 	 	 	 
	By: 	 	 	 
	
              
                

              

              Name:
Title:  

            	 	 	 
	 	 	 	 
	ADDITIONAL
              LENDERS 	 	 	 
	 	 	 	 
	
              
  	 	 	 
	 	 	 	 
	 	 	 	 
	By: 	 	 	 
	
              
                

              

              Name:
Title:

            	 	 	 
	 	 	 	 
	 	 	 	 
	
              
  	 	 	 
	 	 	 	 
	By: 	 	 	 
	
              
                

              

              Name:
Title:  

            	 	 	 


    

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    Schedule
      1

    


    Attached
      to the LOAN
      AND
      SECURITY AGREEMENT
      dated
      July 25, 2008

    by
      and
      among PET EXPRESS SUPPLY, INC.and the other parties thereto

    


    Permitted
      Liens

    


    The
      security interest granted by Corporation to the holders of each of the following
      notes prior to the closing of this Agreement is a Permitted Lien.

     

    Promissory
      Note in favor of Peter Newman, principal amount of $297,504.00. Not
      convertible.

    


    Convertible
      Promissory Note in favor of CORPORATE
      COMMUNICATIONS NETWORK, INC., principal
      amount of $75,000.00.

    


    Convertible
      Promissory Note in favor of LYNN
      COLE
      CAPITAL CORP., principal
      amount of $75,000.00.

    


    Convertible
      Promissory Note in favor of CORPORATE
      COMMUNICATIONS NETWORK, INC., principal
      amount of $25,000.00.

    


    Convertible
      Promissory Note in favor of LYNN
      COLE
      CAPITAL CORP., principal
      amount of $25,000.00.

    


    Convertible
      Promissory Note in favor of MKM
      OPPORTUNITY MASTER FUND, LTD.,
      principal
      amount of $150,000.00

     

    
      
        
        

      

      
        15