Document:

Learning Care Group, Inc.

CHILDTIME CHILDCARE,
INC. 

     

SECOND AMENDED AND
RESTATED CREDIT AGREEMENT 

dated as of November
22, 2004 

     

JPMORGAN CHASE BANK,
N.A. 

                    THIS
SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 22, 2004 (this
“Agreement”), is by and between CHILDTIME CHILDCARE, INC., an Illinois
corporation (the “Company”), and JPMORGAN CHASE BANK, N.A., successor by merger
to Bank One, NA, main office in Chicago, Illinois, successor by merger to Bank One,
Michigan, a Michigan banking corporation (the “Bank”). 

INTRODUCTION 

          A.       The
Company and the Bank have entered into an Amended and Restated Credit           Agreement
dated as of January 31, 2002, as amended by the First Amendment to           Amended and
Restated Credit Agreement dated as of April 1, 2002, the Second           Amendment to
Amended and Restated Credit Agreement dated as of July 19, 2002,           the Third
Amendment to Amended and Restated Credit Agreement dated as of           February 14,
2003, the Fourth Amendment to Amended and Restated Credit Agreement           dated as of
June 25, 2003, the Fifth Amendment to Amended and Restated Credit           Agreement
dated as of November 19, 2003, the Sixth Amendment to Amended and           Restated
Credit Agreement dated as of December 29, 2003, the Seventh Amendment           to
Amended and Restated Credit Agreement dated as of January 20, 2004, and the
          Eighth Amendment to Amended and Restated Credit Agreement dated as of June 24,
          2004 (the “Existing Credit Agreement”), pursuant to which the Bank
          provides to the Company a revolving credit facility, including letters of
          credit, in the aggregate principal amount of $13,700,000, in order to provide
          funds and other financial accommodations for working capital and the
          Company’s other general corporate purposes.  

          B.       Due
to the parties’ intention to increase the amount of the revolving           credit
facility to $17,500,000 and to make certain other changes, the parties           desire
to amend and restate, in its entirety, the Existing Credit Agreement and           in
connection therewith make conforming amendments, all on the terms and
          conditions set forth in this Agreement.  

          NOW,
THEREFORE, in consideration of the premises and of the mutual agreements herein contained,
the parties hereto agree to, and hereby, amend and restate the Existing Credit Agreement
as follows: 

ARTICLE I. 
DEFINITIONS  

                    1.1
Certain Definitions. As used herein the following terms shall have the
following respective meanings: 

                    “Adjusted
EBIT” of any person for any period means the sum of (a) EBIT of such person
for such period plus, to the extent deducted in determining such EBIT, (b) Operating Lease
Rental Expense of such person for such period. 

                    “Advance”
means any Loan and any Letter of Credit Advance. 

                    “Affiliate”,
when used with respect to any person, means any other person which, directly or
indirectly, controls or is controlled by or is under common control with such person. For
purposes of this definition “control” (including the correlative meanings of the
terms “controlled by” and “under common control with”), with respect
to any person, means possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person, whether through the ownership
of voting securities or by contract or otherwise. 

                    “Applicable
Margin” means, for purposes of determining the Eurodollar Rate applicable to
Eurodollar Rate Loans outstanding at any time, the Floating Rate applicable to Floating
Rate Loans outstanding at any time, the commitment fees payable under Section 2.3(a) and
the Letter of Credit fees payable under Section 2.3(c), the applicable percentage set
forth below: 

		
	
		Fixed Charge

Coverage Ratio		Applicable Margin for

determining the

Eurodollar Rate and

the Letter of Credit

Fees under Section

2.3(C)	Applicable Margin for

determining the

Floating Rate	Applicable Margin for

determining the

Commitment Fees under

Section 2.3(a)
		
	
	 	 	 	Less than or	 	 	 		 	 		 	 		 
	 	 	 	equal to 1.10	 	 	 	2.75	%	 	0.25	%	 	0.50	%
		
	
	 	 	 	Greater than 1.10	 	 
	 	 	 	and less than or	 	 
	 	 	 	equal to 1.20	 	 	 	2.50	%	 	0.25	%	 	0.375	%
		
	
	 	 	 	Greater than	 	 
	 	 	 	1.20	 	 	 	2.25	%	 	0.25	%	 	0.375	%
		
	

	 	The
Applicable Margin shall be adjusted quarterly (upward or downward), if
necessary, on the first day of the month following the month in which the
financial statements are required to be delivered under Section 5.1(d)(iii) or
Section 5.1(d)(iv), as the case may be, based on the Fixed Charge Coverage Ratio
for the period of determination of such ratio under Section 5.2(c) as of the end
of the period reflected in such financial statements, beginning with the
financial statements to be delivered for the fiscal quarter ending on or about
October 15, 2004; provided that, notwithstanding the foregoing, (a) the
Applicable Margin as of the Effective Date and through the effective date of
such first adjustment, if any, shall be set at the level corresponding to a
Fixed Charge Coverage Ratio of less than or equal to 1.10 and (b) upon and
during the continuance at any time of any Event of Default, the Applicable
Margin shall be set at the level corresponding to a Fixed Charge Coverage Ratio
of less than or equal to 1.10. 

2 

                    “Business
Day” means a day other than a Saturday, Sunday or other day on which the Bank
is not open to the public for carrying on substantially all of its banking functions in
Detroit, Michigan. 

                    “Capital
Lease” of any person means any lease which, in accordance with Generally
Accepted Accounting Principles, is or should be capitalized on the books of such person. 

                    “Change-of-Control”
means: (a) Permitted Holders shall cease to own and control, free and clear of all Liens,
at least 51% (on a fully diluted basis) of the issued and outstanding shares of voting
capital stock of the Parent Guarantor and have the right and authority to appoint,
designate or otherwise elect at least 51% of the members of the board of directors of the
Parent Guarantor, (b) the Parent Guarantor shall cease to own and control, free and clear
of all Liens, 100% (on a fully diluted basis) of the issued and outstanding shares of
voting capital stock of the Company and have the right and authority to appoint, designate
or otherwise elect all of the members of the board of directors of the Company, or (c) any
“Change-of-Control”, as defined in any Indenture or Supplemental Indenture with
respect to any Subordinated Debt of the Parent Guarantor or any of its Subsidiaries, or
similar event causing a mandatory redemption with respect to any such Subordinated Debt. 

                    “Code”
means the Internal Revenue Code of 1986, as amended from time to time, and the regulations
thereunder. 

                    “Commitment”
means the commitment of the Bank to make Advances pursuant to Section 2.1, in amounts not
exceeding an aggregate principal amount outstanding of $17,500,000, as such amount may be
reduced from time to time pursuant to Section 2.2. 

                    “Consolidated”
or “consolidated” means, when used with reference to any financial term
in this Agreement, the aggregate for two or more persons of the amounts signified by such
term for all such persons determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles. 

                    “Contingent
Liabilities” of any person means, as of any date, all obligations of such
person or of others for which such person is contingently liable, as obligor, guarantor,
surety, accommodation party, partner or in any other capacity, or in respect of which
obligations such person assures a creditor against loss or agrees to take any action to
prevent any such loss (other than endorsements of negotiable instruments for collection in
the ordinary course of business), including without limitation all reimbursement
obligations of such person in respect of any letters of credit, surety bonds or similar
obligations (including, without limitation, bankers’ acceptances) and all obligations
of such person to advance funds to, or to purchase assets, property or services from, any
other person in order to maintain the financial condition of such other person; provided
that Contingent Liabilities of any person shall not include any contingent obligation of
such person under a contract entered into by such person in the ordinary course of
business, which contingent obligation would not, upon the occurrence of the event or
events upon which such obligation is conditioned, be classified as a liability on a
balance sheet of such person prepared in accordance with Generally Accepted Accounting
Principles.  

3 

                    “Contractual
Obligation” means as to any person, any provision of any security issued by
such person or of any agreement, instrument or other undertaking to which such person is a
party or by which it or any of its property is bound. 

                    “Default”
means any event or condition, which might become an Event of Default with notice or lapse
of time or both.  

                    “Dollars”
and “$” means the lawful money of the United States of America. 

                    “EBIT”
of any person for any period means the Net Income of such person for such period, plus, to
the extent deducted in determining such Net Income, (a) Interest Expense of such person
for such period, and (b) income and other taxes of such person determined by reference to
income or profits of such person for such period. 

                    “EBITDA”
of any person for any period means the Net Income of such person for such period, plus, to
the extent deducted in determining such Net Income and without duplication, (a) Interest
Expense of such person for such period, (b) income and other taxes of such person
determined by reference to income or profits of such person for such period, and (c)
depreciation and amortization of such person for such period. 

                    “Effective
Date” means the effective date specified in the final paragraph of this
Agreement. 

                    “Environmental
Certificate” means, with respect to any Guarantor, the Bank’s standard
form of Environmental Certificate in substantially the form annexed hereto as Exhibit A,
or with respect to the Company and the Parent Guarantor, the Environmental Certificate
dated February, 1996 executed and delivered by the Company and the Parent Guarantor to the
Bank in connection with the predecessor to the Existing Credit Agreement dated as of
February 1, 1996.  

                    “Environmental
Laws” has the meaning ascribed thereto in the Environmental Certificate. 

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

                    “ERISA
Affiliate” means, with respect to any person, any trade or business (whether
or not incorporated) which, together with such person or any Subsidiary of such person,
would be treated as a single employer under Section 414 of the Code and the regulations
promulgated thereunder. 

4 

                    “Eurodollar
Business Day” means, with respect to any Eurodollar Rate Loan, a day
which is both a Business Day and a day on which dealings in Dollar deposits are carried
out in the London interbank market. 

                    “Eurodollar
Interest Period” means, with respect to any Eurodollar Rate Loan, the
period commencing on the day such Eurodollar Rate Loan is made or converted to a
Eurodollar Rate Loan and ending on the day which is one, two, three or six months
thereafter (or such longer period acceptable to the Bank requested by the Company), as the
Company may elect under Section 2.4 or 2.7, and each subsequent period commencing on the
last day of the immediately preceding Eurodollar Interest Period and ending on the day
which is one, two, three or six months thereafter (or such longer period acceptable to the
Bank requested by the Company), as the Company may elect under Section 2.4 or 2.7,
provided, however, that (a) any Eurodollar Interest Period which commences on the last
Eurodollar Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month) shall end on
the last Eurodollar Business Day of the appropriate subsequent calendar month, (b) each
Eurodollar Interest Period which would otherwise end on a day which is not a Eurodollar
Business Day shall end on the next succeeding Eurodollar Business Day or, if such next
succeeding Eurodollar Business Day falls in the next succeeding calendar month, on the
next preceding Eurodollar Business Day, and (c) no Eurodollar Interest Period which would
end after the Termination Date shall be permitted.  

                    “Eurodollar
Rate” means, with respect to any Eurodollar Rate Loan and the related
Eurodollar Interest Period, the per annum rate that is equal to the sum of: 

                    (a)
the Applicable Margin, plus 

                    (b) the
rate per annum obtained by dividing (i) the per annum rate of interest at           which
deposits in Dollars for such Eurodollar Interest Period and in an           aggregate
amount comparable to the amount of such Eurodollar Rate Loan are           offered to the
Bank by other prime banks in the London interbank market at           approximately 11:00
a.m. London time on the second Eurodollar Business Day prior           to the first day
of such Eurodollar Interest Period by (ii) an amount equal to           one minus the
stated maximum rate (expressed as a decimal) of all reserve           requirements
(including, without limitation, any marginal, emergency,           supplemental, special
or other reserves) that are specified on the first day of           such Eurodollar
Interest Period by the Board of Governors of the Federal Reserve           System (or any
successor agency thereto) for determining the maximum reserve           requirement with
respect to eurocurrency funding (currently referred to as           “Eurocurrency
liabilities” in Regulation D of such Board) maintained           by a member bank of
such System;  

all as conclusively determined by
the Bank, such sum to be rounded up, if necessary, to the nearest whole multiple of one
one-hundredth of one percent (1/100 of 1%).  

5 

                    “Eurodollar
Rate Loan” means any Loan, which bears interest at the Eurodollar Rate. 

                    “Event
of Default” means any of the events or conditions described in Section
6.1. 

                    “Federal
Funds Rate” means the per annum rate established and announced by the
Bank from time to time as the opening federal funds rate paid by the Bank in its regional
federal funds market for overnight borrowings from other banks, as conclusively determined
by the Bank; which Federal Funds Rate shall change simultaneously with any change in such
announced rate. 

                    “Fixed
Charges” of any person means, for any period, the sum of (a) Interest Expense,
for interest payable in cash or cash equivalents, of such person for such period, plus (b)
Operating Lease Rental Expense of such person for such period. 

                    “Fixed
Charge Coverage Ratio” of any person means, for any period, the
ratio of (a) Adjusted EBIT of such person for such period to (b) Fixed Charges of such
person for such period. 

                    “Floating
Rate” means the per annum rate equal to the sum of (a) plus (b), where
“(a)” is the greater of (i) the Prime Rate in effect from time to time or (ii)
the sum of one percent (1%) per annum plus the Federal Funds Rate in effect from time to
time, and “(b)” is the Applicable Margin; which Floating Rate shall change
simultaneously with any change in such Prime Rate or Federal Funds Rate, as the case may
be. 

                    “Floating
Rate Loan” means any Loan, which bears interest at the Floating Rate. 

                    “Generally
Accepted Accounting Principles” means generally accepted
accounting principles applied on a basis consistent with that reflected in the financial
statements referred to in Section 4.6. 

                    “Guarantors”
shall mean the Parent Guarantor and the Subsidiary Guarantors; and “Guarantor”
shall mean any one of such Guarantors.  

                    “Guaranty
Agreements” shall mean the Parent Guaranty Agreement and the Subsidiary
Guaranty Agreements; and “Guaranty Agreement” shall mean any one of such
Guaranty Agreements.  

6 

                    “Indebtedness”
of any person means, as of any date, (a) all obligations of such person for borrowed
money, (b) all obligations of such person as lessee under any Capital Lease and all
obligations under leases, whether or not Capital Leases, for real property sold by the
Company pursuant to sale/leaseback transactions, (c) all obligations which are secured by
any Lien existing on any asset or property of such person whether or not the obligation
secured thereby shall have been assumed by such person (to the extent of such Lien if such
obligation is not assumed), (d) all obligations of such person for the unpaid purchase
price for goods, property or services acquired by such person, except for trade accounts
payable arising in the ordinary course of business, (e) all obligations of such person to
purchase goods, property or services where payment therefor is required regardless of
whether delivery of such goods or property or the performance of such services is ever
made or tendered (generally referred to as “take or pay contracts”), (f) all
liabilities of such person in respect of Unfunded Benefit Liabilities under any Plan of
such person or of any ERISA Affiliate, (g) all Rate Management Obligations of such person
(valued, as applicable, in an amount equal to the highest termination payment, if any,
that would be payable by such person upon termination for any reason on the date of
determination), and (h) all obligations of others similar in character to those described
in clauses (a) through (g) of this definition for which such person is contingently
liable, as guarantor, surety, accommodation party, partner or in any other capacity, or in
respect of which obligations such person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable instruments for
collection in the ordinary course of business), including without limitation all
reimbursement obligations of such person in respect of letters of credit, surety bonds or
similar obligations and all obligations of such person to advance funds to, or to purchase
assets, property or services from, any other person in order to maintain the financial
condition of such other person, and all other Contingent Liabilities. 

                    “Indenture”
refers to that certain Indenture, dated May 16, 2003, as supplemented by that certain
First Supplemental Indenture, dated as of May 16, 2003, and as further supplemented or
modified, by and between the Parent Guarantor and U.S. Bank National Association, a
national banking association, as trustee. 

                    “Interest
Expense” of any person for any period means all interest paid or payable
during such period by such person on Indebtedness of such person, including, without
limitation, the interest component of all obligations of such person under Capital Leases. 

                    “Interest
Payment Date” means (a) with respect to any Eurodollar Rate Loan, the
last day of each Interest Period with respect to such Eurodollar Rate Loan and, in the
case of any Interest Period exceeding three months, those days that occur during such
Interest Period at intervals of three months after the first day of such Interest Period,
and (b) in all other cases, the last Business Day of each March, June, September and
December occurring after the date hereof, commencing with the first such Business Day
occurring after the date of this Agreement. 

                    “Interest
Period” means any Eurodollar Interest Period. 

                    “Letter
of Credit” means a standby letter of credit having a stated expiry date
or date upon which the draft must be reimbursed not later than twelve months after the
Termination Date, issued by the Bank for the account of the Company under an application
and related documentation acceptable to the Bank requiring, among other things, immediate
reimbursement by the Company to the Bank in respect of all drafts or other demand for
payment honored thereunder and all expenses paid or incurred by the Bank relative thereto. 

7 

                    “Letter
of Credit Advance” means any issuance of a Letter of Credit
under Section 2.4 made pursuant to Section 2.1. 

                    “Letter
of Credit Documents” shall have the meaning ascribed thereto in
Section 3.3(b). 

                    “Lien”
means any pledge, assignment, hypothecation, mortgage, security interest, deposit
arrangement, option, conditional sale or title retaining contract, sale and leaseback
transaction, financing statement filing, lessor’s or lessee’s interest under any
lease, subordination of any claim or right, or any other type of lien, charge,
encumbrance, preferential arrangement or other claim or right. 

                    “Loan”
means any Revolving Credit Loan. Any such Loan or portion thereof may also be denominated
as a Floating Rate Loan or a Eurodollar Rate Loan and such Loans are referred to herein as
“types” of Loans. 

                    “Loan
Documents” means, collectively, this Agreement, the Note, the Security
Documents, all subordination agreements in favor of the Bank with respect to Subordinated
Debt, and all agreements, instruments and documents executed pursuant thereto at any time. 

                    “Mortgages”
means the mortgages entered into by the Company or any of the Guarantors for the benefit
of the Bank pursuant to this Agreement or the Existing Credit Agreement in form and
substance satisfactory to the Bank, as amended or modified from time to time. 

                    “Material
Adverse Effect” means a material adverse effect on (a) the business,
assets, operations or condition (financial or otherwise) of the Parent Guarantor and its
Subsidiaries taken as a whole, (b) the ability of the Company or any Guarantor to perform
its obligations under any Loan Document, or (c) the validity or enforceability of any Loan
Document or the rights or remedies of the Bank under any Loan Document. 

                    “Multiemployer
Plan” means any “multiemployer plan” as defined in Section
4001(a)(3) of ERISA or Section 414(f) of the Code. 

                    “Net
Income” of any person for any period means the net income of such person for
such period (after deduction of income and other taxes of such person determined by
reference to income or profits of such person for such period), determined in accordance
with Generally Accepted Accounting Principles. 

                    “Note”
means the Revolving Credit Note. 

8 

                    “Operating
Lease Rental Expense” of any person for any period means the
maximum amount of all rents and other payments (exclusive of property taxes, property and
liability insurance premiums and maintenance costs) paid or required to be paid by such
person during such period under any lease of real or personal property in respect of which
such person is obligated as a lessee or user, other than Capital Leases. 

                    “Overdue
Rate” means (a) in respect of principal of Floating Rate Loans, a rate per
annum that is equal to the sum of two percent (2%) per annum plus the Floating Rate, (b)
in respect of principal of Eurodollar Rate Loans, a rate per annum that is equal to the
sum of two percent (2%) per annum plus the per annum rate in effect thereon until the end
of the then-current Interest Period for such Loan and, thereafter, a rate per annum that
is equal to the sum of two percent (2%) per annum plus the Floating Rate, and (c) in
respect of other amounts payable by the Company hereunder (other than interest), a per
annum rate that is equal to the sum of two percent (2%) per annum plus the Floating Rate. 

                    “PBGC”
means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of
its functions under ERISA. 

                    “Parent
Guarantor” shall mean Learning Care Group, Inc., a Michigan corporation
formerly known as Childtime Learning Centers, Inc., which is the parent of the Company. 

                    “Parent
Guaranty Agreement” shall mean an irrevocable guaranty agreement, in
form and substance satisfactory to the Bank, made by the Parent Guarantor in favor of the
Bank, as amended or modified from time to time. 

                    “Permitted
Holders” shall mean (i) Benjamin R. Jacobson, and (ii) any person or persons
controlled by Benjamin R. Jacobson. 

                    “Permitted
Liens” means Liens permitted by Section 5.2(e) hereof. 

                    “person”
shall include an individual, a corporation, an association, a partnership, a limited
liability company, a trust or estate, a joint stock company, an unincorporated
organization, a joint venture, a trade or business (whether or not incorporated), a
government (foreign or domestic) and any agency or political subdivision thereof, or any
other entity. 

                    “Plan”
means, with respect to any person, any pension plan (including a Multiemployer Plan)
subject to Title IV of ERISA or to the minimum funding standards of Section 412 of the
Code which has been established or maintained by such person, any Subsidiary of such
person or any ERISA Affiliate, or by any other person if such person, any Subsidiary of
such person or any ERISA Affiliate could have liability with respect to such pension plan. 

                    “Pledge
Agreements” means the pledge agreements entered into by the Parent Guarantor,
the Company or any of their respective Subsidiaries for the benefit of the Bank pursuant
to this Agreement or the Existing Credit Agreement with respect to their respective
ownership interests from time to time in the Company or any other Subsidiaries of the
Parent Guarantor, any other capital stock and any other investment property owned by any
of them, in form and substance satisfactory to the Bank, as amended or modified from time
to time. 

9 

                    “Prime
Rate” means a rate per annum equal to the prime rate of interest announced
from time to time by the Bank or its parent (which is not necessarily the lowest rate
charged to any customer), changing when and as said prime rate. 

                    “Prohibited
Transaction” means any transaction involving any Plan, which is proscribed by
Section 406 of ERISA or Section 4975 of the Code. 

                    “Rate
Management Transaction” means any transaction (including an agreement
with respect thereto) now existing or hereafter entered into between the Company and the
Bank or any Affiliate thereof which is a rate swap, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange transaction, cap transaction,
floor transaction, collar transaction, forward transaction, currency swap transaction,
cross-currency rate swap transaction, currency option or any other similar transaction
(including any option with respect to any of these transactions) or any combination
thereof, whether linked to one or more interest rates, foreign currencies, commodity
prices, equity prices or other financial measures. 

                    “Rate
Management Obligations” of a person means any and all obligations of
such person, whether absolute or contingent and howsoever and whensoever created, arising,
evidenced or acquired (including all renewals, extensions and modifications thereof and
substitutions therefor), under (a) any and all Rate Management Transactions, and (b) any
and all cancellations, buy backs, reversals, terminations or assignments of any Rate
Management Transactions. 

                    “Reportable
Event” means a reportable event as described in Section 4043(b) of ERISA
including those events as to which the thirty (30) day notice period is waived under Part
2615 of the regulations promulgated by the PBGC under ERISA. 

                    “Revolving
Credit Loan” means any borrowing under Section 2.4 evidenced by the
Revolving Credit Note and made pursuant to Section 2.1. 

                    “Revolving
Credit Note” means any promissory note of the Company evidencing the
Revolving Credit Loans, in substantially the form annexed hereto as Exhibit B, as amended
or modified from time to time and together with any promissory note or notes issued in
exchange or replacement therefor.  

                    “Security
Agreements” shall mean the pledge and security agreements entered into by the
Company and the Guarantors for the benefit of the Bank pursuant to this Agreement or the
Existing Credit Agreement, in form and substance satisfactory to the Bank, as amended or
modified from time to time. 

10 

                    “Security
Documents” shall mean, collectively, the Mortgages, the Pledge Agreements, the
Security Agreements and the Guaranty Agreements and all other related agreements and
documents, including financing statements and similar documents, delivered pursuant to
this Agreement or otherwise entered into by any person to secure the Advances. 

                    “Subordinated
Debt” of any person shall mean, as of any date, that Indebtedness of such
person for borrowed money on terms and conditions satisfactory to the Bank, which is
expressly subordinate and junior in right and priority of payment to the Advances and
other Indebtedness of such person to the Bank in manner and by agreement satisfactory in
form and substance to the Bank. 

                    “Subsidiary”
of any person means any other person (whether now existing or hereafter organized or
acquired) in which (other than directors qualifying shares required by law) at least a
majority of the securities or other ownership interests of each class having ordinary
voting power or analogous right (other than securities or other ownership interests which
have such power or right only by reason of the happening of a contingency), at the time as
of which any determination is being made, are owned, beneficially and of record, by such
person or by one or more of the other Subsidiaries of such person or by any combination
thereof. “Subsidiary”, when used with respect to the Parent Guarantor, shall
include, without limitation, the Company. 

                    “Subsidiary
Guarantors” shall mean the Subsidiaries of the Company, the Parent Guarantor
or any other Guarantor that from time to time make Subsidiary Guaranty Agreements pursuant
to Section 5.1(f); and “Subsidiary Guarantor” shall mean any one of the
Subsidiary Guarantors.  

                    “Subsidiary
Guaranty Agreements” shall mean the irrevocable guaranty agreements, in
form and substance satisfactory to the Bank, from time to time made by Subsidiaries of the
Company, the Parent Guarantor or any other Guarantor pursuant to Section 5.1(f), as
amended or modified from time to time; and “Subsidiary Guaranty Agreement” shall
mean any one of the Subsidiary Guaranty Agreements. 

                    “Tangible
Capital Funds” of any person shall mean, as of any date, the sum of
Tangible Net Worth of such person plus Subordinated Debt of such person. 

                    “Tangible
Net Worth” of any person means, as of any date, (a) the amount of any
capital stock, paid-in capital, and similar equity accounts, plus (or minus in the case of
a deficit) the capital surplus and retained earnings of such person and the amount of any
foreign currency translation adjustment account shown as a capital account of such person,
less (b) the net book value of all items of the following character which are included in
the assets of such person: (i) goodwill, including, without limitation, the excess of the
cost to such person of acquiring any asset over the book value of such asset on the books
of such person, (ii) organization or experimental expenses, (iii) unamortized debt
discount and expense, (iv) patents, trademarks, trade names and copyrights, (v) treasury
stock, (vi) deferred charges, (vii) franchises, licenses and permits, and (viii) other
assets which are deemed intangible assets under Generally Accepted Accounting Principles. 

11 

                    “Termination
Date” means the earlier to occur of (a) July 31, 2006, and (b) the date on
which the Commitment shall be terminated pursuant to Section 2.2 or 6.2. 

                    “Trustee”
refers to the trustee from time to time under the Indenture. 

                    “Unfunded
Benefit Liabilities” means, with respect to any Plan as of any date,
the amount of the unfunded benefit liabilities determined in accordance with Section
4001(a)(18) of ERISA. 

                    1.2
Other Definitions; Rules of Construction. As used
herein, the terms “Bank”, “Company”, “Existing Credit
Agreement” and “this Agreement” shall have the respective meanings ascribed
thereto in the introductory paragraph of this Agreement. Such terms, together with the
other terms defined in Section 1.1, shall include both the singular and the plural forms
thereof and shall be construed accordingly. All computations required hereunder and all
financial terms used herein shall be made or construed in accordance with Generally
Accepted Accounting Principles unless such principles are inconsistent with the express
requirements of this Agreement; provided that, if the Company notifies the Bank that the
Company wishes to amend any covenant in Article V to eliminate the effect of any change in
Generally Accepted Accounting Principles in the operation of such covenant (or if the Bank
notifies the Company that the Bank wishes to amend Article V for such purpose), then the
Company’s compliance with such covenant shall be determined on the basis of Generally
Accepted Accounting Principles in effect immediately before the relevant change in
Generally Accepted Accounting Principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company and the
Bank. Use of the terms “herein”, “hereof”, and “hereunder”
shall be deemed references to this Agreement in its entirety and not to the Section or
clause in which such term appears. References to “Sections” and
“subsections” shall be to Sections and subsections, respectively, of this
Agreement unless otherwise specifically provided. Notwithstanding anything herein, in any
financial statements of the Company or in Generally Accepted Accounting Principles to the
contrary, for purposes of calculating and determining compliance with the financial
covenants in Section 5.2, as amended or modified from time to time, including defined
terms used therein, any permitted Acquisition (as defined in Section 5.2(g)) made by the
Parent Guarantor, the Company or any of the Parent Guarantor’s other Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the period for which such financial covenants were calculated shall
be deemed to have occurred on the first day of the relevant period for which such
financial covenants were calculated on a pro forma basis acceptable to the Bank.
Notwithstanding anything to the contrary, for purposes of calculating and determining
compliance with the financial covenants under Sections 5.2(a), 5.2(b) and 5.2(c), the
parties shall disregard the effects of all non-cash accounting charges and adjustments,
e.g., impairment losses with respect to intangible assets recognized in accordance with
Financial Accounting Standard 142, and including without limitation non-cash charges that
occur in connection with the purchase of stock by executive officers and management and
the on-going non-cash, mark-to-market adjustments by the Parent Guarantor with respect to
stock options for executive officers and management.  

12 

ARTICLE II.
THE
COMMITMENT AND THE ADVANCES  

                2.1
Commitment of the Bank.

                              (a) Advances.
The Bank agrees, subject to the terms and conditions of this           Agreement, to make
Revolving Credit Loans to the Company pursuant to Section 2.4           and Section 3.3,
and to make Letter of Credit Advances to the Company pursuant           to Section 2.4,
from time to time from and including the Effective Date to but           excluding the
Termination Date, not to exceed in aggregate principal amount at           any time
outstanding the amount determined pursuant to Section 2.1(b).  

                              (b) Limitation
on Amount of Advances. Notwithstanding
anything in this Agreement to the contrary, the aggregate principal amount of
the Advances made by the Bank at any time outstanding shall not exceed the
amount of the Commitment as of the date any such Advance is made, provided,
however, that the aggregate principal amount of Letter of Credit Advances
outstanding at any time shall not exceed $7,000,000. For purposes of this
Agreement, a Letter of Credit Advance (i) shall be deemed outstanding in an
amount equal to the sum of the maximum amount available to be drawn under the
related Letter of Credit on or after the date of determination and on or before
the stated expiry date thereof plus the amount of any draws under such Letter
of Credit that have not been reimbursed as provided in Section 3.3 and (ii)
shall be deemed outstanding at all times on and before such stated expiry date
or such earlier date on which all amounts available to be drawn under such
Letter of Credit have been fully drawn, and thereafter until all related
reimbursement obligations have been paid pursuant to Section 3.3. As provided
in Section 3.3, upon each payment made by the Bank in respect of any draft or
other demand for payment under any Letter of Credit, the amount of any Letter
of Credit Advance outstanding immediately prior to such payment shall be
automatically reduced by the amount of each Revolving Credit Loan deemed
advanced in respect of the related reimbursement obligation of the Company.  

                    2.2
Termination or Reduction of Commitment. The Company
shall have the right to terminate or reduce the Commitment at any time and from time to
time at its option, provided that (a) the Company shall give thirty (30) days’ prior
written notice of such termination or reduction to the Bank specifying the amount and
effective date thereof, (b) each partial reduction of the Commitment shall be in a minimum
amount of $1,000,000 and in an integral multiple of $500,000, (c) no such termination or
reduction shall be permitted with respect to any portion of the Commitment as to which a
request for an Advance pursuant to Section 2.4 is then pending and (d) the Commitment may
not be terminated if any Advances are then outstanding and may not be reduced below the
principal amount of Advances then outstanding. The Commitment or any portion thereof
terminated or reduced pursuant to this Section 2.2 may not be reinstated. 

13 

                    2.3
Fees. (a) The Company agrees to pay to the Bank a commitment fee on the daily
average unused amount of the Commitment during any calendar quarter, for the period from
the Effective Date to but excluding the Termination Date, at a rate equal to the
Applicable Margin. Accrued commitment fees shall be payable quarterly in arrears on the
last Business Day of each March, June, September and December, commencing on the first
such Business Day occurring after the Effective Date, and on the Termination Date. 

                              (b) On
or before the Effective Date, the Company shall pay to the Bank a facility           fee
in the amount of $10,000 in immediately available funds. Such facility fee
          shall be deemed earned upon receipt and shall not be refundable.  

                              (c)
The Company  further agrees to pay to the Bank a fee computed at the rate per annum equal to the
Applicable  Margin of the maximum  amount  available  to be drawn from time to time under  each  Letter of Credit for the period
from and  including  the  date of issuance of each such Letter of Credit and any  renewal or  extensions  thereof,  to and
including  the stated  expiry date of such Letter of Credit
such fee to be payable  quarterly  in  advance  on such date of  issuance  or  renewal  from time to time for the  period  from and
including  such date to and  including the next  following  Interest  Payment Date and on each  Interest  Payment Date for the next
following  quarter or portion  thereof prior to such stated expiry date.  Such fees are  nonrefundable  and the Company shall not be
entitled to any rebate of any portion thereof if such Letter of Credit does not remain outstanding  through its stated expiry date,
through any quarter or portion  thereof for which such fees have been paid in advance or for any other reason.  The Company  further
agrees to pay to the Bank, on demand, such other customary and reasonable  administrative  fees, charges and expenses of the Bank in
respect of the issuance,  negotiation,  acceptance,  amendment,  transfer and payment of such Letter of Credit or otherwise  payable
pursuant to the application and related documentation under which such Letter of Credit is issued. 

                    2.4
Disbursement of Advances. (a) On the Effective Date, all
“Advances” under the Existing Credit Agreement shall be deemed Advances
outstanding under, and made pursuant to, this Agreement. The Company shall give the Bank
notice of its request for each Advance on or after the Effective Date in substantially the
form of Exhibit C hereto not later than 1:00 p.m. Detroit time (i) three Eurodollar
Business Days prior to the date such Advance is requested to be made if such Advance is to
be made as a Eurodollar Rate Loan, (ii) five (5) Business Days prior to the date any
Letter of Credit Advance is requested to be made, and (iii) on the Business Day such
Advance is requested to be made in all other cases, which notice shall specify whether a
Eurodollar Rate Loan or Floating Rate Loan or a Letter of Credit Advance is requested and,
in the case of each requested Eurodollar Rate Loan, the Interest Period to be initially
applicable to such Loan and, in the case of each Letter of Credit Advance, such
information as may be necessary for the issuance thereof by the Bank. Subject to the terms
and conditions of this Agreement, the proceeds of each such requested Loan shall be made
available to the Company by depositing the proceeds thereof in immediately available
funds, in an account maintained and designated by the Company at the principal office of
the Bank. Subject to the terms and conditions of this Agreement, the Bank shall, on the
date any Letter of Credit Advance is requested to be made, issue the related Letter of
Credit for the account of the Company. Notwithstanding anything herein to the contrary,
the Bank may decline to issue any requested Letter of Credit on the basis that the
beneficiary, the purpose of issuance or the terms or the conditions of drawing are
unacceptable to it in its reasonable discretion; provided that Letters of Credit requested
by the Company in accordance with the terms of this Agreement in the ordinary course of
business in support of worker’s compensation insurance or construction performance
guaranties shall be acceptable to the Bank. 

14 

                              (b) All
Revolving Credit Loans made under this Section 2.4 shall be evidenced by the
Revolving Credit Note, and all such Loans shall be due and payable and bear
interest as provided in Article III. The Bank is hereby authorized by the
Company to record on the schedule attached to the Note, or in its books and
records, the date, amount and type of each Loan and the duration of the related
Interest Period (if applicable), the amount of each payment or prepayment of
principal thereon, and the other information provided for on such schedule,
which schedule or books and records, as the case may be, shall constitute prima
facie evidence of the information so recorded, provided, however, that failure
of the Bank to record, or any error in recording, any such information shall
not relieve the Company of its obligation to repay the outstanding principal
amount of the Loans, all accrued interest thereon and other amounts payable
with respect thereto in accordance with the terms of the Notes and this
Agreement. Subject to the terms and conditions of this Agreement, the Company
may borrow Revolving Credit Loans under this Section 2.4 and under Section 3.3,
prepay Revolving Credit Loans pursuant to Section 3.1, and reborrow Revolving
Credit Loans under this Section 2.4 and under Section 3.3.  

                    2.5
Conditions for Effectiveness and First
Disbursement. The effectiveness of this Agreement and the obligation of the Bank to
make the first Advance hereunder are subject to receipt by the Bank of the following
documents and completion of the following matters, in form and substance satisfactory to
the Bank: 

                              (a) Charter Documents of Company. Certificates
of recent           date of the appropriate authority or official of the Company’s
state of           incorporation (listing all charter documents of the Company on file in
that           office if such listing is available) and certifying as to the good
standing and           corporate existence of the Company, together with copies of such
charter           documents of the Company, certified as of a recent date by such
authority or           official and certified as true and correct as of the Effective
Date by a duly           authorized officer of the Company (or a bring-down of a prior
certification           thereof);  

                              (b) By-Laws and Corporate Authorizations of Company. The
Company’s by-laws (or a bring-down of a prior           certification thereof),
together with all authorizing resolutions and evidence           of other corporate
action taken by the Company to authorize its execution,           delivery and
performance of this Agreement and the other Loan Documents to which           it is a
party, and the consummation by the Company of the transactions           contemplated
hereby, certified as true and correct as of the Effective Date by a           duly
authorized officer of the Company;  

                              (c) Incumbency Certificate of Company. A
certificate of           incumbency of the Company containing, and attesting to the
genuineness of, the           signatures of those officers authorized to act on behalf of
the Company in           connection with this Agreement and the other Loan Documents and
the consummation           by the Company of the transactions contemplated hereby,
certified as true and           correct as of the Effective Date by a duly authorized
officer of the Company;  

15 

                              (d) Charter Documents of Parent Guarantor.          Certificates
of recent date of the appropriate authority or official of the           Parent Guarantor’s
state of incorporation (listing all charter documents of           the Parent Guarantor
on file in that office if such listing is available) and           certifying as to the
good standing and corporate existence of the Parent           Guarantor, together with
copies of such charter documents of the Parent           Guarantor, certified as a recent
date by such authority or official and           certified as true and correct as of the
Effective Date by a duly authorized           officer of the Parent Guarantor (or a
bring-down of a prior certification           thereof);  

                              (e) By-Laws and Corporate Authorizations of Parent Guarantor. The
Parent Guarantor’s by-laws (or a           bring-down of a prior certification
thereof), together with all authorizing           resolutions and evidence of other
corporate action taken by the Parent Guarantor           to authorize its execution,
delivery and performance of the Loan Documents to           which it is a party, and the
consummation by the Parent Guarantor of the           transactions contemplated thereby,
certified as true and correct as of the           Effective Date by a duly authorized
officer of the Parent Guarantor;  

                              (f) Incumbency Certificate of Parent Guarantor. A
          certificate of incumbency of the Parent Guarantor containing, and attesting to
          the genuineness of, the signatures of those officers authorized to act on
behalf           of the Parent Guarantor in connection with the Loan Documents to which
it is a           party and the consummation by the Parent Guarantor of the transactions
          contemplated thereby, certified as true and correct as of the Effective Date by
          a duly authorized officer of the Parent Guarantor;  

                              (g) Charter Documents of Subsidiary Guarantors.          Certificates
of recent date of the appropriate authority or official of each           Subsidiary
Guarantor’s respective state of incorporation (listing all           charter
documents of each such Guarantor on file in that office if such listing           is
available) and certifying as to the good standing and corporate existence of
          each such Guarantor, together with copies of such charter documents of each
such           Guarantor, certified as a recent date by such authority or official and
          certified as true and correct as of the Effective Date by a duly authorized
          officer of each such Guarantor;  

                              (h) By-Laws and Corporate Authorizations of Subsidiary Guarantors. Each
Subsidiary Guarantor’s respective           by-laws, together with all authorizing
resolutions and evidence of other           corporate action taken by each such Guarantor
to authorize its execution,           delivery and performance of the Loan Documents to
which it is a party, and the           consummation by each such Guarantor of the
transactions contemplated thereby,           certified as true and correct as of the
Effective Date by a duly authorized           officer of such Guarantor;  

16 

                              (i) Incumbency Certificates of Subsidiary Guarantors. A
certificate of incumbency of each Subsidiary Guarantor,           respectively,
containing, and attesting to the genuineness of, the signatures of           those
officers authorized to act on behalf of each such Guarantor in connection           with
the Loan Documents to which it is a party and the consummation by each such
          Guarantor of the transactions contemplated thereby, certified as true and
          correct as of the Effective Date by a duly authorized officer of each such
          Guarantor;  

                              (j) Note.
The Revolving Credit Note in the principal amount of $17,500,000           duly executed
on behalf of the Company, which shall issued in replacement of the           “Revolving
Credit Note” outstanding under the Existing Credit           Agreement;  

                              (k) Guaranty Agreements.
The Parent Guaranty Agreement and the           Subsidiary Guaranty Agreements duly
executed on behalf of the Parent Guarantor           and each Subsidiary Guarantor,
respectively, or written confirmation of such           Guaranty Agreements already in
effect;  

                              (l) Personal Property Security Documents. The
Security           Agreements duly executed on behalf of the Company and the Guarantors,
          respectively, granting to the Bank the personal property collateral intended to
          be provided pursuant to Section 2.10, or written confirmations of such Security
          Agreements already in effect, together with:  

                                        (i) Recording, Filing, Etc.
Evidence of the recordation, filing           and other action (including payment of any
applicable taxes or fees) in such           jurisdictions as the Bank may deem necessary
or appropriate with respect to the           Security Documents, including the filing of
financing statements and similar           documents which the Bank may deem necessary or
appropriate to create, preserve           or perfect the liens, security interests and
other rights intended to be granted           to the Bank thereunder, together with
Uniform Commercial Code record searches in           such offices as the Bank may
request; and  

                                        (ii) Casualty and Other Insurance.
Evidence that the           casualty and other insurance required pursuant to this
Agreement and the           Security Agreements is in full force and effect;  

                              (m) Legal Opinion.
The favorable written opinions of counsel for the           Company and the Guarantors
with respect to such matters as the Bank may           reasonably request;  

                              (n) Consents, Approvals, Etc.
Copies of all governmental and           nongovernmental consents, approvals,
authorizations, declarations, registrations           or filings, if any, required on the
part of the Company or the Guarantors in           connection with the execution,
delivery and performance of this Agreement, the           Note, the Security Documents
and any confirmations thereof or the transactions           contemplated hereby or as a
condition to the legality, validity or           enforceability of this Agreement, the
Note, the Security Documents or any           confirmations thereof, certified as true
and correct and in full force and           effect as of the Effective Date by a duly
authorized officer of the Company, or,           if none is required, a certificate of
such officer to that effect;  

17 

                              (o) Confirmations of Mortgages. Written
confirmations of all           existing Mortgages duly executed on behalf of the Company;  

                              (p) Fee.
Payment of the $10,000 facility fee required under Section 2.3(b);           and  

                              (q) Other Documents and Matters. Such
other documents,           and completion of such other matters, as the Bank may
reasonably request and the           Company or any Guarantor, as the case may be, can
reasonably provide, including           without limitation completion of the Bank’s
due diligence with respect to           the Parent and the Company (including without
limitation their respective           business, assets, operations and condition
(financial or otherwise)).  

                    2.6
Further Conditions for Disbursement. The obligation of the Bank
to make any Advance (including the first Advance), or any continuation or conversion
under Section 2.7, is further subject to the following conditions being satisfied:  

                              (a) The
representations and warranties contained in Article IV shall be true and
          correct on and as of the date such Advance is made (both before and after such
          Advance is made) as if such representations and warranties were made on and as
          of such date;  

                              (b) No
Default or Event of Default shall exist or shall have occurred and be
          continuing on the date such Advance is made (whether before or after such
          Advance is made); and  

                              (c) In
the case of any Letter of Credit Advance, the Company shall have delivered to
          the Bank an application for the related Letter of Credit and other related
          documentation requested by and acceptable to the Bank appropriately completed
          and duly executed on behalf of the Company.  

The Company shall be deemed to have
made a representation and warranty to the Bank at the time of the making of, and the
continuation or conversion of, each Advance to the effects set forth in clauses (a) and
(b) of this Section 2.6. For purposes of this Section 2.6, the representations and
warranties contained in Section 4.6 shall be deemed made with respect to both the
financial statements referred to therein and the most recent financial statements
delivered pursuant to Section 5.1(d)(ii) and (iii).  

18 

                    2.7
Subsequent Elections as to Loans. The Company may elect
(a) to continue a Eurodollar Rate Loan, or a portion thereof, as a Eurodollar Rate Loan or
(b) to convert a Eurodollar Rate Loan, or a portion thereof, to a Floating Rate Loan or
(c) to convert a Floating Rate Loan, or a portion thereof, to a Eurodollar Rate Loan in
each case by giving notice thereof to the Bank in substantially the form of Exhibit D
hereto not later than 1:00 p.m. Detroit time three Eurodollar Business Days prior to the
date any such continuation of or conversion to a Eurodollar Rate Loan is to be effective
and not later than 1:00 p.m. Detroit time on the Business Day such continuation or
conversion is to be effective in all other cases, provided that an outstanding Eurodollar
Rate Loan may only be converted on the last day of the then current Interest Period with
respect to such Loan, and provided, further, if a continuation of a Loan as, or a
conversion of a Loan to, a Eurodollar Rate Loan is requested, such notice shall also
specify the Interest Period to be applicable thereto upon such continuation or conversion.
If the Company shall not timely deliver such a notice with respect to any outstanding
Eurodollar Rate Loan, the Company shall be deemed to have elected to convert such
Eurodollar Rate Loan to a Floating Rate Loan on the last day of the then current Interest
Period with respect to such Loan.  

                    2.8
Limitation of Requests and Elections. Notwithstanding
any other provision of this Agreement to the contrary, if, upon receiving a request for a
Eurodollar Rate Loan pursuant to Section 2.4, or a request for a continuation of a
Eurodollar Rate Loan as a Eurodollar Rate Loan, or a request for a conversion of a
Floating Rate Loan to a Eurodollar Rate Loan pursuant to Section 2.7, (a) deposits in
Dollars for periods comparable to the Interest Period elected by the Company are not
available to the Bank in the London interbank market, or (b) the Eurodollar Rate will not
adequately and fairly reflect the cost to the Bank of making, funding or maintaining the
related Eurodollar Rate Loan, or (c) by reason of national or international financial,
political or economic conditions or by reason of any applicable law, treaty or other
international agreement, rule or regulation (whether domestic or foreign) now or hereafter
in effect, or the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by the Bank with
any guideline, request or directive of such authority (whether or not having the force of
law), including without limitation exchange controls, it is impracticable, unlawful or
impossible for, or shall limit or impair the ability of, the Bank to make or fund the
relevant Loan or to continue such Loan as a Eurodollar Rate Loan or to convert a Loan to a
Eurodollar Rate Loan, then the Company shall not be entitled, so long as such
circumstances continue, to request a Eurodollar Rate Loan pursuant to Section 2.4 or a
continuation of or conversion to a Eurodollar Rate Loan pursuant to Section 2.7. In the
event that such circumstances no longer exist, the Bank shall again consider requests for
Eurodollar Rate Loans pursuant to Section 2.4, and requests for continuations of and
conversions to Eurodollar Rate Loans pursuant to Section 2.7. 

                    2.9
Minimum Amounts; Limitation on Number of
Advances; Etc. Except for (a) Advances which exhaust the entire remaining
amount of the Commitment, and (b) payments required pursuant to Section 3.8, each
Eurodollar Rate Loan and each continuation thereof or conversion thereto pursuant to
Section 2.7 shall be in a minimum amount of $1,000,000 or in an integral multiple of
$50,000, each Floating Rate Loan and each prepayment thereof shall be in a minimum amount
of $25,000 and in an integral multiple thereof, and each Letter of Credit Advance shall be
in a minimum amount of $10,000. The aggregate number of Eurodollar Rate Loans outstanding
at any one time under this Agreement may not exceed ten. The aggregate number of Letter of
Credit Advances outstanding at any time under this Agreement may not exceed ten. 

19 

                    2.10
Security and Collateral. To secure the payment when due of the Note
and all other obligations of the Company under this Agreement to the Bank, the Company
shall execute and deliver, or cause to be executed and delivered, to the Bank Security
Documents granting the following: 

                              (a) First-priority
security interests in all present and future personal property of           the Company,
other than fixtures.  

                              (b) First-priority
pledges of all ownership interests from time to time in the           Company or any
other Subsidiaries of the Parent Guarantor, and any other capital           stock and any
other investment property owned by the Parent Guarantor, the           Company or any
other Guarantor.  

                              (c) Guarantees
of the Parent Guarantor, all Subsidiaries of the Parent Guarantor           (other than
the Company) or the Company, and all Subsidiaries of any other           Guarantor.  

                              (d) First-priority
security interests in all present and future personal property of           the
Guarantors.  

                              (e) In
accordance with Section 5.1(f), first-priority mortgage liens on all real
          property of the Company and the Guarantors from time to time; provided that,
          with respect to any such real property acquired after the Effective Date, so
          long as no Default or Event of Default has occurred and is continuing, the Bank
          in its sole discretion determines that the Company’s obligations under
this           Agreement, the Note and the other Loan Documents are fully and
appropriately           secured and such additional real property collateral would be
taken by the Bank           solely through an abundance of caution, then under such
circumstances the           Company shall not be required to provide the items identified
under Sections           5.1(f)(iii)(C) and (D) or any opinion of local counsel under
Section           5.1(f)(iii)(G) with respect to the Mortgages for such real property.  

                              (f) All
other security and collateral described in the Security Documents.  

                    Section
2.11 Cash Collateral for Letters of Credit. At
any time on or after the fifth (5th) Business Day prior to the Termination
Date, the Bank may by notice to the Company demand immediate delivery of cash collateral,
and the Company agrees to deliver such cash collateral upon demand, in an amount equal to
the maximum amount that may be available to be drawn at any time prior to the stated
expiry of all outstanding Letters of Credit. Such cash collateral delivered shall be
deposited in a special cash collateral account to be held by the Bank as collateral
security for the payment and performance of the Company’s obligations under this
Agreement to the Bank. 

20 

ARTICLE III. 
PAYMENTS
AND PREPAYMENTS OF ADVANCES  

                    3.1
Principal Payments and Prepayments. (a) Unless earlier payment
is required under this Agreement, the Company shall pay to the Bank on the Termination
Date the entire outstanding principal amount of the Revolving Credit Loans. 

                              (b) The
Company may at any time and from time to time prepay all or a portion of the
Loans, without premium or penalty, provided that (i) the Company may not prepay
any portion of any Loan as to which an election for a continuation of or a
conversion to a Eurodollar Rate Loan is pending pursuant to Section 2.7, and
(ii) unless earlier payment is required under this Agreement, any Eurodollar
Rate Loan may only be prepaid on the last day of the then current Interest
Period with respect to such Loan.  

          3.2
Interest Payments. The Company shall pay interest to the Bank on the unpaid
principal amount of each Loan, for the period commencing on the date such Loan is made
until such Loan is paid in full, on each Interest Payment Date and at maturity (whether
at stated maturity, by acceleration or otherwise), and thereafter on demand, at the
following rates per annum:  

                              (a) During
such periods that such Loan is a Floating Rate Loan, the Floating Rate;           and  

                              (b) During
such periods that such Loan is a Eurodollar Rate Loan, the Eurodollar           Rate
applicable to such Loan for each related Eurodollar Interest Period.  

Notwithstanding the foregoing
paragraphs (a) and (b), the Company shall pay interest on demand by the Bank at the
Overdue Rate on the outstanding principal amount of any Loan and any other amount payable
by the Company hereunder (other than interest) at any time on or after an Event of
Default if required in writing by the Bank.  

                    3.3
Letter of Credit Reimbursement Payments. (a) (i) The
Company agrees to pay to the Bank, on the day on which the Bank shall honor a draft or
other demand for payment presented or made under any Letter of Credit, an amount equal to
the amount paid by the Bank in respect of such draft or other demand under such Letter of
Credit and all expenses paid or incurred by the Bank relative thereto. Unless the Company
shall have made such payment to the Bank on such day, upon each such payment by the Bank,
the Bank shall be deemed to have disbursed to the Company, and the Company shall be deemed
to have elected to satisfy its reimbursement obligation by, a Revolving Credit Loan
bearing interest at the Floating Rate in an amount equal to the amount so paid by the Bank
in respect of such draft or other demand under such Letter of Credit. Such Revolving
Credit Loan shall be disbursed notwithstanding any failure to satisfy any conditions for
disbursement of any Loan set forth in Article II hereof and, to the extent of the
Revolving Credit Loan so disbursed, the reimbursement obligation of the Company under this
Section 3.3 shall be deemed satisfied; provided, however, that nothing in this Section 3.3
shall be deemed to constitute a waiver of any Default or Event of Default caused by the
failure to the conditions for disbursement or otherwise.  

21 

                                        (ii) If,
for any reason (including without limitation as a result of the occurrence           of
an Event of Default with respect to the Company pursuant to Section 6.1(h)),
          Floating Rate Loans may not be made by the Bank as described in Section
          3.3(a)(i), then the Company agrees that each reimbursement amount not paid
          pursuant to the first sentence of Section 3.3(a)(i) shall bear interest,
payable           on demand by the Bank, at the interest rate then applicable to Floating
Rate           Loans.  

                              (b) The
reimbursement obligation of the Company under this Section 3.3 shall be
          absolute, unconditional and irrevocable and shall remain in full force and
          effect until all obligations of the Company to the Bank hereunder shall have
          been satisfied, and such obligations of the Company shall not be affected,
          modified or impaired upon the happening of any event, including without
          limitation, any of the following, whether or not with notice to, or the consent
          of, the Company:  

                                        (i) Any
lack of validity or enforceability of any Letter of Credit or any           documentation
relating to any Letter of Credit or to any transaction related in           any way to
such Letter of Credit (the “Letter of Credit Documents”);  

                                        (ii) Any
amendment, modification, waiver, consent, or any substitution, exchange or
          release of or failure to perfect any interest in collateral or security, with
          respect to any of the Letter of Credit Documents;  

                                        (iii) The
existence of any claim, setoff, defense or other right which the Company may
          have at any time against any beneficiary or any transferee of any Letter of
          Credit (or any persons or entities for whom any such beneficiary or any such
          transferee may be acting), the Bank or any other person or entity, whether in
          connection with any of the Letter of Credit Documents, the transactions
          contemplated herein or therein or any unrelated transactions;  

                                        (iv) Any
draft or other statement or document presented under any Letter of Credit
          proving to be forged, fraudulent, invalid or insufficient in any respect or any
          statement therein being untrue or inaccurate in any respect;  

                                        (v) Payment
by the Bank to the beneficiary under any Letter of Credit against           presentation
of documents which do not comply with the terms of the Letter of           Credit,
including failure of any documents to bear any reference or adequate           reference
to such Letter of Credit;  

                                        (vi) Any
failure, omission, delay or lack on the part of the Bank or any party to any           of
the Letter of Credit Documents to enforce, assert or exercise any right,           power
or remedy conferred upon the Bank or any such party under this Agreement           or any
of the Letter of Credit Documents, or any other acts or omissions on the           part
of the Bank or any such party; or  

22 

                                        (vii) Any
other event or circumstance that would, in the absence of this clause,           result
in the release or discharge by operation of law or otherwise of the           Company
from the performance or observance of any obligation, covenant or           agreement
contained in this Section 3.3.  

No setoff, counterclaim, reduction
or diminution of any obligation or any defense of any kind or nature which the Company
has or may have against the beneficiary of any Letter of Credit shall be available
hereunder to the Company against the Bank. Nothing in this Section 3.3 shall limit the
liability, if any, of the Bank to the Company pursuant to Section 7.5.  

                    3.4
Payment Method. (a) All payments to be made by the Company hereunder will be
made to the Bank in Dollars and in immediately available funds not later than 1:00 p.m. at
the principal office of the Bank specified in Section 7.2. Payments received after 1:00
p.m. at the place for payment shall be deemed to be payments made prior to 1:00 p.m. at
the place for payment on the next succeeding Business Day. The Company hereby authorizes
the Bank to charge its account with the Bank in order to cause timely payment of amounts
due hereunder to be made (subject to sufficient funds being available in such account for
that purpose). 

                              (b) At
the time of making each such payment, the Company shall, subject to the other
          terms and conditions of this Agreement, specify to the Bank that Loan or other
          obligation of the Company hereunder to which such payment is to be applied. In
          the event that the Company fails to so specify the relevant obligation or if an
          Event of Default shall have occurred and be continuing, the Bank may apply such
          payments as it may determine in its sole discretion.  

                    3.5
No Setoff or Deduction. All payments of principal of and
interest on the Loans and other amounts payable by the Company hereunder shall be made by
the Company without setoff or counterclaim, and, subject to the next succeeding sentence,
free and clear of, and without deduction or withholding for, or on account of, any present
or future taxes, levies, imposts, duties, fees, assessments, or other charges of whatever
nature, imposed by any governmental authority, or by any department, agency or other
political subdivision or taxing authority. If any such taxes, levies, imposts, duties,
fees, assessments or other charges are imposed, the Company will pay such additional
amounts as may be necessary so that payment of principal of and interest on the Loans and
other amounts payable hereunder, after withholding or deduction for or on account thereof,
will not be less than any amount provided to be paid hereunder and, in any such case, the
Company will furnish to the Bank certified copies of all tax receipts evidencing the
payment of such amounts within 45 days after the date any such payment is due pursuant to
applicable law. 

                    3.6
Payment on Non-Business Day; Payment
Computations. Except as otherwise provided in this Agreement to the contrary,
whenever any installment of principal of, or interest on, any Loan or any other amount due
hereunder becomes due and payable on a day which is not a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day and, in the case of any
installment of principal, interest shall be payable thereon at the rate per annum
determined in accordance with this Agreement during such extension. Computations of
interest and other amounts due under this Agreement shall be made on the basis of a year
of 360 days (or 365 or 366 days, as the case may be, when determining the Floating Rate)
for the actual number of days elapsed, including the first day but excluding the last day
of the relevant period. 

23 

                    3.7
Additional Costs. (a) In the event that any applicable law, treaty or other
international agreement, rule or regulation (whether domestic or foreign) now or hereafter
in effect and whether or not presently applicable to the Bank, or any interpretation or
administration thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline, request or directive
of any such authority (whether or not having the force of law), shall (i) affect the basis
of taxation of payments to the Bank of any amounts payable by the Company under this
Agreement (other than taxes imposed on the overall net income of the Bank, by the
jurisdiction, or by any political subdivision or taxing authority of any such
jurisdiction, in which the Bank has its principal office), or (ii) shall impose, modify or
deem applicable any reserve, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by the Bank, or (iii) shall impose
any other condition with respect to this Agreement, or the Commitment, the Note, any Loan
or any Letter of Credit, and the result of any of the foregoing is to increase the cost to
the Bank of making, funding or maintaining any Eurodollar Rate Loan or any Letter of
Credit or to reduce the amount of any sum receivable by the Bank thereon, then the Company
shall pay to the Bank, from time to time, upon request by the Bank additional amounts
sufficient to compensate the Bank for such increased cost or reduced sum receivable to the
extent, in the case of any Eurodollar Rate Loan, the Bank is not compensated therefor in
the computation of the interest rate applicable to such Eurodollar Rate Loan. A statement
as to the amount of such increased cost or reduced sum receivable, prepared in good faith
and in reasonable detail by the Bank and submitted by the Bank to the Company, shall be
conclusive and binding for all purposes absent manifest error in computation. 

                              (b) In
the event that any applicable law, treaty or other international agreement,
          rule or regulation (whether domestic or foreign) now or hereafter in effect and
          whether or not presently applicable to the Bank, or any interpretation or
          administration thereof by any governmental authority charged with the
          interpretation or administration thereof, or compliance by the Bank with any
          guideline, request or directive of any such authority (whether or not having
the           force of law), including any risk-based capital guidelines, affects or
would           affect the amount of capital required or expected to be maintained by the
Bank           (or any corporation controlling the Bank) and the Bank determines that the
          amount of such capital is increased by or based upon the existence of the
          Bank’s obligations hereunder and such increase has the effect of reducing
          the rate of return on the Bank’s (or such controlling corporation’s)
          capital as a consequence of such obligations hereunder to a level below that
          which the Bank (or such controlling corporation) could have achieved but for
          such circumstances (taking into consideration its policies with respect to
          capital adequacy), then the Company shall pay to the Bank from time to time,
          upon request by the Bank, additional amounts sufficient to compensate such Bank
          (or such controlling corporation) for any increase in the amount of capital and
          reduced rate of return which the Bank reasonably determines to be allocable to
          the existence of the Bank’s obligations hereunder. A statement as to the
          amount of such compensation, prepared in good faith and in reasonable detail by
          the Bank and submitted by such Bank to the Company, shall be conclusive and
          binding for all purposes absent manifest error in computation. The Bank may, at
          its option, specify that such amounts be paid by way of an increase in the
          commitment fees payable by the Company pursuant to Section 2.3(a).  

24 

                              (c) Notwithstanding
anything herein to the contrary, the Bank shall be entitled to           compensation
under this Section 3.7 for any increased cost or reduced rate of           return only
for the period from and after date that is no more than 30 days           prior to the
date the Bank notifies the Company, or the Company otherwise           learns, of the
circumstances giving rise to such increased cost or reduced rate           of return.  

                    3.8
Illegality and Impossibility. In the event that any applicable law,
treaty or other international agreement, rule or regulation (whether domestic or foreign)
now or hereafter in effect and whether or not presently applicable to the Bank, or any
interpretation or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any guideline,
request or directive of such authority (whether or not having the force of law), including
without limitation exchange controls, shall make it unlawful or impossible for the Bank to
maintain any Loan under this Agreement, the Company shall upon receipt of notice thereof
from the Bank repay in full the then outstanding principal amount of each Loan so
affected, together with all accrued interest thereon to the date of payment and all
amounts owing to the Bank under Section 3.9, (a) on the last day of the then-current
Interest Period applicable to the Loan if the Bank may lawfully continue to maintain the
Loan to that day, or (b) immediately if the Bank may not continue to maintain the Loan to
that day. 

                    3.9
Indemnification. If the Company makes any payment of principal with respect to any
Eurodollar Rate Loan on any other date than the last day of an Interest Period applicable
thereto (whether pursuant to Section 3.8, Section 6.2 or otherwise), or if the Company
fails to borrow any Eurodollar Rate Loan after notice has been given to the Bank in
accordance with Section 2.4, or if the Company fails to make any payment of principal or
interest in respect of a Eurodollar Rate Loan when due, the Company shall reimburse the
Bank on demand for any resulting loss or expense incurred by the Bank, including without
limitation any loss incurred in obtaining, liquidating or employing deposits from third
parties, whether or not the Bank shall have funded or committed to fund the Loan. A
statement as to the amount of such loss or expense, prepared in good faith and in
reasonable detail by the Bank and submitted by the Bank to the Company, shall be
conclusive and binding for all purposes absent manifest error in computation. Calculation
of all amounts payable to the Bank under this Section 3.9 shall be made as though the Bank
shall have actually funded or committed to fund the relevant Eurodollar Rate Loan through
the purchase of an underlying deposit in an amount equal to the amount of the Loan in the
relevant market and having a maturity comparable to the related Interest Period and,
through the transfer of such deposit to a domestic office of the Bank in the United
States; provided, however, that the Bank may fund any Eurodollar Rate Loan in any manner
it sees fit and the foregoing assumption shall be utilized only for the purpose of
calculating amounts payable under this Section 3.9.  

25 

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES  

                    The
Company represents and warrants to the Bank that: 

                    4.1 Existence
and Power. Each of the Company and the Guarantors is a corporation or
limited liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its state of incorporation or organization, and is duly
qualified to do business, and is in good standing, in all additional jurisdictions where
such qualification is necessary under applicable law. Each of the Company and the
Guarantors has all requisite corporate or limited liability company, as the case may be,
power to own or lease the properties used in its business and to carry on its business as
now being conducted and as proposed to be conducted, and to execute and deliver the Loan
Documents to which it is a party and to engage in the transactions contemplated thereby. 

                    4.2
Corporate Authority. The execution, delivery and performance by each of the
Company and the Guarantors of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate or limited liability company, as the case may be,
action and are not in contravention of any law, rule or regulation, or any judgment,
decree, writ, injunction, order or award of any arbitrator, court or governmental
authority, or of the terms of the Company’s or any Guarantor’s charter or
by-laws or operating agreement, if any, as applicable, or of any contract or undertaking
to which the Company or any Guarantor is a party or by which the Company or any Guarantor
or any of their respective property may be bound or affected and will not result in the
imposition of any Lien on any of their property or of any of their respective
Subsidiaries’ property except for Permitted Liens. 

                    4.3
Binding Effect. This Agreement is, and the Note when delivered hereunder
will be, legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms. Each Security Document is, or upon its
execution and delivery hereunder will be, a legal, valid and binding obligation of the
Company or the Guarantor party thereto, enforceable against the Company or such Guarantor,
as the case may be, in accordance with their respective terms. 

                    4.4
Subsidiaries. Schedule 4.4 hereto correctly sets forth the
legal name, jurisdiction of incorporation or organization and ownership of each Subsidiary
of the Company and the Parent Guarantor. Each such Subsidiary and each entity becoming a
Subsidiary of the Company or the Parent Guarantor after the date hereof is and will be a
corporation or limited liability company duly organized, valid existing and in good
standing under the laws of its jurisdiction of incorporation or organization and is and
will be duly qualified to do business in each additional jurisdiction where such
qualification is or may be necessary under applicable law. Each Subsidiary of the Company
and the Parent Guarantor has and will have all requisite corporate or limited liability
company, as the case may be, power to own or lease the property used in its business and
to carry on its business as now being conducted and as proposed to be conducted. All
outstanding shares of capital stock, membership interests and other equity interests, as
the case may be, of each class of each Subsidiary of the Company and the Parent Guarantor
have been and will be validly issued and are and will be fully paid and nonassessable and,
except as disclosed in writing to the Bank from time to time, are and will be owned,
beneficially and of record, by the Company or the Parent Guarantor, or another Subsidiary
of the Company or the Parent Guarantor, free and clear of any Liens. Childtime Childcare
– Michigan, Inc. (“CC-MI”), a former Subsidiary, was automatically
dissolved by the Michigan Department of Labor & Economic Growth. At the time of such
dissolution CC-MI was not operating and had no assets, and as of the date hereof CC-MI is
not operating and has no assets. 

26 

                    4.5
Litigation. Except as described in Schedule 4.5 hereto, there is no
action, suit or proceeding pending or, to the best of the Company’s and the
Guarantors’ knowledge, threatened against or affecting the Parent Guarantor or any of
its Subsidiaries before or by any court, governmental authority or arbitrator, which if
adversely decided might have a Material Adverse Effect and, to the best of the
Company’s and the Guarantors’ knowledge, there is no basis for any such action,
suit or proceeding. 

                    4.6
Financial Condition. The consolidated balance sheet of the Company and its
Subsidiaries and the consolidated statements of income, retained earnings and cash flows
of the Company and its Subsidiaries for the fiscal year ended April 2, 2004 and reported
on by PricewaterhouseCoopers, independent certified public accountants, and the interim
consolidated balance sheet and interim consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries, as of or for the fiscal
quarter of the Company ended on July 23, 2004, copies of which have been furnished to the
Bank, fairly present, and the financial statements of the Parent Guarantor and its
Subsidiaries delivered pursuant to Section 5.1(d) will fairly present, the consolidated
financial position of the Company or the Parent Guarantor, as the case may be, and their
respective Subsidiaries as at the respective dates thereof, and the consolidated results
of operations of the Company or the Parent Guarantor, as the case may be, and their
respective Subsidiaries for the respective periods indicated, all in accordance with
Generally Accepted Accounting Principles consistently applied (subject, in the case of
said interim statements, to year-end audit adjustments). There has been no event or
development which has had or could reasonably be expected to have a Material Adverse
Effect since April 2, 2004. There is no material Contingent Liability of the Parent
Guarantor or any of its Subsidiaries that is not reflected in such financial statements or
in the notes thereto. 

                    4.7
Use of Advances. The Company will use the proceeds of the Advances
for working capital and its general corporate purposes. Neither the Company nor any of the
Guarantors extends or maintains, in the ordinary course of business, credit for the
purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used for the purpose, whether
immediate, incidental, or ultimate, of buying or carrying any such margin stock or
maintaining or extending credit to others for such purpose. 

27 

                    4.8
Consents, Etc. Except for such consents, approvals, authorizations,
declarations, registrations or filings delivered by the Company pursuant to Section
2.5(n), if any, each of which is in full force and effect, no consent, approval or
authorization of or declaration, registration or filing with any governmental authority or
any nongovernmental person or entity, including without limitation any creditor, lessor,
stockholder or member of the Company or any of the Guarantors, is required on the part of
the Company or any of the Guarantors in connection with the execution, delivery and
performance of this Agreement, the Note, the Security Documents or the transactions
contemplated hereby or as a condition to the legality, validity or enforceability of this
Agreement, the Note or any Security Document. 

                    4.9
Taxes. The Company and the Guarantors have filed all tax returns (federal, state
and local) required to be filed and have paid all taxes shown thereon to be due, including
interest and penalties, or have established adequate financial reserves on their
respective books and records for payment thereof in accordance with Generally Accepted
Accounting Principles. Neither the Company nor any of the Guarantors knows of any actual
or proposed material tax assessment or any basis therefor, and no extension of time for
the assessment of any material deficiencies in any federal or state tax has been granted
by the Company or any such Guarantor. 

                    4.10
Title to Properties. Except as otherwise disclosed in the latest
balance sheet delivered pursuant to Section 4.6 or 5.1(d) of this Agreement, the Parent
Guarantor or one or more of its Subsidiaries have good and marketable fee simple title to
all of the real property, and a valid and indefeasible ownership interest in all of the
other properties and assets reflected in said balance sheet or subsequently acquired by
the Parent Guarantor or any such Subsidiary. All of such properties and assets are free
and clear of any Lien, except for Permitted Liens. 

                    4.11
ERISA. The Parent Guarantor, its Subsidiaries, their ERISA Affiliates and their
respective Plans are in compliance in all material respects with those provisions of ERISA
and of the Code which are applicable with respect to any Plan. No Prohibited Transaction
and no Reportable Event has occurred with respect to any such Plan. None of the Parent
Guarantor, any of its Subsidiaries, or any of their ERISA Affiliates is an employer with
respect to any Multiemployer Plan. The Parent Guarantor, its Subsidiaries, and their ERISA
Affiliates have met the minimum funding requirements under ERISA and the Code with respect
to each of their respective Plans, if any, and have not incurred any liability to the PBGC
or any Plan. The execution, delivery and performance of this Agreement, the Note and the
Guaranty Agreements do not constitute a Prohibited Transaction. There is no material
Unfunded Benefit Liability, with respect to any Plan of the Parent Guarantor, its
Subsidiaries, or their ERISA Affiliates. 

28 

                    4.12
Disclosure. No report or other information furnished in writing by or on behalf of
the Company or any Guarantor to the Bank in connection with the negotiation or
administration of the Loan Documents contains any misstatement of fact or omits to state
any fact necessary to make the statements contained therein not misleading in light of the
circumstances in which they were made. Neither this Agreement or the Note or any Security
Document, nor any other document, certificate, or report or statement or other information
furnished to the Bank by or on behalf of the Company or any Guarantor in connection with
the transactions contemplated hereby contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements contained herein
and therein not misleading in light of the circumstances in which they were made. There is
no fact known to the Company or any Guarantor which has, or which in the future may have
(so far as the Company can now foresee) a Material Adverse Effect, which has not been set
forth in this Agreement or in the other documents, certificates, statements, reports and
other information furnished in writing to the Bank by or on behalf of the Company or any
Guarantor in connection with the transactions contemplated hereby. 

                    4.13
No Default. Except as set forth on Schedule 4.13, neither the
Company nor any of the Guarantors is in default or has received any written notice of
default under or with respect to any of its Contractual Obligations in any respect which
could have a Material Adverse Effect. No Default or Event of Default has occurred and is
continuing. 

                    4.14
Common Enterprise. The Parent Guarantor, the Company and the other
Guarantors are engaged as an integrated group in the business of providing child-care
services; the integrated operation requires financing on such a basis that credit supplied
to the Company can be made available, directly or indirectly, from time to time to various
Guarantors, as required for the continued successful operation of the integrated group as
a whole; and that the Guarantors have requested the Bank to lend and to make credit
available to the Company for the purpose of financing the integrated operations of the
Parent Guarantor, the Company and the other Guarantors, with the Company and all the
Guarantors expecting to derive benefit, direct or indirectly, from the loans and other
credit extended by the Bank to the Company, both in the Company’s and each
Guarantor’s separate capacity and as a member of the integrated group, inasmuch as
the successful operation and condition of the Company and each Guarantor is dependent upon
the continued successful performance of the functions of the integrated group as a whole. 

                    4.15
Indenture. This Agreement is included within the term, and constitutes the,
“Bank One Credit Agreement” (as defined in the Indenture), all indebtedness,
obligations and liabilities of the Parent Guarantor, the Company and the other Guarantors
under this Agreement and the other Loan Documents are included within the term, and
constitute, “Senior Indebtedness” (as defined in the Indenture), no Default or
Event of Default (as such terms are defined in the Indenture) has occurred and is
continuing, either before or after giving to this Agreement, and no consent of the Trustee
is required for the execution, delivery and performance of this Agreement, the Note, or
the Security Documents by the Parent Guarantor, the Company or any other Guarantor, as
applicable. 

29 

ARTICLE V. 
COVENANTS 

                    5.1
Affirmative Covenants. The Company covenants and agrees that, until the
Termination Date and thereafter until payment in full of the principal of and accrued
interest on the Note and the performance of all other obligations of the Company under
this Agreement, unless the Bank shall otherwise consent in writing, the Parent Guarantor
and the Company shall, and shall cause each of the other Guarantors to: 

                              (a) Preservation of Corporate Existence, Etc. Do
          or cause to be done all things necessary to preserve, renew and keep in full
          force and effect its legal existence and its qualification as a foreign
          corporation in good standing in each jurisdiction in which such qualification
is           necessary under applicable law, and the rights, licenses, permits (including
          those required under Environmental Laws), franchises, patents, copyrights,
          trademarks and trade names material to the conduct of its businesses; and
defend           all of the foregoing against all claims, actions, demands, suits or
proceedings           at law or in equity or by or before any governmental
instrumentality or other           agency or regulatory authority; provided that
Childtime Childcare-PMC, Inc. may           be dissolved so long as it is not operating
and all its assets, if any, are           transferred to the Company and/or one or more
of the Guarantors.  

                              (b) Compliance with Laws, Etc.
Comply in all material           respects with all applicable laws, rules, regulations
and orders of any           governmental authority, whether federal, state, local or
foreign (including           without limitation ERISA, the Code and Environmental Laws),
in effect from time           to time; and pay and discharge promptly when due all taxes,
assessments and           governmental charges or levies imposed upon it or upon its
income, revenues or           property, before the same shall become delinquent or in
default, as well as all           lawful claims for labor, materials and supplies or
otherwise, which, if unpaid,           might give rise to Liens upon such properties or
any portion thereof, except to           the extent that payment of any of the foregoing
is then being contested in good           faith by appropriate legal proceedings and with
respect to which adequate           financial reserves have been established on the books
and records of the Parent           Guarantor, the Company or such other Guarantor, as
the case may be, in           accordance with Generally Accepted Accounting Principles.  

                              (c) Maintenance of Properties; Insurance. Maintain,
          preserve and protect all property that is material to the conduct of the
          business of the Parent Guarantor, the Company or any of the other Guarantors
and           keep such property in good repair, working order and condition and from
time to           time make, or cause to be made all needful and proper repairs,
renewals,           additions, improvements and replacements thereto necessary in order
that the           business carried on in connection therewith may be properly conducted
at all           times in accordance with customary and prudent business practices for
similar           businesses; and maintain in full force and effect insurance with
responsible and           reputable insurance companies or associations in such amounts,
on such terms and           covering such risks, including fire and other risks insured
against by extended           coverage, as is usually carried by companies engaged in
similar businesses and           owning similar properties similarly situated and
maintain in full force and           effect public liability insurance, insurance against
claims for personal injury           or death or property damage occurring in connection
with any of its activities           or any properties owned, occupied or controlled by
it, in such amount as it           shall reasonably deem necessary, and maintain such
other insurance as may be           required by law or as may be reasonably requested by
the Bank for purposes of           assuring compliance with this Section 5.1(c).  

30 

                              (d) Reporting Requirements.
Furnish to the Bank the following:  

                                        (i) Promptly
and in any event within three (3) Business Days after becoming aware of           the
occurrence of (A) any Default or Event of Default, (B) the commencement of           any
material litigation against, by or affecting the Parent Guarantor, the           Company
or any of the other Guarantors, and any material developments therein,           or (C)
the Parent Guarantor, the Company or any of the other Guarantors entering           into
any material contract or undertaking that is not entered into in the           ordinary
course of business or (D) any development in the business or affairs of           the
Parent Guarantor, the Company or any of the other Guarantors which has           resulted
in or which is likely in the reasonable judgment of the Parent           Guarantor to
result in a Material Adverse Effect, a statement of the chief           financial officer
of the Parent Guarantor setting forth details of each such           Default or Event of
Default or such litigation, material contract or undertaking           or development and
the action which the Parent Guarantor, the Company or such           other Guarantor, as
the case may be, has taken and proposes to take with respect           thereto;  

                                        (ii) As
soon as available and in any event within 30 days (or 60 days in the case           only
of the first fiscal period of each fiscal year) after the end of each of           the
thirteen fiscal periods of each fiscal year of the Parent Guarantor, the
          consolidated balance sheet of the Parent Guarantor and its Subsidiaries as of
          the end of such fiscal period, and the related consolidated statements of
          income, retained earnings and cash flows for the period commencing at the end
of           the previous fiscal year and ending with the end of such fiscal period,
setting           forth in each case in comparative form the corresponding figures for
the           corresponding date or period of the preceding fiscal year, all in
reasonable           detail, together with a certificate of the chief financial officer
of the Parent           Guarantor stating that no Default or Event of Default has
occurred and is           continuing or, if a Default or Event of Default has occurred
and is continuing,           a statement setting forth the details thereof and the action
which the Parent           Guarantor or the Company has taken and proposes to take with
respect thereto;  

                                        (iii) As
soon as available and in any event within 45 days after the end of each of           the
first three fiscal quarters of each fiscal year of the Parent Guarantor, a
          certificate of the chief financial officer of the Parent Guarantor stating that
          a computation (which computation shall accompany such certificate and shall be
          in reasonable detail) showing compliance with Section 5.2(a), (b) and (c)
hereof           is in conformity with the terms of this Agreement and showing the
calculation of           the Applicable Margin;  

31 

                                        (iv) As
soon as available and in any event within 135 days after the end of each           fiscal
year of the Parent Guarantor, a copy of the consolidated balance sheet of           the
Parent Guarantor and its Subsidiaries as of the end of such fiscal year and           the
related consolidated statements of income, retained earnings and cash flows           of
the Parent Guarantor and its Subsidiaries for such fiscal year, with a
          customary audit report of Deloitte & Touche, or other independent certified
          public accountants selected by the Parent Guarantor and acceptable to the Bank,
          without qualifications unacceptable to the Bank, together with a certificate of
          the chief financial officer of the Parent Guarantor stating (A) that no Default
          or Event of Default has occurred and is continuing or, if a Default or Event of
          Default has occurred and is continuing, a statement setting forth the details
          thereof and the action which the Parent Guarantor or the Company has taken and
          proposes to take with respect thereto, and (B) that a computation (which
          computation shall accompany such certificate and shall be in reasonable detail)
          showing compliance with Section 5.2(a), (b) and (c) hereof is in conformity
with           the terms of this Agreement and showing the calculation of the Applicable
          Margin;  

                                        (v) Promptly
after the sending or filing thereof, copies of all reports, proxy           statements
and financial statements which the Parent Guarantor, the Company or           any of the
Guarantors sends to or files with any of their respective security           holders or
any securities exchange or the Securities and Exchange Commission or           any
successor agency thereof;  

                                        (vi) Promptly
and in any event within 10 calendar days after receiving or becoming           aware
thereof (A) a copy of any notice of intent to terminate any Plan of the
          Company, any of the Guarantors, or any ERISA Affiliate filed with the PBGC, (B)
          a statement of the chief financial officer of the Parent Guarantor setting
forth           the details of any Reportable Event with respect to any such Plan, (C) a
copy of           any notice that the Company, any of the Guarantors, or any ERISA
Affiliate may           receive from the PBGC relating to the intention of the PBGC to
terminate any           such Plan or to appoint a trustee to administer any such Plan, or
(D) a copy of           any notice of failure to make a required installment or other
payment within the           meaning of Section 412(n) of the Code or Section 302(f) of
ERISA with respect to           any such Plan;  

                                        (vii) As
soon as available and in any event by not later than May 15, 2005, updated
          financial projections for the Parent Guarantor and its Subsidiaries for the
          fiscal year of the Parent Guarantor ending April 2006, which shall include a
          balance sheet and statements of income and cash flows; and  

                                        (viii) Promptly,
such other information respecting the business, properties, operations or condition,
financial or otherwise, of the Parent Guarantor, the Company or any of the other
Guarantors as the Bank may from time to time reasonably request. 

                              (e) Accounting; Access to Records, Books, Etc. Maintain
a system of accounting established and administered in           accordance with sound
business practices to permit preparation of financial           statements in accordance
with Generally Accepted Accounting Principles and to           comply with the
requirements of this Agreement and, at any reasonable time and           from time to
time, permit the Bank or any agents or representatives thereof to           examine and
make copies of and abstracts from the records and books of account           of, and
visit the properties of, the Parent Guarantor, the Company and the other
          Guarantors, and to discuss the affairs, finances and accounts of the Parent
          Guarantor, the Company and the other Guarantors with their respective
directors,           officers, employees and independent auditors, and by this provision
the Company           and the Parent Guarantor authorize such persons to discuss such
affairs,           finances and accounts with the Bank.  

32 

                              (f) Real Property Collateral.  

                                        (i) Updated Identification of Real Property.          Within
three (3) Business Days after request by the Bank, deliver to the Bank a
          schedule setting forth all real property owned by the Company and each
          Guarantor, and, within ten (10) Business Days after request by the Bank,
deliver           all other information reasonably required for the Bank to obtain
appraisals, if           required by the Bank, of all such property with respect to which
the Bank does           not have current appraisals, certified as true and correct by a
duly authorized           officer of the Company.  

                                        (ii) Environmental Investigation.
Within thirty (30) Business Days           after request by the Bank, deliver to the Bank
the Bank’s standard form of           environmental questionnaire duly completed
with respect to each property owned           or leased by the Company and the Guarantors
for which the Company and the           Guarantors have not previously delivered such a
questionnaire to the Bank,           together with such other information as the Bank may
deem necessary or desirable           in order to complete its environmental
investigation with respect thereto. The           Bank shall provide to the Company a
list of approved environmental consultants           for each respective state within
seven (7) Business Days after request by the           Company.  

                                        (iii) Complete Mortgage Collateral Items. Within
thirty           (30) calendar days after the Effective Date with respect to any existing
real           property or after the acquisition thereof with respect to any real
property           acquired after the Effective Date, deliver to the Bank, or cause to be
delivered           to the Bank, the following; provided that the Company agrees to
execute and           deliver, or cause to be executed and delivered, the Mortgage forms
required           below within two (2) Business Days after the Bank provides them to the
Company:  

                                                  (A)  To
the extent not previously provided, the Mortgages duly executed on behalf of
          the Company and the Guarantors, as applicable, granting to the Bank
          first-priority mortgage liens on all real property owned by the Company and the
          Guarantors, together with:  

                                                  (B) To
the extent not previously provided, evidence of the recordation, filing and
          other action (including payment of any applicable taxes or fees) in such
          jurisdictions as the Bank may deem necessary or appropriate with respect to the
          Security Documents, including the filing of financing statements and similar
          documents which the Bank may deem necessary or appropriate to create, preserve
          or perfect the liens, security interests and other rights intended to be
granted           to the Bank thereunder;  

33 

                                                  (C) To
the extent not previously provided, policies of mortgage title insurance in
          form and amounts, and issued by an insurer, satisfactory to the Bank, insuring
          the interest of the Bank under the Mortgages without standard exceptions and
          without any special exceptions not acceptable to the Bank and containing such
          further endorsements, affirmative coverage and other terms as the Bank may
          reasonably request;  

                                                  (D) To
the extent not previously provided, surveys of the property to be subject to
          the Mortgages, made by a land surveyor licensed in the State in which such
          property is located and acceptable to the Bank complying with the Minimum
          Standard Detail Requirements for Land Title Surveys as adopted by the American
          Title Association and the American Congress on Surveying and Mapping and
showing           such details as the Bank may reasonably request, certified to the Bank
and the           issuer of such mortgage title insurance policy in form reasonably
acceptable to           the Bank;  

                                                  (E) To
the extent not previously provided, flood-zone certifications, in form and
          substance satisfactory to the Bank, with respect to all properties subject to
          the Mortgages;  

                                                  (F) To
the extent not previously provided, evidence that the casualty and other
          insurance required pursuant to the Mortgages is in full force and effect;  

                                                  (G) To
the extent not previously provided, the favorable written opinions of counsel
          for the Company and the Guarantors, including, if requested by the Bank, local
          counsel for the Company and the Guarantors in the jurisdictions in which the
          mortgaged properties are located other than Arizona, California, Georgia, Ohio
          and Oklahoma, as to such matters with respect to the Mortgages as the Bank may
          reasonably request;  

                                                  (H) To
the extent not previously provided, Environmental Certificates with respect           to
all mortgaged properties, or confirmations thereof, duly executed on behalf           of
the Company and the Guarantors; and  

                                                  (I) To
the extent not previously provided, copies of all governmental and
          nongovernmental consents, approvals, authorizations, declarations,
registrations           or filings, if any, required on the part of the Company or the
Guarantors in           connection with the execution, delivery and performance of the
Mortgages or as a           condition to the legality, validity or enforceability of the
Mortgages,           certified as true and correct and in full force and effect as of the
date of the           Mortgages by a duly authorized officer of the Company, or, if none
is required,           a certificate of such officer to that effect.  

34 

Notwithstanding the foregoing, the
Company shall be entitled to additional time to deliver any of the items set forth in
(iii)(A)-(I) above to the extent necessary to compensate for any delay caused by the Bank
or the Bank’s agents or contractors.  

                                        (iv) [reserved]  

                                        (v)  [reserved]  

                                        (vi) Exchange of Canton Property for Sterling Heights Property, and Sale
of Sterling Heights Property. Notwithstanding anything to the
          contrary, (A) the Bank agrees to release from its Mortgage the Company’s
          property commonly known as 3101 Lilley Road, Canton, Michigan (the “Canton
          Property”), upon the exchange by the Company of the Canton Property for
the           property commonly known as 2171 15 Mile Road, Sterling Heights, Michigan
(the           “Sterling Heights Property”), such that the Company becomes the
fee           owner of the Sterling Heights Property subject to no Liens except Permitted
          Liens, if any, other than Permitted Liens under Section 5.2(f)(vi), and (B) the
          Company shall not be required to grant to the Bank a mortgage lien on the
          Sterling Heights Property so long as by not later than ninety (90) days after
          acquiring the Sterling Heights Property the Company has sold the Sterling
          Heights Property. If the Company has not sold the Sterling Heights Property
          within such ninety (90)-day period, the Company immediately shall grant to the
          Bank a first-priority mortgage lien on the Sterling Heights Property and
execute           and deliver, or cause to be executed and delivered, to the Bank all
items of the           types described in Section 5.1(f) (i) through (iii), all in form
and substance           satisfactory to the Bank.  

                              (g) Additional Security and Collateral. Promptly
(i)           execute and deliver and cause each Guarantor to execute and deliver,
additional           Security Documents, within 30 days after request therefor by the
Bank,           sufficient to grant to the Bank liens and security interests in any
          after-acquired property of the type described in Section 2.10, and (ii) cause
          each person becoming a Subsidiary of the Company or any Guarantor from time to
          time to execute and deliver to the Bank, within 30 days after such person
          becomes a Subsidiary, a Guaranty Agreement and other Security Documents,
          together with other related documents described in Section 2.5(l), sufficient
to           grant to the Bank liens and security interests in all collateral of the type
          described in Section 2.10 and documents of the type described in Section
2.5(g),           (h) and (i) with respect to such Subsidiary, an opinion of counsel for
such           Subsidiary with respect to the matters covered by the opinion delivered
pursuant           to Section 2.5(m) with respect to the other Guarantors. The Company
shall notify           the Bank, within 10 days after the occurrence thereof, of the
acquisition of any           property by the Company or any Guarantor that is not subject
to the existing           Security Documents, any person’s becoming a Subsidiary of
the Company or           any Guarantor and any other event or condition that may require
additional           action of any nature in order to preserve the effectiveness and
perfected status           of the liens and security interests of the Bank with respect
to such property           pursuant to the Security Documents.  

                              (h) Further Assurances.
Will, and will cause each Guarantor to, execute and deliver within 30 days
after request therefor by the Bank, all further instruments and documents and
take all further action that may be necessary or desirable, or that the Bank
may request, in order to give effect to, and to aid in the exercise and
enforcement of the rights and remedies of the Bank under, this Agreement, the
Notes and the Security Documents. In addition, the Company agrees to deliver to
the Bank from time to time upon the acquisition or creation of any Subsidiary
not listed in Schedule 4.4 hereto supplements to Schedule 4.4 such that such
Schedule, together with such supplements, shall at all times accurately reflect
the information provided for thereon.  

35 

                    5.2
Negative Covenants. Until the Termination Date and thereafter until payment
in full of the principal of and accrued interest on the Note and the performance of all
other obligations of the Company under this Agreement, the Company agrees that, unless the
Bank shall otherwise consent in writing the Company and the Parent Guarantor shall not,
and shall not permit any of the other Guarantors to do any of the following: 

                              (a) Tangible Capital Funds.
Permit or suffer Consolidated           Tangible Capital Funds of the Parent Guarantor
and its Subsidiaries at any time           to be less than the amount equal to (i)
$8,500,000 at all times prior to the end           of the Parent Guarantor’s fiscal
year ending on or about April 1, 2005,           (ii) $9,500,000 as of the end of the
Parent Guarantor’s fiscal year ending           on or about April 1, 2005 or at any
time thereafter prior to the end of the           first fiscal reporting period of the
Parent Guarantor’s fiscal year ending           on or about April 1, 2006, (iii)
$10,000,000 as of the end of the first fiscal           reporting period of the Parent
Guarantor’s fiscal year ending on or about           April 1, 2006 or at any time
thereafter prior to the end of the third fiscal           reporting period of the Parent
Guarantor’s fiscal year ending on or about           April 1, 2006, (iv) $10,500,000
as of the end of the third fiscal reporting           period of the Parent Guarantor’s
fiscal year ending on or about April 1,           2006 or at any time thereafter prior to
the end of the Parent Guarantor’s           fiscal year ending on or about April 1,
2006, or (v) $11,500,000 as of the end           of the Parent Guarantor’s fiscal
year ending on or about April 1, 2006 and           at all times thereafter.  

                              (b) EBITDA.
Permit or suffer the Consolidated EBITDA of the Parent Guarantor and its
          Subsidiaries to be less than (i) $3,150,000 for the period of the first two
          fiscal quarters of the Parent Guarantor’s fiscal year ending on or about
          April 1, 2005, (ii) $4,600,000 for the period of the first three fiscal
quarters           of the Parent Guarantor’s fiscal year ending on or about April 1,
2005,           (iii) $7,500,000 for the Parent Guarantor’s entire fiscal year
ending on or           about April 1, 2005, (iv) $8,000,000 as of the end of the first
fiscal quarter           of the Parent Guarantor’s fiscal year ending on or about
April 1, 2006, (v)           $8,500,000 as of the end of the second fiscal quarter of the
Parent           Guarantor’s fiscal year ending on or about April 1, 2006, (vi)
$9,000,000           as of the end of the third fiscal quarter of the Parent Guarantor’s
fiscal           year ending on or about April 1, 2006, or (vii) $9,500,000 as of the end
of the           Parent Guarantor’s fiscal year ending on or about April 1, 2006; to
be           measured, in each of the cases under the foregoing clauses (iv) through
(vii),           for the period of twelve consecutive months then ending.  

                              (c) Fixed
Charge Coverage Ratio. Permit or suffer the Consolidated Fixed Charge Coverage
Ratio of the Parent Guarantor and its Subsidiaries to be less than 1.00 to
1.00; such ratio to be determined as of the end of each fiscal quarter of the
Parent Guarantor, for the period of the four consecutive fiscal quarters then
ending.  

36 

                              (d) [reserved]  

                              (e) Indebtedness.
Create, incur, assume or in any manner become liable in respect of, or suffer
to exist, any Indebtedness other than:  

                                        (i) The
Loans and other Indebtedness to the Bank, the Bank’s parent and its           other
Affiliates, including without limitation Rate Management Transactions;  

                                        (ii) The
Indebtedness described in Schedule 5.2(e) hereto, having the           same
terms as those existing on the date of this Agreement, but no extension or
          renewal thereof shall be permitted; and  

                                        (iii) Subordinated
Debt in an aggregate principal amount not exceeding $3,500,000           previously
incurred in accordance with the terms of the Existing Agreement           pursuant to a
rights offering by the Parent Guarantor to shareholders of the           Parent Guarantor
to purchase common stock of the Parent Guarantor and           Subordinated Debt of the
Parent Guarantor, so long as the terms of such           Subordinated Debt include the
following: (A) the first required principal           payment with respect thereto shall
be not earlier than a date six (6) months           after the Termination Date (except,
without limiting the subordination terms           applicable to any such Subordinated
Debt or any of the terms of Section 5.2(n),           pursuant to a mandatory redemption,
as provided in the related Indenture), and           (B) the total Interest payable by
the Parent Guarantor, the Company and the           other Guarantors with respect to such
Subordinated Debt shall not in the           aggregate exceed an amount equal to a per
annum rate of return of 15% (plus any           applicable default rate of return); and  

                                        (iv) Rental
obligations under, and contingent obligations in respect of guaranties of,
leases for real property sold by the Company pursuant to sale/leaseback
transactions approved by the Bank in connection with sales of childcare centers
consented to by the Bank under Section 5.2(h)(ii) of the Existing Agreement and
with respect to which all conditions of such consents have been satisfied,
which childcare centers are identified in Schedule 5.2(e)(iv) hereto;  

                                        (v) Contingent
obligations of the Company and any of the Subsidiary Guarantors under
          guarantees of rental obligations of childcare center franchisees under real
          property leases for the related childcare centers; provided that such
guarantees           are entered into in the ordinary course of business, such guaranteed
rental           obligations are full recourse obligations of the franchisees as primary
obligors           thereon, such guarantee obligations are unsecured, and if at any time
any such           guarantee includes affirmative or negative covenants or defaults not
          substantially provided for, or more restrictive than the covenants and defaults
          set forth, in this Agreement, then the Company shall promptly so advise the
Bank           and thereupon, if the Bank shall request, upon notice to the Company, the
          Company and the Bank shall enter into an amendment to this Agreement providing
          for the addition to this Agreement of substantially the same covenants and
          defaults as those provided for in such guarantee, to the extent required and as
          may be selected by the Bank in its discretion, and in the meantime, all such
          covenants and defaults shall be deemed incorporated by reference in this
          Agreement as if set forth fully herein, mutatis mutandis; and  

37 

                                        (vi) Other
Indebtedness in aggregate outstanding principal amount for the Parent           Guarantor
and its Subsidiaries, including without limitation the Company, not           exceeding
$1,000,000 at any time.  

                              (f) Liens.
Create, incur or suffer to exist any Lien on any of the assets,           rights,
revenues or property, real, personal or mixed, tangible or intangible,           whether
now owned or hereafter acquired, of the Parent Guarantor, the Company or           any of
the other Guarantors, other than:  

                                        (i) Liens
for taxes not delinquent or for taxes being contested in good faith by
          appropriate proceedings and as to which adequate financial reserves have been
          established on its books and records in accordance with Generally Accepted
          Accounting Principles;  

                                        (ii) Liens
(other than any Lien imposed by ERISA or any Environmental Law) created           and
maintained in the ordinary course of business which are not material in the
          aggregate, and which would not have a Material Adverse Effect and which
          constitute (A) pledges or deposits under worker’s compensation laws,
          unemployment insurance laws or similar legislation, (B) good faith deposits in
          connection with bids, tenders, contracts or leases to which the Parent
          Guarantor, the Company or any of the other Guarantors is a party for a purpose
          other than borrowing money or obtaining credit, including rent security
          deposits, (C) liens imposed by law, such as those of carriers, warehousemen and
          mechanics, if payment of the obligation secured thereby is not yet due, (D)
          Liens securing taxes, assessments or other governmental charges or levies not
          yet subject to penalties for nonpayment, and (E) pledges or deposits to secure
          public or statutory obligations of the Parent Guarantor, the Company or any of
          the other Guarantors, or surety, customs or appeal bonds to which the Parent
          Guarantor, the Company or any of the other Guarantors is a party;  

                                        (iii) Liens
affecting real property which constitute minor survey exceptions or defects or
irregularities in title, minor encumbrances, easements or reservations of, or
rights of others for, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of such real property, provided that all of the foregoing, in the
aggregate, do not at any time materially detract from the value of said
properties or materially impair their use in the operation of the businesses of
the Parent Guarantor, the Company or any of the Guarantors;  

                                        (iv) Liens
created pursuant to the Security Documents and Liens expressly permitted           by the
Security Documents;  

38 

                                        (v) Each
Lien described in Schedule 5.2(f) hereto may be suffered to           exist
upon the same terms as those existing on the date hereof, but no extension           or
renewal thereof shall be permitted;  

                                        (vi) Any
Lien created to secure payment of a portion of the purchase price of, or
existing at the time of acquisition of, any tangible fixed asset acquired by
the Parent Guarantor, the Company or any of the other Guarantors may be created
or suffered to exist upon such fixed asset if the outstanding principal amount
of the Indebtedness secured by such Lien does not at any time exceed the
purchase price paid by the Parent Guarantor, the Company or such other
Guarantor for such fixed asset and the aggregate principal amount of all
Indebtedness secured by such Liens does not exceed an amount permitted under
Section 5.2(e)(iii), taking into account all other Indebtedness then
outstanding that is permitted under Section 5.2(e)(iii), provided that such
Lien does not encumber any other asset at any time owned by the Parent
Guarantor, the Company or such other Guarantor, and provided, further, that not
more than one such Lien shall encumber such fixed asset at any one time; and  

                                        (vii) The
interest or title of a lessor under any lease otherwise permitted under this
          Agreement with respect to the property subject to such lease to the extent
          performance of the obligations of the Parent Guarantor, the Company or such
          other Guarantor thereunder are not delinquent.  

                              (g) Merger; Acquisitions; Etc.
Purchase or otherwise acquire,           whether in one or a series of transactions, all
or a substantial portion of the           business assets, rights, revenues or property,
real, personal or mixed, tangible           or intangible, of any person, or all or a
substantial portion of the capital           stock of or other ownership interest in any
other person; nor otherwise create           any Subsidiary; nor merge or consolidate or
amalgamate with any other person or           take any other action having a similar
effect, nor enter into any joint venture           or similar arrangement with any other
person. Notwithstanding anything in this           Agreement to the contrary, the Company
and the Guarantors may purchase up to           twelve (12) franchisee childcare centers
during any fiscal year of the Parent           Guarantor so long as: (i) the Company and
the Guarantors at all times shall be           in compliance with Section 2.10(e) of this
Agreement requiring first-priority           mortgage liens in favor of the Bank on all
real property of the Company and the           Guarantors and shall have delivered to the
Bank, in connection with all such           mortgages, all items of the types required
under Section 5.1(f)(i) through           (iii), (ii) during any fiscal year of the
Parent Guarantor, (A) the aggregate           consideration, including without limitation
any Indebtedness assumed in           connection therewith, all guarantees or other
liabilities incurred in connection           therewith, and all deferred payments and
other direct or indirect consideration           in connection therewith, but excluding
the value of future operating lease           obligations assumed in connection therewith
(collectively,           “Consideration”), paid or payable in connection with
all such           purchases of franchisee centers, including cash and non-cash
components, shall           not exceed $2,500,000 and (B) the aggregate cash
Consideration paid or payable           in connection with all such purchases of
franchisee centers shall not exceed           $2,000,000, and (iii) immediately before
and after such purchase, no Default or           Event of Default shall exist or shall
have occurred and be continuing and the           representations and warranties
contained in Article IV and in the other Loan           Documents shall be true and
correct on and as of the date thereof (both before           and after such purchase is
consummated).  

39 

                              (h) Disposition of Assets; Etc. Sell,
lease, license,           transfer, assign or otherwise dispose of all or a substantial
portion of its           business, assets, rights, revenues or property, real, personal
or mixed,           tangible or intangible, whether in one or a series of transactions,
other than           (i) inventory sold in the ordinary course of business upon customary
credit           terms and sales of scrap or obsolete material or equipment, (ii) the
sale by the           Company and the Guarantors in any fiscal year of up to eight (8)
childcare           centers owned by them; provided that, if any such center is subject
to a           Mortgage in favor of the Bank, the Company shall first have obtained the
prior           written consent of the Bank, which consent from time to time may be
subject to           such conditions as the Bank may require in its sole discretion,
(iii) the sale           by the Company or any of the Guarantors of their rights under
any ground leases           to which any of them is a party; provided that all of the
obligations of the           Company and the Guarantors relating thereto are assumed by
the transferee in           connection therewith, (iv) the sale by the Company or any of
the Guarantors of           any vacant land or other real property owned by it that is
not used for a           childcare center; provided that, if any such land or other real
property is           subject to a Mortgage in favor of the Bank, the Company shall first
have           obtained the prior written consent of the Bank, which consent from time to
time           may be subject to such conditions as the Bank may require in its sole
          discretion, and (v) the exchange of the Canton Property for the Sterling
Heights           Property and the subsequent sale of the Sterling Heights Property
within ninety           (90) days thereafter, all in accordance with Section 5.1(f)(vi)
and subject to           the requirements of Section 3.1(c).  

                              (i) Nature of Business.
Make any substantial change in the           nature of its business from that engaged in
on the date of this Agreement or           engage in any other businesses other than
those in which it is engaged on the           date of this Agreement.  

                              (j) Investments, Loans and Advances. Purchase
or otherwise acquire any capital stock of or other ownership interest in, or
debt securities of or other evidences of Indebtedness of, any other person; nor
make any loan or advance of any of its funds or property or make any other
extension of credit to, or make any investment or acquire any interest
whatsoever in, any other person; nor incur any Contingent Liability; other than
(i) extensions of trade credit made in the ordinary course of business on
customary credit terms and commission, travel and similar advances made to
officers and employees in the ordinary course of business, (ii) commercial
paper of any United States issuer having the highest rating then given by Moody’s
Investors Service, Inc., or Standard & Poor’s Corporation, direct
obligations of and obligations fully guaranteed by the United States of America
or any agency or instrumentality thereof, or certificates of deposit of any
commercial bank which is a member of the Federal Reserve System and which has
capital, surplus and undivided profit (as shown on its most recently published
statement of condition) aggregating not less than $100,000,000, provided,
however, that each of the foregoing investments has a maturity date not later
than 180 days after the acquisition thereof by the Parent Guarantor, the
Company or such other Guarantor, as the case may be, (iii) those investments,
loans, advances and other transactions described in Schedule 5.2(j) hereto,
having the same terms as existing on the date of this Agreement, but no
extension or renewal thereof shall be permitted, and (iv) transactions
permitted by Section 5.2(g), if any.  

40 

                              (k) Transactions with Affiliates. Enter
into, become a party           to, or become liable in respect of, any contract or
undertaking with any           Affiliate except in the ordinary course of business and on
terms not less           favorable to the Parent Guarantor, the Company or such other
Guarantor than           those which could be obtained if such contract or undertaking
were an arms           length transaction with a person other than an Affiliate; provided
that neither           (i) the payment of an annual management fee in the amount of
$250,000 for           Jacobson Partners nor (ii) payments of interest on Subordinated
Debt not           prohibited by Section 5.2(n)(ii) shall be deemed to violate this
Section 5.2(k).  

                              (l) Negative Pledge Limitation. Enter
into any agreement with           any person other than the Bank pursuant hereto which
prohibits or limits the           ability of the Parent Guarantor, the Company or such
other Guarantor to create,           incur, assume or suffer to exist any Lien upon any
of its assets, rights,           revenues or property, real, personal or mixed, tangible
or intangible, whether           now owned or hereafter acquired.  

                              (m) Inconsistent Agreements.
Enter into any agreement containing any           provision which would be violated or
breached by this Agreement or any of the           transactions contemplated hereby or by
performance by the Parent Guarantor, the           Company or any such other Guarantor of
its obligations in connection therewith.  

                              (n) Payments and Modification of Subordinated Debt. (i)
Make any payment or prepayment of principal of any Subordinated           Debt or redeem
any Subordinated Debt, (ii) make any payment of interest,           commissions,
discounts, fees, charges or other consideration or compensation           (collectively,
“Interest”) on any Subordinated Debt if any Default or           Event of
Default has occurred and is continuing or would be caused thereby on a           pro
forma basis, (iii) amend or modify, or consent or agree to any amendment or
          modification, which would shorten any maturity or increase the amount of any
          payment of principal or increase the rate (or require earlier payment) of
          Interest on any Subordinated Debt, (iv) amend any agreement under which any
          Subordinated Debt is issued or created or otherwise related thereto, or (v)
          enter into any agreement or arrangement providing for the defeasance of any
          Subordinated Debt.  

                              (o) Governmental Regulation.
(i) Be or become subject to any law,           regulation, or list of any government
agency (including, without limitation, the           U.S. Office of Foreign Asset Control
list) that prohibits or limits the Bank           from making any advance or extension of
credit to the Company or any Guarantor           or from otherwise conducting business
with the Company or any Guarantor, or (ii)           fail to provide documentary and
other evidence of the Company’s or any           Guarantor’s identity as may be
requested by the Bank at any time to enable           the Bank to verify the Company’s
or any Guarantor’s identity or to           comply with any applicable law or
regulation, including, without limitation,           Section 326 of the USA Patriot Act
of 2001, 31 U.S.C. Section 5318.  

41 

ARTICLE VI. 
DEFAULT  

                    6.1
Events of Default. The occurrence of any one of the following events
or conditions shall be deemed an “Event of Default” hereunder unless waived
pursuant to Section 7.1: 

                              (a) Nonpayment.
(i) The Company shall fail to pay when due any principal of           the Note or any
reimbursement obligation under Section 3.3 (whether by deemed           disbursement of a
Revolving Credit Loan or otherwise), (ii) the Company shall           fail to pay when
due any interest on the Note and such failure continues for a           period of three
(3) Business Days, or (iii) the Company shall fail to pay when           due any fees or
any other amount payable hereunder and such failure continues           for a period of
five calendar days; or  

                              (b) Misrepresentation.
Any representation or warranty made by the Company or           any Guarantor in Article
IV hereof or in any certificate, report, financial           statement or other document
furnished by or on behalf of the Company or any           Guarantor in connection with
this Agreement or any Security Document shall prove           to have been incorrect in
any material respect when made or deemed made; or  

                              (c) Certain Covenants.
The Company or any Guarantor shall fail to           perform or observe any term,
covenant or agreement contained in any provision of           Article V hereof other than
Sections 5.1(a), (b), (c) and (e); or  

                              (d) Other Defaults.
The Company or any Guarantor shall fail to perform           or observe any other term,
covenant or agreement contained in this Agreement,           including, without
limitation, those contained in Sections 5.1(a), (b), (c) and           (e), and any such
failure shall remain unremedied for 15 calendar days after           notice thereof shall
have been given to the Company by the Bank; or  

                              (e) Cross Default.
The Company or any Guarantor defaults under any           Rate Management Transaction; or
the Company or any Guarantor shall fail to pay           any part of the principal of,
the premium, if any, or the interest on, or any           other payment of money due
under any of its Indebtedness (other than           Indebtedness hereunder), beyond any
period of grace provided with respect           thereto, which individually or together
with other such Indebtedness as to which           any such failure exists has an
aggregate outstanding principal amount in excess           of $1,000,000; or if the
Company or any Guarantor fails to perform or observe           any other term, covenant
or agreement contained in, or if any other event or           condition occurs or exists
under, any agreement, document or instrument           evidencing or securing any such
Indebtedness having such aggregate outstanding           principal amount, or under which
any such Indebtedness was incurred, issued or           created, beyond any period of
grace, if any, provided with respect thereto if           the effect of such failure is
either (i) to cause, or permit the holders of such           Indebtedness (or a trustee
on behalf of such holders) to cause, any payment in           respect of such
Indebtedness to become due prior to its due date or (ii) to           permit the holders
of such Indebtedness (or a trustee on behalf of such holders)           to elect a
majority of the board of directors of the Company or such Guarantor,           as the
case may be; or  

42 

                              (f) Judgments.
One or more judgments or orders for the payment of money in an           aggregate amount
of $2,000,000 shall be rendered against the Company or any           Guarantor, or any
other judgment or order (whether or not for the payment of           money) shall be
rendered against or shall affect the Company or any Guarantor           which causes or
could cause a material adverse change in the business,           properties, operations
or condition, financial or otherwise, of the Company or           any Guarantor, or which
does or could have a material adverse effect on the           legality, validity or
enforceability of this Agreement, the Note or any Security           Document, and either
(i) such judgment or order shall have remained unsatisfied           and the Company or
such Guarantor shall not have taken action necessary to stay           enforcement
thereof by reason of pending appeal or otherwise, prior to the           expiration of
the applicable period of limitations for taking such action or, if           such action
shall have been taken, a final order denying such stay shall have           been
rendered, or (ii) enforcement proceedings shall have been commenced by any
          creditor upon any such judgment or order; or  

                              (g) ERISA.
(i) The occurrence of a Reportable Event that results in or could           result in
liability of the Company, any of the Guarantors or any of their ERISA
          Affiliates to the PBGC or to any Plan and such Reportable Event is not
corrected           within thirty (30) days after the occurrence thereof; or (ii) the
occurrence of           any Reportable Event which could constitute grounds for
termination of any Plan           of the Company, any of the Guarantors or any of their
ERISA Affiliates by the           PBGC or for the appointment by the appropriate United
States District Court of a           trustee to administer any such Plan and such
Reportable Event is not corrected           within thirty (30) days after the occurrence
thereof; or (iii) the filing by the           Company, any of the Guarantors or any of
their ERISA Affiliates of a notice of           intent to terminate a Plan or the
institution of other proceedings to terminate           a Plan; or (iv) the Company, any
of the Guarantors or any of their respective           ERISA Affiliates shall fail to pay
when due any liability to the PBGC or to a           Plan; or (v) the PBGC shall have
instituted proceedings to terminate, or to           cause a trustee to be appointed to
administer, any Plan of the Company, any of           the Guarantors or any of their
ERISA Affiliates; or (vi) any person engages in a           Prohibited Transaction with
respect to any Plan which results in or could result           in liability of the
Company, any of the Guarantors, any of their ERISA           Affiliates, any Plan of the
Company, any of the Guarantors or any their ERISA           Affiliates or any fiduciary
of any such Plan; or (vii) failure by the Company,           any of the Guarantors or any
of their ERISA Affiliates to make a required           installment or other payment to
any Plan within the meaning of Section 302(f) of           ERISA or Section 412(n) of the
Code that results in or could result in liability           of the Company, any of the
Guarantors or any of their ERISA Affiliates to the           PBGC or any Plan; or (viii)
the withdrawal of the Company, any of the Guarantors           or any of their ERISA
Affiliates from a Plan during a plan year in which it was           a “substantial
employer” as defined in Section 4001(9a)(2) of ERISA;           or (ix) the Company,
any of the Guarantors or any of their ERISA Affiliates           becomes an employer with
respect to any Multiemployer Plan without the prior           written consent of the
Bank, and in the case of any of the foregoing clauses (i)           — (viii), such
occurrence has or could reasonably be expected to have a           Material Adverse
Effect; or  

43 

                              (h) Insolvency, Etc.
The Company or any of the Guarantors shall be           dissolved or liquidated (or any
judgment, order or decree therefor shall be           entered), or shall generally not
pay its debts as they become due, or shall           admit in writing its inability to
pay its debts generally, or shall make a           general assignment for the benefit of
creditors, or shall institute, or there           shall be instituted against the Company
or any of the Guarantors any proceeding           or case seeking to adjudicate it a
bankrupt or insolvent or seeking liquidation,           winding up, reorganization,
arrangement, adjustment, protection, relief or           composition of it or its debts
under any law relating to bankruptcy, insolvency           or reorganization or relief or
protection of debtors or seeking the entry of an           order for relief, or the
appointment of a receiver, trustee, custodian or other           similar official for it
or for any substantial part of its assets, rights,           revenues or property, and,
if such proceeding is instituted against the Company           or such Guarantor and is
being contested by the Company or such Guarantor, as           the case may be, in good
faith by appropriate proceedings, such proceeding shall           remain undismissed or
unstayed for a period of 60 days; or the Company or any           Guarantor shall take
any action (corporate or other) to authorize or further any           of the actions
described above in this subsection; or  

                              (i) Loan Documents.
Any event of default described in any Loan           Document shall have occurred and be
continuing, or any material provision of any           Loan Document shall at any time
for any reason cease to be valid and binding and           enforceable against any
obligor thereunder, or the validity, binding effect or           enforceability thereof
shall be contested by any person, or any obligor, shall           deny that it has any or
further liability or obligation thereunder, or any Loan           Document shall be
terminated, invalidated or set aside, or be declared           ineffective or inoperative
or in any way cease to give or provide to the Bank           the benefits purported to be
created thereby; or  

                              (j) Change-of-Control.
Any Change-of-Control shall occur; or  

                              (k) Material Adverse Change.
Any material adverse change in the           existing or prospective financial condition
of the Company or any Guarantor           shall occur.  

                    6.2
Remedies. (a) Upon the occurrence and during the continuance of any Event of
Default, the Bank may by notice to the Company (i) terminate the Commitment or (ii)
declare the outstanding principal of, and accrued interest on, the Note, all unpaid
reimbursement obligations in respect of drawings under Letters of Credit and all other
amounts owing under this Agreement to be immediately due and payable, or (iii) demand
immediate delivery of cash collateral, and the Company agrees to deliver such cash
collateral upon demand, in an amount equal to the maximum amount that may be available to
be drawn at any time prior to the stated expiry of all outstanding Letters of Credit, or
any one or more of the foregoing, whereupon the Commitment shall terminate forthwith and
all such amounts, including such cash collateral, shall become immediately due and
payable, provided that in the case of any event or condition described in Section 6.1(h)
with respect to the Company, the Commitment shall automatically terminate forthwith and
all such amounts, including such cash collateral, shall automatically become immediately
due and payable without notice; in all cases without demand, presentment, protest,
diligence, notice of dishonor or other formality, all of which are hereby expressly
waived. Such cash collateral delivered in respect of outstanding Letters of Credit shall
be deposited in a special cash collateral account to be held by the Bank as collateral
security for the payment and performance of the Company’s obligations under this
Agreement to the Bank. 

44 

                              (b) In
addition to the remedies provided in Section 6.2(a), the Bank may exercise           and
enforce any and all other rights and remedies available to it, whether           arising
under this Agreement or the Note or the other Loan Documents or under
          applicable law, in any manner deemed appropriate by the Bank, including suit in
          equity, action at law, or other appropriate proceedings, whether for the
          specific performance (to the extent permitted by law) of any covenant or
          agreement contained in this Agreement or in the Note or any other Loan Document
          or in aid of the exercise of any power granted in this Agreement or the Note or
          any other Loan Document.  

                              (c) Upon
the occurrence and during the continuance of any Event of Default, the Bank           may
at any time and from time to time, without notice to the Company (any
          requirement for such notice being expressly waived by the Company) set off and
          apply against any and all of the obligations of the Company now or hereafter
          existing under this Agreement, any and all deposits (general or special, time
or           demand, provisional or final) at any time held and other indebtedness at any
          time owing by the Bank to or for the credit or the account of the Company and
          any property of the Company from time to time in possession of the Bank,
          irrespective of whether or not the Bank shall have made any demand hereunder
and           although such obligations may be contingent and unmatured. The Company
hereby           grants to the Bank a lien on and security interest in all such deposits,
          indebtedness and property as collateral security for the payment and
performance           of the obligations of the Company under this Agreement. The rights
of the Bank           under this Section 6.2(c) are in addition to other rights and
remedies           (including, without limitation, other rights of setoff) which the Bank
may have.  

ARTICLE VII.

MISCELLANEOUS  

                    7.1. Amendments, Etc.
No amendment, modification, termination or waiver           of any provision of this
Agreement nor any consent to any departure therefrom           shall be effective unless
the same shall be in writing and signed by the Company           and Bank. Any such
amendment, waiver or consent shall be effective only in the           specific instance
and for the specific purpose for which given.  

                    7.2
Notices. (a) Except as otherwise provided in Section 7.2(c) hereof, all notices and
other communications hereunder shall be in writing and shall be delivered or sent to the
Company at 21333 Haggerty Road, Suite 300, Novi, Michigan 48375, Attention: Chief
Financial Officer, Facsimile No. (248) 697-9003, Facsimile Confirmation No. (248)
697-9118, and to the Bank at 28660 Northwestern Highway, MI1-8938, Southfield, Michigan
48034, Attention: Richard C. Ellis, East Michigan Commercial Banking Division, Facsimile
No. (248) 799-5838, Facsimile Confirmation No. (248) 799-5849, or to such other
address as may be designated by the Company or the Bank by notice to the other party
hereto. All notices and other communications shall be deemed to have been given at the
time of actual delivery thereof to such address, or, unless sooner delivered, (i) if sent
by certified or registered mail, postage prepaid, to such address, on the third day after
the date of mailing, (ii) if sent by telex, upon receipt of the appropriate answerback, or
(iii) if sent by facsimile transmission, upon confirmation of receipt by telephone at the
number specified for confirmation, provided, however, that notices to the Bank shall not
be effective until received.  

45 

                              (b) Notices
by the Company to the Bank with respect to terminations or reductions of           the
Commitment pursuant to Section 2.2, requests for Advances pursuant to           Section
2.4, requests for continuations or conversions of Loans pursuant to           Section 2.7
and notices of prepayment pursuant to Section 3.1 shall be           irrevocable and
binding on the Company.  

                              (c) Any
notice to be given by the Company to the Bank pursuant to Sections 2.4, 2.7           or
3.1 and any notice to be given by the Bank hereunder, may be given by
          telephone, and all such notices given by the Company must be immediately
          confirmed in writing in the manner provided in Section 7.2(a). Any such notice
          given by telephone shall be deemed effective upon receipt thereof by the party
          to whom such notice is to be given. The Company shall indemnify and hold
          harmless the Bank from any and all losses, damages, liabilities and claims
          arising from its good faith reliance on any such telephone notice.  

                    7.3
No Waiver By Conduct; Remedies Cumulative. No
course of dealing on the part of the Bank, nor any delay or failure on the part of the
Bank in exercising any right, power or privilege hereunder shall operate as a waiver of
such right, power or privilege or otherwise prejudice the Bank’s rights and remedies
hereunder; nor shall any single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or privilege. No right or remedy
conferred upon or reserved to the Bank under this Agreement or the Note or any other Loan
Document is intended to be exclusive of any other right or remedy, and every right and
remedy shall be cumulative and in addition to every other right or remedy granted
thereunder or now or hereafter existing under any applicable law. Every right and remedy
granted by this Agreement or the Note or any other Loan Document or by applicable law to
the Bank may be exercised from time to time and as often as may be deemed expedient by the
Bank and, unless contrary to the express provisions of this Agreement or the Note or such
other Loan Document, irrespective of the occurrence or continuance of any Default or Event
of Default. 

                    7.4
Reliance on and Survival of Various
Provisions. All terms, covenants, agreements, representations and warranties of the
Company made herein or in any certificate, report, financial statement or other document
furnished by or on behalf of the Company in connection with this Agreement shall be deemed
to be material and to have been relied upon by the Bank, notwithstanding any investigation
heretofore or hereafter made by the Bank or on the Bank’s behalf, and those covenants
and agreements of the Company set forth in Section 3.7, 3.9 and 7.5 hereof shall survive
the repayment in full of the Advances and the termination of the Commitment. 

46 

                    7.5
Expenses; Indemnification. (a) The Company agrees to pay, or reimburse the
Bank for the payment of, on demand, (i) the reasonable fees and expenses of counsel to the
Bank, including without limitation the fees and expenses of Dickinson Wright PLLC, in
connection with the preparation, execution, delivery and administration of this Agreement,
the Note and the other Loan Documents, and in connection with advising the Bank as to its
rights and responsibilities with respect thereto, and in connection with any amendments,
waivers or consents in connection therewith, and (ii) all stamp and other taxes and fees
payable or determined to be payable in connection with the execution, delivery, filing or
recording of this Agreement or the Note or the other Loan Documents, or the consummation
of the transactions contemplated hereby, and any and all liabilities with respect to or
resulting from any delay in paying or omitting to pay such taxes or fees, and (iii) all
reasonable costs and expenses of the Bank (including reasonable fees and expenses of
counsel and whether incurred through negotiations, legal proceedings or otherwise) in
connection with any Default or Event of Default or the enforcement of, or the exercise or
preservation of any rights under, this Agreement or the Note or in connection with any
other Loan Document or any refinancing or restructuring of the credit arrangements
provided under this Agreement, and (iv) all reasonable costs and expenses of the Bank
(including reasonable fees and expenses of counsel) in connection with any action or
proceeding relating to a court order, injunction or other process or decree restraining or
seeking to restrain the Bank from paying any amount under, or otherwise relating in any
way to, any Letter of Credit and any and all costs and expenses which any of them may
incur relative to any payment under any Letter of Credit. 

                              (b) The
Company hereby indemnifies and agrees to hold harmless the Bank, and its
officers, directors, employees and agents, from and against any and all claims,
damages, losses, liabilities, costs or expenses of any kind or nature
whatsoever which the Bank or any such person may incur or which may be claimed
against any of them by reason of or in connection with any Letter of Credit,
and neither the Bank nor any of its officers, directors, employees or agents
shall be liable or responsible for: (i) the use which may be made of any Letter
of Credit or for any acts or omissions of any beneficiary in connection
therewith; (ii) the validity, sufficiency or genuineness of documents or of any
endorsement thereon, even if such documents should in fact prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (iii) payment by
the Bank to the beneficiary under any Letter of Credit against presentation of
documents which do not comply with the terms of any Letter of Credit, including
failure of any documents to bear any reference or adequate reference to such
Letter of Credit; (iv) any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit; or (v) any other event or
circumstance whatsoever arising in connection with any Letter of Credit;
provided, however, that the Company shall not be required to indemnify the Bank
and such other persons, and the Bank shall be liable to the Company to the
extent, but only to the extent, of any direct, as opposed to consequential or
incidental, damages suffered by the Company which were caused by (A) the Bank’s
wrongful dishonor of any Letter of Credit after the presentation to it by the
beneficiary thereunder of a draft or other demand for payment and other
documentation strictly complying with the terms and conditions of such Letter
of Credit, or (B) the Bank’s payment to the beneficiary under any Letter
of Credit against presentation of documents which do not comply with the terms
of the Letter of Credit to the extent, but only to the extent, that such
payment constitutes gross negligence or willful misconduct of the Bank. It is
understood that in making any payment under a Letter of Credit, the Bank will
rely on documents presented to it under such Letter of Credit as to any and all
matters set forth therein without further investigation and regardless of any
notice or information to the contrary, and such reliance and payment against
documents presented under a Letter of Credit substantially complying with the
terms thereof shall not be deemed gross negligence or willful misconduct of the
Bank in connection with such payment. It is further acknowledged and agreed
that the Company may have rights against the beneficiary or others in
connection with any Letter of Credit with respect to which the Bank is alleged
to be liable and it shall be a precondition of the assertion of any liability
of the Bank under this Section that the Company shall first have exhausted all
remedies in respect of the alleged loss against such beneficiary and any other
parties obligated or liable in connection with such Letter of Credit and any
related transactions.  

47 

                              (c) The
Company hereby indemnifies and agrees to hold harmless the Bank, and its
officers, directors, employees and agents, from and against any and all claims,
damages, losses, liabilities, costs or expenses of any kind or nature
whatsoever (including reasonable attorneys fees and disbursements incurred in
connection with any investigative, administrative or judicial proceeding
whether or not such person shall be designated as a party thereto) which the
Bank or any such person may incur or which may be claimed against any of them
by reason of or in connection with entering into this Agreement or the
transactions contemplated hereby, including without limitation those arising
under Environmental Laws; provided, however, that the Company shall not be
required to indemnify the Bank or such other person, to the extent, but only to
the extent, that such claim, damage, loss, liability, cost or expense is
attributable to the gross negligence or willful misconduct of the Bank.  

                    7.6
Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and assigns,
provided that the Company may not, without the prior consent of the Bank, assign its
rights or obligations hereunder or under the Note and the Bank shall not be obligated to
make any Advance hereunder to any entity other than the Company.  

                    7.7
Counterparts. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of the parties
hereto may execute this Agreement by signing any such counterpart. 

                    7.8
Governing Law. This Agreement is a contract made under, and shall be
governed by and construed in accordance with, the law of the State of Michigan applicable
to contracts made and to be performed entirely within such State and without giving effect
to choice of law principles of such State. Each of the Company and the Bank further agrees
that any legal or equitable action or proceeding with respect to this Agreement, the Note,
the other Loan Documents or the transactions contemplated hereby shall be brought in any
court of the State of Michigan, or in any court of the United States of America sitting in
Michigan, and the Company and the Bank each submits to and accepts generally and
unconditionally the jurisdiction of those courts with respect to its person and property.
The Company irrevocably consents to the service of process in connection with any such
action or proceeding by personal delivery to the Company, or by the mailing thereof by
registered or certified mail, postage prepaid to the Company at its address for notices
pursuant to Section 7.2. Nothing in this paragraph shall affect the right of the Bank to
serve process in any other manner permitted by law or limit the right of the Bank to bring
any such action or proceeding against the Company or its property in the courts of any
other jurisdiction. The Company and the Bank each irrevocably waives any objection to the
laying of venue of any such action or proceeding in the above described courts. 

48 

                    7.9
Table of Contents and Headings. The table of contents
and the headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof. 

                    7.10
Construction of Certain Provisions. If any provision of this
Agreement refers to any action to be taken by any person, or which such person is
prohibited from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such person, whether or not expressly specified in such
provision. 

                    7.11
Integration and Severability. This Agreement, the Note and the other
Loan Documents embody the entire agreement and understanding between the Company and the
Bank, and supersede all prior agreements and understandings, relating to the subject
matter hereof. In case any one or more of the obligations of the Company under this
Agreement, the Note or the other Loan Documents shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Company shall not in any way be affected or impaired thereby, and such
invalidity, illegality or unenforceability in one jurisdiction shall not affect the
validity, legality or enforceability of the obligations of the Company under this
Agreement, the Note or the other Loan Documents in any other jurisdiction. 

                    7.12
Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted by any
such covenant, the fact that it would be permitted by an exception to, or would be
otherwise within the limitations of, another covenant shall not avoid the occurrence of a
Default or an Event of Default if such action is taken or such condition exists. 

                    7.13
Interest Rate Limitation. Notwithstanding any provisions of this
Agreement or the Note, in no event shall the amount of interest paid or agreed to be paid
by the Company exceed an amount computed at the highest rate of interest permissible under
applicable law. If, from any circumstances whatsoever, fulfillment of any provision of
this Agreement or the Note or any other Loan Document at the time performance of such
provision shall be due shall involve exceeding the interest rate limitation validly
prescribed by law which a court of competent jurisdiction may deem applicable hereto,
then, ipso facto, the obligations to be fulfilled shall be reduced to an amount computed
at the highest rate of interest permissible under applicable law. If for any reason
whatsoever the Bank shall ever receive as interest an amount which would be deemed
unlawful under such applicable law, the amount shall be automatically applied to the
payment of principal of the Advances outstanding hereunder (whether or not then due and
payable) and not to the payment of interest, or shall be refunded to the Company if such
principal and all other obligations of the Company to the Bank have been paid in full.  

49 

                    7.14
Information Sharing. The Bank may provide, without any limitation
whatsoever, any information or knowledge the Bank may have about the Company, the Parent
Guarantor or any of their respective Subsidiaries or any matter relating to this Agreement
and any related documents to the Bank’s parent, or any of its subsidiaries or
affiliates or their successors, or to any one or more purchasers or potential purchasers
of any interest in this Agreement or the Note or any related documents, and the Company
waives any right to privacy the undersigned may have with respect to such matters. The
Company agrees that the Bank may at any time sell, assign or transfer one or more
interests or participations in all or any part of its rights or obligations in this
Agreement, the Note and the other Loan Documents to one or more purchasers whether or not
related to the Bank. 

                    7.15
USA PATRIOT ACT NOTIFICATION.. The following notification is
provided to the Company pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318: 

IMPORTANT INFORMATION ABOUT
PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of
terrorism and money laundering activities, Federal law requires all financial
institutions to obtain, verify, and record information that identifies each person or
entity that opens an account, including any deposit account, treasury management account,
loan, other extension of credit, or other financial services product. What this means for
the Company: When the Company opens an account, if the Company is an individual, the Bank
will ask for the Company’s name, residential address, tax identification number,
date of birth, and other information that will allow the Bank to identify the Company,
and, if the Company is not an individual, the Bank will ask for the Company’s name,
tax identification number, business address, and other information that will allow the
Bank to identify the Company. The Bank may also ask, if the Company is an individual, to
see the Company’s driver’s license or other identifying documents, and, if the
Company is not an individual, to see the Company’s legal organizational documents or
other identifying documents.  

50 

                    7.16
WAIVER OF JURY TRIAL. THE BANK AND THE COMPANY, AFTER CONSULTING OR HAVING HAD
THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT,
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER THE
BANK NOR THE COMPANY SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY
SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED
TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY ANY PARTY HERETO EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY SUCH PARTY.  

        [THE
REST OF THIS PAGE INTENTIONALLY LEFT BLANK.] 

51 

                    IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered on the 22nd day of November, 2004, which shall be the Effective Date
of this Agreement, notwithstanding the day and year first above written. 

		CHILDTIME
      CHILDCARE, INC.

      

      

      By /s/ Frank M. Jerneycic

            ———————————————
      

      

      Its Chief Financial Officer

            ———————————————
      

      

      

      LEARNING CARE GROUP, INC.*

      

      

      By /s/ Frank M. Jerneycic

            ———————————————
      

      

      Its Chief Financial Officer

            ———————————————
      

      

      *Signing for the purpose of making the

      representations and warranties set forth

      in Article IV and agreeing to abide by

      the covenants applicable to it set forth

      in Sections 5.1 and 5.2 of this Agreement.

      

      

      JPMORGAN CHASE BANK, N.A.

      

      

      By /s/ Richard Ellis

            ———————————————
      

      

      Its F.V.P.

            ———————————————

52Exhibit 10.2

 Exhibit 10.2 
  
 EMPLOYMENT AGREEMENT 
  

This EMPLOYMENT AGREEMENT (the “Agreement”), is dated this      day of
                     2004, between MHI Hospitality Corporation, a Maryland corporation (the “Company” or “Employer”), and
Andrew M. Sims (the “Executive”). 
  
 RECITALS:

  
 WHEREAS, the Company is in the business of owning and
developing hotels (“the Company’s Business”); and 
  
 WHEREAS, the Company seeks to enter into an agreement with Executive to engage him to serve as President and Chief Executive Officer of the Company on the terms and conditions stated herein; and 
  
 WHEREAS, Executive seeks to enter into an agreement to take on such
responsibilities under the terms and conditions stated herein; and 
  
 WHEREAS, the Company desires to employ the Executive on the terms and conditions set forth herein. 
  
 NOW, THEREFORE, on the basis of the foregoing premises and in consideration of the mutual covenants and agreements contained herein, the parties hereto
agree as follows: 
  
 Section 1. Employment. The Company
hereby agrees to employ the Executive and the Executive hereby accepts such employment with the Company, on the terms and subject to the conditions hereinafter set forth. Subject to the terms and conditions contained herein, the Executive shall
serve as President and Chief Executive Officer of the Company and shall have such duties as are typically performed by a chief executive officer of a corporation of similar size and type as the Company. The Company shall nominate the Executive to
serve as a member of the Board of Directors of the Company (the “Board”), and shall include Executive in the proxy materials delivered to stockholders in connection with any Board Election (as hereinafter defined) and shall recommend
Executive for election in the same manner as other nominees approved by the Nominating, Corporation Governance and Compensation Committee, and shall continue to nominate and recommend the Executive for election to the Board for so long as the
Executive serves as President and Chief Executive Officer of the Company; provided, however, that such obligation to nominate, include in proxy materials and recommend for election shall be subject to the determination of the Nominating, Corporate
Governance and Compensation Committee (the “Committee”) in connection with each annual or special meeting of stockholders at which directors will be elected (a “Board Election”) that Executive satisfies the standards established
by the Committee for service on the Board. Executive shall not serve on the Nominating, Corporate Governance and Compensation Committee and shall not be deemed to be an independent director. The Company will not have any of these obligations in the
event 
  

 1 

 Executive resigns, refuses to stand for re-election, is removed for Good Cause, dies or becomes disabled while serving as
a director. The Executive shall render his services at the direction of, and shall report solely to, the Board. The Executive agrees to use best efforts to promote and further the business, reputation and good name of the Company. The
Executive’s primary place of employment shall be in the Williamsburg, Virginia area, or such other location as determined by the Board. 
  
 Section 2. Commencement Date; Term. Unless terminated pursuant to Section 6 hereof, the Executive’s employment hereunder shall commence on the
date set forth above (“Commencement Date”), which is the effective date of the Company’s initial public offering, and shall continue during the period ending on December 31, 2009. Thereafter, the term of the Agreement shall be
extended for an additional year, on each anniversary of the Commencement Date, unless either party gives 180 days prior written notice that the term will not be extended (the “Employment Term”). The Employment Term shall terminate upon any
termination of the Executive’s employment pursuant to Section 6. 
  
 Section 3. Compensation and Benefits. During the Employment Term, the Executive shall be entitled to the following compensation and benefits: 
  

(a) Salary. As compensation for the performance of the Executive’s services hereunder, the Company shall pay to the Executive a salary (the
“Salary”) of Two Hundred Twenty Five Thousand Dollars $225,000 per annum. The Salary shall be payable in arrears in approximately equal semi-monthly installments (except that the first and last such semi-monthly installments may be
prorated if necessary) on the Company’s regularly scheduled payroll dates, minus such deductions as may be required by law or reasonably requested by the Executive. The Committee shall review his Salary annually beginning with the 2006 fiscal
year in conjunction with its regular review of employee salaries and may increase his Salary as in effect from time to time as the Committee shall deem appropriate it being understood and agreed that the intent of the parties is, subject to the
satisfactory performance of Executive, to increase the Executive’s Salary over the first three years of the Employment Term to a level commensurate with salaries of executives with comparable duties for comparable entities in the Company’s
industry as such entities and comparable salaries may be determined in the sole discretion of the Committee. 
  
 (b) Annual Performance Bonus. The Executive shall be eligible to receive, in respect of each calendar year during the Employment Term beginning
with 2005, an annual cash performance bonus (the “Annual Performance Bonus”) in an amount between twenty percent (20%) and thirty percent (30%) of Salary for that calendar year, based upon (other than as noted below) the attainment of
quantitative performance goals set forth in a performance plan established by the Committee by January 31 of each year (the “Performance Plan”). The Annual Performance Bonus shall be paid to the Executive within thirty (30) days following
the receipt of the audited results of the Company for the plan year, but in no event later than sixty (60) days after the close of the plan year. If necessary, the Annual Performance Bonus shall be granted under a performance based plan that meets
the requirements under Section 162(m) of the Internal Revenue Code (the “Code”). 
  
 (c) Stock Options. The Company may grant to Executive stock options, performance shares, performance units, deferred shares or restricted stock from time to time under the terms of a separate agreement, and
consistent with the terms of any stock incentive plan which may be created by the Company. 
  

 2 

 (d) Benefits. In addition to the Salary and the Annual Performance Bonus, the Executive shall be
eligible to participate in the Company’s health, insurance, retirement, and other benefit plans and programs. The Executive shall also be entitled to six (6) weeks of paid vacation for each calendar year during the Employment Term.
Additionally, Executive will be entitled to three (3) weeks paid time for illness and personal leave, and all Company holidays. The Executive shall be entitled to all other benefits as are generally allowed to other senior executives of the Company,
in accordance with the Company’s policies in effect from time to time. 
  
 (e) Directors and Officers Liability Insurance. The Company will, at its expense, provide the Executive with Directors and Officers Liability Insurance, subject to the provisions governing such insurance and on
such terms as the Board may from time to time decide. The Company will indemnify Executive and hold Executive harmless, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by him in
connection with any action, suit or proceeding to which he may be made a party by reason of his being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company at any time. 
  
 (f) Insurance and Other Related Benefits. Company shall pay for one
hundred percent (100%) of all health insurance premiums under a policy covering Executive and his immediate family. During the Employment Term, the Company shall maintain on the life of Executive, provided he is insurable, at standard rates a term
life insurance policy in the amount of One Million Dollars ($1,000,000.00). Executive shall have the right to designate the beneficiary or beneficiaries of such policy. In the event that Executive is not insurable at standard rates during the term
of this Agreement, but Executive is able to procure rated coverage, Executive shall have the right to procure coverage for a lower amount of insurance, the cost of which is equivalent to the standard term rate cost of $1,000,000.00 of coverage or
such lesser amount designated by Executive. During the Employment Term, the Company shall also maintain for the benefit of the Executive disability insurance such that Executive will be entitled to receive monthly payments not less than the monthly
payments made pursuant to Section 3(a) hereof at the time of any event causing his complete or partial disability. In addition to the foregoing, Executive will be entitled to other executive benefits on the same basis as the Company provides to its
other executives and customary fringe benefits and privileges that the Company makes generally available to executives. 
  
 (g) Other Benefits. Executive is entitled to visit the hotels in the Company’s portfolio and utilize same for leisure or business at no cost
to Executive. 
  
 (h) Retirement. To the extent a
retirement or profit sharing plan is created, Executive shall be entitled to participate in said plan pursuant to applicable law. 
  
 (i) No Other Compensation. Except as otherwise expressly provided herein, or in any other written document executed by the Company and the
Executive, no other compensation or other consideration shall become due or payable to the Executive on account of the services rendered hereunder. 
  

 3 

 (k) Taxation and Withholding. The compensation and benefits provided for in this section 3 (as
well as the Termination Payments provided for in section 6(g)) shall be reported as income to Executive and subjected to tax withholding as required under applicable Federal, state, and local laws. 
  
 Section 4. Exclusivity. During the Employment Term, the Executive
shall devote his full time to the business of the Company, shall faithfully serve the Company, shall in all respects conform to and comply with the lawful and reasonable directions and instructions given to him by the Board. The Executive shall use
reasonable efforts to promote and serve the interests of the Company and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit, except that the Executive may participate in the
activities of professional trade organizations and, engage in personal investing activities, provided that such activities do not interfere in any material respect with the services to be provided by the Executive hereunder and are not in companies
that compete with the Company. Notwithstanding the foregoing, Employer acknowledges and agrees that the Executive shall be permitted to serve as a director of MHI Hotels Services LLC, MHI Hotels LLC and/or MHI Hotels Two, Inc. during the Employment
Term and to receive compensation comparable to that paid to other members of such boards in connection with such service, except to the extent that receipt of such compensation would adversely affect the Company’s qualification as a real estate
investment trust for federal income tax purposes. 
  
 Section 5.
Reimbursement for Expenses. In addition to, but without duplication of, the expenses described in Section 3(d), the Executive is authorized to incur reasonable expenses in the discharge of the services to be performed hereunder, including,
without limitation, expenses for travel, entertainment, maintaining professional licenses and certifications, trade association fees, attendance at association meetings and conferences, lodging and similar items in accordance with the Company’s
expense reimbursement policy, as the same may be modified by the Company from time to time. The Company shall reimburse the Executive for all such proper expenses upon presentation by the Executive of itemized accounts of such expenditures in
accordance with the financial policy of the Company, as in effect from time to time. 
  
 Section 6. Termination and Default. 
  
 (a) Death. The Executive’s employment shall automatically terminate upon his death and upon such event, the Executive’s estate shall be entitled to receive only the Accrued Compensation (as
hereinafter defined) pursuant to Section 6(g)(ii) hereof and no other severance compensation. 
  
 (b) Disability. If the Executive is unable to perform the duties required of him under this Agreement because of illness, incapacity, or physical or mental disability, the Employment Term shall continue and the
Company shall pay all compensation required to be paid to the Executive hereunder, unless the Executive is unable to perform the duties required of him under this Agreement for an aggregate of 120 days (whether or not consecutive) during any
12-month period during the term of this Agreement (a “Disability”), in which event the Executive’s employment shall terminate and Executive shall be entitled to receive only the Accrued Compensation pursuant to Section 6(g)(ii) hereof
and no other severance compensation. 
  

 4 

 (c) Cause. The Company may terminate the Executive’s employment at any time, with or without
Cause. For purposes of this Agreement, “Cause” shall mean the occurrence of any of the following: (i) the Executive’s failure (except where due to a disability contemplated by subsection (b) hereof), neglect or refusal to perform his
duties hereunder, (ii) any breach of this Agreement by the Executive (or any grossly negligent, willful or intentional act of the Executive) that injures the reputation or business of the Company or its affiliates in any material respect; (iii)
material breach by the Executive of his obligations under this Agreement; (iv) Executive’s gross negligence in the performance or intentional, material nonperformance (continuing for ten (10) days after receipt of written notice of need to
cure) of any of Executive’s material duties and responsibilities hereunder; (v) Executive’s dishonesty, fraud or misconduct with respect to the business or affairs of the Company; (vi) the Executive’s indictment of, conviction of, or
pleading of no contest to a felony or any misdemeanor involving fraud; (vii) the commission by the Executive of an act of fraud or embezzlement, or any other act involving the misappropriation of funds or assets; or (viii) chronic alcohol abuse or
illegal drug use by Executive. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be
done, by Executive in good faith and in the best interests of the Company. Cause shall not exist pursuant to clause (i), (ii), (iii) or (iv) of this Section 6(c) unless the Executive has failed to correct the activity alleged to constitute
“Cause” within ten (10) days following written notice from the Company of such activity, which notice shall specifically set forth the nature of such activity and the corrective action reasonably sought by the Company. Notwithstanding the
foregoing, the termination of the Executive’s employment for Cause shall be pursuant to the action of the Board, taken in conformity with the By-laws of the Company. In the event of Executive’s termination for Cause as set forth above,
Executive shall not be entitled to any severance compensation. 
  
 (d) Without Cause. The Company may terminate the Executive’s employment during the Employment Term without Cause at any time by giving written notice to the Executive. A termination of the Executive’s employment without
Cause shall mean a termination initiated by the Company for any reason other than Cause or on account of death or Disability. A termination without Cause shall be effective immediately upon notice given by the Company to the Executive, or such later
date as may be mutually agreed between the Executive and the Company. Upon a termination of employment without cause, Executive shall be entitled to the compensation payments provided in Section 6(g). 
  
 (e) Resignation/Termination for Good Reason. The Executive shall have
the right to terminate his employment for Good Reason under any of the following circumstances: (i) the failure by the Company to pay to the Executive the compensation and benefits, or expense reimbursement in accordance with Sections 3 and 5
herein; (ii) a material diminution in the Executive’s responsibilities or authority, or diminution of the Executive’s title including, without limitation, a failure to nominate, include in proxy materials and recommend for election the
Executive to serve on the Board or his involuntary removal from the Board, unless for Cause or pursuant to a vote of the stockholders of the Company; (iii) if the location of the Company’s principal place of business is moved to another
location more than sixty (60) miles away from Williamsburg, Virginia; (iv) any material breach of this Agreement by the Company or (v) following a Change in Control (as defined below) of Employer followed by a termination of Executive’s
employment within (12) months of such Change in Control; provided, however, that Good Reason shall not exist upon a termination of employment described in Section 6(b), (c) or (d) herein; provided, further, that the Executive 
  

 5 

 must provide written notice of termination of employment for Good Reason within thirty (30) days following the
Executive’s knowledge of an event constituting Good Reason or such event shall not constitute Good Reason hereunder. Upon termination pursuant to this Section 6(e), Executive shall be entitled to the compensation payments provided in Section
6(g). 
  
 Notwithstanding the foregoing, Good Reason shall not be deemed to exist
unless the Company fails to cure the event giving rise to Good Reason within thirty (30) days after receipt of written notice thereof given by the Executive. For purposes of this Agreement, “Change in Control” shall mean the following
events or circumstances that occur after the Effective Date: 
  
 (A) The ownership or acquisition (whether by a merger contemplated by Section 6(d)(vii)(B) below, or otherwise) by any Person (other than a Qualified Affiliate (as defined below)), in a single transaction or a series of related or unrelated
transactions, of Beneficial Ownership of more than fifty percent (50%) of (1) the Company’s outstanding common stock (the “Common Stock”) or (2) the combined voting power of the Company’s outstanding securities entitled to vote
generally in the election of directors (the “Outstanding Voting Securities”); 
  
 (B) The merger or consolidation of the Company with or into any other Person other than a Qualified Affiliate, if, immediately following the effectiveness of such merger or consolidation, Persons who did not
Beneficially Own Outstanding Voting Securities immediately before the effectiveness of such merger or consolidation directly or indirectly Beneficially Own more than fifty percent (50%) of the outstanding shares of voting stock of the surviving
entity of such merger or consolidation (including for such purpose in both the numerator and denominator, shares of voting stock issuable upon the exercise of then outstanding rights (including then exercisable conversion rights), options or
warrants) (“Resulting Voting Securities”), provided that, for purposes of this Section 6(d)(vii)(B), if a Person who Beneficially Owned Outstanding Voting Securities immediately before the merger or consolidation Beneficially Owns a
greater number of the Resulting Voting Securities immediately after the merger or consolidation than the number the Person received solely as a result of the merger or consolidation, that greater number will be treated as held by a Person who did
not Beneficially Own Outstanding Voting Securities before the merger or consolidation, and provided further that such merger or consolidation would also constitute a Change in Control if it would satisfy the foregoing test if rights, options and
warrants were not included in the calculation; 
  
 (C) Any one or
a series of related sales or conveyances to any Person or Persons (including a liquidation) other than any one or more Qualified Affiliates of all or substantially all of the assets of the Company; 
  
 (D) Incumbent Directors cease to be two-thirds ( 2/3) of the members of the Board of Directors, where an “Incumbent Director” is (1) an individual who is a
member of the Board of Directors on the effective date of this Agreement or is otherwise named in the Company’s registration statement on Form S-11 as consenting to serve on the Board of Directors upon the closing of the initial public offering
of the Company’s common stock or (2) any new director whose appointment by the Board of Directors or whose nomination for election by the stockholders was approved by at least two-thirds ( 2/3) of the persons who were already Incumbent Directors at the time of such appointment, election or approval, other than any individual who assumes office
initially as a result of an actual or threatened election contest with respect to the 
  

 6 

 election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors or as a result of an agreement to avoid or settle such a contest or solicitation; or 
  
 (E) A Change in Control shall also be deemed to have occurred immediately before the completion of a tender offer for the Company’s securities
representing more than fifty percent (50%) of the Outstanding Voting Securities, other than a tender offer by a Qualified Affiliate. 
  
 (F) For purposes of this Agreement, the following definitions shall apply: 
  
 (a) “Beneficial Ownership,” “Beneficially Owned” and “Beneficially Owns” shall have the
meanings provided in Exchange Act Rule 13d-3; 
  
 (b)
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended; 
  
 (c) “Person” shall mean any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), including any natural person, corporation, trust, association, partnership,
joint venture, limited liability company, legal entity of any kind, government, or political subdivision, agency or instrumentality of a government, as well as two or more Persons acting as a partnership, limited partnership, syndicate or other
group for the purpose of acquiring, holding or disposing of the Company’s securities; and 
  
 (d) “Qualified Affiliate” shall mean (i) any directly or indirectly wholly owned subsidiary of the Company, (ii) any employee benefit plan (or
related trust) sponsored or maintained by the Company or by any entity controlled by the Company; or (iii) any Person consisting or controlled in whole or in part of or by the Employee or one or more individuals who are then the Company’s Chief
Executive Officer or any other named executive officer (as defined in Item 402 of Regulation S-K under the Securities Act of 1933) of the Company as indicated in its most recent securities filing made before the date of the transaction. 

 
 (f) Payment in Lieu. The Company may, in its sole discretion, at
any time after notice of termination without Good Reason has been given to the Company by the Executive, terminate this Agreement, provided that, in addition to any amount payable to the Executive under Section 6(g) herein, the Company shall pay to
the Executive (without duplication) his then current Salary and continue benefits provided pursuant to Section 3(d) herein, for the duration of the unexpired notice period. 
  
 (g) Termination Payments. 
  

(i) Termination without Cause or By Executive for Good Reason. In the event that during the Employment Term the Executive’s employment is
terminated by the Company without Cause or the Executive terminates his employment for Good Reason, the Company shall pay to the Executive the sum of the following amounts: (A) all amounts fully earned pursuant to the terms of this Agreement, but
unpaid hereunder through the date of termination, if any, in respect of Salary, any accrued but not yet paid Annual Performance Bonus owed from the year prior to Executive’s termination, vesting of any previously issued stock options or
restricted stock, payment of life, health and disability insurance coverage for a period 
  

 7 

 of five years following termination, and unreimbursed expenses (the “Accrued Obligations”); and (B), a
severance payment equal to five (5) times the Executive’s combined Salary and actual bonus compensation for the preceding fiscal year will be paid within five (5) days of the Executive’s last day of employment; and (C) the Executive will
be eligible to receive payments to compensate the Executive for the additional taxes, if any, imposed on the Executive under Section 4999 of the Internal Revenue Code by reason of receipt of excess parachute payments described above. Executive
agrees that he shall not be entitled to any pro-rated payment of the Annual Performance Bonus for the year of Executive’s termination. Notwithstanding any other provision in this Agreement or the terms of any severance plan or policy maintained
by the Company or its affiliates to the contrary, if the Company pays the Executive the severance benefit as provided in this Section 6(g)(i), the Executive shall not be entitled to receive any other payments or benefits under any other severance or
similar plan maintained by the Company or its affiliates. 
  
 (ii) Termination due to Death or Disability. In the event that during the Employment Term the Executive’s employment is terminated by the Company due to the Executive’s death or Disability, the Company shall pay to the
Executive, or the Executive’s estate, all amounts fully earned pursuant to the terms of this Agreement, but unpaid hereunder through the date of termination, if any, in respect of Salary, and accrued but not yet paid Annual Performance Bonus
owed from the year prior to Executive’s termination (the “Accrued Compensation”). 
  
 (iii) Termination for Cause or By Executive without Good Reason. In the event that during the Employment Term the Executive’s employment is
terminated by the Company for Cause or by the Executive by resignation without Good Reason, the Company shall pay to the Executive the Accrued Compensation. 
  
 (iv) Expiration of Agreement. If either the Company or the Executive elects not to renew this Agreement and it expires, the Executive shall not
receive any termination payments other than any amounts fully earned pursuant to the terms of this Agreement, but unpaid hereunder through the date of expiration of this Agreement, if any, in respect of Salary, and any accrued but not yet paid
Annual Performance Bonus owed with respect to the year of such expiration and any prior year. 
  
 (h) No Mitigation or Offset. In the event of any termination of Executive’s employment hereunder, Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of
the Company under this Agreement, and there shall be no offset against amounts due Executive under this Agreement on account of amounts purportedly owing by Executive to the Company or amounts earned by Executive from any source. Any amounts due to
Executive under this Agreement upon termination of employment are considered to be reasonable by the Company and are not in the nature of a penalty. 
  
 (i) Survival of Operative Sections. Upon any termination of the Executive’s employment, the provisions of Sections 6(g) and 7 through 21 of
this Agreement shall survive to the extent necessary to give effect to the provisions thereof. 
  

 8 

 Section 7. Confidentiality and Non-Disclosure Covenants. 
  
 (a) Confidential Information. The Company considers one of its most
valuable assets to be its confidential and trade secret information, including, but not limited to, potential real estate acquisition targets and client lists of the respective hotel properties. Confidential Information shall not include information
which has: (i) previously been disclosed by the Company in published papers; (ii) becomes part of the public domain, by publication or otherwise; and (iii) not due to the direct or indirect acts or omissions of Executive. The parties to this
Agreement recognize that the Company has invested and will invest considerable amounts of time and money in attaining and developing all of the information described above (hereinafter collectively referred to as “Confidential
Information”), and any unauthorized disclosure or release of such Confidential Information in any form would harm the Company. 
  
 (b) Non-Disclosure of Confidential Information. Executive shall refrain from directly or indirectly disclosing to any third party, for any purpose
other than for the direct benefit of the Company, any of the Company’s Confidential Information during his employ and thereafter, whatever the reason for his leaving the Company’s employment. 
  
 (c) Confidentiality of the Company’s Property. Executive
recognizes that all of the documents and other tangible items which contain any of the Company’s Confidential Information are the Company’s property exclusively, including those documents and items which Executive may have developed or
contributed to developing while employed by the Company, whether or not developed during regular working hours or on the Company’s premises. 
  
 (d) Executive recognizes that all materials, identification information, keys, computer software and hardware, computer programming libraries, manuals,
databases, disks, tapes, patent applications, technical notes and equipment the Company provides for Executive are also the property of the Company exclusively. All items described in this and the preceding paragraph are hereinafter collectively
referred to as “the Company’s Property”. 
  
 (e)
Should Executive’s employment be terminated for any reason, Executive shall: 
  
 (i) Refrain from taking any of the Company’s Property or allowing any of the Company’s Property to be taken from the Company’s premises; 
  
 (ii) Refrain from reproducing in any manner or allowing to be reproduced any of the Company’s Property; 
  
 (iii) Refrain from removing any such reproduction from the Company’s
premises; and 
  
 (iv) Immediately return to the Company any
original or reproduction of the Company’s Property in his custody, control or possession. 
  
 Section 8. Non-Competition and Non-Solicitation Covenants. During his employment with the Company and for a period of one (1) year thereafter, whatever the reason for Executive’s termination of employment,
unless Executive receives the Company’s advance written waiver, Executive shall not, either directly or indirectly, either on his own behalf or on behalf of another business, engage in or assist others in the following activities: 

 
 (a) Soliciting, hiring, recruiting, or attempting to
recruit, for any business which competes with the Company’s Business any person employed or contracted with by the Company or employed or contracted with by the Company during the twelve (12) months immediately prior to Employee’s
termination of employment with the Company; 
  

 9 

 (b) Soliciting for any business which competes with the Company’s Business, any
competitive business from any of the Company’s customers during the twelve (12) months immediately prior to Executive’s termination of employment, or specific prospective customers solicited by the Company during the six (6) months
immediately prior to Executive’s termination of employment. 
  
 (c) In the Market Area (as hereinafter defined), entering into, engaging in, being employed by, being connected to, consulting or rendering services for, any business which competes with, or is similar to, the
Company’s Business or business known to Executive to be conducted by the Company or planned to be conducted by the Company at the time of Executive’s separation from employment with the Company, in a capacity performing management
functions similar to those performed or managed by Executive while employed by the Company. This provisions shall not restrict Executive from owning a passive investment interest of the outstanding equity ownership or share in an organization
represented by securities publicly traded on a recognized national securities exchange for exchange including but not limited to MHI Hotel Services, LLC and its affiliates. For purposes of this provision, “Market Area” shall be defined as
Savannah, Georgia; Raleigh, North Carolina; Williamsburg, Virginia; Philadelphia, Pennsylvania; Wilmington, North Carolina and Laurel, Maryland and any other city or metropolitan area within the United States in which a hotel owned by the Company or
with respect to which the Company or an affiliate has an ownership interest is located as of the last day of the Employment Term. 
  
 Section 9. Injunctive Relief. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of
the covenants contained in Sections 7 and 8 hereof may result in material irreparable injury to the Company or its subsidiaries or affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction, without the necessity of proving irreparable harm or
injury as a result of such breach or threatened breach of Sections 7 and 8 hereof, restraining the Executive from engaging in activities prohibited by Sections 7 and 8 hereof or such other relief as may be required specifically to enforce any of the
covenants in Sections 7 and 8 hereof. 
  
 Section 10. Extension
of Restricted Period. In addition to the remedies the Company may seek and obtain pursuant to Section 9 of this Agreement, the Restricted Period shall be extended by any and all periods during which the Executive shall be found by a court to
have been in violation of the covenants contained in Sections 7 and 8 hereof. 
  
 Section 11. Representations and Warranties. The Executive and the Company represent and warrant to the other as follows: 
  

(a) This Agreement, upon execution and delivery by the Executive and the Company will be the valid and binding obligation of the Executive and the
Company enforceable against the Executive and the Company in accordance with its terms. 
  

 10 

 (b) As to the Executive only, neither the execution and delivery of this Agreement nor the performance of
this Agreement in accordance with its terms and conditions by the Executive (i) requires the approval or consent of any governmental body or of any other person or (ii) conflicts with or results in any breach or violation of, or constitutes (or with
notice or lapse of time or both would constitute) a default under, any agreement, instrument, judgment, decree, order, statute, rule, permit or governmental regulation applicable to the Executive. 
  
 (c) The representations and warranties of the Executive and the Company
contained in this Section 11 shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 
  
 Section 12. Assignment; No Third-Party Beneficiaries. This Agreement shall inure to the benefit of, and be binding on, the successors and assigns
of each of the parties, including, but not limited to, the Executive’s heirs, the Executive’s guardian in the event of the Executive’s disability, the personal representatives of the Executive’s estate and any successor to all or
substantially all of the business and/or assets of the Company. This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive; any purported assignment by the Executive in violation hereof shall be
null and void. The Company may assign this Agreement and its rights hereunder, but in the event of assignment, the assignee shall expressly assume all obligations of the Company hereunder and the Company shall remain fully liable for the performance
of all of such obligations in the manner prescribed in this Agreement. Except as otherwise provided herein, nothing in this Agreement shall confer upon any person or entity not a party to this Agreement, or the legal representatives of such person
or entity, any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement. 
  
 Section 13. Waiver and Amendments. Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if
made in writing and signed by the parties hereto. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver
specifically states that it is to be construed as a continuing waiver. 
  
 Section 14. Ethical Conduct. Executive shall conduct business in an ethical manner by: 
  
 (a) Avoiding conflicts of interest; 
  
 (b) Complying with the Company’s Code of Conduct and Corporate Governance Principles; 
  
 (c) Refusing to accept, and reporting to the Company the
offering of, anything of material value, including a gift, loan on preferential terms, reward, promise of future employment, favor or service which would influence a reasonably prudent person in the discharge of his duties for the Company or which
is based on any understanding that his action would be influenced; and 
  

 11 

 (d) Abiding by policies and guidelines relating to ethical conduct which the Company may
issue as it deems appropriate. 
  
 Section 15.
Indemnification. The Executive and the Company shall enter into an indemnification agreement providing for the indemnification of Executive to the fullest extent permitted by Maryland law. 
  
 Section 16. Severability, Governing Law. The Executive acknowledges
and agrees that the covenants set forth in Sections 7 and 8 hereof are reasonable and valid in geographical and temporal scope and in all other respects. If any of such covenants or such other provisions of this Agreement are found to be invalid or
unenforceable by a final determination of a court or arbitration panel of competent jurisdiction (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a
term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MARYLAND APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES. 
  
 Section 17. Notices. 
  
 (a) All communications under this Agreement shall be in writing and shall be delivered by hand or mailed by overnight courier or by registered or
certified mail, postage prepaid 
  

			
	If to the Company:	  	MHI Hospitality Corporation
	 	  	814 Capitol Landing Road
	 	  	Williamsburg, Virginia 23185
		
	If to Executive:	  	Andrew M. Sims
	 	  	814 Capitol Landing Road
	 	  	Williamsburg, VA 23185

  
 (b) Any notice so
addressed shall be deemed to be given: if delivered by hand, on the date of such delivery; if mailed by overnight courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third
business day after the day of such mailing. 
  
 Section 18.
Section Headings. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof, affect the meaning or interpretation of this Agreement or of any term or
provision hereof. 
  
 Section 19. Entire Agreement. This
Agreement constitutes the entire understanding and agreement of the parties hereto regarding the employment of the Executive. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and
agreements between the parties relating to the subject matter of this Agreement. 
  

 12 

 Section 20. Severability. In the event that any part or parts of this Agreement shall be held
illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not effect the remaining provisions of this Agreement which shall remain in full force and effect. 
  
 Section 21. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. 
  
 Section 22. Arbitration, Service, Venue, Jury Trial. Any unresolved dispute or controversy arising or in connection with this agreement shall be
settled exclusively by arbitration, conducted before a single arbitrator in Greenbelt, Maryland in accordance with the rules of the American Arbitration Association then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any injured party. The arbitrators shall have the authority to order back-pay, severance compensation, vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this agreement, and interest thereon in the event the arbitrators determine that employee was terminated without disability or good cause, as defined in Section 6, or that the company has
otherwise materially breached this agreement. A decision by a majority of the arbitration panel shall be final and binding. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. Nothing in this section shall effect
or limit the Company’s right to obtain any type of relief available to it in a court of law as a result of the Employee’s breach of Sections 7 and 8. In the event either party seeks such relief, the parties hereby (i) submit to the
exclusive jurisdiction of the State of Maryland and the U.S. federal courts in the State of Maryland, (ii) consent that any such action or proceeding may be brought in any such venue, (iii) waive any objection that any such action or proceeding, if
brought in any such venue, was brought in any inconvenient forum and agree not to claim the same, (iv) agree that any judgment in any such action or proceeding may be enforced in other jurisdictions, (v) consent to service of process at the address
set forth in Section 16 herein, and (vi) to the extent applicable, waive their respective rights to a jury trial of any claim or cause of action based on or arising out of this agreement or any dealings between them relating to the subject matter of
this agreement. 
  

 13 

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

			
	MHI HOSPITALITY CORPORATION
		
	By:	 	  

	Name:	 	 
	Title:	 	 
	 	 	 
	 	 	  

	 	 	Andrew M. Sims
	 	 	President and Chief Executive Officer

  

 14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00075-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00075-of-00352.parquet"}]]