Exhibit 10.1



 


 


 


 


 


LOAN AND SECURITY AGREEMENT


 


 


 


 


 


 


BANK OF AMERICA, N.A.


THE AGENT


FOR THE LENDERS PARTY HERETO


 


 


 


 


 


 


WILD OATS MARKETS, INC.


AS BORROWER


 


 


 


 


 


MARCH 31, 2005


 


 


TABLE OF CONTENTS


	ARTICLE I. - DEFINITIONS:	1
	ARTICLE II. - THE REVOLVING CREDIT	39
	2.1 ESTABLISHMENT OF REVOLVING CREDIT	39
	2.2 ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)	40
	2.3 RISKS OF VALUE OF COLLATERAL. 	41
	2.4 COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF
    CREDIT. 	41
	2.5 REVOLVING CREDIT LOAN REQUESTS. 	41
	2.6 MAKING OF REVOLVING CREDIT LOANS 	43
	2.7 SWINGLINE LOANS. 	44
	2.8 THE LOAN ACCOUNT. 	45
	2.9 THE REVOLVING CREDIT NOTE. 	46
	2.10 PAYMENT OF THE LOAN ACCOUNT. 	47
	2.11 INTEREST ON REVOLVING CREDIT LOANS. 	48
	2.12 UNUSED LINE FEE. 	49
	2.13 EARLY TERMINATION FEE. 	50
	2.14 RESERVED. 	50
	2.15 CONCERNING FEES. 	50
	2.16 AGENT’S DISCRETION. 	51
	2.17 PROCEDURES FOR ISSUANCE OF L/C'S. 	51
	2.18 FEES FOR L/C'S. 	53
	2.19 CONCERNING L/C'S. 	54
	2.20 CHANGED CIRCUMSTANCES. 	56
	2.21 LENDERS' COMMITMENTS. 	59
	ARTICLE III. - - CONDITIONS PRECEDENT 	63
	3.1 CORPORATE DUE DILIGENCE. 	63
	3.2 OPINION. 	64
	3.3 OFFICERS' CERTIFICATES. 	64
	3.4 ADDITIONAL DOCUMENTS. 	64
	3.5 REPRESENTATIONS AND WARRANTIES. 	65
	3.6 MINIMUM DAY ONE AVAILABILITY. 	65
	3.7 ALL FEES AND EXPENSES PAID. 	65
	3.8 NO DEFAULT. 	65
	3.9 NO ADVERSE CHANGE. 	66
	3.10 VALIDITY OF LIENS. 	66
	3.11 CASH COLLATERAL 	66
	ARTICLE IV. - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES: 	66
	4.1 PAYMENT AND PERFORMANCE OF LIABILITIES. 	66
	4.2 DUE ORGANIZATION. CORPORATE AUTHORIZATION. NO CONFLICTS. 	66
	4.3 TRADE NAMES. 	69
	4.4 INFRASTRUCTURE. 	69
	4.5 SOLVENCY. 	70
	4.6 LOCATIONS. 	70
	4.7 TITLE TO ASSETS. 	72
	4.8 INDEBTEDNESS. 	72
	4.9 INSURANCE. 	74
	4.10 LICENSES AND OTHER MATERIAL CONTRACTS. 	76
	4.11 LEASES. 	77
	4.12 REQUIREMENTS OF LAW. 	77
	4.13 LABOR RELATIONS. 	77
	4.14 MAINTAIN PROPERTIES. 	78
	4.15 TAXES. 	79
	4.16 NO MARGIN STOCK. 	80
	4.17 ERISA. 	80
	4.18 HAZARDOUS MATERIALS. 	81
	4.19 LITIGATION. 	82
	4.20 DIVIDENDS; INVESTMENTS; CORPORATE ACTION. 	82
	4.21 LOANS. 	83
	4.22 PROTECTION OF ASSETS. 	84
	4.23 LINE OF BUSINESS. 	84
	4.24 AFFILIATE TRANSACTIONS. 	84
	4.25 FURTHER ASSURANCES. 	84
	4.26 ADEQUACY OF DISCLOSURE. 	85
	4.27 NO RESTRICTIONS ON LIABILITIES. 	86
	4.28 POST-CLOSING DELIVERABLES 	86
	4.29 OTHER COVENANTS. 	87
	ARTICLE V. - FINANCIAL REPORTING AND PERFORMANCE COVENANTS: 	87
	5.1 MAINTAIN RECORDS. 	87
	5.2 ACCESS TO RECORDS. 	87
	5.3 NOTICE TO AGENT. 	88
	5.4 BORROWING BASE CERTIFICATE. 	89
	5.5 INTENTIONALLY RESERVED. 	90
	5.6 MONTHLY REPORTS. 	90
	5.7 QUARTERLY REPORTS. 	90
	5.8 ANNUAL REPORTS. 	91
	5.9 OFFICERS' CERTIFICATES. 	91
	5.10 INVENTORIES, APPRAISALS, AND AUDITS. 	92
	5.11 ADDITIONAL FINANCIAL INFORMATION. 	94
	5.12 FINANCIAL PERFORMANCE COVENANT. 	95
	ARTICLE VI. - USE AND COLLECTION OF COLLATERAL: 	95
	6.1 INVENTORY COVENANTS. 	95
	6.2 ACCOUNT COVENANTS. 	96
	6.3 NOTIFICATION TO ACCOUNT DEBTORS. 	97
	6.4 RIGHT TO CURE 	98
	ARTICLE VII. - CASH MANAGEMENT; PAYMENT OF LIABILITIES: 	98
	7.1 DEPOSITORY ACCOUNTS. 	98
	7.2 CREDIT CARD RECEIPTS. 	99
	7.3 THE CONCENTRATION, BLOCKED, OPERATING ACCOUNTS AND INVESTMENT
    ACCOUNTS. 	100
	7.4 PROCEEDS AND COLLECTION OF ACCOUNTS. 	102
	7.5 PAYMENT OF LIABILITIES. 	104
	7.6 THE OPERATING ACCOUNTS AND DISBURSEMENT ACCOUNT. 	105
	ARTICLE VIII. - GRANT OF SECURITY INTEREST: 	105
	8.1 GRANT OF SECURITY INTEREST. 	105
	8.2 EXTENT AND DURATION OF SECURITY INTEREST. 	107
	8.3 PERFECTION OF SECURITY INTERESTS. 	107
	ARTICLE IX. - AGENT AS BORROWER’S ATTORNEY-IN-FACT: 	112
	9.1 APPOINTMENT AS ATTORNEY-IN-FACT. 	112
	9.2 NO OBLIGATION TO ACT. 	113
	ARTICLE X. - EVENTS OF DEFAULT: 	113
	10.1 FAILURE TO PAY REVOLVING CREDIT. 	113
	10.2 FAILURE TO MAKE OTHER PAYMENTS. 	113
	10.3 FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD). 	114
	10.4 FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). 	114
	10.5 MISREPRESENTATION. 	115
	10.6 BREACH OF MATERIAL CONTRACTS. BREACH OF LEASE. 	115
	10.7 DEFAULT UNDER OTHER AGREEMENTS. 	116
	10.8 UNINSURED CASUALTY LOSS. 	117
	10.9 ATTACHMENT; JUDGMENT; RESTRAINT OF BUSINESS. 	117
	10.10 BUSINESS FAILURE. 	117
	10.11 BANKRUPTCY. 	118
	10.12 DEFAULT BY GUARANTOR OR AFFILIATE. 	118
	10.13 INDICTMENT - FORFEITURE. 	118
	10.14 TERMINATION OF GUARANTY. 	118
	10.15 CHALLENGE TO LOAN DOCUMENTS. 	118
	10.16 KEY MANAGEMENT. 	119
	10.17 CHANGE IN CONTROL. 	119
	ARTICLE XI. - RIGHTS AND REMEDIES UPON DEFAULT: 	119
	11.1 RIGHTS OF ENFORCEMENT. 	119
	11.2 SALE OF COLLATERAL. 	120
	11.3 OCCUPATION OF BUSINESS LOCATION. 	121
	11.4 GRANT OF NONEXCLUSIVE LICENSE. 	122
	11.5 ASSEMBLY OF COLLATERAL. 	122
	11.6 RIGHTS AND REMEDIES. 	122
	ARTICLE XII. - NOTICES: 	122
	12.1 NOTICE ADDRESSES. 	122
	12.2 NOTICE GIVEN. 	123
	ARTICLE XIII. - TERM: 	124
	13.1 TERMINATION OF REVOLVING CREDIT. 	124
	13.2 ACTIONS ON TERMINATION. 	124
	ARTICLE XIV. - GENERAL: 	125
	14.1 PROTECTION OF COLLATERAL. 	125
	14.2 PUBLICITY. 	125
	14.3 SUCCESSORS AND ASSIGNS. 	125
	14.4 SEVERABILITY. 	125
	14.5 AMENDMENTS AND WAIVERS. 	125
	14.6 POWER OF ATTORNEY. 	128
	14.7 APPLICATION OF PROCEEDS. 	128
	14.8 INCREASED COSTS. 	128
	14.9 COSTS AND EXPENSES OF THE AGENT AND LENDERS. 	129
	14.10 COPIES AND FACSIMILES. 	130
	14.11 NEW YORK LAW. 	130
	14.12 CONSENT TO JURISDICTION. 	130
	14.13 INDEMNIFICATION. 	131
	14.14 RULES OF CONSTRUCTION. 	131
	14.15 INTENT. 	134
	14.16 PARTICIPATIONS. 	134
	14.17 RIGHT OF SET-OFF. 	134
	14.18 PLEDGES TO FEDERAL RESERVE BANKS. 	135
	14.19 MAXIMUM INTEREST RATE. 	135
	14.20 WAIVERS. 	135
	14.21 COUNTERPARTS. 	137
	ARTICLE XV. - THE AGENT 	137
	15.2 RESPONSIBILITIES OF AGENT. 	137
	15.3 DISTRIBUTIONS BY THE AGENT. 	139
	15.4 RESERVED. 	140
	15.5 DISTRIBUTIONS OF NOTICES AND OF DOCUMENTS. 	140
	15.6 RESERVED. 	140
	15.7 CONFIDENTIAL INFORMATION. 	140
	15.8 RELIANCE BY AGENT. 	141
	15.9 NON-RELIANCE ON AGENT AND OTHER LENDERS. 	141
	15.10 INDEMNIFICATION. 	142
	15.11 RESIGNATIONS OF AGENT. 	143
	ARTICLE XVI. - FUNDINGS AND DISTRIBUTIONS 	143
	16.1 FUNDING PROCEDURES. 	143
	16.2 SWINGLINE LOANS. 	144
	16.3 AGENT'S COVERING OF FUNDINGS. 	145
	16.4 ORDINARY COURSE DISTRIBUTIONS. 	147
	ARTICLE XVII. - INTENTIONALLY OMITTED 	149
	ARTICLE XVIII. - LIQUIDATIONS 	149
	18.1 ACCELERATION. 	149
	18.2 INITIATION OF LIQUIDATION. 	149
	18.3 ACTIONS AT AND FOLLOWING INITIATION OF LIQUIDATION. 	149
	18.4 AGENT'S CONDUCT OF LIQUIDATION. 	150
	18.5 DISTRIBUTION OF LIQUIDATION PROCEEDS. 	150
	18.6 RELATIVE PRIORITIES TO PROCEEDS OF LIQUIDATION. 	151
	ARTICLE XIX. - ASSIGNMENTS BY LENDERS 	152
	19.1 ASSIGNMENTS AND ASSUMPTIONS. 	152
	19.2 ASSIGNMENT PROCEDURES. 	152
	19.3 EFFECT OF ASSIGNMENT. 	153
		
		



 


 


 


 


 


SCHEDULES


Schedule A : Leasehold Financing Documentation


Schedule B : Leasehold Due Diligence Submission


Schedule C : Form of Leasehold Report


EXHIBITS


2.7 : SwingLine Note


2.9 : Revolving Credit Note


2.21(a): Lender’s Commitments


4.2 : Affiliates


4.3 : Trade Names


4.6(a): Locations, Leases, and Landlords


4.6(c) Form of Collateral Access Agreement


4.7(a): Encumbrances


4.7(d): Third Party Bailees


4.8 : Indebtedness


4.9 : Insurance Policies


4.10(a): Material Contracts


4:10(b): Material Franchise, etc. Agreements


4.11 : Leases and Capital Leases


4.13 : Collective Bargaining Agreements


4.15 : Taxes


4:17 : ERISA Matter


4.19 : Litigation


4.21 : Investments


5.4 : Form of Borrowing Base Certificate


5.9 : Officer’s Compliance Certificate


5.12(b): Business Plan


7.1 : DDA’s and Investment Accounts


7.2 : Credit Card Arrangements


8 : Investment Property


8(e) : Letter of Credit Rights


19.1 : Assignment and Acceptance Agreement


 


 


LOAN AND SECURITY AGREEMENT


 


 


THIS LOAN AND SECURITY AGREEMENT, dated as of March 31, 2005, is made between 


Bank of America, N.A., as agent (in such capacity, herein the "Agent") for
the benefit of the Lenders, on a Pro Rata basis, based upon each Lender’s Percentage
Commitment, who are, at present, those financial institutions identified on the signature
pages of this Agreement and who in the future are those Persons (if any) who become a
"Lender", whether by execution of this Agreement or an Assignment and Acceptance
Agreement;


and


Each Lender


and


Wild Oats Markets, Inc., a Delaware corporation (the Borrower"). 


 


 


WITNESSETH:


WHEREAS, the Borrower and Guarantors have requested that the Agent and Lenders enter
into financing arrangements with the Borrower pursuant to which Lenders may make loans and
provide other financial accommodations to the Borrower; and


WHEREAS, each Lender is willing to agree (severally and not jointly) to make such loans
and provide such financial accommodations to the Borrower on a pro rata basis according to
its Dollar Commitment (as defined below) on the terms and conditions set forth herein and
the Agent is willing to act as Agent for the Lenders on the terms and conditions set forth
herein and the other Loan Documents; 


NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth
herein, and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:


ARTICLE I. - DEFINITIONS:


As herein used, the following terms have the following meanings or are defined in the
section of this Agreement so indicated:


"Acceleration": With respect to any Indebtedness, its becoming due and
payable prior to its stated maturity. Derivations of the word "Acceleration"
(such as "Accelerate") are used with like meaning in this Agreement.


"Acceleration Notice": A written notice by the SuperMajority Lenders to the
Agent following the occurrence of an Event of Default.


"Accounts" and "Accounts Receivable" As to the Borrower, all
present and future "Accounts" as defined in the UCC, and also all: accounts,
accounts receivable, receivables, and rights to payment (whether or not earned by
performance) for: property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of; services rendered or to be rendered; a policy of insurance issued
or to be issued; a secondary obligation incurred or to be incurred; energy provided or to
be provided; for the use or hire of a vessel; arising out of the use of a credit or charge
card or information contained on or used with that card; winnings in a lottery or other
game of chance; and also all Inventory which gave rise thereto, and all rights associated
with such Inventory, including the right of stoppage in transit; all reclaimed, returned,
rejected or repossessed Inventory (if any) the sale of which gave rise to any Account. 


"ACH"": Automated clearing house.


"ACH Transactions": Any cash management or related services (including the
ACH processing of electronic funds transfers through the direct Federal Reserve Fedline
system) provided by Bank of America or its Affiliates for the account of the Borrower and
its Subsidiaries.


"Account Debtor": Has the meaning given that term in the UCC.


"Acquisition": Any purchase or other acquisition by Borrower or any
Subsidiary of Borrower of the equity or all or substantially all the assets of any other
Person.


"Affiliate":


(a) With respect to any two Persons, a relationship in which (i) one holds, directly or
indirectly, not less than Thirty Three Percent (33%) of the capital stock, beneficial
interests, partnership interests, or other equity interests of the other; or (ii) one has,
directly or indirectly, the right, under ordinary circumstances, to elect a majority of
the directors (or other body or Person who has those powers customarily vested in a board
of directors of a corporation); or (iii) the same third Person holds, directly or
indirectly, not less than Thirty Three Percent (33%) of their respective capital stock,
beneficial interests, partnership interests or other equity interests; or has directly or
indirectly the right to elect the majority of directors of both such parties; or


(b) Any corporation, limited liability company, trust, partnership, joint venture, or
other enterprise which: is a parent, brother-sister, subsidiary, or affiliate, of the
Borrower; could have such enterprise's tax returns or financial statements consolidated
with the Borrower’s; could be a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the Internal Revenue Code of
1986, as amended from time to time) of which the Borrower is a member; controls or is
controlled by the Borrower. 


"Agent": Defined in the Preamble.


"Agent’s Cover": Defined in Section 16.3(c)(i).


"Agent’s Rights and Remedies": Defined in Section 11.6.


"Agreement": This Loan and Security Agreement, as it may be modified,
amended, supplemented, amended and restated or restated from time to time.


"Appraised Inventory Net Liquidation Value": The product of (a) the Cost of
Eligible Inventory (net of Inventory Reserves) multiplied by (b) that percentage,
determined by the Agent from the then most recent appraisal of the Borrower’s
Inventory obtained by the Agent, to reflect the appraiser's estimate of the net
realization on Retail of the Liquidation of the Borrower’s Inventory.


"Appraised Inventory Percentage": Eighty-five (85%) Percent. 


"Appraised Leasehold Net Liquidation Value": As it is applied to each
Eligible Leasehold, that value (expressed in Dollars) determined by the Agent from the
then most recent appraisal of such Eligible Leasehold obtained by the Agent, to reflect
the appraiser’s estimate of the net realization of the Liquidation of such Leasehold.


"Assignee Lender": Defined in Section 19.1.


"Assigning Lender": Defined in Section 19.1.


"Assignment and Acceptance": An Assignment and Acceptance Agreement
substantially in the form of EXHIBIT 19.1 attached hereto (with blanks appropriately
completed) delivered to Agent in connection with an assignment of a Lender’s interest
hereunder in accordance with the provisions of Article XIX hereof.


"Authorized Officer": The Borrower’s President, Treasurer, Secretary or
Chief Financial Officer duly authorized by the Borrower’s Board of Directors, or, in
the case of Borrowing Base Certificates, such other person as is authorized by the Board
of Directors of the Borrower.


"Availability": The lesser of (a) or (b), where 


(a) is the result of 


(i) The Revolving Credit Loan Ceiling


Minus 


(ii) The aggregate unpaid balance of the Loan Account


Minus


(iii) The aggregate undrawn Stated Amount of all then outstanding L/C's


Minus


(iv) The aggregate of the Availability Reserves.


(b) is the result of


(i) The Borrowing Base


Minus 


(ii) The aggregate unpaid balance of the Loan Account


Minus


(iii) The aggregate undrawn Stated Amount of all then outstanding L/C's


Minus


(iv) The aggregate of the Availability Reserves.


"Availability Reserves": Such reserves as the Agent from time to time
determines in the Agent's reasonable discretion as being appropriate to reflect the
impediments to the Agent's ability to realize upon the Collateral. Without limiting the
generality of the foregoing, Availability Reserves may include (but are not limited to)
reserves based on the following:


(i) Rent for any location in a Landlord State which respect to which a Collateral
Access Agreement has not been received by the Agent (which shall be three (3) months rent
for any such location).


(ii) Customer Credit Liabilities.


(iii) Taxes and other governmental charges, including, ad valorem, personal property,
and other taxes which in each case might have priority over the Collateral Interests of
the Agent in the Collateral, in each case unless being contested in good faith and for
which adequate cash reserves for the payment thereof have been established.


(iv) Bank Product Obligations (which may be imposed by the Agent from and after the
occurrence of any event or circumstance which results in a Material Adverse Change).


(v) Payables that might have rights of reclamation or other priority rights over the
Collateral Interests of Agent in the Collateral pursuant to PACA or PASA.


(vi) Payables which are past the Borrower’s normal trade terms.


"Bank of America": Bank of America, N.A., or its successor.


"Bank Product Agreements": Those certain cash management service agreements
entered into from time to time by the Borrower or its Subsidiaries in connection with any
of the Bank Products.


"Bank Product Obligations": All obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by the Borrower or its Subsidiaries to
Bank of America or its Affiliates pursuant to or evidenced by the Bank Product Agreements
and irrespective of whether for the payment of money, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising, and including all
such amounts that Borrower is obligated to reimburse to Lender as a result of Lender
purchasing participations or executing indemnities or reimbursement obligations with
respect to the Bank Products provided to Borrower or its Subsidiaries pursuant to the Bank
Product Agreements.


"Bank Products": Any service or facility extended to the Borrower or its
Subsidiaries by Bank of America or any Affiliate of Bank of America, including: (a) credit
cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH
Transactions, (f) cash management, including controlled disbursement, accounts or
services, or (g) Hedge Agreements.


"Bankruptcy Code": Title 11, U.S.C., as amended from time to time.


"Base": The Base Rate is the publicly announced prime rate from time to time
by Bank of America (or any successor in interest to Bank of America)(which is not intended
to be Bank of America’s lowest or most favorable rate in effect at any time). In the
event that said bank (or any such successor) ceases to announce such a rate,
"Base" shall refer to that rate or index announced or published from time to
time as the Agent, in good faith, designates as the functional equivalent to said Base
Rate. Any change in "Base" shall be effective, for purposes of the calculation
of interest due hereunder, when such change is made effective generally by the bank on
whose rate or index "Base" is being set. In all events, interest that is
determined by reference to Base (or any successor to Base) shall be calculated on a
360-day year and actual days elapsed.


"Base Margin": Zero Percent (0.0%). 


"Base Margin Loan": Each Revolving Credit Loan while bearing interest at the
Base Margin Rate.


"Base Margin Rate": The aggregate of Base plus the applicable Base Margin.


"Blocked Account": Any DDA into which the contents of any other DDA is
transferred, and which is subject to a Blocked Account Agreement.


"Blocked Account Agreement": A Control Agreement, in form reasonably
satisfactory to the Agent, pursuant to which the Borrower and applicable bank recognize
the Agent's Collateral Interest in the contents of the DDA and agrees that, upon notice by
the Agent given following the occurrence of a Cash Management Event, such contents shall
be transferred only to the Concentration Account or as otherwise instructed by the Agent.


"Borrower": Defined in the Preamble.


"Borrowing Base": The result of applying the following formula:


(a) The face amount of Eligible Credit Card Receivables multiplied by the Credit Card
Advance Rate;


Plus


(b) The lesser of (i) the Cost of Eligible Inventory (net of Inventory Reserves)
multiplied by the Inventory Advance Rate and (ii) the Appraised Inventory Percentage of
the Appraised Inventory Net Liquidation Value of Eligible Inventory;


Plus


(c) 100% of the lesser of (i) the Borrower’s cost and (ii) the then current market
value of Eligible Cash Equivalents;


Plus


(d) The Leasehold Advance Rate multiplied by the Appraised Leasehold Net Liquidation
Value of Eligible Leaseholds (net of Leasehold Reserves), not to exceed the Leasehold Cap.


"Borrowing Base Certificate": A Certificate in the form attached hereto as
EXHIBIT 5.4 (as such form may be revised from time to time by the Agent), signed by an
Authorized Officer, reflecting the Borrower’s financial condition as of the last day
of the fiscal month for the reporting period immediately prior to the date when furnished,
including, without limitation, Inventory roll forwards from the prior period and Eligible
Cash Equivalents marked to market, and such other updated information as the Agent may
require.


"Business Day": Any day (with any references herein to time of day
requirements meaning such times based on Eastern time) other than (a) Saturday or Sunday;
(b) any day on which banks in Charlotte, North Carolina, generally are not open to the
general public for the purpose of conducting commercial banking business; or (c) a day on
which the principal office of the Agent or Lenders is not open to the general public to
conduct business. 


"Business Plan": The Borrower’s business plan delivered to the Agent as
of the Closing Date and any revision, amendment, or update of such business plan.


"Capital Adequacy Charge": Defined in Section 14.8.


"Capital Adequacy Demand": Defined in Section 14.8.


"Capital Expenditures": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.


"Capital Lease": Any lease which is or should be capitalized in accordance
with GAAP. 


"Cash Equivalent": (a) Marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof, in each
case maturing within one year from the date of acquisition thereof, (b) marketable direct
obligations issued by any state of the United States or any political subdivision of any
such state or any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having the highest rating obtainable
from either S&P or Moody’s, (c) commercial paper maturing no more than one year
from the date of acquisition thereof and, at the time of acquisition, having a rating of
A-1 or P-1, or better, from S&P or Moody’s, (d) time deposits, certificates of
deposit or bankers’ acceptances maturing within one year from the date of acquisition
thereof either (i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or Moody’s,
or (ii) certificates of deposit less than or equal to $100,000 in the aggregate issued by
any other bank insured by the Federal Deposit Insurance Corporation, (e) the USB CD, (f)
repurchase obligations offered by the Agent or its Affiliates with a term of not more than
30 days for underlying securities of the type described in clause (a) above entered into
with any bank meeting the specifications set forth in clause (d) above at the time of
acquisition thereof, and (g) investments in money market or mutual funds offered by the
Agent or its Affiliates that invest primarily in the foregoing items.


"Cash Management Event": The earlier to occur of the following: (a) an Event
of Default and (b) Excess Availability is equal to or less than the result (expressed in
Dollars) of Twenty (20%) Percent multiplied by the lesser of (i) the Borrowing Base and
(ii) the Revolving Credit Loan Ceiling.


"Certificate": Any certificate in form and substance reasonably acceptable to
the Agent. 


"Change in Control": The occurrence of any of the following:


(a) The acquisition after the date hereof, by any group of persons (within the meaning
of the Securities Exchange Act of 1934, as amended) or by any Person, of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended), directly or indirectly, of 33% or more of the issued and outstanding capital
stock of the Borrower having the right to vote for the election of directors of the
Borrower.


(b) More than half of the persons who were directors of the Borrower on the first day
of any period consisting of Twelve (12) consecutive calendar months (the first of which
Twelve (12) month periods commencing April 1, 2005), cease, for any reason other than
death or disability, to be directors of the Borrower, and the board of directors as
thereafter constituted is not reasonably acceptable to the Agent.


(c) A "change in control" as defined in any document governing Indebtedness
of Borrower in excess of $20,000,000 or otherwise gives the holders of such Indebtedness
the right to accelerate or otherwise require payment or purchase of such Indebtedness
prior to the maturity date thereof.


"Chattel Paper": Has the meaning given that term in the UCC.


"Closing Date": The date on which all conditions precedent in Article III of
this Agreement are satisfied and the initial Revolving Credit Loans are made under this
Agreement or the initial L/Cs are issued under this Agreement.


"Collateral": Defined in Section 8.1.


"Collateral Access Agreement": A landlord waiver, bailee letter, contractor
letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee,
contractor, or other Person in possession of, having an Encumbrance upon, or having rights
or interests in the Equipment or Inventory, in each case, in form and substance reasonably
satisfactory to the Agent.


"Collateral Interest": Any interest in property to secure an obligation,
including, without limitation, a security interest, mortgage, and deed of trust.


"Concentration Account": The deposit account established by the Agent over
which the Agent has sole dominion and control.


"Control Agreement": An agreement, in form and substance reasonably
satisfactory to the Agent, executed and delivered by the Borrower, the Agent, and the
applicable securities intermediary or bank, which agreement is sufficient to give the
Agent "control" over the subject Securities Account, DDA, Investment Property,
or other account as provided in the UCC.


"Consolidated": When used to modify a financial term, test, statement, or
report, refers to the application or preparation of such term, test, statement, or report
(as applicable) based upon the consolidation, in accordance with GAAP, with any
adjustments or modifications reasonably acceptable to the Agent, of the financial
condition or operating results of the Borrower and its Subsidiaries.


"Cost": The lower of 


(a) the calculated cost of purchases, based upon the Borrower’s accounting
practices, on a first-in, first-out (FIFO) basis, known to the Agent, which practices are
in effect on the date on which this Agreement was executed as such calculated cost is
determined from invoices received by the Borrower; the Borrower’s purchase journal;
or the Borrower’s stock ledger; and


(b) the cost equivalent of the lowest ticketed or promoted price at which the subject
Inventory is offered to the public, after all mark-downs (whether or not such price is
then reflected on the Borrower’s accounting system), determined in accordance with
the retail method of accounting and reflecting the Borrower’s historic business
practices; 


provided that "Cost" does not include Inventory capitalization costs or other
non-purchase price charges (such as freight and UNICAP) used in the Borrower’s
calculation of cost of goods sold.


"Cost Factor": The result of 1 minus the Borrower’s rolling six (6)
month average Gross Margin.


"Costs of Collection": Includes, without limitation, all attorneys’
reasonable fees and reasonable out-of-pocket expenses incurred by the Agent’s
attorneys, and all reasonable and documented costs incurred by the Agent including,
without limitation, reasonable and documented costs and expenses associated with any
bankruptcy or insolvency proceeding or travel on behalf of the Agent, where such costs and
expenses are directly or indirectly related to or in respect of the Agent's:
administration and management of the Liabilities; negotiation, documentation, and
amendment of any Loan Document; or efforts to preserve, protect, collect, or enforce the
Collateral, the Liabilities, and/or the Agent’s Rights and Remedies and/or any of the
rights and remedies of the Agent against or in respect of any guarantor or other person
liable in respect of the Liabilities (whether or not suit is instituted in connection with
such efforts). "Costs of Collection" shall also include the reasonable costs and
expenses similar to the foregoing of Lenders’ Special Counsel. The Costs of
Collection are Liabilities, and at the Agent's option may bear interest at the then
effective Base Margin Rate. 


"Credit Card Advance Rate": Ninety (90%) Percent. 


"Credit Card Acknowledgments": Collectively, the agreements by Credit Card
Issuers or Credit Card Processors who are parties to Credit Card Agreements in favor of
the Agent acknowledging the Agent’s first priority security interest, for and on
behalf of the Lenders, in the monies due and to become due to the Borrower (including,
without limitation, credits and reserves) under the Credit Card Agreements, and agreeing
to transfer all such amounts to a Blocked Account or the Concentration Account, as the
same now exists or may hereafter be amended or modified; sometimes referred to herein
individually as a "Credit Card Acknowledgment".


"Credit Card Agreements": Those certain credit card receipts agreements, each
in form and substance reasonably satisfactory to the Agent and each of which is among the
Agent, the Borrower and the Credit Card Processors.


"Credit Card Issuer": Any Person (other than the Borrower) who issues or
whose members issue credit cards, including, without limitation, MasterCard or VISA bank
credit or debit cards or other bank credit or debit cards issued through MasterCard
International, Inc., Visa U.S.A., Inc., or Visa International and American Express,
Discover and other non-bank credit or debit card, including without limitation, credit or
debit cards issued by or through American Express Travel Related Services Company, Inc.
and Novus Services, Inc.


"Credit Card Processor": Any servicing or processing agent or any factor or
financial intermediary who services, processes or manages the credit authorization,
billing transfer and/or payment procedures with respect to the Borrower’s sales
transactions involving credit card or debit card purchases by customers using credit cards
or debit cards issued by any Credit Card Issuer.


"Customer Credit Liability": Gift certificates, customer deposits,
merchandise credits, layaway obligations, frequent shopping programs, and similar
liabilities of the Borrower to its retail customers and prospective customers.


"Customs Broker Agreement": A tri-party agreement in form reasonably
satisfactory to the Agent, among the Borrower, and a customs broker or other carrier, in
which the customs broker or other carrier acknowledges that it has control over and holds
the documents evidencing ownership of the subject Inventory for the benefit of the Agent
and agrees, upon notice from the Agent, to hold and dispose of the subject Inventory
solely as directed by the Agent.


"DDA": Any checking or other demand depository account maintained by the
Borrower or any Guarantor other than an Exempt DDA.


"Default": Any occurrence, circumstance, or state of facts with respect to
the Borrower or a Guarantor which would become an Event of Default if any requisite notice
were given and/or any requisite period of time were to run and such occurrence,
circumstance, or state of facts were not cured within any applicable grace period. 


"Delinquent Lender": Defined in Section 16.3(c).


"Deposit Account": Has the meaning given that term in the UCC.


"Distribution": With respect to any Person, (a) the declaration or payment of
any dividend on or in respect of any shares of capital Stock of such Person, other than
dividends payable solely in shares of common stock of such Person, (b) the purchase,
redemption, or other retirement of any shares of any class of capital stock of such
Person, directly or indirectly, (c) the return of capital by such Person to its
shareholders or other interest holders, or (d) any other distribution on or in respect of
any shares of any class of capital stock of such Person.


"Documents": Has the meaning given that term in the UCC.


"Documents of Title": Has the meaning given that term in the UCC.


"Dollar Commitment": As set forth on EXHIBIT 2.21(a), annexed hereto (as such
amounts may change in accordance with the provisions of this Agreement). The aggregate of
the Dollar Commitments shall not exceed the Revolving Credit Loan Ceiling.


"Domestic Distribution Center": The Borrower’s distribution center
located at 6688 Box Sprgs Blvd, Riverside, CA 92507, or elsewhere upon prior written
notice to the Agent.


"Eligible Assignee": (a) Another Lender, (b) with respect to any Lender, any
Affiliate of that Lender, (c) any commercial bank having total assets of $5,000,000,000 or
more, (d) any (i) savings bank, savings and loan association or similar financial
institution or (ii) insurance company engaged in the business of writing insurance which,
in either case (A) has total assets of $5,000,000,000 or more, (B) is engaged in the
business of lending money and extending credit under credit facilities substantially
similar to those extended under this Agreement and (C) is operationally and procedurally
able to meet the obligations of a Lender hereunder to the same degree as a commercial bank
and (e) any other financial institution (including a mutual fund or other fund) having
total assets of $5,000,000,000 or more which meets the requirements set forth in
subclauses (B) and (C) of clause (d) above; provided, that each Eligible Assignee must
either (aa) be organized under the laws of the United States of America, any State thereof
or the District of Columbia or (bb) be organized under the laws of the Cayman Islands or
any country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of such a country, and (i) act hereunder through a
branch, agency or funding office located in the United States of America and (ii) be
exempt from withholding of tax on interest and deliver the documents related thereto as
required by the Agent.


"Eligible Cash Equivalents": Cash Equivalents maintained by the Borrower,
only to the extent (i) such Cash Equivalents are subject to the Agent’s first
priority, perfected, valid and enforceable security interest to secure the Liabilities;
(ii) immediately available to the Agent; (iii) not subject to any restriction on their use
(other than in favor of the Agent or otherwise pursuant to this Agreement); and (iv) held
by Bank of America or any of its Affiliates, or by another institution acceptable to Agent
with whom the Agent and the Borrower have agreed to the terms of a Control Agreement.


"Eligible Credit Card Receivables": Accounts due to the Borrower on a
non-recourse basis from major credit card processors (which, if due on account of a
private label credit card program, are deemed in the reasonable discretion of the Agent to
be eligible), which accounts have been outstanding for no more than four (4) Business
Days. 


"Eligible Inventory": The Borrower’s Inventory (including Eligible
Transfer Inventory, without duplication), at such locations, and of such types, character,
quality and quantities, as the Agent in its discretion from time to time determines to be
acceptable for inclusion in the calculation of the Borrowing Base purposes, as to which
the Agent has a perfected security interest that is prior and superior to all claims and
all Encumbrances (other than Permitted Encumbrances, subject to the Agent’s rights to
establish Reserves therefor in accordance with the terms of this Agreement). 


In no event, shall "Eligible Inventory" include: (i) any non-merchandise
inventory (such as labels, bags, and packaging materials); (ii) damaged goods, return to
vendor merchandise, packaways, consigned inventory, and other similar categories of Goods;
(iii) any Inventory located in any store of the Borrower which has been closed for
business for more than 20 days in any fiscal quarter; (iv) any pre-sold Inventory for
which a customer has paid a deposit equal to 100% of the purchase price of such Inventory;
(v) any Inventory subject to the provisions of PACA and PASA; and (vi) Perishable Goods.


"Eligible Leaseholds": Such of the Borrower’s Leaseholds as the Agent in
its discretion from time to time determines to be acceptable for inclusion in the
calculation of the Borrowing Base, as to which the Agent has a perfected security
interest, lien, mortgage, deed of trust or collateral assignment, as shall have been
required by the Agent, that is prior and superior to all claims and all Encumbrances
(other than Permitted Encumbrances, subject to the Agent's rights to establish Reserves
therefor in accordance with the terms of this Agreement) and as to which the Borrower has
satisfied each of the Leasehold Closing Conditions.


"Eligible Transfer Inventory": That portion of the Borrower’s Inventory
(without duplication of other Eligible Inventory) which has been paid for by the Borrower
and is in transit between one of the Borrower’s Domestic Distribution Centers and one
of the Borrower’s other locations listed on EXHIBIT 4.6(a), provided that


(a) Such Inventory is Eligible Inventory; and


(b) The Agent is named as consignee of the subject Inventory and the Agent has control
over the documents which evidence ownership of the subject Inventory (such as by the
providing to the Agent of a Collateral Access Agreement to the Agent); and


(c) Such Inventory has not yet been delivered to one of the Borrower’s other
locations listed on EXHIBIT 4.6(a) and has been in transit from one of the Borrower’s
Domestic Distribution Centers for no more than ten (10) days.


"Employee Benefit Plan": As defined in ERISA.


"Encumbrance": Each of the following: 


(a) Any security interest, mortgage, deed of trust, collateral assignment for security,
pledge, hypothecation, lien, attachment, or charge of any kind (including any agreement to
give any of the foregoing); the interest of a lessor under a Capital Lease; conditional
sale or other title retention agreement; sale of Accounts or Chattel Paper; or other
arrangement pursuant to which any Person is entitled to any preference or priority with
respect to the property or assets of another Person or the income or profits of such other
Person or which constitutes an interest in property to secure an obligation; each of the
foregoing whether consensual or non-consensual and whether arising by way of agreement,
operation of law, legal process or otherwise. 


(b) The filing of any effective financing statement under the UCC or comparable law of
any jurisdiction. 


"End Date": The date upon which both (a) all Liabilities have been
indefeasibly paid in full (other than contingent indemnity obligations for which the Agent
has established adequate cash reserves in its reasonable discretion) and (b) all
obligations of the Agent and Lenders to make loans and advances and to provide other
financial accommodations to the Borrower hereunder shall have been irrevocably terminated.


"Environmental Laws": All of the following:


(a) Any and all federal, state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees or requirements which regulate or relate to, or
impose any standard of conduct or liability on account of or in respect to environmental
protection matters, including, without limitation, Hazardous Materials, as are now or
hereafter in effect. 


(b) The common law relating to damage to Persons or property from Hazardous Materials. 


"Equipment": Includes, without limitation, Goods which qualify as
"equipment" as defined in the UCC, and all of the Borrower’s now owned and
hereinafter acquired equipment, wherever located, including machinery, data processing and
computer equipment and computer hardware and software, whether owned or licensed, and
including embedded software, vehicles, rolling stock, machinery, office equipment, plant
equipment, tools, dies, molds, store fixtures, furniture, and any and all attachments,
accessions or additions thereto, and substitutions and replacements thereof, wherever
located.


"ERISA": The Employee Retirement Income Security Act of 1974, as amended,
together with all orders, regulations and interpretations thereunder or related thereto. 


"ERISA Affiliate": Any Person which is under common control with the Borrower
within the meaning of Section 4001 of ERISA or is part of a group including the Borrower
and which would be treated as a single employer under Section 414 of the Internal Revenue
Code of 1986, as amended.


"Eurodollar Business Day" Any day which is both a Business Day and a day on
which banks in London, England in which Bank of America or its successor participates is
open for dealings in United States Dollar deposits. 


"Eurodollar Loan": Any Revolving Credit Loan which bears interest at an
Eurodollar Rate. 


"Eurodollar Margin": As determined pursuant to the applicable section of the
Margin Pricing Grid set forth in Section 2.11(f), for loans initiated on or after the date
when so set, that is to say Eurodollar contracts in effect at the time of
increases/decreases in margin will remain in effect at the margin originally utilized when
the contract was opened. The margin in effect at a given time will apply to contracts
opened at that time, and shall be based upon the Margin Pricing Grid. Notwithstanding any
of the foregoing to the contrary, for the period from the date hereof through September 1,
2005, the Eurodollar Margin shall not be less than the 125 basis point (Tier II)
(regardless of whether Excess Availability exists at a level which would otherwise result
in the application of another Eurodollar Margin). 


"Eurodollar Offer Rate": With respect to any Eurodollar Loan, the rate of
interest (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Agent
to be highest prevailing rate per annum at which deposits on U.S. Dollars are offered to
Bank of America, by first-class banks in the London interbank market in which Bank of
America participates at or about 10:00 a.m. (Boston time) two (2) Eurodollar Business Days
before the first day of the Interest Period for the subject Eurodollar Loan, for a deposit
approximately in the amount of the subject loan for a period of time approximately equal
to such Interest Period. The Eurodollar Rate shall be adjusted on and as of the effective
day of any change in the Reserve Percentage.


"Eurodollar Rate": That per annum rate (calculated on a 360-day year and
actual days elapsed) equal to the Eurodollar Offer Rate plus the Eurodollar Margin except
that, in the event that the Agent determines that any Lender may be subject to the Reserve
Percentage, the "Eurodollar Rate" shall mean, with respect to any Eurodollar
Loans then outstanding (from the date on which that Reserve Percentage first became
applicable to such loans), and with respect to all Eurodollar Loans thereafter made, an
interest rate per annum equal to the sum of (a) plus (b), where:


(a) is the decimal equivalent of the following fraction:


Eurodollar Offer Rate 


1 minus Reserve Percentage


(b) is the applicable Eurodollar Margin.


"Events of Default": Defined in Article X. Each reference to an "Event
of Default" is to an Event of Default that has not been duly waived in writing by the
Agent. In the event of such due waiver, the so-waived Event of Default shall be deemed
never to have occurred, other than with respect to any post-default interest which accrued
prior to such waiver and with respect to any reimbursement obligation in respect of any
Costs of Collection.


"Excess Availability": The difference of (a) Availability minus (b) all then
past due obligations of the Borrower that are not being contested in good faith. 


"Executive Order 13224": Defined in Section 4.2(g).


"Exempt DDA": A depository account maintained by the Borrower, the only
contents of which may be transfers from the Operating Account and actually used solely (i)
for petty cash purposes; or (ii) for payroll and payroll taxes, together with such other
depository accounts agreed to by Agent in writing as constituting an Exempt DDA. 


"Exempt Subsidiary": shall mean (a) a Foreign Subsidiary and (b) an Inactive
Subsidiary.


"Farm Products": Has the meaning given that term in the UCC. 


"Fee Letter": The letter agreement, dated of even date herewith, by and
between the Borrower and the Agent, setting forth certain fees payable by the Borrower to
Agent for the benefit of itself and the Lenders, as the same now exists or may hereafter
be amended, modified, supplemented, extended, restated or replaced.


"Fiscal Quarter": The fiscal quarter of the Borrower consisting of 13 or 14
weeks ending on or about each March 31, June 30, September 30 and December 31.


"Fiscal Year": Each twelve (12) month accounting period of the Borrower,
which ends on the last Saturday nearest December 31 of each year. 


"Fixtures": Has the meaning given that term in the UCC.


"Foreign Entity" With respect to the Borrower, any corporation, partnership,
limited liability company or other business entity (i) which is organized under the laws
of a jurisdiction other than a state of the United States or the District of Columbia and
(ii) of which an aggregate of more than 50% of the outstanding classes of capital stock
entitled to vote is, at the time, owned by the Borrower.


"GAAP": Principles which are consistent with those promulgated or adopted by
the Financial Accounting Standards Board and its predecessors (or successors) in effect
and applicable to that accounting period in respect of which reference to GAAP is being
made, provided, however, in the event of a Material Accounting Change, then unless
otherwise agreed to by the Agent, (a) the Borrower’s compliance with the financial
performance covenant imposed pursuant to Section 5.12 shall be determined as if such
Material Accounting Change had not taken place and (b) the Borrower shall include, with
its monthly, quarterly, and annual financial statements a schedule, certified by its chief
financial officer, on which the effect of such Material Accounting Change to the statement
with which provided shall be described.


"General Intangibles": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to payment for credit
extended; deposits; amounts due to the Borrower; credit memoranda in favor of the
Borrower; warranty claims; tax refunds and abatements; insurance refunds and premium
rebates; all means and vehicles of investment or hedging, including, without limitation,
options, warrants, and futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any settlement or other agreement;
payments or right to receive payments on account of any transfer of any interest in any
Leasehold; literary rights; rights to performance; royalties; license and/or franchise
fees; rights of admission; licenses; franchises; license agreements, including all rights
of the Borrower to enforce the foregoing; permits, certificates of convenience and
necessity, and similar rights granted by any governmental authority; patents, patent
applications, patents pending, and other intellectual property; internet addresses and
domain names; developmental ideas and concepts; proprietary processes; blueprints,
drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals; technical
data; computer software programs (including the source and object codes therefor),
computer records, computer software, rights of access to computer record service bureaus,
service bureau computer contracts, and computer data; tapes, disks, semi-conductors chips
and printouts; trade secrets rights, copyrights, copyrightable materials, copyright
registrations and applications, mask work rights and interests, and derivative works and
interests; user, technical reference, and other manuals and materials; trade names,
trademarks, service marks, and all goodwill relating thereto; registrations, applications
for registration of the foregoing; and all other intangible property of the Borrower in
the nature of intellectual property; proposals; cost estimates, and reproductions on
paper, or otherwise, of any and all concepts or ideas, and any matter related to, or
connected with, the design, development, manufacture, sale, marketing, leasing, or use of
any or all property produced, sold, or leased, by the Borrower or credit extended or
services performed, by the Borrower, whether intended for an individual customer or the
general business of the Borrower, or used or useful in connection with research and
development by the Borrower; provided, however, that "General Intangibles" shall
not include shares representing more than 65% of the voting power of all classes of
capital stock or other interests entitled to vote of any Foreign Entity.


"Goods": Has the meaning given that term in the UCC.


"Gross Margin": With respect to the subject accounting period for which it is
being calculated, the decimal equivalent of the following (determined in accordance with
the retail method of accounting):


Sales (Minus) Cost of Goods Sold


Sales


"Guarantors": Each Subsidiary of the Borrower other than Exempt Subsidiaries.


"Hazardous Materials": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances or petroleum products, which (as to any of the foregoing)
are defined or regulated as a hazardous material in or under any Environmental Law and (b)
oil in any physical state.


"Headquarters": The property located at, and known as, 3375 Mitchell Lane,
Boulder, Colorado 80301.


"Hedge Agreement": All transactions, agreements, or documents now existing or
hereafter entered into between Borrower or its Subsidiaries and Bank of America or its
Affiliates, which provide for an interest rate, credit, commodity or equity swap, cap,
floor, collar, forward foreign exchange transaction, currency swap, cross currency rate
swap, currency option, or any combination of, or option with respect to, these or similar
transactions, for the purpose of hedging Borrower’s or its Subsidiaries’
exposure to fluctuations in interest.


"Inactive Subsidiary": A Subsidiary of the Borrower that (a) is not engaged
in any active or passive business and (b) holds total assets of $500,000 or less.


"Indebtedness": All indebtedness and obligations of any Person on account of
or in respect to any of the following:


(a) Money borrowed (including any indebtedness which is non-recourse to the credit of
such Person but which is secured by an Encumbrance on any asset of such Person) whether or
not evidenced by a promissory note, bond, debenture or other written obligation to pay
money;


(b) Any reimbursement obligations and other liabilities of such Person with respect to
surety bonds (whether bid, performance or otherwise), letter of credit or acceptance
transactions (including, without limitation, the Stated Amount of all outstanding letters
of credit and acceptances issued for the account of such Person, and (without duplication)
any amount for which such Person would be obligated to provide reimbursement or for which
such Person is liable in connection with a letter of credit or acceptance transaction;


(c) The provision of recourse in connection with the sale or discount of Accounts or
Chattel Paper of such Person;


(d) On account of recourse or repayment obligations with respect to deposits or
advances;


(e) As lessee under Capital Leases; and


(f) In connection with any sale and leaseback transaction.


(g) All redemption or repurchase obligations, when exercised, under any equity
securities issued by such Person.


"Indebtedness" also includes:


(a) Indebtedness of others secured by an Encumbrance on any asset of such Person,
whether or not such Indebtedness is assumed by or are a personal liability of such Person.


(b) Any guaranty, endorsement, suretyship or other undertaking pursuant to which that
Person may be liable on account of any Indebtedness of any third party other than on
account of the endorsement of checks and other items in the ordinary course.


(c) The Indebtedness of a partnership or joint venture in which such Person is a
general partner or joint venturer, except to the extent the terms of such Indebtedness
expressly provide that such Person is not liable therefor.


"Indemnified Person": Defined in Section 14.13.


"Indenture": Indenture, dated as of June 1, 2004, between Wild Oats Markets,
Inc. and U.S. Bank National Association, as Trustee, and the 3.25% Senior Convertible
Debentures due 2034 executed in connection therewith.


"Instruments": Has the meaning given that term in the UCC.


"Interest Payment Date": With reference to:


(a) Each Eurodollar Loan: the earlier of the last Business Day of each calendar quarter
in arrears or the last day of the Interest Period relating thereto, and the Termination
Date and the End Date.


(b) Each Base Margin Loan: the last Business Day of each month in arrears; the
Termination Date; and the End Date.


"Interest Period":


(a) With respect to each Eurodollar Loan: subject to Subsection (b), below, the period
commencing on the date of the making or continuation of, or conversion to, the subject
Eurodollar Loan and ending on the day that corresponds numerically to such date, seven
(7), thirty (30), sixty (60), ninety (90), or one hundred and eighty (180) days
thereafter, as the Borrower may elect by irrevocable notice (pursuant to Section 2.5(b))
to the Agent.


(b) The setting of Interest Periods is in all instances subject to the following:


(i) Any Interest Period for a Eurodollar Loan which would otherwise end on a day that
is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar
Business Day, unless that succeeding Eurodollar Business Day is in the next calendar
month, in which event such Interest Period shall end on the last Eurodollar Business Day
of the month during which the Interest Period ends.


(ii) Subject to subsections (iii) and (iv), below, any Interest Period applicable to a
Eurodollar Loan, which Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month during which such Interest Period ends, shall end
on the last Eurodollar Business Day of the month during which that Interest Period ends.


(iii) Any Interest Period which would otherwise end after the Revolving Credit
Termination Date shall end on the Revolving Credit Termination Date.


(iv) The Borrower shall not select, renew, or convert any interest rate for a Revolving
Credit Loan such that, in addition to interest at the Base Margin Rate, there are more
than five (5) Interest Periods applicable to Eurodollar Loans at any one time.


"Inventory": Includes, without limitation, "inventory" as defined
in the UCC and also all: packaging, advertising, and shipping materials related to any of
the foregoing, and all names or marks affixed or to be affixed thereto for identifying or
selling the same; Goods held for sale or lease or furnished or to be furnished under a
contract or contracts of sale or service by the Borrower, or used or consumed or to be
used or consumed in the Borrower’s business; Goods of said description in transit:
returned, repossessed and rejected Goods of said description; and all Documents (whether
or not negotiable) which represent any of the foregoing.


"Inventory Advance Rate": Seventy (70%) Percent.


"Inventory Appraisal Threshold": At any time determined, the value of
Permitted Investments maintained with Bank of America are less than $5,000,000 or the
principal balance of the Loan Account is greater than $10,000,000.


"Inventory Reserves": Such Reserves as may be established from time to time
by the Agent in the Agent's reasonable discretion with respect to the determination of the
saleability, at Retail, of the Eligible Inventory or which reflect such other factors as
affect the market value of the Eligible Inventory. Without limiting the generality of the
foregoing, Inventory Reserves may include (but are not limited to) reserves based on the
following:


(i) Obsolescence (based upon Inventory on hand beyond a given number of days).


(ii) Seasonality.


(iii) Shrinkage.


(iv) Imbalance.


(v) Change in Inventory character.


(vi) Change in Inventory composition.


(vii) Change in Inventory mix.


(viii) Markdowns (both permanent and point of sale).


(ix) Retail mark ons and markups inconsistent with prior period practice and
performance; industry standards; current business plans; or advertising calendar and
planned advertising events.


(x) Return to vendors.


(xi) Damage.


(xii) Inventory in the possession of any bailee.


(vii) PACA and PASA.


"Investment": When used in connection with any Person, any investment by or
of that Person, whether by means of purchase or other acquisition of stock or other
securities of any other Person or by means of a loan, advance, creating a debt (excluding
trade and other advances made in the ordinary course of business in accordance with
ordinary trade terms), capital contribution, guaranty or other debt or equity
participation or interest in any other Person, including any partnership and joint venture
interests of such Person. The amount of any Investment shall be the amount actually
invested (minus any return of capital with respect to such Investment which has actually
been received in cash or has been converted into cash), without adjustment for subsequent
increases or decreases in the value of such Investment.


"Investment Accounts": Investment account, securities account, commodity
account or other similar account with any bank or other financial institution or other
securities intermediary or commodity intermediary as of the date hereof for the
maintenance of Permitted Investments maintained or established by the Borrower in
accordance with the terms of this Agreement.


"Investment Property": Has the meaning given that term in the UCC; provided,
however, that "Investment Property" shall not include shares representing more
than 65% of the voting power of all classes of capital stock or other interests entitled
to vote of any Foreign Entity.


"Issuer": The issuer of any L/C.


"Joinder and Assumption Agreement": A Joinder and Assumption Agreement
executed by Borrower a Lender or other financial institution assuming a portion of any
increase to the Dollar Commitments and Percentage Commitments pursuant to Section 2.21(f),
and the Agent, in form and substance reasonable acceptable to the Agent in its discretion.


"Landlord": The holder or holders of the landlord’s or lessor’s
interest under a particular Lease.


"Landlord State": Initially, Washington, Virginia, and Pennsylvania and such
other states in which a landlord’s claim for rent has priority over the Encumbrances
of the Agent in the Collateral.


"L/C": Any letter of credit issued by the Agent for the account of the
Borrower and any acceptance made on account of such letter of credit. 


"Lease": Any lease pursuant to which the Borrower is entitled to the use and
occupancy of any space.


"Leased Property": The real property leased or demised under a particular
Lease.


"Leasehold": The Borrower’s Lease, leasehold estate or interest in each
of the properties at or upon which the Borrower conducts business, offers any Inventory
for sale, or maintains any of the Collateral, whether or not for retail sale, together
with the Borrower’s interest in any of the improvements and fixtures located upon or
appurtenant to each such estate or interest, including, without limitation, any rights of
the Borrower to payment, proceeds or value of any kind or nature realized upon the sale,
transfer or assignment of any such estate or interest, whether or not such sale,
assignment or transfer occurs during any case commenced under the Bankruptcy Code.


"Leasehold Advance Rate": Forty (40%) Percent.


"Leasehold Cap": An amount (expressed in Dollars) equal to the Borrowing
Base, as then calculated, multiplied by Twenty (20%) Percent.


"Leasehold Closing Date": With respect to a particular Leasehold, the date
(if any) by which all Leasehold Closing Conditions shall have been satisfied. 


"Leasehold Mortgage": Collectively, each Leasehold mortgage or deed of trust,
as applicable, as amended, modified and extended from time to time with the Agent’s
consent.


"Leasehold Closing Conditions": Defined in SCHEDULE B hereto.


"Leasehold Reserves": Such Reserves as may be established from time to time
by the Agent in the Agent's reasonable discretion with respect to the determination of the
realization on Liquidation of Eligible Leaseholds or which reflect such other factors as
affect the Appraised Leasehold Net Liquidation Value of the Eligible Leaseholds. Without
limiting the generality of the foregoing, Leasehold Reserves (without duplication of other
Reserves) may include (but are not limited to) reserves based on rent and additional rent
(including percentage rent) and other charges, including without limitation, real estate
taxes and assessments, common area maintenance charges and insurance charges, imposed and
payable under any such Eligible Leasehold.


"Lenders’ Special Counsel": A single counsel, selected by the Lenders,
to represent the interests of the Lenders in connection with the negotiation, drafting
modification, amendment, restatement, enforcement, attempted enforcement, or preservation
of rights and remedies under this Agreement or any other Loan Document, as well as in
connection with any "workout", forbearance, or restructuring of the credit
facility contemplated hereby.


"Letter of Credit Rights": Has the meaning given that term in the UCC and
also refers to any right to payment or performance under an L/C, whether or not the
beneficiary has demanded or is at the time entitled to demand payment or performance. 


"Liabilities": Includes, without limitation, the following: 


(a) All and each of the following, whether now existing or hereafter arising under this
Agreement or under any of the other Loan Documents:


(i) Any and all direct and indirect liabilities, debts, and obligations of the Borrower
to the Agent or the Lenders, each of every kind, nature, and description. 


(ii) Each obligation to repay any loan, advance, indebtedness, note, obligation,
overdraft, or amount now or hereafter owing by the Borrower to the Agent or the Lenders
(including all future advances whether or not made pursuant to a commitment by the Agent
or the Lenders), whether or not any of such are liquidated, unliquidated, primary,
secondary, secured, unsecured, direct, indirect, absolute, contingent, or of any other
type, nature, or description, or by reason of any cause of action which the Agent or the
Lenders, may hold against the Borrower. 


(iii) All notes and other obligations of the Borrower now or hereafter assigned to or
held by the Agent or the Lenders, each of every kind, nature, and description. 


(iv) All interest, fees, and charges and other amounts which may be charged by the
Agent or the Lenders, to the Borrower and/or which may be due from the Borrower to the
Agent or the Lenders, from time to time. 


(v) All costs and expenses incurred or paid by the Agent or the Lenders, in respect of
any agreement between the Borrower and the Agent or the Lenders, or instrument furnished
by the Borrower to the Agent or Lenders (including, without limitation, Costs of
Collection, attorneys' reasonable fees, including reasonable fees and expenses of
Lenders’ Special Counsel), and all court and litigation costs and expenses). 


(vi) Any and all covenants of the Borrower to or with the Agent or the Lenders, and any
and all obligations of the Borrower to act or to refrain from acting in accordance with
any agreement between the Borrower and the Agent or the Lenders, or instrument furnished
by the Borrower to the Agent or the Lenders.


(vii) Each of the foregoing as if each reference to "Agent," were to each
Affiliate of the Agent and each of the foregoing as if each reference to
"Lenders," were to each Affiliate of the Lenders.


(b) Any and all direct or indirect liabilities, debts, and obligations of the Borrower
to the Agent or the Lenders or any Affiliate of the Agent or Affiliate of the Lenders,
each of every kind, nature, and description owing on account of any service or
accommodation provided to, or for the account of the Borrower, in each case pursuant to
this or any other Loan Document, including Bank Product Obligations and the issuances of
L/C's.


"Liquidation": The liquidation of the Collateral by the Borrower, with the
prior written consent of the Agent, including, without limitation, by the conduct of
"going out of business" or similar sales, or the exercise, by the Agent, of
those rights accorded to the Agent under the Loan Documents as a creditor of the Borrower
following and on account of the occurrence of an Event of Default looking towards the
realization on the Collateral. Derivations of the word "Liquidation" (such as
"Liquidate") are used with like meaning in this Agreement.


"Loan Account": Defined in Section 2.8.


"Loan Documents": This Agreement, each instrument and document executed
and/or delivered as contemplated by Article III, below, (including without limitation the
Fee Letter) and each other instrument or document from time to time executed and/or
delivered in connection with the arrangements contemplated hereby or connection with any
transaction with the Agent or any Affiliate of the Agent or, including, without
limitation, any transaction which arises out of any cash management (including any ACH
transfer arrangements), depository, investment, letter of credit, or interest rate
protection, or equipment leasing services provided by the Agent or any Affiliate of the
Agent, as each may be amended from time to time.


"Margin Adjustment Date": As defined in Section 2.11(f). 


"Margin Pricing Grid": Provides for quarterly adjustment to the interest rate
to be charged on Revolving Credit Loans based upon the level of Excess Availability then
existing and is shown in Section 2.11(f).


"Material Accounting Change": Any change in GAAP applicable to accounting
periods subsequent to the Borrower’s fiscal year most recently completed prior to the
execution of this Agreement, if such change has a material effect on the Borrower’s
financial condition or operating results, as reflected on financial statements and reports
prepared by or for the Borrower, when compared with such condition or results as if such
change had not taken place, or where preparation of the Borrower’s statements and
reports in compliance with such change results in the breach of a financial performance
covenant imposed pursuant to Section 5.12, where such a breach would not have occurred if
such change had not taken place or visa versa.


"Material Adverse Change": (a) A material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or financial condition
of Borrower, (b) a material impairment of the Borrower’s ability to perform its
obligations under the Loan Documents to which it is a party or of the Agent’s ability
to enforce the Liabilities or realize upon the Collateral, or (c) a material impairment of
the enforceability or priority of the Agent’s Collateral Interests with respect to
the Collateral having a value in excess of $2,000,000 as a result of an action or failure
to act on the part of the Borrower.


"Material Adverse Effect": A result, consequence or outcome resulting from a
Material Adverse Change. 


"Material Contract": Any contract or other agreement, written or oral, of the
Borrower involving monetary liability of or to any Person in an amount in excess of
$1,000,000 in any Fiscal Year which could have a Material Adverse Effect. 


"Maturity Date": March 31, 2010, or if such day is not a Business Day, the
next succeeding Business Day.


"Minority Lenders": Defined in Section 14.5.


"Notice Address": With respect to the Agent and Borrower, as provided in
Section 12.1.


With respect to any Lender, as indicated adjacent to such Lender’s signature at
the foot of this Agreement. With respect to any Person who becomes a Lender hereafter
pursuant to Section 19.2 of this Agreement, as indicated in the Assignment and Acceptance
of such Person.


Each Notice Address is subject to change as provided in Section 12.1.


"OFAC": Defined in Section 4.2(g).


"Officer’s Compliance Certificate": Defined in Section 5.9.


"Operating Account": Defined in Section 7.3(a)(iii).


"Overloan": A loan, advance, or providing of credit support (such as the
issuance of any L/C) to the extent that, at the time it is made, (a) it is in excess of
the Borrowing Base or (b) exceeds Availability immediately prior to the making of such
loan, advance, or providing of credit support.


"PACA": The Packers and Stockyards Act, 1921 codified at 7 U.S.C. 181, et.
seq., as amended, together with all orders, regulations and interpretations thereunder or
related thereto. 


"PASA": The Perishable Agricultural Commodities Act, 1930 codified at 7
U.S.C. 499a et. seq., as amended, together with all orders, regulations and
interpretations thereunder or related thereto. 


"Participant": Defined in Section 14.16.


"Patriot Act": Defined in Section 4.2(g).


"Payment Intangible": Has the meaning given that term in the UCC and also
refers to any general intangible under which the Account Debtor’s primary obligation
is a monetary obligation. 


"Perishable Goods": Meat products, dairy products, deli products, bakery
products, seafood products, floral items, and such similar Inventory which is perishable.


"Percentage Commitment": As set forth on EXHIBIT 2.21(a), annexed hereto,
reflecting, with respect to any Lender, the ratio of (i) the amount of the Dollar
Commitment of such Lender to (ii) the aggregate amount of the Dollar Commitments of all
Lenders (as such percentage may change in accordance with the provisions of this
Agreement).


"Permissible Overloans": Revolving Credit Loans which are Overloans, which
aggregate no more than five (5%) of the Borrowing Base at any one time outstanding, where
such loans (without duplication) are either (a) Protective Overloans or (b) made when
Availability equals zero and are not extant for more than sixty (60) days during any 12
month period absent the consent of the Required Lenders. 


"Permitted Acquisition": During the term of this Agreement, one or more
Acquisitions so long as:


(a) No Default or Event of Default shall have occurred and be continuing or would
result from the consummation of such proposed Acquisition,


(b) The assets being acquired or the Person whose stock is being acquired is engaged in
the business of the Borrower or a business reasonably related thereto,


(c) The consideration payable in respect of such Acquisition shall be composed solely
of (i) common stock of the Borrower, warrants for common stock of the Borrower, preferred
stock of the Borrower (so long as such preferred stock does not require any current cash
payment until after the Liabilities have been paid in full and the Dollar Commitments
terminated hereunder) or (ii) cash, provided, that at all times, the Borrower has
maintained Excess Availability for 45 days prior to the date of such Acquisition and, on a
pro forma basis, will maintain Excess Availability for 45 days after the date of such
Acquisition of not less than the sum (expressed as Dollars) of twenty-five (25%) percent
multiplied by the lesser of (x) the Revolving Credit Loan Ceiling and (y) the Borrowing
Base (provided, further, however, that for the purposes of calculating the Borrowing Base
in clause (c)(ii) of this definition, Borrower may include assets to be acquired that,
following consummation of the Acquisition, would qualify as assets eligible for inclusion
in the calculation of the Borrowing Base, it being understood that the inclusion of such
assets for the calculation of the Borrowing Base for the purposes of this clause (c)(ii)
shall not be construed as a commitment by the Agent to include such acquired assets in the
Borrowing Base upon consummation of the Acquisition),


(d) Borrower has provided Agent written notice thereof not less than 15 days prior to
the anticipated closing date of such subject Acquisition together with such documentation
that Agent may require demonstrating that after giving effect to the subject Acquisition,
Borrower and its Subsidiaries (taken as a whole) would not suffer a Material Adverse
Change as a result of the proposed Acquisition, 


(e) The subject stock or other equity is being acquired in such Acquisition directly by
Borrower or the subject assets are being acquired in such Acquisition directly by the
Borrower or a new Subsidiary formed for the purposes of such Acquisition,


(f) Borrower shall have caused such acquired Person to execute and deliver a guaranty
of the Liabilities hereunder, together with any and all security agreements, UCC-1
financing statements, fixture filings, and other documentation reasonably requested by
Agent to cause such acquired Person to be obligated with respect to the Liabilities and to
include the assets of the acquired Person with the Collateral, provided, that such assets
shall not be included in the calculation of the Borrowing Base, except to the extent such
assets are deemed acceptable for borrowing by the Agent, in its sole discretion, and


(g) Following consummation of such Acquisition, those Persons comprising senior
management of the Person whose assets are being acquired or the Person whose stock is
being acquired do not perform any of the functions of senior management of the Borrower
unless such Person is acceptable to the Agent, in its reasonable discretion.


"Permitted Disposition": Any of the following: (a) sales or other
dispositions by Borrower or its Subsidiaries of assets that are worn, damaged, or obsolete
in the ordinary course of business and has a retail value of not more than $2,500,000, in
the aggregate, during any Fiscal Year, (b) sales by the Borrower or its Subsidiaries of
Inventory in the ordinary course of business, (c) the use or transfer of money or Cash
Equivalents by the Borrower or its Subsidiaries in a manner that is not prohibited by the
terms of this Agreement or the other Loan Documents, (d) the licensing by the Borrower or
its Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights, and other
intellectual property rights in the ordinary course of business, (e) licenses and
sublicenses by the Borrower or any of its Subsidiaries of software, intellectual property
and other general intangibles in the ordinary course of business, provided, that in the
case of clause (d) and (e) hereof, Borrower has retained the right to use and exploit each
of the Borrower’s intellectual property and other general intangible used in the
Borrower’s business, (f) sale, dispositions or other transfers to the Borrower by any
Subsidiary or between Guarantors or from the Borrower to the Guarantor, , provided, that
there does not exist an Event of Default and an Event of Default would not exist after
giving effect to such sale, disposition or other transfer, and (g) other sales, transfer
or other dispositions in an aggregate amount not to exceed $1,000,000 during any Fiscal
Year, provided, that in each case there does not exist an Event of Default and an Event of
Default would not exist after giving effect to such sales, transfer, or other
dispositions.


"Permitted Distributions": (a)_Distributions on account of any shares of any
class of capital stock of the Borrower, provided, that each of the following conditions is
satisfied: (A) no Default or Event of Default has occurred and is continuing or would
result therefrom, (B) the Borrower is Solvent, (C) at all times, the Borrower has
maintained Excess Availability for 45 days prior to the date of such Distribution and, on
a pro forma basis, will maintain Excess Availability for 45 days after the date of such
Distribution of not less than the sum (expressed as Dollars) of twenty-five (25%) percent
multiplied by the lesser of (x) the Revolving Credit Loan Ceiling and (y) the Borrowing
Base and (b) Distributions required pursuant to the Employment Agreement dated as of March
6, 2001 between the Borrower and Perry D. Odak (together with any amendments thereto
existing as of the Closing Date or entered into by the Borrower with the prior written
consent of the Agent).


"Permitted Encumbrances": The following:


(a) Encumbrances under the Loan Documents.


(b) Those Encumbrances (if any) listed on EXHIBIT 4.7(a), annexed hereto and renewals,
refinancings and extensions thereof.


(c) Liens securing the payment of taxes, either not yet overdue or the validity of
which is being contested in good faith by the Borrower and for which the Borrower has
established adequate cash reserve; non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of Borrower’s business
to the extent such liens secure (i) indebtedness that is not overdue, (ii) indebtedness
relating to claims or liabilities which are fully insured and being defended at the sole
cost and expense and at the sole risk of the insurer or are being contested by the
Borrower in good faith by appropriate proceedings diligently pursued, in each instance
prior to the commencement of foreclosure or other similar proceedings and provided that
adequate reserves therefor have been set aside on the Borrower’s books (provided,
however, that the inclusion of any of the foregoing as "Permitted Encumbrances"
shall not affect their respective relative priorities vis a vis the security interests
created herein), or (iii) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property.


(d) Deposits under workmen's compensation, unemployment insurance and social security
laws, or to secure the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, or to secure statutory obligations or surety or
appeal bonds, or to secure indemnity, performance or other similar bonds arising in the
ordinary course of business.


(e) Landlord's liens arising by operation of law.


(f) Purchase money security interests or capitalized equipment leases on any fixed or
capital assets acquired or held by the Borrower in the ordinary course of business and
securing Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such fixed or capital assets; provided however that (i) any such
Encumbrance attaches to such property concurrently with or within 60 days after the
acquisition thereof, (ii) such Encumbrance attaches solely to the assets so acquired in
such transaction and (iii) the principal amount of the Indebtedness secured thereby does
not exceed 100% of the cost of such fixed or capital assets.


(g) Easements, rights-of-way, restrictions and other similar encumbrances incurred in
the ordinary course of business that, in the aggregate, are not substantial in amount and
that do not in any case materially detract from the value of the property subject thereto
or materially interfere with the ordinary conduct of the business of the Borrower or any
of its Subsidiaries.


(h) Any interest or title of a lessor, licensor or sublessor under any lease, license
or sublease entered into by the Borrower or any other Subsidiary in the ordinary course of
its business and covering only the assets so leased, licensed or subleased.


(i) Liens arising from judgments, decrees, awards or attachments in circumstances not
constituting an Event of Default.


(j) Liens on insurance policies and the proceeds thereof pursuant to insurance premium
financing arrangements.


(k) Liens (i) incurred in the ordinary course of business in connection with the
purchase or shipping of goods or assets (or the related assets and proceeds thereof),
which Liens are in favor of the seller or shipper of such goods or assets and only
attached to such goods or assets and are limited to the cost of shipping of such goods or
assets, and (ii) in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods.


(l) Liens in favor of collecting banks having a right of setoff, revocation, refund or
chargeback with respect to money or instruments of the Borrower or any of its Subsidiaries
on deposits with or in possession of such banks, other than relating to Indebtedness,
provided, that such liens are limited to securing costs and fees of such bank incidental
to the maintenance of such accounts.


"Permitted Intercompany Indebtedness": Indebtedness by or between the
Borrower and its Subsidiaries: (a) existing as of the date hereof and disclosed on EXHIBIT
4.8, (b) Indebtedness, (b) arising from non-cash allocations of general administrative and
other overhead expenses of the Borrower and its Subsidiaries, (c) as between the Borrower
and Guarantors, up to $10,000,000 in the aggregate per Fiscal Year, and (d) as between the
Borrower and Subsidiaries, other than Subsidiaries which are Guarantors, such amounts as
are required in the ordinary course of business, provided, that in respect of clauses (c)
and (d) of this definition, there does not exist an Event of Default and an Event of
Default would not exist after giving effect to such Indebtedness.


"Permitted Investments": (a) Investments in Cash Equivalents, (b) Investments
in negotiable instruments for collection, (c) Investments in existence on the date hereof
and listed on EXHIBIT 7.1 attached hereto, (d) in addition to Investments otherwise
expressly permitted by this Agreement, investments in an aggregate amount (valued at cost
but giving effect to any portion of such Investments returned to the investor in cash as a
repayment of principal or a return of invested capital and any earnings on such
Investment, whether in the form of interest, dividends or otherwise) not to exceed in any
fiscal year of the Borrower $5,000,000, provided, that there does not exist a Cash
Management Event and a Cash Management Event would not exist after giving effect to such
Investment.


"Permitted Store Openings/Closings": Defined in Section 4.6(d)(ii).


"Person": Any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability company,
institution, entity, party or foreign or United States government (whether federal, state,
county, city, municipal or otherwise), including, without limitation, any instrumentality,
division, agency, body or department thereof.


"Post-Closing Due Diligence": One (1) appraisal (at the expense of the
Borrower) of the Borrower’s Inventory following the Closing Date and one (1)
commercial finance audit (at the expense of the Borrower) following the Closing Date.


"Proceeds": Includes, without limitation, "Proceeds" as defined in
the UCC, and proceeds of all Collateral.


"Pro Rata": With respect to any Lender vis a vis any other Lender, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Lender’s Dollar Commitment and the denominator of which shall be the aggregate of all
of the Lenders’ Dollar Commitments, as adjusted from time to time in accordance with
the provisions of Sections 2.21 and 19.1 of this Agreement, provided that, if all Dollar
Commitments have been terminated, the numerator shall be the unpaid amount of such
Lender’s Revolving Credit Loans and its interest in L/C exposure and the denominator
shall be the aggregate unpaid principal amount of all unpaid Revolving Credit Loans and
L/C exposure. 


"Protective Overloans": Revolving Credit Loans and expenditures and
incurrences of obligations which are made or undertaken by the Agent in the Agent’s
discretion to protect or preserve the Collateral Interests which secure the Liabilities
and Agent’s Rights and Remedies, or which the Agent determines in its discretion are
appropriate to facilitate a Liquidation. 


"Receipts": All cash, cash equivalents, checks, and credit card slips and
receipts as arise out of the sale of the Collateral. 


"Receivables Collateral": That portion of the Collateral which consists of
rights to payment.


"Receivables Reserve": Such Reserves as may be established from time to time
by the Agent, in the Agent’s reasonable discretion, based upon the Agent’s
determination of the collectability of Eligible Credit Card Receivables in the ordinary
course and of the creditworthiness of the Account Debtors, Credit Card Issuers, and Credit
Card Processors.


"Register": Defined in Section 2.20(c).


"Regulatory Change": Defined in Section 2.21(c). 


"Required Lenders": At any time, Lenders whose Pro Rata shares aggregate more
than 50% of the Dollar Commitments, or if the Dollar Commitments have been terminated
irrevocably, 50% of the Liabilities arising under this Agreement (other than Bank Product
Obligations) then outstanding.


"Requirement of Law": As to any Person:


(a) (i) All statutes, rules, regulations, orders, or other requirements having the
force of law and (ii) all court orders and injunctions, arbitrator's decisions, and/or
similar rulings, in each instance ((i) and (ii)) of or by any federal, state, municipal,
and other governmental authority, or court, tribunal, panel, or other body which has or
claims jurisdiction over such Person, or any property of such Person, or of any other
Person for whose conduct such Person would be responsible. 


(b) That Person's charter, certificate or articles of incorporation, articles of
organization, and/or other organizational documents, as applicable; and 


(c) That Person's by-laws and/or other instruments which deal with corporate or similar
governance, as applicable.


"Reserve Percentage": The decimal equivalent of that rate applicable to any
Lender under regulations issued from time to time by the Board of Governors of the Federal
Reserve System for determining the maximum reserve requirement of that Lender with respect
to "Eurocurrency liabilities" as defined in such regulations. The Reserve
Percentage applicable to a particular Eurodollar Loan shall be based upon that which is in
effect during the subject Interest Period, with changes in the Reserve Percentage which
take effect during such Interest Period to take effect (and consequently change any
interest rate determined with reference to the Reserve Percentage) if and when such change
is applicable to such loans.


"Reserves": Collectively, the following: Availability Reserves, Inventory
Reserves, Receivables Reserves, and Leasehold Reserves.


"Retail": The Cost of Inventory divided by the Cost Factor.


"Revolving Credit": Defined in Section 2.1(a). 


"Revolving Credit Early Termination Fee": Defined in Section 2.13.


"Revolving Credit Loans": Defined in Section 2.1(a).


"Revolving Credit Loan Ceiling": Forty Million ($40,000,000) Dollars,
provided, however, the "Revolving Credit Loan Ceiling" may be increased to One
Hundred Million ($100,000,000) Dollars at any time, pursuant to the provisions of Section
2.21(f).


"Revolving Credit Note": Defined in Section 2.9.


"Revolving Credit Obligations": The aggregate of the Borrower’s
liabilities, obligations, and indebtedness of any character on account of or in respect to
the Revolving Credit.


"Securities Account": As defined in the UCC.


"Solvent": With respect to any Person on a particular date, that such Person
is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act).


"Stated Amount": The maximum amount for which an L/C may be honored, less any
amounts already drawn thereunder.


"Subordinated Debt": Includes (a) unsecured Indebtedness of Borrower that is
subordinated to the Liabilities in a manner, under terms and subject to a written
agreement reasonably satisfactory to Agent and (b) the Indenture and other similar
Indebtedness which is structurally subordinated to the Liabilities pursuant to the terms
of any written agreement governing such Indebtedness. 


"Subsidiary": Any corporation of which more than fifty percent (50%) of the
outstanding capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at the time stock of any other
class of such corporation shall have or might have voting power by reason of the happening
of any contingency) is at the time, directly or indirectly, owned by the Borrower, or any
partnership, joint venture or limited liability company of which more than fifty percent
(50%) of the outstanding equity interests are at the time, directly or indirectly, owned
by the Borrower or any partnership of which the Borrower is a general partner.


"SuperMajority Lenders": At any time, Lenders whose Pro Rata shares aggregate
more than 66 2/3% of the Dollar Commitments, or if the Dollar Commitments have been
terminated irrevocably, 66 2/3% of the Liabilities arising under this Agreement (other
than Bank Product Obligations) then outstanding.


"Supporting Obligation": Has the meaning given that term in the UCC and also
refers to a Letter-of-Credit Right or secondary obligation which supports the payment or
performance of an Account, Chattel Paper, a Document, a General Intangible, an Instrument,
or Investment Property. 


"Sweep Period": Defined in Section 7.3(e).


"Sweep Suspension": Defined in Section 7.3(e).


"SwingLine": The facility pursuant to which the SwingLine Lender may advance
SwingLine Loans to the Borrower aggregating up to the SwingLine Loan Ceiling.


"SwingLine Loan Ceiling": Ten Million ($10,000,000) Dollars, unless the
Revolving Credit Loan Ceiling is increased to One Hundred Million ($100,000,000) Dollars,
in which case, Twenty Million ($20,000,000) Dollars, or such other amount as may be agreed
to by the Agent and Required Lenders.


"SwingLine Lender": Bank of America, N.A., or another financial institution
designated by the Agent.


"SwingLine Loans": Defined in Section 2.7(a).


"SwingLine Note": Defined in Section 2.7(c).


"Tax": In relation to any Eurodollar Loans and the applicable Eurodollar
Rate, any tax, levy, impost, duty, deduction, withholding or charges of whatever nature
required to be paid by the Agent and/or to be withheld or deducted from any payment
otherwise required hereby to be made by the Borrower to the Agent; provided, that the term
"Tax" shall not include any taxes imposed upon the net income of the Agent.


"Termination Date": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10.11, below; or (c) the date set as the
Termination Date in a notice by the Agent to the Borrower on account of the occurrence of
any Event of Default other than as described in Section 10.11, below; or (d) the date
which is ten (10) days from the date of a notice by the Borrower to the Agent of its
intention to terminate this Loan Agreement.


"Transfer": Wire transfer pursuant to the wire transfer system maintained by
the Board of Governors of the Federal Reserve Board, or as otherwise may be agreed to from
time to time by the Agent. Wire instructions may be changed in the same manner that Notice
Addresses may be changed pursuant to Section 12.1 of this Agreement, except that no change
of the wire instructions for Transfers to the Agent shall be effective without the consent
of the Agent.


"UCC": The Uniform Commercial Code as presently in effect in New York as used
herein in the context of any definitions; otherwise, as in effect from time to time in New
York.


"Unused Line Fee": Defined in Section 2.12.


"USB CD": That certain US Bank, N.A. Certificate of Deposit in the amount of
$2,000,000 maturing on June 15, 2005.


"Wells Fargo": Wells Fargo Bank, National Association.


"Wild Oats Canada": Wild Oats Markets Canada, Inc., a British Columbia
corporation.


ARTICLE II. - THE REVOLVING CREDIT


2.1 ESTABLISHMENT OF REVOLVING CREDIT


(a) The Lenders hereby establish a revolving line of credit (the "Revolving
Credit") in the Borrower’s favor pursuant to which the Lenders, acting through
the Agent, shall make loans and advances and otherwise provide financial accommodations to
and for the account of the Borrower until the Maturity Date its Pro Rata share of advances
(each, a "Revolving Credit Loan") as provided herein in each instance equal to
its applicable Percentage Commitment of Availability, up to a maximum amount of its
applicable Dollar Commitment, provided, that, notwithstanding anything contained herein to
the contrary, the loans and advances and other financial accommodations to and for the
account of the Borrower shall not exceed the sum of (i) the unpaid principal balance of
the Loan Account and (ii) the Stated Amount of L/Cs as of the Closing Date until the Agent
has completed its Post-Closing Due Diligence. The obligations of each Lender hereunder
shall be several and not joint.


(b) Loans, advances, and financial accommodations under the Revolving Credit shall be
made with reference to the Borrowing Base and shall be subject to Availability. The
Borrowing Base and Availability shall be determined by the Agent by reference to Borrowing
Base Certificates furnished as provided in Section 5.4 below (subject to Reserves
established by the Agent as permitted hereunder).


(c) The Dollar Commitment of each Lender to provide such loans, advances, and financial
accommodations is subject to Section 2.2.


(d) The proceeds of borrowings under the Revolving Credit shall be used solely to (i)
provide a back-up standby L/C to Wells Fargo, as beneficiary, to secure the
Borrower’s reimbursement obligations to Wells Fargo in respect of L/Cs issued and
outstanding as of the Closing Date by Wells Fargo for the benefit of the Borrower in the
aggregate face amount not to exceed $10,000,000 and (ii) for working capital purposes,
Capital Expenditures and other general corporate purposes. Following the occurrence of a
Cash Management Event, no proceeds of a borrowing under the Revolving Credit may be used,
nor shall any be requested, with a view towards the accumulation of any general fund or
funded reserve of the Borrower other than in the ordinary course of the Borrower’s
business and consistent with the provisions of this Agreement.


2.2 ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)


(a) No Lender has any obligation to make any loan or advance, or otherwise to provide
any credit to or for the benefit of the Borrower where the result of such loan, advance,
or credit is an Overloan except in respect to Permissible Overloans which the Agent deems
prudent.


(b) The Lenders’ obligations, among themselves, are subject to Section 16.3 of
this Agreement (which relates to each Lender’s making amounts available to the Agent)
and to Section 14.5(a)(viii) of this Agreement (which relates to Permissible Overloans).


(c) The Lenders’ providing of an Overloan on any one occasion does not affect the
obligations of the Borrower hereunder (such as the Borrower’s obligation to
immediately repay any amount which otherwise constitutes an Overloan) nor shall it
obligate the Lenders to do so on any other occasion. 


2.3 RISKS OF VALUE OF COLLATERAL.


Any reference to a given asset in connection with the making of loans, credits, and
advances and the providing of financial accommodations under the Revolving Credit and/or
the monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Agent or the Lenders relative to the actual value of the asset in
question. All risks concerning the value of the Collateral are and remain upon the
Borrower. All Collateral secures the prompt, punctual, and faithful performance of the
Liabilities whether or not relied upon by the Agents in connection with the making of
loans, credits, and advances and the providing of financial accommodations under the
Revolving Credit. 


2.4 COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF CREDIT.


Subject to the provisions of this Agreement, the Lenders shall make a loan or advance
under the Revolving Credit and the Agent shall issue an L/C for the account of the
Borrower, in each instance if duly and timely requested by the Borrower as provided herein
provided that:


(a) No Overloan is then outstanding and none will result therefrom.


(b) There does not exist a Default or Event of Default and none will thereby exist.


2.5 REVOLVING CREDIT LOAN REQUESTS.


(a) Requests for loans and advances under the Revolving Credit or for the continuance
or conversion of an interest rate applicable to a Revolving Credit Loan may be requested
by the Borrower in such manner as may from time to time be reasonably acceptable to the
Agent.


(b) Subject to the provisions of this Agreement, the Borrower may request a Revolving
Credit Loan and elect an interest rate and Interest Period to be applicable to that
Revolving Credit Loan by giving notice to the Agent by no later than the following: 


(i) If such Revolving Credit Loan is to be or is to be converted to a Base Margin Loan:
By 1:00 PM on the Business Day on which the subject Revolving Credit Loan is to be made or
is to be so converted. Base Margin Loans requested by the Borrower, other than those
resulting from the conversion of a Eurodollar Loan, shall not be less than $10,000.00.


(ii) If such Revolving Credit Loan is to be, or is to be converted to, an Eurodollar
Loan: By 1:00 PM, at least three (3) Eurodollar Business Days before the commencement of
any new Interest Period or the end of the then applicable Interest Period. Eurodollar
Loans and conversions to Eurodollar Loans shall each be not less than $1,000,000.00 and in
increments of $100,000.00 in excess of such minimum.


(iii) Any Eurodollar Loan which matures while a Default is extant may be converted, at
the option of the Agent, to a Base Margin Loan notwithstanding any notice from the
Borrower that such Revolving Credit Loan is to be continued as a Eurodollar Loan.


(c) Any request for a Revolving Credit Loan or for the continuance or conversion of a
Revolving Credit Loan which is made after the applicable deadline therefor, as set forth
above, shall be deemed to have been made at the opening of business on the then next
Business Day or Eurodollar Business Day, as applicable, unless the Agent, in its
discretion, determines to deem it to have been made earlier. Each request for a Revolving
Credit Loan or for the conversion of a Revolving Credit Loan shall be made in such manner
as may from time to time be acceptable to the Agent. 


(d) The Borrower may request that the Agent cause the issuance of L/C's for the account
of the Borrower as provided in Section 2.18.


(e) Following the Closing Date, the Agent may rely on any request for a loan or
advance, or other financial accommodation under the Revolving Credit which the Agent, in
good faith, believes to have been made by a Person duly authorized to act on behalf of the
Borrower and may decline to make any such requested loan or advance, or issuance, or to
provide any such financial accommodation pending the Agent's being furnished with such
documentation concerning that Person's authority to act as may be reasonably satisfactory
to the Agent.


(f) A request by the Borrower for loan or advance or other financial accommodation
under the Revolving Credit shall be irrevocable and shall constitute certification by the
Borrower that as of the date of such request, each of the following is true and correct: 


(i) Each representation, not relating to a specific date, which is made herein or in
any of the Loan Documents is then true and correct in all material respects as of and as
if made on the date of such request (except (A) to the extent of changes resulting from
transactions contemplated or not prohibited by this Agreement or the other Loan Documents
and changes occurring in the ordinary course of business and (B) to the extent that such
representations and warranties expressly relate to an earlier date). 


(ii) Neither a Default nor an Event of Default is extant. 


(g) If, at any time or from time to time, a Default or Event of Default exists and is
continuing, 


(i) The Agent may suspend the Revolving Credit immediately, in which event neither the
Agent nor the Lenders shall be obligated during such suspension to make any additional
loans or advances or to provide any additional financial accommodation hereunder or to
seek the issuance of any L/C.


(ii) The Agent may suspend the right of the Borrower to request any Eurodollar Loan or
to convert any Base Margin Loan to a Eurodollar Loan. 


2.6 MAKING OF REVOLVING CREDIT LOANS


(a) A loan or advance under the Revolving Credit shall be made by the Transfer of the
proceeds of such loan or advance to the Operating Account or as otherwise instructed by
the Borrower.


(b) A loan or advance shall be deemed to have been made under the Revolving Credit (and
the Borrower shall be indebted to the Agent or Lenders for the amount thereof immediately)
upon the Agent's initiation of the Transfer of the proceeds of such loan or advance in
accordance with the Borrower’s instructions (if such loan or advance is of funds
requested by the Borrower) or the charging of the amount of such loan to the Loan Account
(in all other circumstances).


(c) There shall not be any recourse to or liability of the Agent or Lenders (except to
the extent caused by the gross negligence or willful misconduct of the Agent or Lenders),
on account of:


(i) Any delay in the making of any loan or advance requested under the Revolving
Credit.


(ii) Any delay by any bank or other depository institution in treating the proceeds of
any such loan or advance as collected funds.


(iii) Any delay in the receipt, and/or any loss, of funds which constitute a loan or
advance under the Revolving Credit, the wire transfer of which was properly initiated by
the Agent or Lenders in accordance with wire instructions provided to the Agent by the
Borrower).


2.7 SWINGLINE LOANS.


(a) For ease of administration of Revolving Credit Loans, Revolving Credit Loans which
are Base Margin Loans may be made by the Agent, as a SwingLine Lender (in the aggregate,
the "SwingLine Loans"), in accordance with the procedures set forth in this
Agreement for the making of Revolving Credit Loans. The unpaid principal balance of the
SwingLine Loans shall not at any one time be in excess of the SwingLine Loan Ceiling.


(b) The aggregate unpaid principal balance of SwingLine Loans shall bear interest at
the rate applicable to Base Margin Loans and shall be repayable as a Revolving Credit Loan
under the Revolving Credit.


(c) The Borrower’s obligation to repay SwingLine Loans may be evidenced by a Note
in the form of EXHIBIT 2.7 ("SwingLine Note"), executed by the Borrower and
payable to the Agent. Neither the original nor a copy of the SwingLine Note shall be
required to establish or prove any Liability. Upon the Borrower being provided with an
affidavit (which shall include an indemnity reasonably satisfactory to the Borrower) from
the Agent to the effect that the SwingLine Note has been lost, mutilated, or destroyed,
the Borrower shall execute and deliver a replacement of any SwingLine Note to the Agent.


(d) For all purposes of this Agreement, the SwingLine Loans and the Borrower’s
obligations to the Agent constitute Revolving Credit Loans and are secured as
"Liabilities".


(e) SwingLine Loans may be subject to periodic settlement by the Agent with the
Lenders.


2.8 THE LOAN ACCOUNT.


(a) An account ("Loan Account") shall be opened on the books of the Agent in
which a record shall be kept of all loans and advances made under the Revolving Credit.


(b) The Agent may also keep a record (either in the Loan Account or elsewhere, as the
Agent may from time to time elect) of all interest, fees, service charges, costs,
expenses, and other debits owed to the Agent and the Lender on account of the Liabilities
and of all credits against such amounts so owed.


(c) All credits against the Liabilities shall be conditional upon receipt of final
payment to the Agent and the Lenders of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the Agent or
the Lenders for any reason or is not so paid shall be a Liability and shall be added to
the Loan Account, whether or not the item so charged back or not so paid is returned.


(d) Except as otherwise provided herein, all fees, service charges, costs, and expenses
for which the Borrower is obligated hereunder are payable on demand (accompanied by
reasonable back-up documentation therefor). In the determination of Availability, the
Agent may deem fees, service charges, accrued interest (except for interest charged on
Eurodollar Loans, which, absent the occurrence of an Event of Default, shall be charged on
the maturity date of the Eurodollar contract), and other payments which will be due and
payable between the date of such determination and the first day of the then next
succeeding month as having been advanced under the Revolving Credit whether or not such
amounts are then due and payable. 


(e) The Agent, without the request of the Borrower, may charge any DDA or advance under
the Revolving Credit any interest, fee, service charge, or other payment to which the
Agent or the Lenders is entitled from the Borrower pursuant hereto and may charge the same
to the Loan Account notwithstanding that such amount so advanced may result in Borrowing
Base's being exceeded, provided, that Agent furnishes the Borrower with prior notice of
any charge on account of fees, service charges and other payments to which the Agent or
the Lenders is entitled. Notwithstanding the foregoing, the Agent shall endeavor to comply
with Borrower’s request to make such charge either to a DDA or to the Loan Account.
Any amount which is added to the principal balance of the Loan Account as provided in this
Section 2.8(e) shall bear interest, at the interest rate then and thereafter applicable to
Base Margin Loans. Such action on the part of the Agent shall not constitute a waiver of
the Agent's right or the Borrower’s obligations under Section 2.10(b).


(f) Any statement rendered by the Agent or the Lenders to the Borrower concerning the
Liabilities shall, in the absence of manifest error, be considered correct and accepted by
the Borrower and shall be conclusively binding upon the Borrower unless the Borrower
provides the Agent with written objection thereto within forty-five (45) days after the
mailing of such statement, which written objection shall indicate, with particularity, the
reason for such objection. In the absence of manifest error, the Loan Account and the
Agent's and Lender’s books and records concerning the loan arrangement contemplated
herein and the Liabilities shall be prima facie evidence and proof of the items described
therein.


2.9 THE REVOLVING CREDIT NOTE. 


The Borrower’s obligation to repay loans and advances under the Revolving Credit
to any Lender, with interest as provided herein, may, at each Lender’s option, be
evidenced by a Note (a "Revolving Credit Note") in the form of EXHIBIT 2.9,
annexed hereto, executed by the Borrower, payable to such Lender. Neither the original nor
a copy of any Revolving Credit Note shall be required, however, to establish or prove any
Liability. Upon the Borrower being provided with an affidavit (which shall include an
indemnity reasonably satisfactory to the Borrower) from any Lender to the effect that the
Revolving Credit has been lost, mutilated, or destroyed, the Borrower on behalf of itself
and the other Borrower shall execute and deliver a replacement thereof to the applicable
Lender.


2.10 PAYMENT OF THE LOAN ACCOUNT.


(a) The Borrower may repay all or any portion of the principal balance of the Loan
Account from time to time until the Termination Date.


(b) The Borrower, without notice or demand from the Agent, shall pay the Agent that
amount, from time to time, which is necessary so that there is no Overloan outstanding.


(c) The Borrower shall repay the then entire unpaid balance of the Revolving Credit and
all other Liabilities on the Termination Date.


(d) The Agent shall endeavor to cause payments, pursuant to Sections 2.10(a) and
2.10(b), to be applied in accordance with Section 7.5(a) of this Agreement. The Agent
shall endeavor to cause those application of payments (if any), pursuant to Sections
2.10(a) and 2.10(b) against Eurodollar Loans then outstanding in such manner as results in
the least cost to the Borrower, but shall not have any affirmative obligation to do so nor
liability on account of the Agent’s failure to have done so. In no event shall action
or inaction taken by the Agent excuse the Borrower from any indemnification obligation
under Section 2.10(e).


(e) Upon the request of the Agent, the Borrower shall indemnify the Agent and Lenders
and hold the Agent and Lenders harmless from and against any loss, cost or expense
(including loss of anticipated profits) which the Agent or Lenders may sustain or incur
(including, without limitation, by virtue of acceleration after the occurrence of any
Event of Default) as a consequence of any of the following: 


(i) Default by the Borrower in payment of the principal amount of or any interest on
any Eurodollar Loan as and when due and payable, including any such loss or expense
arising from interest or fees payable by the Agent or Lenders in order to maintain its
Eurodollar Loans. 


(ii) Default by the Borrower in making a borrowing or conversion after the Borrower has
given (or is deemed to have given) a request for a Revolving Credit Loan or a request to
convert a Revolving Credit Loan from one applicable interest rate to another.


(f) The making of any payment on an Eurodollar Loan or the making of any conversion of
any such Loan to a Base Margin Loan on a day that is not the last day of the applicable
Interest Period with respect thereto, including interest or fees payable by the Agent and
Lenders as "breakage fees".


2.11 INTEREST ON REVOLVING CREDIT LOANS.


(a) Each Revolving Credit Loan which consists of a Base Margin Loan shall bear interest
at the Base Margin Rate (determined based upon a 360-day year and actual days elapsed),
unless and until it is made as, or is converted to, an Eurodollar Loan pursuant to Section
2.5 hereof.


(b) Each Revolving Credit Loan which consists of an Eurodollar Loan shall bear interest
at the applicable Eurodollar Rate (determined based upon a 360-day year and actual days
elapsed).


(c) Subject to, and in accordance with, the provisions of this Agreement, the Borrower
may cause all or a part of the unpaid principal balance of Revolving Credit Loans to bear
interest at the Base Margin Rate or the Eurodollar Rate as specified from time to time by
the Borrower.


(d) The Borrower shall not select, renew, or convert any interest rate for a Revolving
Credit Loan such that, in addition to interest at the Base Margin Rate, there are more
than five (5) Eurodollar Periods applicable to the outstanding Eurodollar Loans at any one
time.


(e) The Borrower shall pay accrued and unpaid interest on each Revolving Credit Loan in
arrears on the applicable Interest Payment Date therefor. Following the occurrence and
during the continuance of any Event of Default (and whether or not the Agent exercises the
Agent’s rights on account thereof), all Revolving Credit Loans shall bear interest,
at the option of the Agent, at rate which is the aggregate, in the case of Base Margin
Loan, of the then applicable Base Margin Rate plus two percent (2%) per annum, and in the
case of Eurodollar Loans, the then applicable Eurodollar Rate plus two percent (2%) per
annum.


(f) The Eurodollar Margin and Base Margin shall be reset quarterly, on the third day
(the "Margin Adjustment Date") following the delivery of a Certificate by an
Authorized Officer described below, commencing on October 19, 2005, based upon the Margin
Pricing Grid set forth below, subject to the provisions in the definitions of "Base
Margin" and "Eurodollar Margin":


 


 


MARGIN PRICING GRID


	Tier
	Excess
    Availability*
	Eurodollar

    Margin

    (Basis Points)
	Base
    Margin

    (Percentage)

	I
	Excess Availability =75% of
    Availability
	100
	0.00%

	II
	Excess Availability =25% and
    <75% Availability 
	125
	0.00%

	III
	Excess Availability <25%
    Availability
	150
	0.00%




*Excess Availability will be determined based upon a Certificate by an Authorized
Officer delivered to the Agent no later than ten (10) Business Day after the last day of
each Fiscal Quarter certifying, as of such last day of each Fiscal Quarter, the relative
levels of Excess Availability and Availability. Failure of the Agent to receive such
Certificate within the time frame specified shall result in an increase in the Eurodollar
Margin and the Base Margin to the highest level set forth in the foregoing grid, until
receipt of such Certificate demonstrating that such an increase is not required. If an
Event of Default has occurred and is continuing at the time any reduction in the
Eurodollar Margin and Base Margin is to be implemented, that reduction shall be deferred
until the date on which such Event of Default is waived or cured.


2.12 UNUSED LINE FEE.


In addition to any other fee to be paid by the Borrower on account of the Revolving
Credit, the Borrower shall pay the Agent, for the benefit of the Lenders, an "Unused
Line Fee". The Unused Line Fee shall equal One Quarter of One Percent (0.25%) per
annum of the average difference, during the month just ended (or relevant period with
respect to the payment being made on the Termination Date) between the Revolving Credit
Loan Ceiling and the sum of (i) the unpaid principal balance of the Loan Account and (ii)
the Stated Amount of L/Cs. The Unused Line Fee shall be paid in arrears, on the first day
of each calendar quarter (commencing with July 1, 2005) and on the Termination Date.


2.13 EARLY TERMINATION FEE.


In addition to any other fee to be paid by the Borrower on account of the Revolving
Credit the Borrower shall pay the Agent a "Revolving Credit Early Termination
Fee", as set forth in the Fee Letter.


2.14 RESERVED.


2.15 CONCERNING FEES.


(a) In addition to any other right to which the Lenders is then entitled on account
thereof, the Agent, with the agreement of the Borrower, may assess, for the benefit of the
Lenders, an additional fee payable by the Borrower on account of the accommodation, from
time to time, by the Agent or the Lenders of the Borrower’s request that the Agent or
Lenders depart or dispense with one or more of the administrative provisions of this
Agreement and/or the Borrower’s failure to comply with any of such provisions. 


(b) Agent reserves the right to negotiate with the Borrower for the assessment of
additional fees, including fees for the benefit of the Agent, in the event that Agent
syndicates the facility contemplated by this Agreement.


(c) Except as set forth in the Fee Letter, the Borrower shall not be entitled to any
credit, rebate or repayment of the Unused Line Fee and Revolving Credit Early Termination
Fee, or other fee earned by the Lenders pursuant to this Agreement or any other Loan
Document notwithstanding any termination of this Agreement or suspension or termination of
the Agent's or Lenders’ obligation to make loans and advances hereunder.


2.16 AGENT’S DISCRETION.


(a) Each reference in the Loan Documents to the exercise of discretion or the like by
the Agent or the Lenders shall be to that Person's exercise of its judgment, in good
faith, based upon that Person's consideration of any such factor as that Person, taking
into account information of which that Person then has actual knowledge, believes:


(i) Would reasonably be expected to affect the value of the Collateral, the
enforceability of the Agent's Collateral Interests therein, or the amount which the Agent
would likely realize therefrom (taking into account delays which may possibly be
encountered in the Agent's realizing upon the Collateral and likely Costs of Collection);


(ii) Indicates that any report or financial information delivered to the Agent or the
Lenders by or on behalf of the Borrower is incomplete, inaccurate, or misleading in any
material manner or was not prepared in accordance with the requirements of this Agreement;


(iii) Reasonably suggests an increase in the likelihood that the Borrower will become
the subject of a bankruptcy or insolvency proceeding; or


(iv) That a Default or Event of Default exists and is continuing. 


(b) The burden of establishing the failure of the Agent or the Lenders to have acted in
a reasonable manner in such Person's exercise of discretion shall be the Borrower’s.


2.17 PROCEDURES FOR ISSUANCE OF L/C'S.


(a) The Borrower may request that the Agent issue L/C's for the account of the
Borrower. Each such request shall be in such format as may from time to time be reasonably
acceptable to the Agent.


(b) The Agent will issue any L/C so requested by the Borrower, provided that, at the
time that the request is made, the Revolving Credit has not been suspended as provided in
Section 2.5(h) and if so issued:


(i) The aggregate Stated Amount of all L/C’s then outstanding (giving effect to
the L/C whose issuance is requested), does not exceed Twenty ($20,000,000) Million
Dollars;


(ii) The expiry of the requested L/C is not later than the earlier of thirty (30) days
prior to the Maturity Date or the following:


(A) For standby L/C's: One (1) year from initial issuance, provided, that such standby
L/C’s may be renewable year to year during the term of this Agreement. 


(B) For documentary L/C's: Sixty (60) days from issuance; and


(iii) an Overloan will not result from the issuance of the subject L/C.


(c) Unless otherwise agreed between the Borrower and the Agent, the Issuer of all
L/C’s shall be Bank of America and any successor to Bank of America.


(d) The Borrower shall also execute such documentation to apply for and support the
issuance of an L/C as may be required by Bank of America or any other Issuer.


(e) There shall not be any recourse to, nor liability of, the Agent or Lenders on
account of


(i) Any delay or refusal by an Issuer to issue an L/C; or


(ii) Any action or inaction of an Issuer on account of or in respect to, any L/C.


(f) The Borrower shall reimburse the Issuer for the amount of any honoring of a drawing
under an L/C on the same day on which such honoring takes place if the Borrower receives
written notice thereof from the Agent by 1:00 PM on such day. The Agent or Lenders,
without the request of the Borrower, may advance under the Revolving Credit (and charge to
the Loan Account) the amount of any honoring of any L/C and other amount for which the
Borrower, the Lenders, the Agent, or the Issuer becomes obligated on account of, or in
respect to, any L/C. Such advance shall be made whether or not there exists an Event of
Default or such advance would result in an Overloan. Such action shall not constitute a
waiver of the Agent's rights under Section 2.10(b) hereof.


2.18 FEES FOR L/C'S.


(a) The Borrower shall pay to the Agent a fee, for the benefit of the Lenders, on
account of each L/C issued by the Agent, quarterly in arrears, and on the Termination Date
and on the End Date, equal to the following:


(i) For each standby L/C: The then applicable Eurodollar Margin per annum, of the
Stated Amount of such standby L/C, payable quarterly in arrears, on the first day of each
month.


(ii) For each documentary L/C's: One half of the then applicable Eurodollar Margin per
annum of the weighted average of the Stated Amount of such documentary L/C outstanding at
any time during the period since the then most recent payment of such fee, payable
quarterly in arrears, on the first day of each month, and on the End Date.


(iii) Notwithstanding Subsections (i) and (ii), above, following the occurrence of any
Event of Default (and whether or not the Agent exercises the Agent's rights on account
thereof), the above fees, at the option of the Agent, shall be two percent (2%) per annum
above the applicable rates above.


(b) In addition to the fee to be paid as provided in Section 2.18(a), above, the
Borrower shall pay to the Agent (or to the Issuer, if so requested by Agent), on demand,
all issuance, processing, negotiation, amendment, and administrative fees and other
amounts charged by the Issuer on account of, or in respect to, any L/C.


(c) If any change in any law, executive order or regulation, or any directive of any
administrative or governmental authority (whether or not having the force of law), or in
the interpretation thereof by any court or administrative or governmental authority
charged with the administration thereof, in each case after the date hereof, shall either:


(i) impose, modify or deem applicable any reserve, special deposit or similar
requirements against letters of credit heretofore or hereafter issued by any Issuer or
with respect to which the Agent, the Lenders or any Issuer has an obligation to lend to
fund drawings under any L/C; or


(ii) impose on any Issuer any other condition or requirements relating to any such
letters of credit;


and the result of any event referred to in Section 2.18(c)(i) or 2.18(c)(ii), above,
shall be to increase the cost to the Agent, the Lenders or any Issuer issuing or
maintaining any L/C (which increase in cost shall be the result of such Issuer's
reasonable allocation among that Issuer's letter of credit customers of the aggregate of
such cost increases resulting from such events), then, upon demand by the Agent and
delivery by the Agent to the Borrower of a certificate of an officer of the Agent or the
subject Issuer describing such change in law, executive order, regulation, directive, or
interpretation thereof, its effect on such Issuer, and the basis for determining such
increased costs and their allocation, the Borrower shall immediately pay to the Agent,
from time to time as specified by the Agent, such amounts as shall be sufficient to
compensate the Agent, the Lenders or the subject Issuer for such increased cost. Any
Issuer's determination of costs incurred under Section 2.18(c)(i) or 2.18(c)(ii), above,
and the allocation, if any, of such costs among the Borrower and other letter of credit
customers of such Issuer, if done in good faith and made on an equitable basis and in
accordance with such officer's certificate, shall be conclusive and binding on the
Borrower. 


2.19 CONCERNING L/C'S.


(a) None of the Issuer, the Issuer's correspondents, or any advising, negotiating, or
paying bank with respect to any L/C shall be responsible in any way for: 


(i) The performance by any beneficiary under any L/C of that beneficiary's obligations
to the Borrower.


(ii) The form, sufficiency, correctness, genuineness, authority of any person signing,
falsification, or the legal effect of, any documents called for under any L/C if such
documents on their face appear to be in order.


(b) The Issuer may honor, as complying with the terms of any L/C and of any drawing
thereunder, any drafts or other documents otherwise in order, but signed or issued by an
administrator, executor, conservator, trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, liquidator, receiver, or other legal representative
of the party authorized under such L/C to draw or issue such drafts or other documents.


(c) Unless the Borrower instructs any Issuer otherwise, in the particular instance, the
Borrower hereby authorizes any Issuer to:


(i) Select an advising bank;


(ii) Select a paying bank; and


(iii) Select a negotiating bank.


(d) All directions, correspondence, and funds transfers relating to any L/C are at the
risk of the Borrower. The Issuer shall have discharged the Issuer's obligations under any
L/C or the drawing thereunder which includes payment instructions if the Issuer initiates
the method of payment called for thereby (or initiates any other commercially reasonable
and comparable method). None of the Agent, the Lenders or the Issuer shall have any
responsibility for any inaccuracy, interruption, error, or delay in transmission or
delivery by post, telegraph or cable, or for any inaccuracy of translation, excepting
gross negligence or willful misconduct.


(e) The Agent's, each Lender’s and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any heretofore
or at any time hereafter otherwise created or arising, whether by statute or rule of law
or contract.


(f) Except to the extent otherwise expressly provided hereunder or agreed to in writing
by the Issuer and the Borrower, the L/C will be governed by either, at the election of the
Issuer, the Uniform Customs and Practice for Documentary Credits, International Chamber of
Commerce, Publication No. 500, and any subsequent revisions thereof, or the International
Standby Practices – ISP 98, International Chamber of Commerce Publication, No 590,
and subsequent revisions thereto.


(g) The obligations of the Borrower under this Agreement with respect to L/C's are
absolute, unconditional, and irrevocable and shall be performed strictly in accordance
with the terms hereof under all circumstances, whatsoever including, without limitation,
the following:


(i) Any lack of validity or enforceability or restriction, restraint, or stay in the
enforcement of this Agreement, any L/C, or any other agreement or instrument relating
thereto;


(ii) Any amendment or waiver of, or consent to the departure from, any L/C;


(iii) The existence of any claim, set-off, defense, or other right which the Borrower
may have at any time against the beneficiary of any L/C; and


(iv) Any good faith honoring of a drawing under any L/C, which drawing possibly could
have been dishonored based upon a strict construction of the terms of the L/C.


2.20 CHANGED CIRCUMSTANCES.


(a) Subject to the provisions of this Agreement, the Borrower shall have the option (A)
as of any date, to convert all or any part of Base Margin Loans to, or request that new
Revolving Credit Loans be made as, Eurodollar Loans of various Interest Periods; (B) as of
the last day of any Interest Period, to continue all or any portion of the relevant
Eurodollar Loans as Eurodollar Loans; (C) as of the last day of any Interest Period, to
convert all or any portion of the Eurodollar Loans to Base Rate Loans; and (D) at any
time, to request new Revolving Credit Loans as Base Rate Loans; provided, that Revolving
Credit Loans may not be continued as or converted to Eurodollar Loans, if the continuation
or conversion thereof would violate the provisions of Sections 2.20(b) or 2.20(c) of this
Agreement or if an Event of Default has occurred.


(b) The Agent's determination of the Eurodollar Rate as provided above shall be
conclusive. Furthermore, if the Agent or the Lenders determines, in good faith (which
determination shall be conclusive), prior to the commencement of any Interest Period that
(A) U.S. Dollar deposits of sufficient amount and maturity for funding the Revolving
Credit Loans are not available to the Agent or the Lenders in the London Interbank
Eurodollar market in the ordinary course of business, or (B) by reason of circumstances
affecting the London Interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the rate of interest to be applicable to the Revolving Credit Loans requested
by the Borrower to be Eurodollar Loans or the Revolving Credit Loans bearing interest at
the rates set forth in this Agreement shall not represent the effective pricing to the
Agent for U.S. Dollar deposits of a comparable amount for the relevant period (such as for
example, but not limited to, official reserve requirements required by Regulation D to the
extent not given effect in determining the rate), the Agent shall promptly notify the
Borrower and (1) all existing Eurodollar Loans shall convert to Base Rate Loans upon the
end of the applicable Interest Period, and (2) no additional Eurodollar Loans shall be
made until such circumstances are cured.


(c) If, after the date hereof, the introduction of, or any change in any applicable
law, treaty, rule, regulation or guideline or in the interpretation or administration
thereof by any governmental authority or any central bank or other fiscal, monetary or
other authority having jurisdiction over the Agent, the Lenders or their respective
lending offices (a "Regulatory Change"), shall, in the opinion of counsel to the
Agent or the Lenders, make it unlawful for the Agent or the Lenders to make or maintain
Eurodollar Loans, then the Agent shall promptly notify the Borrower and (A) the Eurodollar
Loans shall immediately convert to Base Rate Loans on the last Business Day of the then
existing Interest Period or on such earlier date as required by law and (B) no additional
Eurodollar Loans shall be made until such circumstance is cured.


(d) If, for any reason, an Eurodollar Loan is paid prior to the last Business Day of
any Interest Period or if an Eurodollar Loan does not occur on a date specified by the
Borrower in its request (other than as a result of a default by the Agent or the Lenders),
the Borrower agrees to indemnify the Agent and the Lenders against any loss (including any
loss on redeployment of the deposits or other funds acquired by the Agent or the Lenders
to fund or maintain such Eurodollar Rate Loan) cost or expense incurred by the Agent or
the Lenders as a result of such prepayment.


(e) If any Regulatory Change (whether or not having the force of law) shall (A) impose,
modify or deem applicable any assessment, reserve, special deposit or similar requirement
against assets held by, or deposits in or for the account of or loans by, or any other
acquisition of funds or disbursements by, the Agent or the Lenders; (B) subject the Agent,
the Lenders or the Eurodollar Loans to any Tax or change the basis of taxation of payments
to the Agent or the Lenders of principal or interest due from the Borrower to the Agent or
the Lenders hereunder (other than a change in the taxation of the overall net income of
the Agent or the Lenders); or (C) impose on the Agent or the Lenders any other condition
regarding the Eurodollar Loans or the Agent's or any Lender’s funding thereof, and
the Agent or Lenders shall determine (which determination shall be conclusive) that the
result of the foregoing is to increase the cost to the Agent or the Lenders of making or
maintaining the Eurodollar Loans or to reduce the amount of principal or interest received
by the Agent or Lenders hereunder, then the Borrower shall pay to the Agent or the
Lenders, on demand, such additional amounts as the Agent or the Lenders shall, from time
to time, determine are sufficient to compensate and indemnify the Agent or Lenders from
such increased cost or reduced amount.


(f) The Agent and Lenders shall receive payments of amounts of principal of and
interest with respect to the Eurodollar Loans free and clear of, and without deduction
for, any Taxes. If (A) the Agent or Lenders shall be subject to any Tax in respect of any
Eurodollar Loans or any part thereof or, (B) the Borrower shall be required to withhold or
deduct any Tax from any such amount, the Eurodollar Rate applicable to such Eurodollar
Loans shall be adjusted by the Agent or Lenders to reflect all additional costs incurred
by the Agent or Lenders in connection with the payment by the Agent or Lenders or the
withholding by the Borrower of such Tax and the Borrower shall provide the Agent or
Lenders with a statement detailing the amount of any such Tax actually paid by the
Borrower. Determination by the Agent or Lenders of the amount of such costs shall be
conclusive. If after any such adjustment any part of any Tax paid by the Agent or Lenders
is subsequently recovered by the Agent or Lenders , the Agent or Lenders, as applicable,
shall reimburse the Borrower to the extent of the amount so recovered. A certificate of an
officer of the Agent setting forth the amount of such recovery and the basis therefor
shall be conclusive (absent manifest error).


2.21 LENDERS' COMMITMENTS.


(a) Subject to Section 19.1 (which provides for assignments and assumptions of
commitments), each Lender's "Percentage Commitment", and "Dollar
Commitment" is set forth on EXHIBIT 2.21(a).


(b) The obligations of each Lender are several and not joint. No Lender shall have any
obligation to make any loan or advance under the Revolving Credit in excess of the lesser
of the following:


(i) that Lender's Percentage Commitment of the subject loan or advance or of
Availability; and


(ii) that Lender's unused Dollar Commitment.


(c) No Lender shall have any liability to the Borrower on account of the failure of any
other Lender to provide any loan or advance under the Revolving Credit nor any obligation
to make up any shortfall which may be created by such failure.


(d) The Dollar Commitments, Percentage Commitments and identities of the Lenders may be
changed, from time to time by the reallocation or assignment of Dollar Commitments and
Percentage Commitments amongst the Lenders or with other Persons who become
"Lenders", provided, however unless an Event of Default has occurred (in which
event, no consent of the Borrower is required) any assignment to a Person not then a
Lender shall be subject to the prior consent of the Borrower (not to be unreasonably
withheld), which consent will be deemed given unless the Borrower provides the Agent with
written objection, not more than five (5) Business Days after the Agent shall have given
the Borrower written notice of a proposed assignment.


(e) Upon written notice given the Borrower from time to time by the Agent, of any
assignment or allocation referenced in Section 2.21(d): 


(i) The Borrower, if required by the Agent, shall execute one or more Revolving Credit
Notes (which notes shall replace any Revolving Credit Notes theretofore provided by the
Borrower) to reflect such changed Dollar Commitments, Percentage Commitments, and
identities and shall deliver such Revolving Credit Notes to the Agent (which promptly
thereafter shall cancel and deliver to the Borrower the Revolving Credit Notes so
replaced, if any). In the event that the Agent does not require the delivery of Revolving
Credit Notes or that in the event that a Revolving Credit Note is to be exchanged
following its acceleration or the entry of an order for relief under the Bankruptcy Code
with respect to the Borrower, the Agent, in lieu of causing the Borrower to execute one or
more new Revolving Credit Notes, may issue the Agent's Certificate confirming the
resulting Dollar Commitments and Percentage Commitments.


(ii) Such change shall be effective from the effective date specified in such written
notice and any Person added as a Lender shall have all rights and privileges of a Lender
hereunder thereafter as if such Person had been a signatory to this Agreement and any
other Loan Document to which a Lender is a signatory and any person removed as a Lender
shall be relieved of any obligations or responsibilities of a Lender hereunder thereafter.


(f) The Borrower may elect to increase the Revolving Credit Loan Ceiling as follows:


(i) The Borrower may, by giving at least ten (10) Business Days’ prior written
notice to the Agent, request increases in the Revolving Credit Loan Ceiling up to One
Hundred Million ($100,000,000) Dollars, in aggregate principal amounts in an integrals of
$20,000,000, provided that (i) the Agent, in its sole discretion, has provided its written
consent to such increase and (ii) as of the date of the request and the effective date of
such increase, no Default or Event of Default shall exist and be continuing, provided,
that without the prior written consent of a Lender, the amount of such Lender’s Pro
Rata share of the Dollar Commitments shall not be increased. Nothing in this Section
2.21(f) shall be construed as a commitment on behalf of the Agent or any Lender to assume
any increase in the Dollar Commitments. 


(ii) Each Person which assumes any portion of an increase in the Dollar Commitments
shall be a willing financial institution which qualifies as an Eligible Assignee and shall
be acceptable to the Agent.


(iii) Borrower and each Lender or other financial institution which assumes all or any
portion of a proposed increase in the Dollar Commitments shall execute and deliver to the
Agent a Joinder and Assumption Agreement. The effective date of any proposed increase in
the Dollar Commitments shall be as specified in the Joinder and Assumption Agreement, but
unless the Agent otherwise consents, not earlier than the date which is three (3) Business
Days after the date that the Agent has registered the Joinder and Assumption Agreement in
the register kept for that purpose by the Agent described below. Upon the effective date
of such Joinder and Assumption Agreement, the Lender or other assuming financial
institution named therein shall be a Lender for all purposes of this Agreement, with the
Pro Rata share of the Dollar Commitments therein set forth. Borrower agrees that it shall
execute and deliver (against delivery by any Lender which has assumed a greater portion of
the increased Dollar Commitments of its Notes), Notes describing that Lender’s or
other assuming financial institution’s Pro Rata share of the Dollar Commitments.


(iv) By executing and delivering a Joinder and Assumption Agreement, the Lender or
other assuming financial institution thereunder, acknowledges and agrees that (1) it has
received a copy of this Agreement, together with such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter into such
Joinder and Assumption Agreement; (2) it will, independently and without reliance upon the
Agent or any Lender and based on such documents as it deems appropriate at the time,
continue to make its own credit decisions in taking or not taking action under this
Agreement; (3) it appoints and authorizes the Agent to take such action and to exercise
such powers under this Agreement as are delegated to the Agent by this Agreement, and (4)
it will perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.


(v) The Agent shall maintain at the Agent’s office a copy of each such Joinder and
Assumption Agreement delivered to it and a register for recordation of the names and
addresses of the Lenders under the Dollar Commitments and their respective Pro Rata share
of the Dollar Commitments. Upon receipt of a completed Joinder and Assumption Agreement
executed by the Borrower and the assuming Lender or other financial institution, the Agent
shall record the increase in the Dollar Commitments and the assigning Lender’s or
other financial institution’s assumption thereof in such register. The entries in
such register shall be conclusive in the absence of any manifest error, and Borrower, the
Agent and Lenders shall deem each Person whose name is recorded in such register as a
Lender hereunder for all purposes of this Agreement.


(vi) The Agent shall promptly inform the Lenders of the identity of each Lender or
other financial institution which executes a Joinder and Assumption Agreement and shall
provide each Lender and Borrower with a revised EXHIBIT 2.21(a) giving effect thereto. On
the effective date of such increase in the Dollar Commitments, each Lender or other
financial institution assuming an increase in the Dollar Commitments shall make such
Revolving Credit Loans, and Lender which is a Lender as of the Closing Date shall receive
such repayments on outstanding Revolving Credit Loans of each Lender, as shall be
necessary to cause the outstanding Revolving Credit Loans of each Lender, as of the
effective date of such increase in Dollar Commitments to equal such Lender’s
applicable Pro Rata share of the Dollar Commitments as adjusted as of the effective date
of such increase in the Dollar Commitments.


ARTICLE III. - - CONDITIONS PRECEDENT 


As a condition to the effectiveness of this Agreement, the establishment of the
Revolving Credit, the procurement of the initial L/C’s issued hereunder, and the
making of the first loan under the Revolving Credit, each of the documents respectively
described in Sections 3.1 through and including 3.4 (each in form and substance reasonably
satisfactory to the Agent) shall have been delivered to the Agent, and the conditions
respectively described in Sections 3.5 through and including 3.9, shall have been
satisfied as of the Closing Date:


3.1 CORPORATE DUE DILIGENCE.


(a) A certificate of corporate good standing issued with respect to the Borrower by the
Secretary of State of the State in which the Borrower is organized.


(b) Certificates of qualification to do business as a foreign corporation, issued by
the Secretary(ies) of State of each State in which the Borrower’s conduct of business
or ownership of assets requires such qualification.


(c) A Certificate of the Borrower’s Secretary as to the due adoption and continued
effectiveness of, each corporate resolution adopted in connection with the establishment
of the loan arrangement contemplated by this Agreement and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan Documents, such
certificate to set forth the text of each such resolution in an attachment thereto.


3.2 OPINION. 


An opinion of counsel to the Borrower.


3.3 OFFICER’S CERTIFICATES. 


Certificates executed by an Authorized Officer of the Borrower and stating that the
representations and warranties made by the Borrower to the Agent in the Loan Documents
executed as of the Closing Date are true and complete as of the date of such certificate,
and that no event has occurred which is or which, solely with the giving of notice or
passage of time (or both), would be an Event of Default.


3.4 ADDITIONAL DOCUMENTS.


Such additional instruments and documents as the Agent or its counsel reasonably may
require or request including, without limitation, the following:


(a) Loan Documents. Each of the Loan Documents required to be executed on or prior to
the Closing Date shall have been duly executed and delivered by the respective parties
thereto and shall be in full force and effect.


(b) Certificates of Insurance. A certificate of insurance from an independent insurance
broker dated as of the Closing Date, identifying insurers, types of insurance, insurance
limits, policy terms and otherwise describing the insurance obtained in accordance with
this Agreement..


(c) Borrowing Base Certificate. Delivery of the initial Borrowing Base Certificate
dated as of the Closing Date.


(d) Pledge Agreements. Delivery of the Pledge Agreement from Borrower to the Agent, for
stock in Guarantors directly owned by the Borrower, and up to 65% of the stock in Wild
Oats Canada. 


(e) Fee Letter. Fee Letter dated as of the Closing Date by and between the Agent and
the Borrower.


(f) Trademark Security Agreement. Duly executed and delivered Trademark Security
Agreement dated as of the Closing Date, by and between the Borrower and the Agent


(g) Payoff Letter. A payoff letter executed by the Borrower and Wells Fargo and UCC-3
termination statements.


(h) Post-Closing Memorandum. A Post-Closing Memorandum.


(i) Business Plan. A Business Plan for Fiscal Year 2005.


3.5 REPRESENTATIONS AND WARRANTIES.


Each of the representations made by or on behalf of the Borrower in this Agreement or
in any of the other Loan Documents executed on the Closing Date or in any other report,
statement, document, or paper provided by or on behalf of the Borrower in connection
therewith shall be true and complete as of the date as of which such representation or
warranty was made. 


3.6 MINIMUM DAY ONE AVAILABILITY.


After giving effect to the first funding under the Revolving Credit, all then held
checks (if any), accounts payable which are beyond credit terms then accorded the
Borrower, overdrafts, any charges to the Loan Account made in connection with the
establishment of the credit facility contemplated hereby; and L/C's to be issued at, or
immediately subsequent to, such establishment, Availability shall not be less than
$15,000,000.


3.7 ALL FEES AND EXPENSES PAID.


All fees due at or immediately after the first funding under the Revolving Credit and
all costs and expenses incurred by the Agent and Lenders in connection with the
establishment of the credit facility contemplated hereby (including the reasonable and
documented fees and expenses of counsel to the Agent and Lenders to the extent invoiced)
shall have been paid in full.


3.8 NO DEFAULT.


Neither a Default nor an Event of Default has occurred which is continuing.


3.9 NO ADVERSE CHANGE.


No event shall have occurred or failed to occur, which occurrence or failure is or
could have a Material Adverse Effect at September 25, 2004.


3.10 VALIDITY OF LIENS.


All UCC filings necessary in the opinion of the Agent to protect and preserve such
Collateral Interests shall have been duly effected. The Agent shall have received evidence
thereof in form and substance satisfactory to the Agent. 


3.11 CASH COLLATERAL


As of the Closing Date, Agent has confirmed that Bank of America or its Affiliates have
received from Borrower not less than $17 million of Cash Equivalents for deposit in an
Investment Account maintained with Bank of America or its Affiliates and such Investment
Account is subject to a Control Agreement, in form and substance acceptable to the Agent.


No document shall be deemed delivered to the Agent until received by the Agent at its
offices in Boston, Massachusetts. Under no circumstances shall this Agreement take effect
until executed and accepted by the Agent at said office. 


ARTICLE IV. - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:


To induce the Agent and Lenders to establish the credit facility contemplated herein to
make loans and advances and to provide financial accommodations under this Agreement (each
of which loans shall be deemed to have been made in reliance thereupon), the Borrower, in
addition to all other representation, warranties, and covenants made by the Borrower in
any other Loan Document, represents, warrants, and covenants as follows:


4.1 PAYMENT AND PERFORMANCE OF LIABILITIES.


The Borrower shall pay each Liability when due (or when demanded, if payable on demand)
and shall promptly, punctually, and faithfully perform each other Liability. 


4.2 DUE ORGANIZATION. CORPORATE AUTHORIZATION. NO CONFLICTS. 


(a) The exact name of the Borrower, as set forth in the Borrower’s organizational
documents, is set forth in EXHIBIT 4.2 hereof. The Borrower presently is and shall
hereafter remain in good standing and be duly organized under the laws of Delaware and
shall hereafter remain duly qualified and in good standing in every other State in which,
by reason of the nature or location of the Borrower’s assets or operation of the
Borrower’s business, such qualification may be necessary, except where the failure to
so qualify would have Material Adverse Effect. EXHIBIT 4.2 accurately describes the
corporate structure of the Borrower and its Subsidiaries.


(b) EXHIBIT 4.2 accurately identifies each Subsidiary and each Subsidiary’s (i)
form of legal entity, (ii) the number of shares of capital stock issued, (iii) the number
of shares owned by the Borrower, (iv) the jurisdiction of organization, and (v) whether
the Subsidiary qualifies as an Inactive Subsidiary. The Borrower shall provide the Agent
with prior written notice of any entity's becoming or ceasing to be a Subsidiary.


(c) The Borrower shall not change its State of incorporation or its organizational
identification number unless the Borrower shall have given the Agent prior written notice
thereof.


(d) The Borrower has all requisite corporate power and authority to execute and deliver
all Loan Documents to which the Borrower is a party and has and will hereafter retain all
requisite corporate power to perform all Liabilities.


(e) The execution and delivery by the Borrower of each Loan Document to which it is a
party, the Borrower’s consummation of the transactions contemplated by such Loan
Documents (including, without limitation, the creation of Collateral Interests by the
Borrower to secure the Liabilities), the Borrower’s performance under such Loan
Document, the borrowings hereunder, and the use of the proceeds thereof: 


(i) Have been duly authorized by all necessary corporate action on the part of the
Borrower;


(ii) Do not, and will not, contravene any provision of any Requirement of Law or
obligation of the Borrower except to the extent any such contravention would not
reasonably be expected to have a Material Adverse Effect; and 


(iii) Will not result in the creation or imposition of, or the obligation to create or
impose, any Encumbrance upon any assets of the Borrower pursuant to any Requirement of Law
or obligation of the Borrower, except pursuant to the Loan Documents. 


(f) The Loan Documents have been duly executed and delivered by the Borrower and are
the legal, valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors’ rights generally or by equitable principles relating to enforceability. 


(g) Neither the Borrower, nor any of its Subsidiaries, has engaged in any dealings or
transactions, directly or indirectly, (i) in contravention of any U.S., international or
other anti-money laundering regulations or conventions, including, without limitation, the
United States Bank Secrecy Act, the United States Money Laundering Control Act of 1986,
the United States International Money Laundering Abatement and Anti-Terrorist Financing
Act of 2001, Trading with the Enemy Act (50 U.S.C. 1 et seq., as amended), any foreign
asset control regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating thereto,
the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001, Public Law 107-56 and the regulations promulgated
thereunder (collectively, the "Patriot Act"), or any order issued with respect
to anti-money laundering by the U.S. Department of the Treasury’s Office of Foreign
Assets Control ("OFAC"), or (ii) in contravention of Executive Order No. 13224
issued by the President of the United States on September 24, 2001 (Executive Order
Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to
Commit, or Support Terrorism), as may be amended or supplemented from time to time
("Executive Order 13224") or (iii) on behalf of terrorists or terrorist
organizations, including those persons or entities that are included on any relevant lists
maintained by the United Nations, North Atlantic Treaty Organization, Organization of
Economic Cooperation and Development, OFAC, Financial Action Task Force, U.S. Securities
& Exchange Commission, U.S. Federal Bureau of Investigation, U.S. Central Intelligence
Agency, U.S. Internal Revenue Service, or any country or organization, all as may be
amended from time to time. As of the Closing Date, neither the Borrower nor any of its
Subsidiaries (i) that is listed in the Annex to or is otherwise subject to the provisions
of Executive Order 13224, (ii) whose name appears on OFAC’s most current list of
"Specifically Designed Nationals and Blocked Persons," (iii) who commits,
threatens to commit or supports "terrorism", as that term is defined in
Executive Order 13224, or (iv) who has been associated with or is otherwise affiliated
with any entity or person listed above.


4.3 TRADE NAMES. 


(a) EXHIBIT 4.3 is a listing of: 


(i) All names under which the Borrower has conducted its business within the five (5)
years preceding the date hereof, and


(ii) All entities and/or persons with whom the Borrower ever consolidated or merged
within the five (5) years preceding the date hereof, or from whom the Borrower ever
acquired in a single transaction or in a series of related transactions substantially all
of such entity’s or Person's assets within the five (5) years preceding the date
hereof. 


(b) The Borrower will provide the Agent with not less than ten (10) days prior written
notice (with reasonable particularity) of any change to the Borrower’s name.


4.4 INFRASTRUCTURE.


(a) The Borrower has and will maintain a sufficient infrastructure to conduct its
business as presently conducted and as contemplated to be conducted as described in the
Business Plan.


(b) The Borrower owns and possesses, or has the right to use (and will hereafter own,
possess, or have such right to use) all patents, industrial designs, trademarks, trade
names, trade styles, brand names, service marks, logos, copyrights, trade secrets,
know-how, confidential information, and other intellectual or proprietary property of any
third Person necessary for the Borrower’s conduct of the Borrower’s business.


(c) The conduct by the Borrower of the Borrower’s business does not presently
infringe (nor will the Borrower conduct its business in the future so as to infringe) the
patents, industrial designs, trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person except as would not reasonably be
expected to have a Material Adverse Effect.


4.5 SOLVENCY.


Borrower is Solvent and will be Solvent after the creation of the Liabilities, the
Collateral Interests of Agent and the other transactions contemplated hereunder. 


4.6 LOCATIONS. 


(a) The Collateral consisting of Inventory and Equipment, and the books, records, and
papers of the Borrower pertaining thereto, are kept and maintained solely at the
Borrower’s chief executive offices and those locations which are listed on EXHIBIT
4.6(a)(in each case, except for such Collateral in transit), which includes, with respect
to each such location, the name and address of the landlord on the Lease which covers such
location. 


(b) Intentionally deleted.


(c) The Borrower shall use its reasonable efforts to provide the Agent with Collateral
Access Agreements or subordinations, in substantially the form annexed hereto as EXHIBIT
4.6(c) for each of the Borrower’s locations in any of the Landlord States; provided
that, in no event shall Borrower be required to comply with the foregoing with respect to
any of its license or franchise arrangements or operations of concessions or otherwise
within a third party retailer location. The Agent may establish an Availability Reserve
for each such location as to which such a waiver is not so delivered to the extent the
Agent (in its discretion), at the Borrower’s request, includes Collateral located at
such location in the Borrowing Base, which Availability Reserve shall be eliminated upon
delivery of a waiver for such location.


(d) The Borrower will not:


(i) Alter, modify or amend any Lease which is an Eligible Leasehold, unless such
alteration, modification, or amendment is immaterial or for more economically favorable
terms for the Borrower, and Borrower has provided Agent with a copy of such alteration,
modification or amendment reasonably promptly following its execution.


(ii) Open or close any store or other material location at which the Borrower
maintains, offers for sales, or stores any of the Collateral except that the Borrowers may
open and close stores under the following circumstances ("Permitted Store
Openings/Closings"): (A) The Borrower may (I) open, during any Fiscal Year, new
stores in an amount not to exceed the number of new stores projected to be open in the
Business Plan plus five (5) stores and (II) close, during any Fiscal Year, the number of
stores projected to be closed in the Business Plan plus five (5) stores and (B) may open
and close such additional stores, provided, that within 15 days prior to such opening or
closing, Borrower provides the Agent with notice of its intent to open or close a store
and furnishes the Agent with a Certificate, signed by an Authorized Officer, certifying
that at all times, the Borrower has maintained Excess Availability for 45 days prior to
the date of such store opening or store closing and, on a pro forma basis, will maintain
Excess Availability for 45 days after the date of such store opening or store closing of
not less than the sum (expressed as Dollars) of twenty-five (25%) percent multiplied by
the lesser of (x) the Revolving Credit Loan Ceiling and (y) the Borrowing Base. The notice
provided by the Borrower pursuant to this Section shall serve to update EXHIBIT 4.6(a).


(e) Except as otherwise disclosed pursuant to, or permitted by, this Section 4.6, no
tangible personal property of the Borrower with a value in excess of $500,000 is in the
care or custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment, except for: (i) goods in control of a customs broker who has entered into a
Customs Brokers Agreement; (ii) goods for retail sale with a value in excess of $500,000
that are owned by Borrower and held in storage by a distributor, provided such distributor
has entered into a Collateral Access Agreement with Agent; (iii) equipment used in
Borrower's operations and held by the manufacturer or the owner of the property in which
such equipment is to be installed, pending availability of the location for installation,
or (iv) goods for sale pursuant to its license or franchise arrangements or operations of
concessions or otherwise within a third party retailer location.


4.7 TITLE TO ASSETS. 


(a) The Borrower is, and shall hereafter remain, the owner of the Collateral free and
clear of all Encumbrances other than Encumbrances listed on EXHIBIT 4.7(a) and other
Permitted Encumbrances.


(b) The Borrower does not and shall not have possession of any property on consignment
to the Borrower. 


(c) Intentionally deleted.


(d) The Borrower does not have any goods, documents of title or other Collateral in the
custody, control, or possession of a third party, except as set forth in EXHIBIT 4.7(d)
and except for goods located in the United States in transit to a location of the Borrower
permitted herein or in the ordinary course of business of the Borrower in the possession
of the carrier transporting such goods. In the event that any goods of the Borrower,
documents of title or other Collateral with a value in excess of $250,000 are at any time
after the date hereof in the custody, control or possession of any other person (other
than the Borrower and the Agent) not referred to in EXHIBIT 4.7(d) or such carriers,
Borrower shall promptly notify the Agent thereof in writing. Promptly upon Agent’s
request, the Borrower shall deliver to the Agent a Collateral Access Agreement duly
authorized, executed and delivered by such person and Borrower.


4.8 INDEBTEDNESS. 


(a) The Borrower does not and shall not hereafter have any Indebtedness with the
exceptions of:


(i) Any Indebtedness under the Loan Documents; 


(ii) The Indebtedness (if any) listed on EXHIBIT 4.8, annexed hereto and any
refinancings, refundings, renewals or extensions thereof (without increasing (except to
the extent of fees and interest on such Indebtedness, refinancings, refundings, renewals
or extensions), or shortening the maturity of, the principal amount thereof); 


(iii) Indebtedness for fixed or capital assets secured by purchase money security
interests not otherwise described EXHIBIT 4.8;


(iv) Capital Leases (exclusive of those listed on EXHIBIT 4.8) for the acquisition of
Equipment in an aggregate principal amount not exceeding $5 million outstanding at any one
time, plus the aggregate amount of any capitalized obligations in respect of Leases that
are treated as Capital Leases per GAAP; 


(v) Guarantee obligations incurred in the ordinary course of business by the Borrower
of obligations of any Guarantor;


(vi) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety
bonds or other similar obligations arising in the ordinary course of business in
connection with the opening of new stores or the procurement of utility services, and any
refinancings thereof;


(vii) Prior to the occurrence of a Cash Management Event, Indebtedness arising from the
honoring by a bank or other financial institution of a check, draft or similar instrument
drawn against insufficient funds in the ordinary course of business, provided that such
Indebtedness is extinguished within three Business Days after its incurrence;


(viii) Indebtedness consisting of the financing of insurance premiums in the ordinary
course of business; 


(ix) Permitted Intercompany Indebtedness; and


(x) Other Indebtedness in an aggregate principal amount not to exceed $5,000,000 in the
aggregate outstanding at any time; provided, that such Indebtedness at all times is not
secured by any Collateral Interest in any assets or property of the Borrower or the
Guarantors. 


(b) The Borrower shall not prepay other Indebtedness (other than the Liabilities),
except for amounts which do not exceed $1 million in the aggregate at any time following
the Closing Date, provided, that at the time of such prepayment, an Authorized Officer of
the Borrower has certified to the Agent that: (A) no Default or Event of Default has
occurred which is continuing at the time of such prepayment and none would exist after
giving effect to such prepayment, and (B) for a period of 90 days prior to the date
thereof and, on a pro forma basis, for a period of 90 days after the date thereof, Excess
Availability, at all times, is at least equal to a sum, expressed in Dollars, of thirty
(30%) percent multiplied by the lesser of (x) the Revolving Credit Loan Ceiling and (y)
the Borrowing Base. 


(c) Except for prepayments permitted under Section 4.8(b), the Borrower shall not make
any payment of any part or all of any Subordinated Debt, or enter into any agreement
(written or oral) which could in any way be considered to amend, modify or terminate any
instrument or agreement evidencing or relating to Subordinated Debt.


4.9 INSURANCE.


(a) EXHIBIT 4.9 is a schedule of all insurance policies owned by the Borrower under
which the Borrower is the named insured. Each of such policies is in full force and
effect. The Borrower is not in default or violation in any material respect of any such
policy.


(b) The Borrower shall have and maintain at all times insurance covering such risks, in
such amounts, containing such terms, in such form, for such periods, and written by such
companies as may be reasonably satisfactory to the Agent, including third party key man
life insurance in respect of Perry Odak in such amounts as exists as of the Closing Date
for so long as the Borrower has an obligation to pay bonuses to Perry Odak upon his death
or disability pursuant to that certain Employment Agreement dated as of March 6, 2001
between the Borrower and Perry D. Odak, as amended from time to time to the extent
permitted by this Agreement. Borrower shall provide Agent with prior written notice of any
changes in insurance polices made in compliance herewith, together with copies of policies
referenced in such notice, and such notices shall serve to update EXHIBIT 4.9.


(c) All insurance carried by the Borrower shall provide for a minimum of thirty (30)
days’ written notice of cancellation to the Agent and all such insurance which covers
the Collateral shall include an endorsement in favor of the Agent, which endorsement shall
provide that the insurance, to the extent of the Agent’s interest therein, shall not
be impaired or invalidated, in whole or in part, by reason of any act or neglect of the
Borrower or by the failure of the Borrower to comply with any warranty or condition of the
policy. 


(d) The coverage reflected on EXHIBIT 4.9 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such requirements may
change hereafter to reflect changing circumstances.


(e) The Borrower shall furnish the Agent as of the Closing Date and from time to time,
upon reasonable request by the Agent, with certificates or other evidence reasonably
satisfactory to the Agent regarding compliance by the Borrower with the foregoing
requirements. 


(f) In the event of the failure by the Borrower to maintain insurance as required
herein, the Agent, at its option following notice to the Borrower, may obtain such
insurance, provided, however, the Agent’s obtaining of such insurance shall not
constitute a cure or waiver of any Event of Default occasioned by the Borrower’s
failure to have maintained such insurance. 


(g) The Borrower shall advise the Agent of each claim in excess of $2,500,000 made by
the Borrower under any policy of insurance which covers the Collateral and will permit the
Agent, at the Agent's option in each instance, to the exclusion of the Borrower, to
conduct the adjustment of each such claim following the occurrence and during the
continuance of any Event of Default. The Borrower hereby appoints the Agent as the
Borrower’s attorney in fact to obtain, adjust, settle, and cancel any insurance
described in this section and to endorse in favor of the Agent any and all drafts and
other instruments with respect to such insurance, in each case following the occurrence
and during the continuance of any Event of Default. The within appointment, being coupled
with an interest, is irrevocable until this Agreement is terminated by a written
instrument executed by a duly authorized officer of the Agent. The Agent shall not be
liable on account of any exercise pursuant to said power except where such exercise was
conducted in a grossly negligent manner or in willful misconduct. The Agent may apply any
proceeds of such insurance against the Liabilities, whether or not such have matured, in
such order of application as the Agent may determine. 


4.10 LICENSES AND OTHER MATERIAL CONTRACTS.


(a) EXHIBIT 4.10(a) sets forth all Material Contracts to which the Borrower is a party
or is bound as of the date hereof. The Borrower has delivered true, correct and complete
copies of such Material Contracts to the Agent on or before the date hereof. The Borrower
is not in default of or under any Material Contract except as would not reasonably be
expected to have a Material Adverse Effect and has not received notice of the intention of
any other party thereto to terminate any Material Contract. The Borrower has all contracts
necessary for the operation of its business as presently conducted, as conducted
immediately prior to the date hereof or as presently proposed to be conducted except for
those the failure to obtain could not have a Material Adverse Effect. 


(b) EXHIBIT 4.10(b) sets forth each material license, distributorship, franchise and
similar agreement issued to the Borrower or to which the Borrower is a party. Each such
license, distributorship, franchise, and similar agreement issued to the Borrower, or to
which any of the Borrower is a party is in full force and effect except as would not
reasonably be expected to have a Material Adverse Effect. No party to any such license or
agreement is in default or violation thereof except as would not reasonably be expected to
have a Material Adverse Effect. The Borrower has not received any notice or threat of
cancellation of any such license or agreement except as would not reasonably be expected
to have a Material Adverse Effect. 


4.11 LEASES.


EXHIBIT 4.11 is a schedule of all presently effective Capital Leases to which the
Borrower is a party and includes a list of all other presently effective Leases to which
the Borrower is a party. Each Lease which is an Eligible Lease is in full force and
effect, the Borrower is not in default or violation of any such Eligible Lease, and the
Borrower has not received any written notice or threat of cancellation of any such
Eligible Lease. Each of Leases and Capital Leases, other than Eligible Leases, is in full
force and effect except as would not reasonably be expected to have a Material Adverse
Effect, the Borrower is not in default or violation of any such Lease or Capital Lease
except such defaults and violations as would not reasonably be expected to have a Material
Adverse Effect, and the Borrower has not received any written notice or threat of
cancellation of any such Lease or Capital Lease except as would not reasonably be expected
to have a Material Adverse Effect. The Borrower hereby authorizes the Agent at any time
and from time to time in respect of any Eligible Lease, and upon the occurrence and during
the continuance of an Event of Default in respect of any other Lease, to contact any of
the Borrower’s landlords in order to confirm the continued compliance by the Borrower
with the terms and conditions of the Lease(s) between the Borrower and that landlord and
to discuss such issues, concerning the Borrower’s occupancy under such Lease(s), as
the Agent may determine.


4.12 REQUIREMENTS OF LAW.


The Borrower is in compliance with, and shall hereafter comply with and use its assets
in compliance with, all Requirements of Law except where the failure of such compliance
could not reasonably be expected to have Material Adverse Effect. The Borrower has not
received any notice of any violation of any Requirement of Law (other than of a violation
which could not reasonably be expected to result in a Material Adverse Effect), other than
any such violations that have not been cured or otherwise remedied.


4.13 LABOR RELATIONS.


(a) The Borrower has not been and is presently a party to any collective bargaining or
other labor contract except as disclosed on EXHIBIT 4.13. Borrower shall provide the Agent
with prior written notice of any collective bargaining or other labor contract to which
the Borrower becomes a party after the Closing Date, together with a copy thereof if
requested by the Agent, and such notice shall serve to update EXHIBIT 4.13. 


(b) There is not presently pending and, to the Borrower’s knowledge, there is not
threatened any of the following:


(i) Any strike, slowdown, picketing, work stoppage, or employee grievance process;


(ii) Any proceeding against or affecting the Borrower relating to the alleged violation
of any Requirement of Law pertaining to labor relations or National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable governmental body,
organizational activity, or other labor or employment dispute against or affecting the
Borrower; or


(iii) Any lockout of any employees by the Borrower, (and no such action is contemplated
by the Borrower); 


that, in the case of any of the foregoing, would reasonably be expected to have a
Material Adverse Effect. 


(c) No event has occurred or circumstance exists that could provide the basis for any
work stoppage or other labor dispute that would reasonably be expected to have a Material
Adverse Effect, except as disclosed on EXHIBIT 4.13. 


(d) The Borrower has complied with all Requirements of Law relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes, occupational
safety and health, and plant closing except as would not reasonably be expected to have a
Material Adverse Effect. 


4.14 MAINTAIN PROPERTIES.


The Borrower shall:


(a) Keep the Collateral in good order and repair (ordinary reasonable wear and tear and
insured casualty excepted);


(b) Not suffer or cause the waste or destruction of any material part of the
Collateral;


(c) Not use any of the Collateral in violation of any policy of insurance thereon; 


Not sell, lease, or otherwise dispose of any of the Collateral, except for (i)
Permitted Dispositions, and, following a Cash Management Event, upon such sale, lease or
disposition, the Borrower shall turn over to the Agent all net cash Receipts as provided
herein; and (ii) the sale, lease, or disposition of Collateral in connection with the
movement of Inventory from one location to another location in the ordinary course of
business.


4.15 TAXES. 


(a) The Borrower has filed, or caused to be filed, in a timely manner all material
Federal, state and other material tax returns, reports and declarations which are required
to be filed by it. All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to be paid all
material taxes due and payable or claimed due and payable in any assessment received by
it, which, if unpaid, would result in a material Encumbrance on any of its properties or
assets, except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves in conformity with GAAP have been set aside on its books. Adequate
provision has been made for the payment of all accrued and unpaid Federal, state, county,
local, foreign and other taxes whether or not yet due and payable and whether or not
disputed.


(b) Intentionally deleted.


(c) Except as disclosed on EXHIBIT 4.15, there are no examinations of or with respect
to the Borrower presently being conducted by the Internal Revenue Service or any other
taxing authority. 


(d) The Borrower has, and hereafter shall: pay, as they become due and payable, all
taxes and unemployment contributions and other charges of any kind or nature levied,
assessed or claimed against the Borrower or the Collateral by any person or entity whose
claim could result in an Encumbrance upon any asset of the Borrower or by any governmental
authority; properly exercise any trust responsibilities imposed upon the Borrower by
reason of withholding from employees' pay or by reason of the Borrower’s receipt of
sales tax or other funds for the account of any third party; timely make all contributions
and other payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all material tax and other returns
and other material reports with each governmental authority to whom the Borrower is
obligated to so file. 


(e) At its option, the Agent may, but shall not be obligated to, pay any taxes,
unemployment contributions, and any and all other charges levied or assessed upon the
Borrower or the Collateral by any person or entity or governmental authority, and make any
contributions or other payments on account of the Borrower’s Employee Benefit Plan as
the Agent, in the Agent’s discretion, may deem necessary or desirable, to protect,
maintain, preserve, collect, or realize upon any or all of the Collateral or the value
thereof or any right or remedy pertaining thereto in the event Borrower fails to do so in
the times required after written notice, provided, however, the Agent'’ making of any
such payment shall not constitute a cure or waiver of any Event of Default occasioned by
the Borrower’s failure to have made such payment.


4.16 NO MARGIN STOCK.


The Borrower is not engaged in the business of extending credit for the purpose of
purchasing or carrying any margin stock (within the meaning of Regulations U, T, and X of
the Board of Governors of the Federal Reserve System of the United States). No part of the
proceeds of any borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or carrying any
such margin stock.


4.17 ERISA.


Other than as described in EXHIBIT 4.17, neither the Borrower nor any ERISA Affiliate: 


(a) ever has been, or hereafter shall be, subject to any material liability for any
violation of the terms of any Employee Benefit Plan maintained by the Borrower or any
ERISA Affiliate;


(b) ever has been, or hereafter shall be, delinquent with respect to any report or
filing with any governmental agency that Borrower or any ERISA Affiliate is required to
file under ERISA;


(c) ever has been, or hereafter shall be, engaged in any "prohibited
transactions" or "reportable events" (respectively as described in ERISA);


(d) ever has been, or hereafter shall be, engaged in, or commit, any act such that a
tax or penalty could be imposed upon the Borrower on account thereof pursuant to ERISA;


(e) ever has, or hereafter shall have, accumulated any material funding deficiency
within the meaning of ERISA;


(f) ever has, or hereafter shall have, terminated any Employee Benefit Plan such that a
lien could be asserted against any assets of the Borrower on account thereof pursuant to
ERISA; or


(g) ever has been, or hereafter shall be, a member of, contributes to, or has any
obligation under any Employee Benefit Plan which is a multiemployer plan within the
meaning of Section 4001(a) of ERISA. 


4.18 HAZARDOUS MATERIALS. 


(a) Except as would not reasonably be expected to have a Material Adverse Effect, the
Borrower has never: 


(i) Been legally responsible for any release or threat of release of any Hazardous
Material; or


(ii) Received notification of any release or threat of release of any Hazardous
Material from any site or vessel occupied or operated by the Borrower and/or of the
incurrence of any expense or loss in connection with the assessment, containment, or
removal of any release or threat of release of any Hazardous Material from any such site
or vessel. 


(b) Except as would not reasonably be expected to have a Material Adverse Effect, the
Borrower shall: 


(i) Dispose of any Hazardous Material only in compliance with all Environmental Laws;
and


(ii) Not store on any site or vessel occupied or operated by the Borrower and not
transport or arrange for the transport of any Hazardous Material, except if such storage
or transport is in the ordinary course of the Borrower’s business and is in
compliance with all Environmental Laws. 


(c) The Borrower shall provide the Agent with written notice upon obtaining knowledge
of any incurrence of any material expense or loss by any governmental authority or other
Person in connection with the assessment, containment, or removal of any Hazardous
Material, for which material expense or loss the Borrower may be liable. 


4.19 LITIGATION.


Except as described in EXHIBIT 4.19, there is not presently pending or threatened by or
against the Borrower any suit, action, proceeding, or investigation which could reasonably
be expected to result in a Material Adverse Effect. 


4.20 DIVIDENDS; INVESTMENTS; CORPORATE ACTION.


The Borrower shall not:


(a) Pay any cash dividend or make any other distribution in respect of any class of the
Borrower’s capital stock, except for Permitted Distributions;


(b) Redeem, retire, purchase, or acquire the Borrower’s capital stock or
securities, except for Permitted Distributions;


(c) Invest in or purchase any stock or securities or rights to purchase any such stock
or securities, of any corporation or other entity, except for Permitted Acquisitions and
Permitted Investments and investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent obligations of,
and other disputes with, customers and suppliers arising in the ordinary course of
business;


(d) Merge or consolidate or be merged or consolidated with or into any other
corporation or other entity, except for mergers or consolidations in connection with
Permitted Acquisitions, provided, that the Borrower is the surviving entity;


(e) Consolidate any of the Borrower’s operations with those of any other
corporation or other entity (other than with any other Borrower), except for
consolidations in connection with Permitted Acquisitions, provided, that the Borrower is
the controlling entity;


(f) Organize or create any Affiliate, except in connection with Permitted Acquisitions
or such Affiliate is a Subsidiary and such Subsidiary, at the time of formation (i)
becomes a Guarantor hereunder and (ii) grants the Agent Collateral Interests in all or
substantially all of its property and assets to secure the Liabilities, and (iii) the
stock of such Subsidiary is pledged to the Agent to secure the Liabilities;


(g) Subordinate any debts or obligations owed to the Borrower by any third party to any
other debts owed by such third party to any other Person; or


(h) Acquire any assets other than in the ordinary course and conduct of the
Borrower’s business as conducted at the execution of this Agreement, except for
Permitted Acquisitions.


4.21 LOANS.


The Borrower shall not make any loans or advances to, nor acquire the Indebtedness of,
any Person, provided, however, the foregoing does not prohibit any of the following: 


(a) Advance payments made, or extensions of trade credit, to the Borrower’s
suppliers in the ordinary course and the holding of receivables in the ordinary course of
business; 


(b) Advances to the Borrower’s officers, employees, and salespersons with respect
to reasonable expenses to be incurred by such officers, employees, and salespersons for
the benefit of the Borrower, not to exceed $500,000 in the aggregate at any time
outstanding; 


(c) Permitted Intercompany Indebtedness; and 


(d) Investments existing as of the Closing Date and set forth on EXHIBIT 4.21.


4.22 PROTECTION OF ASSETS.


The Agent may in its discretion from time to time, discharge any tax that is due or
Encumbrance (including, without limitation, following the occurrence of an Event of
Default which is continuing, any Permitted Encumbrance) on any of the Collateral, or take
any other action which the Agent may deem necessary or desirable to repair, insure,
maintain, preserve, collect, or realize upon any of the Collateral if the Borrower has
failed to do so after written notice. The Agent shall not have any obligation to undertake
any of the foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the Agent has
had an opportunity to be heard), from which finding no further appeal is available, that
the Agent had acted in actual bad faith or in a grossly negligent manner. The Borrower
shall pay to the Agent, on demand, or the Agent, in its discretion, may add to the Loan
Account, all amounts paid or incurred by the Agent pursuant to this Section 4.22. The
obligation of the Borrower to pay such amounts is a Liability.


4.23 LINE OF BUSINESS.


The Borrower shall not engage in any business other than the business in which it is
currently engaged or a business reasonably related thereto (the conduct of which
reasonably related business is reflected in the Business Plan).


4.24 AFFILIATE TRANSACTIONS.


The Borrower shall not make any payment, nor give any value to any Affiliate, except:


(a) for transactions with such Affiliate for a price and on terms which shall be no
less favorable to the Borrower than those which would have been charged and imposed in an
arms length transaction, 


(b) for transactions which qualify as Permitted Intercompany Indebtedness, and


(c) for transactions which qualify as Permitted Dispositions between and among the
Borrower and any Subsidiary.


4.25 FURTHER ASSURANCES.


(a) The Borrower is not the owner of, nor has it any interest in, any property or asset
which, immediately upon the satisfaction of the conditions precedent to the effectiveness
of the credit facility contemplated hereby (Article III) will not be subject to perfected
Collateral Interests in favor of the Agent to the extent contemplated by this Agreement
(subject only to Permitted Encumbrances) to secure the Liabilities and which can be
perfected by the filing of UCC financing statements, delivery of stock certificates and
delivery of an executed Control Agreement in the Investment Account maintained with Bank
of America or its Affiliate.


(b) Except to the extent provided herein, the Borrower will not hereafter acquire any
asset or any interest in property which is not, promptly upon such acquisition, subject to
such a perfected Collateral Interest in favor of the Agent to secure the Liabilities
(subject only to Permitted Encumbrances).


(c) Except to the extent provided herein, the Borrower shall execute and deliver to the
Agent such instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Agent may reasonably request: to carry into effect the provisions
and intent of this Agreement; to protect and perfect the Agent’s Collateral Interests
in the Collateral; and facilitate the collection of the Receivables Collateral. Except to
the extent provided herein, the Borrower shall execute all such instruments as may be
reasonably required by the Agent with respect to the recordation and/or perfection of the
Collateral Interests created or contemplated herein. 


(d) The Borrower hereby designates the Agent as and for the Borrower’s true and
lawful attorney, with full power of substitution, to authorize on behalf of the Borrower
the filing of any financing statements in order to perfect or protect the Agent’s
Collateral Interests in the Collateral.


(e) A carbon, photographic, or other reproduction of this Agreement or of any financing
statement or other instrument executed pursuant to this Section 4.25 shall be sufficient
for filing to perfect the security interests granted herein.


4.26 ADEQUACY OF DISCLOSURE. 


(a) All financial statements furnished to the Agent or the Lenders by the Borrower have
been prepared in accordance with GAAP consistently applied and present fairly in all
material respects the Consolidated condition of the Borrower at the date(s) thereof and
the Consolidated results of operations and cash flows of the Borrower for the period(s)
covered subject, in the case of interim financials, to normal year end adjustments and
absence of footnotes. There has been no Material Adverse Change in the financial
condition, results of operations, or cash flows of the Borrower since the date(s) of such
financial statements.


(b) As of the date hereof, the Borrower does not have any material contingent
obligations or obligation under any Lease or Capital Lease required to be, but which is
not, noted in the Borrower’s Consolidated financial statements furnished to the Agent
or the Lenders prior to the execution of this Agreement. 


(c) No document, instrument, agreement, or paper (other than projections) now or
hereafter given the Agent or the Lenders by or on behalf of the Borrower or any guarantor
of the Liabilities in connection with the execution of this Agreement by the Agent or
Lenders, taken as a whole, contains or will contain any untrue statement of a material
fact or omits or will omit to state a fact necessary in order to make the statements
therein not materially misleading.


4.27 NO RESTRICTIONS ON LIABILITIES.


The Borrower shall not enter into or become subject to, directly or indirectly, any
agreement prohibiting or restricting (other than with respect to Permitted Encumbrances
and customary non-assignment provisions (i) as to the assets leased in any Lease governing
a Leasehold Interest or (ii) in any licenses, joint venture agreements, or any other
contracts), in any manner (including, without limitation, by way of covenant,
representation, or event of default) the granting of Collateral Interests in favor of the
Agent on any asset of the Borrower and the incurrence of any of the Liabilities. 


4.28 POST-CLOSING DELIVERABLES


Following the Closing Date, the Borrower shall deliver those documents identified in
the Post-Closing Memorandum, in accordance with the terms thereof.


4.29 OTHER COVENANTS.


The Borrower shall not indirectly do or cause to be done any act which, if done
directly by the Borrower, would breach any covenant contained in this Agreement.


ARTICLE V. - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:


5.1 MAINTAIN RECORDS.


The Borrower shall:


(a) At all times, keep proper books of account, in which entries full, true, and
accurate in all material respects shall be made, all in accordance with GAAP applied
consistently with prior periods to fairly reflect the financial condition of the Borrower
at the close of, and its results of operations for, the periods in question.


(b) Timely provide the Agent with those financial reports, statements, and schedules
required by this Article V or otherwise, each of which reports, statements and schedules
shall be prepared, to the extent applicable, in accordance with GAAP applied consistently
with prior periods to fairly reflect the financial condition of the Borrower at the close
of, and its results of operations for, the period(s) covered therein.


(c) At all times, keep current records of the Collateral accurate in all material
respects.


(d) At all times, retain independent certified public accountants who are reasonably
satisfactory to the Agent and instruct such accountants to be available to the Agent to
discuss the Borrower’s financial condition, operating results, controls, and such
other matters, within the scope of the retention of such accountants, as may be raised by
the Agent. Agent acknowledges that Ernst & Young is satisfactory.


5.2 ACCESS TO RECORDS. 


(a) The Borrower shall accord the Agent and the Agent’s representatives access
from time to time as the Agent and such representatives may require to all properties
owned by or over which the Borrower has control. The Agent and such representatives shall
have the right, and the Borrower will permit the Agent and the Agent’s
representatives from time to time as Agent and such representatives may request, all upon
reasonable notice and at such reasonable times during normal business hours, to examine,
inspect, copy, and make extracts from any and all of the Borrower’s books, records,
electronically stored data, papers, and files. The Borrower shall make all of the
Borrower’s copying facilities available to the Agent and the Agent’s
representatives.


(b) The Borrower hereby authorizes the Agent and the Agent's representatives to, upon
reasonable prior written notice and during normal business hours to inspect, copy,
duplicate, review, cause to be reduced to hard copy, run off, draw off, and otherwise use
any and all computer or electronically stored information or data which relates to the
Borrower, any service bureau, contractor, accountant, or other person, and directs any
such service bureau, contractor, accountant, or other person who maintains such
information for the Borrower fully to cooperate with the Agent and the Agent's
representatives with respect thereto.


Notwithstanding anything to the contrary in this Section 5.2, none of the Borrower or
any of their Subsidiaries will be required to disclose, permit the inspection, examination
or making of extracts, or discussion of, any document, information or other matter that
(i) in respect of which disclosure to the Agent or any Lender (or its representative) is
then prohibited by law or any agreement binding on the Borrower or any of its Subsidiaries
or (ii) is subject to attorney-client or similar privilege or constitutes attorney work
product; and it is understood that, in connection with the foregoing in this Section 5.2
and so long as no Default has occurred and is continuing, the parties hereto shall
endeavor to avoid material disruption to the Borrower’s and its Subsidiaries’
business, including the audit process.


5.3 NOTICE TO AGENT. 


(a) The Borrower shall provide the Agent with written notice promptly upon the
occurrence of any of the following events, which written notice shall be with reasonable
particularity as to the facts and circumstances in respect of which such notice is being
given: 


(i) Any change in the Authorized Officers.


(ii) Any cessation by the Borrower of its making payment to its creditors generally as
the Borrower’s debts become due.


(iii) The failure to pay rent when due and payable, the failure of which continues for
more than Three (3) days in respect of the Lease for the Domestic Distribution Center or
any Lease in respect of an Eligible Leasehold and the occurrence of a default or event of
default (beyond the expiration of any applicable grace period) in respect of any other
Lease.


(iv) Any Material Adverse Change.


(v) The occurrence of a Default or Event of Default.


(vi) Any intention on the part of the Borrower to discharge the Borrower’s present
independent accountants or any withdrawal or resignation by such independent accountants
from their acting in such capacity.


(vii) Any litigation which, if determined adversely to the Borrower, would reasonably
be expected to have a Material Adverse Effect. 


(b) The Borrower shall:


(i) Provide the Agent, when so distributed, with copies of any materials distributed to
the shareholders of the Borrower (qua such shareholders.


(ii) At the request of the Agent, from time to time, provide the Agent with copies of
all advertising (including copies of all print advertising and duplicate tapes of all
video and radio advertising).


(iii) Provide the Agent, when received by the Borrower, with a copy of any management
letter or similar material communications from any accountant of the Borrower.


5.4 BORROWING BASE CERTIFICATE.


The Borrower shall provide the Agent by 5:00 p.m., on the tenth (10th) day (and if such
day is not a Business Day, the next Business Day) of each month, with a Borrowing Base
Certificate provided, that the Borrower shall provide that Agent by 11:30 a.m., weekly, on
the first Tuesday of each week (or more frequently as required by Agent in its
discretion), with a Borrowing Base Certificate, upon the occurrence and during the
continuance of: (i) an Event of Default, or (ii) Excess Availability, at any time, being
less than the result (expressed in Dollars) of the Borrowing Base multiplied by Twenty
(20%) Percent. Such Certificate may be sent to the Agent by facsimile or email (with
electronic signature) transmission,.


5.5 INTENTIONALLY RESERVED.


5.6 MONTHLY REPORTS. 


Monthly, the Borrower shall provide the Agent with copies of the following (each in
such form as the Agent from time to time may reasonably specify), within Fifteen (15) days
after the end of the previous month:


(a) Inventory by department. 


(b) A Gross Margin Reconciliation.


(c) Borrower’s Cost Factor by department.


(d) A Store Activity Report.


(e) The Officer's Compliance Certificate described in Section 5.9.An internally
prepared financial statement of the Borrower’s financial condition and the results of
its operations for, the period ending with the end of the subject month, which financial
statement shall include, at a minimum, a balance sheet, income statement (on a company
specific and on a "consolidated" and "consolidating" basis), cash flow
and comparison of same store sales for the corresponding month of the then immediately
previous year, as well as to the Business Plan, which statement shall be certified by the
Borrower’s chief financial officer or chief operating officer as fairly presenting
the financial position of the Borrower in accordance with GAAP (subject to year-end audit
adjustments and absence of footnotes).


(f) Such additional reports as Agent may reasonably require following completion of its
Post-Closing Due Diligence.


5.7 QUARTERLY REPORTS.


Quarterly, within Forty Five (45) days following the end of each of the Borrower’s
fiscal quarters (other than the fourth quarter of the Borrower’s Fiscal Year), the
Borrower shall provide the Agent with a copy of a management prepared financial statement
of the Borrower for the period from the beginning of the Borrower’s then current
fiscal year through the end of the subject quarter, with comparative information for the
same period of the previous fiscal year, which statement shall include, at a minimum, a
balance sheet, income statement (on a store specific and on a "consolidated"
basis), statement of changes in shareholders' equity, and cash flows and comparisons for
the corresponding quarter of the then immediately previous year, as well as to the
Business Plan.


5.8 ANNUAL REPORTS. 


(a) Annually, within 90 days following the end of the Borrower’s fiscal year, the
Borrower shall furnish the Agent with the following:


(i) A copy of the Borrower’s Consolidated annual financial statement, which
statement shall have been prepared by, and bear the unqualified opinion of, the
Borrower’s independent certified public accountants (i.e. said statement shall be
"certified" by such accountants) and shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income statement,
statement of changes in shareholders' equity, and cash flows; 


(ii) The Officer's Compliance Certificate; and


(iii) A copy of Borrower’s Report on Form 10-K filed with the SEC.


5.9 OFFICERS' CERTIFICATES.


(a) The Borrower shall cause its Authorized Officer to certify, in the form attached
hereto as EXHIBIT 5.9 (the "Officer’s Compliance Certificate") in
connection with those quarterly and annual statements required to be furnished pursuant to
this Agreement that:


(i) Such statement was prepared in accordance with GAAP consistently applied and
presents fairly in all material respects the financial condition of the Borrower at the
close of, and the results of the Borrower’s operations and cash flows for, the
period(s) covered, subject, however to the following:


(A) usual year end adjustments and the absence of footnotes (this exception shall not
be included in the Officer’s Certificate which accompanies such annual statement).


(B) Material Accounting Changes (in which event, such certificate shall include a
schedule (in reasonable detail) of the effect of each such Material Accounting Change) not
previously specifically taken into account in the determination of the financial
performance covenant imposed pursuant to Section 5.12.


(ii) There does not exist a Default or Event of Default or, if such an event has
occurred, its nature (in reasonable detail) and the steps (if any) being taken or
contemplated by the Borrower to be taken on account thereof.


(iii) The Borrower was in compliance (or had failed to comply) as of the date of the
applicable statement with each of the financial performance covenants included in Section
5.12 hereof; such certification to be accompanied by calculations demonstrating such
compliance or failure to comply.


5.10 INVENTORIES, APPRAISALS, AND AUDITS.


(a) The Agent may, at the expense of the Borrower, participate in and/or observe each
inventory and any cycle count of the Collateral which is undertaken on behalf of the
Borrower. The Borrower may not change the methodology to be followed in connection with
the conduct of and reporting on the results of such inventory from the methodology
employed by the Borrower as of the date of this Agreement, except for such changes in
methodology as are reasonably necessitated by the Borrower migrating to a perpetual cost
system. 


(b) The Borrower, at its expense, shall cause each store location, warehouse, and
distribution center to have not less than one (1) physical inventory in each twelve (12)
month period to be undertaken, and cycle counts, consistent with current practice, while
this Agreement is in effect (the scheduling of which shall be subject to the Agent's
discretion), conducted by such inventory takers as are reasonably satisfactory to the
Agent and following such methodology as may be reasonably satisfactory to the Agent. 


(c) Upon request of the Agent, the Borrower shall provide the Agent with a copy of the
preliminary results of each such inventory (as well as of any other physical inventory
undertaken by the Borrower) within ten (10) days after its completion. 


(d) The Borrower shall provide the Agent with a reconciliation of the results of each
such inventory (as well as of any other physical inventory undertaken by the Borrower) to
the Borrower’s books and records within thirty (30) days following the completion of
such inventory.


(e) The Agent, in its discretion, following the occurrence and during the continuance
of a Event of Default, may cause such additional inventories to be taken as the Agent
determines (each, at the expense of the Borrower)


(f) Prior to the Borrower meeting the Inventory Appraisal Threshold, the Agent agrees
to not conduct any appraisals of the Borrower’s Inventory except for one (1)
appraisal (at the expense of the Borrower) of the Borrower’s Inventory following the
Closing Date in connection with the Agent’s completion of its Post-Closing Due
Diligence. Thereafter and upon the Borrower meeting the Inventory Appraisal Threshold,
Agent contemplates obtaining up to one (1) appraisal (at the expense of the Borrower) of
the Borrower’s Inventory during any twelve (12) month period during which this
Agreement is in effect, but in its discretion, may obtain more in the event it deems it
reasonably necessary in its discretion, provided that, prior to the occurrence of an Event
of Default, such appraisals shall be at the expense of the Lenders and following the
occurrence of an Event of Default such appraisals shall be at the expense of the Borrower.
Each appraisal required by the Agent pursuant to this Agreement shall be conducted by such
appraisers as are satisfactory to the Agent. 


(g) The Agent contemplates conducting two (2) commercial finance audits (each at the
expense of the Borrower) of the Borrower’s books and records during any twelve (12)
month period during which this Agreement is in effect, but in its discretion, may obtain
more in the event it deems it reasonably necessary in its discretion, provided that, while
no Event of Default has occurred and is continuing, such audits shall be at the expense of
the Lenders and following the occurrence and during the continuance of an Event of Default
such audits shall be at the expense of the Borrower.


(h) The Agent contemplates conducting one (1) appraisal (at the Borrower’s
expense) of the Borrower’s Eligible Leaseholds during any twelve (12) month period
during which this Agreement is in effect, but in its discretion, may obtain more (at the
Borrower’s expense) in the event it deems it reasonably necessary in its discretion


5.11 ADDITIONAL FINANCIAL INFORMATION. 


(a) In addition to all other information required to be provided pursuant to this
Article V, the Borrower promptly shall provide the Agent, such other and additional
information concerning the Borrower, the Collateral, the operation of the Borrower’s
business, and the Borrower’s financial condition, including financial reports and
statements (including supporting schedules), as the Agent may from time to time reasonably
request from the Borrower. 


(b) The Borrower may provide the Agent, from time to time hereafter, with updated
forecasts of the Borrower’s anticipated performance and operating results. 


(c) The Borrower shall, no later than 30 days after to the end of each of the
Borrower’s Fiscal Years, furnish the Agent with an updated Business Plan which shall
go out at least through the end of the then next Fiscal Year and shall include a
Consolidated income statement, balance sheet, and statement of cash flow, by month, as
well as components of the Borrowing Base and shall include assumptions, each prepared in
conformity with GAAP and consistent with the Borrower’s then current practices.


(d) The Borrower recognizes that all appraisals, inventories, analysis, financial
information, and other materials which the Agent may obtain, develop, or receive with
respect to the Borrower is confidential to the Agent and that, except as otherwise
provided herein, the Borrower is not entitled to receipt of any of such appraisals,
inventories, analysis, financial information, and other materials, nor copies or extracts
thereof or therefrom.


5.12 FINANCIAL PERFORMANCE COVENANT.


The Borrower shall not cause or suffer to exist Excess Availability, at all times, to
be less than that amount (stated in Dollars) equal to Ten (10%) Percent multiplied by the
lesser of (i) the Borrowing Base and (ii) the Revolving Credit Loan Ceiling. Compliance
with such financial performance covenant shall be made as if no Material Accounting
Changes had been made (other than any Material Accounting Changes specifically taken into
account in the setting of such covenants). The Agent may determine the Borrower’s
compliance with such covenant based upon financial reports and statements provided by the
Borrower to the Agent (whether or not such financial reports and statements are required
to be furnished pursuant to this Agreement) as well as by reference to interim financial
information provided to, or developed by, the Agent.


ARTICLE VI. - USE AND COLLECTION OF COLLATERAL:


6.1 INVENTORY COVENANTS. 


(a) The Borrower shall not engage in any sale of the Inventory other than for fair
consideration in the conduct of the Borrower’s business in the ordinary course and
shall not engage in sales or other dispositions to creditors, sales or other dispositions
in bulk, or any use of any of the Inventory in breach of any provision of this Agreement.


(b) No sale of Inventory shall be on consignment, approval, or under any other
circumstances such that, with the exception of the Borrower’s customary return policy
applicable to the return of Inventory purchased by the Borrower’s retail customers in
the ordinary course, such Inventory may be returned to the Borrower without the consent of
the Agent.


(c) All Inventory now owned or hereafter acquired by the Borrower is and will be of
good and merchantable quality and free from defects (other than defects within customary
trade tolerances or for purchases of "irregular" Inventory in accordance with
current practices). 


(d) Borrower shall produce, use, store and maintain the Inventory, with all reasonable
care and caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders relating thereto)
except as would not reasonably be expected to have a Material Adverse Effect.


(e) Borrower shall keep Inventory in good and marketable condition.


(f) None of the Inventory or other Collateral constitutes Farm Products.


6.2 ACCOUNT COVENANTS. 


(a) The Borrower may grant such allowances or other adjustments to the Borrower’s
Account Debtors, Credit Card Processors and Credit Card Issuers (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be done without
first obtaining the Agent's prior written consent in each instance) as the Borrower may
reasonably deem to accord with sound business practice, provided, however, the authority
granted the Borrower pursuant to this Section 6.2 may be limited or terminated by the
Agent at any time in the Agent's discretion following the occurrence and during the
continuance of an Event of Default.


(b) Borrower shall notify Agent promptly of the assertion of (i) any claims, offsets,
defenses or counterclaims by any Account Debtor, Credit Card Issuer or Credit Card
Processor or any disputes with any of such Persons or any settlement, adjustment or
compromise thereof, to the extent any of the foregoing exceeds $100,000 in any one case or
$500,000 in the aggregate and (ii) all material adverse information relating to the
financial condition of any Account Debtor, Credit Card Issuer or Credit Card Processor
known to the Borrower. 


(c) After the occurrence of an Event of Default, the Agent from time to time may verify
the Receivables Collateral directly with the Borrower’s Account Debtors, Credit Card
Issuer or Credit Card Processor, such verification to be undertaken in keeping with
commercially reasonable commercial lending standards.


(d) The Borrower shall notify Agent promptly of: (i) any notice of a material default
by the Borrower under any Credit Card Agreements or of any default which has a reasonable
likelihood of resulting in the Credit Card Issuer or Credit Card Processor ceasing to make
payments or suspending payments to Borrower, (ii) any notice from any Credit Card
Processor or Credit Card Issuer that such Person is ceasing or suspending, or will cease
or suspend, any present or future payments due or to become due to Borrower from such
Person, or that such Person is terminating or will terminate any of the Credit Card
Agreements, and (iii) the failure of the Borrower to comply with any material terms of the
Credit Card Agreements or any terms thereof which has a reasonable likelihood of resulting
in the Credit Card Issuer or Credit Card Processor ceasing or suspending payments to the
Borrower.


(e) The Borrower shall not post any bond to secure the Borrower’s performance
under any agreement to which the Borrower is a party nor cause any surety, guarantor, or
other third party obligee to become liable to perform any obligation of the Borrower
(other than to the Agent) in the event of the Borrower’s failure so to perform,
except in in the ordinary course of business consistent with past practices and in
connection with the filing of an appeal in litigation when the posting of an bond is
required for the commencement of an appeal.


6.3 NOTIFICATION TO ACCOUNT DEBTORS.


The Agent shall have the right while an Event of Default has occurred and is continuing
to notify any of the Borrower’s Account Debtors, Credit Card Issuer, and Credit Card
Processor to make payment directly to the Agent and to collect all amounts due on account
of the Collateral following the occurrence and during the continuance of a Cash Management
Event. 


6.4 RIGHT TO CURE


Agent may, at its option, upon prior notice to the Borrower, (a) cure any material
default by the Borrower under any material agreement with a third party that affects the
Collateral, its value or the ability of the Agent to exercise Agent’s Rights and
Remedies or the ability of the Borrower to perform its obligations hereunder or under any
of the other Loan Documents, (b) pay or bond on appeal any material judgment entered
against the Borrower, (c) discharge any material Encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or perform
any act which, in the Agent’s judgment, is necessary or appropriate to preserve,
protect, insure, or maintain the Collateral and the rights of the Agent with respect
thereto. Agent may add any amounts so expended to the Liabilities and charge the
Borrower’s Loan Account therefor, such amounts to be payable by Borrower on demand
(supported by reasonable back-up documentation). Agent shall be under no obligation to
effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed
any obligation or liability of the Borrower. Any payment made or other action taken by
Agent under this section shall be without prejudice to any right to assert an Event of
Default hereunder and proceed accordingly.


ARTICLE VII. - CASH MANAGEMENT; PAYMENT OF LIABILITIES:


7.1 DEPOSITORY ACCOUNTS. 


(a) Annexed hereto as EXHIBIT 7.1 is a Schedule of all present DDA's and Investment
Accounts, which includes, with respect to each depository (i) the name and address of that
depository; (ii) the account number(s) of the account(s) maintained with such depository;
and (iii) a contact person at such depository. Borrower shall provide prompt written
notice to the Agent of the opening or closing of any DDAs and Investment Accounts made by
Borrower in accordance with the provisions of this Agreement and such notice shall serve
to update EXHIBIT 7.1.


(b) The Borrower shall deliver the following to the Agent with respect to each DDA, if
required by the Agent (in respect of clause (b)(i) of this Section, made after the
occurrence and during the continuance of an Event of Default): 


(i) Notification, executed on behalf of the Borrower, to each depository institution
with which any DDA is maintained (other than any Exempt DDA and the Blocked Account), in
form satisfactory to the Agent of the Agent's interest in such DDA.


(ii) A Blocked Account Agreement with any depository institution at which either of the
following conditions applies:


(A) Both any DDA (other than the Operating Account) and the Operating Account is
maintained.


(B) A Blocked Account is maintained.


(c) The Borrower will not establish any DDA hereafter (other than an Exempt DDA)
unless, contemporaneous with such establishment, the Borrower delivers, if required by the
Agent, the following to the Agent:


(i) With respect to DDAs that are not Blocked Accounts, the Operating Account, or
Exempt DDA’s, notification to the depository at which such DDA is established if the
same would have been required pursuant to Section 7.1(b)(i) if the subject DDA were open
at the execution of this Agreement;


(ii) With respect to DDAs that are Blocked Accounts, a Blocked Account Agreement
executed on behalf of the depository at which such DDA is established if the same would
have been required pursuant to Section 7.1(b)(ii) if the DDA were open at the execution of
this Agreement.


(d) Notwithstanding anything contained herein to the contrary, the Borrower (i) shall
deliver a Control Agreement to the Agent with respect to each Investment Account existing
as of the date hereof within ninety (90) days of the Closing Date, except as to the
Investment Account maintained as of the Closing Date with Bank of America or its
Affiliates, which shall be delivered as of the Closing Date, and (ii) shall not establish
any Investment Account hereafter unless, contemporaneous with such establishment, the
Borrower delivers a Control Agreement to the Agent, executed by the institution at which
such Investment Account is maintained.


7.2 CREDIT CARD RECEIPTS.


(a) Annexed hereto as EXHIBIT 7.2, is a Schedule which describes all Credit Card
Agreements with Credit Card Issuers and Credit Card Processors. Borrower shall provide
prompt written notice to the Agent of the Borrower entering into any new Credit Card
Arrangements with Credit Card Issuers and Credit Card Processors in accordance with the
provisions of this Agreement and such notice shall serve to update EXHIBIT 7.2.


(b) The Borrower shall deliver to the Agent, notification, executed on behalf of the
Borrower, to each of the Borrower’s Credit Card Processors of notice (in form
reasonably satisfactory to the Agent), which notice provides that payment of all credit
card charges submitted by the Borrower to that clearinghouse or other processor and any
other amount payable to the Borrower by such clearinghouse or other processor shall be
directed to the Concentration Account or as otherwise designated from time to time by the
Agent following the occurrence of a Cash Management Event and shall cause each such Credit
Card Processor to enter into Credit Card Acknowledgments. Following the occurrence of a
Cash Management Event, the Borrower shall not change such direction or designation except
upon and with the prior written consent of the Agent. In the case of Credit Card
Agreements in effect on the Closing Date, the Borrower shall comply with the foregoing
provisions of this Section 7.2(b) within the time required by the Closing Statement and
Memorandum. 


7.3 THE CONCENTRATION, BLOCKED, OPERATING ACCOUNTS AND INVESTMENT ACCOUNTS.


(a) The following checking accounts have been or will be established (and are so
referred to herein):


(i) The "Concentration Account": Established by the Agent with Bank of
America.


(ii) The "Blocked Account(s)": Such concentration accounts established by the
Borrower with (A) Bank of America (no later than 90 days from the Closing Date); (B) Wells
Fargo; (C) US Bank; (D) Vectra Bank; and (E) any other banks satisfactory to the Agent.


(iii) The "Operating Account": Established by the Borrower with Bank of
America, from which disbursements may be made and into which advances under the Revolving
Credit may be deposited or deposits from the Blocked Account(s) may be made.


(iv) The "Investment Account": Established by the Borrower with Bank of
America or its Affiliate as of the Closing Date, and each other investment account of the
Borrower maintained by the Borrower in compliance with Section 7.1(d), in which Permitted
Investments shall be maintained.


(b) The contents of each DDA (other than the Operating Account), of the Blocked
Account, and each Investment Account constitute Collateral and Proceeds of Collateral. The
contents of the Concentration Account constitute the Agent's property.


(c) The Borrower shall not establish any Blocked Account hereafter except upon not less
than 10 days written notice to the Agent and the delivery to the Agent of a Blocked
Account Agreement with respect thereto.


(d) The Borrower shall pay all fees and charges of, and maintain such impressed
balances as may be required by the depository in which any account is opened as required
hereby (even if such account is opened by and/or is the property of the Agent.


(e) Notwithstanding anything to the contrary contained in this Section 7.3 or elsewhere
in this Agreement, each Blocked Account Agreement (other than any Control Agreement in
respect of any Investment Account) shall provide (except as the Agent may otherwise agree
in writing) that, until Agent has notified the financial institution maintaining such
Blocked Account in writing to forward by daily sweep all amounts in the applicable Blocked
Account to the Concentration Account, all amounts in the applicable Blocked Account shall
be forwarded pursuant to the instructions of the Borrower given to the depository
institution maintaining such Blocked Account from time to time. Agent shall be entitled to
give the aforementioned notification to such financial institution, or to request that the
Borrower delivers such a notification to such financial institution under Section 7.3(f),
at any time after the occurrence of a Cash Management Event (the period during which the
Agent may give such a notice, a "Sweep Period"); provided, however, that,
subject to the following sentence, each Sweep Period will be suspended within Five (5)
Business Days of: Agent’s and Lenders’ written waiver of any Cash Management
Event (a "Sweep Suspension"). 


(f) The Borrower agrees that, at any time or from time to time during a Sweep Period
that the Agent requests that the Borrower delivers to such a financial institution an
instruction to forward by daily sweep all amounts in the applicable Blocked Account to the
Concentration Account, the Borrower shall immediately upon such a request deliver such an
instruction to such financial institution and deliver a written copy thereof to the Agent.


(g) Notwithstanding anything contained herein to the contrary, within 90 days after the
Closing Date, the Borrower shall have established its DDAs (including, without limitation,
its Blocked Accounts and Operating Accounts, other than Exempt DDAs and those DDAs which
Agent may agree do not have to be Transferred to Bank of America) with Bank of America or
its Affiliates and shall have caused all funds then on deposit and thereafter deposited in
any DDAs not maintained with Bank of America or its Affiliates to be Transferred, by ACH
or wire transfer, daily, to such DDAs established with Bank of America or its Affiliate.
Within one hundred and eighty (180) days after the Closing Date and unless otherwise
agreed to by the Agent in writing, the Borrower shall have closed all DDAs of the Borrower
which are not maintained with Bank of America or its Affiliates. Each DDA with Bank of
America or its Affiliates shall be subject to a Blocked Account Agreement to be delivered
by the Borrower to the Agent, duly executed by Bank of America or its Affiliates, within
sixty (60) days of the Closing Date.


7.4 PROCEEDS AND COLLECTION OF ACCOUNTS. 


(a) During the Sweep Period, all Receipts constitute Collateral and proceeds of
Collateral shall be held in trust by the Borrower for the Agent, shall not be commingled
with any of the Borrower’s other funds, and (other than amounts maintained in DDAs
pursuant to Sections 7.4(b) and 7.4(c) and amounts retained for petty cash at each store)
shall be deposited and/or transferred only to the Blocked Account(s), Operating Account or
the Concentration Account, or another DDA permitted hereunder (and in such case, only if
the funds in such DDA are deposited and/or transferred to a Blocked Account, Operating
Account or Concentration Account).


(b) During the Sweep Period, the Borrower shall cause the ACH or wire transfer to a
Blocked Account or the Operating Account, as designated by the Agent (or shall permit the
Agent to cause such daily ACH or wire transfers to a Blocked Account or the Concentration
Account), no less frequently than weekly (and, if required by Agent, no less frequently
than daily)(and whether or not there is then an outstanding balance in the Loan Account)
of the following:


(i) The contents of each DDA (other than any Exempt DDA, the Blocked Accounts or the
Operating Account). Each such transfer to be net of any minimum balance, not to exceed
$10,000, as may required to be maintained in the subject DDA by the Borrower in the
ordinary course of business.


(ii) The proceeds of all credit card charges not otherwise provided for pursuant
hereto. 


(c) During any Sweep Period, whether or not any Liabilities are then outstanding, the
Borrower shall cause the daily ACH or wire transfer to the Concentration Account, or as
otherwise designated by the Agent (or shall permit the Collateral Agent to cause such
daily ACH or wire transfers to the Concentration Account or as otherwise designated by
Collateral Agent), of then entire ledger balance of each Blocked Account, net of such
minimum balance, not to exceed $50,000, as may be required to be maintained in the Blocked
Account by the Borrower in the ordinary course of business. 


(d) In the event that, notwithstanding the provisions of this Section 7.4, the Borrower
receives or otherwise has dominion and control of any Receipts during a Sweep Period, or
any proceeds or collections of any Collateral, such Receipts, proceeds, and collections
shall be held in trust by the Borrower for the Agent and shall not be commingled with any
of the Borrower’s other funds or deposited in any account of the Borrower other than
as instructed by the Agent.


7.5 PAYMENT OF LIABILITIES.


(a) On each Business Day, the Agent shall apply the then collected balance of the
Concentration Account (net of fees charged, and of such minimum balances as may be
required by the bank at which the Concentration Account is maintained) first, towards the
unpaid balance of SwingLine Loans, second, towards the unpaid balance of the Loan Account
and third towards all other Liabilities, provided, however, for purposes of the
calculation of interest on the unpaid principal balance of the Loan Account, such payment
shall be deemed to have been made one (1) Business Day after such transfer.


(b) The following rules shall apply to deposits and payments under and pursuant to this
Agreement:


(i) Funds shall be deemed to have been deposited to the Concentration Account on the
Business Day on which deposited, provided that notice of such deposit is available to the
Agent by 2:00PM on that Business Day. 


(ii) Funds paid to the Agent, other than by deposit to the Concentration Account, shall
be deemed to have been received on the Business Day when they are good and collected
funds, provided that notice of such payment is available to the Agent by 2:00PM on that
Business Day. 


(iii) If notice of a deposit to the Concentration Account (Section 7.5(b)(i)) or
payment (Section 7.5(b)(ii)) is not available to the Agent until after 2:00PM on a
Business Day, such deposit or payment shall be deemed to have been made at 9:00AM on the
then next Business Day.


(iv) All deposits to the Concentration Account and other payments to the Agent are
subject to clearance and collection.


(c) The Agent shall transfer to the Operating Account any surplus in the Concentration
Account remaining after the application towards the Liabilities referred to in Section
7.5(a), above (less those amount which are to be netted out, as provided therein)
provided, however, in the event that an Event of Default has occurred and is continuing
and or one or more L/C's are then outstanding, then the Agent may establish a funded
reserve of up to 103% of the aggregate Stated Amounts of such L/C's. Such funded reserve
shall either be (i) returned to the Borrower provided that, the Event of Default is no
longer extant or (ii) applied towards the Liabilities following Acceleration.


7.6 THE OPERATING ACCOUNTS AND DISBURSEMENT ACCOUNT.


Except as otherwise specifically provided in, or permitted by, this Agreement, all
checks shall be drawn by the Borrower upon, and other disbursements shall be made by the
Borrower solely from, the Operating Accounts or Disbursement Accounts. 


ARTICLE VIII. - GRANT OF SECURITY INTEREST:


8.1 GRANT OF SECURITY INTEREST.


To secure the Borrower’s prompt, punctual, and faithful performance and payment of
all and each of the Liabilities, the Borrower hereby grants to the Agent, for the benefit
of the Lenders, a continuing security interest in and to, and assigns to the Agent all
assets of the Borrower, and each item thereof, whether now owned or now due, or in which
in which that Borrower has an interest, or hereafter acquired, arising, or to become due,
or in which that Borrower obtains an interest, and all products, Proceeds, substitutions,
and accessions of or to any of the following (all of which, together with any other
property in which the Agent may in the future be granted a security interest, is referred
to herein as the "Collateral"):


(a) All Accounts.


(b) All Inventory.


(c) All General Intangibles.


(d) All Equipment.


(e) All Goods.


(f) All Fixtures.


(g) All Farm Products.


(h) All Chattel Paper.


(i) All Leaseholds.


(j) All Letter of Credit Rights.


(k) All Payment Intangibles.


(l) All Supporting Obligations.


(m) All books, records, and information relating to the Collateral and/or to the
operation of the Borrower’s business, and all rights of access to such books,
records, and information, and all property in which such books, records, and information
are stored, recorded, and maintained.


(n) All Investment Property, Instruments, Documents, Documents of Title, Deposit
Accounts, policies and certificates of insurance, deposits, impressed accounts,
compensating balances, money, cash, or other property.


(o) All commercial tort claims (as defined in the UCC).


(p) All insurance proceeds, refunds, and premium rebates, including, without
limitation, proceeds of fire and credit insurance, whether any of such proceeds, refunds,
and premium rebates arise out of any of the foregoing ( Section 8.1(a) through 8.1(l) ) or
otherwise.


(q) All supporting obligations and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Accounts and other
Collateral, including (i) rights and remedies relating to guaranties, contracts of
suretyship, letter of credit and credit and other insurance related to the Collateral,
(ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights
and remedies of an unpaid vendor, lien or secured party, (iii) goods described in
invoices, documents, contracts or instruments with respect thereto, or otherwise
representing or evidencing, Accounts or other Collateral, including returned, repossessed
and reclaimed goods, and (iv) deposits by and property of Account Debtors or other persons
securing the obligations of Account Debtors.


Notwithstanding anything herein to the contrary, in no event shall the security
interest granted under this Section attach to (a) any item of Collateral to which the
Borrower 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 (i) the abandonment,
invalidation or unenforceability of any right, title or interest of the Borrower therein
or (ii) in a breach or termination pursuant to the terms of, or a default under, any item
of Collateral (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 UCC (or any successor provision
or provisions) of any relevant jurisdiction or any other applicable law (including the
United States Bankruptcy Code) or principles of equity), provided however that such
security interest shall attach immediately at such time as the condition causing such
abandonment, invalidation or unenforceability shall be remedied and to the extent
severable, shall attach immediately to any portion of such item of Collateral that does
not result in any of the consequences specified in (i) or (ii) above. Borrower represents
that there is no item of Eligible Inventory, Eligible Cash Equivalents, Eligible Credit
Card Receivables or Eligible Leaseholds having a value of more than $500,000, in the
aggregate, to which the Agent’s Collateral Interests would be affected pursuant to
the foregoing sentence.


 


8.2 EXTENT AND DURATION OF SECURITY INTEREST.


The security interest created and granted herein is in addition to, and supplemental
of, any security interest previously granted by the Borrower to the Agent and shall
continue in full force and effect applicable to all Liabilities until all Liabilities have
been paid and/or satisfied in full (other than contingent indemnity obligations for which
the Agent has established cash reserves to the extent required by Agent in its reasonable
discretion), the Dollar Commitment of the Lenders to make loans and other financial
accommodations has been terminated, and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Agent.


8.3 PERFECTION OF SECURITY INTERESTS. 


(a) Except to the extent provided herein, the Borrower agrees to take all action that
the Agent may request as a matter of non-bankruptcy law to perfect and protect the
Agent’s Collateral Interest in the Collateral and for such Collateral Interest to
obtain the priority therefor contemplated hereby, including, without limitation, executing
and delivering such documents and instruments, financing statements, providing such
notices and assents of third parties, obtaining governmental approvals and providing such
other instruments and documents in recordable form as the Agent may request; provided,
however, that the Borrower shall not be required to deliver executed Leasehold Mortgages
for any Leasehold unless it seeks to include such Leasehold as an Eligible Leasehold for
the purposes of borrowing under the Borrowing Base. The Borrower irrevocably and
unconditionally authorizes the Agent to file at any time and from time to time such
financing statements with respect to the Collateral naming the Agent or its designee as
the secured party and Borrower as debtors, as Agent may require, together with any
amendment and continuations with respect thereto, that (a) indicate the Collateral (i) as
"all assets of the Borrower" or words of similar effect, regardless of whether
any particular asset comprised in the Collateral falls within the scope of Article 9 of
the Uniform Commercial Code of the Commonwealth of Massachusetts or such jurisdiction, or
(ii) as being of an equal or lesser scope or with greater detail, and (b) provide any
other information required by part 5 of Article 9 of the Uniform Commercial Code of any
jurisdiction for the sufficiency or filing office acceptance of any financing statement or
amendment, including (i) whether the Borrower is an organization, the type of organization
and any organization identification number issued to the Borrower and, (ii) in the case of
a financing statement filed as a fixture filing, if any, a sufficient description of real
property to which the Collateral relates. The Borrower agrees to furnish any such
information to the Agent promptly upon the Agent’s request. The Borrower hereby
authorizes the Agent to adopt on behalf of the Borrower any symbol required for
authenticating any electronic filing. Without the written authorization of the Agent, in
no event shall the Borrower at any time file, or permit or cause to be filed, any
correction statement or termination statement with respect to any financing statement (or
amendment or continuation with respect thereto) naming the Agent or its designee as
secured party and the Borrower as debtor. 


(b) The Borrower does not have any Chattel Paper (whether tangible or electronic) or
instruments as of the date hereof. In the event that the Borrower shall be entitled to or
shall receive any Chattel Paper or instrument after the date hereof with a value in excess
of $500,000, the Borrower shall promptly notify the Agent thereof in writing. Promptly
upon the receipt thereof by the Borrower (including by any agent or representative), the
Borrower shall deliver, or cause to be delivered to the Agent, all tangible Chattel Paper
and instruments with a value in excess of $500,000 that the Borrower may at any time
acquire, accompanied by such instruments of transfer or assignment duly executed in blank
as the Agent may from time to time specify, in each case except as the Agent may otherwise
agree. At the Agent’s option after a Default, the Borrower shall, or Agent may at any
time on behalf of the Borrower, cause the original of any such instrument or Chattel Paper
with a value in excess of $500,000 to be conspicuously marked in a form and manner
reasonably acceptable to Agent with the following legend referring to Chattel Paper or
instruments as applicable: "This [chattel paper][instrument] is subject to the
security interest of Bank of America, N.A. and any sale, transfer, assignment or
encumbrance of this [chattel paper][instrument] violates the rights of such secured
party." 


(c) In the event that the Borrower shall at any time hold or acquire an interest in any
electronic Chattel Paper or any "transferable record" (as such term is defined
in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or
in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction) with a value in excess of $500,000, the Borrower shall promptly notify the
Agent thereof in writing. Promptly upon the Agent’s request, the Borrower shall take,
or cause to be taken, such actions as the Agent may reasonably request to give Agent
control of such electronic Chattel Paper with a value in excess of $500,000 under Section
9-105 of the UCC and control of such transferable record under Section 201 of the Federal
Electronic Signatures in Global and National Commerce Act or, as the case may be, Section
16 of the Uniform Electronic Transactions Act, as in effect in such jurisdiction. 


(d) Except as set forth on EXHIBIT 8, the Borrower does not own or hold, directly or
indirectly, beneficially or as record owner or both, any Investment Property, as of the
date hereof, or have any Investment Account, securities account, commodity account or
other similar account with any bank or other financial institution or other securities
intermediary or commodity intermediary as of the date hereof. 


(i) In the event that the Borrower shall be entitled to or shall at any time after the
date hereof hold or acquire any certificated securities, the Borrower shall promptly
endorse, assign and deliver the same to the Agent, accompanied by such instruments of
transfer or assignment duly executed in blank as the Agent may from time to time specify.
If any securities now or hereafter acquired by the Borrower are uncertificated and are
issued to the Borrower or its nominee directly by the issuer thereof, the Borrower shall
promptly notify the Agent thereof and shall as the Agent may specify, either (A) cause the
issuer to agree to comply with instructions from the Agent as to such securities, without
further consent of the Borrower or such nominee, or (B) arrange for the Agent to become
the registered owner of the securities. Notwithstanding anything to contrary, in no event
shall more that 65% of the voting power of all classes of capital stock or other interests
entitled to vote in any Foreign Entity held or acquired by the Borrower be assigned,
delivered, pledged or otherwise transferred to the Agent.


(e) Except as set forth on EXHIBIT 8(e), the Borrower is not the beneficiary or
otherwise entitled to any Letter of Credit Rights. In the event that the Borrower shall be
entitled to or shall receive any Letter of Credit Rights after the date hereof with a
value in excess of $500,000, the Borrower shall promptly notify Agent thereof in writing
and such notice shall serve to update EXHIBIT 8(e). The Borrower shall promptly, at the
request of the Agent may specify, either (i) deliver, or cause to be delivered to Agent,
with respect to any such letter of credit, banker’s acceptance or similar instrument
with a value in excess of $500,000, the written agreement of the issuer and any other
nominated person obligated to make any payment in respect thereof (including any
confirming or negotiating bank), in form and substance reasonably satisfactory to Agent,
consenting to the assignment of the proceeds of the letter of credit to the Agent by the
Borrower and agreeing to make all payments thereon directly to the Agent or as the Agent
may otherwise direct or (ii) cause the Agent to become, at the Borrower’s expense,
the transferee beneficiary of the letter of credit, banker’s acceptance or similar
instrument (as the case may be) with a value in excess of $500,000. 


(f) The Borrower does not have any commercial tort claims as of the date hereof. In the
event that the Borrower shall at any time after the date hereof have any commercial tort
claims with a value in excess of $500,000, the Borrower shall promptly notify the Agent
thereof in writing, which notice shall (i) set forth in reasonable detail the basis for
and nature of such commercial tort claim and (ii) include the express grant by the
Borrower to the Agent of a security interest in such commercial tort claim (and the
proceeds thereof). In the event that such notice does not include such grant of a security
interest, the sending thereof by the Borrower to the Agent shall be deemed to constitute
such grant to the Agent. Upon the sending of such notice, any commercial tort claim
described therein shall constitute part of the Collateral and shall be deemed included
therein. Without limiting the authorization of the Agent otherwise provided herein or
otherwise arising by the execution by the Borrower of this Agreement, the Agent is hereby
irrevocably authorized from time to time and at any time to file such financing statements
naming Agent or its designee as secured party and Borrower as debtor, or any amendments to
any financing statements, covering any such commercial tort claim as Collateral. In
addition, the Borrower shall promptly upon the Agent’s request, execute and deliver,
or cause to be executed and delivered, to the Agent such other agreements, documents and
instruments as Agent may require in connection with such commercial tort claim with a
value in excess of $500,000. 


(g) Except in the case of Permitted Encumbrances, the Borrower hereby covenants and
agrees that each Leasehold shall at all times be free and clear of all liens, claims and
encumbrances of any nature or description and no other creditor of the estate (secured or
unsecured) shall be entitled to encumber any Leasehold without the express written consent
of the Agent. 


ARTICLE IX. - AGENT AS BORROWER’S ATTORNEY-IN-FACT:


9.1 APPOINTMENT AS ATTORNEY-IN-FACT.


The Borrower hereby irrevocably constitutes and appoints the Agent as the
Borrower’s true and lawful attorney, with full power of substitution, following the
occurrence and during the continuance of an Event of Default, to convert the Collateral
into cash at the sole risk, cost, and expense of the Borrower, but for the ratable benefit
of the Agent. The rights and powers granted the Agent by this appointment include but are
not limited to the right and power to: 


(a) Prosecute, defend, compromise, or release any action relating to the Collateral. 


(b) Sign change of address forms to change the address to which the Borrower’s
mail is to be sent to such address as the Agent shall designate; receive and open the
Borrower’s mail; remove any Receivables Collateral and Proceeds of Collateral
therefrom and turn over the balance of such mail either to the Borrower or to any trustee
in bankruptcy, receiver, assignee for the benefit of creditors of the Borrower, or other
legal representative of the Borrower whom the Agent determines to be the appropriate
person to whom to so turn over such mail.


(c) Endorse the name of the Borrower in favor of the Agent upon any and all checks,
drafts, notes, acceptances, or other items or instruments; sign and endorse the name of
the Borrower on, and receive as secured party, any of the Collateral, any invoices,
schedules of Collateral, freight or express receipts, or bills of lading, storage
receipts, warehouse receipts, or other documents of title respectively relating to the
Collateral.


(d) Sign the name of the Borrower on any notice to the Borrower’s Account Debtors
or verification of the Receivables Collateral; sign the Borrower’s name on any Proof
of Claim in Bankruptcy against Account Debtors, and on notices of lien, claims of
mechanic's liens, or assignments or releases of mechanic's liens securing the Accounts.


(e) Take all such action as may be necessary to obtain the payment of any letter of
credit and/or banker's acceptance of which the Borrower is a beneficiary.


(f) Repair, manufacture, assemble, complete, package, deliver, alter or supply goods,
if any, necessary to fulfill in whole or in part the purchase order of any customer of the
Borrower.


(g) Use, license or transfer any or all General Intangibles of the Borrower.


9.2 NO OBLIGATION TO ACT.


The Agent shall not be obligated to do any of the acts or to exercise any of the powers
authorized by Section 9.1 herein, but if the Agent elects to do any such act or to
exercise any of such powers, it shall not be accountable for more than it actually
receives as a result of such exercise of power, and shall not be responsible to the
Borrower for any act or omission to act except for any act or omission to act as to which
there is a final determination made in a judicial proceeding (in which proceeding the
Agent has had an opportunity to be heard) which determination includes a specific finding
that the subject act or omission to act had been grossly negligent or in actual bad faith.



ARTICLE X. - EVENTS OF DEFAULT:


Any event described in this Article X respectively shall constitute an "Event of
Default" herein. Upon the occurrence and during the continuance of any Event of
Default described in Section 10.11, any and all Liabilities shall become due and payable
without any further act on the part of the Agent. Upon the occurrence and during the
continuance of any other Event of Default, the Agent may declare any and all Liabilities
immediately due and payable. The occurrence of any Event of Default shall also constitute,
without notice or demand, a default under all other agreements between the Agent and the
Borrower and instruments and papers heretofore, now or hereafter given the Agent. 


10.1 FAILURE TO PAY REVOLVING CREDIT.


The failure by the Borrower to pay any amount when due under the Revolving Credit. 


10.2 FAILURE TO MAKE OTHER PAYMENTS.


The failure by the Borrower to pay when due (or upon demand, if payable on demand) any
payment Liability other than under the Revolving Credit and other than as provided in
Section 10.4(b), below.


10.3 FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD).


The failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in Section
10.1 or Section 10.2 hereof, and included in any of the following provisions hereof:


 


	Section	Relates to:


  
  	4.8	Indebtedness


  
  	4.20	Dividends, Investments, Corporate Actions


  
  	4.24	Affiliate Transactions


  
  	5.12	Financial Performance Covenant


  
  	Article VII	Cash Management (ONLY after the occurrence and
    during the continuance of a Cash Management Event)


  
  		



 


10.4 FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD).


(a) The failure of the Borrower to promptly, punctually and timely perform, discharge
or comply with the relevant covenant or Liability, following the expiry of the applicable
grace period specified in the chart below:


 


	Section
	Grace Period
	Number of Grace
    Periods

	4.7 (Title to Assets)
	10 days
	1 per Fiscal Year

	4.9 (Insurance)
	5 days
	1 per Fiscal Year

	5.2 (Access)
	5 days
	1 per Fiscal Year

	5.3 (Notice)
	5 days 
	2 per Fiscal Year

	5.4 (Borrowing Base Certificate)
	1 day
	1 each fiscal quarter

	5.6 (Monthly Reporting)
	5 days
	1 per fiscal quarter

	5.7 (Quarterly Reporting
	5 days
	1 per Fiscal Year

	5.8 (Annual Reporting)
	15 days
	



 


(b) The failure of the Borrower, within 15 days of notice by Agent, to pay when due any
Liabilities which aggregate amount is less than $100,000 and which do not arise under this
Loan Agreement.


(c) The failure by the Borrower, within 30 days following the earlier of an Authorized
Officer of the Borrower’s knowledge of a breach of any covenant or Liability not
described in any of Sections 10.1, 10.2, 10.3, 10.4(a) or 10.4(b) or of the
Borrower’s receipt of written notice from the Agent of the breach thereof.


10.5 MISREPRESENTATION.


Any representation or warranty at any time made by the Borrower to the Agent was not
true or complete in all material respects when given.


10.6 BREACH OF MATERIAL CONTRACTS. BREACH OF LEASE.


(a) The occurrence of any event such that any Indebtedness of the Borrower in excess of
$2,000,000 to any creditor other than the Agent could be accelerated (whether or not the
subject creditor takes any action on account of such occurrence).


(b) The default by Borrower under any Material Contract which default continues for
more than the applicable cure period, if any, with respect thereto which default could
have a Material Adverse Effect.


(c) The default by Borrower under any Credit Card Agreement, which default continues
for more than the applicable cure period, if any, with respect thereto which default could
have a Material Adverse Effect, or any Credit Card Issuer or Credit Card Processor
withholds payment of amounts otherwise payable to the Borrower to fund a reserve account
or otherwise hold as collateral, or shall require the Borrower to pay funds into a reserve
account or for such Credit Card Issuer or Credit Card Processor to otherwise hold as
collateral, or the Borrower shall provide a letter of credit, guarantee, indemnity or
similar instrument to or in favor of such Credit Card Issuer or Credit Card Processor such
that in the aggregate all of such funds in the reserve account, other amounts held as
collateral and the amount of such letters of credit, guarantees, indemnities or similar
instruments shall exceed $2,000,000 or any Credit Card Issuer or Credit Card Processor
shall debit or deduct any amounts in excess of $100,000 in any instance and $500,000 in
the aggregate in any Fiscal Year of the Borrower from any deposit account of the Borrower.


(d) Any Credit Card Issuer or Credit Card Processor shall send written notice to
Borrower that it is ceasing to make or suspending payments to the Borrower of amounts due
or to become due to the Borrower or shall cease or suspend such payments, or shall send
written notice to the Borrower that it is terminating its arrangements with the Borrower
or such arrangements shall terminate as a result of any event of default under such
arrangements, which continues for more than the applicable cure period, if any, with
respect thereto, unless the Borrower shall have entered into arrangements with another
Credit Card Processor or Credit Card Issuer, as the case may be, with thirty (30) days
after the date of such notice.


(e) The occurrence of any of the following with respect to Leases on which the Borrower
is the lessee or is obligated and which do not constitute Eligible Leaseholds:


(i) Default and the expiry of any applicable grace period with respect to more than
five (5) Leases of retail stores, except if the existence of such default is disputed in
good faith by the Borrower or amounts due and unpaid do not exceed $2,000,000.


(ii) Default and the expiry of any applicable grace period of any Lease of any
warehouse or distribution center which would entitle the landlord of such warehouse or
distribution center that constitutes a Material Contract to terminate the Lease, except in
the case of warehouse or distribution centers for which the Borrower has furnished the
Agent with executed Collateral Access Agreements, if the existence of such default is
disputed in good faith by the Borrower and further provided that prior to such occurrence
becoming an Event of Default under this Agreement, Borrower shall have an additional
30-day cure period in which to cure the default under such Lease.


(f) The occurrence of any event of default with respect to any Lease which is an
Eligible Leasehold which default continues for more than the applicable cure period, if
any.


10.7 DEFAULT UNDER OTHER AGREEMENTS.


Except as provided in Section 10.4(b), above, the occurrence of any breach or default
under any agreement (including any Loan Document other than this Agreement) between the
Agent and the Borrower or instrument given by the Borrower to the Agent and the expiry,
without cure, of any applicable grace period (notwithstanding that the subject Agent may
not have exercised all or any of its rights on account of such breach or default).


10.8 UNINSURED CASUALTY LOSS.


The occurrence of any uninsured loss, theft, damage, or destruction of or to any
portion of the Collateral having a retail value in excess of $2,000,000.


10.9 ATTACHMENT; JUDGMENT; RESTRAINT OF BUSINESS. 


(a) The service of process upon the Agent or the Lenders or any Participant seeking to
attach, by trustee, mesne, or other process, any of a Borrower’s funds of $3,000,000
or more (in the aggregate during any Fiscal Year) on deposit with, or assets of the
Borrower in the possession of, the Agent or the Lenders or such Participant.


(b) One or more judgments or orders shall be entered against the Borrower involving in
the aggregate a liability (net of any amount covered by third-party insurance) of
$3,000,000 or more, and enough of such judgments or orders shall not have been vacated,
discharged, stayed, satisfied or bonded pending appeal within any applicable appeal period
to reduce the aggregate liability below $3,000,000.


(c) The entry of any order or the imposition of any other process having the force of
law, the effect of which is to restrain in any way the conduct by the Borrower of its
business in the ordinary course such that the restraint results in a Material Adverse
Effect.


10.10 BUSINESS FAILURE.


Any act by, against, or relating to the Borrower, or its property or assets, which act
constitutes the determination, by the Borrower, to initiate a program of partial or total
self-liquidation; application for, consent to, or sufferance of the appointment of a
receiver, trustee, or other person, pursuant to court action or otherwise, over all, or
any part of the Borrower’s property; the granting of any trust mortgage or execution
of an assignment for the benefit of the creditors of the Borrower, or the occurrence of
any other voluntary or involuntary liquidation for the Borrower; the offering by or
entering into by the Borrower of any composition, extension, or any other arrangement
seeking relief from or extension of the debts of the Borrower; or the initiation of any
judicial or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with creditors;
and/or the initiation by or on behalf of the Borrower of the liquidation or winding up of
all or any part of the Borrower’s business or operations.


10.11 BANKRUPTCY.


The failure by the Borrower to generally pay its debts as they mature; adjudication of
bankruptcy or insolvency relative to the Borrower; the entry of an order for relief or
similar order with respect to the Borrower in any proceeding pursuant to the Bankruptcy
Code or any other federal bankruptcy law; the filing of any complaint, application, or
petition by the Borrower initiating any matter in which the Borrower is or may be granted
any relief from the debts of that Borrower pursuant to the Bankruptcy Code or any other
insolvency statute or procedure; the filing of any complaint, application, or petition
against the Borrower initiating any matter in which the Borrower is or may be granted any
relief from the debts of that Borrower pursuant to the Bankruptcy Code or any other
insolvency statute or procedure. 


10.12 DEFAULT BY GUARANTOR.


The occurrence of any event of default with respect to any Loan Document to which a
Guarantor is a party. 


10.13 INDICTMENT - FORFEITURE.


The indictment of, or institution of any legal process or proceeding against, the
Borrower or any member of the Borrower’s senior management, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or other
requirement having the force of law where the relief, penalties, or remedies sought or
available include the forfeiture of any property of the Borrower and/or the imposition of
any stay or other order, the effect of which could be to restrain in any material way the
conduct by that Borrower of its business in the ordinary course.


10.14 TERMINATION OF GUARANTY.


The termination or attempted termination (other than a mere request for consent to
termination) of any guaranty by any guarantor of the Liabilities (except in accordance
with its terms). 


10.15 CHALLENGE TO LOAN DOCUMENTS.


(a) Any challenge by or on behalf of the Borrower or any guarantor of the Liabilities
to the validity of any Loan Document or the applicability or enforceability of any Loan
Document strictly in accordance with the subject Loan Document's terms or which seeks to
void, avoid, limit, or otherwise adversely affect any security interest created by or in
any Loan Document or any payment made pursuant thereto.


(b) Any determination by any court or any other judicial or government authority that
any Loan Document is not enforceable in accordance with the subject Loan Document's terms
or which voids, avoids, limits, or otherwise adversely affects any security interest
created by any Loan Document or any payment made pursuant thereto.


10.16 KEY MANAGEMENT.


The death, disability, or failure of Perry Odak at any time to exercise that authority
and discharge those management responsibilities with respect to the Borrower as are
exercised and discharged by such Person at the execution of this Agreement, and the
failure of the Borrower to appoint a successor reasonably acceptable to the Agent within
one hundred and eighty (180) days following such cessation.


10.17 CHANGE IN CONTROL.


Any Change in Control.


ARTICLE XI. - RIGHTS AND REMEDIES UPON DEFAULT:


Upon the occurrence and during the continuance of any Event of Default described in
Section 10.11 and upon Acceleration, and at all times thereafter, the Agent shall have the
following rights and remedies in addition to all of the rights, remedies, powers,
privileges, and discretions available to Agent prior to the occurrence of an Event of
Default. No stay which otherwise might be imposed pursuant to Section 362 of the
Bankruptcy Code or otherwise shall stay, limit, prevent, hinder, delay, restrict, or
otherwise prevent the Agent's exercise of any of such rights and remedies. 


11.1 RIGHTS OF ENFORCEMENT.


The Agent shall have all of the rights and remedies of a secured party upon default
under the UCC, in addition to which the Agent shall have all and each of the following
rights and remedies:


(a) To give notice to any bank at which any DDA or Blocked Account is maintained and in
which Proceeds of Collateral are deposited, to turn over such Proceeds directly to the
Agent.


(b) To give notice to any of the Borrower’s customs brokers to follow the
instructions of the Agent as provided in any Customs Brokers Agreement.


(c) To collect the Receivables Collateral with or without the taking of possession of
any of the Collateral. 


(d) To take possession of all or any portion of the Collateral. 


(e) To sell, lease, or otherwise dispose of any or all of the Collateral, in its then
condition or following such preparation or processing as the Agent deems advisable and
with or without the taking of possession of any of the Collateral. 


(f) To conduct one or more going out of business sales which include the sale or other
disposition of the Collateral.


(g) To apply the Receivables Collateral or the Proceeds of the Collateral towards (but
not necessarily in complete satisfaction of) the Liabilities.


(h) To exercise all or any of the rights, remedies, powers, privileges, and discretions
under all or any of the Loan Documents.


11.2 SALE OF COLLATERAL. 


(a) Any sale or other disposition of the Collateral may be at public or private sale
upon such terms and in such manner as the Agent deems advisable, having due regard to
compliance with any statute or regulation which might affect, limit, or apply to the
Agent's disposition of the Collateral. 


(b) The Agent, in the exercise of the Agent's rights and remedies upon default, may
conduct one or more going out of business sales, in the Agent's own right or by one or
more agents and contractors. Such sale(s) may be conducted upon any premises owned,
leased, or occupied by the Borrower. The Agent and any such agent or contractor, in
conjunction with any such sale, may augment the Inventory with other goods (all of which
other goods shall remain the sole property of the Agent or such agent or contractor). Any
amounts realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Agent or such agent or contractor and
neither the Borrower nor any Person claiming under or in right of the Borrower shall have
any interest therein. 


(c) Unless the Collateral is perishable or threatens to decline speedily in value, or
is of a type customarily sold on a recognized market (in which event the Agent shall
provide the Borrower with such notice as may be practicable under the circumstances), the
Agent shall give the Borrower at least ten (10) days prior written notice of the date,
time, and place of any proposed public sale, and of the date after which any private sale
or other disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are imposed under
the UCC or other applicable law with respect to the exercise of the Agent's rights and
remedies upon default. 


(d) The Agent or the Lenders may credit bid and may purchase the Collateral, or any
portion of it at any sale held under this Article XI. 


(e) If any of the Collateral is sold, leased, or otherwise disposed of by the Agent on
credit, the Liabilities shall not be deemed to have been reduced as a result thereof
unless and until payment is finally received thereon by the Agent.


11.3 OCCUPATION OF BUSINESS LOCATION.


In connection with the Agent's exercise of the Agent's rights under this Article XI,
the Agent may enter upon, occupy, and use any premises owned or occupied by the Borrower,
and may exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Agent. The Agent shall not be required to remove
any of the Collateral from any such premises upon the Agent's taking possession thereof,
and may render any Collateral unusable to the Borrower. In no event shall the Agent be
liable to the Borrower for use or occupancy by the Agent of any premises pursuant to this
Article XI, nor for any charge (such as wages for the Borrower’s employees and
utilities) incurred in connection with the Agent's exercise of the Agent's Rights and
Remedies. 


11.4 GRANT OF NONEXCLUSIVE LICENSE.


The Borrower hereby grants to the Agent a royalty free nonexclusive irrevocable license
to use, apply, and affix any trademark, trade name, logo, or the like in which the
Borrower now or hereafter has rights, such license being with respect to the Agent's
exercise of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of Inventory.


11.5 ASSEMBLY OF COLLATERAL.


The Agent may require the Borrower to assemble the Collateral and make it available to
the Agent at the Borrower’s sole risk and expense at a place or places which are
reasonably convenient to both the Agent and Borrower.


11.6 RIGHTS AND REMEDIES.


The rights, remedies, powers, privileges, and discretions of the Agent hereunder, under
any other Loan Document or under applicable law (herein, the "Agent Rights and
Remedies") shall be cumulative and not exclusive of any rights or remedies which it
would otherwise have. No delay or omission by the Agent in exercising or enforcing any of
the Agent's Rights and Remedies shall operate as, or constitute, a waiver thereof. No
waiver by the Agent of any Event of Default or of any default under any other agreement
shall operate as a waiver of any other default hereunder or under any other agreement. No
single or partial exercise of any of the Agent's Rights or Remedies, and no express or
implied agreement or transaction of whatever nature entered into between the Agent and any
person, at any time, shall preclude the other or further exercise of the Agent's Rights
and Remedies. No waiver by the Agent of any of the Agent's Rights and Remedies on any one
occasion shall be deemed a waiver on any subsequent occasion, nor shall it be deemed a
continuing waiver. The Agent's Rights and Remedies may be exercised at such time or times
and in such order of preference as the Agent may determine. The Agent's Rights and
Remedies may be exercised without resort or regard to any other source of satisfaction of
the Liabilities.


ARTICLE XII. - NOTICES:


12.1 NOTICE ADDRESSES.


All notices, demands, and other communications made in respect of the Loan Documents
(other than a request for a loan or advance or other financial accommodation under the
Revolving Credit) shall be made to the following addresses, each of which may be changed
upon written notice to all others given by certified mail, return receipt requested:


If to the Agent:


Bank of America Retail Group

40 Broad Street

Boston, Massachusetts 02109

Attention: Stephen J. Garvin, Managing Director

Fax: 617-434-4312


With a copy to:


Brown Rudnick Freed & Gesmer

One Financial Center

Boston, MA 02111

Attention: Peter J. Antoszyk, Esquire

Fax: 617 856-8201




If to the Borrower:


Wild Oats Markets, Inc.

3375 Mitchell Lane

Boulder,CO 80301

Attention: Freya Brier, General Counsel

Fax: (303) 440-7316


With a copy to:


Skadden, Arps, Slate, Meagher & Flom LLP

300 South Grand Avenue, Suite 3400

Los Angeles, CA 90071

Attention: K. Kristine Dunn, Esquire

Fax: (213) 621-5493


 


12.2 NOTICE GIVEN.


(a) Except as otherwise specifically provided herein, notices shall be deemed made and
correspondence received, as follows (all times being local to the place of delivery or
receipt):


(i) By mail: the sooner of when actually received or three (3) days following deposit
in the United States mail, postage prepaid.


(ii) By recognized overnight express delivery: the Business Day following the day when
sent. 


(iii) By Hand: If delivered on a Business Day after 9:00 AM. 


(iv) By Facsimile transmission (which must include a header on which the party sending
such transmission is indicated. Otherwise, at the opening of the then next Business Day.


(v) In respect of reports and other information to be provided by Borrower to Agent, by
confirmed email.


(b) Rejection or refusal to accept delivery and inability to deliver because of a
changed address or Facsimile Number for which no due notice was given shall each be deemed
receipt of the notice sent.


(c) Agent will give the Borrower notice of its intention to foreclose on its security
interests by recognized overnight express delivery.


ARTICLE XIII. - TERM:


13.1 TERMINATION OF REVOLVING CREDIT.


The Revolving Credit shall remain in effect (subject to suspension as provided in
Section 2.5(h) hereof) until the Termination Date. 


13.2 ACTIONS ON TERMINATION.


On the Termination Date, the Borrower shall pay the Agent (whether or not then due), in
immediately available funds, all then Liabilities including, without limitation: the
entire balance of the Loan Account (including the unpaid principal balance of the
Revolving Credit Loans); any payments due on account of the indemnification obligations
included in Section 2.10(e); any accrued and unpaid Unused Line Fee; and all unreimbursed
costs and expenses of Agent for which the Borrower is responsible; and shall make such
arrangements concerning any L/C's then outstanding as are reasonably satisfactory to the
Agent. Until such payment, all provisions of this Agreement, other than those contained in
Article II which place an obligation on the Agent to make any loans or advances or to
provide financial accommodations under the Revolving Credit or otherwise, shall remain in
full force and effect until all Liabilities shall have been paid in full (other than
contingent indemnity obligations for which the Agent has established cash reserves in such
amounts as it reasonably deems necessary). The release by the Agent of the Collateral
Interests granted the Agent by the Borrower hereunder may be upon such conditions and
indemnifications as the Agent may require and which are consistent with customary
practices in the asset-based lending industry.


ARTICLE XIV. - GENERAL:


14.1 PROTECTION OF COLLATERAL.


The Agent has no duty as to the collection or protection of the Collateral beyond the
safe custody of such of the Collateral as may come into the possession of the Agent.


14.2 PUBLICITY.


The Agent, at its expense and with the Borrower’s consent (not to be unreasonably
witheld), may issue a "tombstone" notice of the establishment of the credit
facility contemplated by this Agreement and may make reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in connection
with any advertising, promotion, or marketing undertaken by the Agent.


14.3 SUCCESSORS AND ASSIGNS.


This Agreement shall be binding upon the Borrower and the Borrower’s
representatives, successors, and assigns and shall inure to the benefit of the Agent and
the Lenders and their respective successors and assigns, provided, however, no trustee or
other fiduciary appointed with respect to the Borrower shall have any rights hereunder. In
the event that the Agent or any Lender assigns or transfers its rights under this
Agreement, the assignee shall thereupon succeed to and become vested with all rights,
powers, privileges, and duties of such assignor hereunder and such assignor shall
thereupon be discharged and relieved from its duties and obligations hereunder. 


14.4 SEVERABILITY.


Any determination that any provision of this Agreement or any application thereof is
invalid, illegal, or unenforceable in any respect in any instance shall not affect the
validity, legality, or enforceability of such provision in any other instance, or the
validity, legality, or enforceability of any other provision of this Agreement.


14.5 AMENDMENTS AND WAIVERS.


(a) Neither this Agreement nor the other Loan Documents nor any terms hereof or thereof
may be amended, waived, discharged or terminated unless such amendment, waiver, discharge
or termination is in writing signed by the Required Lenders or at the Agent’s option,
by Agent with the authorization of the Required Lenders, and as to amendments to any of
the Loan Documents (other than with respect to any provision of Articles XVI, and XVIII),
by the Borrower; except, that, no such amendment, waiver, discharge or termination shall:


(i) Reduce the interest rate or any fees or extend the time of scheduled payment of
principal, interest, or any fees or reduce the principal amount of any Revolving Credit
Loan or L/C, in each case without the consent of the Lender directly affected thereby;


(ii) Increase the Dollar Commitment of any Lender over the amount thereof then in
effect or provided hereunder, in each case without the consent of the Lender directly
affected thereby;


(iii) Release all or substantially all the Collateral (except as expressly required
hereunder or under any other Loan Document or applicable law and except as permitted under
Section 4.14), without the consent of the Agent and all of the Lenders;


(iv) Reduce any percentage specified in the definition of Required Lenders, without the
consent of the Agent and all Lenders;


(v) Consent to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement, without the consent of Agent and all of the Lenders;


(vi) Amend, modify, or waive any terms of this Section 14.5 hereof, without the consent
of the Agent and all of the Lenders; or


(vii) Increase the advance rates constituting part of the Borrowing Base (in excess of
the advance rates set forth in the definition of "Borrowing Base" as in effect
on the date hereof, or amend the definition that is a component definition of
"Borrowing Base", for such purpose), without the consent of the Agent and all of
the Lenders; or


(viii) Make any Overloans which are not Permitted Overloans, without the consent of the
Agent and all of the Lenders.


(b) Notwithstanding anything to the contrary contained in Section 14.5(a) above, in the
event that the Borrower requests that this Agreement or any other Loan Document be amended
or otherwise modified in a manner which would require the unanimous consent of all Lenders
and such amendment or other modification is agreed to by the Required Lenders, then, with
the consent of the Borrower, Agent and the Required Lenders, Borrower and the Required
Lenders may amend this Agreement without the consent of the Lenders that did not agree to
such amendment or other modification (collectively, the "Minority Lenders") to
provide for the termination of the Dollar Commitment of each of the Minority Lenders, the
addition to this Agreement of one or more other Lenders, or an increase in the Dollar
Commitments of one or more of the Required Lenders, so that the Dollar Commitments, after
giving effect to such amendment, shall be in the same aggregate amount as the Dollar
Commitments immediately before giving effect to such amendment, and if any Revolving
Credit Loans are outstanding at the time of such amendment, the making of such additional
Revolving Credit Loans by such new Lenders or Required Lenders, as the case may be, as may
be necessary to repay in full the outstanding Revolving Credit Loans of the Minority
Lenders immediately before giving effect to such amendment and the payment of all
interest, fees and other Liabilities payable or accrued in favor of the Minority Lenders
and such other modifications to this Agreement as Borrower and the Required Lenders may
determine to be appropriate.


(c) The consent of the Agent shall be required for any amendment, waiver or consent
affecting the rights or duties of the Agent hereunder or under any other Loan Document, in
addition to the consent of the Lenders otherwise required by this Section and the exercise
by Agent of any of its rights hereunder with respect to Reserves, Eligible Credit Card
Accounts, Eligible Inventory, Eligible Permitted Investments, and Eligible Leaseholds
shall not be deemed an amendment to the advance rates provided for in this Section 14.5.


(d) This Agreement and the other Loan Documents incorporate all discussions and
negotiations between the Borrower, the Agent and the Lenders, either express or implied,
concerning the matters included herein and in such other instruments, any custom, usage,
or course of dealings to the contrary notwithstanding. No such discussions, negotiations,
custom, usage, or course of dealings shall limit, modify, or otherwise affect the
provisions thereof. No failure by the Agent or Lenders to give notice to the Borrower of
the Borrower’s having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or covenant or
the amendment of the subject Loan Document. No change made by the Agent to the manner by
which Availability is determined shall obligate the Agent to continue to determine
Availability in that manner. 


14.6 POWER OF ATTORNEY.


In connection with all powers of attorney included in this Agreement, the Borrower
hereby grants unto the Agent full power to do any and all things necessary or appropriate
in connection with the exercise of such powers as fully and effectually as the Borrower
might or could do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall be
affected by any disability or incapacity suffered by the Borrower and each shall survive
the same. All powers of attorney conferred upon the Agent by this Agreement, being coupled
with an interest, shall be irrevocable until this Agreement is terminated by a written
instrument executed by a duly authorized officer of the Agent.


14.7 APPLICATION OF PROCEEDS.


The proceeds of any collection, sale, or disposition of the Collateral, or of any other
payments received hereunder, shall be applied towards the Liabilities in such order and
manner as the Agent determines in its sole discretion, consistent, however, with the
provisions of this Agreement. The Borrower shall remain liable for any deficiency
remaining following such application. 


14.8 INCREASED COSTS.


If the Agent or Lenders shall have determined that the adoption of any law, rule or
regulation regarding capital adequacy, or any change therein or in the interpretation or
application thereof, or compliance by the Agent or Lenders with any request or directive
regarding capital adequacy (whether or not having the force of law) from any central bank
or governmental authority enacted after the date hereof, does or shall have the effect of
reducing the rate of return on such party's capital as a consequence of its obligations
hereunder to a level below that which the Agent or Lenders could have achieved but for
such adoption, change or compliance (taking into consideration the Agent's or
Lenders’s policies with respect to capital adequacy) by a material amount, then from
time to time, after submission by the Agent or Lenders to the Borrower of a written demand
therefor ("Capital Adequacy Demand") together with the certificate described
below, the Borrower shall pay to the Agent or Lenders, as applicable, such additional
amount or amounts ("Capital Adequacy Charge") as will compensate the Agent or
Lenders for such reduction, such Capital Adequacy Demand to be made with reasonable
promptness following such determination. A certificate of the Agent or Lenders claiming
entitlement to payment as set forth above shall be conclusive. Such certificate shall set
forth the nature of the occurrence giving rise to such reduction, the amount of the
Capital Adequacy Charge to be paid to the Agent or Lenders, and the method by which such
amount was determined. In determining such amount, the Agent or Lenders may use any
reasonable averaging and attribution method, applied on a non-discriminatory basis.


14.9 COSTS AND EXPENSES OF THE AGENT AND LENDERS.


The Borrower shall pay from time to time on demand (accompanied by reasonable back-up
documentation) all Costs of Collection and all reasonable costs, expenses, and
disbursements of (including attorneys' reasonable fees and expenses) which are incurred by
the Agent and Lenders in connection with the preparation, negotiation, execution, and
delivery of this Agreement and of any other Loan Documents, and all other reasonable
costs, expenses, and disbursements which may be incurred connection with or in respect to
the credit facility contemplated hereby or which otherwise are incurred with respect to
the Liabilities.


(a) The Borrower shall pay from time to time on demand all reasonable costs and
expenses (including reasonable attorneys' fees and expenses) incurred by the Agent and all
reasonable costs and expenses (including reasonable attorney’s fees and expenses)
incurred by the Lenders to the Lenders’ Special Counsel, following the occurrence of
any Event of Default.


(b) The Borrower authorizes the Agent to pay all such fees and expenses and in the
Agent's discretion, to add such fees and expenses to the Loan Account. 


(c) The undertaking on the part of the Borrower in this Section 14.9 shall survive
payment of the Liabilities and/or any termination, release, or discharge executed by the
Agent in favor of the Borrower, other than a termination, release, or discharge which
makes specific reference to this Section 14.9.


14.10 COPIES AND FACSIMILES.


This Agreement and all documents which relate thereto, which have been or may be
hereinafter furnished the Agent or the Lenders may be reproduced by the Agent or Lenders
by any photographic, xerographic, digital imaging, or other process, and such Person
making such reproduction may destroy any document so reproduced. Any such reproduction
(other than promissory notes) shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made in the regular course of business). Any
facsimile which bears proof of transmission shall be binding on the party which or on
whose behalf such transmission was initiated and likewise shall be so admissible in
evidence as if the original of such facsimile had been delivered to the party which or on
whose behalf such transmission was received.


14.11 NEW YORK LAW.


This Agreement and all rights and obligations hereunder, including matters of
construction, validity, and performance, shall be governed by the laws of the State of New
York.


14.12 CONSENT TO JURISDICTION.


(a) The Borrower agrees that any legal action, proceeding, case, or controversy against
the Borrower with respect to any Loan Document may be brought in the Superior Court of
Suffolk County Massachusetts or in the United States District Court, District of
Massachusetts, sitting in Boston, Massachusetts, as the Agent may elect in the Agent's
sole discretion. By execution and delivery of this Agreement, the Borrower, for itself and
in respect of its property, accepts, submits, and consents generally and unconditionally,
to the jurisdiction of the aforesaid courts. 


(b) The Borrower WAIVES personal service of any and all process upon it, and
irrevocably consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by certified mail, postage
prepaid, to Borrower at Borrower’s address for notices as specified herein, such
service to become effective five (5) Business Days after such mailing. 


(c) The Borrower WAIVES any objection based on forum non conveniens and any objection
to venue of any action or proceeding instituted under any of the Loan Documents and
consents to the granting of such legal or equitable remedy as is deemed appropriate by the
Court. 


(d) Nothing herein shall affect the right of the Agent to bring legal actions or
proceedings in any other competent jurisdiction. 


(e) The Borrower agrees that any action commenced by the Borrower asserting any claim
arising under or in connection with this Agreement or any other Loan Document shall be
brought solely in the Superior Court of Suffolk County Massachusetts or in the United
States District Court, District of Massachusetts, sitting in Boston, Massachusetts, and
that such Courts shall have exclusive jurisdiction with respect to any such action. 


14.13 INDEMNIFICATION.


The Borrower shall indemnify, defend, and hold the Agent and Lenders and any
Participant and any of their respective employees, officers, or agents (each, an
"Indemnified Person") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys' reasonable fees, expenses,
and disbursements in connection therewith) on account of the relationship of the Borrower
or of any other guarantor or endorser of the Liabilities (each of claims which may be
defended, compromised, settled, or pursued by the Indemnified Person with counsel of the
Agent's or Lender’s or Participant’s (as the case may be) selection, but at the
expense of the Borrower) except where the Indemnified Person seeking indemnification had
acted in a grossly negligent manner, or in actual bad faith, or where such claims arise
from the willful misconduct of the Indemnified Person. This indemnification shall survive
payment of the Liabilities and/or any termination, release, or discharge executed by the
Agent or Lenders in favor of the Borrower, other than a termination, release, or discharge
duly executed on behalf of the Agent or Lenders which makes specific reference to this
Section 14.13.


14.14 RULES OF CONSTRUCTION.


The following rules of construction shall be applied in the interpretation,
construction, and enforcement of this Agreement and of the other Loan Documents:


(a) Unless otherwise specifically provided for herein, interest and any fee or charge
which is stated as a per annum percentage shall be calculated based on a 360 day year and
actual days elapsed.


(b) Words in the singular include the plural and words in the plural include the
singular. 


(c) Any reference, herein, to a circumstance or event’s having "more than a
de minimis adverse effect" and any similar reference is to a circumstance or event
which (x) in a well-managed enterprise, would receive the active attention of senior
management with a view towards it being reversed or remedied; or (y) if not reversed or
remedied, could reasonably be expected to lead to its becoming a material adverse effect.


(d) Cross references to Sections in this Agreement begin with the Article in which that
Section appears and then the Section to which reference is made. (For example, a reference
to "Section 5.6" is to subsection 6, which appears in Article V of this
Agreement).


(e) Titles, headings (indicated by being underlined or shown in Small Capitals) and any
Table of Contents are solely for convenience of reference; do not constitute a part of the
instrument in which included; and do not affect such instrument's meaning, construction,
or effect.


(f) The words "includes" and "including" are not limiting.


(g) Text which follows the words "including, without limitation" (or similar
words) is illustrative and not limiting.


(h) Except where the context otherwise requires or where the relevant subsections are
joined by "or", compliance with any Section or provision of any Loan Document
which constitutes a warranty or covenant requires compliance with all subsections (if any)
of that Section or provision. Except where the context otherwise requires, compliance with
any warranty or covenant of any Loan Document which includes subsections which are joined
by "or" may be accomplished by compliance with any of such subsections.


(i) Text which is shown in italics, shown in bold, shown IN ALL CAPITAL LETTERS, or in
any combination of the foregoing, shall be deemed to be conspicuous.


(j) The words "may not" are prohibitive and not permissive.


(k) The word "or" is not exclusive.


(l) Any reference to a Person's "knowledge" (or words of similar import) are
to such Person's knowledge assuming that such Person has undertaken reasonable and
diligent investigation with respect to the subject of such "knowledge" (whether
or not such investigation has actually been undertaken).


(m) Terms which are defined in one section of any Loan Document are used with such
definition throughout the instrument in which so defined.


(n) The symbol "$" refers to United States Dollars.


(o) Unless limited by reference to a particular Section or provision, any reference to
"herein", "hereof", or "within" is to the entire Loan
Document in which such reference is made.


(p) References to "this Agreement" or to any other Loan Document is to the
subject instrument as amended to the date on which application of such reference is being
made.


(q) Except as otherwise specifically provided, all references to time are to Charlotte
time.


(r) In the determination of any notice, grace, or other period of time prescribed or
allowed hereunder:


(i) Unless otherwise provided (I) the day of the act, event, or default from which the
designated period of time begins to run shall not be included and the last day of the
period so computed shall be included unless such last day is not a Business Day, in which
event the last day of the relevant period shall be the then next Business Day and (II) the
period so computed shall end at 5:00 PM on the relevant Business Day.


(ii) The word "from" means "from and including".


(iii) The words "to" and "until" each mean "to, but
excluding".


(iv) The word "through" means "to and including".


(s) The Loan Documents shall be construed and interpreted in a harmonious manner and in
keeping with the intentions set forth in Section 19.15 hereof, provided, however, in the
event of any inconsistency between the provisions of this Agreement and any other Loan
Document, the provisions of this Agreement shall govern and control.


14.15 INTENT.


It is intended that: 


(a) The scope of the Collateral Interests created by the Borrower to secure the
Liabilities be broadly construed in favor of the Agent.


(b) All Collateral Interests created in favor of the Agent at any time and from time to
time by the Borrower secure all Liabilities, whether now existing or contemplated or
hereafter arising.


(c) All reasonable costs, expenses, and disbursements incurred by the Agent and, to the
extent provided herein, the Lenders, in connection with such Person's relationship(s) with
the Borrower shall be borne by the Borrower.


(d) Unless otherwise explicitly provided herein, the Agent's consent to any action of
the Borrower which is prohibited unless such consent is given may be given or refused by
the Agent in its sole discretion and without reference to Section 2.17 hereof.


14.16 PARTICIPATIONS.


The Agent or Lenders may sell participations to one or more financial institutions (a
"Participant") all or a portion of the Agent’s or Lenders’ rights and
obligations under this Agreement. No such sale of a participation shall relieve the Agent
or Lenders from the Agent’s or Lenders’ obligations hereunder.


14.17 RIGHT OF SET-OFF.


Any and all deposits or other sums at any time credited by or due to the Borrower from
the Agent, Lenders or any Participant or from any Affiliate of any of the foregoing, and
any cash, securities, instruments or other property of the Borrower in the possession of
any of the foregoing, whether for safekeeping or otherwise (regardless of the reason such
Person had received the same), to the extent permitted by law, shall at all times
constitute security for all Liabilities and for any and all obligations of the Borrower to
the Agent, Lenders or any Participant or such Affiliate and, after the occurrence and
during the continuance of an Event of Default, may be applied or set off against the
Liabilities and against such obligations at any time, whether or not such are then due and
whether or not other collateral is then available to the Agent.


14.18 PLEDGES TO FEDERAL RESERVE BANKS.


Nothing included in this Agreement shall prevent or limit the Agent or Lenders, to the
extent that the Agent or Lenders is subject to any of the twelve Federal Reserve Banks
organized under Section 4 of the Federal Reserve Act (12 U.S.C. 341) from pledging all or
any portion of that Agent's or Lenders’ interest and rights under this Agreement,
provided, however, neither such pledge nor the enforcement thereof shall release the Agent
or Lenders from its obligations hereunder or under any of the Loan Documents.


14.19 MAXIMUM INTEREST RATE.


Regardless of any provision of any Loan Document, the Agent and Lenders shall not be
entitled to contract for, charge, receive, collect, or apply as interest on any Liability,
any amount in excess of the maximum rate imposed by applicable law. Any payment which is
made which, if treated as interest on a Liability would result in such interest's
exceeding such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral." 


14.20 WAIVERS.


(a) The Borrower (and all guarantors, endorsers, and sureties of the Liabilities) make
each of the waivers included in Section 14.20(b), below, knowingly, voluntarily, and
intentionally, and understands that Agent and Lenders, in establishing the facilities
contemplated hereby and in providing loans and other financial accommodations to or for
the account of the Borrower as provided herein, whether not or in the future, is relying
on such waivers. 


(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY RESPECTIVELY WAIVES THE
FOLLOWING: 


(i) Except as otherwise specifically required hereby, notice of non-payment, demand,
presentment, protest and all forms of demand and notice, both with respect to the
Liabilities and the Collateral.


(ii) Except as otherwise specifically required hereby, the right to notice and/or
hearing prior to the Agent's exercising of the Agent's rights upon default.


(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE AGENT OR
LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST
THE AGENT OR LENDER OR IN WHICH THE AGENT OR LENDER IS JOINED AS A PARTY LITIGANT), WHICH
CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN
THE BORROWER OR ANY OTHER PERSON AND THE AGENT OR LENDER LIKEWISE WAIVES THE RIGHT TO A
JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).


(iv) The benefits or availability of any stay, limitation, hindrance, delay, or
restriction (including, without limitation, any automatic stay which otherwise might be
imposed pursuant to Section 362 of the Bankruptcy Code) with respect to any action which
the Agent may or may become entitled to take hereunder.


(v) Any defense, counterclaim, set-off, recoupment, or other basis on which the amount
of any Liability, as stated on the books and records of the Agent or Lenders, could be
reduced or claimed to be paid otherwise than in accordance with the tenor of and written
terms of such Liability.


(vi) Any claim to consequential, special, or punitive damages.


14.21 COUNTERPARTS.


This Agreement, any of the other Loan Documents, and any amendments, waivers, consents
or supplements may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which, when so executed and delivered, shall be
deemed an original, but all of which counterparts together shall constitute but one
agreement.


ARTICLE XV. - THE AGENT


(a) Each Lender appoints and designates Bank of America, N.A. as the "Agent"
hereunder and under the Loan Documents. 


(b) Each Lender authorizes each Agent:


(i) To execute those of the Loan Documents and all other instruments relating thereto
to which that Agent is a party.


(ii) To take such action on behalf of the Lenders and to exercise all such powers as
are expressly delegated to that Agent hereunder and in the Loan Documents and all related
documents, together with such other powers as are reasonably incident thereto.


15.2 RESPONSIBILITIES OF AGENT.


(a) Notwithstanding anything contained herein to the contrary, the Agent shall have
responsibility and authority for the administration of the credit facility contemplated by
this Agreement, including without limitation the establishment of Reserves and the conduct
of any Liquidation. 


(b) The Agent shall not have any duties or responsibilities to, or any fiduciary
relationship with, any Lender except for those expressly set forth in this Agreement. 


(c) The Agent nor any of its Affiliates shall be responsible to any Lender for any of
the following:


(i) Any recitals, statements, representations or warranties made by the Borrower, or
any other Person (other than for statements made herein or in writing by the Agent).


(ii) Any appraisals or other assessments of the assets of the Borrower or of anyone
else responsible for or on account of the Liabilities.


(iii) The value, validity, effectiveness, genuineness, enforceability, or sufficiency
of the Agreement, the Loan Documents or any other document referred to or provided for
therein.


(iv) Any failure by the Borrower, or any other Person (other than the Agent) to perform
such Person’s obligations under the Loan Documents. 


(d) Agent may employ attorneys, accountants, and other professionals and agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct of any
such attorneys, accountants, and other professionals or agents or attorneys-in-fact
selected with reasonable care. No such attorney, accountant, other professional, agent, or
attorney-in-fact shall be responsible for any action taken or omitted to be taken by any
other such Person.


(e) Agent, nor any of its directors, officers, or employees shall not be responsible
for any action taken or omitted to be taken by any other of them in connection herewith in
reliance upon advice of its counsel nor, in any other event except for any action taken or
omitted to be taken as to which a final judicial determination has been or is made (in a
proceeding in which such Person has had an opportunity to be heard) that such Person had
acted in a grossly negligent manner, in actual bad faith, or in willful misconduct. 


(f) With respect to the repayment of the Liabilities, Agent shall not have any
responsibility in any event for more funds than Agent actually receives and collects.


(g) The Agent, in its separate capacity as Lender, shall have the same rights and
powers hereunder as any other Lender.


(h) The Agent shall not be required to perfect any Lien in real estate fixtures (other
than for Warehouse locations), Leaseholds (except Eligible Leaseholds), motor vehicles
covered by certificates of title, or responsible for any failure to do so.


15.3 DISTRIBUTIONS BY THE AGENT.


(a) The Agent, in its reasonable discretion based upon the Agent's determination of the
likelihood that additional payments will be received, expenses incurred, and/or claims
made by third parties to all or a portion of such proceeds, may delay the distribution of
any payment received on account of the Liabilities. 


(b) The Agent may disburse funds prior to determining that the sums which the Agent
expects to receive have been finally and unconditionally paid to the Agent. If and to the
extent that the Agent does disburse funds and it later becomes apparent that the Agent did
not then receive a payment in an amount equal to the sum paid out, then any Lender to whom
the Agent made the funds available, on demand from the Agent, shall refund to the Agent
the sum paid to that Person.


(c) If, in the opinion of any Agent, the distribution of any amount received by that
Agent might involve that Agent in liability, or might be prohibited hereby, or might be
questioned by any Person, then that Agent may refrain from making distribution until that
Agent's right to make distribution has been adjudicated by a court of competent
jurisdiction.


(d) The proceeds of any Lender's exercise of any right of, or in the nature of, set-off
shall be deemed, first, to the extent that such Lender is entitled to any distribution
hereunder, to constitute such distribution and second, shall be shared with the other
Lenders as if distributed pursuant to (and shall be deemed as distributions under) the
terms of this Agreement.


(e) Each Lender acknowledges that the crediting of the Liabilities with the
"proceeds" of any transaction in which a Post Foreclosure Asset is acquired is a
non-cash transaction and that, in consequence, no distribution of such
"proceeds" will be made by the Agent to any Lender until such time that such
"proceeds" are converted to cash.


(f) In the event that a court of competent jurisdiction shall adjudge that any amount
received and distributed by the Agent is to be repaid or disgorged, then each Lender to
which any such distribution shall have been made shall repay, to the Agent which had made
such distribution, that Lender's ratable share of the amount so adjudged or determined to
be repaid or disgorged.


15.4 RESERVED.


15.5 DISTRIBUTIONS OF NOTICES AND OF DOCUMENTS.


The Agent will forward to each Lender, promptly after the Agent's receipt thereof, a
copy of each notice or other document furnished to the Agent pursuant to the Loan
Agreement and other Loan Documents, including monthly, quarterly, and annual financial
statements received from the Borrower pursuant to Article V of this Agreement and copies
of appraisals and commercial audits, other than any of the following (provided that the
failure of the Agent to distribute notices or other documents in accordance with this
Agreement will not subject the Agent to any liability absent gross negligence or willful
misconduct on the part of the Agent): 


(a) Routine communications associated with requests for Revolving Credit Loans and/or
the issuance of L/C's.


(b) Routine or nonmaterial communications.


(c) Any notice or document required by any of the Loan Documents to be furnished
directly to the Lenders by the Borrower.


(d) Any notice or document of which the Agent has knowledge that such notice or
document had been forwarded to the Lenders other than by the Agent.


15.6 RESERVED.


15.7 CONFIDENTIAL INFORMATION.


(a) Each Lender will maintain, as confidential, all of the following:


(i) Proprietary approaches, techniques, and methods of analysis which are applied by
Agent in the administration of the credit facility contemplated by this Agreement.


(ii) Proprietary forms and formats utilized by Agent in providing reports to the
Lenders pursuant hereto, which forms or formats are not of general currency.


(iii) Confidential information provided by the Borrower pursuant to the Loan Documents,
other than any information which becomes known to the general public through services
other than that Lender.


(b) Nothing included herein shall prohibit the disclosure of any such information as
may be required to be provided by judicial process or by regulatory authorities having
jurisdiction over any party to this Agreement.


15.8 RELIANCE BY AGENT.


Agent shall be entitled to rely upon any certificate, notice or other document
(including any cable, telegram, telex, or facsimile) reasonably believed by Agent to be
genuine and correct and to have been signed or sent by or on behalf of the proper person
or persons, and upon advice and statements of attorneys, accountants and other experts
selected by Agent. As to any matters not expressly provided for in this Agreement, any
Loan Document, or in any other document referred to therein, Agent shall in all events be
fully protected in acting, or in refraining from acting, in accordance with the applicable
Consent required by this Agreement. Instructions given with the requisite consent shall be
binding on all Lenders.


15.9 NON-RELIANCE ON AGENT AND OTHER LENDERS.


(a) Each Lender represents to all other Lenders and to Agent that such Lender: 


(i) Independently and without reliance on any representation or act by Agent or by any
other Lender, and based on such documents and information as that Lender has deemed
appropriate, has made such Lender's own appraisal of the financial condition and affairs
of the Borrower and decision to enter into this Agreement and the Loan Documents.


(ii) Has relied upon that Lender's review of the Loan Documents by that Lender and by
counsel to Lender as that Lender deemed appropriate under the circumstances.


(b) Each Lender agrees that such Lender, independently and without reliance upon Agent
or any other Lender, and based upon such documents and information as such Lender shall
deem appropriate at the time, will continue to make such Lender's own appraisals of the
financial condition and affairs of the Borrower when determining whether to take or not to
take any discretionary action under this Agreement or the Loan Documents. 


(c) Agent, in the discharge of Agent's duties hereunder, shall not be required to make
inquiry of, or to inspect the properties or books of, any Person. 


(d) Except for notices, reports, and other documents and information expressly required
to be furnished to the Lenders by an Agent hereunder (as to which, see Section 15.5),
Agent shall not have any affirmative duty or responsibility to provide any Lender with any
credit or other information concerning any Person, which information may come into the
possession of Agent or any Affiliate of Agent. 


(e) Each Lender, at such Lender's request, shall have reasonable access to all
non-privileged documents in the possession of Agent, which documents relate to Agent's
performance of its duties hereunder and the Loan Documents.


15.10 INDEMNIFICATION.


Without limiting the liabilities of the Borrower under any this or any of the Loan
Documents, each Lender shall indemnify Agent, ratably, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including attorneys' reasonable fees and
expenses and other out-of-pocket expenditures) which may at any time be imposed on,
incurred by, or asserted against Agent and in any way relating to or arising out of this
Agreement or any other Loan Document or any documents contemplated by or referred to
therein or the transactions contemplated thereby or the enforcement of any of terms hereof
or thereof or of any such other documents, provided, however, no Lender shall be liable
for any of the foregoing to the extent that any of the foregoing arises from any action
taken or omitted to be taken by Agent as to which a final judicial determination has been
or is made (in a proceeding in which Agent has had an opportunity to be heard) that the
Agent had acted in a grossly negligent manner, in actual bad faith, or in willful
misconduct. 


15.11 RESIGNATIONS OF AGENT.


(a) The Agent may resign at any time by giving sixty (60) days prior written notice
thereof to the Lenders. Upon receipt of any such notice of resignation, the Requisite
Lenders shall have the right to appoint a successor Agent (and if no Event of Default has
occurred and is continuing, with the consent of the Borrower not to be unreasonably
withheld or delayed). If no successor Agent shall have been so appointed and shall have
accepted such appointment within thirty (30) days after the giving of notice by the Agent,
then the Agent may appoint a successor Agent, which shall be a financial institution
having a combined capital and surplus in excess of $250,000,000. The consent of the
Borrower otherwise required by this Section 15.11 shall not be required if an Event of
Default has occurred and is continuing.


(b) Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor shall thereupon succeed to, and become vested with, all the rights, powers,
privileges, and duties of the (resigning) Agent so replaced, and the (resigning) Agent
shall be discharged from the (resigning) Agent's duties and obligations hereunder, other
than on account of any responsibility for any action taken or omitted to be taken by the
(resigning) Agent as to which a final judicial determination has been or is made (in a
proceeding in which the (resigning) Agent has had an opportunity to be heard) that Agent
had acted in a grossly negligent manner or in bad faith.


(c) After any retiring Agent's resignation, the provisions of this Agreement and of all
Loan Documents shall continue in effect for the retiring Agent’s benefit in respect
of any actions taken or omitted to be taken by it while it was acting as Agent. 


ARTICLE XVI. - FUNDINGS AND DISTRIBUTIONS


16.1 FUNDING PROCEDURES.


(a) Subject to Section 16.2, the Agent shall advise each Lender, no later than 1:00PM
on a date on which any Revolving Credit Loan is to be made. Such advice, in each instance,
may be by telephone or facsimile transmission, provided that if such advice is by
telephone, it shall be confirmed in writing and shall include a reference (as applicable)
to the interest rate applicable to the proposed Revolving Credit Loan.


(b) Subject to Section 16.2, each Lender, by no later than the end of business on the
day on which the subject Revolving Credit Loan is to be made, subject to that Lender's
Dollar Commitment, shall Transfer that Lender's Percentage Commitment of the requested
Revolving Credit Loan to the Agent as proceeds of advances under the Revolving Credit.


16.2 SWINGLINE LOANS.


(a) In the event that, when a Revolving Credit Loan is requested and the aggregate
unpaid balance of the SwingLine Loan is less than the SwingLine Loan Ceiling, then the
SwingLine Lender may advise the Agent that the SwingLine Lender has determined to include
up to the amount of the requested Revolving Credit Loan as part of the SwingLine Loan. In
such event, the SwingLine Lender shall Transfer the amount of the requested Revolving
Credit Loan to the Agent. 


(b) The SwingLine Loan shall be converted to a Revolving Credit Loan in which all
Lenders participate as follows:


(i) At any time and from time to time (but not less than on a weekly basis), the
SwingLine Lender may advise the Administrative Agent that all of the SwingLine Loan is to
be converted to a Revolving Credit Loan in which all Lenders participate. The Agent will
settle the SwingLine Loan the earlier of (a) Wednesday of each week or (b) when the
SwingLine Loan exceeds $10,000,000.00.


(ii) At the initiation of a Liquidation, the then entire unpaid principal balance of
the SwingLine Loan shall be converted to a Revolving Credit Loan in which all Lenders
participate. 


In either such event, the Agent shall advise each Lender of such conversion as if, and
with the same effect as if such conversion were the making of a Revolving Credit Loan as
provided in Section 16.1.


(c) The SwingLine Lender, in separate capacities, may also be the Agent and a Lender.


(d) The SwingLine Lender, in its capacity as SwingLine Lender, is not a
"Lender" for any of the following purposes:


(i) Except as otherwise specifically provided in the relevant Section, any distribution
pursuant to Section 18.6.


(ii) Determination of whether the requisite Lenders have consented to action requiring
such consent.


16.3 AGENT'S COVERING OF FUNDINGS. 


(a) Each Lender shall make available to the Agent, as provided herein, that Lender's
Percentage Commitment of the following: 


(i) Each Revolving Credit Loan, up to the maximum amount of that Lender's Dollar
Commitment of the Revolving Credit Loans.


(ii) Up to the maximum amount of that Lender's Dollar Commitment of each L/C drawing
(to the extent that such L/C drawing is not "covered" by a Revolving Credit Loan
as provided herein).


(b) In all circumstances, the Agent may:


(i) Assume that each Lender timely shall make available to the Agent that Lender's
Percentage Commitment of each Revolving Credit Loan, notice of which is provided pursuant
to Section 16.1(a) of this Agreement.


(ii) In reliance upon such assumption, make available the corresponding amount to the
Borrower.


(iii) Assume that each Lender timely shall pay, and shall make available, to the Agent
all other amounts which that Lender is obligated to so pay and/or make available hereunder
or under any of the Loan Documents. 


(c) In the event that, in reliance upon any of such assumptions, the Agent makes
available, a Lender's Percentage Commitment of one or more Revolving Credit Loans, L/C
drawings, or any other amount to be made available hereunder or under any of the Loan
Documents with respect to the Revolving Credit, which amount a Lender (a "Delinquent
Lender") fails to provide to the Agent within one (1) Business Day of written notice
of such failure, then: 


(i) The amount which had been made available by the Agent is an "Agent's
Cover".


(ii) All interest paid by the Borrower on account of the Revolving Credit Loan or
coverage of the subject L/C Drawing which consists of the Agent's Cover shall be retained
by the Agent until the Agent's Cover, with interest, has been paid.


(iii) The Delinquent Lender shall pay to the Agent, on demand, interest at a rate equal
to the prevailing Federal Funds Effective Rate during the period during which such amount
remains unpaid, on the principal balance of the Agent's Cover, from the date of the making
of the Agent's Cover to until repaid.


(iv) The Agent shall have succeeded to all rights to payment to which the Delinquent
Lender otherwise would have been entitled hereunder in respect of those amounts paid by or
in respect of the Borrower on account of the Agent's Cover together with interest until it
is repaid by the applicable Delinquent Lender. Such payments shall be deemed made first
towards the amounts in respect of which the Agent's Cover was provided and only then
towards amounts in which the Delinquent Lender is then participating. For purposes of
distributions to be made pursuant to Section 16.4 (which relates to ordinary course
distributions) or Section 18.6 (which relates to distributions of proceeds of a
Liquidation) below, amounts shall be deemed distributable to a Delinquent Lender (and
consequently, to the Agent to the extent to which the Agent is then entitled) at the
highest level of distribution (if applicable) at which the Delinquent Lender would
otherwise have been entitled to a distribution.


(v) Subject to Section 16.3(c)(iv), the Delinquent Lender shall be entitled to receive
any payments from the Borrower to which the Delinquent Lender is then entitled, provided
however there shall be deducted from such amount and retained by the Agent any interest to
which the Agent is then entitled on account of Section 16.3(c)(ii), above.


(d) A Delinquent Lender shall not be relieved, by virtue of any Agent's Cover or
otherwise, of any obligation of such Delinquent Lender hereunder (all and each of which
shall constitute continuing obligations on the part of any Delinquent Lender). 


(e) A Delinquent Lender may cure its status as a Delinquent Lender by paying the Agent
the aggregate of the following:


(i) The Agent's Cover (to the extent not previously repaid by the Borrower and retained
by the Agent in accordance with Subsection 16.3(c)(iv), above) with respect to that
Delinquent Lender. 


(ii) Plus


(iii) Any interest payable under Section 16.3(c)(iii), above (which relates to interest
to be paid by that Delinquent Lender).


(iv) Plus


(v) All such costs and expenses as may be incurred by the Agent in the enforcement of
the Agent's rights against such Delinquent Lender.


16.4 ORDINARY COURSE DISTRIBUTIONS.


(a) Except as otherwise provided in Section 18.6, below (which relates to distributions
on account of Liquidation), the Agent promptly shall distribute to the SwingLine Lender
and the respective Lenders, payments made by the Borrower on account of the Revolving
Credit Loans, to the extent such payments are actually received and collected by the Agent
in the following order and priority:


(i) First: To the SwingLine Lender, up to the then unpaid principal balance of the
SwingLine Loans.


(ii) Second: To the Lenders, their respective Percentage Commitments of such payments
(which amounts shall be applied by the Lenders towards principal of the Net Revolving
Credit Loans based upon the Agent’s advice with such distribution).


(b) Monthly, on such day as may be set from time to time by the Agent (or more
frequently at the Agent's option), the Agent and each Lender shall settle up on amounts
advanced under the Revolving Credit and collected funds received in the Concentration
Account. 


(c) The Agent shall make distributions on account of interest to the SwingLine Lender
and to each Lender, such Person's respective Pro Rata share of interest payments on the
Revolving Credit Loans. In all cases the Agent shall make distributions on account of
interest when such interest is actually received and collected by the Agent (excluding the
One Business Day settlement delay as provided for in Section 7.5(a) of the Loan Agreement,
which shall be for the account of the Agent only) and only if such interest is then due
and payable hereunder. For purposes of calculating interest due to a Lender, that Lender
shall be entitled to receive interest on the actual amount contributed by that Lender
towards the principal balance of the Revolving Credit Loans outstanding during the
applicable period covered by the interest payment made by the Borrower. Any net principal
reductions to the Revolving Credit Loans received by the Agent in accordance with the Loan
Documents during such period shall not reduce such actual amount so contributed, for
purposes of calculation of interest due to that Lender, until the Agent has distributed to
that Lender its Pro Rata share thereof.


(d) The Agent shall distribute fees paid on account of the Revolving Credit Loans as
follows:


(i) Unused Line Fee. To the Lenders, Pro Rata, based upon their respective Percentage
Commitments.


(ii) Early Termination Fees to the Lenders, Pro Rata, based upon their respective
Percentage Commitments.


(iii) Any fees on account of the issuance of L/Cs to the extent distributable to the
Lenders.


(e) No Lender shall have any interest in, or right to receive any part of any interest
which reflects "float" as described in the proviso included in Section 7.5(a) of
the Loan Agreement. Any such float shall be for the account of the Agent only.


(f) No Lender shall have any interest in, or right to receive any part of, any fees
payable to the Agent pursuant to the terms of the Fee Letter. 


(g) Any amount received by the Agent as reimbursement for any cost or expense
(including without limitation, attorneys' reasonable fees) shall be distributed by the
Agent to that Person which is entitled to such reimbursement as provided in this Agreement
or the Loan Agreement (and if such Person(s) is (are) the Lenders, Pro Rata based upon
their respective Percentage Commitments at the date on which the expense, in respect of
which such reimbursement is being made, was incurred). 


(h) Each distribution pursuant to this Section 16.4 is subject to Section 16.3(c),
above (which relates to Delinquent Lenders).


ARTICLE XVII. - INTENTIONALLY OMITTED


ARTICLE XVIII. - LIQUIDATIONS


18.1 ACCELERATION.


Unless stayed by judicial or statutory process, the Agent shall Accelerate the
Liabilities within a commercially reasonable time following the receipt of an Acceleration
Notice from the SuperMajority Lenders following the occurrence and during the continuance
of an Event of Default.


18.2 INITIATION OF LIQUIDATION.


Unless stayed by judicial or statutory process, a Liquidation shall be initiated by the
Agent within a commercially reasonable time following Acceleration of the Liabilities.


18.3 ACTIONS AT AND FOLLOWING INITIATION OF LIQUIDATION.


(a) At the initiation of a Liquidation:


(i) The unpaid principal balance of the SwingLine Loan (if any) shall be converted,
pursuant to Section 15.2, to a Revolving Credit Loan in which all Lenders participate.


(ii) The Agent and the Lenders shall "net out" each Lender's respective
contributions towards the Loans, so that each Lender holds that Lender's Percentage
Commitment of the Revolving Credit Loans and advances. 


(b) Following the initiation of a Liquidation, each Lender shall contribute, towards
any L/C thereafter honored and not immediately reimbursed by the Borrower, that Lender's
Percentage Commitment of such honoring.


18.4 AGENT'S CONDUCT OF LIQUIDATION.


(a) Any Liquidation shall be conducted solely by the Agent with the advice and
assistance of the Lenders. 


(b) The Agent may establish one or more Nominees to "bid in" or otherwise
acquire ownership to any Post Foreclosure Asset. 


(c) The Agent shall manage the Nominee and manage and dispose of any Post Foreclosure
Assets with a view towards the realization of the economic benefits of the ownership of
the Post Foreclosure Assets and in such regard, the Agent and/or the Nominee may operate,
repair, manage, maintain, develop, and dispose of any Post Foreclosure Asset in such
manner as the Agent determines as appropriate under the circumstances.


(d) The Agent may decline to undertake or to continue taking a course of action or to
execute an action plan (whether proposed by the Agent or by any Lender) unless indemnified
to the Agent's satisfaction by the Lenders against any and all liability and expense which
may be incurred by the Agent by reason of taking or continuing to take that course of
action or action plan.


(e) Each Lender shall execute all such instruments and documents not inconsistent with
the provisions of this Agreement or the other Loan Documents as the Agent and/or the
Nominee reasonably may request with respect to the creation and governance of any Nominee,
the conduct of the Liquidation, and the management and disposition of any Post Foreclosure
Asset.


18.5 DISTRIBUTION OF LIQUIDATION PROCEEDS.


(a) The Agent may establish one or more reasonably funded reserve accounts into which
proceeds of the conduct of any Liquidation may be deposited in anticipation of reasonably
anticipated future expenses which may be incurred by the Agent in the exercise of rights
as a secured creditor of the Borrower and prior claims which the Agent anticipates may
need to be paid.


(b) The Agent shall distribute the proceeds of any Liquidation, net of any amount
deposited into such fund reserve accounts, all reasonable costs and expenses of the Agent,
any Costs of Collection of Agent (which shall be distributed to the Agents) and of prior
claims, to the extent available, to the Agent with such frequency as the Agent determines.


(c) The Agent shall distribute the net proceeds of Liquidation, as distributed to the
Administrative Agent by the Agent pursuant to Section 18.5(b), above in accordance with
the relative priorities set forth in Section 18.6.


(d) Each Lender, on the written request of the Agent and/or any Nominee, not more
frequently than once each month, shall reimburse the Agent and/or any Nominee, ratably,
for any cost or expense reasonably incurred by the Agent and/or the Nominee in the conduct
of a Liquidation, which amount is not covered out of current proceeds of the Liquidation,
which reimbursement shall be paid over to and distributed by the Agent and shall
constitute Costs of Collection of such Lender.


18.6 RELATIVE PRIORITIES TO PROCEEDS OF LIQUIDATION.


The relative priorities of security interests in the Collateral and to the proceeds of
a Liquidation are as follows:


(a) First: to the Agents on account of Costs of Collection of the Agents; and then


(b) Second: To the SwingLine Lender, on account of any SwingLine loans not converted to
Revolving Credit Loans pursuant to Section 18.2(b); and then


(c) Third: To the Lenders, Pro Rata, to the extent of the Liabilities.


The foregoing priorities shall apply in the event any of the Borrower becomes the
subject of a proceeding described in Section 10.11 of this Agreement hereof and regardless
of whether the respective claims and Liens of each Lender are allowed by the court hearing
such proceeding.


ARTICLE XIX. - ASSIGNMENTS BY LENDERS


19.1 ASSIGNMENTS AND ASSUMPTIONS.


(a) Except as provided herein, each Lender (in this Section 19.1, an "Assigning
Lender") may assign to one or more Eligible Assignees (in this Section 19.1, each an
"Assignee Lender") all or a portion of that Lender's interests, rights and
obligations under this Agreement and the other Loan Documents (including, all or a portion
of its Dollar Commitment) and the same portion of the loans at the time owing to it, and
of the note (if any) held by the Assigning Lender, provided that, 


(i) Each of the Agent and (so long as no Event of Default exists and is continuing) the
Borrower shall have given its prior written consent to such assignment, each which consent
shall not be unreasonably withheld, but need not be given, in the case of the Agent, if
the proposed assignment would result in any resulting Lender's having a Dollar Commitment
of less than the "minimum hold" amount specified in Section 19.1(a)(iii).


(ii) Each such assignment shall be of a constant, and not a varying, percentage of all
the rights and obligations under this Agreement of Assigning Lenders that are Lenders.


(iii) Following the effectiveness of such assignment, the Lender's Dollar Commitment of
the Assigning Lender that is a Lender (if not an assignment of all of such Lender's Dollar
Commitment) shall not be less than $10,000,000.00 (i.e., the "minimum hold").


19.2 ASSIGNMENT PROCEDURES.


This Section 19.2 describes the procedures to be followed in connection with an
assignment effected pursuant to this Article XIX and permitted by Section 19.1.


(a) The parties to such an assignment shall execute and deliver to the Agent an
Assignment and Acceptance substantially in the form of EXHIBIT 19.1, annexed hereto (an
"Assignment and Acceptance"). 


(b) The Assigning Lender shall deliver to the Agent, with such Assignment and
Acceptance, the Note (if any) held by the subject Assigning Lender and the Agent's
processing fee of $5,000.00, provided, however, no such processing fee shall be due where
the Assigning Lender is one of the Lenders at the initial execution of this Agreement or
where the Assignee Lender is an Affiliate of the Assignor Lender. 


(c) The Agent shall maintain a copy of each Assignment and Acceptance delivered to it
and, in the case of an Assigning Lender that is a Lender, a register or similar list (the
"Register") for the recordation of the names and addresses of the Lenders and of
the Percentage Commitment and Dollar Commitment of each Lender. The Register shall be
available for inspection by the Lenders at any reasonable time and from time to time upon
reasonable prior notice. In the absence of manifest error, the entries in the Register
shall be conclusive and binding on all Lenders. The Agent and the Lenders may treat each
Person whose name is recorded in the Register as a "Lender" hereunder for all
purposes of this Agreement. 


(d) The Assigning Lender and Assignee Lender, directly between themselves, shall make
all appropriate adjustments in payments for periods prior to the effective date of an
Assignment and Assumption.


19.3 EFFECT OF ASSIGNMENT.


(a) From and after the effective date specified in an Assignment and Acceptance which
has been executed, delivered, and recorded (which effective date the Agent may delay by up
to five (5) Business Days after the delivery of such Assignment and Acceptance): 


(i) The Assignee Lender: 


(A) Shall be a party to this Agreement and the Loan Documents (and to any amendments
thereof) as fully as if the Assignee Lender had executed each.


(B) Shall have the rights of a Lender hereunder, except in the case in which the
Assigning Lender is a Lender, in which case the Assignee Lender shall have the rights of a
Lender hereunder to the extent of the Dollar Commitment and Percentage Commitment assigned
by such Assignment and Acceptance.


(ii) The Assigning Lender shall be released from the Assigning Lender's obligations
under this Agreement and the Loan Documents, except in the case in which the Assigning
Lender is a Lender, in which case the Assignee Lender shall be released from its
obligations under this Agreement and the Loan Documents to the extent of the Dollar
Commitment assigned by such Assignment and Acceptance.


(iii) The Agent shall undertake to obtain and distribute replacement notes to the
subject Assigning Lender and Assignee Lender.


(b) By executing and delivering an Assignment and Acceptance, the parties thereto
confirm to and agree with each other and with all parties to this Agreement as to those
matters which are set forth in the subject Assignment and Acceptance.


 


 


 


Intentionally Left Blank


WILD OATS MARKETS, INC.

("Borrower")


By: /s/ Freya R. Brier

Print Name: Freya R. Brier

Title: Secretary


 


BANK OF AMERICA, N.A.

("Lender")


By: Stephen J. Gavin

Print Name: Stephen J. Gavin

Title: Managing Director


Notice Address:


40 Broad Street

Boston, MA 02109

Attn: Stephen J. Garvin, Managing Director

Fax: 617-434-4312


 


BANK OF AMERICA, N.A. 

("Agent")


By: /s/ Stephen J. Gavin

Print Name: Stephen J. Gavin

Title: Managing Director