Document:

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
EXEMPTION THEREFROM.

	
  

 
	 

 

XLNT
VETERINARY CARE, INC.

(Incorporated under the laws of the State of Delaware)

VOID After June
[__], 2017

No. 7

STOCK
PURCHASE WARRANT

          This
Stock Purchase Warrant certifies that, for value received, _____________
(the “Holder”), or its registered assigns, is entitled to purchase
from XLNT VETERINARY CARE, INC., a Delaware corporation (the “Company”), at any time or from time to time
during the period specified in Section 2 hereof, four hundred fifty
(450) fully paid and nonassessable shares of the Company’s Series B Convertible
Preferred Stock, $0.0001 par value per share (“Preferred Stock”) at an exercise price per share of $0.10 (the
“Exercise Price”). 

          This
Warrant, together with all warrants issued upon transfer, exchange or in
replacement hereof pursuant to Section 6 hereof (collectively, the “Warrants”),
is issued in connection with that certain Term Note of even date herewith (the
“Term Note”), by and among the
Company and the Holder. Terms used but not defined herein shall have the
respective meanings assigned to such terms in the Term Note. 

          The
term “Warrant Shares”, as used
herein, refers to the shares of Preferred Stock purchasable hereunder.

          This
Warrant is subject to the following additional terms, provisions, and
conditions:

          1.
Manner of Exercise;
Issuance of Certificates; Payment for Shares. Subject to the
provisions hereof, this Warrant may be exercised by the Holder hereof, in whole
or in part, by the surrender of this Warrant, together with a completed
Exercise Agreement in the form attached hereto, to the Company during normal
business hours on any business day at the Company’s principal office identified
in Section 7 (or such other office or agency of the Company as it may
designate by notice to the Holder hereof), during the Exercise Period (as
defined in Section 2), and upon payment to the Company of the
Exercise Price for the Warrant Shares specified in said Exercise Agreement,
which such payment shall be made in cash or by

bank check for all Warrant Shares purchased hereunder. The Company shall not be required to issue
fractional Warrant Shares upon any exercise of the Warrant, but instead shall
pay to the Holder of this Warrant the cash value of any such fractional Warrant
Shares. The Warrant Shares so purchased
shall be deemed to be issued to the Holder hereof or their designees as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
delivered, and payment made for such shares as aforesaid. Certificates for the Warrant Shares so
purchased, representing the aggregate number of shares specified in said
Exercise Agreement, shall be delivered to the Holder hereof within a reasonable
time, not exceeding ten business days, after this Warrant shall have been so
exercised. The certificates so
delivered shall be in such denominations as may be reasonably requested by the
Holder hereof, shall, unless the Warrant Shares evidenced by such certificate
have previously been registered under the Securities Act of 1933, as amended
(the “Securities
Act”), be imprinted with restrictive legends substantially similar
to the legends appearing on the face of this Warrant, as applicable, and shall
be registered in the name of said Holder or such other name as shall be
designated by said Holder. The Company
shall pay all taxes and other expenses and charges payable in connection with
the preparation, execution, and delivery of stock certificates pursuant to this
Section 1 except that, in case such stock certificates shall be
registered in a name or names other than the Holder of this Warrant, funds
sufficient to pay all stock transfer taxes which shall be payable in connection
with the execution and delivery of such stock certificates shall be paid by the
Holder hereof to the Company at the time of the delivery of such stock
certificates by the Company as mentioned above.

          2.
Period of Exercise. With respect
to each Warrant Share, this Warrant is exercisable at any time on or after or
from time to time during the period commencing on April 1, 2008 and ending
on the date which is ten years from the date of this Warrant (the “Exercise
Period”).

          3.
Certain Actions Prohibited. The
Company will not, by amendment of its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or performed
by it hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such action as
may reasonably be requested by the holder of this Warrant in order to protect
the exercise privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant. 

          Without
limiting the generality of the foregoing, 

	
  

 	
  

 
	
  

 	
           (i)
 the Company will not increase the par value of the shares of Preferred Stock
 receivable upon the exercise of this Warrant above the Exercise Price then in
 effect;

 
	
  

 	
  

 
	
  

 	
           (ii)
 before taking any action which would cause an adjustment reducing the
 Exercise Price below the then par value of the shares of Preferred Stock so
 receivable, the Company will take all such corporate action as may be
 necessary or appropriate in order

 

2

	
  

 	
  

 
	
  

 	
 that the Company may
 validly and legally issue fully paid and nonassessable shares of Preferred
 Stock at such adjusted Exercise Price upon the exercise of this Warrant; and

 
	
  

 	
  

 
	
  

 	
           (iii)
 the Company will not take any action which results in any adjustment of the
 Exercise Price if the total number of shares of Preferred Stock issuable
 after the action upon the exercise of this Warrant would exceed the total
 number of shares of Common Stock then authorized by the Company’s charter and
 available for other the purpose of issue upon such exercise.

 

          4.
Adjustments. The Exercise Price and the shares purchasable hereunder are
subject to adjustment from time to time as follows:

                    (a)
Merger, Sale of Assets, etc.
If at any time while this Warrant is outstanding and unexpired there
shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse merger in which the Company
is the surviving entity but the shares of the Company’s capital stock
outstanding immediately prior to the merger are converted or exchanged by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, or (iii) a sale or transfer of the Company’s properties and
assets as, or substantially as, an entirety to any other corporation or other
entity, then, as a part of such reorganization, merger, consolidation, sale or
transfer, lawful provision shall be made so that the holder of this Warrant
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Exercise Price then in
effect, the number of shares of stock or other securities or property of the
successor corporation or other entity resulting from such reorganization,
merger, consolidation, merger, sale or transfer that a holder of the shares
deliverable upon exercise of this Warrant would have been entitled to receive
in such reorganization, consolidation, merger, sale or transfer if this Warrant
had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 4. The foregoing
provision of this Section 4(a) shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation or other entity that are at the time
receivable upon the exercise of this Warrant.
In all events, appropriate adjustment (as determined in good faith by
the Company’s Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.

                    (b)
Reclassification, etc. If the Company, at any time while this
Warrant remains outstanding and unexpired, by reclassification of securities or
otherwise, shall change any of the securities as to which purchase rights under
this Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities that were subject to the purchase
rights under this Warrant immediately prior to such reclassification or other
change and the Exercise Price

3

therefor shall be appropriately adjusted, all subject
to further adjustment as provided in this Section 4.

                    (c)
Split, Subdivision or Combination
of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, into a different number of securities of the same class, the
Exercise Price for such securities shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination and the number of such securities shall be proportionately
increased in the case of a split or subdivision or proportionately decreased in
the case of a combination.

                    (d)
Adjustments for Dividends in
Stock or other Securities or Property. If while this Warrant remains outstanding and unexpired, the
holders of the securities as to which purchase rights under this Warrant exist
(including without limitation securities into which such securities may be
converted) at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefor, other or additional stock or
other securities or property (other than cash) of the Company by way of
dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of the security receivable upon
exercise of this Warrant, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or
property (other than cash) of the Company that such holder would hold on the
date of such exercise had it been the holder of record of the security
receivable upon exercise of this Warrant (or upon such conversion) on the date
hereof and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this Section
4.

                    (e)
Other Adjustments. In case any event shall occur as to which
the other provisions of this Section 4 are not strictly applicable but
as to which failure to make any adjustment would not fairly protect the
exercise rights represented by this Section 4 in accordance with the
essential intent and principles hereof then, in each such case, the Holder may
appoint a firm of independent public accountants of recognized national
standing reasonably acceptable to the Company, which shall give their opinion
as to the adjustment, if any, on a basis consistent with the essential intent
and principles established herein, necessary to preserve the exercise rights
represented herein. Upon receipt of
such opinion, the Company shall make the adjustments described therein. The fees and expenses of such independent
public accountants shall be borne by the Company.

                    (f)
Calculations. All calculations under this Section 4
shall be made to the nearest four decimal points.

          5.
Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any warrant or
certificate in a name other than the holder of this Warrant.

4

          6.
No Rights or Liabilities as a Stockholder. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence
of affirmative action by the holder hereof to purchase Warrant Shares, and no
mere enumeration herein of the rights or privileges of the holder hereof, shall
give rise to any liability of such holder for the Exercise Price or as a
stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.

          7.
Transfer, Exchange, and Replacement of Warrant; Registration Rights.

                    (a)
Warrant Transferable.
This Warrant may be transferred, in whole or in part, only to a
“Permitted Transferee” in accordance with this Section 7. “Permitted Transferee” shall mean (A) any
partners of___________, (B) ____________ or any Affiliate thereof, or (C) any
Person that acquires an interest in the Loan pursuant to Section 8.20 of the
Credit Agreement. The transfer of this Warrant and all rights hereunder,
in whole or in part, is registrable at the office or agency of the Company
referred to in Section 7(e) hereof by the holder hereof in person
or by its duly authorized attorney, upon surrender of this Warrant properly
endorsed. Upon any transfer of this
Warrant to any person, other than a person who is at that time a holder of
other Warrants, the Company shall have the right to require the holder and the
transferee to make customary representations to the extent reasonably necessary
to assure that the transfer will comply with the Securities Act and applicable
state securities laws. Each holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Warrant shall have been so endorsed, may be treated by
the Company and all other persons dealing with this Warrant as the absolute
owner and holder hereof for any purpose and as the person entitled to exercise
the rights represented by this Warrant and to the registration of transfer
hereof on the books of the Company; but until due presentment for registration
of transfer on such books the Company may treat the registered holder hereof as
the owner and holder hereof for all purposes, and the Company shall not be
affected by any notice to the contrary.

                    (b)
Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the
surrender hereof by the holder hereof at the office or agency of the Company
referred to in Section 7(e) hereof, for new Warrants of like tenor
representing in the aggregate the right to purchase the number of shares of
Preferred Stock which may be purchased hereunder, each of such new Warrants to
be imprinted with the same legend appearing on the face of this Warrant and to
represent the right to purchase such number of shares as shall be designated by
said holder hereof at the time of such surrender. For purposes hereof, the term “Warrant”
shall be deemed to include any and all such replacement Warrants, whether
issued pursuant to this subsection (b) or any other Section hereof.

                    (c)
Replacement of Warrant.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft, or destruction, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company, or, in the case of
any such mutilation, upon surrender and cancellation of this Warrant, the Company,
at its expense, will execute and deliver, in lieu thereof, a new Warrant of
like tenor.

5

                    (d)
Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any
transfer, exchange, or replacement as provided in this Section 7, this
Warrant shall be promptly cancelled by the Company. The Company shall pay all taxes (other than securities transfer
taxes) and all other expenses and charges payable in connection with the
preparation, execution, and delivery of Warrants pursuant to this Section 7.

                    (e)
Register. The Company
shall maintain, at its principal office identified in Section 8 (or such
other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee and each prior owner of this
Warrant.

                    (f)
Registration Rights. The
issuance of any Warrant Shares required to be reserved for purposes of exercise
of this Warrant and the resale of such Warrant Shares are entitled to the
benefits of the registration rights provided by that certain Registration Rights
Agreement dated as of January 31, 2007 by and among the Company and the
holders of the Series B Preferred Stock of the Company, to which the Holder
will be joined. 

          8.
Notices. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the holder of this Warrant shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered mail, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder.
All notices, requests, and other communications required or permitted to
be given or delivered hereunder to the Company shall be in writing, and shall
be personally delivered, or shall be sent by certified or registered mail,
postage prepaid and addressed, to the office of the Company at 560 South
Winchester Boulevard, Suite 500, San Jose, CA
95128, Attention: CEO, or at such other address as shall have been
furnished to the holder of this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the delivery thereof to (or the receipt by, in the case of a
facsimile) the person entitled to receive such notice at the address of such
person for purposes of this Section 8, or, if mailed, at the completion
of the third full day following the time of such mailing thereof to such
address, as the case may be.

          9.
GOVERNING LAW. THIS WARRANT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
NEW YORK, WITHOUT REGARD TO ANY CHOICE OF LAW PRINCIPLES OF SUCH STATE.

          10.
Remedies. The Company stipulates
that the remedies at law of the holder of this Warrant in the event of any
default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific enforcement of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.

6

          11.
Miscellaneous.

                    (a)
Amendments. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.

                    
(b) Descriptive Headings. The descriptive headings of the several
sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.

                    (c)
Successors and Assigns. This Warrant shall, to the extent provided
in Section 11(c), be binding upon any entity succeeding to the
Company by merger, consolidation, or acquisition of all or substantially all
the Company’s assets.

[Signature
Page Follows]

7

          IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer on this [__] day of June, 2007.

	
  

 	
  

 	
  

 
	
  

 	
 XLNT
 VETERINARY CARE, INC.

 
	
  

 	
  

 
	
  

 	
 By:

 	
  

 
	
  

 	
  

 	 

 
	
  

 	
 Name:

 	
  

 
	
  

 	
  

 	 

 
	
  

 	
 Title:

 	
  

 
	
  

 	
  

 	 

 

8

FORM
OF EXERCISE AGREEMENT

Dated: ______________ .

To:     ______________

           ______________

Attention: ____________________

          The
undersigned, the Holder of the foregoing Warrant, hereby elects to exercise
purchase rights represented thereby for, and to purchase thereunder, _______
shares of the Common Stock covered by such Warrant through a “cashless” or “net
issue” exercise of such Warrant (“Cashless Exercise”) pursuant to
Section 1 of such Warrant, and request that certificates for such shares
(and any other securities or other property issuable upon such exercise) be issued
in the name of, and delivered to ____________________ and
______________________.

The calculation upon which the Cashless Exercise is based is as follows:

(No. of Warrants) * ((Market Price - Exercise Price) /
Market Price) = No. of shares of common stock

          -
OR -

          The
undersigned, the Holder of the foregoing Warrant, hereby elect to exercise
purchase rights represented thereby for, and to purchase thereunder, _______
shares of the Common Stock covered by such Warrant, and herewith makes payment
in full for such shares, and requests that certificates for such shares (and
any other securities or other property issuable upon such exercise) be issued
in the name of, and delivered to ____________________ and _______________________.

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 Signature: 

 	
  

 
	
  

 	
  

 	 

 
	
  

 	
 Title of Signing Officer
 or Agent (if any):

 	
  

 
	
  

 	
  

 	 

 
	
  

 	
  

 	
  

 
	
  

 	
 Note:

 	
 The above signature should
 correspond exactly with the name on the face of the within Warrant or with
 the name of the assignee appearing in the assignment form.

 

-9-

FORM OF ASSIGNMENT

          FOR
VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the
rights represented by and under the within Warrant, with respect to the number
of shares of Common Stock covered thereby set forth hereinbelow, to:

	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Name of
Assignee

 	
  

 	
 Address

 	
  

 	
 No.
of Shares

 
	
 
 	
  

 	
 
 	
  

 	 

, and hereby irrevocably
constitutes and appoints ___________________ as agent and attorney-in-fact to transfer
said Warrant on the books of the within-named corporation, with full power of substitution
in the premises.

Dated: _______________,
_______

	
  

 	
  

 	
  

 	
  

 
	
 In the presence of

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	 

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Name:

 	
  

 
	
  

 	
  

 	
  

 	
  

 

	
  

 	
  

 	
  

 
	
  

 	
 Signature: 

 	
  

 
	
  

 	
  

 	 

 
	
  

 	
 Title of Signing Officer
 or Agent

 

	
  

 	
  

 	
  

 
	
  

 	
 (if any): 

 	
  

 
	
  

 	
  

 	 

 

	
  

 	
  

 	
  

 
	
  

 	
 Address: 

 	
  

 
	
  

 	
  

 	 

 
	
  

 
	
  

 	
  

 	 

 

	
  

 	
  

 	
  

 
	
  

 	 

 
	
  

 	
  

 
	
  

 	
 Note:

 	
 The above signature should
 correspond exactly with the name on the face of the within Warrant.

 

-10-THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS (“STATE ACTS”), AND SHALL NOT BE SOLD,
HYPOTHECATED, OR TRANSFERRED, EXCEPT OR UNLESS SUCH TRANSFER IS MADE IN
COMPLIANCE WITH THE ACT AND THE STATE ACTS. 

XLNT VETERINARY CARE, INC.

CONVERTIBLE PROMISSORY NOTE

	
 

	
 

	
Interest
 Rate: 8%

	
Los Gatos, California

 August 31, 2006 

          XLNT
Veterinary Care, Inc., a Delaware corporation (“Maker”), the principal office of which is located at 15466 Los
Gatos Blvd. #109-352, Los Gatos, California 95032, for value received hereby
promises to pay to the order of ___________ (“Payee”),
at the address of the Payee of record as it appears on the books of Maker, or
at any other place that Payee designates by notice to Maker, in United States
Dollars, the sum of One-Hundred Sixty-Six-Thousand, Six Hundred Sixty Six &
67/100 Dollars ($166,666.67) (the “Principal
Amount”), plus simple non-compounding interest on the unpaid principal
balance at the rate of Eight Percent (8%) per annum (the “Stated Rate”) from the date of this
Convertible Promissory Note until the outstanding principal balance is paid in
full. This Convertible Promissory Note is one of the “Convertible Notes” referenced
in the Stock Purchase Agreement, dated as of August 31, 2006, by and among
Maker, Payee and the other parties signatory thereto (the “Purchase Agreement”), and is issued
pursuant to the Purchase Agreement. Principal and interest shall be paid on the
terms and conditions set forth below. Terms not defined herein shall be as
defined in the Purchase Agreement. 

Section 1. Payments 

                    (a)
Principal and Interest. Interest payments on the Principal Amount outstanding
shall be payable in quarterly installments, commencing on January 1, 2007 and
payable on the first day of each quarter thereafter until the Principal Amount
and all accrued but unpaid interest shall have been paid in full. All
outstanding principal shall be due and payable on the fifth anniversary of the
date of this Convertible Promissory Note (the “Maturity Date”). If any Event of Default (as defined in
Section 7) occurs, interest on the outstanding Principal Amount shall accrue
from the date of the Event of Default at the rate of five percent (5%) above
the Stated Rate per annum (the “Default Rate”).
All interest payable hereunder shall be calculated on the basis of twelve
thirty-day months over a year of 360 days. If any payment date falls on a
Saturday, Sunday or federal bank holiday, such payment shall be due an payable
on the next succeeding business day.  

                    (b)
Payments. This Convertible Promissory Note may be- prepaid in whole or in part,
at any time, without premium or penalty, provided that Maker has obtained
Seller’s Prior written consent. No prepayment hereunder or under Section 3
shall relieve Maker of any obligation to make any regularly scheduled payment
hereunder,  

                    (c)
Method. All payments and other charges hereunder shall be made in lawful
currency of the United States of America and in immediately available funds.  

                    (d)
Usury Limitation. Notwithstanding anything in this Convertible Note to the
contrary, to the extent the interest payments hereunder or any provision hereof
is subject to limitation by usury law, that portion of the interest that is
subject to and exceeds applicable usury law limitations shall be forgiven,  

Section 2. Conversion 

	
 

	
 

	
 

	
          2.1
 Mechanics. In lieu of repayment of this Convertible Note as provided
 herein, Payee shall have the right, at Payee’s option, at any time after 120
 days from the date of this Convertible Note, to convert all but not less than
 all of this Note into such number of fully paid and non-assessable shares of
 common stock, par value $0001 per share of Maker (the “Common Stock”), as provided for herein.
 Payee may exercise the conversion right by giving written notice (the “Conversion Notice”) to Maker of the
 exercise of such right and stating the name(s) in which the stock
 certificate(s) are to be issued with the addresses for delivery of such
 certificates. The Conversion Notice shall be accompanied by this Note. The
 number of shares of Common Stack that shall be issued upon conversion of the
 Convertible Note shall be equal to the outstanding principal less any
 purchase price adjustment made pursuant to Section 13 of the Purchase
 Agreement and all accrued interest thereon (the “Note Amount”) divided by the Conversion Price in effect on
 the date or the Conversion Notice. 

	
 

	
 

	
 

	
          2.2
Conversion Price. On the date of this Convertible Note and until such
time an Adjustment (as defined below) shall occur. the “Conversion Price” shall be $5.00 per
share, If, after the date of this Convertible Note, the Company issues
Additional Common Stock (as defined below) at a per share prices of less than
$4.00 per share (each such issue, including issuances of Common Stock for no
consideration, a “Dilution”),
then the Conversion Price shall be adjusted (each such adjustment, an “Adjustment”), concurrently with such
issue, to a price (calculated to the nearest cent) determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding ‘immediately prior to such issue
plus the number of shares of Common Stock which the aggregate consideration
received by Maker for the total number of shares of Additional Common Stock
so issued would purchase at such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such shares of Additional Common Stock
so issued. For the purpose of calculating Dilutions, shares of Common Stock
issued as part of a stock dividend, stock split or similar distribution of
shares of capital stock of Maker shall be deemed to have been issued without
consideration, and the Conversion Price shall be decreased such that Payee
will receive the same aggregate percentage interest of the Common Stock as
Payee would have received if all such combinations had not taken place;
provided, however, that in the event of a reverse stock split or similar
combination of shares o capital stock of Maker, the Conversion Price shall be
increased such that Payee will receive the same aggregate percentage interest
of the Common Stock as Payee would have received if all such combinations had
not taken place. For the purposes of this Convertible Note, the  

- 2 -

	
 

	
 

	
 

	
term “Additional Common Stock” shall mean all
 shares of Common Stock issued by Maker after the date of this Convertible
 Note, except for the 19,500,000 shares of XLNT outstanding on a fully diluted
 basis, established as the base of existing shares for purposes of this
 Agreement. 

Section 3. Accelerated Payment of Principal.
If Maker has not elected to exercise its conversion rights described in Section 2 by the third anniversary of this Convertible Note, Maker shall have the
option to demand prepayment of the Principal Amount as follows:  

	
 

	
 

	
 

	
          3.1
 On or after the third anniversary of this Convertible Note, twenty percent
 (20%) of the original Principal Amount shall be payable within 10 days after
 written request therefor, together with all accrued interest thereon; and 

	
 

	
 

	
 

	
          3.2
 On or after the fourth anniversary of this Convertible Note, an additional
 twenty percent (20%) of the original Principal Amount shall be payable within
 10 days after written request therefor, together with all accrued interest
 thereon. 

	
 

	
 

	
 

	
          3.3
 Any remaining Principal Amount shall be payable on the Maturity Date. 

Section 4. Security.
This Convertible Note is secured pursuant to a Stock Pledge and Security
Agreement by Maker for the benefit of Payee of even date herewith. 

Section 5. Right to Set-Off. In
the event Maker has the right to effect a purchase price adjustment under
Section 1.3 of the Purchase Agreement, Maker shall have the right to first,
decrease the outstanding Principal Amount owing under each of the Seller Notes
on a pro rata basis, and then to decrease the outstanding Principal Amount
owing under each of the Convertible Notes on a pro rata basis. 

Section 6. Securities Representation.
By accepting this Convertible Note, Payee hereby confirms and acknowledges that
the shares of Common Stock into which the Convertible Note may be converted
have not been registered, nor is Maker under any obligation to register such
shares in the future, under (i) the Securities Act of 1933, as amended (the “Securities Act”) inasmuch as they are
being
issued pursuant to an exemption from registration granted under Section 4(2) of
the Securities Act and Regulation D promulgated thereunder relating to
transactions not involving any public offering, (ii) the California Corporate
Securities Laws of 1968 (the “California Law”),
or (iii) any other applicable securities laws, and that Maker’s reliance on
such exemption or related exemptions is predicated in part on the following
representations and agreements made to Maker by Payee, which, by accepting this
Convertible Note, Payee hereby confirms and acknowledges: 

	
 

	
 

	
 

	
          6.1
 Payee is acquiring the Convertible Note and any Common Stock for investment
 for his or her own account and not with a view to or for sale in connection
 with any distribution and resale thereof, with no intention of distributing
 or reselling the same, and Payee is not aware of any particular occasion,
 event, or circumstance upon the occurrence or happening of which he or she
 intends to dispose of such shares; 

	
 

	
 

	
 

	
          6.2
 Payee is (i) an “accredited investor” as defined in Rule 501(a) promulgated
 under the Securities Act, (ii) a “qualified purchaser” within the meaning of

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Section
 25102(n)(2) of the California Law, and (iii) has such knowledge and
 experience in financial and business matters that he or she is capable of
 evaluating the merits and risks with regard to the Convertible Note and the
 Common Stock; 

	
 

	
 

	
 

	
          6.3
 Payee is aware that the Convertible Note and the Common Stock constitute
 “restricted,” “letter,” or “investment” securities, and Payee by reason of
 his or her business or financial experience has the capacity to protect his
 own interests with regard to the Convertible Note and the Common Stock; and 

	
 

	
 

	
 

	
          6.4
 Payee agrees not to sell, transfer, assign, pledge, hypothecate, or otherwise
 dispose of the Convertible Note, or any shares of Common Stock received in
 conversion of the Convertible Note, without either (i) registration under the
 Securities Act, the California Law, and any other applicable securities laws,
 or (ii) an opinion of counsel reasonably satisfactory to Maher that the
 transaction by which such shares are proposed to be disposed of is exempt
 from the Securities Act, the California Law and any other applicable
 securities laws, and acknowledges that Maker will place a legend on the
 certificates representing such shares substantially to such effect concerning
 these restrictions. 

Section 7. Representations and Warranties.
This Convertible Note has been duly executed and delivered by Maker,
constitutes Maker’s valid and legally binding obligation and is enforceable in
accordance with its terms against Maker. The execution, delivery and
performance of this Convertible Note and the consummation of the transaction
contemplated thereby will not, with or without the giving of notice or the
lapse of time, (a) violate any material law applicable to Maker, (b) violate
any judgment, writ, injunction or order of any court or governmental body or
officer applicable to Maker, nor (c) violate or result in the breach of any
material agreement to which Maker is a party. No consent, approval, license,
permit or other authorization of any third party or any governmental body or
officer is required for the valid and lawful execution and delivery of this Convertible
Note. 

Section 8. Default 

	
 

	
 

	
 

	
          8.1
Events of Default. Each of the following shall constitute an Event of Default
hereunder:  

                    (a)
Failure of Maker to make any payment of principal or interest under this Note,
under any other Convertible Note, or under any Seller Note within three (3)
days of the due date; 

                    (b)
Failure of Maker to make any other payment due hereunder or under any other
Convertible Note, Seller Note, the Purchase Agreement, the Security Agreement.
the Lease, or the Employment Agreements (collectively, the “Transaction Documents”) within seven (7)
days of the due date; 

                    (c)
Any representation or warranty made herein or under the other Transaction.
Documents or in any statement, report, certificate, opinion, financial
statement or other document furnished or to be furnished in connection with the
Transaction Documents shall be false or misleading in any material respect. 

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                    (d)
Failure of Maker or any other person to observe or perform any warranty,
covenant, condition or agreement to be observed or performed by Maker or such
other person under the Transaction Documents. 

                    (e)
Maker or Grantor defaults with respect to any indebtedness to any person or
with respect to any lien or document securing any indebtedness. 

                    (f)
Maker or Grantor commits a material default under any other agreement,
instrument or document. 

                    (g)
Maker or Grantor shall (i) admit in writing its insolvency or its inability to
pay its debts as they mature, (ii) make a general assignment for the benefit of
creditors, (iii) commence a case under or otherwise seek to take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law, statute or proceeding, or (iv) by any act indicate its
consent to, approval of or acquiescence in any such proceeding or the
appointment of any receiver of or trustee for Maker or Grantor or a substantial
part of its property, or suffer any such receivership, trusteeship or
proceeding to continue undismissed for a period of 60 days. 

                    (h)
Maker or Grantor shall become a debtor in any case under any chapter of the
United States Bankruptcy Code. 

                    (i)
Maker or Grantor shall be or become insolvent or unable to pay its debts as
they mature. 

                    (j)
Dissolution of, or entry of any order, judgment or decree for the dissolution
of Maker or Grantor. 

                    (k)
Injunction or restraint of Maker or Grantor in any manner from conducting its
business in whole or in part. 

                    (l)
Any material assets of Maker or Grantor shall be attached, levied upon, seized
or repossessed or come into the possession of a trustee, receiver or other
custodian. 

                    (m)
Maker or Grantor shall undergo any Change in Control, as defined hereinafter. 

	
 

	
 

	
 

	
          8.2
 Change in Control. For purposes hereof, “Change in Control” shall mean (a) any sale or transfer of
 all or substantially all of the assets of Maker or Grantor in one transaction
 or in a series of transactions; or (b) Maker fails to beneficially own more
 than 50% of the voting stock of Grantor, unless Maker is the surviving entity
 in a stock for stock merger with a public company. 

	
 

	
 

	
 

	
          8.3
 Collection Costs. On any default by Maker, Payee shall be entitled to
 recover from Maker all costs of collection and enforcement, including,
 without limitation, reasonable attorneys’ fees and costs. 

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          8.4
Rights and Remedies. Upon and after the occurrence of an Event of Default,
Payee may, without notice or demand, exercise in any jurisdiction in which
enforcement hereof is sought, the following rights and remedies, in addition
to the rights and remedies available to Payee under the Security Agreement
and the other Transaction Documents, and all other rights and remedies
available at law, all such rights and remedies being cumulative and
enforceable alternatively, successively or concurrently:  

                    (a)
Declare the Convertible Note, all interest accrued and unpaid thereon and all
other Obligations to be immediately due and payable and the same shall
thereupon become immediately due and payable without presentment, demand for
payment, protest or notice of any kind, all of which Maker hereby expressly
waives. 

                    (b)
Institute any proceeding or proceedings to enforce the Obligations. 

Section 9. Waiver of Protest.
Maker and all endorsers, guarantors and sureties severally waive protest,
presentment, demand and notice of protest on any default and of any nonpayment
under this Convertible Note, and they agree to and waive notice of any renewal
of this Convertible Note or any extension, acceleration, postponement of the
time of payment or any other indulgences. 

Section 10. Governing Law and Forum.
The internal laws of the State of California (irrespective of its choice of law
principles) will govern the validity of this Convertible Note, the construction
of its terms, and the interpretation and enforcement of the rights and duties
of the parties hereto. Each of the Maker and Payee hereby irrevocably submits
to the jurisdiction of any California state or federal court sitting in the
County of Los Angeles in respect of any suit, action or proceeding arising out
of or relating to this Convertible Note, and irrevocably accepts for itself and
in respect of its property, generally and unconditionally, jurisdiction of the
aforesaid courts. 

Section 11. Waiver of Jury Trial.
Each of Maker and Payee hereby irrevocably waives, to the fullest extent such
party may effectively do so under applicable law, trial by jury and any
objection that such party may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in any such court and any claim that
such suit, action or proceeding has been brought in an inconvenient forum. 

Section 12. Notices.
All notices, requests, demands, waivers and other communications required or permitted
to be given under this Convertible Note shall be in writing and shall be deemed
to have been duly given if delivered in person or mailed, certified or
registered mail with postage prepaid, or sent by facsimile as follows: 

	
 

	
 

	
 

	
 

	
 

	
 

	
Payee:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	 

	
 

	
 

	
 

	
 

	 

	
 

	
 

	
 

	
 

	 

	
 

	
 

	
 

	
 

	 

	
 

 

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Maker: 

	
XLNT
 Veterinary Care, Inc.

 5466 Los Gatos Blvd. #109-352 

 Los Gatos, California 95032 

 Attn: President 

or to such
other person or address as any party shall specify by notice in writing to each
of the other parties. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery
unless mailed, in which ease on the seventh business. day after the mailing
thereof except for a notice of a change of address, which shall be effective
only upon receipt thereof. 

Section 13. Amendment.
No change or modification of this Convertible Note will be valid or binding
unless such change or modification is in writing and signed by or on behalf of
each of Maker and Payee. 

Section 14. Assignability.
By accepting this Convertible Note, Payee hereby confirms that he or she shall
not assign his or her rights and obligations under this Convertible Note to any
third party, 

Section 15. Successors and Assigns.
This Convertible Note shall inure to the benefit of and bind the parties hereto
and their respective successors, assigns, heirs, executors and administrators. 

Section 16. Severability.
If any part of this Convertible Note is determined to be illegal or
unenforceable, all other parts shall remain in effect. 

Section 17. No Waiver.
No single or partial exercise of any power hereunder shall preclude other or
further exercise thereof or the exercise of any other power. No delay or
omission on the part of the holder hereof in exercising any right hereunder
shall operate as a waiver of such right or of any other right under this
Convertible Note, No acceptance of a past due installment or indulgence granted
from time to time shall be construed to be a waiver of the right to insist upon
prompt payment thereafter or to preclude the exercise of any other rights which
Payee may have. 

          IN
WITNESS WHEREOF, Maker has signed and delivered this Convertible Promissory
Note effective as of the date first set forth above. 

	
 

	
 

	
 

	
 

	
MAKER:

	
 

	
 

	
 

	
 

	
XLNT VETERINARY
 CARE, INC

	
 

	
 

	
By:

	
 

	
 

	
 

	 

	
 

	
 

	
Name:

	
 

	
 

	
Title:

- 7 -

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