EX-10.1






THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN
REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE
SOLD PURSUANT TO RULE 144, OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE ACT OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.



12% SENIOR CONVERTIBLE NOTE




$     


     , 2009


No. R-      



FOR VALUE RECEIVED, Pet DRx Corporation, a Delaware corporation (the “Company”),
hereby unconditionally promises to pay to the order of        (the “Holder”),
having an address at       , or at such address or at such other place as may be designated in
writing by the Holder, or its assigns, the aggregate principal sum of        United States
Dollars ($     ) (the “Original Note Amount”), together with interest from the
date set forth above on the unpaid principal balance of this Note outstanding at a rate equal to
twelve percent (12.0%) (computed on the basis of the actual number of days elapsed in a 360-day
year) per annum and continuing on the outstanding principal until this 12% Senior Convertible Note
(the “Note”) is converted into Common Stock as provided herein or paid in full by the
Company. Subject to the other provisions of this Note, the principal amount of this Note,
including any increase in such principal amount as a result of a PIK Payment (as defined below),
and all accrued and unpaid interest hereon shall mature and, together with the Original Note Amount
(as reduced by the aggregate principal amount of this Note that has been prepaid or converted) plus
the Premium (as defined in Section 3 below), become due and payable on January 21, 2013 (the
“Stated Maturity Date”). Except as provided herein, all payments of principal and interest
by the Company under this Note shall be made in United States dollars in immediately available
funds to an account specified by the Holder.



The Company will pay interest on this Note entirely by increasing the principal amount of this
Note (“PIK Interest”). Interest on this Note will be payable semiannually on June 30 and
December 31 of each year, commencing June 30, 2009. PIK Interest on this Note will accrue at a
rate per annum equal to twelve percent (12%) and will be payable by increasing the principal amount
of this Note by an amount equal to the amount of PIK Interest for the applicable interest period (a
“PIK Payment”). Following an increase in the principal amount of this Note as a result of
a PIK Payment, this Note will accrue interest on such increased principal amount from and after the
related interest payment date of such PIK Payment. References herein to the “principal amount” of
the Note include any increase in the principal amount of the Note as a result of a PIK Payment.



In the event that any amount due hereunder is not paid when due, such overdue amount shall
bear interest at an annual rate of fifteen percent (15%) until paid in full. In no event shall any
interest charged, collected or reserved under this Note exceed the maximum rate then permitted by
applicable law and if any such payment is paid by the Company, then such excess sum shall be
credited by the Holder as a payment of principal.



This Note is one of a series of Notes (the “Company Notes”) of like tenor in an
aggregate principal amount of Five Million United States Dollars ($5,000,000) (subject to increase
to an amount not exceeding Six Million Five Hundred Thousand Dollars ($6,500,000) in the event
additional Company Notes are issued as provided in Section 7.8 of the Purchase Agreement
hereinafter defined) issued by the Company pursuant to the terms of the Purchase Agreement, and
subject further to increases resulting from PIK Payments, as hereinafter defined.



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



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



“Board” shall mean the Board of Directors of Company.



“Board Calls” has the meaning set forth in Section 5(b)(x) hereof.



“Board Voting Agreement” means that certain Board Voting Agreement dated as of January
4, 2008, by and among the Company (f/k/a Echo Healthcare Acquisition Corp.), certain stockholders
of the Company and holders of options and/or warrants to aquire shares of capital stock of the
Company identified therein, certain former stockholders of XLNT Veterinary Care, Inc.
(“XLNT”) and holders of options and warrants to acquire shares of the capital stock of XLNT
identified therein, and Galen, as the same may be amended from time to time in accordance with its
terms.



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



“Camden” has the meaning set forth in the Purchase Agreement.



“Change of Control” shall be deemed to have occurred if, at any time (i) any Person or
any Persons acting together that would constitute a “group” for purposes of Section 13(d) under
the 1934 Act, or any successor provision thereto (other than one or more of the Investors and their
Affiliates), shall acquire beneficial ownership (within the meaning of Rule 13d-3 under the 1934
Act, or any successor provision thereto) in a single transaction or a series of related
transactions, of more than 50% of the aggregate voting power of the Company, other than one or more
Investors ; (ii) the Company merges into or consolidates with any other Person, or any Person
merges into or consolidates with the Company and, after giving effect to such transaction, the
stockholders of the Company immediately prior to such transaction own less than 50% of the
aggregate voting power of the Company or the successor entity of such transaction; or (iii) the
Company sells or transfers its assets, as an entirety or substantially as an entirety, to another
Person.



“Common Stock” shall mean the Common Stock, par value $0.0001 per share, of the
Company or any securities into which shares of Common Stock may be reclassified after the date
hereof.



“Common Stock Equivalent Price” means the amount equal to the quotient obtained by
dividing (i) with respect to a single transaction or a series of transactions, the total aggregate
consideration received by the Company upon the issuance of shares of Common Stock and/or Common
Stock Equivalents and (ii) the number of shares of Common Stock issued or issuable upon the
conversion, exchange or exercise of any Common Stock Equivalent in connection with such transaction
or series of transactions.



“Common Stock Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock, including without
limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any
time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.



“Company” has the meaning set forth in the first paragraph hereof.



“Company Notes” has the meaning set forth in the fourth paragraph hereof.



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



“Conversion Price” shall mean initially $10.00 per share, subject to adjustment as
provided in Section 4.



“Conversion Shares” has the meaning set forth in the Purchase Agreement.



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



“DVM Participation Percentage” means a fraction (expressed as a percentage), the
numerator of which is the aggregate principal amount of the DVM Acquisition Notes that have been
modified to include a Standstill Provision as of February 17, 2009, and the denominator of which is
$8,922,647.



“Event of Default” has the meaning set forth in Section 6 hereof.



“Fair Market Value” shall mean (i) with respect to any publicly traded securities, the
Market Price of such securities and (ii) with respect to any other securities or other assets, the
fair market value of such other securities or other assets as determined by the Board in the good
faith exercise of its reasonable business judgment.



“Final Redemption Premium” has the meaning set forth in Section 3(a) hereof.



“Galen” has the meaning set forth in the Purchase Agreement.



“Holder” has the meaning set forth in the first paragraph hereof.



“Indebtedness” means any liability or obligation (i) for borrowed money, other than
trade payables incurred in the ordinary course of business, (ii) evidenced by bonds, debentures,
notes, or other similar instruments, (iii) in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto), except letters of credit or other
similar instruments issued to secure payment of trade payables or obligations in respect of
workers’ compensation, unemployment insurance and other social security laws or regulations, all
arising in the ordinary course of business, (iv) to pay the deferred purchase price of property or
services, except trade payables arising in the ordinary course of business, (v) as lessee under
capitalized leases, or (vi) secured by a Lien on any asset of the Company or a Subsidiary, whether
or not such obligation is assumed by the Company or such Subsidiary.



“Investors” has the meaning set forth in the Purchase Agreement.



“Lien” means any lien, mortgage, deed of trust, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title retention agreement, any
lease in the nature thereof and any agreement to give any of the foregoing).



“Majority Holder Representative” has the meaning set forth in the Purchase Agreement.



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



“Market Price”, as of a particular date (the “Valuation Date”), shall mean the
following with respect to any class of securities: (A) if such security is then listed on a
national stock exchange, the Market Price shall be the closing bid price of one share of such
security on such exchange on the last Trading Day prior to the Valuation Date, provided that if
such security has not traded in the prior ten (10) trading sessions, the Market Price shall be the
average closing bid price of such security in the most recent ten (10) trading sessions during
which such security has traded; (B) if such security is then included in the Over-the-Counter
Bulletin Board, the Market Price shall be the closing sale price of one share of such security on
the Over-the-Counter Bulletin Board on the last Trading Day prior to the Valuation Date or, if no
such closing sale price is available, the average of the high bid and the low ask price quoted on
the Over-the-Counter Bulletin Board as of the end of the last Trading Day prior to the Valuation
Date, provided that if such security has not traded in the prior ten (10) trading sessions, the
Market Price shall be the average closing price of one share of such security in the most recent
ten (10) trading sessions during which such security has traded; or (C) if such security is then
included in the “pink sheets,” the Market Price shall be the closing sale price of one share of
such security on the “pink sheets” on the last Trading Day prior to the Valuation Date or, if no
such closing sale price is available, the average of the high bid and the low ask price quoted on
the “pink sheets” as of the end of the last Trading Day prior to the Valuation Date, provided that
if such security has not traded in the prior ten (10) trading sessions, the Market Price shall be
the average closing price of one share of such security in the most recent ten (10) trading
sessions during which such security has traded.



“Modified Operating Cash Flow” means, with respect to the Company’s fiscal quarter
ending March 31, 2009, the sum of (a) the cash flow from operations after required debt service of
the Company, on a consolidated basis with its Subsidiaries, as calculated in the Company’s
Statement of Cash Flows for such fiscal quarter and (b) the aggregate amount of outstanding
accounts payable that (i) relate to invoices that are dated on or before December 6, 2008, and (ii)
are actually paid by the Company during the fiscal quarter ending March 31, 2009; provided,
however, that the amount described in clause (b) above shall not exceed $2,000,000.



“Note” has the meaning set forth in the first paragraph hereof.



“Permitted Indebtedness” means:



(a) Unsecured Indebtedness that is subordinate in right of payment to the Company Notes
existing on January 21, 2009 and refinancings, renewals and extensions of any such Indebtedness if
(i) the average life to maturity thereof is greater than or equal to that of the Indebtedness being
refinanced or extended, (ii) if the principal amount thereof or interest payable thereon is not
increased, (iii) the ranking thereof is subordinate in right of payment to the Company Notes at
least to the same extent as the Indebtedness being refinanced, renewed or extended, and (iv) the
terms thereof are not less favorable to the Company or the Subsidiary incurring such Indebtedness
than the Indebtedness being refinanced, renewed or extended;



(b) Guaranties by any Subsidiary of any “Permitted Indebtedness” of the Company or another
Subsidiary;



(c) Indebtedness representing the deferred purchase price of property and capital lease
obligations which does not exceed (i) $100,000 individually and (ii) $500,000 in the aggregate;



(d) Indebtedness of the Company to any wholly owned Subsidiary and Indebtedness of any wholly
owned Subsidiary to the Company or another wholly owned Subsidiary which constitutes “Permitted
Indebtedness” or which is otherwise subordinate in right of payment to the Company Notes;



(e) Indebtedness outstanding on the date of the Purchase Agreement, and any modifications of
the Indebtedness evidenced by the DVM Acquisition Notes in connection with implementing (i)
subordination agreements approved by the Majority Holders or (ii) Standstill Provisions;



(f) Indebtedness incurred in connection with financing insurance premiums payable by the
Company and its Subsidiaries in the ordinary course of business;



(g) Other Indebtedness consented to in writing by the Majority Holders; and



(h) Unsecured Indebtedness not otherwise permitted hereunder, not exceeding $100,000.



“Permitted Liens” means:



(a) Liens existing on the date of the Purchase Agreement;



(b) Liens imposed by law for taxes that are not yet due or are being contested in good faith
and for which adequate reserves have been established on the Company’s books and records in
accordance with U.S. generally accepted accounting principles, consistently applied;



(c) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens
imposed by law, arising in the ordinary course of business and securing obligations that are not
overdue by more than sixty (60) days or that are being contested in good faith and by appropriate
proceedings;



(d) pledges and deposits made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or regulations;



(e) deposits to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in
each case in the ordinary course of business;



(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property
imposed by law or arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected property or materially
interfere with the ordinary conduct of business of the Company or any of its Subsidiaries;



(g) Liens granted to secure the obligations of the Company or any Subsidiary under any
Indebtedness permitted under clause (c) of the definition of “Permitted Indebtedness”, provided
such Liens are limited to the property acquired or so financed, or to the assets of the Person so
acquired, or both (and any accessions thereto and proceeds thereof);



(h) Judgment Liens that have not yet become an Event of Default;



(i) Other Liens consented to in writing by the Majority Holders; and



(j) Liens not otherwise permitted hereunder, securing obligations not exceeding $100,000 in
the aggregate at any time outstanding.



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



“Preferred Stock” shall mean the shares of preferred stock to be authorized and issued
by the Company with such voting powers and such designations, preferences and other rights as
stated and expressed in a resolution adopted by the Board of Directors providing for the issuance
of such preferred stock and as permitted by the General Corporation Law of the State of Delaware.
The Preferred Stock will have a liquidation preference over the Common Stock equal to the aggregate
principal amount of the Company Notes (but excluding any Premium, as hereinafter defined), will be
convertible into Common Stock on the terms specified in such Board resolution, will vote on an
as-converted basis, and otherwise will have no special rights or preferences over the Common Stock.



“Prepayment” has the meaning set forth in Section 3(a) hereof.



“Purchase Agreement” shall mean the Purchase Agreement, dated as of January 21, 2009,
and as that agreement may be amended from time to time, by and among the Company and the Investors.



“Redemption Date” means the earliest to occur of (i) the date this Note is prepaid and
redeemed pursuant to Section 3(a) hereof, (ii) the effective time of a Change of Control or (iii)
the date this Note is redeemed pursuant to Section 3(c) hereof.



“Redemption Price” has the meaning set forth in Section 3(b) hereof.



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



“Standstill Provision” has the meaning set forth in the Purchase Agreement.



“Stated Maturity Date” has the meaning set forth in the first paragraph hereof.



“Stockholder Approval” has the meaning set forth in the Purchase Agreement.



“Subordinated Indebtedness” shall mean Indebtedness of the Company or any Subsidiary
that specifically provides that such Indebtedness is to rank junior to the Company Notes in right
of payment and is subordinated by its terms in right of payment to the Company Notes.



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



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



“Warrants” has the meaning set forth in the Purchase Agreement.



“Warrant Shares” has the meaning set forth in the Purchase Agreement.



2. Purchase Agreement. This Note is one of the several 12% Senior Convertible Notes
of the Company issued pursuant to the Purchase Agreement. This Note is subject to the terms and
conditions of, and entitled to the benefit of, the provisions of the Purchase Agreement.



3. Prepayment; Change of Control.



(a) The Company may, from time to time at its option, upon ten (10) days’ prior written notice
to the Payee, prepay all or part of this Note (with all accrued and unpaid interest thereon) prior
to the Stated Maturity Date (each, a “Prepayment”); provided that any such
Prepayment shall be subject to a premium equal to 150% of the Original Note Amount being prepaid
(the “Premium”) which shall be paid to Payee in immediately available funds simultaneously
with such Prepayment; provided, however, that the Premium shall be adjusted on
February 17, 2009 (as adjusted, the “Final Redemption Premium”) based on the aggregate
principal amount of DVM Acquisition Notes that are modified to include a Standstill Provision such
that (i) if the DVM Participation Percentage is less than 30%, the Premium will be equal to 400% of
the Original Note Amount, (ii) if the DVM Participation Percentage is at least 30% but less than
45%, the Premium will be equal to 250% of the Original Note Amount, and (iii) if the DVM
Participation Percentage is at least 60%, the Premium will remain at 150% of the Original Note
Amount. The adjustment to the Premium will be interpolated between 400% and 250% and between 250%
and 150% for DVM Participation Percentages between 30% and 45% and between 45% and 60%,
respectively. For example, if a Holder originally invested $1,000 and the DVM Participation
Percentage is less than 30% as of February 17, 2009, then upon prepayment of such Holder’s Note,
such Holder would receive $5,000 (which represents the sum of (A) $1,000 of such Holder’s original
principal investment and (B) a prepayment penalty equal to $4,000) plus all accrued and
unpaid interest payable on the Note. If the DVM Participation Percentage is 35% as of February 17,
2009, then upon prepayment of such Holder’s Note, such Holder would receive $4,500 (which
represents the sum of (A) $1,000 of such Holder’s original principal investment and (B) a
prepayment penalty equal to $3,500) plus all accrued and unpaid interest payable on the
Note. If, however, the DVM Participation Percentage is 55% as of February 17, 2009, then upon
prepayment of such Holder’s Note, such Holder would receive $2,833.33 (which represents the sum of
(A) $1,000 of such Holder’s original principal investment and (B) a prepayment penalty equal to
$1,833.33) plus all accrued and unpaid interest payable on the Note. The Company shall
deliver to Galen and Camden no later than February 17, 2009, the documentation evidencing that such
DVM Acquisition Note has been modified to include a Standstill Provision, including executed copies
of the agreements with any holder of such DVM Acquisition Notes. Upon a Change of Control,
dissolution or winding up of the Company, the Investors will first receive the Final Redemption
Premium on the outstanding principal amount of the Company Notes before any Subordinated
Indebtedness is paid or distribution is made in respect of capital stock. For the avoidance of
doubt, the term “Premium” as used herein shall be deemed to mean (i) prior to February 17,
2009, the Premium (i.e., equal to 150% of the Original Note Amount) and (ii) from and after
February 17, 2009, the Final Redemption Premium.



(b) In the event that a Change of Control occurs prior to the Stated Maturity Date, the
Company shall redeem as of the effective time of the Change of Control all, but not less than all,
of the then-outstanding principal amount of this Note and all accrued interest thereon at a cash
redemption price equal to the greater of (i) the then-outstanding principal amount of this Note and
all accrued interest thereon plus the Premium and (ii) the product of (A) the number of shares of
Common Stock into which such Note would have been converted if the Note were converted on the
Redemption Date and (B) the Fair Market Value of the consideration per share to be received by
holders of Common Stock in connection with a Change of Control as of the Redemption Date (the
“Redemption Price”). The Company shall provide written notice to the Holder of this Note
of any pending Change of Control not less than 15 days prior to the effective date of such Change
of Control. On the Redemption Date, the Company shall pay the Redemption Price to the Holder in
immediately available funds to an account previously specified in writing by the Holder. The
Holder shall not be required to surrender this Note prior to payment of the Redemption Price, and
the Note shall be deemed redeemed as of the tender of the Redemption Price. Upon payment in full
of the Redemption Price to the Holder as provided in this Section 3, this Note shall be deemed to
have been paid in full and shall no longer be outstanding for any purpose.



(c) In the event the Company fails to obtain the Stockholder Approval on or before October 31,
2009, then the Holder will be entitled to demand immediate repayment of the then-outstanding
principal amount of this Note and all accrued interest thereon at a cash redemption price equal to
the then-outstanding principal amount of this Note and all accrued interest thereon plus the
Premium by delivering notice of such election to the Company by November 10, 2009. In the event
the Company fails to obtain the Stockholder Approval on or before October 31, 2009, the Company
shall redeem any Warrant held by such Holder, at such Holder’s election, at a cash redemption price
equal to (i) minus (ii) where (i) equals the product of (A) the number of shares of Common
Stock into which such Warrant would have been exercisable if the Warrant was fully exercisable on
the repayment date and (B) the average of the Market Prices of the Common Stock for the five (5)
Trading Days ending on October 31, 2009, and (ii) equals the Warrant Price in effect immediately
prior to the repayment date. Notwithstanding the foregoing, the Company shall not be required to
redeem this Note or the Holder’s Warrants pursuant to this Section 3(c) unless (i) each of the
Investors has fulfilled its obligations pursuant to the voting agreement obligations under Section
5.2 of the Purchase Agreement and (ii) the Holder certifies in its election notice that during the
ten (10) Trading Days (x) ending on October 31, 2009 or (y) prior to the repayment date for such
Holder’s Warrants, as the case may be, neither it nor its Affiliates has directly or indirectly
engaged in any transaction that would be reported as a purchase on Form 4 under the 1934 Act
(whether or not the Holder is then subject to Section 16 under the 1934 Act), or participating in
any arrangement or understanding with any other Person.



4. Conversion Rights.



(a) Following the date of the Stockholder Approval to the earlier of the Stated Maturity Date
and the Redemption Date and subject to and upon compliance with the provisions of this Note, the
Holder shall have the right, at its option at any time, to convert some or all of the Note into
such number of fully paid and nonassessable shares of Common Stock as is obtained by: (i) adding
(A) the principal amount of this Note to be converted and (B) the amount of any accrued but unpaid
interest with respect to such portion of this Note to be converted; and (ii) dividing the result
obtained pursuant to clause (i) above by the Conversion Price then in effect. The rights of
conversion set forth in this Section 4 shall be exercised by the Holder by giving written notice to
the Company that the Holder elects to convert a stated amount of this Note into Common Stock and by
surrender of this Note (or, in lieu thereof, by delivery of an appropriate lost security affidavit
in the event this Note shall have been lost or destroyed) to the Company at its principal office
(or such other office or agency of the Company as the Company may designate by notice in writing to
the Holder) at any time on the date set forth in such notice (which date shall not be earlier than
the Company’s receipt of such notice), together with a statement of the name or names (with
address) in which the certificate or certificates for shares of Common Stock shall be issued.



(b) Promptly after receipt of the written notice referred to in Section 4(a) above and
surrender of this Note (or, in lieu thereof, by delivery of an appropriate lost security affidavit
in the event this Note shall have been lost or destroyed), but in no event more than three (3)
Business Days thereafter, the Company shall issue and deliver, or cause to be issued and delivered,
to the Holder, registered in such name or names as the Holder may direct in writing, a certificate
or certificates for the number of whole shares of Common Stock issuable upon the conversion of such
portion of this Note. To the extent permitted by law, such conversion shall be deemed to have been
effected, and the Conversion Price shall be determined, as of the close of business on the date on
which such written notice shall have been received by the Company and this Note shall have been
surrendered as aforesaid (or, in lieu thereof, an appropriate lost security affidavit has been
delivered to the Company), and at such time, the rights of the Holder shall cease with respect to
the principal amount of the Company Notes being converted, and the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the shares represented
thereby.



(c) No fractional shares shall be issued upon any conversion of this Note into Common Stock.
If any fractional share of Common Stock would, except for the provisions of the first sentence of
this Section 4(c), be delivered upon such conversion, the Company, in lieu of delivering such
fractional share, shall pay to the Holder an amount in cash equal to the Market Price of such
fractional share of Common Stock. No Company Notes of less than $100,000 principal amount may be
converted in part; provided, however, if all of the Company Notes of a Holder are to be converted,
the entire outstanding principal amount of the Company Notes held by such Holder, even if not equal
to or greater than $100,000 shall be converted. In case the principal amount of this Note exceeds
the principal amount being converted, the Company shall, upon such conversion, execute and deliver
to the Holder, at the expense of the Company, a new Note for the principal amount of this Note
surrendered which is not to be converted.



(d) If the Company shall, at any time or from time to time while this Note is outstanding, pay
a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its
outstanding shares of Common Stock into a greater number of shares or combine its outstanding
shares of Common Stock into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the Company is the
continuing corporation), then the Conversion Price in effect immediately prior to the date upon
which such change shall become effective, shall be adjusted by the Company so that the Holder
thereafter converting this Note shall be entitled to receive the number of shares of Common Stock
or other capital stock which the Holder would have received if the Note had been converted
immediately prior to such event upon payment of a Conversion Price that has been adjusted to
reflect a fair allocation of the economics of such event to the Holder, without regard to any
conversion limitation specified in this Section 4. Such adjustments shall be made successively
whenever any event listed above shall occur.



(e) If any capital reorganization, reclassification of the capital stock of the Company,
consolidation or merger of the Company with another corporation in which the Company is not the
survivor, or sale, transfer or other disposition of all or substantially all of the Company’s
assets to another corporation shall be effected and this Note is not redeemed in connection
therewith pursuant to Section 3, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be
made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and
upon the terms and conditions herein specified and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion of this Note such shares of stock, securities or
assets as would have been issuable or payable with respect to or in exchange for a number of shares
of Common Stock equal to the number of shares of Common Stock immediately theretofore issuable upon
conversion of this Note, had such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder to the end that the provisions hereof
(including, without limitation, provision for adjustment of the Conversion Price) shall thereafter
be applicable, as nearly equivalent as may be practicable in relation to any shares of stock,
securities or assets thereafter deliverable upon the conversion hereof. The Company shall not
effect any such consolidation, merger, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring
such assets or other appropriate corporation or entity shall assume the obligation to deliver to
the Holder, at the last address of the Holder appearing on the books of the Company, such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be
entitled to purchase, without regard to any conversion limitation specified in Section 4, and the
other obligations under this Note. The provisions of this paragraph (e) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other
dispositions.



(f) In case the Company shall fix a payment date for the making of a distribution to all
holders of Common Stock (including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) of evidences of indebtedness or assets
(other than cash dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 4(d)), or subscription rights or
Company Notes, the Conversion Price to be in effect after such payment date shall be determined by
multiplying the Conversion Price in effect immediately prior to such payment date by a fraction,
the numerator of which shall be the total number of shares of Common Stock outstanding multiplied
by the Market Price of Common Stock immediately prior to such payment date, less the fair market
value (as determined by the Board in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or Company Notes, and the denominator of which shall be
the total number of shares of Common Stock outstanding multiplied by such Market Price immediately
prior to such payment date. Such adjustment shall be made successively whenever such a payment
date is fixed.



(g) An adjustment to the Conversion Price shall become effective immediately after the payment
date in the case of each dividend or distribution and immediately after the effective date of each
other event which requires an adjustment.



(h) In the event that, as a result of an adjustment made pursuant to this Section 4, the
Holder shall become entitled to receive any shares of capital stock of the Company other than
shares of Common Stock, the number of such other shares so receivable upon conversion of this Note
shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained in this Note.



(i) Anything herein to the contrary notwithstanding, the Company shall not be required to make
any adjustment of the Conversion Price in the case of the issuance of (A) capital stock, Common
Stock Equivalents issued to directors, officers, employees or consultants of the Company in
connection with their service as directors of the Company, their employment by the Company or their
retention as consultants by the Company pursuant to an equity compensation program approved by the
Board of Directors of the Company or the compensation committee of the Board of Directors of the
Company provided, that in the case of any issuance pursuant to this clause (A), the exercise or
conversion price of any such Common Stock Equivalents shall be at least equal to the Market Price
on the date of grant, (B) shares of Common Stock issued upon the conversion or exercise of Common
Stock Equivalents issued prior to the date hereof, provided such securities are not materially
amended after the date hereof, (C) securities issued pursuant to the Purchase Agreement and
securities issued upon the exercise or conversion of those securities, and (D) shares of Common
Stock issued or issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution results in an
adjustment in the Conversion Price pursuant to the other provisions of this Note), or pursuant to
obligations of the Company arising under any anti-dilution provisions contained in any agreement,
instrument or security in existence on the date of the Purchase Agreement.



(j) In case at any time:




(A) the Company shall declare any dividend upon its Common Stock or any other class
or series of capital stock of the Company payable in cash or stock or make any other
distribution to the holders of its Common Stock or any such other class or series of
capital stock;




(B) the Company shall offer for subscription pro rata to the holders
of its Common Stock or any other class or series of capital stock of the Company any
additional shares of stock of any class or other rights; or




(C) there shall be any capital reorganization or reclassification of the capital
stock of the Company, any acquisition or a liquidation, dissolution or winding up of
the Company;



then, in any one or more of said cases, the Company shall give, by delivery in person or by
certified or registered mail, return receipt requested, addressed to the Holder at the address of
such Holder as shown on the books of the Company, (a) at least 20 Business Days’ prior written
notice of the date on which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to vote in respect of
any event set forth in clause (C) of this Section 4(j) and (b) in the case of any event set forth
in clause (C) of this Section 4(j), at least 20 Business Days’ prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights, the date on which
the holders of Common Stock or such other class or series of capital stock shall be entitled
thereto and such notice in accordance with the foregoing clause (b) shall also specify the date on
which the holders of Common Stock and such other series or class of capital stock shall be entitled
to exchange their Common Stock and other stock for securities or other property deliverable upon
consummation of the applicable event set forth in clause (C) of this Section 4(j).



(k) Upon any adjustment of the Conversion Price, then and in each such case the Company shall
give prompt written notice thereof, addressed to the Holder at the address of such Holder as shown
on the books of the Company, which notice shall state the Conversion Price resulting from such
adjustment and setting forth in reasonable detail the method upon which such calculation is based.



(l) Subject to the Stockholder Approval, the Company shall at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance upon conversion of
this Note as herein provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of this Note. The Company covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of
the foregoing, and that the Company will from time to time take all such action as may be requisite
to assure that the par value per share of the Common Stock is at all times equal to or less than
the Conversion Price in effect at the time. The Company shall take all such action as may be
necessary to assure that all such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirement of any national securities exchange or trading
market upon which the Common Stock may be listed. The Company shall not take any action which
results in any adjustment of the Conversion Price if the total number of shares of Common Stock
issued and issuable after such action upon conversion of this Note would exceed the total number of
shares of Common Stock then authorized by the Company’s Certificate of Incorporation.



(m) The issuance of certificates for shares of Common Stock upon conversion of this Note shall
be made without charge to the holders thereof for any issuance tax in respect thereof, provided
that the Company shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name other than that of the
Holder.



(n) Subject to Section 9 hereof, the Company will not at any time close its transfer books
against the transfer, as applicable, of this Note or of any shares of Common Stock issued or
issuable upon the conversion of this Note in any manner which interferes with the timely conversion
of this Note, except as may otherwise be required to comply with applicable securities laws.



(o) To the extent permitted by applicable law and the listing requirements of any stock
exchange or trading market on which the Common Stock is then listed, the Company from time to time
may decrease the Conversion Price by any amount for any period of time if the period is at least
twenty (20) days, the decrease is irrevocable during the period and the Board shall have made a
determination that such decrease would be in the best interests of the Company, which determination
shall be conclusive. Whenever the Conversion Price is decreased pursuant to the preceding
sentence, the Company shall provide written notice thereof to the Holder at least fifteen (15) days
prior to the date the decreased Conversion Price takes effect, and such notice shall state the
decreased Conversion Price and the period during which it will be in effect.



(p) No fractional shares shall be issued upon any conversion of this Note into Preferred
Stock. If any fractional share of Preferred Stock would, except for the provisions of the first
sentence of this Section 4(p), be delivered upon such conversion, the Company, in lieu of
delivering such fractional share, shall pay to the Holder an amount in cash equal to the Market
Price of such fractional share of Preferred Stock. In case the principal amount of this Note
exceeds the principal amount being converted, the Company shall, upon such conversion, execute and
deliver to the Holder, at the expense of the Company, a new Note for the principal amount of this
Note surrendered which is not to be converted.



(q) Notwithstanding anything to the contrary contained herein, no conversion of the Note or
any portion hereof into shares of Preferred Stock, Common Stock or Common Stock Equivalents (other
than in connection with a Change of Control) shall be consummated unless and until the Stockholder
Approval has been obtained. In the event that a Change of Control occurs prior to the receipt of
the Stockholder Approval, the Holder shall have the right, at its option, to convert some or all of
the Note into such number of fully paid and nonassessable shares of Common Stock as is obtained by:
(i) adding (A) the principal amount of this Note to be converted and (B) the amount of any accrued
but unpaid interest with respect to such portion of this Note to be converted; and (ii) dividing
the result obtained pursuant to clause (i) above by the Conversion Price then in effect. The
Company shall provide written notice to the Holder of this Note of any pending Change of Control
not less than 15 days prior to the effective date of such Change of Control.



(r) In each instance where this Note requires the Holder hereof to deliver a lost or stolen
Note affidavit (including, without limitation, pursuant to Sections 4(a) and (b) hereof) to the
Company, the Holder shall also deliver to the Company an indemnity in form and substance reasonably
satisfactory to the Company.



5. Covenants.



(a) So long as any amount due under this Note is outstanding and until payment in full of all
amounts payable by the Company hereunder, and unless the Majority Holders shall otherwise consent
in writing:



(i) The Company shall and shall cause each of its Subsidiaries to (A) carry on and conduct its
business in substantially the same manner and in substantially the same fields of enterprise as it
is presently conducting, (B) do all things necessary to remain duly organized, validly existing,
and in good standing as a domestic corporation under the laws of its state of incorporation and (C)
maintain all requisite authority to conduct its business in those jurisdictions in which its
business is conducted; provided, however, that the Company and its Subsidiaries may reduce or cease
operations at any veterinary hospital if the Company’s Board of Directors or senior management
shall determine it is no longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and such reduction in services or cessation of operations is not
adverse in any material respect to the Investors; and provided further, that the Company may merge,
consolidate or otherwise conslidate its Subsidiaries.



(ii) The Company shall timely file with the Commission all annual and quarterly reports,
information, documents and other reports as are specified in Sections 13 and 15(d) of the 1934 Act
and applicable to a U.S. corporation, or if the Commission does not permit such filings, the
Company will provide such reports, information, documents and other reports to the Investors.



(iii) The Company shall as promptly as reasonably practicable notify the Holder of the
occurrence of any Event of Default or any event which, with the giving of notice, the lapse of time
or both would constitute an Event of Default, which notice shall include a written statement as to
such occurrence, specifying the nature thereof and the action (if any) which is proposed to be
taken with respect thereto.



(b) So long as any amount due under this Note is outstanding and until payment in full of all
amounts payable by the Company hereunder, and unless the Majority Holders shall otherwise consent
in writing:



(i) The Company shall not and shall cause each Subsidiary not to create, incur, guarantee,
issue, assume or in any manner become liable in respect of any Indebtedness after the date hereof,
other than Permitted Indebtedness.



(ii) The Company shall not and shall cause each Subsidiary not to create, incur, assume or
suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired other
than Permitted Liens. The Company shall not, and shall cause each Subsidiary not to, be bound by
any agreement which limits the ability of the Company or any Subsidiary to grant Liens other than
(A) restrictions contained in agreements existing on the date hereof, or any refinancing thereof
(so long as such restrictions are not expanded), (B) Permitted Liens and (C) restrictions contained
in leases (whether capitalized or not) and agreements now or hereafter in effect, relating to Liens
permitted under clause (g) of the definition of Permitted Liens herein, to the extent such
restrictions are limited to the property that is the subject of such lease or agreement.



(iii) The Company shall not and shall cause each Subsidiary not to, directly or indirectly,
(A) form any Subsidiary or make any investment into a new business or other entity or (B) engage in
any business other than the business of primary and specialty veterinary care services.



(iv) The Company shall not, and shall cause each of its Subsidiaries not to, directly or
indirectly, declare or pay any dividends on account of any shares of any class or series of its
capital stock now or hereafter outstanding, or set aside or otherwise deposit or invest any sums
for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class
of its capital stock (or set aside or otherwise deposit or invest any sums for such purpose) for
any consideration or apply or set apart any sum, or make any other distribution (by reduction of
capital or otherwise) in respect of any such shares or pay any interest, premium if any, or
principal of any Indebtedness or redeem, retire, defease, repurchase or otherwise acquire any
Indebtedness (or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration or apply or set apart any sum, or make any other payment in respect thereof or agree
to do any of the foregoing; provided, that (A) the Company may make payments of interest, Premium
if any, principal and Redemption Price of the Company Notes in accordance with the terms thereof,
(B) Subsidiaries may pay dividends and make other distributions from time to time to the Company,
directly or indirectly, (C) subject to any applicable Standstill Provision then in effect, the
Company and the Subsidiaries may make regularly scheduled payments of principal and interest on
Permitted Indebtedness other than Subordinated Indebtedness, (D) provided that no Event of Default
has occurred and is then continuing and subject to any applicable Standstill Provision then in
effect, the Company and its Subsidiaries may make regularly scheduled payments of principal and
interest of any Permitted Indebtedness that is Subordinated Indebtedness, subject to any applicable
subordination provisions contained in the documentation relating thereto and (E) the Company and
its Subsidiaries may prepay or redeem prior to maturity (x) any Indebtedness, in whole or in part,
pursuant to put (or similar) rights expressly contained therein as of the date of the Purchase
Agreement, or otherwise approved in writing by the Majority Holders, and (y) the outstanding
Indebtedness to Huntington Capital, L.P.



(v) The Company shall not and shall cause each Subsidiary not to amend its bylaws, certificate
of incorporation or other charter document.



(vi) So long as at least $2,000,000 in aggregate principal amount of the Company Notes remains
outstanding, the Company shall not increase the number of members of the Board. The Company shall
perform, observe and comply with the terms of Section 7.9 of the Purchase Agreement.



(vii) So long as a representative of Camden serves on the Board of Directors of the Company
and Camden owns over $500,000 in outstanding principal amount of the Company Notes, the Company
shall use its best efforts to cause such representative to be appointed as Chair of the
Compensation Committee, provided that such representative meets the applicable independence
requirements of the Trading Market, Rule 16b-3 of the 1934 Act, and the rules and regulations under
Internal Revenue Code Section 162(m).



(viii) The Company shall not and shall cause each Subsidiary not to convey, sell, transfer or
otherwise dispose of, any of the veterinary hospitals owned or operated by the Company or any
Subsidiary; provided, however, that any Subsidiary may convey, sell, transfer or otherwise dispose
of any veterinary hospital and related assets to another direct or indirect Subsidiary of the
Company (whether by merger, consolidation or direct asset transfer).



(ix) The Company shall not and shall cause each Subsidiary not to enter into any joint
venture, strategic partnership or strategic alliance with any other Person.



(x) The Company will conduct a monthly Board call (“Board Calls”), except in months
during which the Board meets in person, to review and respond to any Board member questions
relating to: (A) individual hospital performance and score cards, (B) major initiatives underway,
and (C) cash flow projections to profitability. The Company will use reasonable efforts to hold
such Board Calls on Fridays and to schedule such Board Calls to be completed before noon Eastern
Time.



(xi) The Company shall not issue any shares of Common Stock or Common Stock Equivalents at
less than the Conversion Price, except in connection with transactions described in Section 4(i)(A)
hereof.



(xii) Subject to the prior written consent of Galen and Camden, in the event that the Company
requires, after the January 21, 2009, an additional $2,000,000 of operating capital, then on a
one-time basis only, (A) any Indebtedness (or other security convertible into, exchangeable for, or
including the right to receive shares of Common Stock) issued by the Company in connection with
such subsequent financing shall be on the same terms as the Company Notes and (B) each Investor
will be eligible to participate in such financing on a pro-rata basis.



(c) Unless the Majority Holders otherwise consent in writing, so long as more than $2,000,000
aggregate principal amount due under the Company Notes is outstanding, the Company will not, in a
single transaction or a series of related transactions, incur capital expenditures in any fiscal
year in an amount greater than $2,000,000; provided, however, that the Company may incur capital
expenditures in excess of $2,000,000 without the need to obtain consent from the Majority Holders
if the Company’s cash flow from operations after required debt service for the most recently ended
four fiscal quarters for which internal financial statements are available would have been greater
than zero, determined on a pro forma basis, as if the additional capital expenditures from such
transaction had been incurred during such four-quarter period.



(d) For the avoidance of doubt, the foregoing restrictions contained in this Section 5 shall
also apply (i) to the Company’s Subsidiaries and (ii) to any agreement, understanding or
arrangement to do any of the foregoing.



6. Event of Default. The occurrence of any of following events shall constitute an
“Event of Default” hereunder:



(a) the failure of the Company to make any payment of principal or interest on this Note when
due, whether at maturity, upon acceleration or otherwise;



(b) the failure of the Company to make any payment of any other amounts due under this Note or
the other Transaction Documents (as defined under the Purchase Agreement) when due, whether at
maturity, upon acceleration or otherwise, and such failure continues for more than five (5) days;



(c) the Company and/or its Subsidiaries fail to make a required payment or payments on
Indebtedness (other than the Company Notes) of One Hundred Thousand United States Dollars
($100,000) or more in aggregate principal amount (excluding Subordinated Indebtedness for which
payment is blocked under applicable subordination provisions or pursuant to Section 5(b)(iv)
hereof) and such failure continues for more than ten (10) days;



(d) there shall have occurred an acceleration of the stated maturity of, or the Company or its
Subsidiaries shall fail to pay at scheduled final maturity, any Indebtedness of the Company or its
Subsidiaries of One Hundred Thousand United States Dollars ($100,000) or more in aggregate
principal amount (which acceleration is not rescinded, annulled or otherwise cured within ten (10)
days of receipt by the Company or a Subsidiary of notice of such acceleration, or which failure to
pay at maturity is not cured within ten (10) days), it being agreed that the prepayment or
redemption prior to maturity of any DVM Acquisition Notes pursuant to put (or similar) rights
contained therein as of the date of the Purchase Agreement shall not constitute an Event of
Default;



(e) the Company or any Subsidiary makes an assignment for the benefit of creditors or admits
in writing its inability to pay its debts generally as they become due; or an order, judgment or
decree is entered adjudicating the Company or any Subsidiary as bankrupt or insolvent; or any order
for relief with respect to the Company or any Subsidiary is entered under the Federal Bankruptcy
Code or any other bankruptcy or insolvency law; or the Company or any Subsidiary petitions or
applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the
Company or any Subsidiary or of any substantial part of the assets of the Company or any
Subsidiary, or commences any proceeding relating to it under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction;
or any such petition or application is filed, or any such proceeding is commenced, against the
Company or any Subsidiary and either (i) the Company or any Subsidiary by any act indicates its
approval thereof, consents thereto or acquiescence therein or (ii) such petition application or
proceeding is not dismissed within sixty (60) days;



(f) a final, non-appealable judgment which, in the aggregate with other outstanding final
judgments against the Company and its Subsidiaries, exceeds Two Hundred Fifty Thousand United
States Dollars ($250,000), to the extent such judgments are not covered by insurance, shall be
rendered against the Company or a Subsidiary and within sixty (60) days after entry thereof, such
judgment is not discharged or execution thereof stayed pending appeal, or within sixty (60) days
after the expiration of such stay, such judgment is not discharged; provided, however, that a
judgment that provides for the payment of royalties subsequent to the date of the judgment shall be
deemed to be discharged so long as the Company or the Subsidiary affected thereby is in compliance
with the terms of such judgment;



(g) the Company is in breach of the requirements of Section 5(b) hereof;



(h) if any representation or statement of fact made in any Transaction Document or furnished
to the Holder at any time by or on behalf of the Company proves to have been false in any material
respect when made or furnished; or



(i) the Company fails to observe or perform in any material respect any of its covenants
contained in the Transaction Documents (other than any failure which is covered by Section 6(a),
(b) or (g)), and such failure continues for thirty (30) days after receipt by the Company of notice
thereof from any Investor.



Upon the occurrence and during the continuation of any such Event of Default, the Holder of
this Note shall be entitled to receive, (A) upon election of the Majority Holders, with respect to
(a) through (d) and (f) through (i), and (B) automatically, with respect to (e), an amount, which
shall be immediately due and payable, equal to all unpaid principal and accrued interest under this
Note plus a penalty equal to the Premium. Upon the occurrence and during the continuation of any
Event of Default, the Majority Holders may, in addition to declaring all amounts due hereunder to
be immediately due and payable, pursue any available remedy, whether at law or in equity,
including, without limitation, exercising its rights under the other Transaction Documents. If an
Event of Default occurs, the Company shall pay to such Holders the reasonable attorneys’ fees and
disbursements and all other reasonable out-of-pocket costs incurred by such Holders in order to
collect amounts due and owing under the Company Notes or otherwise to enforce such Holders’ rights
and remedies hereunder and under the other Transaction Documents.



7. No Waiver. No delay or omission on the part of the Holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right of the Holder, nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or
any other right on any future occasion.



8. Amendments in Writing. Any term of this Note may be amended or waived upon the
written consent of the Company and the Majority Holders; provided, that (x) any such
amendment or waiver must apply to all outstanding Company Notes; and (y) without the consent of the
Holder hereof, no amendment or waiver shall (i) change the Stated Maturity Date of this Note, (ii)
reduce the principal amount of this Note or the interest rate due hereon, (iii) change the
Conversion Price or (iv) change the place of payment of this Note. No such waiver or consent on
any one instance shall be construed to be a continuing waiver or a waiver in any other instance
unless it expressly so provides.



9. Transfers. This Note is transferable and assignable, in whole or in part and in
accordance with the applicable provisions of the Purchase Agreement, to any Person to whom such
transfer is permissible under the Purchase Agreement and applicable law. In addition, after
delivery of an indemnity in form and substance reasonably satisfactory to the Company, the Company
also agrees to promptly issue a replacement Note if this Note is lost, stolen, mutilated or
destroyed. Notwithstanding anything to the contrary contained herein, prior to January 21, 2010,
the Company Notes (or, upon the conversion thereof, the Conversion Shares) shall not be
transferable to any Person, other than to an Investor or an Affiliate thereof and other than to any
Person for estate planning purposes, without the consent of Galen and Camden, provided that in all
events such transfers shall be made in accordance with the provisions of the Purchase Agreement and
applicable federal and state securities laws.



10. No Recourse Against Others. None of Galen, Camden or any of its officers,
directors, members, partners or employees shall have any liability for any action Galen or Camden,
respectively, takes or omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by the Company Notes or the other Transaction Documents or for
any claim based on, in respect of, or by reason of, such rights or powers. Each Holder by
accepting this Note waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Company Notes.



11. Waivers. The Company hereby forever waives presentment, demand, presentment for
payment, protest, notice of protest, notice of dishonor of this Note and all other demands and
notices in connection with the delivery, acceptance, performance and enforcement of this Note,
other than notices expressly required under the terms hereof or of the other Transaction Documents.



12. Waiver of Jury Trial. THE COMPANY HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS NOTE OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THE COMPANY HAS REVIEWED THIS
WAIVER WITH ITS COUNSEL.



13. Governing Law; Consent to Jurisdiction. This Note shall be governed by and
construed under the law of the State of New York without regard to any law or principles that would
make this choice of law provision invalid. The Company and, by accepting this Note, the Holder,
each irrevocably submits to the exclusive jurisdiction of the courts of the State of New York
located in New York County and the United States District Court for the Southern District of New
York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this
Note and the transactions contemplated hereby. Service of process in connection with any such
suit, action or proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Note. The Company and, by accepting
this Note, the Holder, each irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting
this Note, the Holder, each irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an inconvenient forum.



14. Costs. If action is instituted to collect on this Note, the Company promises to
pay all costs and expenses, including reasonable attorney’s fees, incurred in connection with such
action.



15. Notices. All notices hereunder shall be given in writing and shall be deemed
delivered when received by the other party hereto at the address set forth in the Purchase
Agreement or at such other address as may be specified by such party from time to time in
accordance with the Purchase Agreement.



16. Successors and Assigns. This Note shall be binding upon the successors or assigns
of the Company and shall inure to the benefit of the permitted successors and assigns of the
Holder.



[Remainder of Page Intentionally Left Blank]




IN WITNESS WHEREOF, the Company has caused this 12% Senior Convertible Note to be signed in
its name effective as of the date first above written.




PET DRX CORPORATION




By:

Name:

Title: