Exhibit 10.1

 

Execution Version

 

ELEVENTH AMENDMENT TO CREDIT AGREEMENT

 

This Eleventh Amendment to Credit Agreement (this “Amendment”), dated as of the
31st day of October, 2012, is among Vitamin Cottage Natural Food Markets, Inc.
(the “Company”), the Lenders under the Credit Agreement (as defined below), and
JPMorgan Chase Bank, N.A. (“JPMorgan”), as a Lender and as Administrative Agent
under the Credit Agreement.  JPMorgan in its capacity as Administrative Agent
under the Credit Agreement is sometimes referred to herein as the “Agent.” 
Capitalized terms used in this Amendment and not defined in this Amendment shall
have the meaning given to such terms in the Credit Agreement.

 

PRELIMINARY STATEMENTS

 

A.            The Company, the Lenders and the Agent entered into that certain
Credit Agreement, dated as of September 29, 2006 (as amended as described below,
the “Credit Agreement”), under the terms of which the Lenders agreed to extend
credit to the Company as described in Article II of the Credit Agreement.  On
November 2, 2006, the Lenders, the Agent and the Company entered into a First
Amendment to Credit Agreement (herein “First Amendment”), which is incorporated
herein by reference.  On December 13, 2006, the Lenders, the Agent and the
Company entered into a Second Amendment to Credit Agreement (herein “Second
Amendment”), which is incorporated herein by reference.  On June 26, 2007, the
Lenders, the Agent and the Company entered into a Third Amendment to Credit
Agreement (herein “Third Amendment”), which is incorporated herein by
reference.  On November 30, 2008, the Lenders, the Agent and the Company entered
into a Fourth Amendment to Credit Agreement (herein “Fourth Amendment”), which
is incorporated herein by reference.  On June 30, 2009, the Lenders, the Agent
and the Company entered into a Fifth Amendment to Credit Agreement (herein
“Fifth Amendment”), which is incorporated herein by reference.  On June 30,
2010, the Lenders, the Agent and the Company entered into a Sixth Amendment to
Credit Agreement (herein “Sixth Amendment”), which is incorporated herein by
reference.  On December 21, 2010, the Lenders, the Agent and the Company entered
into a Seventh Amendment to Credit Agreement (herein “Seventh Amendment”), which
is incorporated herein by reference.  On May 13, 2011, the Lenders, the Agent
and the Company entered into an Eighth Amendment to Credit Agreement (herein
“Eighth Amendment”), which is incorporated herein by reference.  On July 11,
2011, the Lenders, the Agent and the Company entered into a Ninth Amendment to
Credit Agreement (herein “Ninth Amendment”), which is incorporated herein by
reference.  On January 26, 2012, the Lenders, the Agent and the Company entered
into a Tenth Amendment to Credit Agreement (herein “Tenth Amendment”), which is
incorporated herein by reference.  On July 16, 2012, the Lenders, the Agent and
the Company entered into a Consent Agreement (herein “IPO Consent”), which is
incorporated herein by reference.

 

B.            Boulder VC has executed and delivered the Boulder VC Guaranty.

 

1

--------------------------------------------------------------------------------

 

C.            VC Two has executed and delivered the VC Two Guaranty, the
Trademark Security Agreement and that certain Pledge and Security Agreement,
dated as of November 30, 2008, in favor of Agent for the ratable benefit of the
Secured Parties.

 

D.            Natural Systems, LLC has executed and delivered that certain
Pledge and Security Agreement, dated as of December 18, 2008, in favor of Agent
for the ratable benefit of the Secured Parties, and that certain Guaranty
Agreement, dated as of December 18, 2008, in favor of Agent for the ratable
benefit of the Secured Parties.

 

E.            The Company and the Agent agree and acknowledge that the Term Loan
has been paid in full.

 

F.             On October 31, 2012, Boulder VC merged with and into the Company
in a transaction in which the Company is the surviving entity in accordance with
and permitted by Section 6.03(a) of the Credit Agreement (the “Boulder VC
Merger”).

 

G.            The Company has asked the Lenders and the Agent to agree to, and
the Lenders and the Agent have agreed to, amend the terms and conditions of the
Credit Agreement, in each case subject to and as more fully set forth in this
Amendment.

 

AGREEMENT

 

IN CONSIDERATION of the foregoing and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, the
Lenders and the Administrative Agent agree as follows:

 

1.             Amendments.  Upon satisfaction of the conditions set forth in
Section 6 below, the Credit Agreement is hereby amended as follows:

 

a.             SECTION 1.01.  The definition of “Aggregate Commitment” is hereby
deleted in its entirety and substituted therefor is the following:

 

“‘Aggregate Commitment’ means the aggregate amount of the Commitments of all the
Lenders.  The Aggregate Commitment as of the effective date of the Eleventh
Amendment is $15,000,000.”

 

b.             SECTION 1.01.  Effective as of August 1, 2012, the definition of
“Applicable Margin” is amended by deleting each reference to “0.375%” in the
chart set forth in subsection (a) thereof in its entirety and substituting
therefor in each case the amount of “0.20%”.

 

c.             SECTION 1.01.  The definition of “Boulder VC” is hereby deleted
in its entirety and substituted therefor is the following:

 

“‘Boulder VC’ means Boulder Vitamin Cottage Group, LLC, a Colorado limited
liability company, which entity was merged with and into the Borrower as of
October 31, 2012.”

 

2

--------------------------------------------------------------------------------

 

d.             SECTION 1.01.  The definition of “Collateral Documents” is hereby
deleted in its entirety and substituted therefor is the following:

 

“‘Collateral Documents’ means, collectively, the VC Two Guaranty, the Security
Agreement, the Trademark Security Agreement, the Leasehold Mortgages (if any),
that certain Pledge and Security Agreement, dated as of November 30, 2008,
executed by VC Two in favor of the Administrative Agent for the ratable benefit
of the Secured Parties (as amended, modified, supplemented or restated, the “VC
Two Pledge and Security Agreement”), that certain Pledge and Security Agreement,
dated as of December 18, 2008, executed by Natural Systems in favor of the
Administrative Agent for the ratable benefit of the Secured Parties (as amended,
modified, supplemented or restated, the “Natural Systems Pledge and Security
Agreement”), that certain Guaranty Agreement, dated as of December 18, 2008,
executed by Natural Systems in favor of the Administrative Agent for the ratable
benefit of the Secured Parties (as amended, modified, supplemented or restated,
the “Natural Systems Guaranty”), the Parent Pledge and Security Agreement (as
defined in the Eleventh Amendment), the Parent Guaranty (as defined in the
Eleventh Amendment), the Stock Powers (as defined in the Eleventh Amendment),
and all other agreements, Guarantees, instruments or documents now or hereafter
delivered by the Borrower, any Guarantor or any other Person to the
Administrative Agent or any Lender in connection with this Agreement, the Loan
Documents or the Transactions to secure or guarantee the payment of any part of
the Obligations or the performance of the other duties and obligations of the
Loan Parties under the Loan Documents, as such agreements, Guarantees,
instruments or documents have been or are hereafter amended, supplemented or
replaced from time to time.”

 

e.             SECTION 1.01.  The definition of “Consolidated Net Income” is
hereby deleted in its entirety and substituted therefor is the following:

 

“‘Consolidated Net Income” means, with reference to any period, the net income
(or loss) of the Borrower and the Subsidiary Guarantors calculated on a
consolidated basis in accordance with GAAP for such period.”

 

f.             SECTION 1.01.  A new definition of “Eleventh Amendment” is hereby
added to the Credit Agreement as follows:

 

“‘Eleventh Amendment’ shall mean that certain Eleventh Amendment to Credit
Agreement, dated as of October 31, 2012, among the Borrower, the Lenders and the
Administrative Agent.”

 

g.             SECTION 1.01.  The definition of “Parent” is hereby deleted in
its entirety and substituted therefor is the following:

 

“‘Parent’ means Natural Grocers by Vitamin Cottage, Inc., a Delaware
corporation.”

 

3

--------------------------------------------------------------------------------

 

h.             SECTION 1.01.  The definition of “Revolving Commitment” is hereby
amended by deleting the last sentence thereof in its entirety and substituting
therefor the following:

 

“The aggregate amount of the Lenders’ Revolving Commitments as of the effective
date of the Eleventh Amendment is $15,000,000.”

 

i.              SECTION 2.05.  Section 2.05 of the Credit Agreement is hereby
deleted in its entirety and substituted therefor is the phrase “Intentionally
Omitted.”.

 

j.              SECTION 6.06.  Effective as of July 16, 2012, Section 6.06 of
the Credit Agreement is hereby amended by (i) deleting the word “and” before
“(d)” and substituting therefor a comma, (ii) replacing the period at the end of
subsection (d) thereof with “, and”, and (iii) adding a new clause (e) at the
end of such Section as follows:

 

“(e)         so long as no Default or Event of Default exists or would arise as
a result thereof, the Borrower may pay cash dividends to the Parent in an amount
sufficient to allow the Parent to pay (i) reasonable audit and other accounting
expenses incurred in the ordinary course of business, (ii) Taxes due and payable
by the Parent to any taxing authority and reasonable expenses incurred in
connection with preparation of related Tax returns and filings, (iii) reasonable
and necessary expenses (including professional fees and expenses) incurred by
the Parent in connection with (A) registration, public offerings and exchange
listing of equity securities and maintenance of the same, (B) compliance with
reporting obligations under, or in connection with compliance with, federal or
state securities laws, and (C) indemnification and reimbursement of directors,
officers and employees in respect of liabilities relating to their serving in
any such capacity, or obligations in respect of director and officer insurance
(including premiums therefor), and (iv) other reasonable expenses incurred by
Parent in the ordinary course of business (subject to Section 6(h) of the Parent
Guaranty).”

 

k.             ARTICLE VII.  Subsection (c) of Article VII of the Credit
Agreement is hereby deleted in its entirety and substituted therefor is the
following:

 

“(c)         the Borrower or any Guarantor shall fail to observe or perform, or
shall fail to cause to be observed or performed, any covenant, condition or
agreement contained in (i) Section 5.02, 5.03 (with respect to the Borrower’s or
any Guarantor’s existence), 5.08 or 5.09 or in Article VI, (ii) the provisions
of Section 6 of each of (A) the VC Two Guaranty, (B) the Natural Systems
Guaranty, and (C) the Parent Guaranty that, in each case, incorporate by
reference any of the provisions in clause (i), (iii) any of (A) the Security
Agreement, (B) the VC Two Pledge and Security Agreement, (C) the Natural Systems
Pledge and Security Agreement, and (D) the Parent Pledge and Security Agreement,
in each case other than Sections 6(d), (e), (i), (k) and (l), or any thereof,
which failure continues beyond any period of grace provided in such Loan
Document, or (iv) the Trademark Security Agreement (other than Sections 6(f),
(h) and (k)), which

 

4

--------------------------------------------------------------------------------

 

failure continues beyond any period of grace provided in the Trademark Security
Agreement;”

 

l.              SCHEDULE 2.01.  Schedule 2.01 of the Credit Agreement is hereby
deleted in its entirety, and substituted therefor is Schedule 2.01 attached
hereto.

 

m.           Boulder VC Merger.  The Credit Agreement is hereby amended as
follows:

 

(i)            Each of the definitions of “Boulder VC Guaranty”, “Boulder VC
Minority Members”, “Boulder VC Stores” and “Membership Pledge Consent Agreement”
in Section 1.01 of the Credit Agreement are hereby deleted in its entirety and
substituted therefor is the phrase “Intentionally Omitted.”.  Each reference to
any such term in the Credit Agreement is hereby deleted in its entirety.

 

(ii)           Each reference to “Boulder VC” in the Credit Agreement is hereby
deleted in its entirety and substituted therefor is the phrase “Intentionally
Omitted.”, except (A) as provided in the definition thereof and (B) as otherwise
provided in this Section 1(m).

 

(iii)          Each of the following clauses, provisos and sections (as
applicable) of the Credit Agreement is hereby deleted in its entirety and
substituted therefor is the phrase “(intentionally omitted)”:  (A) clauses
(a)(iv), (b)(vii) and (b)(viii) of the definition of “Change of Control” in
Section 1.01 of the Credit Agreement; (B) the final clause (y) contained in the
last sentence of the definition of “Change of Control” in Section 1.01 of the
Credit Agreement; (C) clause (i) of the definition of “Subsidiary” in
Section 1.01 of the Credit Agreement, (D) the proviso in the definition of
“Subsidiary Guarantor” in Section 1.01 of the Credit Agreement; (E) the proviso
in Section 6.03(b) of the Credit Agreement; (F) the proviso in
Section 6.04(b)(i) of the Credit Agreement; and (G) Section 6.04(j) of the
Credit Agreement.

 

(vii)         Section 6.09 of the Credit Agreement is hereby amended to delete
the following phrase in its entirety:  “, including, without limitation, the
Limited Liability Company Operating Agreement of Boulder VC, dated June 23,
1998, as amended by (a) that certain Action By Unanimous Written Consent of the
Members of Boulder Vitamin Cottage Group, LLC, dated as of June 22, 2006 to be
effective as of August 27, 1999, and (b) that certain Action By Unanimous
Written Consent of the Members of Boulder Vitamin Cottage Group, LLC, dated
April 27, 2006,”.

 

(vii)         The first paragraph of Schedule 3.01 of the Credit Agreement is
hereby deleted in its entirety.

 

(viii)        Each reference to “Boulder Vitamin Cottage Group, LLC” in
Schedules 3.17, 6.01, 6.02 and 6.08 is hereby deleted and substituted therefor
is

 

5

--------------------------------------------------------------------------------

 

the following:  “Vitamin Cottage Natural Food Markets, Inc., as successor in
interest to Boulder Vitamin Cottage Group, LLC.”

 

2.             Termination of Boulder VC Guaranty and Membership Pledge Consent
Agreement.  Upon satisfaction of the conditions set forth in Section 6 below,
the Boulder VC Guaranty and the Membership Pledge Consent Agreement shall
automatically be terminated and be of no further force and effect.

 

3.             Parent Pledge and Security Agreement; Parent Guaranty;
Authorization Documents; Share Pledge.  Upon execution and delivery by the
Parent on the date hereof to the Agent of (a) a guaranty substantially in the
form of Exhibit A attached hereto (the “Parent Guaranty”), (b) a pledge and
security agreement substantially in the form of Exhibit B attached hereto (the
“Parent Pledge and Security Agreement”), (c) all documents of the types referred
to in Section 4.01(d) of the Credit Agreement (to the extent not already
provided) (the “Authorization Documents”), and (d) original certificates
representing 100% of the Equity Interests of the Company, together with undated
stock powers, in blank, executed and delivered by an authorized officer of the
Parent (the “Stock Powers”), the Company shall be deemed to have complied with
Section 3(d) of the IPO Consent (notwithstanding the requirements set forth in
such Section 3(d) to execute and deliver such documents within ten (10) days
after closing of the Transactions (as defined in the IPO Consent)).  Without
limiting the foregoing, such 10-day period shall be deemed to have been extended
to and including the date hereof.

 

4.             Restated Note.  Concurrently with the execution and delivery of
this Amendment, the Company shall execute and deliver to the Agent a Third
Amended and Restated Promissory Note (the “Restated Note”), evidencing the
Revolving Commitment in the principal amount of $15,000,000, in form and
substance satisfactory to the Agent.  Upon receipt by the Agent of the Restated
Note, the existing Second Amended and Restated Promissory Note dated as of
July 11, 2011, made by the Company to the Agent in the original principal amount
of $21,000,000 (the “Existing Note”) shall be canceled and the Revolving
Commitment and all accrued and unpaid interest on the Existing Note shall
thereafter be evidenced by the Restated Note.  Without duplication, the Restated
Note shall not constitute a novation and shall in no way extinguish the
Company’s unconditional obligation to repay all indebtedness, including accrued
and unpaid interest, evidenced by the Existing Note.

 

5.             Amendment to Security Agreement.  Schedule E to the Security
Agreement is hereby amended and restated in its entirety to read as set forth in
Exhibit C attached hereto.

 

6.             Effective Date.  This Amendment shall become effective upon the
satisfaction of the following conditions precedent (the “Effective Date”):

 

a.             The Company shall have (i) executed and delivered or caused to be
executed and delivered this Amendment, the Parent Guaranty, the Parent Pledge
and Security Agreement, the Authorization Documents, the Stock Powers, the
Restated Note,

 

6

--------------------------------------------------------------------------------

 

and all other documents reasonably required by the Agent, and (ii) complied with
such additional conditions and requests as the Agent may reasonably require.

 

b.             (i) All representations and warranties made in the Credit
Agreement shall be true, complete and correct in all material respects as of the
date hereof as if made on the date hereof, and (ii) no default or Event of
Default shall have occurred and be continuing under any of the Loan Documents or
will occur as a result of this Amendment.

 

c.             The Company shall pay or cause to be paid all of the reasonable
expenses incurred by the Agent in connection with the preparation of, and
transactions contemplated by, this Amendment, including, without limitation, the
reasonable fees and disbursements of the Agent’s attorneys and their staff.

 

d.             The Agent shall have received an officer’s certificate from a
Financial Officer of the Company certifying that the Boulder VC Merger occurred
on October 31, 2012.

 

7.             Representations, Warranties and Covenants.  The Company hereby
represents, warrants and covenants that the execution, delivery and performance
by the Company of this Amendment has been duly authorized by all necessary
corporate action, and does not (i) require any consent or approval of the
Company’s shareholders, if any; (ii) require any authorization, consent or
approval by, or registration, declaration or filing with, or notice to, any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any third party, except such authorization, consent,
approval, registration, declaration, filing or notice as has been obtained,
accomplished or given prior to the date hereof; (iii) violate any provision of
any law, rule or regulation (including, without limitation, Regulation X of the
Board of Governors of the Federal Reserve System) or of any order, writ,
injunction or decree presently in effect having applicability to the Company, or
the constitutive documents of the Company; (iv) result in a breach of or
constitute a default under any other loan or credit agreement or any other
material agreement, or any lease or instrument to which the Company is a party
or by which any of its properties might be bound or affected; or (v) result in,
or require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any nature (other than
any security interest held by the Agent in any of the Company’s assets) upon or
with respect to any of the properties now owned or hereafter acquired by the
Company.

 

8.             Miscellaneous.

 

a.             The Company hereby certifies to the Agent that as of the date of
this Amendment (i) all of the Company’s representations and warranties contained
in the Loan Documents are true, complete and correct in all material respects as
if made on the date hereof, and (ii) no default or Event of Default has occurred
and is continuing under any Loan Document or will occur as a result of this
Amendment.

 

7

--------------------------------------------------------------------------------

 

b.             Except as expressly set forth herein, the Loan Documents shall
remain as originally stated and in full force and effect.  The Company hereby
confirms and ratifies each of the provisions of the Loan Documents as amended
hereby.  The Loan Documents shall be amended as set forth in this Amendment and
shall be deemed modified as of the Effective Date.  From and after the Effective
Date all references to any Loan Document in the Loan Documents shall be deemed
references to the Loan Documents as amended hereby.

 

c.             Each of the Company, VC Two, Natural Systems and Parent hereby
absolutely and unconditionally releases and forever discharges the Agent, each
Lender and any and all participants, parent corporations, subsidiary
corporations, affiliated corporations, insurers, indemnitors, successors and
assigns thereof, together with all of the present and former directors,
officers, agents and employees of any of the foregoing, from any and all claims,
demands or causes of action of any kind, nature or description, whether arising
in law or equity or upon contract or tort or under any state or federal law or
otherwise, that the Company, VC Two, Natural Systems and Parent has had, now has
or has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.

 

d.             This Amendment and all documents to be executed and delivered
hereunder may be delivered in the form of a facsimile copy, subsequently
confirmed by delivery of the originally executed document.

 

e.             THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF
THE STATE OF COLORADO, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.  This Amendment shall be binding upon and inure to the benefit of the
parties hereto and their successors and permissible assigns.

 

f.             This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same instrument.  This Amendment shall become a part of the “Loan
Documents.”

 

EXECUTION PAGE FOLLOWS

 

8

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have executed this Eleventh Amendment to
Credit Agreement as of the date first set forth above.

 

 

 

VITAMIN COTTAGE NATURAL FOOD MARKETS, INC.,

 

a Colorado corporation

 

 

 

 

 

By:

/s/ Kemper Isely

 

 

Kemper Isely, Co-President

 

 

 

 

 

 

 

JPMORGAN CHASE BANK, N.A,

 

as a Lender and as Administrative Agent

 

 

 

 

 

By:

/s/ Nancy Broome

 

 

Nancy Broome, Senior Vice President

 

 

SIGNATURE PAGE TO ELEVENTH AMENDMENT

 

--------------------------------------------------------------------------------

 

ACKNOWLEDGMENT AND CONSENT BY GUARANTORS:

 

Each of the undersigned hereby (i) acknowledges the accuracy of the Recitals in
the foregoing Amendment, (ii) consents to the modification of the Credit
Agreement and the other Loan Documents and to all other matters in the foregoing
Amendment, including without limitation the terminations described in Section 2
thereof, (iii) reaffirms the VC Two Guaranty executed by VC Two, the Guaranty
executed by Natural Systems, the Parent Guaranty, and any other agreements,
documents and instruments securing or otherwise related thereto, including,
without limitation, the Trademark Security Agreement (collectively, the
“Guarantor Documents”), (iv) acknowledges that the Guarantor Documents continue
in full force and effect, remain unchanged and are valid, binding and
enforceable in accordance with their respective terms, and that the terminations
described in Section 2 thereof shall have no effect on each remaining
Guarantor’s obligations under the Guarantor Documents, (v) agrees that all
references, if any, in the Guarantor Documents to the Credit Agreement and the
other Loan Documents are modified to refer to those documents as modified by the
Amendment, and (vi) agrees to be bound by the release of the Agent and the
Lenders as set forth in the Amendment.  All capitalized terms above not
otherwise defined have the meanings given them in the foregoing Amendment.

 

 

 

VITAMIN COTTAGE TWO LTD. LIABILITY COMPANY

 

 

 

 

 

 

By:

/s/ Kemper Isely

 

Name:

      Kemper Isely

 

Title:

      Manager

 

 

 

 

 

 

 

 NATURAL SYSTEMS, LLC

 

 

 

 

 

 

 

By:

/s/ Zephyr Isely

 

Name:

      Zephyr Isely

 

Title:

      Manager

 

 

 

 

 

 

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

 

 

 

 

 

 

 

By:

/s/ Kemper Isely

 

Name:

      Kemper Isely

 

Title:

      Co-President

 

--------------------------------------------------------------------------------

 

EXHIBIT A

to Eleventh Amendment to Credit Agreement

 

FORM OF PARENT GUARANTY

 

[see attached]

 

--------------------------------------------------------------------------------

 

Execution Version

 

GUARANTY

 

This GUARANTY AGREEMENT (as amended, supplemented, amended and restated or
otherwise modified from time to time, this “Guaranty”) is made as of October 31,
2012 by Natural Grocers by Vitamin Cottage, Inc., a Delaware corporation
(“Guarantor”), in favor of JPMorgan Chase Bank, N.A., as administrative agent
(together with its successor(s) thereto in such capacity, the “Administrative
Agent”) for the ratable benefit of the Secured Parties (as defined in the Credit
Agreement referenced below).

 

Recitals

 

A.                                    Vitamin Cottage Natural Food
Markets, Inc., a Colorado corporation (“Borrower”), the Lenders (as defined in
the Credit Agreement referenced below) and the Administrative Agent are parties
to that certain Credit Agreement, dated as of September 29, 2006 (together with
any amendments, modifications, replacements or substitutions thereof, the
“Credit Agreement”), providing for a revolving line of credit in the maximum
principal amount, as of the date hereof, of $15,000,000.

 

B.                                    Guarantor was incorporated on April 9,
2012 and, as a result of the Reorganization (as defined in the Credit
Agreement), Borrower has become a wholly-owned subsidiary of the Guarantor.

 

C.                                    Pursuant to Section 5.09(d) of the Credit
Agreement, Guarantor is required to execute and deliver this Guaranty.

 

D.                                    Guarantor has determined that it is in its
best interests to execute this Guaranty inasmuch as Guarantor owns 100% of the
Equity Interests in Borrower and thus will derive substantial direct and
indirect benefits from the credit extensions made to Borrower from time to time
pursuant to the Credit Agreement, and Guarantor understands and agrees that
Administrative Agent, the Lenders and any additional Secured Parties are relying
on this representation in agreeing to continue to make credit extensions to
Borrower under the Credit Agreement.

 

Agreement

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Guarantor agrees, for the ratable benefit of
the Secured Parties, as follows:

 

Section 1.                         Definitions.  Unless otherwise defined herein
or the context otherwise requires, defined terms used in this Guaranty,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.  The following words shall have the following meanings when used in
this Guaranty:

 

“Administrative Agent” is defined in the preamble.

 

“Borrower” is defined in Recital A.

 

“Credit Agreement” is defined in Recital A.

 

“Guaranteed Indebtedness” means all “Obligations” under and defined in the
Credit Agreement.

 

“Guarantor” is defined in the preamble.

 

--------------------------------------------------------------------------------

 

“Guaranty” is defined in the preamble.

 

“Lender” and “Lenders” are defined in Recital A.

 

Section 2.                         Continuing Unlimited Guaranty.

 

(a)                Guarantor irrevocably, absolutely and unconditionally
guarantees to Administrative Agent and each of the other Secured Parties the
prompt, complete and full payment when due, and no matter how the same shall
become due, of all Guaranteed Indebtedness.  Without limiting the generality of
the foregoing, Guarantor’s liability hereunder shall extend to and include all
post-petition interest, expenses, and other duties and liabilities of Borrower
described above in this subsection (a), or below in the following subsection
(b), which would be owed by Borrower but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving Borrower.

 

(b)                Guarantor hereby irrevocably, absolutely and unconditionally
guarantees to Administrative Agent and each of the other Secured Parties the
prompt, complete and full performance, when due, and no matter how the same
shall become due, of all obligations and undertakings of Borrower to
Administrative Agent or such Secured Party under, by reason of, or pursuant to
the Guaranteed Indebtedness or any of the Loan Documents.

 

Section 3.                         Nature of Guaranty.  This Guaranty is a
guaranty of payment and performance and not of collection.  Neither
Administrative Agent nor any other Secured Party shall be required to exhaust
any right or remedy or take any action against Borrower or any other Person or
entity or any collateral.  Guarantor agrees that, as between Guarantor, on the
one hand, and Administrative Agent and the other Secured Parties, on the other
hand, the Guaranteed Indebtedness may be declared to be due and payable for the
purposes of this Guaranty notwithstanding any stay, injunction or other
prohibition which may prevent, delay or vitiate any declaration as regards
Borrower and that in the event of a declaration or attempted declaration, the
Guaranteed Indebtedness shall immediately become due and payable by Guarantor
for the purposes of this Guaranty.  Guarantor’s liability under this Guaranty is
unlimited and shall be open and continuous for so long as this Guaranty remains
in force.  Accordingly, no payments made upon the Guaranteed Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection with
any remaining portions of the Guaranteed Indebtedness or any Guaranteed
Indebtedness which subsequently arises or is thereafter incurred or contracted. 
Guarantor’s liability hereunder is as a primary obligor and not merely as a
surety.

 

Section 4.                         Duration of Guaranty.  This Guaranty will
take effect when received by Administrative Agent without the necessity of any
acceptance by Administrative Agent or any other Secured Party, or any notice to
Guarantor or to Borrower, and will continue in full force with respect to
Guarantor until none of the Guaranteed Indebtedness remains outstanding (other
than contingent indemnification obligations not yet due and payable) and the
Commitments have been terminated.  This Guaranty is not revocable.  If,
notwithstanding the foregoing, any notice of revocation by Guarantor is given
effect by a court of competent jurisdiction, no such notice of revocation hereof
shall be effective as to any Guaranteed Indebtedness: (a) existing at the date
of receipt of such notice; (b) incurred or contracted by Borrower, or acquired
or committed to by Administrative Agent or any other Secured Party, prior to
receipt of such notice; (c) now existing or hereafter created pursuant to or
evidenced by a loan agreement or commitment in existence prior to receipt of
such notice under which Borrower is or may become obligated to Administrative
Agent or any other Secured Party; or (d) renewals, extensions, consolidations,
substitutions, and refinancings of the foregoing.  Guarantor waives notice of
revocation given by any other guarantor of the Guaranteed Indebtedness. 
Guarantor shall be liable, jointly and

 

2

--------------------------------------------------------------------------------

 

severally, with Borrower and any other guarantor of all or any part of the
Guaranteed Indebtedness and release of any other guarantor of the Guaranteed
Indebtedness, or termination or revocation of any other guaranty of the
Guaranteed Indebtedness, shall not affect the liability of Guarantor under this
Guaranty. It is anticipated that fluctuations may occur in the aggregate amount
of Guaranteed Indebtedness covered by this Guaranty, and it is specifically
acknowledged and agreed by Guarantor that reductions in the amount of Guaranteed
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination
of this Guaranty.

 

Section 5.                   Guaranty Absolute.  Guarantor authorizes
Administrative Agent or any other Secured Party, either before or after any
revocation hereof, without notice or demand and without lessening Guarantor’s
liability under this Guaranty, from time to time:  (a) to make one or more
additional secured or unsecured loans to Borrower, to issue letters of credit
and/or bankers acceptance drafts to Borrower, to lease equipment or other goods
to Borrower, or otherwise to extend additional credit to Borrower; (b) to alter,
compromise, renew, extend, accelerate, or otherwise change one or more times the
time for payment or other terms of the Guaranteed Indebtedness or any part of
the Guaranteed Indebtedness, including increases and decreases of the rate of
interest on the Guaranteed Indebtedness; extensions may be repeated and may be
for longer than the original loan term; (c) to take and hold security for the
payment of this Guaranty or the Guaranteed Indebtedness, and exchange, enforce,
waive, fail or decide not to perfect, and release any such security, with or
without the substitution of new collateral; (d) to release, substitute, agree
not to sue, or deal with any one or more of the sureties of Borrower, endorsers,
or other guarantors on any terms or in any manner Administrative Agent or any
other Secured Party may choose; (e) to determine how, when and what application
of payments and credits shall be made on the Guaranteed Indebtedness; (f) to
apply any proceeds it receives as a result of the foreclosure or other
realization on any collateral for the Guaranteed Indebtedness to that portion,
if any, of the Guaranteed Indebtedness not guaranteed hereunder or to any other
indebtedness secured by such collateral, as Administrative Agent or any other
Secured Party in its discretion may determine; (g) to sell, transfer, assign, or
grant participations in all or any part of the Guaranteed Indebtedness; and
(h) to assign or transfer this Guaranty in whole or in part.  Guarantor further
agrees that the liability of Guarantor under this Guaranty is absolute and
unconditional irrespective of: (i) any present or future law, regulation or
order of any jurisdiction (whether of right or in fact) or of any agency thereof
purporting to reduce, amend, restructure or otherwise affect any term of any
Loan Document or the Guaranteed Indebtedness; (ii) without being limited by the
foregoing, any lack of validity, legality or enforceability of any Loan Document
or all or any part of the Guaranteed Indebtedness; (iii) the failure of the
Administrative Agent or any other Secured Party (A) to assert any claim or
demand or to enforce any right or remedy against any party under the provisions
of any of the Loan Documents or otherwise or (B) to exercise any right or remedy
against any guarantor (including Guarantor) of, or collateral securing, any
obligations of Borrower or any other Person; (iv) any reduction, limitation,
impairment or termination of all or any part of the Guaranteed Indebtedness or
the obligations of any guarantor (including Guarantor) for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and shall not
be subject to (and Guarantor hereby waives any right to or claim of) any defense
or setoff, counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, all or any part
of the Guaranteed Indebtedness or the obligations of any guarantor (including
Guarantor) or otherwise, and (v) any other circumstance which might otherwise
constitute a defense available to, or a legal or equitable discharge of,
Borrower or any surety or guarantor, than actual payment, performance and
satisfaction in full of the Guaranteed Indebtedness.

 

Section 6.                   Guarantor’ Representations, Warranties and
Covenants.  Guarantor represents, warrants and covenants to Administrative Agent
and each other Secured Party that (a) no representations or agreements of any
kind have been made to Guarantor which would limit or qualify in any way the

 

3

--------------------------------------------------------------------------------

 

terms of this Guaranty; (b) this Guaranty is executed at the request of Borrower
and not at the request of Administrative Agent or any other Secured Party;
(c) Guarantor has the requisite power and authority to execute and deliver this
Guaranty and the other Loan Documents to which Guarantor is a party and to
perform its respective obligations hereunder and thereunder; (d) the execution
and delivery by Guarantor of this Guaranty and the other Loan Documents to which
Guarantor is a party and the performance of its obligations hereunder and
thereunder have been duly authorized by all necessary corporate proceedings, and
this Guaranty and the other Loan Documents to which Guarantor is a party
constitute legal, valid and binding obligations of Guarantor enforceable against
Guarantor in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors’ rights generally; (e) neither the execution and delivery by Guarantor
of this Guaranty and the other Loan Documents to which Guarantor is a party, nor
the consummation of the transactions herein or therein contemplated, nor
compliance with the provisions hereof or thereof, will violate (i) any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding on
Guarantor or (ii) Guarantor’s articles of organization, operating or other
management agreement, or other constitutive or organizing document, as the case
may be, or (iii) the provisions of any material indenture, instrument or
agreement to which Guarantor is a party or is subject, or by which it, or its
property, is bound, or conflict with or constitute a default hereunder or
thereunder, or result in, or require, the creation or imposition of any lien in,
of or on the property of Guarantor pursuant to the terms of any such indenture,
instrument or agreement; (f) neither Administrative Agent nor any other Secured
Party has made any representation to Guarantor as to the creditworthiness of
Borrower; (g) Guarantor is familiar with the current financial condition of
Borrower and has established adequate means of obtaining from Borrower on a
continuing basis information regarding the future financial condition of
Borrower and is not relying on Administrative Agent or any other Secured Party
to provide such information to Guarantor; and (h) Guarantor was formed as and
shall remain a single purpose entity whose sole purpose is and shall be to hold
the equity interests of the Borrower and shall have no other business or
operations, except with respect to its obligations in connection with the
initial public offering of its common stock.  Guarantor agrees to keep
adequately informed from such means of any facts, events, or circumstances which
might in any way affect Guarantor’s risks under this Guaranty, and Guarantor
further agrees that Administrative Agent shall have no obligation to disclose to
Guarantor any information or documents acquired by Administrative Agent or any
other Secured Party in the course of its relationship with Borrower.  Without
limiting the foregoing, the Guarantor agrees that so long as all or any portion
of the Commitments are in effect or any of the Guaranteed Obligations remain
outstanding, (i) all of the representations, covenants and Events of Default
that relate to Guarantor set forth in the Credit Agreement (including without
limitation, restrictions therein relating to liens, dividends and other
distributions), and all related definitions, are incorporated herein by
reference, mutatis mutandis, for the benefit of the Administrative Agent and
shall remain in full force and effect until the Guaranteed Obligations have been
fully and indefeasibly paid and the Commitments are no longer in effect,
(ii) the Guarantor shall observe such representations and covenants in
accordance with the terms thereof, and (iii) an Event of Default under and as
defined in the Credit Agreement, shall constitute an event of default under this
Guaranty.

 

Section 7.                   Guarantor Waivers.  Guarantor waives any right to
require Administrative Agent or any other Secured Party (a) to continue lending
money or to extend other credit to Borrower; (b) to make any presentment,
protest, demand, or notice of any kind, including notice of any nonpayment of
the Guaranteed Indebtedness or of any nonpayment related to any collateral, or
notice of any action or nonaction on the part of Borrower, Administrative Agent
or any other Secured Party, any surety, endorser, or other guarantor in
connection with the Guaranteed Indebtedness or in connection with the creation
of new or additional loans or obligations; (c) to notify Guarantor of any change
in the manner, place, time or terms of payment of any of the Guaranteed
Indebtedness (including, without limitation,

 

4

--------------------------------------------------------------------------------

 

any renewal, extension or other modification of any of the Guaranteed
Indebtedness); or (d) to notify Guarantor of any change in the interest rate
accruing on any of the Guaranteed Indebtedness (including, without limitation,
any periodic change in such interest rate that occurs because such Guaranteed
Indebtedness accrues interest at a variable rate which may fluctuate from time
to time).  Should Administrative Agent seek to enforce the obligations of
Guarantor hereunder, Guarantor waives any right to require Administrative Agent
to first (i) resort for payment or to proceed directly or at once against any
Person, including Borrower or any other guarantor of the Guaranteed
Indebtedness; (ii) to proceed directly against, marshall, enforce, or exhaust
any collateral held by any Secured Party from Borrower, Guarantor, any other
guarantor, or any other Person; or (iii) to pursue any other remedy within the
power of any Secured Party.

 

Guarantor also waives any and all rights or defenses arising by reason of
(a) any election of remedies by Administrative Agent which destroys or otherwise
adversely affects Guarantor’s subrogation rights or Guarantor’s rights to
proceed against Borrower for reimbursement, including without limitation, any
loss of rights Guarantor may suffer by reason of any law limiting, qualifying,
or discharging the Guaranteed Indebtedness; (b) any disability or other defense
of Borrower, of any other guarantor, or of any other Person, or by reason of the
cessation of the liability of Borrower from any cause whatsoever, other than
actual payment, performance and satisfaction in full of the Guaranteed
Indebtedness; (c) any right to claim discharge of the Guaranteed Indebtedness on
the basis of unjustified impairment of any collateral for the Guaranteed
Indebtedness; or (d) any defenses given to guarantors at law or in equity other
than actual payment, performance and satisfaction in full of the Guaranteed
Indebtedness.

 

Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by Borrower, Guarantor, or both.

 

Section 8.                   Guarantor’s Understanding with Respect to Waivers. 
Guarantor warrants and agrees that each of the waivers set forth above is made
with Guarantor’s full knowledge of its significance and consequences and that,
under the circumstances, the waivers are reasonable and not contrary to public
policy or law.  If any such waiver is determined to be contrary to any
applicable law or public policy, such waiver shall be effective only to the
extent permitted by law or public policy.

 

Section 9.                   Reinstatement.  This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
all or any part of the Guaranteed Indebtedness is rescinded or must otherwise be
returned by Administrative Agent or any other Secured Party for any reason,
including, without limitation, upon the insolvency, bankruptcy or reorganization
of Borrower, Guarantor or any other guarantor of all or any part of the
Guaranteed Indebtedness, all as though such payment had not been made.

 

Section 10.            Right of Setoff.  In addition to, and without limitation
of, any rights of Administrative Agent or any of the other Secured Parties under
this Agreement, any of the other Loan Documents and applicable law, if Guarantor
becomes insolvent, however evidenced, or any Event of Default occurs, any and
all deposits (including all account balances, whether provisional or final and
whether or not collected or available) and any other Guaranteed Indebtedness at
any time held or owing by any Secured Party or any Affiliate of any Secured
Party to or for the credit or account of Guarantor may, without prior notice to
Guarantor, be offset and applied toward the payment of the Guaranteed
Indebtedness owing to such Secured Party, whether or not the Guaranteed
Indebtedness, or any part thereof, shall then be due.  This right of setoff may
be enforced or exercised by any Secured Party (or the

 

5

--------------------------------------------------------------------------------

 

Administrative Agent on behalf of the Secured Parties) regardless of whether or
not a Secured Party has made any demand under this Section 10.  Any delay,
neglect or conduct by any Secured Party (or the Administrative Agent on behalf
of the Secured Parties) in exercising its rights under this Section 10 will not
be a waiver of the right to exercise this right of setoff.

 

Section 11.                        Actions Against and Payments By Guarantor. 
The exercise by Administrative Agent or any other Secured Party of any right or
remedy under this Guaranty or under any other agreement or instrument, at law,
in equity or otherwise, shall not preclude concurrent or subsequent exercise of
any other right or remedy. Whenever Guarantor pays any sum which is or may
become due under this Guaranty, written notice must be delivered to
Administrative Agent contemporaneously with such payment.  In the absence of
such notice to Administrative Agent by Guarantor, any sum received by
Administrative Agent on account of the Guaranteed Indebtedness shall be
conclusively deemed paid by Borrower.  Guarantor hereby guarantees that payments
hereunder will be paid to Administrative Agent without set-off or counterclaim,
in U.S. Dollars, at Administrative Agent’s office specified in the Credit
Agreement or such other address as may be designated in writing by
Administrative Agent to Guarantor from time to time.  Notwithstanding any
provision of this Guaranty, none of the terms or provisions hereof relating to
the obligations of Borrower hereunder shall limit or affect Borrower’s
obligations under the Credit Agreement or any of the other Loan Documents.

 

Section 12.            Extent of Liability; Fraudulent Transfer.  Guarantor
represents and warrants to Administrative Agent that Guarantor expects to derive
substantial benefits from any loans, credit transactions, financial
accommodations, discounts, purchases of property and other transactions and
events resulting in the creation of the Guaranteed Indebtedness and that this
Guaranty is given for a corporate purpose.  Anything herein or in any other Loan
Document to the contrary notwithstanding, the maximum liability of Guarantor
hereunder shall in no event exceed the amount that can be guaranteed by
Guarantor under applicable law, including applicable federal and state laws
relating to the insolvency of debtors and fraudulent transfers.  Guarantor
agrees that the Guaranteed Indebtedness guaranteed by it hereunder may at any
time and from time to time exceed the amount of the liability of Guarantor
hereunder without impairing the guarantee contained herein or affecting the
rights and remedies of Administrative Agent or any other Secured Party
hereunder.  Without limiting the generality of the foregoing, the Guarantor, and
by its acceptance of this Guaranty, the Administrative Agent, hereby confirm
that the parties intend that this Guaranty not constitute a fraudulent transfer
or conveyance for purposes of the Bankruptcy Law (as defined below), the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal, state or foreign law to the extent applicable to this Guaranty.  In
furtherance of that intention, the Guaranteed Indebtedness under this Guaranty
shall be limited to the greater of (A) the net benefit realized by the Guarantor
from the proceeds of the advances made from time to time by the Borrower to the
Guarantor or any of its subsidiaries and (B) the maximum amount that will, after
giving effect to such maximum amount and all other contingent and fixed
liabilities of the Guarantor that are relevant under such laws, and after giving
effect to any collections from, rights to receive contribution from or payments
made by or on behalf of any other person with respect to the Guaranteed
Indebtedness, result in the Guaranteed Indebtedness under this Guaranty not
constituting a fraudulent transfer or conveyance.  For purposes hereof,
“Bankruptcy Law” means Title 11, U.S. Code, or any similar federal,  state or
foreign law for the relief of debtors.  This paragraph with respect to the
maximum liability of the Guarantor is intended solely to preserve the rights of
the Administrative Agent to the maximum extent not subject to avoidance under
applicable law, and neither the Guarantor nor any other person or entity shall
have any right or claim under this paragraph with respect to such maximum
liability, except to the extent necessary so that the obligations of the
Guarantor hereunder shall not be rendered voidable under applicable law.

 

6

--------------------------------------------------------------------------------

 

Section 13.            No Subrogation.  Notwithstanding any payment made by
Guarantor hereunder or any set-off or application of funds of Guarantor by
Administrative Agent or any other Secured Party, Guarantor shall not be entitled
to be subrogated to any of the rights of Administrative Agent or any other
Secured Party against Borrower or any collateral security or guarantee or right
of offset held by Administrative Agent or any other Secured Party for the
payment of the Guaranteed Indebtedness, nor shall Guarantor seek or be entitled
to seek any contribution or reimbursement from Borrower in respect of payments
made by Guarantor hereunder, until no amount owing to Administrative Agent and
the other Secured Parties on account of the Guaranteed Indebtedness remains
outstanding (other than contingent indemnification obligations not yet due and
payable) and the Commitments have been terminated.  If any amount shall be paid
to Guarantor on account of such subrogation rights at any time when all of the
Guaranteed Indebtedness shall not have been paid in full or any of the
Commitments under the Credit Agreement shall remain in effect, such amount shall
be held by Guarantor in trust for Administrative Agent and the other Secured
Parties, segregated from other funds of Guarantor, and shall, forthwith upon
receipt by Guarantor, be turned over to Administrative Agent in the exact form
received by Guarantor (duly indorsed by Guarantor to Administrative Agent, if
required), to be applied against the Guaranteed Indebtedness, whether matured or
unmatured, in such order as Administrative Agent may determine.

 

Section 14.            Miscellaneous Provisions.

 

(a)                                 Amendments.  This Guaranty, together with
any Loan Documents, constitutes the entire understanding and agreement of the
parties as to the matters set forth in this Guaranty and supersedes all prior
written and oral agreements and understandings, if any, regarding same.  No
alteration of or amendment to this Guaranty shall be effective unless given in
writing and signed by the party or parties sought to be charged or bound by the
alteration or amendment.

 

(b)                                 Applicable Law.  THIS GUARANTY SHALL BE
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT
OF LAWS PROVISIONS) OF THE STATE OF COLORADO, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.

 

(c)                                  Jury Waiver.  GUARANTOR HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER THEORY).  GUARANTOR CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER.  THIS PROVISION IS A MATERIAL INDUCEMENT TO
ADMINISTRATIVE AGENT AND THE OTHER SECURED PARTIES TO CONTINUE TO PROVIDE THE
FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS.

 

(d)                                 Consent to Jurisdiction.

 

(i)                         GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS TO THE NON EXCLUSIVE JURISDICTION OF (I) ANY UNITED STATES FEDERAL OR
COLORADO STATE COURT SITTING IN DENVER, COLORADO AND (II) THE SUPREME COURT OF
THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES
DISTRICT

 

7

--------------------------------------------------------------------------------

 

COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY TO BRING PROCEEDINGS AGAINST
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.  GUARANTOR HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY
DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY IN
ANY COURT REFERRED TO IN THIS PARAGRAPH.  GUARANTOR HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

(ii)                    GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN ANY OF THE ABOVE-MENTIONED COURTS
BY THE MAILING THEREOF BY THE ADMINISTRATIVE AGENT OR ANY LENDER BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF COLORADO, AT ITS ADDRESS SPECIFIED IN CLAUSE (f) BELOW. NOTHING IN THIS
GUARANTY WILL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY OF THE OTHER
SECURED PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

(e)                                  Costs and Expenses.  Guarantor shall also
pay on written demand by Administrative Agent all costs and expenses, including,
without limitation, all reasonable attorneys’ fees, incurred by Administrative
Agent in connection with the enforcement and/or collection of this Guaranty and
with the collection and/or sale of any collateral securing this Guaranty.  This
covenant shall survive the payment of the Guaranteed Indebtedness.

 

(f)                                   Notices.  All notices and other
communications provided for hereunder shall be in writing or by facsimile and
addressed, delivered or transmitted to the appropriate party at the address or
facsimile number of such party (a) in the case of Borrower, as specified in the
Credit Agreement, (b) in the case of Administrative Agent, as specified in the
Credit Agreement, (c) in the case of Guarantor, as specified below, and (d) in
the case of any party, at such other address or facsimile number as such party
may hereafter specify for such purpose by notice to the other parties to this
Guaranty in accordance with the provisions of this Section 14(f).

 

If to Guarantor:

 

Natural Grocers by Vitamin Cottage, Inc.

12612 W. Alameda Parkway

Lakewood, CO  80228

 

8

--------------------------------------------------------------------------------

 

Attention:  Kemper Isely

FAX:  303-986-1891

 

Each such notice or other communication shall be effective (x) if given by
facsimile transmission, when transmitted to the facsimile number specified in
this Section 14(f) and confirmation of receipt is received, (y) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid, or (z) if given by any other
means, when delivered (or, in the case of electronic transmission, received) at
the address specified in this Section 14(f).  The Administrative Agent or
Guarantor may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.

 

For notice purposes, Guarantor agrees to keep Administrative Agent informed at
all times of Guarantor’s current address.  In the event that Guarantor is
entitled to receive any notice under the Uniform Commercial Code, as it exists
in the state governing any such notice, of the sale or other disposition of any
collateral securing all or any part of the Guaranteed Indebtedness or this
Guaranty, reasonable notice shall be deemed given when such notice is given
pursuant to the terms of this Subsection ten (10) days prior to the date any
public sale, or after which any private sale, of any such collateral is to be
held.

 

(g)                                  Interpretation.  The provisions of this
Guaranty shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that Guarantor may not
assign or transfer any of its rights or obligations under this Guaranty without
the prior written consent of the Administrative Agent and the Required Lenders. 
Caption headings in this Guaranty are for convenience purposes only and are not
to be used to interpret or define the provisions of this Guaranty.  If a court
of competent jurisdiction finds any provision of this Guaranty to be invalid or
unenforceable as to any Person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other Persons or
circumstances, and all provisions of this Guaranty in all other respects shall
remain valid and enforceable.  It is not necessary for Administrative Agent to
inquire into the powers of Borrower or Guarantor or of the officers, directors,
partners, or agents acting or purporting to act on their behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed under this Guaranty.

 

(h)                                 Waiver.  Neither Administrative Agent nor
any other Secured Party shall be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Administrative
Agent and/or the relevant Secured Parties, and then only in the specific
instance and for the purpose given.  No delay or omission on the part of
Administrative Agent in exercising any right shall operate as a waiver of such
right or any other right.  A waiver by Administrative Agent or any other Secured
Party of a provision of this Guaranty shall not prejudice or constitute a waiver
of Administrative Agent’s right to thereafter demand strict compliance with that
provision or any other provision of this Guaranty.  No prior waiver by
Administrative Agent or any other Secured Party, nor any course of dealing
between Administrative Agent or any other Secured Party and Guarantor, shall
constitute a waiver of any of the rights of Administrative Agent or any other
Secured Party of any of Guarantor’s obligations as to any future transactions. 
Whenever the consent of Administrative Agent or any other Secured Party is
required under this Guaranty, the granting of such consent by Administrative
Agent and/or the relevant Secured Parties in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and in
all cases such consent may be granted or withheld in the sole discretion of
Administrative Agent and/or the relevant Secured Parties.

 

9

--------------------------------------------------------------------------------

 

(i)                                     Taxes.  Section 2.16 of the Credit
Agreement is hereby incorporated by reference, mutatis, mutandis, with
references to the Borrower therein being deemed to be references to the
Guarantor herein.

 

(j)                                    Assignment.  This Guaranty shall be
binding on, and shall inure to the benefit of the Guarantor, the Administrative
Agent and their respective successors and assigns; provided that the Guarantor
may not assign or transfer its rights or obligations under this Guaranty.

 

EXECUTION PAGE FOLLOWS

 

10

--------------------------------------------------------------------------------

 

THE UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS.  IN ADDITION, GUARANTOR UNDERSTANDS THAT THIS
GUARANTY IS EFFECTIVE UPON GUARANTOR’S EXECUTION AND DELIVERY OF THIS GUARANTY
TO ADMINISTRATIVE AGENT AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN
THE MANNER SET FORTH IN THE SECTION TITLED “DURATION OF GUARANTY”.  NO FORMAL
ACCEPTANCE BY ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY IS NECESSARY TO
MAKE THIS GUARANTY EFFECTIVE.  THIS GUARANTY IS DATED AS OF THE DAY AND YEAR
FIRST ABOVE WRITTEN.

 

 

 

 

GUARANTOR:

 

 

 

 

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.,

 

 

a Delaware corporation

 

 

 

 

 

 

 

 

By:

 

 

 

 

Kemper Isely, Co-President

 

 

 

 

 

 

Acknowledged and Agreed:

 

 

 

 

 

JP MORGAN CHASE BANK, N.A.,

 

 

as Administrative Agent

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

Nancy Broome, Senior Vice President

 

 

 

EXECUTION PAGE—NATURAL GROCERS BY VITAMIN COTTAGE, INC. GUARANTY

 

--------------------------------------------------------------------------------

 

EXHIBIT B

to Eleventh Amendment to Credit Agreement

 

FORM OF PARENT PLEDGE AND SECURITY AGREEMENT

 

[see attached]

 

--------------------------------------------------------------------------------

 

Execution Version

 

PLEDGE AND SECURITY AGREEMENT

 

This PLEDGE AND SECURITY AGREEMENT (this “Agreement”), dated as of October 31,
2012, is entered into by and between Natural Grocers by Vitamin Cottage, Inc., a
Delaware corporation (“Debtor”), and JPMorgan Chase Bank, N.A., as
administrative agent (together with its successor(s) thereto in such capacity,
the “Administrative Agent”) for the ratable benefit of the Secured Parties (as
defined in the Credit Agreement referenced below).

 

Recitals

 

A.                                    Debtor is (or will be with respect to
after-acquired property) the legal and beneficial owner and holder of the
Collateral (as defined in Section 1 hereof).

 

B.                                    Vitamin Cottage Natural Food
Markets, Inc., a Colorado corporation (the “Borrower”), the Lenders (as defined
in the Credit Agreement referenced below) and the Administrative Agent are
parties to that certain Credit Agreement, dated as of September 29, 2006
(together with any amendments, modifications, replacements or substitutions
thereof, the “Credit Agreement”), providing for a revolving line of credit in
the maximum principal amount, as of the date hereof, of $15,000,000.

 

C.                                    Debtor was incorporated on April 9, 2012
and, as a result of the Reorganization (as defined in the Credit Agreement),
Borrower has become a wholly-owned subsidiary of the Debtor.

 

D.                                    Pursuant to Section 5.09(d) of the Credit
Agreement, Debtor is required to secure the Secured Obligations (as defined
below) in the manner set forth herein.

 

E.                                     Debtor has determined that it is in its
best interests to execute this Agreement inasmuch as Debtor owns 100% of the
Equity Interests in Borrower and thus, will derive substantial direct and
indirect benefits from the credit extensions made to it from time to time
pursuant to the Credit Agreement, and Debtor understands and agrees that
Administrative Agent, the Lenders and any additional Secured Parties are relying
on this representation in agreeing to make credit extensions to it under the
Credit Agreement.

 

Agreement

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereto covenant and agree as
follows:

 

1.                                      Any term used or defined in the Code (as
defined below), that is not defined in this Agreement has the meaning given to
that term in the Code, as in effect from time to time, when used in this
Agreement. Other capitalized terms used but not defined herein have the
respective meanings assigned to them in the Credit Agreement.  The following
words and terms shall have the following meanings, respectively, unless the
context hereof otherwise clearly requires:

 

--------------------------------------------------------------------------------

 

(a)                                 “Code” means the Uniform Commercial Code as
in effect in the State of Colorado from time to time, or in any jurisdiction the
laws of which may be applicable to or in connection with the creation,
perfection or priority of any security interest purported to be created under
the Loan Documents.

 

(b)                                 “Collateral” means all of Debtor’s right,
title and interest in, to and under the following described property of Debtor
(except as otherwise indicated, each capitalized term used in this
Section 1(b) shall have in this Agreement the meaning given to it by the Code):

 

(i)                                     all now owned or existing and hereafter
acquired or arising and wherever located: (A) Accounts; (B) Goods;
(C) Health-Care-Insurance Receivables; (D) General Intangibles, (E) Payment
Intangibles; (F) Deposit Accounts as listed on Schedule A hereto (as such
Schedule is amended or supplemented from time to time); (G) Chattel Paper
(including, without limitation, Electronic Chattel Paper and Tangible Chattel
Paper); (H) Documents; (I) Instruments; (J) Software; (K) Letters of Credit;
(L) Letter-of-Credit Rights; (M) advices of credit; (N) Money; (O) Receivables
and Receivables Records (as defined in Section 1(j) and 1(k), respectively);
(P) Commercial Tort Claims as listed on Schedule B hereto (as such Schedule is
amended or supplemented from time to time) (other than any against the
Administrative Agent or any of its affiliates); (Q) Equipment; (R) Inventory;
and (S) Fixtures;

 

(ii)                                  all now existing and hereafter acquired or
arising and wherever located: (A) capital stock, equity securities or interests
or other Investment Property; (B) all cash dividends and cash distributions with
respect to the foregoing (“Dividends”); (C) all non-cash dividends paid on
capital securities, liquidating dividends paid on capital securities, shares of
capital securities resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any capital securities constituting
Collateral (all of the foregoing, excluding Dividends, “Distributions”); and
(D) all certificates, agreements (including stockholders agreements, partnership
agreements, operating agreements and limited liability company agreements),
books, records, writings, data bases, information and other property relating
to, used or useful in connection with, evidencing, embodying, incorporating or
referring to, any of the foregoing;

 

(iii)                               to the extent, if any, not otherwise
included above, each and every other item of personal property and fixtures,
whether now existing or hereafter arising or acquired, including, without
limitation, all licenses, contracts and agreements, and all Collateral Support
(as defined in Section 1(c) below);

 

(iv)                              to the extent, if any, not otherwise included
above, all present and future business records and information, including,
without limitation, books, records, ledger cards, files, correspondence,
customer lists, blueprints, technical specifications, manuals, computer
printouts, tapes and other storage media containing the same and computer
programs and software (including without limitation, source code, object code
and related manuals and documentation and all licenses to use such software) for
accessing and manipulating such information, in each case that relate to any of
the foregoing described Collateral or are otherwise necessary or helpful in the
collection thereof or realization thereupon; and

 

2

--------------------------------------------------------------------------------

 

(v)                                 to the extent, if any, not otherwise
included above, all Supporting Obligations, Proceeds, products, Accessions,
rents and profits of or in respect of any of the foregoing (including without
limitation all insurance policies and proceeds thereof).

 

(c)                                  “Collateral Support” means property (real
or personal) assigned, hypothecated or otherwise securing any of the Collateral,
including, without limitation, any security agreement or other agreement
granting a Lien or security interest in such real or personal property.

 

(d)                                 “Event of Default” means a “Default” or an
“Event of Default” under and as defined in the Credit Agreement or any other
Loan Document.

 

(e)                                  “Foreclosure” means (a) any foreclosure
under the collateral documents securing the Secured Obligations or any immediate
or successive refinancing thereof, (b) any transfer of equity securities to the
Administrative Agent, or its designee or transferee, while an Event of Default
under the Credit Agreement is continuing, (c) any transfer of equity securities
to a secured party under any of the collateral documents securing any immediate
or successive refinancing of the Secured Obligations while an event of default
with respect to such immediate or successive refinancing is continuing, or
(d) any other exercise of remedies with respect to equity securities afforded to
the Administrative Agent under Article 9 of the Code.

 

(f)                                   “Guaranty” means that certain Guaranty,
dated as of the date hereof, executed by Debtor in favor of the Administrative
Agent, for the ratable benefit of the Lenders, as such agreement has been or is
hereafter amended, supplemented or replaced from time to time.

 

(g)                                  “Intellectual Property Rights” means all
now or hereafter acquired rights of a Person (whether owned or subject to a
valid right to use) arising in connection with any intellectual property or
other proprietary rights, including without limitation all rights arising in
connection with any patents, registered and common law trademarks, service
marks, trade names, copyrights, licenses and other similar rights (including,
without limitation, know-how, trade secrets and other confidential information)
and applications for each of the foregoing, if any.

 

(h)                                 “Loan Documents” means “Loan Documents”
under and as defined in the Credit Agreement.

 

(i)                                     “Permitted Liens” means Liens permitted
under Section 6.02 of the Credit Agreement.

 

(j)                                    “Receivables” means rights to payment,
whether or not earned by performance, for goods including, without limitation,
property sold, leased, licensed, assigned or otherwise disposed of, or services
rendered or to be rendered, including, without limitation, any Account and all
such rights constituting or evidenced by any Account, Chattel Paper, Instrument,
General Intangible, Payment Intangible, Investment Property, together with all
of the relevant Debtor’s rights, if any, in any goods or other property giving
rise to such payment and all Collateral Support and Supporting Obligations
related thereto and all Receivables Records.

 

3

--------------------------------------------------------------------------------

 

(k)                                 “Receivables Records” means (i) all
documents, instruments or other writings or electronic records or other Records
evidencing the Receivables, (ii) all books, correspondence, credit or other
files, Records, ledger sheets or cards, invoices and other papers relating to
Receivables, including, without limitation, all tapes, cards, computer tapes,
computer discs, computer runs, record keeping systems and other papers and
documents relating to the Receivables, whether in the possession or under the
control of Debtor or any computer bureau or agent from time to time acting for
Debtor or otherwise, (iii) all evidences of the filing of financing statements
and the registration of other instruments in connection therewith, and
amendments, supplements or other modifications thereto, notices to other
creditors or secured parties, and certificates, acknowledgments, or other
writings, including, without limitation, lien search reports, from filing or
other registration officers, (iv) all credit information, reports and memoranda
relating thereto and (v) all other written or non-written forms of information
related in any way to the foregoing or any Receivable.

 

(l)                                     “Secured Obligations” means
(i) collectively, all “Obligations” under and as defined in the Credit
Agreement, (ii) to the extent not otherwise included in clause (i), all
principal, interest (including, without limitation, interest accruing after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Debtor, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), and
all other charges, fees, premiums, indemnities and expenses payable by Debtor to
any Secured Party relating to any of the foregoing under this Agreement or any
other Loan Document, and (iii) to the extent not otherwise included in clauses
(i) or (ii), all costs, expenses and reasonable attorneys’ fees (including fees
of inside counsel) paid or incurred by the Administrative Agent at any time
before or after judgment in attempting to collect any of the foregoing, to
realize on any Collateral, and to enforce this Agreement.

 

(m)                             “Securities Act” means the Securities Act of
1933, as amended.

 

(n)                                 “Subsidiary” means, with respect to Debtor
at any date, (i) any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of Debtor in Debtor’s consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as
(ii) any other corporation, limited liability company, partnership, association
or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by Debtor or one or more Subsidiaries or by
Debtor and one or more Subsidiaries.

 

2.                                      As security for the due and punctual
payment and performance of the Secured Obligations in full, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the United States Bankruptcy Code (or
any successor provision)), Debtor hereby agrees that the Administrative Agent
shall have, and Debtor hereby grants to and creates in favor of the
Administrative Agent, for the ratable benefit of the Secured Parties, a Lien on
and security interest under the Code in and to the Collateral.

 

4

--------------------------------------------------------------------------------

 

The intent of the parties hereto is that the Collateral secures all Secured
Obligations, whether or not such Secured Obligations exist under this Agreement
or any of the other Loan Documents.

 

Notwithstanding anything herein to the contrary, in no event shall the security
interest granted hereunder attach to any lease, license, contract right,
property right or agreement to which Debtor is a party or any of its rights or
interests thereunder if and for so long as the grant of such security interest
shall constitute or result in (a) the abandonment, invalidation or
unenforceability of any right, title or interest of Debtor therein or (b) in a
breach or termination pursuant to the terms of, or a default under, any such
lease, license, contract, property rights or agreement (other than to the extent
that any such term would be rendered ineffective pursuant to Sections 9-406,
9-407, 9-408 or 9-409 of the Code (or any successor provision or provisions) of
any relevant jurisdiction or any other applicable law or principles of equity);
provided, however, that such security interest shall attach immediately at such
time as the condition causing such abandonment, invalidation, unenforceability,
other restriction or assignment shall be remedied and, to the extent severable,
shall attach immediately to any portion of such lease, license, contract,
property rights or agreement that does not result in any of the consequences
specified in (i) or (ii) including, without limitation, any proceeds of such
lease, license, contract, property rights or agreement.

 

3.                                      Notwithstanding anything herein to the
contrary, (a) Debtor shall remain liable under the leases, licenses, contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Administrative
Agent of any of its rights hereunder shall not release Debtor from any of its
duties or obligations under the licenses, contracts and agreements included in
the Collateral, and (c) the Administrative Agent shall not have any obligation
or liability under any license, contract or agreement included in the Collateral
by reason of this Agreement, nor shall the Administrative Agent be obligated to
perform any of the obligations or duties of Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.  Neither
the Administrative Agent nor any purchaser at a foreclosure sale under this
Agreement shall be obligated to assume any obligation or liability under any
license, contract or agreement included in the Collateral unless the
Administrative Agent or such purchaser expressly agrees in writing to assume any
or all of said obligations.

 

4.                                      Debtor represents and warrants to the
Administrative Agent that on the date hereof and on the date of each borrowing
under the Credit Agreement:

 

(a)                                 The execution, delivery and performance of
this Agreement (i) are within Debtor’s corporate or limited liability company
power and authority, as the case may be; (ii) have been duly authorized by
proper corporate or limited liability company action, as the case may be;
(iii) do not require the approval of any governmental agency, other entity or
person; and (iv) will not (A) violate (1) any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Debtor or any Subsidiary
or (2) Debtor’s or any Subsidiary’s articles or certificate of incorporation,
partnership agreement, certificate of partnership, articles or certificate of
organization, by laws, operating or other management agreement, or other
constitutive or organizing document, as the case may be, or (3) the provisions
of any material indenture, instrument or

 

5

--------------------------------------------------------------------------------

 

agreement to which Debtor or any Subsidiary is a party or is subject, or by
which it, or its property, is bound, or conflict with or constitute a default
hereunder or thereunder, or (B) result in, or require, the creation or
imposition of any Lien in, of or on the property of Debtor or any Subsidiary
pursuant to the terms of any such indenture, instrument or agreement.  This
Agreement constitutes the legal, valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms.

 

(b)                                 Debtor is the sole legal and beneficial
owner of the Collateral, and Debtor has, and will at all times during the term
of this Agreement have, good and marketable title to (or valid right in and the
power to transfer such rights) the Collateral, free and clear of all pledges,
Liens, claims, or encumbrances except for the security interest granted to the
Administrative Agent herein and Permitted Liens, and will have at all times full
right, power and authority to grant a security interest in the Collateral to the
Administrative Agent in the manner provided herein, free and clear of any lien,
security interest, adverse claims or other charges or encumbrances, except as
expressly permitted in the Loan Documents.

 

(c)                                  Upon the execution and delivery of this
Agreement and the filing of all related UCC-1 financing statements, the
Administrative Agent’s security interest in such Collateral conferred hereby
will be a valid, perfected, first priority security interest, subject to
Permitted Liens.  No effective financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any recording
office except such as may have been filed (i) in favor of the Administrative
Agent relating to this Agreement, or (ii) to perfect or protect any security
interest expressly permitted by the Loan Documents.

 

(d)                                 There are no restrictions upon the transfer
of any of the Collateral (except for restrictions expressly permitted by the
Loan Documents) and Debtor has the right to pledge and grant a security interest
in or otherwise transfer such Collateral owned by it free of any encumbrance or
right of third parties, except for the security interest granted to the
Administrative Agent herein and Permitted Liens.

 

(e)                                  Debtor is a corporation organized in the
State of Delaware, with chief executive office or sole place of business,
federal tax identification number (if applicable) and organizational
identification number (if applicable) as set forth in Schedule C.

 

(f)                                   As of the date hereof, Debtor’s exact full
legal name is, and for the previous five (5) years was, as set forth in the
first paragraph of this Agreement.  Except as set forth in Schedule C, Debtor
has not, during the past five (5) years preceding the date hereof: (i) been
known by or used any other corporate or fictitious name, (ii) other than in
connection with the transactions described in that certain Consent Agreement
dated July 16, 2012, among the Borrower, the Lenders and the Administrative
Agent (as amended, modified or supplemented from time to time, the “Consent
Agreement”), been a party to any merger or consolidation, (iii) other than in
connection with the transactions described in the Consent Agreement, acquired
all or substantially all of the assets of any Person, or (iv) acquired any of
its property outside of the ordinary course of business.  Except as set forth in
Schedule C, as of the date hereof, Debtor has no trade names or

 

6

--------------------------------------------------------------------------------

 

styles under which Debtor will create accounts receivable, or to which
instruments in payment of accounts receivable may be made payable.  As of the
date hereof, all goods constituting Collateral are located, and for the previous
five (5) years were located in the state of Colorado.

 

(g)                                  Neither the ownership or intended use of
the Collateral by Debtor, nor the grant of a security interest by Debtor to the
Administrative Agent herein, nor the exercise by the Administrative Agent of its
rights or remedies hereunder, will (i) violate (A) any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Debtor or any
Subsidiary (B) Debtor’s or any Subsidiary’s articles or certificate of
incorporation, partnership agreement, certificate of partnership, articles or
certificate of organization, by laws, operating or other management agreement,
or other constitutive or organizing document, as the case may be, or (C) the
provisions of any material indenture, instrument or agreement to which Debtor or
any Subsidiary is a party or is subject, or by which it, or its property, is
bound, or conflict with or constitute a default hereunder or thereunder (except
that the exercise by the Administrative Agent of its rights or remedies
hereunder may result in a default thereunder), or (ii) result in, or require,
the creation or imposition of any Lien in, of or on the property of Debtor or
any Subsidiary pursuant to the terms of any such indenture, instrument or
agreement.

 

(h)                                 No consent, approval, authorization or order
of, and no notice to or filing (other than UCC-1 financing statements) with any
court, governmental authority or third party is required in connection with, the
grant by Debtor of the security interest herein, or the exercise by the
Administrative Agent of its rights and remedies hereunder.

 

(i)                                     None of the Investment Property or
Equity Interests included in the Collateral are represented by certificates,
except for the capital stock in Borrower.  None of the Investment Property or
Equity Interests included in the Collateral constitutes “securities” as defined
in Article 8 of the Code.

 

(j)                                    All information supplied by Debtor with
respect to any of the Collateral (in each case taken as a whole with respect to
any particular Collateral) is accurate and complete in all respects.  All
Collateral is genuine and validly existing.  Except for items of insignificant
value or as otherwise reflected in writing by Debtor to the Administrative
Agent, Collateral constituting Inventory, Equipment and Fixtures is in good
condition, not obsolete and is either currently saleable or usable.  Except for
items of insignificant value or as otherwise reflected in writing by Debtor to
the Administrative Agent, each Account and each Receivable (i) is and will be
the legal, valid and binding obligation of the account debtor in respect
thereof, representing an unsatisfied obligation of such account debtor, (ii) is
and will be enforceable in accordance with its terms, (iii) is not and will not
be subject to any setoffs, defenses, taxes, counterclaims (except (A) with
respect to refunds, returns and allowances in the ordinary course of business
with respect to damaged merchandise, (B) discounts in the ordinary course for
prompt payment and (C) defenses arising under insolvency laws under proceedings
applicable to account debtors), (iv) is and will be in compliance with all
applicable laws, whether federal, state, local or foreign and (v) is not in
default.

 

7

--------------------------------------------------------------------------------

 

(k)                                 Schedule D sets forth a complete list of all
patents, applications for patents, trademark registrations, applications for
trademarks, service mark registrations, applications for service marks, mask
work registrations, trade dress registrations and applications, and copyright
registrations and applications for which Debtor or any Subsidiary is the
registered owner (the “Owned Intellectual Property”). Except as disclosed on
Schedule D, as of the date hereof (i) Debtor or the relevant Subsidiary owns the
Owned Intellectual Property of Debtor or the relevant Subsidiary free and clear
of all restrictions (including covenants not to sue a third party), court
orders, injunctions, decrees, writs or Liens, whether by written agreement or
otherwise, (ii) no Person other than Debtor or the relevant Subsidiary owns or
has been granted any right in the Owned Intellectual Property of Debtor or the
relevant Subsidiary, (iii) all material Owned Intellectual Property of Debtor or
the relevant Subsidiary is valid, subsisting and enforceable, in full force and
effect, and otherwise in compliance with all applicable legal requirements,
(iv) Debtor or the relevant Subsidiary has taken all action necessary to
maintain and protect the Owned Intellectual Property of Debtor or the relevant
Subsidiary, unless failure to take such action could not reasonably be expected
to result in a Material Adverse Effect, (v) Debtor or the relevant Subsidiary is
not bound by any agreement or other obligation that would limit the ability of
Debtor or such Subsidiary to use or enforce any of the Owned Intellectual
Property of Debtor or the relevant Subsidiary, and (vi) no Owned Intellectual
Property of Debtor or the relevant Subsidiary has been or is now involved in any
pending opposition or cancellation proceeding and, to the knowledge of Debtor or
the relevant Subsidiary, no such action is threatened with respect to any of the
Owned Intellectual Property of Debtor or the relevant Subsidiary.

 

(l)                                     Schedule D contains a complete list, as
of the date hereof, of all material agreements under which Debtor or any
Subsidiary has licensed Intellectual Property Rights from another Person
(“Licensed Intellectual Property”) other than readily available, non-negotiated
licenses of computer software and other intellectual property used solely for
performing accounting, word processing and similar administrative tasks
(“Off-the-shelf Software”).  Except as disclosed on Schedule D and in written
agreements, copies of which have been given to the Administrative Agent, as of
the date hereof, Debtor’s or such Subsidiary’s licenses to use the Licensed
Intellectual Property are free and clear of all restrictions (other than
anti-assignment provisions or other use restrictions therein), Liens, court
orders, injunctions, decrees, or writs, whether by written agreement or
otherwise.  Except as disclosed on Schedule D, as of the date hereof, neither
Debtor nor any Subsidiary is obligated or under any liability whatsoever to make
any payments of a material nature by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property Rights.

 

(m)                             Except as disclosed on Schedule D, as of the
date hereof, Debtor and each Subsidiary own or has a valid right to use all
Intellectual Property Rights necessary to conduct Debtor’s or any Subsidiary’s
business as it is presently conducted or as Debtor reasonably foresees
conducting it.

 

(n)                                 Except as disclosed on Schedule D, as of the
date hereof, Debtor has no knowledge of, and has not received any written claim
or notice alleging, any

 

8

--------------------------------------------------------------------------------

 

infringement of another Person’s Intellectual Property Rights (including any
written claim that Debtor or any Subsidiary must license or refrain from using
the Intellectual Property Rights of any third party) nor, to the knowledge of
Debtor, has there been any written threat of such claim.

 

5.                                      Debtor agrees as follows:

 

(a)                                 Debtor will faithfully preserve, protect and
defend the Administrative Agent’s security interest in the Collateral as a prior
perfected security interest under the Code, superior and prior to the rights of
all third Persons, except for holders of Permitted Liens, and will do all such
other acts and things and will, upon request therefor by the Administrative
Agent, execute, deliver, file and record, and Debtor hereby authorizes the
Administrative Agent to so file, all such other documents and instruments,
including, without limitation, financing statements, security agreements,
assignments and documents and powers of attorney with respect to the Collateral,
and pay all filing fees and taxes related thereto, as the Administrative Agent
in its reasonable discretion may deem necessary or advisable from time to time
in order to attach, continue, preserve, perfect, and protect said security
interest (including the filing at any time or times after the date hereof of
financing statements under, and in the locations advisable pursuant to, the
Code), and Debtor hereby irrevocably appoints the Administrative Agent, its
officers, employees and agents, or any of them, as attorneys-in-fact for Debtor
to execute, deliver, file and record such items for Debtor and in Debtor’s name,
place and stead.  This power of attorney, being coupled with an interest, shall
be irrevocable for the life of this Agreement.  Debtor shall pay all costs and
expenses relating to the preservation, protection and defense of the
Administrative Agent’s security interest in the Collateral in accordance with
this Section 5.

 

6.                                      Debtor covenants and agrees as follows:

 

(a)                                 Debtor will keep accurate and complete books
and records concerning the Collateral (including, without limitation, all
documentation with respect to all Receivables and records of all payments
received and all credits granted on the Receivables, all merchandise returned
and all other dealings therewith), as required under GAAP and as approved by the
Administrative Agent.  Except for purposes of payment and enforcement in the
ordinary course of business, Debtor shall not deliver any Chattel Paper or
negotiable instruments to any Person other than the Administrative Agent (or its
agent or designee).  Not later than five (5) days following a request of the
Administrative Agent, Debtor shall deliver (or cause to be delivered) to the
Administrative Agent (or its agent or designee) originally executed copies of
Chattel Paper and Instruments, in amounts exceeding $100,000 individually or
$200,000 in the aggregate appropriately indorsed to the Administrative Agent or
indorsed in blank or subjected to the control of the Administrative Agent.

 

(b)                                 Debtor shall perform in all material
respects all of its obligations with respect to the Collateral.  Debtor shall
not alter, modify, discount, extend, renew or cancel any Collateral, except for
(i) changes in the ordinary course of business, (ii) repairs and other
modifications following casualty losses, (iii) sales and other dispositions of
Collateral permitted by the Credit Agreement and (iv) other changes that, 
individually or in the aggregate, do not materially affect the value of the
Collateral when considered as a whole.  Debtor shall promptly

 

9

--------------------------------------------------------------------------------

 

notify the Administrative Agent in writing of any material adverse change in the
condition of the Collateral.

 

(c)                                  Except as otherwise provided in this
subsection 6(c), Debtor shall continue to collect all amounts due or to become
due to Debtor under the Receivables and any Supporting Obligation and diligently
exercise such material rights it may have under any Receivable, any Supporting
Obligation or Collateral Support (except where failure to do so could not be
reasonably expected to result in a Material Adverse Effect), in each case, at
its own expense, and in connection with such collections and exercise, if an
Event of Default has occurred and is continuing, Debtor shall take such action
as the Administrative Agent may deem necessary or advisable.  Notwithstanding
the foregoing, if an Event of Default has occurred and is continuing, the
Administrative Agent shall have the right at any time to require Debtor to
notify any account debtor of the Administrative Agent’s security interest in the
Receivables and any Supporting Obligation and, in addition, at any time
following the occurrence and during the continuance of an Event of Default, the
Administrative Agent may (without notice to or the consent of Debtor):
(i) notify, or require Debtor to notify, the account debtors under any
Receivables to make payment of all amounts due or to become due to Debtor
thereunder directly to the Administrative Agent (until such account debtors are
so directed, Debtor, as agent of the Administrative Agent, shall make
collections on such Receivables); and (ii) enforce, at the expense of Debtor,
collection of any such Receivables and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as Debtor
might have done.

 

(d)                                 If any material amount of Receivables arose
out of contracts with the United States or any of its departments, agencies or
instrumentalities, Debtor shall promptly notify the Administrative Agent and
execute any documents or writings reasonably required by the Administrative
Agent so that all money due or to become due under such contracts shall be
assigned to the Administrative Agent under the Federal Assignment of Claims Act.

 

(e)                                  If Debtor shall at any time elect to file
or otherwise pursue any legal action (including by lawsuit, counterclaim,
arbitration or other proceeding) in respect of a commercial tort claim involving
potential recoveries by Debtor in excess of $100,000, as defined in the Code,
Debtor shall promptly notify the Administrative Agent in a writing signed by
Debtor of the details thereof and grant to the Administrative Agent in such
writing a security interest therein and in the proceeds thereof, with such
writing to be in forms and substance satisfactory to the Administrative Agent
and such writing shall constitute a supplement to Schedule B hereto.

 

(f)                                   Except (i) with the prior written consent
of the Administrative Agent and (ii) for Permitted Liens, Debtor shall not
authorize, and there will not be on file in any public office, any financing
statement or other document or instruments naming Debtor as a debtor, except
financing statements or other documents or instruments filed or to be filed in
favor of the Administrative Agent.  Debtor hereby authorizes the Administrative
Agent to, at any time and from time to time, file in any one or more
jurisdictions financing statements that describe the Collateral (including a
description that describes Collateral as “all assets”, it being understood that
while Debtor authorizes the filing to contain such a description, such
authorization is not intended to alter the actual definition of Collateral
contained herein, if different), together with continuation statements thereof
and amendments thereto, without the signature of Debtor and which contain any
information required by the Code or any other applicable statute applicable to

 

10

--------------------------------------------------------------------------------

 

such jurisdiction for the sufficiency or filing office acceptance of any
financing statements, continuation statements, or amendments.  Debtor agrees to
furnish any such information to the Administrative Agent promptly upon request.

 

(g)                                  Debtor will not allow any of its
Subsidiaries that is (i) a corporation, business trust, joint stock company or
similar Person, to issue uncertificated securities; or (ii) a partnership,
limited partnership or limited liability company, to (A) issue capital
securities that are to be dealt in or traded on securities exchanges or in
securities markets, (B) expressly provide in its constitutive documents that its
capital securities are securities governed by Article 8 of the Code, or
(C) place such capital securities in a securities account.

 

(h)                                 Debtor shall cooperate with the
Administrative Agent in obtaining control (for purpose of perfection under the
Code) of Collateral consisting of Deposit Accounts, Investment Property,
Letter-of-Credit Rights, Electronic Chattel Paper and any other Collateral where
the Administrative Agent may obtain perfection by control.  Without limiting the
foregoing, with respect to any Investment Property (other than certificated
securities) owned by Debtor, Debtor will, upon reasonable request by the
Administrative Agent, cause an agreement (a “Control Agreement”) in form and
substance satisfactory to the Administrative Agent which provides for the
Administrative Agent to have “control” (as defined in Section 8-106 of the Code,
as such term relates to Investment Property (other than certificated securities
or commodity contracts), or as used in Section 9-106 of the Code, as such term
relates to commodity contracts), to be executed and delivered by Debtor and the
applicable financial intermediary in favor of the Administrative Agent.

 

(i)                                     Debtor will promptly deliver to
Administrative Agent each certificate or other evidence of ownership of any
Investment Property (including certificated securities) that at any time has
value exceeding $100,000 individually (or $250,000 in the aggregate), either now
owned or hereafter obtained by Debtor, and Debtor agrees that all certificated
securities delivered by Debtor pursuant to this Agreement will be accompanied by
duly executed undated blank stock powers, or other equivalent instruments of
transfer, acceptable to the Administrative Agent.

 

(j)                                    Debtor shall not (i) change its location
as defined in any applicable Code, or the office where it keeps its records on
the date hereof, unless it shall have given the Administrative Agent not less
than 30 days prior written notice thereof, or (ii) make any change to its form
of organization, or (iii) make any change to its legal name.

 

(k)                                 Debtor shall furnish to the Administrative
Agent any information that the Administrative Agent may from time to time
reasonably request concerning any covenant, provision or representation
contained herein or any other matter in connection with the Collateral or the
Loan Documents, including without limitation, a statement certified by Debtor in
such form and containing such information as may be prescribed by the
Administrative Agent showing the current status and value of the Collateral.

 

(l)                                     Debtor shall at any time and from time
to time take such steps as the Administrative Agent may reasonably request as
are necessary for the Administrative Agent to

 

11

--------------------------------------------------------------------------------

 

insure the continued perfection of the Administrative Agent’s security interest
in the Collateral with the same priority required hereby and the preservation of
its rights therein.

 

(m)                             Debtor shall, and shall cause any relevant
Subsidiary of Debtor to, (i) own the Owned Intellectual Property of Debtor or
such Subsidiary free and clear of all restrictions (including covenants not to
sue a third party), court orders, injunctions, decrees, writs or Liens, whether
by written agreement or otherwise, unless such restriction could not reasonably
be expected to result in a Material Adverse Effect, (ii) take all action
necessary to maintain and protect the Owned Intellectual Property of Debtor or
such Subsidiary (including, without limitation, causing all material Owned
Intellectual Property of Debtor or such Subsidiary to be valid, subsisting and
enforceable, in full force and effect, and otherwise in compliance with all
applicable legal requirements), unless failure to take such action could not
reasonably be expected to result in a Material Adverse Effect, (iii) not be
bound by any agreement or other obligation that would limit the ability of
Debtor or such Subsidiary to use or enforce any of the Owned Intellectual
Property of Debtor or such Subsidiary, other than agreements in effect and
disclosed to the Administrative Agent as of the date of this Agreement, unless
such limitation could not reasonably be expected to result in a Material Adverse
Effect, (iv) not grant any right in the Owned Intellectual Property of Debtor or
such Subsidiary, except for licenses granted in the ordinary course of business
that could not reasonably be expected to result in a Material Adverse Effect,
(v) in the event Debtor or such Subsidiary is granted a license to use the
Licensed Intellectual Property (other than Off-the-shelf Software and Licensed
Intellectual Property that is not material to the business or operations of
Debtor or such Subsidiary), cause such license to be free and clear of all
restrictions (other than anti-assignment provisions or other use restrictions
therein), Liens, court orders, injunctions, decrees, or writs, whether by
written agreement or otherwise (except as disclosed in written agreements,
copies of which shall be given to the Administrative Agent), unless such
restriction could not reasonably be expected to result in a Material Adverse
Effect, (vi) own or have a valid right to use all Intellectual Property Rights
necessary to conduct Debtor’s or such Subsidiary’s business as it is presently
conducted or as Debtor reasonably foresees conducting it, (vii) notify the
Administrative Agent of any written claim or notice alleging any infringement of
another Person’s Intellectual Property Rights (including any written claim that
Debtor or such Subsidiary must license or refrain from using the Intellectual
Property Rights of any third party) immediately after Debtor or such Subsidiary
receives such written claim or notice, unless such infringement could not
reasonably be expected to result in a Material Adverse Effect and
(viii) promptly upon request therefor, execute and deliver to the Administrative
Agent such documents and instruments requested by the Administrative Agent for
filing with the United States Patent and Trademark Office and/or the United
States Copyright Office, or with such other applicable Governmental Authority,
in connection with the Administrative Agent’s security interest in the
Collateral, including without limitation the Owned Intellectual Property, all
appropriately completed and duly executed by each relevant Person and, where
appropriate, notarized.

 

7.                                      Debtor assumes full responsibility for
taking any and all necessary steps to preserve the Administrative Agent’s first
priority Lien on and security interest in the Collateral against all Persons,
subject only to any superior rights in respect of a Permitted Lien.  The powers
conferred on the Administrative Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers.  Except for the safe custody of any Collateral in its possession
and the accounting for moneys actually received by it

 

12

--------------------------------------------------------------------------------

 

hereunder, the Administrative Agent shall have no duty as to any Collateral or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral.  The Administrative Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Administrative Agent
takes such action for that purpose substantially similar to actions the
Administrative Agent takes with respect to its own property.

 

8.                                      (a)                                 At
any time and from time to time whether or not an Event of Default then exists
and without prior notice to or consent of Debtor, the Administrative Agent may
at its option take such actions as the Administrative Agent deems appropriate
(i) to attach, perfect, continue, preserve and protect the Administrative
Agent’s first priority security interest in or Lien on the Collateral, and/or
and (ii) to inspect, audit and verify the Collateral, including reviewing all of
Debtor’s books and records and copying and making excerpts therefrom, at any
reasonable time and as often as the Administrative Agent may reasonably desire;
provided that greater restrictions may be placed on the same pursuant to the
Guaranty or the Credit Agreement.

 

(b)                                 At any time and from time to time after an
Event of Default exists and is continuing and without prior notice to or consent
of Debtor, the Administrative Agent may at its option take such action as the
Administrative Agent deems appropriate (i) to maintain, repair, protect and
insure the Collateral, and/or (ii) to perform, keep, observe and render true and
correct any and all covenants, agreements, representations and warranties of
Debtor hereunder, and (iii) to add all liabilities, obligations, costs and
expenses reasonably incurred in connection with the foregoing clauses (i) and
(ii) to the Secured Obligations, to be paid by the Debtor to the Administrative
Agent upon demand.

 

9.                                      Debtor hereby irrevocably appoints the
Administrative Agent as Debtor’s attorney-in-fact, with full authority in the
place and stead of Debtor and in the name of Debtor or otherwise, from time to
time, upon the occurrence of an Event of Default or any event with which the
passage of time or giving of notice would become an Event of Default, to take
action and to execute any instrument that the Administrative Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:

 

(a)                                 to ask for, demand, collect, sue for,
recover, compromise, receive and give acquittance and receipts for money due and
to become due under or in respect of any of the Collateral,

 

(b)                                 to receive, indorse and collect any drafts
or other instruments or documents, in connection with clause (a) above, and

 

(c)                                  to file any claims or take any action or
institute any proceedings that the Administrative Agent may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
the rights of the Administrative Agent with respect to any of the Collateral.

 

13

--------------------------------------------------------------------------------

 

10.                               After there exists any Event of Default:

 

(a)                                 The Administrative Agent shall have and may
exercise all the rights and remedies available to a Administrative Agent under
the Code in effect at the time, and such other rights and remedies as may be
provided by law and as set forth below, including without limitation to take
over and collect all of Debtor’s Collateral, and to this end Debtor hereby
appoints the Administrative Agent, its officers, employees and agents, as its
irrevocable, true and lawful attorneys-in-fact with all necessary power and
authority to (i) take possession immediately, with or without notice, demand, or
legal process, of any of or all of the Collateral wherever found, and for such
purposes, enter upon any premises upon which the Collateral may be found and
remove the Collateral therefrom, (ii) require Debtor to assemble its Collateral
and deliver it to the Administrative Agent or to any place designated by the
Administrative Agent at Debtor’s expense, (iii) receive, open and dispose of all
mail addressed to Debtor and notify postal authorities to change the address for
delivery thereof to such address as the Administrative Agent may designate,
(iv) demand payment of the Receivables, (v) enforce payment of the Receivables
by legal proceedings or otherwise, (vi) exercise all of Debtor’s rights and
remedies with respect to the collection of the Receivables, (vii) settle,
adjust, compromise, extend or renew the Receivables, (viii) settle, adjust or
compromise any legal proceedings brought to collect the Receivables, (ix) to the
extent permitted by applicable law, sell or assign the Collateral upon such
terms, for such amounts and at such time or times as the Administrative Agent
deems advisable, (x) discharge and release the Receivables, (xi) take control,
in any manner, of any item of payment or proceeds from any account debtor,
(xii) prepare, file and sign Debtor’s name on any proof of claim in any
bankruptcy or similar proceeding or similar document against any account debtor,
(xiii) prepare, file and sign Debtor’s name on any notice of lien, assignment or
satisfaction of lien or similar document in connection with the Collateral,
(xiv) do all acts and things necessary, in the Administrative Agent’s sole
discretion, to fulfill Debtor’s obligations to the Administrative Agent under
this Agreement, the Guaranty, the other Loan Documents or otherwise,
(xv) endorse the name of Debtor upon any check, Chattel Paper,
Document, Instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Collateral; (xvi) use Debtor’s stationery and sign
Debtor’s name to verifications of the Collateral and notices thereof to account
debtors; (xvii) access and use the information recorded on or contained in any
data processing equipment or computer hardware or software relating to the
Collateral or products or proceeds thereof to which Debtor has access,
(xviii) demand, sue for, collect, compromise and give acquittances for any and
all Collateral, (xix) prosecute, defend or compromise any action, claim or
proceeding with respect to any of the Collateral, and (xx) take such other
action as the Administrative Agent may deem appropriate, including extending or
modifying the terms of payment of Debtor’s debtors.  This power of attorney,
being coupled with an interest, shall be irrevocable for the life of this
Agreement.  Debtor hereby waives all claims of damages due to or arising from or
connected with any of the rights or remedies exercised by the Administrative
Agent pursuant to this Agreement, except claims for physical damage to the
Collateral arising from gross negligence, bad faith or willful misconduct by the
Administrative Agent.

 

(b)                                 The Administrative Agent shall have the
right to lease, sell or otherwise dispose of all or any of the Collateral at
public or private sale or sales for cash, credit or any combination thereof,
with such notice as may be required by law (it being agreed by Debtor that, in
the absence of any contrary requirement of law, ten (10) days’ prior notice of a
public or private sale of Collateral shall be deemed reasonable notice), in lots
or in bulk, for cash or on credit, all as the Administrative Agent, in its sole
discretion, may deem advisable.  Such sales

 

14

--------------------------------------------------------------------------------

 

may be adjourned from time to time with or without notice.  The Administrative
Agent shall have the right to conduct such sales on either Debtor’s premises or
elsewhere and shall have the right to use either Debtor’s premises without
charge for such sales for such time or times as the Administrative Agent may see
fit.  The Administrative Agent may purchase all or any part of the Collateral at
public or, if permitted by law, private sale and, in lieu of actual payment of
such purchase price, may set off the amount of such price against the Secured
Obligations.  The Administrative Agent may disclaim warranties of title,
possession, quiet enjoyment and the like, and such disclaimers shall not make
any such sale or disposition commercially unreasonable.

 

(c)                                  Debtor, at its cost and expense (including
the cost and expense of any of the following referenced consents, approvals
etc.) will promptly execute and deliver or cause the execution and delivery of
all applications, certificates, instruments, registration statements, and all
other documents and papers the Administrative Agent may request after the
occurrence of an Event of Default in connection with the obtaining of any
consent, approval, registration, qualification, permit, license, accreditation,
or authorization of any other official body or other Person necessary or
appropriate for the effective exercise of any rights hereunder or under the
other Loan Documents.  Without limiting the generality of the foregoing, Debtor
agrees that in the event the Administrative Agent shall exercise its rights
hereunder or pursuant to the other Loan Documents after the occurrence of an
Event of Default, to sell, transfer, or otherwise dispose of, or vote, consent,
operate, or take any other action in connection with any of the Collateral,
Debtor shall execute and deliver (or cause to be executed and delivered) all
stock powers, applications, certificates, assignments and other documents that
the Administrative Agent requests to facilitate such actions and shall otherwise
promptly, fully, and diligently cooperate with the Administrative Agent and any
other Persons in making any application for the prior consent or approval of any
official body or any other Person to the exercise by the Administrative Agent or
any such rights relating to all or any of the Collateral.

 

(d)                                 Debtor agrees, promptly following any notice
therefor by the Administrative Agent, (i) to deliver (properly endorsed where
required hereby or requested by Administrative Agent) to the Administrative
Agent all Dividends and Distributions with respect to Investment Property, any
Equity Interests and all proceeds of the Collateral, in each case thereafter
received by Debtor, all of which shall be held by Administrative Agent as
additional Collateral (and until delivery to the Administrative Agent, to be
held by Debtor separate and apart from its other property in trust for the
Administrative Agent); and (ii) with respect to Collateral consisting of general
partner interests or limited liability company interests, to make modifications
to all necessary documents to admit the Administrative Agent as a general
partner or member, respectively.

 

(e)                                  Debtor agrees, promptly following any
notice therefor by the Administrative Agent, that the Administrative Agent may
exercise (to the exclusion of the relevant Debtor) the voting power and all
other incidental rights of ownership with respect to any Collateral constituting
Investment Property or any Equity Interests and Debtor hereby grants
Administrative Agent an irrevocable proxy, exercisable under such circumstances,
to vote such Investment Property and Equity Interests, and the relevant Debtor
shall promptly deliver to the Administrative Agent such additional proxies and
other documents as may be necessary to allow the Agent to exercise such voting
power.

 

15

--------------------------------------------------------------------------------

 

11.                               (a)                                 With
respect to any Subsidiary (the equity securities of which are or are required to
be pledged hereunder) of Debtor that is a corporation, business trust, joint
stock company or similar Person, all capital securities issued by such
Subsidiary are duly authorized and validly issued, fully paid and non
assessable, and represented by one or more certificates.

 

(b)                                 Debtor agrees that all certificated
securities delivered, or caused to be delivered, by Debtor pursuant to this
Agreement will be accompanied by duly executed undated blank stock powers, or
other equivalent instruments of transfer acceptable to the Administrative Agent.

 

(c)                                  Debtor will deliver to the Administrative
Agent and at all times keep pledged to the Administrative Agent pursuant hereto,
on a first priority, perfected basis all Investment Property and Equity
Interests constituting Collateral, all Dividends and Distributions with respect
thereto, and all proceeds and rights from time to time received by or
distributable to Debtor in respect of any of the foregoing Collateral.

 

12.                               (a)                                 Debtor
hereby acknowledges that the sale by Administrative Agent of any Investment
Property or any Equity Interests pursuant to the terms hereof in compliance with
the Securities Act, as well as applicable “Blue Sky” or other state securities
laws may require strict limitations as to the manner in which Administrative
Agent or any subsequent transferee of the Investment Property or any Equity
Interests may dispose thereof.  Debtor acknowledges and agrees that, to protect
Administrative Agent’s interests, it may be necessary to sell the Investment
Property or Equity Interests at a price less than the maximum price attainable
if a sale were delayed or made in another manner, such as a public offering
under the Securities Act.  Debtor has no objection to a sale in such manner, and
Debtor agrees that Administrative Agent does not have an obligation to obtain
the maximum possible price for all or any part of the Investment Property or any
Equity Interests.  Without limiting the generality of the foregoing, Debtor
agrees that Administrative Agent may, pursuant to the terms hereof and subject
to applicable law, from time to time attempt to sell all or any part of the
Investment Property or any Equity Interests by a private placement, restricting
the bidders and prospective purchasers to those Persons who will represent and
agree that they are purchasing for investment only and not for distribution.  In
so doing, Administrative Agent may solicit offers to buy the Investment Property
or any part thereof, or any Equity Interests or any part thereof, for cash from
a limited number of investors deemed by Administrative Agent, in its reasonable
judgment, to be institutional investors or other responsible Persons who might
be interested in purchasing the Investment Property or any Equity Interests.  If
Administrative Agent shall solicit such offers, then acceptance by
Administrative Agent of one of the offers shall be deemed to be consistent with
a commercially reasonable method of disposition of the Collateral.

 

(b)                                 In addition, Debtor agrees that, upon
request of the Administrative Agent, Debtor will, at its own expense,
(i) execute and deliver, and cause each issuer of the Investment Property or any
Equity Interests contemplated to be sold to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts and
things, as may be necessary or, in the opinion of the Administrative Agent,
advisable to register such Investment Property or Equity Interests under the
provisions of the Securities Act, and use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be furnished,
and to make all amendments and

 

16

--------------------------------------------------------------------------------

 

supplements thereto and to the related prospectus which, in the reasonable
opinion of the Administrative Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the United States Securities and Exchange Commission applicable
thereto; (ii) use its best efforts to exempt the Investment Property and any
Equity Interests under the state securities or “Blue Sky” laws and to obtain all
necessary governmental approvals for the sale of the Investment Property or any
Equity Interests, as requested by the Administrative Agent; (iii) cause each
issuer of the Investment Property or any Equity Interests contemplated to be
sold to make available to its security holders, as soon as practicable, an
earnings statement that will satisfy the provisions of Section 11(a) of the
Securities Act; and (iv) do or cause to be done all such other acts and things
as may be necessary to make such sale of the Investment Property or any part
thereof, or any Equity Interests or any part thereof, valid and binding and in
compliance with applicable law.

 

13.                               In addition to, and without limitation of, any
rights of Administrative Agent or any of the other Secured Parties under this
Agreement, any of the other Loan Documents and applicable law, if Debtor becomes
insolvent, however evidenced, or any Event of Default occurs, any and all
deposits (including all account balances, whether provisional or final and
whether or not collected or available) and any other Indebtedness at any time
held or owing by any of the Secured Parties or any Affiliate of any of the
Secured Parties to or for the credit or account of Debtor may, without prior
notice to Debtor, be offset and applied toward the payment of the Secured
Obligations owing to such Secured Party, whether or not the Secured Obligations,
or any part thereof, shall then be due.  This right of setoff may be enforced or
exercised by any of the Secured Parties (or the Administrative Agent, on behalf
of the other Secured Parties) regardless of whether or not such Secured Party
has made any demand under this Section 13 or whether the Secured Obligations are
contingent, matured, or unmatured.  Any delay, neglect or conduct by any of the
Secured Parties (or the Administrative Agent, on behalf of the other Secured
Parties) in exercising its rights under this Section 13 will not be a waiver of
the right to exercise this right of setoff.

 

14.                               All rights of Administrative Agent and all
obligations of Debtor under this Agreement shall be absolute and unconditional,
irrespective of (i) any lack of validity or enforceability of the other Loan
Documents; (ii) any exchange, release or nonperfection of any portion of the
Collateral; (iii) any change in the time, manner or place of payment of, or
other term of, or any portion of Debtor’s or any other obligor’s obligations
under the Loan Documents; or (iv) any other amendment, modification, extension
or waiver of, or consent to any departure from, the Loan Documents.  In the
event that the proceeds of any sale, collection or realization of or upon the
Collateral by or on behalf of Administrative Agent are insufficient to pay all
amounts to which Administrative Agent is legally entitled under the Loan
Documents, Debtor shall remain liable to the Administrative Agent for and shall
pay to the Administrative Agent any deficiency, together with interest thereon
as provided in the Credit Agreement or (if no interest is so provided) at such
other rate as shall be fixed by applicable law, together with the costs of
collection and the fees and expenses of any attorneys employed by Administrative
Agent to collect such deficiency, which may remain after such sale, collection
or realization.  This Agreement shall continue to be effective or be reinstated,
as the case may be, if at any time any payment of any of the Secured Obligations
is rescinded or must otherwise be returned by the Administrative Agent or any of
the other Secured Parties or by any other Person upon the insolvency, bankruptcy
or reorganization of Debtor, the Borrower, any other Subsidiary of either

 

17

--------------------------------------------------------------------------------

 

Debtor or any other Person, or any other similar action or proceeding or
otherwise, all as though such payment had not been made.

 

15.                               If the Administrative Agent repossesses or
seeks to repossess any of the Collateral pursuant to the terms hereof because of
the occurrence of an Event of Default, then to the extent it is commercially
reasonable for the Administrative Agent to store any Collateral on any of
Debtor’s premises, Debtor hereby agrees to lease to the Administrative Agent on
a month-to-month tenancy for a period not to exceed one hundred twenty (120)
days at the Administrative Agent’s election, at a rental of One Dollar ($1.00)
per month, the premises on which such Collateral is located, provided it is
located on premises owned or leased by Debtor.

 

16.                               Upon payment or satisfaction in full of the
Secured Obligations and the termination of the Commitments, this Agreement shall
terminate and be of no further force and effect, and the Administrative Agent
shall return to Debtor such of the Collateral and such other documents delivered
by Debtor hereunder as may then be in the Administrative Agent’s possession,
subject to the rights of third parties, and without recourse, warranty or
representation to or by Administrative Agent.  Until such time, however, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.

 

17.                               No failure or delay on the part of the
Administrative Agent in exercising any right, remedy, power or privilege
hereunder shall operate as a waiver thereof or of any other right, remedy, power
or privilege of the Administrative Agent hereunder; nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.  No waiver of a single Event of Default shall be deemed a
waiver of a subsequent Event of Default.  The rights and remedies of the
Administrative Agent under this Agreement are cumulative and in addition to any
rights or remedies which it may otherwise have, and the Administrative Agent may
enforce any one or more remedies hereunder successively or concurrently at its
option.

 

18.                               No amendment or waiver of any provision of
this Agreement, and no consent to any departure by Debtor therefrom, shall be
effective unless in writing signed by the Administrative Agent and the relevant
Debtor, and each such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

 

19.                               All notices, statements, requests and demands
given to or made upon either party hereto in accordance with the provisions of
this Agreement shall be given or made as provided in the Credit Agreement.

 

20.                               This Agreement shall be binding upon and inure
to the benefit of the Administrative Agent, and Debtor and each of its
respective successors and assigns, except that Debtor may not assign or transfer
its obligations hereunder or any interest herein without the prior written
consent of the Administrative Agent.  Nothing herein, however, is intended to
modify the prohibitions on assignment contained in the Credit Agreement or the
Guaranty.

 

21.                               (a)  THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT OF LAWS

 

18

--------------------------------------------------------------------------------

 

PROVISIONS) OF THE STATE OF COLORADO, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.

 

(b) DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON EXCLUSIVE
JURISDICTION OF (i) ANY UNITED STATES FEDERAL OR COLORADO STATE COURT SITTING IN
DENVER, COLORADO AND (ii) THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN
NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT
OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND DEBTOR HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY
OTHER SECURED PARTY TO BRING PROCEEDINGS AGAINST DEBTOR IN THE COURTS OF ANY
OTHER JURISDICTION.

 

(c)  DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN PARAGRAPH
(b) OF THIS SECTION.  DEBTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

(d)  DEBTOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT,
ACTION OR PROCEEDING IN ANY OF THE ABOVE-MENTIONED COURTS BY THE MAILING THEREOF
BY THE ADMINISTRATIVE AGENT OR ANY OF THE OTHER SECURED PARTIES BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF COLORADO, AT ITS ADDRESS SPECIFIED IN SECTION 19.  NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY OF THE OTHER
SECURED PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

22.                               Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

23.                               DEBTOR HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER

 

19

--------------------------------------------------------------------------------

 

BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  DEBTOR CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER.  THIS PROVISION IS A MATERIAL INDUCEMENT TO
ADMINISTRATIVE AGENT AND THE OTHER SECURED PARTIES TO PROVIDE THE FINANCING
DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS.

 

24.                               Debtor represents and warrants that it has
consulted with its legal counsel regarding all waivers under this Agreement,
including without limitation those under Sections 21 and 23 hereof.

 

25.                               The Administrative Agent has been appointed as
administrative agent for the Lenders hereunder pursuant to Article VIII of the
Credit Agreement.  It is expressly understood and agreed by the parties to this
Agreement that any authority conferred upon the Administrative Agent hereunder
is subject to the terms of the delegation of authority made by the Lenders to
the Administrative Agent pursuant to the Credit Agreement, and that the
Administrative Agent has agreed to act (and any successor Administrative Agent
shall act) as such hereunder only on the express conditions contained in such
Article VIII.  Any successor administrative agent appointed pursuant to
Article VIII of the Credit Agreement shall be entitled to all the rights,
interests and benefits of the Administrative Agent hereunder.

 

26.                               If any of the Collateral shall be sold or
otherwise disposed of in a transaction expressly permitted by the Credit
Agreement, then the Administrative Agent, at the reasonable request and sole
expense of Debtor, shall execute and deliver to Debtor all releases or other
documents the Administrative Agent deems reasonably necessary or desirable for
the release of the Liens created hereby on such Collateral.

 

27.                               This Agreement may be executed in any number
of counterparts, and by different parties hereto in separate counterparts, each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same instrument.  Debtor acknowledges
and agrees that a facsimile transmission to the Administrative Agent of the
signature pages hereof purporting to be signed on behalf of Debtor shall
constitute effective and binding execution and delivery hereof by Debtor.

 

EXECUTION PAGE FOLLOWS

 

20

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Agreement as of the day and year
first above set forth.

 

 

 

DEBTOR:

 

 

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.,

 

a Delaware corporation

 

 

 

 

 

By:

 

 

 

Kemper Isely, Co-President

 

 

 

 

 

 

 

ADMINISTRATIVE AGENT:

 

 

 

JPMORGAN CHASE BANK, N.A.,

 

as Administrative Agent

 

 

 

 

 

By:

 

 

 

Nancy Broome, Senior Vice President

 

EXECUTION PAGE—NATURAL GROCERS BY VITAMIN COTTAGE, INC. PLEDGE AND SECURITY
AGREEMENT

 

--------------------------------------------------------------------------------

 

SCHEDULE A

TO

PLEDGE AND SECURITY AGREEMENT

 

DEPOSIT ACCOUNTS

 

All accounts of Debtor at any bank of Administrative Agent or any Affiliate.

 

--------------------------------------------------------------------------------

 

SCHEDULE B

TO

PLEDGE AND SECURITY AGREEMENT

 

COMMERCIAL TORT CLAIMS

 

NONE.

 

--------------------------------------------------------------------------------

 

SCHEDULE C

TO

PLEDGE AND SECURITY AGREEMENT

 

1)                                     Chief Executive Office or Sole Place of
Business:

 

12612 W Alameda Parkway, Lakewood, CO 80228

 

2)                                     Federal Tax Identification Number (if
applicable):

 

45-5034161

 

3)                                     Organizational Identification Number (if
applicable):

 

5132404

 

4)                                     Trade Names (if any):

 

None.

 

--------------------------------------------------------------------------------

 

SCHEDULE D

TO

 PLEDGE AND SECURITY AGREEMENT

 

INTELLECTUAL PROPERTY

 

Domain names:

 

www.naturalgrocers.com

www.vitamincottage.com

retaixpres.com

 

Registered United States Patents:

 

None.

 

Registered United States Trademarks or Service Marks:

 

Vitamin Cottage, Natural Grocers and Natural Grocers®

Natural Grocers By Vitamin Cottage®

Vitamin Cottage Natural Grocers®

Vitamin Cottage®

Health Hotline®

 

Pending United States Patent Applications:

 

None.

 

Pending United States Trademark or Service Mark Applications:

 

Nutritional Health CoachSM

EDAP — Every Day Affordable PricesSM

Your Real Natural Food StoreSM

 

Licenses to Intellectual Property:

 

Right to use trademarks, trade names, service marks and goodwill granted by VC
Two to Borrower.

 

--------------------------------------------------------------------------------

 

EXHIBIT C

to Eleventh Amendment to Credit Agreement

 

SCHEDULE E TO SECURITY AGREEMENT

 

INTELLECTUAL PROPERTY

 

Domain names:

 

www.naturalgrocers.com

www.vitamincottage.com

retaixpres.com

 

Registered United States Patents:

 

None.

 

Registered United States Trademarks or Service Marks:

 

Vitamin Cottage, Natural Grocers and Natural Grocers®

Natural Grocers By Vitamin Cottage®

Vitamin Cottage Natural Grocers®

Vitamin Cottage®

Health Hotline®

 

Pending United States Patent Applications:

 

None.

 

Pending United States Trademark or Service Mark Applications:

 

Nutritional Health CoachSM

EDAP — Every Day Affordable PricesSM

Your Real Natural Food StoreSM

 

Licenses to Intellectual Property:

 

Right to use trademarks, trade names, service marks and goodwill granted by VC
Two to Borrower.

 

--------------------------------------------------------------------------------

 

Commitments

 

SCHEDULE 2.01

 

Commitments

 

JPMorgan Chase Bank, N.A.

 

$

15,000,000

 

 

--------------------------------------------------------------------------------