Unassociated Document


    

      [CONFIDENTIAL
        TREATMENT HAS BEEN REQUESTED BY DRUGMAX, INC. CONFIDENTIAL PORTIONS OF THIS
        DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES
        AND EXCHANGE COMMISSION.]



     

    LOAN
      AND SECURITY AGREEMENT

     

     

    WELLS
      FARGO RETAIL FINANCE, LLC

     

    Agent
      for

     

    The
      Lenders Referenced Herein

     

    


     

    DRUGMAX,
      INC.

     

    The
      Lead Borrower

     

    For:

     

    The
      Borrowers

     

     

    October
      12, 2005

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        
          	
                   

                  Article
                    1 - - Definitions:

                	
                   

                  10

                
	
                   

                  Article
                    2 - The Revolving Credit:

                	
                   

                  31

                
	
                  2.1.

                	
                  Establishment
                    of Revolving Credit.

                	
                  31

                
	
                  2.2.

                	
                  Advances
                    in Excess of Borrowing Base (OverLoans).

                	
                  32

                
	
                  2.3.

                	
                  Risks
                    of Value of Collateral.

                	
                  32

                
	
                  2.4.

                	
                  Commitment
                    to Make Revolving Credit Loans and Support Letters of
                    Credit

                	
                  32

                
	
                  2.5.

                	
                  Revolving
                    Credit Loan Requests.

                	
                  33

                
	
                  2.6.

                	
                  Suspension
                    of Revolving Credit

                	
                  34

                
	
                  2.7.

                	
                  Making
                    of Revolving Credit Loans.

                	
                  34

                
	
                  2.8.

                	
                  The
                    Loan Account.

                	
                  34

                
	
                  2.9.

                	
                  The
                    Revolving Credit Notes

                	
                  35

                
	
                  2.10.

                	
                  Payment
                    of The Loan Account.

                	
                  35

                
	
                  2.11.

                	
                  Interest
                    on Revolving Credit Loans.

                	
                  36

                
	
                  2.12.

                	
                  Unused
                    Line Fee

                	
                  37

                
	
                  2.13.

                	
                  Revolving
                    Credit Early Termination Fee

                	
                  37

                
	
                  2.14.

                	
                  Concerning
                    Fees

                	
                  37

                
	
                  2.15.

                	
                  Agent's
                    and Revolving Credit Lenders' Discretion.

                	
                  37

                
	
                  2.16.

                	
                  Procedures
                    For Issuance of L/C's.

                	
                  38

                
	
                  2.17.

                	
                  Fees
                    For L/C's.

                	
                  39

                
	
                  2.18.

                	
                  Concerning
                    L/C's.

                	
                  40

                
	
                  2.19.

                	
                  Changed
                    Circumstances.

                	
                  41

                
	
                  2.20.

                	
                  Designation
                    of Lead Borrower as Borrowers' Agent.

                	
                  42

                
	
                  2.21.

                	
                  Lenders'
                    Commitments

                	
                  42

                
	
                   

                  Article
                    3 - Conditions Precedent:

                	
                   

                  44

                
	
                  3.1.

                	
                  Corporate
                    Due Diligence.

                	
                  44

                
	
                  3.2.

                	
                  Opinion

                	
                  44

                
	
                  3.3.

                	
                  Additional
                    Documents

                	
                  44

                


        

         

        
          
            
            

          

          
            (i)

            
              

            

          

          
            
            

          

           

        

        
          
            	
                    3.4.

                  	
                    Officers'
                      Certificates

                  	
                    45

                  
	
                    3.5.

                  	
                    Representations
                      and Warranties

                  	
                    45

                  
	
                    3.6.

                  	
                    Minimum
                      Day One Availability

                  	
                    45

                  
	
                    3.7.

                  	
                    All
                      Fees and Expenses Paid

                  	
                    45

                  
	
                    3.8.

                  	
                    No
                      Borrower In Default

                  	
                    45

                  
	
                    3.9.

                  	
                    No
                      Adverse Change

                  	
                    46

                  
	
                    3.10.

                  	
                    Benefit
                      of Conditions Precedent

                  	
                    46

                  
	
                     

                    Article
                      4 - General Representations, Covenants and Warranties:

                  	
                     

                    46

                  
	
                    4.1.

                  	
                    Payment
                      and Performance of Liabilities

                  	
                    46

                  
	
                    4.2.

                  	
                    Due
                      Organization. Authorization. No Conflicts.

                  	
                    46

                  
	
                    4.3.

                  	
                    Trade
                      Names.

                  	
                    47

                  
	
                    4.4.

                  	
                    Infrastructure.

                  	
                    47

                  
	
                    4.5.

                  	
                    Locations.

                  	
                    48

                  
	
                    4.6.

                  	
                    Encumbrances

                  	
                    48

                  
	
                    4.7.

                  	
                    Indebtedness

                  	
                    49

                  
	
                    4.8.

                  	
                    Insurance.

                  	
                    49

                  
	
                    4.9.

                  	
                    Licenses

                  	
                    50

                  
	
                    4.10.

                  	
                    Leases

                  	
                    50

                  
	
                    4.11.

                  	
                    Requirements
                      of Law

                  	
                    50

                  
	
                    4.12.

                  	
                    Labor
                      Relations.

                  	
                    50

                  
	
                    4.13.

                  	
                    Maintain
                      Properties

                  	
                    51

                  
	
                    4.14.

                  	
                    Taxes.

                  	
                    51

                  
	
                    4.15.

                  	
                    No
                      Margin Stock

                  	
                    52

                  
	
                    4.16.

                  	
                    ERISA.

                  	
                    52

                  
	
                    4.17.

                  	
                    Hazardous
                      Materials.

                  	
                    53

                  
	
                    4.18.

                  	
                    Litigation

                  	
                    53

                  
	
                    4.19.

                  	
                    Dividends.
                      Investments. Corporate Action

                  	
                    53

                  


          

           

          
            
              
              

            

            
              (ii)

              
                

              

            

            
              
              

            

          

           

          
            
              	
                      4.20.

                    	
                      Loans

                    	
                      54

                    
	
                      4.21.

                    	
                      Protection
                        of Assets

                    	
                      55

                    
	
                      4.22.

                    	
                      Line
                        of Business

                    	
                      55

                    
	
                      4.23.

                    	
                      Affiliate
                        Transactions

                    	
                      55

                    
	
                      4.24.

                    	
                      Further
                        Assurances.

                    	
                      55

                    
	
                      4.25.

                    	
                      Adequacy
                        of Disclosure.

                    	
                      56

                    
	
                      4.26.

                    	
                      No
                        Restrictions on Liabilities

                    	
                      56

                    
	
                      4.27.

                    	
                      Other
                        Covenants

                    	
                      56

                    
	
                      4.28.

                    	
                      Pharmaceutical
                        Laws.

                    	
                      57

                    
	
                      4.29.

                    	
                      HIPAA
                        Compliance.

                    	
                      57

                    
	
                      4.30.

                    	
                      Compliance
                        with Health Care Laws.

                    	
                      57

                    
	
                      4.31.

                    	
                      Prescription
                        Files

                    	
                      58

                    
	
                      4.32.

                    	
                      Sale
                        of Valley Drug Company

                    	
                      59

                    
	
                       

                      Article
                        5 - Financial Reporting and Performance Covenants:

                    	
                       

                      59

                    
	
                      5.1.

                    	
                      Maintain
                        Records

                    	
                      59

                    
	
                      5.2.

                    	
                      Access
                        to Records.

                    	
                      60

                    
	
                      5.3.

                    	
                      Immediate
                        Notice to Agent.

                    	
                      60

                    
	
                      5.4.

                    	
                      Borrowing
                        Base Certificate

                    	
                      61

                    
	
                      5.5.

                    	
                      Intentionally
                        Omitted.

                    	
                      61

                    
	
                      5.6.

                    	
                      Monthly
                        Reports

                    	
                      61

                    
	
                      5.7.

                    	
                      Intentionally
                        Omitted

                    	
                      61

                    
	
                      5.8.

                    	
                      Annual
                        Reports.

                    	
                      61

                    
	
                      5.9.

                    	
                      Officers'
                        Certificates

                    	
                      62

                    
	
                      5.10.

                    	
                      Inventories,
                        Appraisals, and Audits.

                    	
                      62

                    
	
                      5.11.

                    	
                      Additional
                        Financial Information.

                    	
                      63

                    
	
                      5.12.

                    	
                      Financial
                        Performance Covenants

                    	
                      64

                    


            

             

            
              
                
                

              

              
                (iii)

                
                  

                

              

              
                
                

              

               

            

            
              
                	
                         

                        Article
                          6 - Use of Collateral:

                      	
                         

                        64

                      
	
                        6.1.

                      	
                        Use
                          of Inventory Collateral.

                      	
                        64

                      
	
                        6.2.

                      	
                        Inventory
                          Quality

                      	
                        64

                      
	
                        6.3.

                      	
                        Adjustments
                          and Allowances

                      	
                        65

                      
	
                        6.4.

                      	
                        Validity
                          of Accounts.

                      	
                        65

                      
	
                        6.5.

                      	
                        Notification
                          to Account Debtors

                      	
                        65

                      
	
                         

                        Article
                          7 - Cash Management. Payment of Liabilities:

                      	
                         

                        65

                      
	
                        7.1.

                      	
                        The
                          Concentration, Blocked, and Operating Accounts.

                      	
                        65

                      
	
                        7.2.

                      	
                        Proceeds
                          and Collections.

                      	
                        66

                      
	
                        7.3.

                      	
                        Payment
                          of Liabilities.

                      	
                        66

                      
	
                        7.4.

                      	
                        The
                          Operating Account

                      	
                        67

                      
	
                        7.5.

                      	
                        Medicare
                          and Medicaid Payments.

                      	
                        67

                      
	
                         

                        Article
                          8 - Grant of Security Interest:

                      	
                         

                        68

                      
	
                        8.1.

                      	
                        Grant
                          of Security Interest

                      	
                        68

                      
	
                        8.2.

                      	
                        Extent
                          and Duration of Security Interest.

                      	
                        69

                      
	
                         

                        Article
                          9 - Agent As Borrowers' Attorney-In-Fact:

                      	
                         

                        69

                      
	
                        9.1.

                      	
                        Appointment
                          as Attorney-In-Fact

                      	
                        69

                      
	
                        9.2.

                      	
                        No
                          Obligation to Act

                      	
                        70

                      
	
                         

                        Article
                          10 - Events of Default:

                      	
                         

                        70

                      
	
                        10.1.

                      	
                        Failure
                          to Pay the Revolving Credit

                      	
                        70

                      
	
                        10.2.

                      	
                        Failure
                          To Make Other Payments

                      	
                        70

                      
	
                        10.3.

                      	
                        Failure
                          to Perform Covenant or Liability (No Grace
                          Period)

                      	
                        70

                      
	
                        10.4.

                      	
                        Failure
                          to Perform Covenant or Liability (Grace Period)

                      	
                        70

                      
	
                        10.5.

                      	
                        Misrepresentation

                      	
                        70

                      
	
                        10.6.

                      	
                        Acceleration
                          of Other Debt. Breach of Lease

                      	
                        71

                      
	
                        10.7.

                      	
                        Default
                          Under Other Agreements

                      	
                        71

                      
	
                        10.8.

                      	
                        Uninsured
                          Casualty Loss

                      	
                        71

                      
	
                        10.9.

                      	
                        Attachment.
                          Judgment. Restraint of Business.

                      	
                        71

                      


              

               

              
                
                  
                  

                

                
                  (iv)

                  
                    

                  

                

                
                  
                  

                

                 

              

              
                
                  	
                          10.10.

                        	
                          Business
                            Failure

                        	
                          71

                        
	
                          10.11.

                        	
                          Bankruptcy

                        	
                          72

                        
	
                          10.12.

                        	
                          Indictment
                            - Forfeiture

                        	
                          72

                        
	
                          10.13.

                        	
                          Guarantor's
                            Default

                        	
                          72

                        
	
                          10.14.

                        	
                          Termination
                            of Guaranty

                        	
                          72

                        
	
                          10.15.

                        	
                          Challenge
                            to Loan Documents.

                        	
                          72

                        
	
                          10.16.

                        	
                          Change
                            in Control

                        	
                          72

                        
	
                           

                          Article
                            11 - Rights and Remedies Upon Default:

                        	
                           

                          72

                        
	
                          11.1.

                        	
                          Acceleration

                        	
                          72

                        
	
                          11.2.

                        	
                          Rights
                            of Enforcement

                        	
                          73

                        
	
                          11.3.

                        	
                          Sale
                            of Collateral.

                        	
                          73

                        
	
                          11.4.

                        	
                          Occupation
                            of Business Location

                        	
                          74

                        
	
                          11.5.

                        	
                          Grant
                            of Nonexclusive License

                        	
                          74

                        
	
                          11.6.

                        	
                          Assembly
                            of Collateral

                        	
                          74

                        
	
                          11.7.

                        	
                          Rights
                            and Remedies

                        	
                          74

                        
	
                           

                          Article
                            12 - Revolving Credit Fundings and Distributions:

                        	
                           

                          74

                        
	
                          12.1.

                        	
                          Revolving
                            Credit Funding Procedures

                        	
                          74

                        
	
                          12.2.

                        	
                          Agent's
                            Covering of Fundings:

                        	
                          75

                        
	
                          12.3.

                        	
                          Ordinary
                            Course Distributions

                        	
                          76

                        
	
                           

                          Article
                            13 - Acceleration and Liquidation:

                        	
                           

                          77

                        
	
                          13.1.

                        	
                          Acceleration
                            Notices

                        	
                          77

                        
	
                          13.2.

                        	
                          Acceleration

                        	
                          77

                        
	
                          13.3.

                        	
                          Initiation
                            of Liquidation

                        	
                          77

                        
	
                          13.4.

                        	
                          Actions
                            At and Following Initiation of Liquidation

                        	
                          77

                        
	
                          13.5.

                        	
                          Agent's
                            Conduct of Liquidation

                        	
                          78

                        
	
                          13.6.

                        	
                          Distribution
                            of Liquidation Proceeds:

                        	
                          78

                        
	
                          13.7.

                        	
                          Relative
                            Priorities To Proceeds of Liquidation

                        	
                          78

                        


                

                 

                
                  
                    
                    

                  

                  
                    (v)

                    
                      

                    

                  

                  
                    
                    

                  

                

                 

                
                  
                    	 

                            Article
                              14 - The Agent:

                          	
                             79

                          
	
                            14.1.

                          	
                            Appointment
                              of The Agent

                          	
                            79

                          
	
                            14.2.

                          	
                            Responsibilities
                              of Agent

                          	
                            79

                          
	
                            14.3.

                          	
                            Concerning
                              Distributions By the Agent

                          	
                            80

                          
	
                            14.4.

                          	
                            Dispute
                              Resolution

                          	
                            81

                          
	
                            14.5.

                          	
                            Distributions
                              of Notices and Other Documents

                          	
                            81

                          
	
                            14.6.

                          	
                            Confidential
                              Information

                          	
                            81

                          
	
                            14.7.

                          	
                            Reliance
                              by Agent

                          	
                            82

                          
	
                            14.8.

                          	
                            Non-Reliance
                              on Agent and Other Revolving Credit Lenders

                          	
                            82

                          
	
                            14.9.

                          	
                            Indemnification

                          	
                            83

                          
	
                            14.10.

                          	
                            Resignation
                              of Agent.

                          	
                            83

                          
	
                             

                            Article
                              15 - Action By Agent - Consents - Amendments - Waivers:

                          	
                             

                            83

                          
	
                            15.1.

                          	
                            Administration
                              of Credit Facilities.

                          	
                            83

                          
	
                            15.2.

                          	
                            Actions
                              Requiring or On Direction of Majority Lenders

                          	
                            84

                          
	
                            15.3.

                          	
                            Actions
                              Requiring or On Direction of SuperMajority
                              Lenders

                          	
                            84

                          
	
                            15.4.

                          	
                            Action
                              Requiring Certain Consent

                          	
                            85

                          
	
                            15.5.

                          	
                            Actions
                              Requiring or Directed By Unanimous Consent

                          	
                            85

                          
	
                            15.6.

                          	
                            Actions
                              Requiring Agent's Consent.

                          	
                            86

                          
	
                            15.7.

                          	
                            Miscellaneous
                              Actions

                          	
                            86

                          
	
                            15.8.

                          	
                            Actions
                              Requiring Lead Borrower's Consent

                          	
                            87

                          
	
                            15.9.

                          	
                            NonConsenting
                              Revolving Credit Lender

                          	
                            87

                          
	
                             

                            Article
                              16 - Assignments By Revolving Credit Lenders:

                          	
                             

                            88

                          
	
                            16.1.

                          	
                            Assignments
                              and Assumptions:

                          	
                            88

                          
	
                            16.2.

                          	
                            Assignment
                              Procedures

                          	
                            89

                          
	
                            16.3.

                          	
                            Effect
                              of Assignment.

                          	
                            89

                          
	
                             

                            Article
                              17 - Notices:

                          	
                             

                            90

                          
	
                            17.1.

                          	
                            Notice
                              Addresses

                          	
                            90

                          


                  

                   

                  
                    
                      
                      

                    

                    
                      (vi)

                      
                        

                      

                    

                    
                      
                      

                    

                     

                  

                  
                    	
                            If
                              to the Agent:

                          	
                            90

                          
	
                            17.2.

                          	
                            Notice
                              Given.

                          	
                            91

                          
	
                            17.3.

                          	
                            Wire
                              Instructions. Notice Given

                          	
                            91

                          
	
                             

                            Article
                              18 - Term:

                          	
                             

                            91

                          
	
                            18.1.

                          	
                            Termination
                              of Revolving Credit

                          	
                            91

                          
	
                            18.2.

                          	
                            Actions
                              On Termination.

                          	
                            91

                          
	
                             

                            Article
                              19 - General:

                          	
                             

                            92

                          
	
                            19.1.

                          	
                            Protection
                              of Collateral

                          	
                            92

                          
	
                            19.2.

                          	
                            Publicity

                          	
                            92

                          
	
                            19.3.

                          	
                            Successors
                              and Assigns

                          	
                            92

                          
	
                            19.4.

                          	
                            Severability

                          	
                            93

                          
	
                            19.5.

                          	
                            Amendments.
                              Course of Dealing.

                          	
                            93

                          
	
                            19.6.

                          	
                            Power
                              of Attorney

                          	
                            93

                          
	
                            19.7.

                          	
                            Application
                              of Proceeds

                          	
                            93

                          
	
                            19.8.

                          	
                            Increased
                              Costs

                          	
                            93

                          
	
                            19.9.

                          	
                            Costs
                              and Expenses of the Agent .

                          	
                            94

                          
	
                            19.10.

                          	
                            Copies
                              and Facsimiles

                          	
                            94

                          
	
                            19.11.

                          	
                            Massachusetts
                              Law

                          	
                            95

                          
	
                            19.12.

                          	
                            Consent
                              to Jurisdiction.

                          	
                            95

                          
	
                            19.13.

                          	
                            Indemnification

                          	
                            95

                          
	
                            19.14.

                          	
                            Rules
                              of Construction

                          	
                            96

                          
	
                            19.15.

                          	
                            Intent

                          	
                            97

                          
	
                            19.16.

                          	
                            Right
                              of Set-Off

                          	
                            98

                          
	
                            19.17.

                          	
                            Pledges
                              To Federal Reserve Banks

                          	
                            98

                          
	
                            19.18.

                          	
                            Maximum
                              Interest Rate

                          	
                            98

                          
	
                            19.19.

                          	
                            Waivers.

                          	
                            98

                          


                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        (vii)

        
          

        

      

      
        
        

        
        

      

    

     

    EXHIBITS

     

    
      
        	
                1

              	
                :

              	
              	
                Borrowers

              
	
                2.9

              	
                :

              	
              	
                Revolving
                  Credit Note

              
	
                2.22

              	
                :

              	
              	
                Revolving
                  Credit Lenders' Commitments

              
	
                4.2

              	
                :

              	
              	
                Affiliates

              
	
                4.2(h)

              	 	
              	
                Inactive
                  Subsidiary Assets

              
	
                4.3

              	
                :

              	
              	
                Trade
                  Names

              
	
                4.5

              	
                :

              	 	
                Locations

              
	
                4.6

              	
                :

              	 	
                Permitted
                  Encumbrances

              
	
                4.7

              	
                :

              	 	
                Permitted
                  Indebtedness

              
	
                4.8

              	
                :

              	 	
                Insurance

              
	
                4.10

              	
                :

              	 	
                Capital
                  Leases

              
	
                4.12

              	 	 	
                Loans

              
	
                4.14

              	
                :

              	 	
                Taxes

              
	
                4.18

              	
                :

              	 	
                Litigation

              
	
                4.20

              	 	 	
                Loans
                  by Borrowers

              
	
                4.29

              	
                :

              	 	
                Business
                  Associate Agreements

              
	
                4.30

              	
                :

              	 	
                Participation
                  Agreements

              
	
                5.4

              	
                :

              	 	
                Borrowing
                  Base Certificate

              
	
                5.6

              	
                :

              	 	
                Monthly
                  Financial Reporting Requirements

              
	
                5.12(a)

              	
                :

              	 	
                Financial
                  Performance Covenants

              
	
                5.12(b)

              	
                :

              	 	
                Business
                  Plan

              
	
                8.2(b)

              	
                :

              	 	
                Excluded
                  Assets

              
	
                16.2

              	:	
              	
                Assignment
                  /
                  Acceptance

              


      

    

    


     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      LOAN
        AND SECURITY AGREEMENT

       

      October
        12, 2005

       

      THIS
        AGREEMENT
        is made
        between

       

      WELLS
        FARGO RETAIL FINANCE, LLC,
        a
        Delaware limited liability company with offices at One Boston Place - -
        18th
        Floor,
        Boston, Massachusetts 02109, as agent (in such capacity, herein the
        "Agent")
        for
        the ratable benefit of the "Revolving
        Credit Lenders",
        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
        "Revolving
        Credit Lenders"
        in
        accordance with the provisions of Article 16 - , below;

       

      and

       

      The
        Revolving Credit Lenders;

       

      and

       

      DRUGMAX,
        INC.
        (in
        such capacity, the "Lead
        Borrower"),
        a
        Nevada corporation with its principal executive offices at 312 Farmington
        Avenue, Farmington, Connecticut 06032, as agent for the Persons listed on
        EXHIBIT
        1, annexed
        hereto (individually, a "Borrower"
        and
        collectively, the "Borrowers"),

       

      in
        consideration of the mutual covenants contained herein and benefits to be
        derived herefrom, 

       

      WITNESSETH:

       

       

      Article
        1 - -
        Definitions:

       

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

       

      "Acceleration":
        The
        making of demand or declaration that any indebtedness, not otherwise due
        and
        payable, is due and payable. Derivations of the word "Acceleration" (such
        as
        "Accelerate") are used with like meaning in this Agreement. 

       

      "Acceleration
        Notice":
        Written notice as follows:

       

      
        	 	
                (a)

              	
                From
                  the Agent to the Revolving Credit Lenders, as provided in Section
                  13.1(a).

              


      

       

      
        	 	
                (b)

              	
                From
                  the SuperMajority Lenders to the Agent, as provided in Section
                  13.1(b).

              


      

       

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

       

      "Accounts"
        and
        "Accounts
        Receivable":
        Include, without limitation, "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 Health-Care-Insurance receivables; 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.

       

      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

         

      

      "ACH":
        Automated clearing house.

       

      "Affiliate":
        The
        following:

       

      
        	 	
                (a)

              	
                With
                  respect to any two Persons, a relationship in which (i) one holds,
                  directly or indirectly, not less than Fifty Percent (50%) 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 vote for the election of
                  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) not
                  less than Fifty Percent (50%) of their respective ownership is
                  directly or
                  indirectly held by the same third Person.


              


      

       

      
        	 	
                (b)

              	
                Any
                  Person which: is a parent, brother-sister, subsidiary, or affiliate,
                  of a
                  Borrower; could have such enterprise's tax returns or financial
                  statements
                  consolidated with that 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 any Borrower is a member; or controls
                  or is
                  controlled by any Borrower. 

              


      

       

      "Agent":
        Is
        referred to in the Preamble.

       

      "Agent's
        Cover":
        Is
        defined in Section 12.2(c)(i).

       

      "Agent's
        Rights and Remedies":
        Is
        defined in Section 11.7.

       

      "Applicable
        Law":
        As to
        any Person: (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 appropriately claims jurisdiction over
        such
        Person, or any property of such Person, or of any other Person for whose
        conduct
        such Person would be responsible. 

       

      “Appraised
        Prescription Files Liquidation Value”:
        The
        net appraised liquidation value of the Borrowers’ Prescription Files as
        determined from time to time by an independent appraiser reasonably satisfactory
        to the Agent rolled forward monthly based on recent pharmacy Prescription
        Files
        activity.

       

      "Assigning
        Revolving Credit Lender":
        Is
        defined in Section 16.1(a).

       

      "Assignment
        and Acceptance":
        Is
        defined in Section 16.2.

       

      "Availability":
        The
        result of the following:

       

      
        	 	
                (a)

              	
                The
                  lesser of: 

              


      

       

      
        	 	
                (i)

              	
                The
                  Revolving Credit Ceiling

              


      

       

      or

       

      
        	 	
                (ii)

              	
                The
                  Borrowing Base

              


      

       

      Minus

       

      
        	 	
                (b)

              	
                The
                  sum of:

              


      

       

      
        	 	
                (i)

              	
                The
                  aggregate unpaid balance of the Loan
                  Account,

              


      

       

      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

         

      

      
        	 	
                (ii)

              	
                The
                  aggregate undrawn Stated Amount of all then outstanding L/C's,
                  

              


      

       

      
        	 	
                (iii)

              	
                The
                  aggregate of the Availability Reserves,
                  and

              


      

       

      
        	 	
                (iv)

              	
                The
                  Minimum Reserve.

              


      

       

      "Availability
        Reserves":
        Such
        reserves as the Agent from time to time determines in the Agent's 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 (without duplication for any Inventory Reserves, Receivables Reserves,
        and Prescription Files Reserves):

       

      
        	 	 (a) 	
                Rent
                  in an amount equal to One (1) month’s rent for each of the Borrowers’
                  leased locations (but only if a landlord's waiver, acceptable to
                  the
                  Agent, has not been received by the Agent). 

              
	 	 	 
	 	 (b) 	
                Customer
                  Credit Liabilities. 

              
	 	 	 
	 	 (c) 	
                Bank
                  Product Reserves. 

              
	 	 	 
	 	 (d) 	
                Taxes
                  and other governmental charges, including, ad valorem, personal
                  property,
                  and other taxes which might have priority over the Collateral Interests
                  of
                  the Agent in the Collateral. 

              


      

       

      “Average
        Excess Availability”:
        Means,
        for the applicable quarter, the aggregate of the amount of Excess Availability
        on each day in such quarter, divided by the number of days in such
        quarter.

       

      “Bank
        Product Agreements”:
        Those
        certain cash management service agreements entered into from time to time
        by the
        Borrowers in connection with any of the Bank Products.

       

      “Bank
        Product Obligations”:
        All
        obligations, liabilities, contingent reimbursement obligations, fees, and
        expenses owing by the Borrowers to Wells Fargo Bank, N. A. or any of 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 the Borrowers are obligated to reimburse
        to
        any Revolving Credit Lender as a result of such Revolving Credit Lender
        purchasing participations or executing indemnities or reimbursement obligations
        with respect to the Bank Products provided to the Borrowers pursuant to the
        Bank
        Product Agreements.

       

      “Bank
        Products”
        Any
        service or facility extended to the Borrowers by Wells Fargo Bank, N. A.
        or any
        of its Affiliates, including the following:

       

      
        	 	
                (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,
                  and
                  

              


      

       

      
        
          
          

        

        
          -12-

          
            

          

        

        
          
          

        

         

      

      
        	 	
                (g)

              	
                hedge
                  agreements.

              


      

       

      “Bank
        Product Reserves”:
        As of
        any date of determination, the amount of reserves that the Agent has established
        (based upon Wells Fargo Bank, N. A.’s or its Affiliate’s reasonable
        determination of the credit exposure in respect of then extant Bank Products)
        for Bank Products then provided or outstanding.

       

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

       

      "Blocked
        Account":
        Any
        DDA into which the contents of any other DDA is transferred.

       

      "Blocked
        Account Agreement":
        An
        Agreement, in form satisfactory to the Agent, which Agreement recognizes
        the
        Agent's Collateral Interest in the contents of the DDA which is the subject
        of
        such Agreement and agrees that such contents shall be transferred only to
        the
        Concentration Account or as otherwise instructed by the Agent.

       

      “BOA”:
        Bank
        of America, N.A.

       

      "Borrower"
        and "Borrowers":
        Is
        defined in the Preamble.

       

      "Borrowing
        Base":
        The
        sum of:

       

      
        	 	
                (a)

              	
                The
                  lesser of

              


      

       

      
        
          	 	(i) 	The
                  (x) Cost of Eligible Retail Inventory (net of Inventory Reserves)
                  multiplied by the Inventory Advance Rate, plus (y) Cost of Eligible
                  Wholesale Inventory (net of Inventory Reserves) multiplied
                  by the
                  Inventory Advance Rate and
	 	 	  
	 	 	 
	 	(ii) 	The (x) Cost of Eligible Retail
                  Inventory
                  (net of Inventory Reserves) multiplied by ** of the NRLV
                  and (y) Cost
                  of Eligible Wholesale Inventory (net of  Inventory Reserves)
                  multiplied by ** of the NRLV 
	 	 	 
	 	plus 
	 	 	 
	 	
                  (b) 

                	
                  The
                    lesser of  

                
	 	 	 
	 	(i) 	the sum of : 
	 	 	 
	 	(x) 	The face amount of Eligible Credit
                  Card
                  Receivables multiplied by the Credit Card Advance Rate,
                  plus 
	 	 	 
	 	(y) 	
                  The
                    face amount of Eligible Third Party Receivables (net of
                    Receivables Reserves) multiplied by the Third Party Receivables
                    Advance
                    Rate, 

                
	 	 	 
	 	and 
	 	 	 
	 	(ii) 	**
	 	 	 
	 	plus 
	 	 	 
	 	
                  (c) 

                	
                  The
                    lesser of (i) ** and (ii) the result of the Appraised
                    Prescription
                    Files Liquidation Value (net of Prescription Files Reserves)
                    multiplied by
                    the Prescription Files Advance
                    Rate, 

                


        

         

      

      "Borrowing
        Base Certificate":
        Is
        defined in Section 5.4.

       

      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

         

      

      "Business
        Day":
        Any
        day other than (a) a Saturday or Sunday; (b) any day on which banks in Boston,
        Massachusetts or in Hartford, Connecticut, 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 is not open to the general public
        to
        conduct business. 

       

      "Business
        Plan":
        The
        Borrowers' business plan annexed hereto as EXHIBIT
        5.12(b)
        and any
        revision, amendment, or update of such business plan to which the Lender
        has
        provided its written sign-off.

       

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

       

      "Capital
        Lease":
        Any
        lease which may be capitalized in accordance with GAAP. 

       

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

       

      
        	 	
                (a)

              	
                The
                  acquisition, 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 and
                  Exchange
                  Commission) of 33 1/3% or more of the issued and outstanding capital
                  stock
                  of the Lead Borrower having the right, under ordinary circumstances,
                  to
                  vote for the election of directors of the Lead
                  Borrower.

              


      

       

      
        	 	
                (b)

              	
                More
                  than half of the persons who were directors of the Lead Borrower
                  on the
                  first day of any period consisting of twelve (12) consecutive calendar
                  months (the first of which twelve (12) month periods commencing
                  with the
                  first day of the month during which this Agreement was executed),
                  cease,
                  for any reason other than death or disability, to be directors
                  of the Lead
                  Borrower. 

              


      

       

      
        	 	
                (c)

              	
                Failure
                  of the Lead Borrower to own, beneficially and of record, directly
                  or
                  indirectly, 100% of the capital stock of all other
                  Borrowers.

              


      

       

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

       

      "Collateral":
        Is
        defined in Section 8.1.

       

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

       

      "Concentration
        Account":
        Is
        defined in Section 7.1.

       

      "Consent":
        Actual
        consent given by the Revolving Credit Lender from whom such consent is sought;
        or the passage of seven (7) Business Days from receipt of written notice
        to a
        Revolving Credit Lender from the Agent of a proposed course of action to
        be
        followed by the Agent without such Revolving Credit Lender's giving the Agent
        written notice of that Revolving Credit Lender's objection to such course
        of
        action, provided that the Agent may rely on such passage of time as consent
        by a
        Revolving Credit Lender only if such written notice states that consent will
        be
        deemed effective if no objection is received within such time
        period.

       

      "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, of the
        financial condition or operating results of the Borrowers.

       

      "Cost":
        The
        lower of (a) or (b), where:

       

      
        
          
          

        

        
          -14-

          
            

          

        

        
          
          

        

         

      

      
        	 	
                (a)

              	
                is
                  the calculated cost of purchases, based upon the Borrowers' accounting
                  practices, 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 Borrowers; the Borrowers' purchase
                  journal;
                  or the Borrowers' stock ledger. 

              


      

       

      
        	 	
                (b)

              	
                is
                  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 Borrowers' accounting
                  system),
                  which cost equivalent is determined in accordance with the FIFO
                  method of
                  accounting, reflecting
                  the Borrowers' historic business
                  practices.

              


      

       

      ("Cost"
        does not include inventory capitalization costs or other non-purchase price
        charges (such as freight) used in the Borrowers' calculation of cost of goods
        sold).

       

      "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
        out-of-pocket costs incurred by the Agent in the administration of the
        Liabilities and/or the Loan Documents, including, without limitation, reasonable
        costs and expenses associated with 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" also includes the reasonable fees and expenses of Lenders'
        Special Counsel. The Costs of Collection are Liabilities, and at the Agent's
        option may bear interest at the then effective Prime Margin Rate.

       

      "Credit
        Card Advance Rate":
        **

       

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

       

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

       

      "Delinquent
        Revolving Credit Lender":
        Is
        defined in Section 12.2(c).

       

      "Deposit
        Account":
        Has
        the meaning given that term in the UCC and also includes all demand, time,
        savings, passbook, or similar accounts maintained with a bank.

       

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

       

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

       

      "EBITDA":
        The
        Borrowers' Consolidated earnings before interest, taxes, depreciation, and
        amortization, but excluding extraordinary gains and losses and gains and
        losses
        from the sale of assets other than in the ordinary course of business, and
        excluding non-cash compensation charges related to stock options and restricted
        stock, each as determined in accordance with GAAP.

       

      "Eligible
        Assignee":
        A
        bank, insurance company, or company engaged in the business of making commercial
        loans having a combined capital and surplus in excess of $50,000,000.00 or
        any
        Affiliate of any Revolving Credit Lender, or any Person to whom a Revolving
        Credit Lender assigns its rights and obligations under this Agreement as
        part of
        a programmed assignment and transfer of such Revolving Credit Lender's rights
        in
        and to a material portion of such Revolving Credit Lender's portfolio of
        asset
        based credit facilities.

       

      
        
          
          

        

        
          -15-

          
            

          

        

        
          
          

        

         

      

      "Eligible
        Credit Card Receivables":
        Under
        four (4) Business Day accounts due 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).

       

      "Eligible
        Inventory":
        Eligible Retail Inventory and Eligible Wholesale Inventory.

       

      "Eligible
        Retail Inventory":
        Such
        of the Borrowers' Retail Inventory, at such locations, and of such types,
        character, qualities and quantities, as the Agent in its reasonable discretion
        from time to time determines to be acceptable for borrowing, as to which
        Inventory, the Agent has a perfected security interest which is prior and
        superior to all security interests, claims, and Encumbrances (other than
        Permitted Encumbrances).

       

      "Eligible
        Wholesale Inventory":
        Such
        of the Borrowers' Wholesale Inventory, at such locations, and of such types,
        character, qualities and quantities, as the Agent in its reasonable discretion
        from time to time determines to be acceptable for borrowing, as to which
        Inventory, the Agent has a perfected security interest which is prior and
        superior to all security interests, claims, and Encumbrances (other than
        Permitted Encumbrances).

       

      “Eligible
        Third Party Receivables”:
        Accounts due to the Borrowers on a non-recourse basis from insurance companies
        and other Persons reasonably acceptable to the Agent as arise in the ordinary
        course of business including, without limitation, prescription receivables,
        which have been earned by performance, have been adjudicated and are deemed
        by
        the Agent in its reasonable discretion to be eligible for inclusion in the
        calculation of the Borrowing Base. Without limiting the foregoing, unless
        otherwise approved in writing by the Agent, none of the following shall be
        deemed to be Eligible Third Party Receivables:

      
        
          	 	 	 
	
                	
                  (a) 

                	
                  Accounts
                    that have been outstanding for more
                    than ninety (90) days past billing date;

                
	 	 	 
	 	(b) 	Accounts due from any insurance
                  company to
                  the extent that fifty percent (50%) or more of all Accounts from
                  such
                  insurance company are not Eligible Third Party Receivables under
                  clause
                  (a) above; 
	 	 	 
	 	(c) 	Accounts with respect to which no
                  Borrower
                  has good, valid and marketable title, free and clear of any Encumbrance
                  (other than Encumbrances granted to the Agent);  
	 	 	 
	 	(d) 	Accounts that are not subject to
                  a first
                  priority security interest in favor of the Agent; 
	 	 	 
	 	(e) 	Accounts which are disputed, are
                  with
                  recourse, or with respect to which a claim, counterclaim, offset
                  or
                  chargeback has been asserted (to the extent of such claim, counterclaim,
                  offset or chargeback);  
	 	 	 
	 	(f) 	The aggregate of all Accounts which
                  are owed
                  by any person employed by, or a salesperson of, any
                  Borrower; 
	 	 	 
	 	(g) 	Accounts with credit balances which
                  are more
                  than 90 days past due; 
	 	 	 
	 	(h) 	Voided sales in an amount equal
                  to such
                  percentage of the aggregate amount of Accounts Receivable at such
                  time as
                  shall be in accordance with Borrowers’ historical
                  performance;
	 	 	 
	 	(i) 	Intercompany Accounts
                  Receivable; 
	 	 	 
	 	(j) 	Finance Charges with respect to
                  any Accounts
                  Receivable; 


        

         

        
          
            
              
              

            

            
              -16-

              
                

              

            

            
              
              

            

             

          

        

        
          	 	(k) 	COD Accounts Receivable;
                  or 
	 	 	 
	 	(l) 	Accounts which the Agent determines
                  in its
                  reasonable discretion to be uncertain of
                  collection. 


        

      

       

      "Employee
        Benefit Plan":
        As
        defined in ERISA.

       

      "Encumbrance":
        Each
        of the following: 

      
        
          	 	 	 
	 	(a) 	A Collateral Interest or agreement
                  to create
                  or grant a Collateral Interest; the interest of a lessor under
                  a Capital
                  Lease; conditional sale or other title retention agreement;
                  sale of
                  accounts receivable 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; 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 financing statement
                  under
                  the UCC or comparable law of any
                  jurisdiction.  


        

         

      

      "End
        Date":
        The
        date upon which all of the following conditions are met: (a) all payment
        Liabilities described in Section 18.2(a) have been paid in full; (b) all
        obligations of any Revolving Credit Lender to make loans and advances and
        to
        provide other financial accommodations to the Borrowers hereunder shall have
        been irrevocably terminated; and (c) those arrangements concerning L/C's,
        Bank
        Products, and Bank Product Obligations which are described in Section 18.2(b)
        have been made.

       

      "Environmental
        Laws":
        All of
        the following:

      
        	
              	 	 
	 	(a) 	Applicable Law which regulates or
                relates to,
                or imposes 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, "equipment" as defined in the UCC, and also
        all
        furniture, store fixtures, motor vehicles, rolling stock, machinery, office
        equipment, plant equipment, tools, dies, molds, and other goods, property,
        and
        assets which are used and/or were purchased for use in the operation or
        furtherance of a Borrowers' business, and any and all accessions or additions
        thereto, and substitutions therefor. 

       

      “Equity
        Proceeds”:
        Cash
        proceeds received by Lead Borrower as a result of the issuance and sale of
        common stock of the Lead Borrower, net of reasonable expenses related thereto
        incurred by Lead Borrower.

       

      "ERISA":
        The
        Employee Retirement Income Security Act of 1974, as amended. 

       

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

       

      
        
          
          

        

        
          -17-

          
            

          

        

        
          
          

        

         

      

      "Events
        of Default":
        Is
        defined in Article 10 - . An "Event of Default" shall be deemed to have occurred
        and to be continuing unless and until that Event of Default has been duly
        waived
        in accordance with this Agreement. 

       

      “Excess
        Availability”:
        As of
        any date of determination, the excess, if any, of (a) Availability over (b)
        the
        sum of (i) all then held checks (other than held checks drawn to pay accounts
        which are not more than thirty (30) days beyond stated credit terms); (ii)
        accounts payable which are more than sixty (60) days beyond credit terms
        (including any extended vendor credit terms, but specifically excluding extended
        term amounts, not to exceed $10 million at any time outstanding, owed to
        Borrowers' prime pharmaceutical vendor) then accorded the Borrowers other
        than
        by reason of bona fide dispute; and (iii) overdrafts.

       

      "Exempt
        DDA":
        A
        depository account maintained by any 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. 

       

      “Existing
        Credit Facility”:
        That
        certain Second Amended and Restated Credit Agreement, dated as of December
        9,
        2004 by and among Familymeds, Inc., Valley Drug Company and Valley Drug Company
        South, the other parties signatory thereto and General Electric Capital
        Corporation, as agent.

       

      “Fee
        Letter”:
        The
        Fee Letter dated the Closing Date between and among the Borrowers and
        Agent.

       

      "Fiscal":
        When
        followed by "month" or "quarter", the relevant fiscal period based on the
        Borrowers' fiscal year and accounting conventions (e.g. reference to "Fiscal
        2005" is to the fiscal month of the Borrowers’ fiscal year ending in 2005). When
        followed by reference to a specific year, the fiscal year which ends in a
        month
        of the year to which reference is being made (e.g. if the Borrowers' fiscal
        year
        ends in January 2005 reference to that year would be to the Borrowers' "Fiscal
        2005").

       

      “Fiscal
        Intermediary”:
        Any
        qualified insurance company or other financial institution that has entered
        into
        an ongoing relationship with any Governmental Authority to make payments
        to
        payees under Medicare, Medicaid or any other Federal, State or local public
        health care or medical assistance program pursuant to any of the Health Care
        Laws.

       

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

       

      "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.

       

      "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
        any
        Borrower; credit memoranda in favor of any 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; literary rights; rights to performance; royalties; license and/or
        franchise fees; rights of admission; licenses; franchises; license agreements,
        including all rights of any Borrower to enforce same; 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, 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; applications for registration of the foregoing; and all other general
        intangible property of any 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 any Borrower or credit extended or
        services performed, by any Borrower, whether intended for an individual customer
        or the general business of any Borrower, or used or useful in connection
        with
        research by any Borrower. 

       

      
        
          
          

        

        
          -18-

          
            

          

        

        
          
          

        

         

      

      "Goods":
        Has
        the meaning given that term in the UCC, and also includes all things movable
        when a security interest therein attaches and also all computer programs
        embedded in goods and any supporting information provided in connection with
        a
        transaction relating to the program if (i) the program is associated with
        the
        goods in such manner that it customarily is considered part of the goods
        or (ii)
        by becoming the owner of the goods, a Person acquires a right to use the
        program
        in connection with the goods.

       

      “Governmental
        Receivables Blocked Account Agreement”:
        The
        Blocked Account Agreement ( Government Healthcare Receivables) dated as of
        October 12, 2005, among the Agent, FamilyMeds, Inc. and BOA.

       

      “Government
        Receivables Blocked Account”:
        Is
        defined in Section 7.5.

       

      “Governmental
        Receivables Lockbox Account Agreement”:
        The
        Lockbox Account Agreement ( Government Healthcare Receivables) dated as of
        October 12, 2005, among the Agent, FamilyMeds, Inc. and BOA.

       

      “Government
        Receivables Lockbox Account”:
        Is
        defined in Section 7.5.

       

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

       

      Sales
        (Minus) Cost of Goods Sold

      Sales

       

      "Hazardous
        Materials":
        Any
        (a) substance which is defined or regulated as a hazardous material in or
        under
        any Environmental Law and (b) oil in any physical state.

       

      "Health
        Care Laws":
        All
        Federal, State and local laws, rules, regulations, interpretations, guidelines,
        ordinances and decrees primarily relating to patient healthcare, any health
        care
        provider, medical assistance and cost reimbursement program, as now or at
        any
        time hereafter in effect, including, but not limited to, the Social Security
        Act, the Social Security Amendments of 1972, the Medicare-Medicaid Anti-Fraud
        and Abuse Amendments of 1977, the Medicare and Medicaid Patient and Program
        Protection Act of 1987 and HIPAA.

       

      "Health-Care-Insurance-Receivable":
        Has
        the meaning given that term in UCC and also refers to any interest in or
        claim
        under a policy of insurance which is a right to payment of a monetary obligation
        for healthcare goods or services provided.

       

      
        
          
          

        

        
          -19-

          
            

          

        

        
          
          

        

        
 "HIPAA":
          The
          Health Insurance Portability and Accountability Act of 1996, as the same
          now
          exists or may hereafter from time to time be amended, modified, recodified
          or
          supplemented, together with all rules and regulations
          thereunder.

      

       

      “HIPAA
        Compliance Plan”:
        Is
        defined in Section 4.29.

       

      “Inactive
        Companies”:
        Arrow
        Prescription Leasing Corp., Desktop Media Group, Discount RX, Inc., a Louisiana
        corporation, Discount RX, Inc., a Nevada corporation, DrugMax.com, Inc.,
        Familymeds Holdings, Inc. and Vetmall.

       

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

      
        
          	
                	 	 
	
                	
                  (a) 

                	
                  In
                    respect of 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) 	In connection with any letter of
                  credit or
                  acceptance transaction (including, without limitation, the face
                  amount of
                  all letters of credit and acceptances issued for the account of
                  such
                  Person or reimbursement on account of which such Person would be
                  obligated).
	 	 	 
	 	(c) 	In connection with the sale or discount
                  of
                  accounts receivable or chattel paper of such Person. 
	 	 	 
	 	(d) 	On account of deposits or
                  advances.
	 	 	 
	 	(e) 	As lessee under Capital
                  Leases. 
	 	 	 
	 	(f) 	In connection with any sale and
                  leaseback
                  transaction.
	 	 	 


        

        "Indebtedness"
          also
          includes:

        
          
            	 	 	 
	 	(x) 	Indebtedness of others secured
                    by an
                    Encumbrance on any asset of such Person, whether or not such
                    Indebtedness
                    is assumed by such Person. 
	 	 	 
	 	(y)	Any guaranty, endorsement, suretyship
                    or
                    other undertaking pursuant to which that Person may be liable
                    on account
                    of any obligation of any third party. 
	 	 	 
	 	(z)	The Indebtedness of a partnership
                    or joint
                    venture for which such Person is liable as a general partner
                    or joint
                    venturer. 
	 	 	 


          

          "In
            Default":
            Any
            occurrence, circumstance, or state of facts with respect to a Borrower
            which (a)
            is an Event of Default; or (b) 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 absolutely cured
            within any
            applicable grace period.

        

      

       

      "Indemnified
        Person":
        Is
        defined in Section 19.13.

       

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

       

      "Interest
        Payment Date":
        With
        reference to:

      
        	
              	 	 
	
              	
                (a) 

              	
                Each
                  LIBOR Loan: The last day of the Interest
                  Period relating thereto; the Termination Date; and the End
                  Date.

              


      

       

      
        
          
          

        

        
          -20-

          
            

          

        

        
          
          

        

         

        
          	
                	
                  (b) 

                	
                  Each
                    Prime Margin Loan: The first day of each
                    month; the Termination Date; and the End Date.

                
	 	 	 


        

      

       "Interest
        Period":
        The
        following:

      
        
          	
                	 	 
	
                	
                  (a) 

                	
                  With
                    respect to each LIBOR Loan: Subject to
                    Subsection (c), below, the period commencing on the date of the
                    making or
                    continuation of, or conversion to, the subject LIBOR Loan
                    and ending
                    one (1), two (2) or three (3) months thereafter, as the Lead
                    Borrower may
                    elect by notice (pursuant to Section 2.5) to the Agent. 

                
	 	 	 
	 	(b) 	With respect to each Prime Margin
                  Loan:
                  Subject to Subsection (c), below, the period commencing on the
                  date of the
                  making or continuation of or conversion to such Prime Margin Loan
                  and
                  ending on that date (i) as of which the subject Prime Margin Loan
                  is
                  converted to a LIBOR Loan, as the Lead Borrower may elect by notice
                  (pursuant to Section 2.5) to the Agent, or (ii) on which
                  the subject
                  Prime Margin Loan is paid by the Borrowers.
	 	 	 
	 	(c) 	The setting of Interest Periods
                  is in all
                  instances subject to the following: 
	 	 	 
	 	(i) 	Any Interest Period for a Prime
                  Margin Loan
                  which would otherwise end on a day which is not a Business Day
                  shall be
                  extended to the next succeeding Business Day.  
	 	 	 
	 	(ii) 	Any Interest Period for a LIBOR
                  Loan which
                  would otherwise end on a day that is not a Business Day shall be
                  extended
                  to the next succeeding Business Day, unless that succeeding Business Day
                  is in the next
                  calendar month, in which event such Interest Period shall end on
                  the last
                  Business Day of the month during which the Interest Period
                  ends.  
	 	 	 
	 	(iii) 	Subject to Subsection (iv), below,
                  any
                  Interest Period applicable to a LIBOR 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 Business Day of the month during which that Interest Period
                  ends. 
	 	 	 
	 	(iv) 	Any Interest Period which would
                  otherwise end
                  after the Termination Date shall end on the Termination
                  Date. 
	 	 	 
	 	(v) 	The number of Interest Periods in
                  effect at
                  any one time is subject to Section 2.11(e). 
	 	 	 


        

      

      "Inventory":
        Includes, without limitation, "inventory" as defined in the UCC and also
        all:
        (a) Goods which are leased by a Person as lessor; are held by a Person for
        sale
        or lease or to be furnished under a contract of service; are furnished by
        a
        Person under a contract of service; or consist of raw materials, work in
        process, or materials used or consumed in a business; (b) Goods of said
        description in transit; (c) Goods of said description which are returned,
        repossessed and rejected; (d) packaging, advertising, and shipping materials
        related to any of the foregoing; (e) all names, marks, and General Intangibles
        affixed or to be affixed or associated thereto; and (f) Documents and Documents
        of Title which represent any of the foregoing.

       

      "Inventory
        Advance Rate":
        **

       

      "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 may include (but are not limited to) reserves based
        on
        the following:

       

      
        
          
          

        

        
          -21-

          
            

          

        

        
          
          

        

         

        
          
            	 	(a) 	Obsolescence (based upon Inventory
                    on hand
                    beyond a given number of days). 
	 	 	 
	 	(b) 	Seasonality. 
	 	 	 
	 	(c) 	Shrinkage. 
	 	 	 
	 	(d) 	Imbalance. 
	 	 	 
	 	(e) 	Change in Inventory
                    character. 
	 	 	 
	 	(f) 	Change in Inventory
                    composition 
	 	 	 
	 	(g) 	Change in Inventory mix. 
	 	 	 
	 	(h) 	Markdowns (both permanent and
                    point of
                    sale) 
	 	 	 
	 	(i) 	Retail markons and markups inconsistent
                    with
                    prior period practice and performance; industry standards; current
                    business plans; or advertising calendar and  planned advertising
                    events. 


          

        

      

       

      "Investment
        Property":
        Has
        the meaning given that term in the UCC.

       

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

       

      "L/C":
        Any
        letter of credit, the issuance of which is procured by the Agent for the
        account
        of any Borrower and any acceptance made on account of such letter of credit.
        

       

      "Lead
        Borrower":
        Defined in the Preamble.

       

      "Lease":
        Any
        lease or other agreement, no matter how styled or structured, pursuant to
        which
        a Borrower is entitled to the use or occupancy of any space.

       

      "Leasehold
        Interest":
        Any
        interest of a Borrower as lessee under any Lease.

       

      "Lenders'
        Special Counsel":
        A
        single counsel, selected by the Majority Lenders following the occurrence
        of an
        Event of Default, to represent the interests of the Revolving Credit Lenders
        in
        connection with the enforcement, attempted enforcement, or preservation of
        any
        rights and remedies under this, 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
        Right":
        Has
        the meaning given that term in 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 each Borrower to the Agent or any
                      Revolving
                      Credit Lender, each of every kind, nature, and description.


            

             

            
              
                
                

              

              
                -22-

                
                  

                

              

              
                
                

              

            

             

            
              	 	(ii) 	Each obligation to repay any
                      loan, advance,
                      indebtedness, note, obligation, overdraft, or amount now or
                      hereafter
                      owing by any Borrower to the Agent or any Revolving
                      Credit Lender
                      (including all future advances whether or not made pursuant
                      to a
                      commitment by the Agent or any Revolving Credit Lender), 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 any Revolving Credit Lender may hold
                      against any
                      Borrower.  
	 	 	 
	 	(iii) 	All notes and other obligations
                      of each
                      Borrower now or hereafter assigned to or held by the Agent
                      or any
                      Revolving Credit Lender, each of every kind, nature, and
                      description. 
	 	 	 
	 	(iv) 	All interest, fees, and charges
                      and other
                      amounts which may be charged by the Agent or any Revolving
                      Credit Lender
                      to any Borrower and/or which may be due from any
                      Borrower to the Agent or any Revolving Credit Lender from time
                      to
                      time.
	 	 	 
	 	(v) 	All Bank Product
                      Obligations. 
	 	 	 
	 	(vi) 	All costs and expenses incurred
                      or paid by
                      the Agent or any Revolving Credit Lender in respect of any
                      agreement
                      between any Borrower and the Agent or any Revolving Credit Lender or instrument
                      furnished by any Borrower to
                      the Agent or any Revolving Credit Lender (including, without
                      limitation,
                      Costs of Collection, attorneys' reasonable fees,
                      and all court and litigation costs and expenses). 
	 	 	 
	 	(vii) 	Any and all covenants of each
                      Borrower to or
                      with the Agent or any Revolving Credit Lender and any and all
                      obligations
                      of each Borrower to act or to refrain from acting in accordance
                      with any
                      agreement between that Borrower and the Agent or any Revolving
                      Credit
                      Lender or instrument furnished by that Borrower to the Agent
                      or any
                      Revolving Credit Lender. 
	 	 	 
	 	(viii) 	Each of the foregoing as if
                      each reference to
                      the " the Agent or any Revolving Credit Lender" were to each
                      Affiliate of
                      the Agent. 
	 	 	 
	 	(b)	
                      Any
                        and all direct or indirect liabilities, debts, and obligations
                        of each
                        Borrower to the Agent or any Affiliate of the Agent, each
                        of every kind,
                        nature, and description owing on account of any service or
                        accommodation
                        provided to, or for the account of any Borrower pursuant
                        to this or any
                        other Loan Document, including cash management services and
                        the issuances
                        of L/C's.

                    


            

             

          

        

      

      "LIBOR
        Business Day":
        Any
        day which is both a Business Day and a day on which the principal interbank
        market for LIBOR deposits in London in which Wells Fargo Bank, N. A.
        participates is open for dealings in United States Dollar deposits.

       

      "LIBOR
        Loan":
        Any
        Revolving Credit Loan which bears interest at a LIBOR Rate.

       

      "LIBOR
        Margin":
        The
        following applicable percentage, based upon the corresponding Average Excess
        Availability:

       

      
        	
                Level

                 

              	
                LIBOR
                  Margin

                 

              	
                Average
                  Excess Availability

                 

              
	
                I

                 

              	
                **

                 

              	
                Less
                  than $3,000,000.00

                 

              
	
                II

                 

              	
                **

                 

              	
                Greater
                  than or equal to $3,000,000.00 but less than $10,000,000.00

                 

              
	
                III

                 

              	
                **

                 

              	
                Greater
                  than or equal to $10,000,000.00

                 

              


      

       

      
        
          
          

        

        
          -23-

          
            

          

        

        
          
          

        

         

      

      The
        Margin on the Closing Date shall be established at Level II and adjusted
        quarterly thereafter based upon the applicable
        Average
        Excess Availability.

       

      "LIBOR
        Offer Rate":
        That
        rate of interest (rounded upwards, if necessary, to the next 1/100 of 1%)
        determined by the Agent to be the highest prevailing rate per annum at which
        deposits on U.S. Dollars are offered to Wells Fargo Bank, N. A., by first-class
        banks in the London interbank market in which Wells Fargo Bank, N. A.
        participates at or about 10:00 a.m. (Boston Time) two (2) LIBOR Business
        Days
        before the first day of the Interest Period for the subject LIBOR Loan, for
        a
        deposit approximately in the amount of the subject loan for a period of time
        approximately equal to such Interest Period.

       

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

       

      
        	     	
                 (a)

              	
                is
                  the decimal equivalent of the following
                  fraction:

              


      

       

      LIBOR
        Offer Rate

      1
        minus
        Reserve Percentage

       

      and

       

      
        	 	
                 (b)

              	
                is
                  the applicable LIBOR Margin.

              


      

       

      "Liquidation":
        The
        exercise, by the Agent, of those rights accorded to the Agent under the Loan
        Documents as a creditor of the Borrowers 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":
        Is
        defined in Section 2.8.

       

      "Loan
        Commitment":
        With
        respect to each Revolving Credit Lender, that respective Revolving Credit
        Lender's Revolving Credit Dollar Commitment.

       

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

       

      "Lockbox":
        An
        arrangement to which the Borrower is a party, pursuant to which payments
        on
        account of the Borrower's Receivables Collateral are made to a post office
        box,
        access to which is limited to a bank which processes such payments and forwards
        the proceeds thereof in accordance with instructions provided by the
        Borrower.

       

      "Majority
        Lenders":
        Means:

       

      
        	 	
                (a)

              	
                If
                  there are two (2) or fewer Revolving Credit Lenders who are not
                  Delinquent
                  Revolving Credit Lenders, all Revolving Credit Lenders who are
                  not
                  Delinquent Revolving Credit
                  Lenders.

              


      

       

      
        
          
          

        

        
          -24-

          
            

          

        

        
          
          

        

         

      

      
        	 	
                (b)

              	
                If
                  there are three (3) or more Revolving Credit Lenders who are not
                  Delinquent Revolving Credit Lenders, Revolving Credit Lenders (other
                  than
                  Delinquent Revolving Credit Lenders) holding more than 50% of the
                  Revolving Credit Percentage Commitments (calculated without regard
                  to any
                  Revolving Credit Percentage Commitment of any Delinquent Revolving
                  Credit
                  Lender).

              


      

       

      "Material
        Accounting Change":
        Any
        change in GAAP applicable to accounting periods subsequent to the Borrowers'
        fiscal year most recently completed prior to the execution of this Agreement,
        which change has a material effect on the Borrowers' Consolidated financial
        condition or operating results, as reflected on financial statements and
        reports
        prepared by or for the Borrowers, when compared with such condition or results
        as if such change had not taken place or where preparation of the Borrowers'
        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”:
        Any
        event, fact, circumstance, change in, or effect, on the business of any Borrower
        or on the Borrowers, taken as a whole, which, individually or in the aggregate
        or on a cumulative basis with any other circumstance, changes in, or effects
        on,
        any Borrower, the Borrowers, taken as a whole, or the Collateral, constitutes
        any of the following:

       

      
        	 	
                (a)

              	
                A
                  material adverse change in the business, operations, results of
                  operations, assets, liabilities, or condition (financial or otherwise)
                  of
                  any Borrower or on the Borrowers taken as a
                  whole.

              


      

       

      
        	 	
                (b)

              	
                The
                  material impairment of any Borrower’s ability to perform its obligations
                  under the Loan Documents or of the Agent’s ability to enforce the
                  Liabilities or to realize on any of the
                  Collateral.

              


      

       

      
        	 	
                (c)

              	
                A
                  material adverse effect on the value of the Collateral or the amount
                  which
                  the Agent is likely to receive (after giving consideration to delays
                  in
                  payment and costs of enforcement).

              


      

       

      
        	 	
                (d)

              	
                A
                  material impairment to the priority of the Agent’s Collateral Interests in
                  the Collateral.

              


      

       

      "Maturity
        Date":
        October 12, 2010.

       

      “Medicaid”:
        The
        health care financial assistance program jointly financed and administered
        by
        the Federal and State governments under Title XIX of the Social Security
        Act.

       

      “Medicaid
        Account”:
        Any
        Accounts of Borrowers arising pursuant to services rendered by Borrowers
        to
        eligible Medicaid beneficiaries to be paid by a Fiscal Intermediary or by
        the
        United States of America acting under the Medicaid program, any State or
        the
        District of Columbia acting pursuant to a health plan adopted pursuant to
        Title
        XIX of the Social Security Act or any other Governmental Authority under
        Medicaid.

       

      “Medicare”:
        The
        health care financial assistance program under Title XVIII of the Social
        Security Act.

       

      “Medicare
        Account”:
        Any
        Accounts of Borrowers arising pursuant to goods sold or services rendered
        by
        Borrowers to eligible Medicare beneficiaries to be paid by a Fiscal Intermediary
        or by the United States of America acting under the Medicare program or any
        other Governmental Authority under Medicare.

       

      “Minimum
        Reserve”:
        (i) ** from the Closing Date to such date, if any, as one or more
        financial
        performance covenants shall be effective under Section 5.12, and (ii) **
        from such date as one or more financial performance covenants shall be effective
        under Section 5.12 and at all times thereafter. 

       

      
        
          
          

        

        
          -25-

          
            

          

        

        
          
          

        

         

      

      "Nominee":
        A
        business entity (such as a corporation or limited partnership) formed by
        the
        Agent to own or manage any Post Foreclosure Asset.

       

      “NRLV”:
        The
        net recovery value (liquidation value) of Inventory expressed as a percentage
        of
        the cost of such Inventory, as determined by the Agent in its discretion
        based
        upon the most recent Inventory appraisal available to the Agent conducted
        by an
        appraiser reasonably acceptable to the Agent.

       

      "Operating
        Account":
        Is
        defined in Section 7.1.

       

      "OverLoan":
        A
        loan, advance, or providing of credit support (such as the issuance of any
        L/C)
        to the extent that, immediately after its having been made, Availability
        is less
        than zero.

       

      "Payment
        Intangible":
        As
        defined in the UCC and also any general intangible under which the Account
        Debtor's primary obligation is a monetary obligation.

       

      “Permitted
        Acquisition”:
        An
        acquisition of the stock or assets of a Person engaged in substantially the
        same
        business as that in which a Borrower is engaged on the Closing Date, so long
        as
        all the following conditions shall be met to the Agent’s satisfaction


      
        
          
            	 	 	 
	 	(a) 	
                    No
                      Event of Default shall have occurred and be continuing prior
                      to and after
                      giving effect to any such acquisition, 

                  
	 	 	 
	 	(b) 	
                    The
                      Lead Borrower provides the Agent with sufficient prior notice
                      and
                      information regarding such acquisition that Agent is able to
                      (i) perfect a
                      security interest in all acquired assets and/or (ii)
                      enter into such
                      subordination or intercreditor agreement as Agent deems necessary
                      in its
                      reasonable discretion,  

                  
	 	 	 
	 	(c) 	
                    Lead
                      Borrower provides Agent with written evidence satisfactory
                      to the Agent
                      that Lead Borrower projects, on a good faith, pro-forma basis,
                      Excess
                      Availability of at least $11,500,000 (including in the
                      calculation,
                      for these purposes, the then applicable Minimum Reserve) for
                      the next
                      thirty (30) days, such pro-forma forecast to be acceptable
                      to the Agent in
                      its reasonable discretion, 

                  
	 	 	 
	 	(d) 	
                    The
                      Acquisition is made solely with (i) cash-on-hand, (ii) Equity
                      Proceeds or
                      (iii) Revolving Credit Loans; and

                  
	 	 	 
	 	(e) 	
                    The
                      total amount spent by Borrowers on acquisitions in any fiscal
                      year,
                      including the proposed acquisition, does not exceed
                      $30,000,000.00.

                  
	 	 	 


          

        

      

      “Permitted
        Dispositions”:
        The
        following:

      
        
          	 	 	 
	 	(a) 	
                  Sales
                    or other dispositions of Inventory to buyers in the ordinary
                    course of
                    business, including, without limitation, ordinary course retail
                    sales from
                    time to time. 

                
	 	 	 
	 	(b) 	
                  The
                    sale of Valley Drug Company South in accordance with Section
                    4.32. 

                
	 	 	 
	 	(c)	
                  Sales
                    or other dispositions of obsolete or worn-out equipment in the
                    ordinary
                    course of business. 

                
	 	 	 
	 	(d) 	Sales or other dispositions of other
                  property
                  or assets for cash in an aggregate amount not less than the fair
                  market
                  value of such property or assets, 


        

         

      

      
        
          
          

        

        
          -26-

          
            

          

        

        
          
          

        

         

      

      provided
        that the amount of dispositions in the case of clauses (c) and (d) shall
        not
        exceed $1,000,000.00 in the aggregate in any fiscal year. 

       

      "Permitted
        Encumbrances":
        The
        following:

      
        	 	 	 
	 	(a) 	
                
                  Encumbrances
                    in favor of the Agent.

                

              
	 	 	 
	 	(b) 	
                
                  Those
                    Encumbrances (if any) listed on EXHIBIT
                    4.6,
                    annexed hereto.

                

              
	 	 	 
	 	(c) 	
                
                  Liens
                    arising under Capitalized Leases or securing purchase money Indebtedness
                    permitted under the definition of Permitted Indebtedness; provided,
                    however, that (i) no such Lien shall extend to or cover any other
                    property
                    of any Borrower, and (ii) the principal amount of the Indebtedness
                    secured
                    by any such Lien shall not exceed the lesser of 80% of the fair
                    market
                    value or the cost of the property so held or
                    acquired.

                

              
	 	 	 
	 	(d) 	
                
                  Liens
                    securing real property purchased in a Permitted Acquisition to
                    the extent
                    permitted under (i) Section 4.7(d) or (ii) clause (d) of the
                    definition
                    “Permitted Indebtedness”. 

                

              
	 	 	 
	 	(e) 	
                Liens
                  for taxes, assessments or other governmental charges not yet due
                  and
                  payable.

              
	 	 	 
	 	(f) 	Pledges or deposits made in the ordinary
                course of business in compliance with obligations under workers
                compensation, unemployment compensation or
                similar laws. 
	 	 	 
	 	 	 
	 	(g) 	
                Inchoate
                  or unperfected mechanics liens arising in the normal course of
                  business
                  and securing obligations that are not overdue by more than thirty
                  (30)
                  days 

              
	 	 	 
	 	(h) 	Landlord liens arising by operation
                of law in
                the ordinary course of business in respect of rent not in
                default. 
	 	 	 


      

      "Permitted
        Indebtedness":
        The
        following:

      
        	 	 	 
	 	(a) 	
                
                  
                    Any
                      Indebtedness on account of the Revolving
                      Credit.

                  

                

              
	 	 	 
	 	(b) 	
                
                  
                    The
                      Indebtedness (if any) listed on EXHIBIT
                      4.7,
                      annexed hereto.

                  

                

              
	 	 	 
	 	(c) 	
                
                  
                    purchase
                      money Indebtedness incurred to enable a Borrower to acquire
                      Equipment in
                      the ordinary course of its business, which Indebtedness, when
                      aggregated
                      with the principal amount of all Indebtedness incurred under
                      this clause
                      (c), does not exceed $2,000,000.00 at any time outstanding;
                      and

                  

                

              
	 	 	 
	 	(d) 	
                Indebtedness
                  incurred to enable a Borrower to acquire real property in the ordinary
                  course of its business, which Indebtedness, when aggregated with
                  the
                  principal amount of all Indebtedness incurred under this clause
                  (d), does
                  not exceed $2,000,000.00 in the aggregate during the term of this
                  Agreement. 

              
	 	 	 


      

      "Permitted
        Investments":
        The
        following, in each instance only if subject to a prior perfected security
        interest in favor of the Agent to secure the Liabilities:

      
        	 	 	 
	 	(a) 	
                
                  
                    
                      Indebtedness
                        entitled to the full faith and credit of the United
                        States.

                    

                  

                

              
	 	 	 
	 	(b) 	
                
                  
                    
                      Indebtedness
                        which has at least the second highest rating of nationally
                        recognized
                        rating agency.

                    

                  

                

              


      

       

      
        
          
          

        

        
          -27-

          
            

          

        

        
          
          

        

         

      

      "Person":
        Any
        natural person, and any corporation, limited liability company, trust,
        partnership, joint venture, or other enterprise or entity.

       

      “Pharmaceutical
        Laws”:
        Federal, state and local laws, rules or regulations, codes, orders, decrees,
        judgments or injunctions issued, promulgated, approved or entered, relating
        to
        dispensing, storing or distributing prescription medicines or products,
        including laws, rules or regulations relating to the qualifications of Persons
        employed to do the same.

       

      "Post
        Foreclosure Asset":
        All or
        any part of the Collateral, ownership of which is acquired by the Agent or
        a
        Nominee on account of the "bidding in" at a disposition as part of a Liquidation
        or by reason of a "deed in lieu" type of transaction.

       

      “Prescription
        Files”
        shall
        mean all of Borrowers’ now owned or hereafter existing or acquired retail
        customer files, including prescriptions for retail customers and other medical
        information related thereto.

       

      “Prescription
        Files Advance Rate”:
        Eighty-five percent (85%).

       

      “Prescription
        Files Reserves”:
        Such
        Reserves as may be established from time to time by the Agent in the Agent’s
        discretion with respect to the determination of the saleability of the
        Prescription Files.

       

      "Prime":
        The
        Prime Rate announced from time to time by Wells Fargo Bank, N. A. (or any
        successor in interest to Wells Fargo Bank, N. A.). In the event that said
        bank
        (or any such successor) ceases to announce such a rate, "Prime" 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 Prime Rate. Any
        change in "Prime" 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 "Prime" is being set. 

       

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

       

      "Prime
        Margin Rate":
        The
        aggregate of Prime plus the following applicable percentage, based upon the
        corresponding Average Excess Availability:

       

      
        	
                Level

                 

              	
                Prime
                  Margin

                 

              	
                Average
                  Excess Availability

                 

              
	
                I

                 

              	
                **

                 

              	
                Less
                  than $3,000,000.00

                 

              
	
                II

                 

              	
                **

                 

              	
                Greater
                  than or equal to $3,000,000.00 but less than $10,000,000.00

                 

              
	
                III

                 

              	
                **

                 

              	
                Greater
                  than or equal to $10,000,000.00

                 

              


      

       

      The
        Margin on the Closing Date shall
        be
        established at Level II and adjusted quarterly thereafter based upon the
        applicable Average Excess Availability.

       

      "Protective
        OverAdvances":
        Revolving Credit Loans which are OverLoans, but as to which each of the
        following conditions is satisfied: (a) the Revolving Credit Ceiling is not
        exceeded; and (b) when aggregated with all other Protective OverAdvances,
        such
        Revolving Credit Loans do not aggregate more than ten percent (10%) of the
        Borrowing Base; and (c) such Revolving Credit Loans are made or undertaken
        in
        the Agent's discretion to protect and preserve the interests of the Revolving
        Credit Lenders.

       

      
        
          
          

        

        
          -28-

          
            

          

        

        
          
          

        

         

      

      "Proceeds":
        Includes, without limitation, "Proceeds" as defined in the UCC and each type
        of
        property
        described in Section 8.1.

       

      "Receipts":
        All
        cash, cash equivalents, money, checks, credit card slips, receipts and other
        Proceeds from any sale of the Collateral. 

       

      "Receivables
        Collateral":
        That
        portion of the Collateral which consists of Accounts, Accounts Receivable,
        General Intangibles, Chattel Paper, Instruments, Documents of Title, Documents,
        Investment Property, Payment Intangibles, Letter-of-Credit Rights,
        Health-Care-Insurance-Receivables, bankers' acceptances, and all other rights
        to
        payment.

       

      “Receivables
        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 collectibility
        in
        the ordinary course and of the creditworthiness of the relevant Account
        Debtor.

       

      "Register":
        Is
        defined in Section 16.2(c).

       

      "Requirements
        of Law":
        As to
        any Person:

      
        	
              	 	 
	 	
                (a) 

              	
                
                  
                    
                      Applicable
                        Law.

                    

                  

                

              
	 	 	 
	 	(b) 	
                
                  
                    
                      That
                        Person's organizational documents.

                    

                  

                

              
	 	 	 
	 	(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 a Revolving Credit 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 Revolving
        Credit 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 in effect during the subject Interest Period, with
        changes in the Reserve Percentage which take effect during such Interest
        Period
        to take effect (and to consequently change any interest rate determined with
        reference to the Reserve Percentage) if and when such change is applicable
        to
        such loans.

       

      Reserves:
        Availability Reserves, Inventory Reserves, Prescription Files Reserves, and
        Receivables Reserves as established by the Agent from time to time in accordance
        with this Agreement.

       

      "Retail
        Inventory":
        Inventory (without duplication of Wholesale Inventory) that the Borrowers
        purchase, otherwise acquire or hold for direct sale to retail customers from
        any
        of the Borrowers’ retail store locations.

       

      "Revolving
        Credit":
        Is
        defined in Section 2.1.

       

      "Revolving
        Credit Ceiling":
        $65,000,000.00, as such amount may be reduced in accordance with Section
        2.23(f).

       

      "Revolving
        Credit Dollar Commitment":
        As set
        forth on EXHIBIT
        2.22,
        annexed
        hereto (as such amounts may change in accordance with the provisions of this
        Agreement).

       

      "Revolving
        Credit Early Termination Fee":
        Is
        defined in Section 2.14.

       

      
        
          
          

        

        
          -29-

          
            

          

        

        
          
          

        

         

      

      "Revolving
        Credit Lenders":
        Each
        Revolving Credit Lender to which reference is made in the Preamble of this
        Agreement and any other Person who becomes a "Revolving Credit Lender" in
        accordance with the provisions of to this Agreement.

       

      "Revolving
        Credit Loans":
        Loans
        made under the Revolving Credit, except that where the term "Revolving Credit
        Loan" is used with reference to available interest rates applicable to the
        loans
        under the Revolving Credit, it refers to so much of the unpaid principal
        balance
        of the Loan Account as bears the same rate of interest for the same Interest
        Period. (See Section 2.11(d)).

       

      "Revolving
        Credit Note":
        Is
        defined in Section 2.9.

       

      "Revolving
        Credit Percentage Commitment":
        As set
        forth on EXHIBIT
        2.22,
        annexed
        hereto (as such amounts may change in accordance with the provisions of this
        Agreement).

       

      "Stated
        Amount":
        The
        maximum amount for which an L/C may be honored.

       

      "SuperMajority
        Lenders":
        Revolving Credit Lenders (other than Delinquent Revolving Credit Lenders)
        holding 66-2/3% or more the Revolving Credit Percentage Commitments (calculated
        without regard to any Revolving Credit Percentage Commitment of any Delinquent
        Revolving Credit Lender).

       

      "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.

       

      "Termination
        Date":
        The
        earliest of: (a) the Maturity Date; (b) the occurrence of any event described
        in
        Section 10.11; (c) the Agent's notice to the Lead Borrower setting the
        Termination Date on account of the occurrence of any Event of Default other
        than
        as described in Section 10.11; or (d) that date, ninety (90) days irrevocable
        written notice of which is provided by the Lead Borrower to the
        Agent.

       

      “Third
        Party Payor”:
        Means
        any Person, such as a Fiscal Intermediary, Blue Cross/Blue Shield, or private
        health insurance company, which is obligated to reimburse or otherwise make
        payments to health care providers who provide medical care or medical assistance
        or other goods or services for eligible patients under Medicare, Medicaid
        or any
        private insurance contract.

       

      “Third
        Party Receivables Advance Rate”:
        **

       

      "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 making such Transfer and the subject Revolving
        Credit
        Lender. Wire instructions may be changed in the same manner that Notice
        Addresses may be changed (Section 17.1), except that no change of the wire
        instructions for Transfers to any Revolving Credit Lender shall be effective
        without the consent of the Agent.

       

      "UCC":
        The
        Uniform Commercial Code as in effect from time to time in
        Massachusetts.

       

      "Unanimous
        Consent"
        Consent
        of Revolving Credit Lenders (other than Delinquent Revolving Credit Lenders)
        holding 100% of the Loan Commitments (other than Loan Commitments held by
        a
        Delinquent Revolving Credit Lender).

       

      "Unused
        Line Fee":
        Is
        defined in Section 2.13.

       

      
        
          
          

        

        
          -30-

          
            

          

        

        
          
          

        

         

      

      “Valley
        Drug Company”:
        Valley
        Drug Company, an Ohio company.

       

      "Wholesale
        Inventory":
        Inventory (without duplication of Retail Inventory) which Borrowers purchase
        or
        otherwise acquire for sale to merchants, distributors or other non-retail
        customers.

       

       

      Article
        2 - The
        Revolving Credit:

       

      2.1.
        Establishment
        of Revolving Credit.

       

      (a) The
        Revolving Credit Lenders hereby establish a revolving line of credit (the
        "Revolving
        Credit")
        in the
        Borrowers' favor pursuant to which each Revolving Credit Lender, subject
        to, and
        in accordance with, this Agreement, acting through the Agent, shall make
        loans
        and advances and otherwise provide financial accommodations t for the account
        of
        the Borrowers as provided herein.

       

      (b) Loans,
        advances and, 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
        and shall be subject to the following:

       

      (i) Such
        determination shall take into account such Reserves as the Agent may determine
        as being applicable thereto. 

       

      (ii) The
        Cost
        of Eligible Inventory will be determined in a manner consistent with current
        tracking practices, based on the Borrowers' stock ledger inventory.

       

      (c) The
        commitment of each Revolving Credit Lender to provide such loans, advances,
        and
        financial accommodations is subject to Section 2.23.

       

      (d) The
        proceeds of borrowings under the Revolving Credit shall be used (i) to repay
        the
        Existing Credit Facility, (ii) solely in accordance with the Business Plan,
        for
        the Borrowers' working capital and Capital Expenditures and (iii) for Permitted
        Acquisitions, all solely to the extent permitted by this Agreement. 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 Borrowers other than in the ordinary course of the Borrowers'
        business and consistent with the provisions of this Agreement.

       

      2.2. Advances
        in Excess of Borrowing Base (OverLoans).

       

      (a) No
        Revolving Credit Lender has any obligation to the Borrowers to make any loan
        or
        advance, or otherwise to provide any credit to or for the benefit of the
        Borrowers where the result of such loan, advance, or credit is an
        OverLoan.

       

      (b) The
        Revolving Credit Lenders' obligations, among themselves, are subject to (among
        other provisions of this Agreement) Section 12.2(a) (which relates to each
        Revolving Credit Lender's making amounts available to the Agent) and 15.3(a)
        (which relates to Protective OverAdvances).

       

      (c) The
        Revolving Credit Lenders' providing of an OverLoan on any one occasion does
        not
        affect the obligations of each Borrower hereunder (including each Borrower's
        obligation to immediately repay any amount which otherwise constitutes an
        OverLoan) nor obligate the Revolving Credit Lenders to do so on any other
        occasion. 

       

      2.3. Risks
        of Value of Collateral.
        The
        Agent's 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 any Revolving Credit
        Lender
        relative to the actual value of the asset in question. All risks concerning
        the
        value of the Collateral are and remain upon the Borrowers. All Collateral
        secures the prompt, punctual, and faithful performance of the Liabilities
        whether or not relied upon by the Agent in connection with the making of
        loans,
        credits, and advances and the providing of financial accommodations under
        the
        Revolving Credit. 

       

      
        
          
          

        

        
          -31-

          
            

          

        

        
          
          

        

      

       

      2.4. Commitment
        to Make Revolving Credit Loans and Support Letters of
        Credit.
        Subject
        to the provisions of this Agreement, the Revolving Credit Lenders shall make
        a
        loan or advance under the Revolving Credit and the Agent shall endeavor to
        have
        an L/C issued for the account of the Lead Borrower, in each instance if duly
        and
        timely requested by the Lead Borrower as provided herein provided
        that:

       

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

       

      (b) No
        Borrower is then In Default and none will thereby become In
        Default.

       

      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 Lead Borrower in such manner as may from time to time be
        acceptable to the Agent.

       

      (b) Subject
        to the provisions of this Agreement, the Lead 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 Prime Margin Loan:
        By
        11:30 a.m. on the Business Day on which the subject Revolving Credit Loan
        is to
        be made or is to be so converted. Prime Margin Loans requested by the Lead
        Borrower, other than those resulting from the conversion of a LIBOR Loan,
        shall
        not be less than $10,000.00.

       

      (ii) If
        such
        Revolving Credit Loan is to be, or is to be continued as, or converted to,
        a
        LIBOR Loan: By 1:00 p.m. three (3) LIBOR Business Days before the commencement
        of any new Interest Period or the end of the then applicable Interest Period.
        LIBOR Loans and conversions to LIBOR Loans shall each be not less than
        $1,000,000.00 and in increments of $500,000.00 in excess of such
        minimum.

       

      (iii) Any
        LIBOR
        Loan which matures while any Borrower is In Default shall be converted, at
        the
        option of the Agent, to a Prime Margin Loan notwithstanding any notice from
        the
        Lead Borrower that such Loan is to be continued as a LIBOR Loan.

       

      (c) Any
        request for a Revolving Credit Loan or for the continuance or conversion
        of an
        interest rate applicable to 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 LIBOR Business
        Day, as applicable. 

       

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

       

      (e) 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 Lead 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 satisfactory
        to the Agent.

       

      
        
          
          

        

        
          -32-

          
            

          

        

        
          
          

        

         

      

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

       

      (i) There
        has
        been no Material Adverse Change. 

       

      (ii) All
        or a
        portion of any loan or advance so requested will be set aside by the Borrowers
        to cover the Borrowers' obligations for sales tax on account of sales since
        the
        then most recent borrowing pursuant to the Revolving Credit.

       

      (iii) Each
        representation which is made herein or in any of the Loan Documents is then
        true
        and complete in all material respects as of and as if made on the date of
        such
        request.

       

      (iv) Unless
        accompanied by a written Certificate of the Lead Borrower's President or
        its
        Chief Financial Officer describing (in reasonable detail) the facts and
        circumstances thereof and the steps (if any) being taken to remedy such
        condition, that no Borrower is or if a Borrower is In Default.

       

      2.6. Suspension
        of Revolving Credit.
        If, at
        any time or from time to time, the Borrowers are In Default or there has
        occurred a Material Adverse Change:

       

      (a) The
        Agent
        may suspend the Revolving Credit immediately, in which event, the Revolving
        Credit Lenders shall not be obligated, during such suspension, to make any
        loans
        or advance, or to provide any financial accommodation hereunder or to seek
        the
        issuance of any L/C.

       

      (b) The
        Agent
        may suspend the right of the Lead Borrower to request any LIBOR
        Loan or
        to convert any Prime Margin Loan to a LIBOR
        Loan.


       

      2.7. 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 Lead Borrower.

       

      (b) A
        loan or
        advance shall be deemed to have been made under the Revolving Credit (and
        the
        Borrowers shall be indebted to the Agent and the Revolving Credit Lenders
        for
        the amount thereof immediately) at the following:

       

      (i) The
        Agent's initiation of the transfer of the proceeds of such loan or advance
        in
        accordance with the Lead Borrower's instructions (if such loan or advance
        is of
        funds requested by the Lead Borrower).

       

      (ii) 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 any Revolving Credit
        Lender, 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.

       

      
        
          
          

        

        
          -33-

          
            

          

        

        
          
          

        

         

      

      (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 in accordance with wire instructions provided to the Agent by the
        Lead
        Borrower.

       

      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
        shall 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 each Revolving Credit 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 final payment to
        the
        Agent for the account of each Revolving Credit Lender 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 any Revolving Credit Lender or is disgorged
        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 any Borrower is obligated hereunder are payable on demand. In the
        determination of Availability, the Agent may deem fees, service charges,
        accrued
        interest, 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 Lead Borrower, may advance under the Revolving
        Credit any interest, fee, service charge, or other payment to which the Agent
        or
        any Revolving Credit Lender is entitled from any Borrower pursuant hereto
        and
        may charge the same to the Loan Account notwithstanding that an OverLoan
        may
        result thereby. Such action on the part of the Agent shall not constitute
        a
        waiver of the Agent's rights and each Borrower's obligations under Section
        2.10(b). 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 Prime Margin Loans.

       

      (f) Any
        statement rendered by the Agent or any Revolving Credit Lender to the Lead
        Borrower concerning the Liabilities shall be considered correct and accepted
        by
        each Borrower and shall be conclusively binding upon each Borrower unless
        the
        Lead Borrower provides the Agent with written objection thereto within twenty
        (20) days from the mailing of such statement, which written objection shall
        indicate, with particularity, the reason for such objection. The Loan Account
        and the Agent'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 Notes.
        The
        Borrowers' obligation to repay loans and advances under the Revolving Credit,
        with interest as provided herein, shall be evidenced by Notes (each, a
        "Revolving
        Credit Note")
        in the
        form of EXHIBIT
        2.9,
        annexed
        hereto, executed by each Borrower, one payable to each Revolving Credit Lender.
        Neither the original nor a copy of any Revolving Credit Note shall be required,
        however, to establish or prove any Liability. In the event that any Revolving
        Credit Note is ever lost, mutilated, or destroyed, each Borrower shall execute
        a
        replacement thereof and deliver such replacement to the Agent.

       

      2.10. Payment
        of The Loan Account. 

       

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

       

      
        
          
          

        

        
          -34-

          
            

          

        

        
          
          

        

         

      

      (b) The
        Borrowers, without notice or demand from the Agent or any Revolving Credit
        Lender, shall pay the Agent that amount, from time to time, which is necessary
        so that there is no OverLoan outstanding.

       

      (c) The
        Borrowers shall repay the then entire unpaid balance of the Loan Account
        and all
        other Liabilities on the Termination Date.

       

      (d) The
        Agent
        shall endeavor to cause the application of payments (if any), pursuant to
        Sections 2.11(a)and 2.11(b) against LIBOR Loans then outstanding in such
        manner
        as results in the least cost to the Borrowers, 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
        any Borrower from any indemnification obligation under Section 2.10(e).


       

      (e) The
        Borrowers shall indemnify the Agent and each Revolving Credit Lender and
        hold
        the Agent and each Revolving Credit Lender harmless from and against any
        loss,
        cost or expense (including loss of anticipated profits and amounts payable
        by
        the Agent or such Revolving Credit Lender on account of "breakage fees"
        (so-called)) which the Agent or such Revolving Credit Lender may sustain
        or
        incur (including, without limitation, by virtue of acceleration after the
        occurrence of any Event of Default) as a consequence of the
        following: 

       

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

       

      (ii) Default
        by any Borrower in making a borrowing or conversion after the Lead 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.

       

      (iii) The
        making of any payment on a LIBOR Loan or the making of any conversion of
        any
        such Loan to a Prime Margin Loan on a day that is not the last day of the
        applicable Interest Period with respect thereto.

       

      2.11. Interest
        on Revolving Credit Loans. 

       

      (a) Each
        Revolving Credit Loan shall bear interest at the Prime Margin Rate unless
        timely
        notice is given (as provided in Section 2.5) that the subject Revolving Credit
        Loan (or a portion thereof) is, or is to be converted to, a LIBOR
        Loan.

       

      (b) Each
        Revolving Credit Loan which consists of a LIBOR Loan shall bear interest
        at the
        applicable LIBOR Rate.

       

      (c) Subject
        to, and in accordance with, the provisions of this Agreement, the Lead Borrower
        may cause all or a part of the unpaid principal balance of the Loan Account
        to
        bear interest at the Prime Margin Rate or the LIBOR Rate as specified from
        time
        to time by the Lead Borrower by notice to the Agent. 

       

      (d) For
        ease
        of reference and administration, each part of the Loan Account which bears
        interest at the same rate interest and for the same Interest Period is referred
        to herein as if it were a separate "Revolving Credit Loan".

       

      (e) The
        Lead
        Borrower shall not select, renew, or convert any interest rate for a Revolving
        Credit Loan such that, in addition to interest at the Prime Margin Rate,
        there
        are more than four (4) LIBOR Rates applicable to the Revolving Credit Loans
        at
        any one time.

       

      (f) The
        Borrowers shall pay accrued and unpaid interest on each Revolving Credit
        Loan in
        arrears as follows: 

       

      
        
          
          

        

        
          -35-

          
            

          

        

        
          
          

        

         

      

      (i) On
        the
        applicable Interest Payment Date for that Revolving Credit Loan.

       

      (ii) On
        the
        Termination Date and on the End Date.

       

      (iii) Following
        the occurrence of any Event of Default, with such frequency as may be determined
        by the Agent.

       

      (g) Following
        the occurrence 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 or at the instruction of the SuperMajority
        Lenders at rate which is the aggregate of the rate applicable to Prime Margin
        Loans plus Two Percent (2%) per annum.

       

      2.12. Intentionally
        Omitted.

       

      2.13. Unused
        Line Fee.
        In
        addition to any other fee to be paid by the Borrowers on account of the
        Revolving Credit, the Borrowers shall pay the Agent the "Unused
        Line Fee"
        (so
        referred to herein) of 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 Ceiling and the aggregate
        of
        the unpaid principal balance of the Loan Account and the undrawn Stated Amount
        of L/C's outstanding during the relevant period. The Unused Line Fee shall
        be
        paid in arrears, on the first day of each month after the execution of this
        Agreement and on the Termination Date. 

       

      2.14. Revolving
        Credit Early Termination Fee.
        In the
        event that the Termination Date occurs prior to the third anniversary of
        the
        Closing Date, for any reason, the Borrowers shall pay to the Agent, for the
        benefit of the Revolving Credit Lenders, the "Revolving
        Credit Early Termination Fee"
        (so
        referred to herein) in the amount of $650,000.00. All parties to this Agreement
        agree and acknowledge that the Revolving Credit Lenders will have suffered
        damages on account of the early termination of the Revolving Credit and that,
        in
        view of the difficulty in ascertaining the amount of such damages, that the
        Revolving Credit Early Termination Fee constitutes reasonable compensation
        and
        liquidated damages to compensate Revolving Credit Lenders on account
        thereof.

       

      2.15. Intentionally
        Omitted.

       

      2.16. Concerning
        Fees.
        The
        Borrowers shall not be entitled to any credit, rebate or repayment of any
        fee
        earned by the Agent or any Revolving Credit Lender pursuant to this Agreement
        or
        any Loan Document notwithstanding any termination of this Agreement or
        suspension or termination of the Agent's and any Revolving Credit Lender's
        respective obligation to make loans and advances hereunder.

       

      2.17. Agent's
        and Revolving Credit Lenders' Discretion.

       

      (a) Each
        reference in the Loan Documents to the exercise of discretion or the like
        by the
        Agent or any Revolving Credit Lender shall be to such Person's exercise of
        its
        judgment, in good faith (which shall be presumed), based upon such information
        of which that Person then has actual knowledge. 

       

      (b) In
        the
        exercise of such discretion, the following may be taken into
        account.

       

      (i) The
        reasonable anticipation: of an adverse change to 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) The
        content, completeness, and accuracy of any report or financial information
        delivered to the Agent or any Revolving Credit Lender by or on behalf of
        any
        Borrower and the manner by such report or financial information was
        prepared.

       

      
        
          
          

        

        
          -36-

          
            

          

        

        
          
          

        

         

      

      (iii) The
        existence of circumstances which suggest an increase in the likelihood that
        any
        Borrower may become the subject of a bankruptcy or insolvency
        proceeding.

       

      (iv) The
        existence of circumstances which suggest that any Borrower is In Default.
        

       

      (c) In
        the
        exercise of such discretion, the Agent and each Revolving Credit Lender also
        may
        take into account any of the following factors:

       

      (i) Those
        included in, or tested by, the definitions of Eligible Inventory”, “Eligible
        Credit Card Receivables”, “Eligible Third Party Receivables” and
“Cost”.

       

      (ii) The
        current financial and business climate of the industry in which each Borrower
        competes (having regard for that Borrower's position in that
        industry).

       

      (iii) General
        macroeconomic conditions which have a material effect on the Borrowers' cost
        structure.

       

      (iv) Material
        changes in or to the mix of the Borrowers' Inventory.

       

      (v) Seasonality
        with respect to the Borrowers' Inventory and patterns of retail
        sales.

       

      (vi) Such
        other factors as the Agent and each Revolving Credit Lender reasonably determine
        as having a material bearing on credit risks associated with the providing
        of
        loans and financial accommodations to the Borrowers.

       

      (d) The
        burden of establishing the failure of the Agent or any Revolving Credit Lender
        to have acted in a reasonable manner in such Person's exercise of such
        discretion shall be the Borrowers' and may be made only by clear and convincing
        evidence.

       

      2.18. Procedures
        For Issuance of L/C's.

       

      (a) The
        Lead
        Borrower may request that the Agent cause the issuance by the Issuer of L/C's
        for the account of any Borrower. Each such request shall be in such manner
        as
        may from time to time be acceptable to the Agent.

       

      (b) The
        Agent
        will endeavor to cause the issuance of any L/C so requested by the Lead
        Borrower, provided that , at the time that the request is made, the Revolving
        Credit has not been suspended as provided in Section 2.6 and if so
        issued:

       

      (i) The
        aggregate Stated Amount of all L/C's then outstanding, does not exceed
        $10,000,000.00.

       

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

       

      (A) Standby's:
        One (1) year from initial issuance.

       

      (B) Documentary's:
        Sixty (60) days from issuance.

       

      (iii) If
        the
        expiry of an L/C is later than the Maturity Date, it is 103% cash collateralized
        at its issuance.

       

      
        
          
          

        

        
          -37-

          
            

          

        

        
          
          

        

         

      

      (iv) An
        OverLoan will not result from the issuance of the subject L/C.

       

      (c) Each
        Borrower shall execute such documentation to apply for and support the issuance
        of an L/C as may be required by the Issuer.

       

      (d) There
        shall not be any recourse to, nor liability of, the Agent or any Revolving
        Credit Lender on account of

       

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

       

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

       

      (e) The
        Borrowers 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. The Agent,
        without the request of any 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 any Borrower, the Issuer, or the Revolving Credit Lenders
        become obligated on account of, or in respect to, any L/C. Such advance shall
        be
        made whether or not any Borrower is In Default or such advance would result
        in
        an OverLoan. Such action shall not constitute a waiver of the Agent's rights
        under Section 2.11(b).

       

      2.19. Fees
        For L/C's.

       

      (a) The
        Borrowers shall pay to the Agent a fee, on account of L/C's, the issuance
        of
        which had been procured by the Agent, monthly in arrears, and on the Termination
        Date and on the End Date, equal to the following percentage per annum of
        the
        weighted average Stated Amount of all L/C's outstanding during the period
        in
        respect of which such fee is being paid based upon the corresponding amount
        of
        Average Excess Availability, except that, following the occurrence and during
        the continuance of any Event of Default, such fee shall be increased by two
        percent (2%) per annum.

       

      
        	
                Level

                 

              	
                Standby
                  Fee

                 

              	
                Documentary
                  Fee

                 

              	
                Average
                  Excess Availability

                 

              
	
                I
                  

                 

              	
                **

                 

              	
                **

                 

              	
                less
                  than $ 3,000,000.00 

                 

              
	
                II
                  

                 

              	
                **

                 

              	
                **

                 

              	
                greater
                  than or equal to $3,000,000.00 but less than $10,00,000.00

                 

              
	
                III

                 

              	
                **

                 

              	
                **

                 

              	
                greater
                  than or equal to $10,000,000.00

                 

              


      

       

      The
        Standby Fee and the Documentary Fee on the Closing Date shall
        be
        established at Level II and adjusted at the end of each fiscal quarter
        thereafter based upon the applicable Average Excess Availability.

       

      (b) In
        addition to the fee to be paid as provided in Subsection 2.19(a), the Borrowers
        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 Applicable Law 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 any Revolving Credit Lender or any Issuer has an obligation
        to
        lend to fund drawings under any L/C; or

       

      
        
          
          

        

        
          -38-

          
            

          

        

        
          
          

        

         

      

      (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 2.19(c)(i) or 2.19(c)(ii), shall
        be
        to increase the cost to any Revolving Credit Lender or to any Issuer of issuing
        or maintaining any L/C (which increase in cost shall be the result of such
        Issuer's reasonable allocation among that Revolving Credit Lender's or 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 Lead Borrower of a certificate of an officer of the subject Revolving
        Credit
        Lender or the subject Issuer describing such change in law, executive order,
        regulation, directive, or interpretation thereof, its effect on such Revolving
        Credit Lender or such Issuer, and the basis for determining such increased
        costs
        and their allocation, the Borrowers shall immediately pay to the Agent, from
        time to time as specified by the Agent, such amounts as shall be sufficient
        to
        compensate the subject Revolving Credit Lender or the subject Issuer for
        such
        increased cost. Any Revolving Credit Lender's or any Issuer's determination
        of
        costs incurred under Section 2.19(c)(i) or 2.19(c)(ii), and the allocation,
        if
        any, of such costs among the Borrowers and other letter of credit customers
        of
        such Revolving Credit Lender or 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 Borrowers. 

       

      2.20. Concerning
        L/C's. 

       

      (a) None
        of
        the Issuer, the Issuer's correspondents, any Revolving Credit Lender, the
        Agent,
        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 any 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
        (with respect to the foregoing) 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
        otherwise agreed to, in the particular instance, each Borrower hereby authorizes
        any Issuer to:

       

      (i) Select
        an
        advising bank, if any. 

       

      (ii) Select
        a
        paying bank, if any.

       

      (iii) Select
        a
        negotiating bank. 

       

      (d) All
        directions, correspondence, and funds transfers relating to any L/C are at
        the
        risk of the Borrowers. The Issuer shall have discharged the Issuer's obligations
        under any L/C which, or the drawing under which, includes payment instructions,
        by the initiation of the method of payment called for in, and in accordance
        with, such instructions (or by any other commercially reasonable and comparable
        method). None of the Agent, any Revolving Credit Lender, 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. 

       

      
        
          
          

        

        
          -39-

          
            

          

        

        
          
          

        

         

      

      (e) The
        Agent's, each Revolving Credit 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) The
        obligations of the Borrowers 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
        Borrower's consent to 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 any Borrower
        may
        have at any time against the beneficiary of any L/C. 

       

      (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.
        

       

      2.21. Changed
        Circumstances. 

       

      (a) The
        Agent
        may advise the Lead Borrower that the Agent has made the good faith
        determination (which determination shall be final and conclusive) of any
        of the
        following:

       

      (i) Adequate
        and fair means do not exist for ascertaining the rate for LIBOR
        Loans.

       

      (ii) The
        continuation of or conversion of any Revolving Credit Loan to a LIBOR Loan
        has
        been made impracticable or unlawful by the occurrence of a contingency that
        materially and adversely affects the applicable market or the compliance
        by the
        Agent or any Revolving Credit Lender in good faith with any Applicable
        Law.

       

      (iii) The
        indices on which the interest rates for LIBOR Loans are based shall no longer
        represent the effective cost to the Agent or any Revolving Credit Lender
        for
        U.S. dollar deposits in the interbank market for deposits in which it regularly
        participates.

       

      (b) In
        the
        event that the Agent advises the Lead Borrower of an occurrence described
        in
        Section 2.23(a), then, until the Agent notifies the Lead Borrower that the
        circumstances giving rise to such notice no longer apply:

       

      (i) The
        obligation of the Agent or each Revolving Credit Lender to make loans of
        the
        type affected by such changed circumstances or to permit the Lead Borrower
        to
        select the affected interest rate as otherwise applicable to any Revolving
        Credit Loans shall be suspended. 

       

      (ii) Any
        notice which the Lead Borrower had given the Agent with respect to any LIBOR
        Loan, the time for action with respect to which has not occurred prior to
        the
        Agent's having given notice pursuant to Section 2.11(a), shall be deemed
        at the
        option of the Agent to not having been given.

       

      2.22. Designation
        of Lead Borrower as Borrowers' Agent. 

       

      
        
          
          

        

        
          -40-

          
            

          

        

        
          
          

        

         

      

      (a) Each
        Borrower hereby irrevocably designates and appoints the Lead Borrower as
        that
        Borrower's agent to obtain loans and advances under the Revolving Credit,
        the
        proceeds of which shall be available to each Borrower for those uses as those
        set forth in Section 2.1(d). As the disclosed principal for its agent, each
        Borrower shall be obligated to the Agent and each Revolving Credit Lender
        on
        account of loans and advances so made under the Revolving Credit as if made
        directly by the Revolving Credit Lenders to that Borrower, notwithstanding
        the
        manner by which such loans and advances are recorded on the books and records
        of
        the Lead Borrower and of any Borrower. 

       

      (b) Each
        Borrower recognizes that credit available to it under the Revolving Credit
        is in
        excess of and on better terms than it otherwise could obtain on and for its
        own
        account and that one of the reasons therefor is its joining in the credit
        facility contemplated herein with all other Borrowers. Consequently, each
        Borrower hereby assumes and agrees to fully, faithfully, and punctually
        discharge all Liabilities of all of the Borrowers.

       

      (c) The
        Lead
        Borrower shall act as a conduit for each Borrower (including itself, as a
        "Borrower") on whose behalf the Lead Borrower has requested a Revolving Credit
        Loan.

       

      (d) The
        proceeds of each loan and advance provided under the Revolving Credit which
        is
        requested by the Lead Borrower shall be deposited into the Operating Account
        or
        as otherwise indicated by the Lead Borrower. The Lead Borrower shall cause
        the
        transfer of the proceeds thereof to the (those) Borrower(s) on whose behalf
        such
        loan and advance was obtained. Neither the Agent nor any Revolving Credit
        Lender
        shall have any obligation to see to the application of such
        proceeds.

       

      2.23. Lenders'
        Commitments

       

      (a) Subject
        to Section 16.1 (which provides for assignments and assumptions of commitments),
        each Revolving Credit Lender's "Revolving
        Credit Percentage Commitment",
        and
        "Revolving
        Credit Dollar Commitment"
        (respectively so referred to herein) is set forth on EXHIBIT
        2.22,
        annexed
        hereto.

       

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

       

      (i) That
        Revolving Credit Lender's Revolving Credit Percentage Commitment of the subject
        loan or advance or of Availability.

       

      (ii) Any
        loan
        which, when aggregated with all other loans made by that Revolving Credit
        Lender
        under the Revolving Credit and then outstanding, exceed that Revolving Credit
        Lender's Revolving Credit Dollar Commitment.

       

      (c) No
        Revolving Credit Lender shall have any liability to the Borrowers on account
        of
        the failure of any other Revolving Credit 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
        Revolving Credit Dollar Commitments, Revolving Credit Commitment Percentages,
        and identities of the Revolving Credit Lenders may be changed, from time
        to time
        by the reallocation or assignment of Revolving Credit Dollar Commitments
        and
        Revolving Credit Commitment Percentages amongst the Revolving Credit Lenders
        or
        with other Persons who determine to become "Revolving Credit Lenders", provided,
        however unless an Event of Default has occurred (in which event, no consent
        of
        any Borrower is required) any assignment to a Person not then a Revolving
        Credit
        Lender shall be subject to the prior consent of the Lead Borrower (not to
        be
        unreasonably withheld), which consent will be deemed given unless the Lead
        Borrower provides the Agent with written objection, not more than Five (5)
        Business Days after the Agent shall have given the Lead Borrower written
        notice
        of a proposed assignment).

       

      
        
          
          

        

        
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      (e) Upon
        written notice given the Lead Borrower from time to time by the Agent, of
        any
        assignment or allocation referenced in Section 2.23(d): 

       

      (i) Each
        Borrower shall execute one or more replacement Revolving Credit Notes to
        reflect
        such changed Revolving Credit Dollar Commitments, Revolving Credit Commitment
        Percentages, and identities and shall deliver such replacement Revolving
        Credit
        Notes to the Agent (which promptly thereafter shall deliver to the Lead Borrower
        the Revolving Credit Notes so replaced) provided however, 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 any Borrower,
        the Agent, in lieu of causing the Borrowers to execute one or more new Revolving
        Credit Notes, may issue the Agent's Certificate confirming the resulting
        Revolving Credit Dollar Commitments and Revolving Credit Percentage
        Commitments.

       

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

       

      (f) Upon
        at
        least three (3) Business Days’ prior written notice to the Agent, the Lead
        Borrower may permanently reduce the Revolving Credit Dollar Commitments.
        Each
        such reduction shall be in the principal amount of $7,500,000.00 and not
        more
        than two (2) such reductions may be made during the term of this Agreement.
        Each
        such reduction shall (i) be applied ratably to the Revolving Credit Dollar
        Commitments of each Revolving Credit Lender and (ii) be irrevocable when
        given.
        At the effective time of each such reduction, the Borrowers shall pay to
        the
        Agent for application as provided herein (i) all earned and unpaid interest
        and
        fees accrued on the amount of the Revolving Credit Commitments so reduced
        through the date thereof, and (ii) any amount by which the aggregate unpaid
        balance of the Loan Account and the aggregate undrawn Stated Amount of all
        then
        outstanding L/C's exceed the amount to which the Revolving Credit Commitments
        are to be reduced, in each case pro-rata based on the amount
        prepaid.

       

      Article
        3 - Conditions Precedent:

       

      As
        a
        condition to the effectiveness of this Agreement, the establishment of the
        Revolving Credit, 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 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:

       

      3.1. Corporate
        Due Diligence. 

       

      (a) Certificates
        of corporate good standing for each Borrower, respectively issued by the
        Secretary of State for the state in which that Borrower is
        incorporated.

       

      (b) Certificates
        of due qualification, in good standing, issued by the Secretary(ies) of State
        of
        each State in which the nature a Borrower's business conducted or assets
        owned
        could require such qualification.

       

      (c) Certificates
        of each Borrower's Secretaries of the due adoption, continued effectiveness,
        and
        setting forth the texts of, each corporate resolution adopted in connection
        with
        the establishment of the loan arrangement contemplated by the Loan Documents
        and
        attesting to the true signatures of each Person authorized as a signatory
        to any
        of the Loan Documents.

       

      
        
          
          

        

        
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      3.2. Opinion.
        An
        opinion of counsel to the Borrowers in form and substance satisfactory to
        the
        Agent.

       

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

       

      (a) Appraisal
        of the Borrowers’ Inventory.

       

      (b) Commercial
        finance examination performed by the Agent’s examiners and/or
        agents.

       

      (c) Business
        Plan, including monthly balance sheet, profit and loss statements, and cash
        flow
        analysis that presents total usage and collateral availability consistent
        with
        the Borrowing Base.

       

      (d) Background
        checks for key management.

       

      (e) All
        Loan
        Documents.

       

      (f) Lien
        search results with respect to the Borrowers’ locations.

       

      (g) Confirmation
        of filing of all necessary and appropriate Financing Statements and such
        other
        documents as may be required to perfect the Agent’s and the Lenders’ security
        interest in the Collateral.

       

      (h) Receipt
        of discharges, releases, and terminations required to afford the Agent and
        the
        Lenders a first, perfected security interest in and to all Collateral, free
        and
        clear of all liens and encumbrances, other than Permitted
        Encumbrances.

       

      (i) Confirmation
        of insurance and appropriate endorsements in favor of the Agent and the
        Lenders.

       

      (j) Collateral
        access agreements, as may be necessary.

       

      3.4. Officers'
        Certificates.
        Certificates executed by the President and the Chief Financial Officer of
        the
        Lead Borrower which state that

       

      (a) Such
        officer, acting on behalf of the Borrowers, has reviewed each of the Loan
        Documents and has had the benefit of independent counsel (Attorneys Robinson
        & Cole, LLP) of the Lead Borrower's selection in connection with the review
        and negotiation of the Loan Documents. In particular, and without limiting
        the
        generality of such review, the following provisions of the Loan Documents
        have
        been brought to the attention of the undersigned by such counsel:

       

      (i) The
        waiver of the right to a trial by jury in connection with controversies arising
        out of the loan arrangement contemplated by the Loan Documents.

       

      (ii) The
        designation of, and submission to the exclusive jurisdiction and venue of,
        certain courts.

       

      (iii) Various
        other waivers and indemnifications included therein.

       

      (iv) The
        circumstances under which the Liabilities could be accelerated and the grace
        periods available with respect to certain Events of Default.

       

      (b) The
        representations and warranties made by the Borrowers to the Agent and the
        Revolving Credit Lenders in the Loan Documents 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.

       

      
        
          
          

        

        
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      3.5. Representations
        and Warranties.
        Each of
        the representations made by or on behalf of each Borrower in this Agreement
        or
        in any of the other Loan Documents or in any other report, statement, document,
        or paper provided by or on behalf of each Borrower 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 Borrowers; 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 $7,000,000.00.

       

      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 in connection with the establishment
        of
        the credit facility contemplated hereby (including the fees and expenses
        of
        counsel to the Agent) shall have been paid in full.

       

      3.8. No
        Borrower In Default.
        No
        Borrower is In Default.

       

      3.9. No
        Adverse Change.
        There
        has been no Material Adverse Change and no event shall have occurred or failed
        to occur, which occurrence or failure is or could have a material adverse
        effect
        upon any Borrower's financial condition when compared with such financial
        condition at September 30, 2005.

       

      3.10. Benefit
        of Conditions Precedent.
        The
        conditions set forth in this Article 3 - , are for the sole benefit of the
        Agent
        and each Revolving Credit Lender and may be waived by the Agent in whole
        or in
        part without prejudice to the Agent or any Revolving Credit Lender.

       

      No
        document shall be deemed delivered to the Agent or any Revolving Credit Lender
        until received and accepted 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 offices. 

       

      Article
        4 - General
        Representations, Covenants and Warranties:

       

      To
        induce
        each Revolving Credit Lender to establish the credit facility contemplated
        herein and to induce the Revolving Credit Lenders to provide loans and advances
        under the Revolving Credit (each of which loans shall be deemed to have been
        made in reliance thereupon) the Borrowers, in addition to all other
        representations, warranties, and covenants made by any Borrower in any other
        Loan Document, make those representations, warranties, and covenants included
        in
        this Agreement.

       

      4.1. Payment
        and Performance of Liabilities.
        The
        Borrowers shall pay each payment Liability when due (or when demanded, if
        payable on demand) and shall promptly, punctually, and faithfully perform
        each
        other Liability. 

       

      4.2. Due
        Organization. Authorization. No Conflicts. 

       

      (a) Each
        Borrower presently is and hereafter shall remain in good standing as a
        corporation under the laws of the State in which it is organized, as set
        forth
        in the Preamble to this Agreement and is and shall hereafter remain duly
        qualified and in good standing in every other State in which, by reason of
        the
        nature or location of each Borrowers' assets or operation of each Borrowers'
        business, such qualification may be necessary, except where the failure to
        so
        qualify would have no more than a de minimis adverse effect on the business
        or a
        assets of any Borrower. 

       

      (b) Each
        Borrower's respective organizational identification number assigned to it
        by the
        State of its incorporation and its respective federal employer identification
        number is listed on EXHIBIT
        4.2,
        annexed
        hereto.

       

      
        
          
          

        

        
          -44-

          
            

          

        

        
          
          

        

         

      

      (c) No
        Borrower shall change its State of organization; any organizational
        identification number assigned to that Borrower by that State; or that
        Borrowers' federal taxpayer identification number.

       

      (d) Each
        Affiliate is listed on EXHIBIT
        4.2.
        The
        Lead Borrower shall provide the Agent with prior written notice of any entity's
        becoming or ceasing to be an Affiliate.

       

      (e) Each
        Borrower has all requisite power and authority to execute and deliver all
        Loan
        Documents to which that Borrower is a party and has and will hereafter retain
        all requisite power to perform all Liabilities.

       

      (f) The
        execution and delivery by each Borrower of each Loan Document to which it
        is a
        party; each Borrowers' consummation of the transactions contemplated by such
        Loan Documents (including, without limitation, the creation of Collateral
        Interests by that Borrower to secure the Liabilities); each Borrowers'
        performance under those of the Loan Documents to which it is a
        party

       

      (i) Have
        been
        duly authorized by all necessary action.

       

      (ii) Do
        not,
        and will not, contravene in any material respect any provision of any
        Requirement of Law or obligation of that Borrower. 

       

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

       

      (g) The
        Loan
        Documents have been duly executed and delivered by each Borrower and are
        the
        legal, valid and binding obligations of each Borrower, enforceable against
        each
        Borrower in accordance with their respective terms. 

       

      (h) As
        of the
        Closing Date, no Inactive Company conducts any business or owns any material
        assets or has any material liabilities other than those set forth on
EXHIBIT
        4.2(h),
        annexed
        hereto, and no such Inactive Company shall during the term of this Agreement
        conduct any business or own any material assets or incur any material
        liabilities. except that (i) Arrow Prescription Leasing Corp. may continue
        to be
        party to the leases listed on Exhibit
        4.2(h)
        but may
        in no event enter into any new leases and shall make its best efforts to
        cause
        the leases listed on Exhibit
        4.2(h),
        if
        renewed, to be assigned to or otherwise executed in the name of a Borrower,
        and
        (ii) Discount RX, Inc., may continue to own the patent and/or patent application
        set forth on Exhibit
        4.2(h)
        so long
        as it complies with the terms and conditions of the Intellectual Property
        Security Agreement dated as of the Closing Date among the “Grantors” named
        therein and the Agent.

       

      4.3. Trade
        Names. 

       

      (a) EXHIBIT
        4.3,
        annexed
        hereto, is a listing of: 

       

      (i) All
        names
        under which any Borrower ever conducted its business. 

       

      (ii) All
        Persons with whom any Borrower ever consolidated or merged, or from whom
        any
        Borrower ever acquired in a single transaction or in a series of related
        transactions substantially all of such Person's assets. 

       

      (b) The
        Lead
        Borrower will provide the Agent with not less than twenty-one (21) days prior
        written notice (with reasonable particularity) of any change to any Borrowers'
        name from that under which that Borrower is conducting its business at the
        execution of this Agreement and will not effect such change unless each Borrower
        is then in compliance with all provisions of this Agreement.

       

      
        
          
          

        

        
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      4.4. Infrastructure. 

       

      (a) Each
        Borrower has and will maintain a sufficient infrastructure to conduct its
        business as presently conducted and as contemplated to be conducted following
        its execution of this Agreement.

       

      (b) Each
        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 that Borrower's conduct
        of that Borrower's business.

       

      (c) The
        conduct by each Borrower of that Borrower's business does not presently infringe
        (nor will any 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.

       

      4.5. Locations. 

       

      (a) The
        Collateral, and the books, records, and papers of Borrowers' pertaining thereto,
        are kept and maintained solely at those locations which are listed on
EXHIBIT
        4.5,
        annexed
        hereto, which EXHIBIT includes, with respect to each such location, the name
        and
        address of the landlord on the Lease which covers such location (or an
        indication that a Borrower owns the subject location) and of all service
        bureaus
        with which any such records are maintained, and which EXHIBIT shall be deemed
        modified from time to time to reflect locations added or removed in accordance
        with the terms of this Agreement. 

       

      (b) No
        Borrower shall remove any of the Collateral from those locations listed on
        EXHIBIT 4.5 except for the following purposes:

       

      (i) To
        accomplish sales of Inventory in the ordinary course of business.

       

      (ii) To
        move
        Inventory from one such location to another such location.

       

      (iii) To
        utilize such of the Collateral as is removed from such locations in the ordinary
        course of business (such as motor vehicles). 

       

      (c) No
        Borrower shall execute, alter, modify, or amend the rental provisions of
        any
        Lease or any other material provisions of any Lease except in the ordinary
        course of business. 

       

      (d) No
        Borrower shall commit to open or close, or open or close, any location at
        which
        a Borrower maintains, offers for sale or stores any of the Collateral, provided
        that if (a) no Event of Default has occurred and is continuing or will occur
        as
        a result of such commitment, store opening or closing and (b) Lead Borrower
        has
        provided Agent with at least thirty (30) days' prior written notice of such
        commitment, opening or closing, the Borrowers may open or close locations
        consistent with the terms of the Business Plan, plus an additional five (5)
        openings and five (5) closings each fiscal year; provided,
        however,
        that
        for any store closing, the Agent must consent in advance and in writing to
        the
        manner in which a Borrower intends to effect such closing, including, without
        limitation, any third party agent that a Borrower proposes to employ in
        connection therewith, which consent from Agent shall not be unreasonably
        withheld or delayed.

       

      (e) Except
        as
        otherwise disclosed pursuant to, or permitted by, this Section 4.5, no tangible
        personal property of any Borrower 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.

       

      
        
          
          

        

        
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      4.6. Encumbrances.
        The
        assets of the Borrowers are not subject to, and shall not hereafter be subject
        to, any encumbrances other than Permitted Encumbrances.

       

      4.7. Indebtedness.
        The
        Borrowers do not and shall not hereafter have any Indebtedness other than
        any
        Permitted Indebtedness and the following:

       

      (a) Any
        Indebtedness on account of the Revolving Credit.

       

      (b) The
        Indebtedness (if any) listed on EXHIBIT
        4.7,
        annexed
        hereto, and the extension of maturity, refinancing or modification of the
        terms
        thereof; provided, that (i) such extension, refinancing or modification is
        pursuant to terms that are not less favorable to the Borrowers than the terms
        of
        the Indebtedness being extended, refinanced or modified and (ii) after giving
        effect to such extension, refinancing or modification, the amount of such
        Indebtedness is not greater than the amount of Indebtedness outstanding
        immediately prior to such extension, refinancing or modification plus accrued
        interest thereon and reasonable fees incurred in connection with the extension,
        refinancing, or modification. 

       

      (c) Indebtedness
        between and among the Borrowers in the ordinary course of business in accordance
        with past practices.

       

      (d) Indebtedness
        incurred by Borrowers in connection with a Permitted Acquisition, provided
        that
        any such Indebtedness shall (i) be on terms and conditions, including, without
        limitation, terms of subordination, satisfactory to Agent and (ii) not in
        any
        event be secured by any assets of the Borrowers other than real property
        purchased as part of such Permitted Acquisition, all of such encumbrance(s)
        to
        be on terms and conditions satisfactory to Agent and in any event not to
        secure
        more than $1,000,000.00 in aggregate Indebtedness at any time
        outstanding.

       

      4.8. Insurance. 

       

      (a) EXHIBIT
        4.8,
        annexed
        hereto, is a schedule of all insurance policies owned by the Borrowers or
        under
        which any Borrower is the named insured. Each of such policies is in full
        force
        and effect. Neither the issuer of any such policy nor any Borrower is in
        default
        or violation of any such policy.

       

      (b) The
        Borrowers 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 satisfactory to the Agent. 

       

      (c) All
        insurance carried by the Borrowers shall provide for a minimum of Thirty
        (30)
        days' prior written notice of cancellation to the Agent and all such insurance
        which covers the Collateral shall 

       

      (i) 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 any
        Borrower or by the failure of any Borrower to comply with any warranty or
        condition of the policy. 

       

      (ii) Not
        include an endorsement of any property or casualty insurance in favor of
        any
        other Person.

       

      (d) The
        coverage reflected on EXHIBIT
        4.8
        presently satisfies the foregoing requirements, it being recognized by each
        Borrower, however, that such requirements may change hereafter to reflect
        changing circumstances.

       

      (e) The
        Lead
        Borrower shall furnish the Agent from time to time with certificates or other
        evidence satisfactory to the Agent regarding compliance by the Borrowers
        with
        the foregoing requirements. 

       

      
        
          
          

        

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


       

      (g) The
        Borrowers shall maintain at all times those policies of insurance obtained
        by
        the Borrowers and assigned to the Lender.

       

      4.9. Licenses.
        Each
        license, distributorship, franchise, and similar agreement issued to, or
        to
        which any Borrower is a party is in full force and effect. No party to any
        such
        license or agreement is in default or violation thereof where such default
        or
        violation would be reasonably likely to cause a Material Adverse Change.
        No
        Borrower has received any notice or threat of cancellation of any such license
        or agreement.

       

      4.10. Leases. EXHIBIT
        4.10,
        annexed
        hereto, is a schedule of all presently effective Capital Leases. (Exhibit
        4.5
        includes
        a list of all other presently effective Leases). Each of such Leases and
        Capital
        Leases is in full force and effect. No party to any such Lease or Capital
        Lease
        is in default or violation of any such Lease or Capital Lease where such
        default
        or violation would be reasonably likely to cause a Material Adverse Change.
        No
        Borrower has received any notice or threat of cancellation of any such Lease
        or
        Capital Lease. Each Borrower hereby authorizes the Agent at any time and
        from
        time to time to contact any of the Borrowers' respective landlords in order
        to
        confirm the Borrowers' continued compliance with the terms and conditions
        of the
        Lease(s) between the subject Borrower and that landlord and to discuss such
        issues, concerning the subject Borrower's occupancy under such Lease(s),
        as the
        Agent may determine.

       

      4.11. Requirements
        of Law.
        Each
        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 will not have more than a de minimis adverse effect on the
        Borrowers' business or assets. No Borrower has received any notice of any
        violation of any Requirement of Law (other than of a violation which has
        no more
        than a de minimis adverse effect on the Borrowers' business or assets), which
        violation has not been cured or otherwise remedied.

       

      4.12. Labor
        Relations.

       

      (a) No
        Borrower has been, and none is presently a party to any collective bargaining
        or
        other labor contract. 

       

      (b) There
        is
        not presently pending and, to any 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 any Borrower relating to the alleged violation
        of any Applicable Law pertaining to labor relations or before 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 any Borrower, which, if determined adversely to that
        Borrower could have more than a de minimis adverse effect on that
        Borrower.

       

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

       

      
        
          
          

        

        
          -48-

          
            

          

        

        
          
          

        

         

      

      (iv) Any
        application for the certification of a collective bargaining agent.


       

      (c) No
        event
        has occurred or circumstance exists which could provide the basis for any
        work
        stoppage or other labor dispute. 

       

      (d) Each
        Borrower:

       

      (i) Has
        complied in all material respects with all Applicable 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. 

       

      (ii) Is
        not
        liable for the payment of more than a de minimis amount of compensation,
        damages, taxes, fines, penalties, or other amounts, however designated, for
        that
        Borrower's failure to comply with any Applicable Law referenced in Section
        4.12(d)(i).

       

      4.13. Maintain
        Properties.
        The
        Borrowers 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.


       

      (d) Not
        sell,
        lease, or otherwise dispose of any of the Collateral, other than the
        following:

       

      (i) Permitted
        Dispositions.

       

      (ii) The
        turning over to the Agent of all Receipts as provided herein. 

       

      (e) Not
        have
        any property on consignment to a Borrower. 

       

      4.14. Taxes. 

       

      (a) With
        respect to the Borrowers' federal, state, and local tax liability and
        obligations:

       

      (i) The
        Lead
        Borrower, in compliance with all Applicable Law, has properly filed all returns
        due to be filed up to the date of this Agreement. 

       

      (ii) Except
        as
        described on EXHIBIT
        4.14:
        

       

      (A) At
        no
        time has any Borrower received from any taxing authority any request to perform
        any examination of or with respect to any Borrower nor any other written
        or
        verbal notice in any way relating to any claimed failure by any Borrower
        to
        comply with all Applicable Law concerning payment of any taxes or other amounts
        in the nature of taxes.

       

      (B) No
        agreement is extant which waives or extends any statute of limitations
        applicable to the right of any taxing authority to assert a deficiency or
        make
        any other claim for or in respect to federal income taxes. 

       

      (C) No
        issue
        has been raised in any tax examination of any Borrower which, by application
        of
        similar principles, reasonably could be expected to result in the assertion
        of a
        deficiency for any fiscal year open for examination, assessment, or claim
        by any
        taxing authority.

       

      
        
          
          

        

        
          -49-

          
            

          

        

        
          
          

        

         

      

      (b) The
        Borrowers have, 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 any Borrower or the Collateral by any
        person
        or entity whose claim could result in an Encumbrance upon any asset of any
        Borrower or by any governmental authority; properly exercise any trust
        responsibilities imposed upon any Borrower by reason of withholding from
        employees' pay or by reason of any Borrowers' 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 any Borrower; and timely file all tax and other
        returns
        and other reports with each governmental authority to whom any Borrower is
        obligated to so file. 

       

      4.15. No
        Margin Stock.
        No
        Borrower is 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.

       

      4.16. ERISA. 

       

      (a) Neither
        any Borrower nor any ERISA Affiliate has ever: 

       

      (i) Violated
        or failed to be in full compliance with any Borrower's Employee Benefit Plan.
        

       

      (ii) Failed
        timely to file all reports and filings required by ERISA to be filed by any
        Borrower. 

       

      (iii) Engaged
        in any nonexempt "prohibited transactions" or "reportable events" (respectively
        as described in ERISA). 

       

      (iv) Engaged
        in, or committed, any act such that a tax or penalty reasonably could be
        imposed
        upon any Borrower on account thereof pursuant to ERISA. 

       

      (v) Accumulate
        any material cumulative funding deficiency within the meaning of ERISA.


       

      (vi) Terminated
        any Employee Benefit Plan such that a lien could be asserted against any
        assets
        of any Borrower on account thereof pursuant to ERISA. 

       

      (vii) Been
        a
        member of, contributed to, or have any obligation under any Employee Benefit
        Plan which is a multiemployer plan within the meaning of Section 4001(a)
        of
        ERISA. 

       

      (b) Neither
        any Borrower nor any ERISA Affiliate shall ever engage in any action of the
        type
        described in Section 4.16(a).

       

      4.17. Hazardous
        Materials. 

       

      (a) No
        Borrower has ever: (i) been legally responsible for any release or threat
        of
        release of any Hazardous Material or (ii) received notification of the
        incurrence of any expense in connection with the assessment, containment,
        or
        removal of any Hazardous Material for which that Borrower would be responsible.
        

       

      (b) Each
        Borrower shall: (i) dispose of any Hazardous Material only in compliance
        with
        all Environmental Laws and (ii) have possession of any Hazardous Material
        only
        in the ordinary course of that Borrowers' business and in compliance with
        all
        Environmental Laws. 

       

      
        
          
          

        

        
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      4.18. Litigation.
        Except
        as described in EXHIBIT
        4.18,
        annexed
        hereto, there is not presently pending or threatened by or against any Borrower
        any suit, action, proceeding, or investigation, including, without limitation,
        any relating to any Pharmaceutical Laws or Health Care Laws which, if determined
        adversely to any Borrower, would have more than a de minimis adverse effect
        upon
        a Borrower's financial condition or ability to conduct its business as such
        business is presently conducted or is contemplated to be conducted in the
        foreseeable future. 

       

      4.19. Dividends.
        Investments. Corporate Action.
        No
        Borrower shall:

       

      (a) Pay
        any
        cash dividend or make any other distribution (other than in stock) in respect
        of
        any class of that Borrower's capital stock. 

       

      (b) Make
        any
        payment on account of any Indebtedness other than payment of the
        Liabilities.

       

      (c) Own,
        redeem, retire, purchase, or acquire any of any Borrower's capital stock,
        other
        than amounts necessary to repurchase any equity securities of the Lead Borrower
        from its employees, officers or directors; provided that, (i) such repurchases
        shall not exceed $17,000,000.00 in any fiscal year, and (y) no Event of Default
        has occurred or would result therefrom.

       

      (d) Invest
        in
        or purchase any stock or securities or rights to purchase any such stock
        or
        securities, of any Person other than a Permitted Investment or Permitted
        Acquisition.

       

      (e) Merge
        or
        consolidate or be merged or consolidated with or into any other corporation
        or
        other entity.

       

      (f) Consolidate
        any of that Borrower's operations with those of any other Person other than
        of
        another Borrower.

       

      (g) Organize
        or create any Affiliate. 

       

      (h) Subordinate
        any debts or obligations owed to that Borrower by any third party to any
        other
        debts owed by such third party to any other Person.

       

      (i) Except
        pursuant to a Permitted Acquisition, acquire any assets other than in the
        ordinary course and conduct of that Borrower's business as conducted at the
        execution of this Agreement.

       

      (j) Acquire
        or obtain the right to use any Equipment, the acquisition or right to use
        of
        which Equipment is otherwise permitted by this Agreement, in which Equipment
        any
        third party has an interest, except for Equipment which is merely incidental
        to
        the conduct of that Borrowers' business.

       

      (k) Issue
        or
        sell or enter into any agreement or arrangement for the issuance and sale
        of,
        any shares of its capital stock, any securities convertible into or exchangeable
        for its capital stock or any warrants, except, so long as no Change in Control
        shall be caused thereby, the issuance of equity by Lead Borrower so long
        as the
        Equity Proceeds received in connection therewith shall be applied by Lead
        Borrower as follows:

       

      (i) the
        first
        $20,000,000.00 in Equity Proceeds received during the term of this Agreement
        shall be applied to payment of the outstanding Liabilities until paid in
        full
        (and the Agent may establish a funded reserve of up to 110% of the aggregate
        Stated Amounts of any outstanding L/C's), with the excess, if any, to be
        deposited in the Concentration Account to be held as additional
        Collateral;

       

      (ii) the
        next
        $40,000,000.00 of Equity Proceeds received by Lead Borrower may (so long
        as no
        Event of Default shall have occurred and be continuing, in which event all
        such
        Equity Proceeds shall be remitted to the Agent for application in accordance
        with Section 19.7) be retained by the Lead Borrower for general corporate
        purposes in compliance with the terms of this Agreement including, without
        limitation, for Permitted Acquisitions; and

       

      
        
          
          

        

        
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      (iii) Fifty
        percent (50%) of all Equity Proceeds received by Lead Borrower in excess
        of
        $60,000,000.00 during the term of this Agreement shall (so long as no Event
        of
        Default shall have occurred and be continuing, in which event all such Equity
        Proceeds shall be remitted to the Agent for application in accordance with
        Section 19.7) be applied to payment of the Liabilities (and the Agent may
        establish a funded reserve of up to 110% of the aggregate Stated Amounts
        of any
        outstanding L/C's), with the excess, if any, to be deposited in the
        Concentration Account to be held as additional Collateral, and fifty percent
        (50%) may be retained by the Lead Borrower for general corporate purposes
        in
        compliance with the terms of this Agreement including, without limitation,
        for
        Permitted Acquisitions.

       

      4.20. Loans.
        No
        Borrower shall 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 to that Borrower's suppliers in the ordinary course. 

       

      (b) Advances
        to that Borrower's officers, employees, and salespersons with respect to
        reasonable expenses to be incurred by such officers, employees, and salespersons
        for the benefit of that Borrower, which expenses are properly substantiated
        by
        the person seeking such advance and properly reimbursable by that
        Borrower.

       

      (c) Advances
        to a Borrower's officers, employees, and salespersons in the ordinary course
        of
        business in accordance with past practices, in addition to those specified
        in
        clause (b), in an amount not to exceed $250,000.00 in the aggregate outstanding
        at any time.

       

      (d) Loans
        by
        Borrowers listed on EXHIBIT
        4.20,
        annexed
        hereto, and otherwise permitted under Section 4.20(c).

       

      (e) Providing
        extended payment terms to pharmacies in the ordinary course of Borrowers’
        business and in accordance with the Borrowers’ historical practices including,
        but not limited to, the issuance by a pharmacy, and acceptance by a Borrower,
        of
        a secured promissory note (which shall be duly endorsed to the order of,
        and
        delivered to, the Agent) to evidence indebtedness of the pharmacy owing to
        such
        Borrower related to past due Accounts Receivable.

       

      4.21. Protection
        of Assets.
        The
        Agent, in the Agent's discretion, and from time to time, may discharge any
        tax
        or 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. 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 Borrowers 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
        4.21. 

       

      4.22. Line
        of Business.
        No
        Borrower shall engage in any business other than the business in which it
        is
        currently engaged or a business reasonably related thereto.

       

      4.23. Affiliate
        Transactions.
        No
        Borrower shall make any payment, nor give any value to any Affiliate except
        for
        goods and services actually purchased by that Borrower from, or sold by that
        Borrower to, such Affiliate for a price and on terms which shall 

       

      (a) be
        competitive and fully deductible as an "ordinary and necessary business expense"
        and/or fully depreciable under the Internal Revenue Code of 1986 and the
        Treasury Regulations, each as amended; and

       

      
        
          
          

        

        
          -52-

          
            

          

        

        
          
          

        

         

      

      (b) be
        no
        less favorable to that Borrower than those which would have been charged
        and
        imposed in an arms length transaction.

       

      4.24. Further
        Assurances.

       

      (a) No
        Borrower is the owner of, nor has it any interest in, any property or asset
        which is not be subject to a perfected Collateral Interest in favor of the
        Agent
        (subject only to Permitted Encumbrances) to secure the Liabilities.

       

      (b) No
        Borrower will hereafter acquire any asset or any interest in property which
        is
        not, immediately 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) Each
        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 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
        to
        comply with all applicable statutes and laws, and facilitate the collection
        of
        the Receivables Collateral. Each Borrower shall execute all such instruments
        as
        may be required by the Agent with respect to the recordation and/or perfection
        of the Collateral Interests created or contemplated herein. 

       

      (d) Each
        Borrower hereby designates the Agent as that Borrowers' true and lawful
        attorney, with full power of substitution, to sign and file any financing
        statements in order to perfect or protect the Agent's Collateral Interests
        in
        the Collateral.

       

      (e) This
        Agreement constitutes an authenticated record which authorizes the Agent
        to file
        such financing statements as the Agent determines as appropriate to perfect
        or
        protect the Collateral Interests created by this Agreement.

       

      (f) A
        carbon,
        photographic, or other reproduction of this Agreement or of any financing
        statement or other instrument executed pursuant to this Section 4.24 shall
        be
        sufficient for filing to perfect the security interests granted herein.


       

      4.25. Adequacy
        of Disclosure. 

       

      (a) All
        financial statements furnished to the Agent and to each Revolving Credit
        Lender
        by each Borrower have been prepared in accordance with GAAP consistently
        applied
        and present fairly the condition of the Borrowers at the date(s) thereof
        and the
        results of operations and cash flows for the period(s) covered (provided
        however, that unaudited financial statements are subject to normal year end
        adjustments and to the absence of footnotes). There has been no change in
        the
        Consolidated financial condition, results of operations, or cash flows of
        the
        Borrowers since the date(s) of such financial statements, other than changes
        in
        the ordinary course of business, which changes have not been materially adverse,
        either singularly or in the aggregate.

       

      (b) No
        Borrower has any contingent obligations or obligation under any Lease or
        Capital
        Lease which is not noted in the Borrowers' Consolidated financial statements
        furnished to the Agent and to each Revolving Credit Lender prior to the
        execution of this Agreement. 

       

      (c) No
        document, instrument, agreement, or paper now or hereafter given to the Agent
        or
        to any Revolving Credit Lender by or on behalf of each Borrower or any guarantor
        of the Liabilities in connection with the execution of this Agreement by
        the
        Agent and to each Revolving Credit Lender contains or will contain any untrue
        statement of a material fact or omits or will omit to state a material fact
        necessary in order to make the statements therein not misleading. There is
        no
        fact known to the Borrowers which has, or which, in the foreseeable future
        could
        reasonably be expected to have, a material adverse effect on the financial
        condition of the Borrowers which has not been disclosed in writing to the
        Lender.

       

      
        
          
          

        

        
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      4.26. No
        Restrictions on Liabilities.
        No
        Borrower shall enter into or directly or indirectly become subject to any
        agreement which prohibits or restricts, in any manner, any Borrowers':


       

      (a) Creation
        of, and granting of Collateral Interests in favor of the Agent.

       

      (b) Incurrence
        of Liabilities.

       

      4.27. Other
        Covenants.
        No
        Borrower shall indirectly do or cause to be done any act which, if done directly
        by that Borrower, would breach any covenant contained in this
        Agreement.

       

      4.28. Pharmaceutical
        Laws. 

       

      (a) Each
        Borrower has obtained all permits, licenses and other authorizations which
        are
        required with respect to the ownership and operations of its businesses under
        any Pharmaceutical Law, except where the failure to obtain such permits,
        licenses or other authorizations could not reasonably be expected to have
        a
        material adverse effect on the financial condition of any Borrower.

       

      (b) Each
        Borrower is in compliance with all terms and conditions of all such permits,
        licenses, orders and authorizations, and is also in compliance with all
        Pharmaceutical Laws, including all other limitations, restrictions, conditions,
        standards, prohibitions, requirements, obligations, schedules and timetables
        contained in the Pharmaceutical Laws, except where the failure to comply
        with
        such terms, conditions or laws could not reasonably be expected to have a
        material adverse effect on the financial condition of any Borrower.

       

      (c) No
        Borrower has any liabilities, claims against it, and presently outstanding
        notices imposed or based upon any provision of any Pharmaceutical Law, except
        for such liabilities, claims, citations or notices which individually or
        in the
        aggregate could not reasonably be expected to have a material adverse effect
        on
        the financial condition of any Borrower. 

       

      4.29. HIPAA
        Compliance.

       

      (a) To
        the
        extent that and for so long as any Borrower is a “covered entity” within the
        meaning of HIPAA, such Borrower (i) has undertaken or will promptly undertake
        all applicable surveys, audits, inventories, reviews, analyses and/or
        assessments (including any required risk assessments) of all areas of its
        business and operations required by HIPAA and/or that could be adversely
        affected by failure of such Borrower to be HIPAA Compliant (as defined below);
        (ii) has developed or will promptly develop a detailed plan and time line
        for
        becoming HIPAA Compliant (a “HIPAA
        Compliance Plan”);
        and
        (iii) has implemented or will implement those provisions of such HIPAA
        Compliance Plan in all material respects necessary to ensure that such Borrower
        is or becomes HIPAA Compliant.

       

      (b) For
        purposes hereof, “HIPAA
        Compliant”
        shall
        mean that a Borrower to the extent legally required (i) is or will use
        commercially reasonable efforts to be in compliance in all material respects
        with each of the applicable requirements of the so-called “Administrative
        Simplification” provisions of HIPAA on and as of each date that any part
        thereof, or any final rule or regulation thereunder, becomes effective in
        accordance with its or their terms, as the case may be (each such date, a
        “HIPAA
        Compliance Date”)
        and
        (ii) is not and could not reasonably be expected to become, as of any date
        following any such HIPAA Compliance Date, the subject of any civil or criminal
        penalty, process, claim, action or proceeding, or any administrative or other
        regulatory review, survey, process or proceeding (other than routine surveys
        or
        reviews conducted by any government health plan or other accreditation entity)
        that could result in any of the foregoing or that has or could reasonably
        be
        expected to have a material adverse effect on the financial condition of
        any
        Borrower.

       

      
        
          
          

        

        
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      (c) Exhibit
        4.29,
        annexed
        hereto, sets forth a complete list of all “business associate agreements” (as
        such term is defined in HIPAA) that the Borrowers have entered into with
        any
        Person as of the Closing Date and true, correct and complete copies of all
        of
        such agreements have been provided to Agent.

       

      4.30. Compliance
        with Health Care Laws.

       

      (a) Each
        Borrower is in compliance with all Health Care Laws, including all Medicare
        and
        Medicaid program rules and regulations applicable to it. Without limiting
        the
        generality of the foregoing, Borrower has not received notice of any violation
        of any provisions of the Medicare and Medicaid Anti-Fraud and Abuse or
        Anti-Kickback Amendments of the Social Security Act (presently codified in
        Section 1128(B)(b) of the Social Security Act) or the Medicare and Medicaid
        Patient and Program Protection Act of 1987.

       

      (b) Each
        Borrower has maintained in all material respects all records required to
        be
        maintained by the Food and Drug Administration, Drug Enforcement Agency and
        State Boards of Pharmacy and the Federal and State Medicare and Medicaid
        programs as required by the Health Care Laws or other applicable law or
        regulation and such Borrower and the owners of the facilities and other
        businesses managed by such Borrower have all permits, licenses, franchises,
        certificates and other approvals or authorizations of Governmental Authority
        as
        are required under Health Care Laws and under such HMO or similar licensure
        laws
        and such insurance laws and regulations, as are applicable thereto, and with
        respect to those facilities and other businesses that participate in Medicare
        and/or Medicaid, to receive reimbursement under Medicare and Medicaid, except
        where the failure to obtain will cause a material adverse effect on the
        financial condition of any Borrower.

       

      (c) Each
        Borrower who is a Certified Medicare Provider or Certified Medicaid Provider
        has
        in a timely manner filed all requisite cost reports, claims and other reports
        required to be filed in connection with all Medicare and Medicaid programs
        due
        on or before the date hereof, all of which are complete and correct in all
        material respects. There are no claims to the best of the Borrowers’ knowledge,
        actions or appeals pending (and no Borrower has filed any claims or reports
        which should result in any such claims, actions or appeals) before any Third
        Party Payor or Governmental Authority, including without limitation, any
        Fiscal
        Intermediary, the Provider Reimbursement Review Board or the Administrator
        of
        HCFA, with respect to any Medicare or Medicaid cost reports or claims filed
        by
        any Borrower on or before the date hereof. No validation review or program
        integrity review related to a Borrower as it may have a Material Adversely
        Effect, or the consummation of the transactions contemplated hereby, has
        been
        conducted by any Third Party Payor or Governmental Authority in connection
        with
        Medicare or Medicare programs, and to the best of Borrowers’ knowledge, no such
        reviews are scheduled, pending or threatened against or affecting any Borrower
        ,
        or any of its assets, or, the consummation of the transactions contemplated
        hereby. To the best of the Borrowers’ knowledge, there currently exist no
        restrictions, deficiencies, required plans of correction actions or other
        such
        remedial measures with respect to Federal and State Medicare and Medicaid
        certifications or licensure against such parties. Borrower is not a participant
        in the Periodic Interim Payment Program established pursuant to the Social
        Security Act.

       

      (d) EXHIBIT 4.30
        hereto
        sets forth an accurate, complete and current list of all participation
        agreements of the Borrowers with health maintenance organizations, insurance
        programs, preferred provider organizations and other Third Party Payors and
        all
        such agreements are in full force and effect and no material default exists
        thereunder. 

       

      
        
          
          

        

        
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      4.31. Prescription
        Files.
        With
        respect to the Prescription Files: (i) Borrowers shall at all times maintain
        the
        Prescription Files in a manner consistent with the requirements of Federal,
        state and local laws and regulations in all material respects, including
        all
        Health Care Laws, which files and records related thereto shall be correct
        and
        accurate in all material respects; (ii) Borrowers shall not remove any
        Prescription Files from the locations set forth or permitted herein, without
        the
        prior written consent of Agent, except for transfers of Prescription Files
        in
        the ordinary course of its business (including at the request of customers
        with
        respect to such customer’s own Prescription Files) and except to move
        Prescription Files directly from one location set forth or permitted herein
        to
        another such location or in connection with the sale of Prescription Files
        in
        the ordinary course of business in connection with the closing of any retail
        store not to exceed an aggregate of $1,000,000.00 per year, upon the consent
        of
        Agent, and (iii) Agent and Revolving Credit Lenders are permitted to rely
        upon
        any upon written appraisals as to the Prescription Files obtained by the
        Agent
        in accordance with the terms and conditions of this Agreement; provided,
        however,
        that,
        in the event that the form, scope or methodology of any such appraisal or
        the
        appraiser conducting such appraisal is not reasonably acceptable to Agent,
        upon
        Agent’s request, Borrowers shall, at their expense, deliver or cause to be
        delivered to Agent such appraisals reasonably acceptable to Agent and by
        an
        appraiser acceptable to Agent, addressed to Agent and Revolving Credit Lenders
        and upon which Agent and Revolving Credit Lenders are expressly permitted
        to
        rely; (iv) Borrowers shall use, store and maintain the Prescription Files
        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 HIPAA) except where failure does not cause a material adverse effect;
        (v)
        there are no limitations or restrictions on the rights of Borrowers to sell,
        transfer or otherwise assign the Prescription Files to any third party so
        long
        as such third party has the licenses required under applicable state law
        to
        operate a pharmacy and sell products subject to a prescription; (vi) Borrowers
        assume all responsibility and liability arising from or relating to the use
        and
        sale of prescriptions and the maintenance and use of the Prescription Files;
        and
        (vii) Borrowers shall keep the Prescription Files in good and marketable
        condition.

       

      4.32. Sale
        of Valley Drug Company.
        The
        Borrowers shall complete the sale of the inventory and accounts receivable
        located at the New Castle, Pennsylvania facility of Valley Drug Company,
        by not
        later than November 30, 2005 for a cash price equal to not less than the
        amount
        of Advances then attributed to the assets of Valley Drug Company under the
        Borrowing Base.

       

      Article
        5 - Financial
        Reporting and Performance Covenants:

       

      5.1. Maintain
        Records.
        The
        Borrowers shall:

       

      (a) At
        all
        times, keep proper books of account, in which full, true, and accurate entries
        shall be made of all of the Borrowers' financial transactions, all in accordance
        with GAAP applied consistently with prior periods to fairly reflect the
        Consolidated financial condition of the Borrowers 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 5 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 Consolidated
        financial condition of the Borrowers at the close of, and the results of
        operations for, the period(s) covered therein.

       

      (c) At
        all
        times, keep accurate current records of the Collateral including, without
        limitation, accurate current stock, cost, and sales records of its Inventory,
        accurately and sufficiently itemizing and describing the kinds, types, and
        quantities of Inventory and the cost and selling prices thereof.

       

      (d) At
        all
        times, retain independent certified public accountants who are reasonably
        satisfactory to the Agent and instruct such accountants to fully cooperate
        with,
        and be available to, the Agent to discuss the Borrowers' financial performance,
        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. 

       

      (e) Not
        change any Borrower's fiscal year.

       

      
        
          
          

        

        
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      5.2. Access
        to Records. 

       

      (a) Upon
        reasonable prior notice, each Borrower shall accord the Agent with access
        from
        time to time as the Agent may require to all properties owned by or over
        which
        any Borrower has control. The Agent shall have the right, and each Borrower
        will
        permit the Agent from time to time as Agent may request, to examine, inspect,
        copy, and make extracts from any and all of the Borrowers' books, records,
        electronically stored data, papers, and files. Each Borrower shall make all
        of
        that Borrower's copying facilities available to the Agent.

       

      (b) Each
        Borrower hereby authorizes the Agent to:

       

      (i) 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 any Borrower, or any service bureau, contractor,
        accountant, or other person (other than confidential medical records), and
        directs any such service bureau, contractor, accountant, or other person
        fully
        to cooperate with the Agent with respect thereto.

       

      (ii) Verify
        at
        any time the Collateral or any portion thereof, including verification with
        Account Debtors, and/or with each Borrower's computer billing companies,
        collection agencies, and accountants and to sign the name of each Borrower
        on
        any notice to each Borrower's Account Debtors or verification of the Collateral.
        

       

      (c) The
        Agent
        from time to time may designate one or more representatives to exercise the
        Agent's rights under this Section 5.2 as fully as if the Agent were doing
        so.

       

      5.3. Immediate
        Notice to Agent. 

       

      (a) The
        Lead
        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 any Borrower's President, chief executive officer, chief operating
        officer, and chief financial officer (without regard to the title(s) actually
        given to the Persons discharging the duties customarily discharged by officers
        with those titles).

       

      (ii) Any
        ceasing of any Borrower's making of payment, in the ordinary course, to any
        of
        its creditors (other than its ceasing of making of such payments on account
        of a
        de minimis dispute).

       

      (iii) Any
        failure by any Borrower to pay rent at any of that Borrower's locations,
        which
        failure continues for more than Three (3) days following the last day on
        which
        such rent was payable without more than a de minimis adverse effect to that
        Borrower.

       

      (iv) Any
        Material Adverse Change.

       

      (v) Any
        Borrower's becoming In Default.

       

      (vi) Any
        intention on the part of any Borrower to discharge that Borrower's present
        independent accountants or any withdrawal or resignation by such independent
        accountants from their acting in such capacity (as to which, see Subsection
        5.1(d)).

       

      (vii) Any
        litigation which, if determined adversely to a Borrower, is reasonably likely
        to
        have a material adverse effect on the financial condition of such Borrower.
        

       

      (b) The
        Lead
        Borrower shall:

       

      
        
          
          

        

        
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      (i) Add
        the
        Agent as an addressee on all mailing lists maintained by or for each
        Borrower.

       

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

       

      5.4. Borrowing
        Base Certificate.
        The Lead
        Borrower shall provide the Agent with a Borrowing Base Certificate (in the
        form
        of EXHIBIT
        5.4
        annexed
        hereto, as such form may be revised from time to time by the Agent) weekly,
        by
        11:30 a.m. on Wednesday of each week (updated as of the then immediately
        preceding Friday), and on each day on which a Revolving Credit Loan or L/C
        is
        requested.
        Each
        weekly Borrowing Base Certificate shall be accompanied by such back-up
        documentation as may be reasonably requested from time to time by the Agent,
        including, without limitation, sales reports, monthly prescriptions-filled
        summary, accounts receivable agings, accounts payable agings, and such other
        information as may be reasonably requested from time to time by the
        Agent.
        The
        foregoing may be sent to the Agent by facsimile transmission, provided that
        the
        original thereof is forwarded to the Agent on the date of such
        transmission.

       

      5.5. Intentionally
        Omitted.

       

      5.6. Monthly
        Reports.
        Monthly, the Lead Borrower shall provide the Agent with those financial
        statements and reports described in EXHIBIT
        5.6,
        annexed
        hereto. 

       

      5.7. Intentionally
        Omitted

       

      5.8. Annual
        Reports. 

       

      (a) Annually,
        within ninety (90) days following the end of the Borrowers' fiscal year,
        the
        Lead Borrower shall furnish the Agent with the following:

       

      (i) An
        original signed counterpart of the Borrowers' Consolidated annual financial
        statement, which statement shall have been prepared by, and bear the unqualified
        opinion of, the Lead 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, cash
        flows, and schedules of consolidation.

       

      (ii) The
        officer's compliance certificate described in Section 5.9.

       

      (b) No
        later
        than the earlier of Fifteen (15) days prior to the end of each of the Borrowers'
        fiscal years or the date on which such accountants commence their work on
        the
        preparation of the Borrowers' annual financial statement, the Lead Borrower
        shall give written notice to such accountants (with a copy of such notice,
        when
        sent, to the Agent) that:

       

      (i) Such
        annual financial statement will be delivered by the Lead Borrower to the
        Agent
        (for subsequent distribution to each Revolving Credit Lender).

       

      (ii) It
        is the
        primary intention of the Borrowers, in its engagement of such accountants,
        to
        satisfy the financial reporting requirements set forth in this Article
        5.

       

      (iii) The
        Lead
        Borrower has been advised that the Agent and each Revolving Credit Lender
        will
        rely thereon with respect to the administration of, and transactions under,
        the
        credit facility contemplated by this Agreement.

       

      (c) Each
        annual statement shall be accompanied by such accountant's Certificate
        indicating that, in conducting the audit for such annual statement, nothing
        came
        to the attention of such accountants to believe that the Borrower is not
        In
        Default (or that if the Borrower is in Default, the facts and circumstances
        thereof).

       

      
        
          
          

        

        
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      (d) The
        Lead
        Borrower shall cause the delivery to the Agent, with the annual statement
        to be
        furnished by the Lead Borrower pursuant to this section, of an updated financial
        statement (in form satisfactory to the Agent) of, and signed by each guarantor
        of the Liabilities, which personal financial statement shall be of a date
        not
        more than Fourteen (14) days prior to the date of such delivery and each
        time
        when filed by the subject guarantor, a copy of that guarantor's federal income
        tax return so filed.

       

      5.9. Officers'
        Certificates.
        The Lead
        Borrower shall cause the Lead Borrower's Chief Financial Officer, in each
        instance, to provide such Person's Certificate with those monthly financial
        statements to be provided within thirty (30) days of the end of each month
        and
        with those to be provided quarterly and annual statements to be furnished
        pursuant to this Agreement, which Certificate shall:

       

      (a) Indicate
        that the subject statement was prepared in accordance with GAAP consistently
        applied and presents fairly the Consolidated financial condition of the
        Borrowers at the close of, and the results of the Borrowers' operations and
        cash
        flows for, the period(s) covered, subject, however to the
        following:

       

      (i) Usual
        year end adjustments (this exception shall not be included in the Certificate
        which accompanies such annual statement).

       

      (ii) 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.

       

      (b) Indicate
        either that (i) no Borrower is In Default, or (ii) if such an event has
        occurred, its nature (in reasonable detail) and the steps (if any) being
        taken
        or contemplated by the Borrowers to be taken on account thereof.

       

      (c) Include
        calculations concerning the Borrowers' compliance (or failure to comply)
        at the
        date of the subject statement with each of the financial performance covenants
        included in Section 5.12.

       

      5.10. Inventories,
        Appraisals, and Audits. 

       

      (a) The
        Agent, at the expense of the Borrowers, may participate in and/or observe
        each
        physical count and/or inventory of so much of the Collateral as consists
        of
        Inventory which is undertaken on behalf of any Borrower. 

       

      (b) The
        Borrowers, at their own expense, shall cause not less than One (1) physical
        inventory to be undertaken in each Twelve (12) month period during which
        this
        Agreement is in effect conducted by such third-party inventory takers as
        are
        reasonably satisfactory to the Agent and following such methodology as may
        be
        reasonably satisfactory to the Agent. 

       

      (i) The
        Lead
        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
        any
        Borrower) within Ten (10) days following the completion of such
        inventory.

       

      (ii) The
        Lead
        Borrower, within Thirty (30) days following the completion of such inventory,
        shall provide the Agent with a reconciliation of the results of each such
        inventory (as well as of any other physical inventory undertaken by any
        Borrower) and shall post such results to the Borrowers' stock ledger and,
        as
        applicable to the Borrowers' other financial books and records.

       

      
        
          
          

        

        
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      (iii) The
        Agent, in its discretion, if any Borrower is In Default, may cause such
        additional inventories to be taken as the Agent determines (each, at the
        expense
        of the Borrowers).

       

      (c) The
        Agent
        may obtain appraisals of the Collateral, from time to time (in all events,
        at
        the Borrowers' expense) conducted by such third-party appraisers as are
        reasonably satisfactory to the Agent.

       

      (d) The
        Agent
        contemplates conducting Four (4) commercial finance field examinations (in
        each
        event, at the Borrowers' expense) of the Borrowers' books and records during
        any
        Twelve (12) month period during which this Agreement is in effect, but in
        its
        discretion, may undertake additional such audits (likewise at the Borrower's
        expense) during such period.

       

      5.11. Additional
        Financial Information. 

       

      (a) In
        addition to all other information required to be provided pursuant to this
        Article 5, the Lead Borrower promptly shall provide the Agent (and any guarantor
        of the Liabilities), with such other and additional information concerning
        the
        Borrowers, the Collateral, the operation of the Borrowers' business, and
        the
        Borrowers' financial condition, including original counterparts of financial
        reports and statements, as the Agent may from time to time reasonably request
        from the Lead Borrower. 

       

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

       

      (c) In
        all
        events, the Lead Borrower, no sooner than Ninety (90) nor later than Sixty
        (60)
        days prior to the end of each of the Borrowers' fiscal years, shall provide
        the
        Agent with an updated and extended forecast which shall go out at least through
        the end of the then next fiscal year and shall include an income statement,
        balance sheet, and statement of cash flow, by month, each Consolidated (with
        consolidating schedules) and each prepared in conformity with GAAP and
        consistent with the Borrowers' then current practices.

       

      (d) The
        Agent, following the receipt of any of such forecast, may, but shall not
        be
        under any obligation to, provide its written sign-off on such forecast (in
        which
        event, such forecast shall become the Business Plan) and if it provides such
        written sign-off, may by written notice to the Lead Borrower, extend or revise
        the financial performance covenants included on EXHIBIT 5.12, annexed
        hereto. 

       

      (e) In
        the
        event that the Agent does not provide its sign-off with respect to the updated
        and extended forecast to be provided at year-end pursuant to Section 5.11(c),
        then the Agent, by written notice to the Lead Borrower, may revise, roll-over,
        or extend, for the then coming fiscal year, the financial performance covenants
        applicable to the Borrowers pursuant to Section 5.12 by extrapolation from
        the
        Business Plan.

       

      (f) Each
        Borrower recognizes that all appraisals, inventories, analysis, financial
        information, and other materials which the Agent may obtain, develop, or
        receive
        with respect to the Borrowers are confidential to the Agent and that, except
        as
        otherwise provided herein, no Borrower is 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 Covenants.
        Agent
        and Lead Borrower shall make good faith efforts to reach agreement as to
        applicable financial performance covenants. On and after such date as financial
        performance covenants are agreed upon, the Borrowers shall observe and comply
        with those financial performance covenants which shall be set forth on
EXHIBIT
        5.12(a),
        certain
        of which covenants shall be based on the then-current Business Plan. Such
        financial performance covenants shall be subject to change, revision, roll
        over,
        and extension as provided in Section 5.11(d). Compliance with such financial
        performance covenants 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
        Borrowers' compliance with such covenants based upon financial reports and
        statements provided by the Lead 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.

       

      
        
          
          

        

        
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      Article
        6 - Use
        of Collateral:

       

      6.1. Use
        of Inventory Collateral. 

       

      (a) No
        Borrower shall engage in any of the following with respect to its Inventory:
        

       

      (i) Any
        sale
        other than

       

      (A) for
        fair
        consideration in the conduct of the Borrowers' business in the ordinary course
        or,

       

      (B) a
        Permitted Disposition.

       

      (ii) Sales
        or
        other dispositions to creditors.

       

      (iii) Sales
        or
        other dispositions in bulk (other than as part of a Permitted
        Disposition).

       

      (iv) Sales
        of
        any Collateral 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, such Inventory may be returned to a Borrower without the consent
        of
        the Agent.

       

      6.2. Inventory
        Quality.
        All
        Inventory now owned or hereafter acquired by each Borrower is and will be
        of
        good and merchantable quality and free from defects (other than defects within
        customary trade tolerances). 

       

      6.3. Adjustments
        and Allowances.
        Each
        Borrower may grant such allowances or other adjustments to that Borrower's
        Account Debtors (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 that Borrower may reasonably deem
        to
        accord with sound business practice, provided, however, the authority granted
        the Borrowers pursuant to this Section 6.3 may be limited or terminated by
        the
        Agent at any time in the Agent's discretion.

       

      6.4. Validity
        of Accounts. 

       

      (a) The
        amount of each Account shown on the books, records, and invoices of the
        Borrowers represented as owing by each Account Debtor is and will be the
        correct
        amount actually owing by such Account Debtor and shall have been fully earned
        by
        performance by the Borrowers. 

       

      (b) The
        Agent
        from time to time may verify the Receivables Collateral directly with the
        Borrowers' Account Debtors, such verification to be undertaken in keeping
        with
        commercially reasonable commercial lending standards.

       

      (c) No
        Borrower has any knowledge of any impairment of the validity or collectability
        of any of the Accounts. The Lead Borrower shall notify the Agent of any such
        impairment immediately after any Borrower becomes aware of any such impairment.
        

       

      
        
          
          

        

        
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      (d) No
        Borrower shall post any bond to secure any Borrower's performance under any
        agreement to which any Borrower is a party nor cause any surety, guarantor,
        or
        other third party obligee to become liable to perform any obligation of any
        Borrower (other than to the Agent) in the event of any Borrower's failure
        so to
        perform.

       

      6.5. Notification
        to Account Debtors.
        The
        Agent shall have the right (upon the occurrence and during the continuance
        of an
        Event of Default) to notify any of the Borrowers' Account Debtors to make
        payment directly to the Agent and to collect all amounts due on account of
        the
        Collateral. 

       

      Article
        7 - Cash
        Management. Payment of Liabilities:

       

      7.1. The
        Concentration, Blocked, and Operating Accounts. 

       

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

       

      (i) The
        "Concentration
        Account"
        (so
        referred to herein): Established by the Agent with BOA.

       

      (ii) The
        "Blocked
        Accounts"
        (so
        referred to herein): Established by the Lead Borrower with BOA.

       

      (iii) The
        "Operating
        Account"
        (so
        referred to herein): Established by the Lead Borrower with BOA.

       

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

       

      (c) The
        Borrowers 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).

       

      7.2. Proceeds
        and Collections. 

       

      (a) All
        Receipts and all cash proceeds of any sale or other disposition of any of
        each
        Borrower's assets: 

       

      (i) Constitute
        Collateral and proceeds of Collateral.

       

      (ii) Shall
        be
        held in trust by the Borrowers for the Agent.

       

      (iii) Shall
        not
        be commingled with any of any Borrower's other funds.

       

      (iv) Shall
        be
        deposited and/or transferred only to the Blocked Accounts or the Concentration
        Account.

       

      (b) The
        Lead
        Borrower shall cause the ACH or wire transfer to the Blocked Accounts or
        the
        Concentration Accounts, not less frequently than daily (except that the Agent
        may in its discretion agree that certain DDA’s related to individual stores may
        be swept not more often than weekly), and whether or not there is then an
        outstanding balance in the Loan Account, of the following:

       

      
        
          
          

        

        
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      (i) The
        then
        contents of each DDA (other than any Exempt DDA), each such transfer to be
        net
        of any minimum balance, not to exceed $1,000.00, as may be required to be
        maintained in the subject DDA by the bank at which such DDA is
        maintained.

       

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

       

      (iii) Telephone
        advice (confirmed by written notice) shall be provided to the Agent on each
        Business Day on which any such transfer is made.

       

      (c) Whether
        or not any Liabilities are then outstanding, the Lead Borrower shall cause
        the
        ACH or wire transfer to the Concentration Account, no less frequently than
        daily, of then entire ledger balance of the Blocked Accounts, net of such
        minimum balance, not to exceed $1,000.00 as may be required to be maintained
        in
        a Blocked Account by the depository which such Blocked Account is maintained.
        

       

      (d) In
        the
        event that, notwithstanding the provisions of this Section 7.2, any Borrower
        receives or otherwise has dominion and control of any Receipts, or any proceeds
        or collections of any Collateral, such Receipts, proceeds, and collections
        shall
        be held in trust by that Borrower for the Agent and shall not be commingled
        with
        any of that Borrower's other funds or deposited in any account of any Borrower
        other than as instructed by the Agent.

       

      7.3. 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 impressed balances
        as
        may be required by the bank at which the Concentration Account is maintained)
        towards the unpaid balance of the Loan Account and 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
        Section 7.3:

       

      (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 2:00 p.m. 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 2:00 p.m. on that Business Day. 

       

      (iii) If
        notice
        of a deposit to the Concentration Account (Section 7.3(b)(i) or payment (Section
        7.3(b)(ii)) is not available to the Agent until after 2:00 p.m. on a Business
        Day, such deposit or payment shall be deemed to have been made at 9:00 a.m.
        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
        7.3(a), above (less those amount which are to be netted out, as provided
        therein) provided, however, in the event that

       

      
        
          
          

        

        
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      (i) any
        Borrower is In Default; and

       

      (ii) one
        or
        more L/C's are then outstanding,

       

      then
        the
        Agent may establish a funded reserve of up to 110% of the aggregate Stated
        Amounts of such L/C's. Such funded reserve shall either be (i) returned to
        the
        Lead Borrower provided that no Borrower is In Default or (ii) applied towards
        the Liabilities following the occurrence of any Event of Default described
        in
        Section 10.11 or acceleration following the occurrence of any other Event
        of
        Default.

       

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

       

      7.5. Medicare
        and Medicaid Payments. The
        Borrowers shall cause all Medicare and Medicaid payments, and only Medicare
        and
        Medicaid payments, to be remitted to such post office lockbox address(es)
        as is
        provided in the Governmental Receivables Lockbox Account Agreement, and the
        remittances shall then be processed by BOA for deposit in the lockbox account
        established by Borrowers with BOA (the “Government
        Receivables Lockbox Account”).
        As
        provided in the Governmental Receivables Blocked Account Agreement, all amounts
        in the Governmental Receivables Lockbox Account shall be swept daily to the
        applicable blocked account at BOA (the “Government
        Receivables Blocked Account”).
        Borrowers shall not cause, or permit to occur, any modification to the
        Governmental Receivables Lockbox Account Agreement or Governmental Receivables
        Blocked Account Agreement, or to the flow of funds as contemplated by those
        agreements.

       

      Article
        8 - Grant
        of Security Interest:

       

      8.1. Grant
        of Security Interest.
        To
        secure the Borrowers' prompt, punctual, and faithful performance of all and
        each
        of the Liabilities, each Borrower hereby grants to the Agent, for the ratable
        benefit of the Revolving Credit Lenders, a continuing security interest in
        and
        to, and assigns to the Agent, for the ratable benefit of the Revolving Credit
        Lenders, the following, and each item thereof, whether now owned or now due,
        or
        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 and accounts receivable.

       

      (b) All
        Inventory.

       

      (c) All
        General Intangibles.

       

      (d) All
        Equipment.

       

      (e) All
        Goods.

       

      (f) All
        Fixtures.

       

      (g) All
        Chattel Paper.

       

      (h) All
        Health-Care-Insurance Receivables.

       

      (i) All
        Letter-of-Credit Rights.

       

      (j) All
        Payment Intangibles.

       

      
        
          
          

        

        
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      (k) All
        Supporting Obligations.

       

      (l) All
        books, records, and information relating to the Collateral and/or to the
        operation of each Borrowers' 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.

       

      (m) All
        Leasehold Interests. 

       

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

       

      (o) 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. (8.1(a)) through 8.1(n))
        or otherwise.

       

      (p) All
        liens, guaranties, rights, remedies, and privileges pertaining to any of
        the
        foregoing (8.1(a)) through 8.1(o)), including the right of stoppage in
        transit.

       

      8.2. Extent
        and Duration of Security Interest. 

       

      (a) The
        security interest created and granted herein is in addition to, and supplemental
        of, any security interest previously granted by any Borrower to the Agent
        and
        shall continue in full force and effect applicable to all Liabilities until
        both


       

      (i) all
        Liabilities have been paid and/or satisfied in full; and 

       

      (ii) the
        security interest created herein is specifically terminated in writing by
        a duly
        authorized officer of the Agent.

       

      (b) It
        is
        intended that the Collateral Interests created herein extend to and cover
        all
        assets of each Borrower, other than those assets specifically excluded from
        the
        Collateral, as set forth on EXHIBIT
        8.2(b),
        annexed
        hereto.

       

      Article
        9 - Agent
        As Borrowers' Attorney-In-Fact:

       

      9.1. Appointment
        as Attorney-In-Fact.
        Each
        Borrower hereby irrevocably constitutes and appoints the Agent (acting through
        any officer of the Agent) as that Borrowers' 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 that Borrower, but for the sole benefit of the Agent and the
        Revolving Credit Lenders. 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 each Borrowers' mail
        is
        to be sent to such address as the Agent shall designate; receive and open
        each
        Borrowers' mail; remove any Receivables Collateral and Proceeds of Collateral
        therefrom and turn over the balance of such mail either to the Lead Borrower
        or
        to any trustee in bankruptcy or receiver of the Lead Borrower, or other legal
        representative of a Borrower whom the Agent determines to be the appropriate
        person to whom to so turn over such mail.

       

      (c) Endorse
        the name of the relevant 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 relevant 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.

       

      
        
          
          

        

        
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      (d) Sign
        the
        name of the relevant Borrower on any notice to that Borrowers' Account Debtors
        or verification of the Receivables Collateral; sign the relevant Borrowers'
        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 any 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 each Borrower.

       

      (g) Use,
        license or transfer any or all General Intangibles of each
        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 any 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
        10 - Events
        of Default:

       

      The
        occurrence of any event described in this Article 10 - respectively shall
        constitute an "Event
        of Default"
        herein.
        The occurrence of any Event of Default shall also constitute, without notice
        or
        demand, a default under all other agreements between the Agent or any Revolving
        Credit Lender and any Borrower and instruments and papers heretofore, now,
        or
        hereafter given the Agent or any Revolving Credit Lender by any Borrower.
        

       

      10.1. Failure
        to Pay the Revolving Credit.
        The
        failure by any Borrower to pay when due any principal of, interest on, or
        fees
        in respect of, the Revolving Credit. 

       

      10.2. Failure
        To Make Other Payments.
        The
        failure by any Borrower to pay within five (5) days of when due (or upon
        demand,
        if payable on demand), any payment Liability other than any payment liability
        on
        account of the principal of, or interest on, or fees in respect of, the
        Revolving Credit.

       

      10.3. Failure
        to Perform Covenant or Liability (No Grace Period).
        The
        failure by any Borrower to promptly, punctually, faithfully and timely perform,
        discharge, or comply with any covenant or Liability included in any of the
        following provisions hereof:

       

      
        	Section	Relates to
	 	 
	4.6	Encumbrances
	4.7	Indebtedness
	4.19	Dividends. Investments. Other Corporate
                Actions
	4.28	Pharmaceutical Laws
	Article 7 -	Cash
                Management


      

       

      10.4. Failure
        to Perform Covenant or Liability (Grace Period).
        The
        failure by the Borrowers to comply with (i) any covenant or Liability in
        Section
        4.14 or Article 5 which failure continues without cure for a period of five
        (5)
        days following the earlier of the Borrowers’ knowledge of such breach or of the
        receipt by Lead Borrower of written notice from the Agent of such breach)
        or
        (ii) any covenant or Liability not described in Sections 10.1, 10.2, 10.3
        or
        10.4(i) which failure continues without cure for a period of thirty (30)
        days
        following the earlier of the Borrowers’ knowledge of such breach or receipt by
        Lead Borrower of written notice from the Lender of such breach). 

       

      
        
          
          

        

        
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      10.5. Misrepresentation.
        The
        determination by the Agent that any representation or warranty at any time
        made
        by any Borrower to the Agent or any Revolving Credit Lender was not true
        or
        complete in all material respects when given.

       

      10.6. Acceleration
        of Other Debt. Breach of Lease.
        The
        occurrence of any event such that any Indebtedness of any Borrower to any
        creditor other than the Agent or any Revolving Credit Lender could be
        accelerated or, without the consent of any Borrower, any Lease could be
        terminated (whether or not the subject creditor or lessor takes any action
        on
        account of such occurrence).

       

      10.7. Default
        Under Other Agreements.
        The
        occurrence of any breach of any covenant or Liability imposed by, or of any
        default under, any agreement (including any Loan Document) between the Agent
        or
        any Revolving Credit Lender and any Borrower or instrument given by any Borrower
        to the Agent or any Revolving Credit Lender and the expiry, without cure,
        of any
        applicable grace period (notwithstanding that the subject Agent or Revolving
        Credit Lender 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
        material portion of the Collateral.

       

      10.9. Attachment.
        Judgment. Restraint of Business. 

       

      (a) The
        service of process upon the Agent or any Revolving Credit Lender or any
        Participant seeking to attach, by trustee, mesne, or other process, any funds
        of
        any Borrower on deposit with, or assets of any Borrower in the possession
        of,
        the Agent or that Revolving Credit or such Participant.

       

      (b) The
        entry
        of any judgment against any Borrower, which judgment is not satisfied (if
        a
        money judgment) or appealed from (with execution or similar process stayed)
        within thirty (30) days of its entry.

       

      (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 material way the conduct by any Borrower
        of its business in the ordinary course.

       

      10.10. Business
        Failure.
        Any act
        by, against, or relating to any Borrower, or its property or assets, which
        act
        constitutes the determination, by any 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 any Borrower's property; the granting
        of any
        trust mortgage or execution of an assignment for the benefit of the creditors
        of
        any Borrower, or the occurrence of any other voluntary or involuntary
        liquidation or extension of debt agreement for any Borrower; the offering
        by or
        entering into by any Borrower of any composition, extension, or any other
        arrangement seeking relief from or extension of the debts of any Borrower;
        or
        the initiation of any judicial or non-judicial proceeding or agreement by,
        against, or including any Borrower which seeks or intends to accomplish a
        reorganization or arrangement with creditors; and/or the initiation by or
        on
        behalf of any Borrower of the liquidation or winding up of all or any part
        of
        any Borrower's business or operations.

       

      10.11. Bankruptcy.
        The
        failure by any Borrower to generally pay the debts of that Borrower as they
        mature; adjudication of bankruptcy or insolvency relative to any Borrower;
        the
        entry of an order for relief or similar order with respect to any Borrower
        in
        any proceeding pursuant to the Bankruptcy Code or any other federal bankruptcy
        law; the filing of any complaint, application, or petition by any Borrower
        initiating any matter in which any 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 any Borrower initiating any matter in which that 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, which complaint,
        application, or petition is not timely contested in good faith by that Borrower
        by appropriate proceedings or, if so contested, is not dismissed within thirty
        (30) days of when filed. 

       

      
        
          
          

        

        
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      10.12. Indictment
        - Forfeiture.
        The
        indictment of, or institution of any legal process or proceeding against,
        any
        Borrower, under any Applicable Law where the relief, penalties, or remedies
        sought or available include the forfeiture of any property of any Borrower
        and/or the imposition of any stay or other order, the effect of which would
        be
        reasonably likely to be a Material Adverse Change.

       

      10.13. Guarantor's
        Default. The
        occurrence of any Guarantor's Default.

       

      10.14. Termination
        of Guaranty.
        The
        termination or attempted termination of any guaranty by any guarantor of
        the
        Liabilities. 

       

      10.15. Challenge
        to Loan Documents.

       

      (a) Any
        challenge by or on behalf of any Borrower 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 strictly 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. Change
        in Control.
        Any
        Change in Control.

       

      Article
        11 - Rights
        and Remedies Upon Default:

       

      11.1. Acceleration.
        Upon the
        occurrence of any Event of Default as described in Section 10.11, all
        Liabilities shall be immediately due and payable. Upon the occurrence of
        any
        Event of Default other than as described in Section 10.11, the Agent may
        (and on
        the issuance of Acceleration Notice(s) requisite to the causing of Acceleration,
        the Agent shall) declare all Liabilities to be immediately due and payable
        and
        may exercise all of the Agent's Rights and Remedies as the Agent from time
        to
        time thereafter determines as appropriate.

       

      11.2. 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 customs broker of any of the Borrowers to follow the instructions
        of the Agent as provided in any written agreement or undertaking of such
        broker
        in favor of the Agent.

       

      (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. 

       

      
        
          
          

        

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

       

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

       

      11.3. 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) 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 Lead Borrower such notice as may be practicable under the
        circumstances), the Agent shall give the Lead Borrower at least ten (10)
        days
        prior notice, by authenticated record, 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. Each Borrower agrees that such
        written notice shall satisfy all requirements for notice to that 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. 

       

      (c) The
        Agent
        and any Revolving Credit Lender may purchase the Collateral, or any portion
        of
        it at any sale held under this Article. 

       

      (d) 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.

       

      (e) The
        Agent
        shall apply the proceeds of the Agent's exercise of its rights and remedies
        upon
        default pursuant to this Article 11.

       

      11.4. Occupation
        of Business Location.
        In
        connection with the Agent's exercise of the Agent's rights under this Article
        11, the Agent may enter upon, occupy, and use any premises owned or occupied
        by
        each Borrower, and may exclude each 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 Borrowers. In no event shall the Agent be liable
        to
        any Borrower for use or occupancy by the Agent of any premises pursuant to
        this
        Article 11, nor for any charge (such as wages for any Borrowers' employees
        and
        utilities) incurred in connection with the Agent's exercise of the Agent's
        Rights and Remedies. 

       

      11.5. Grant
        of Nonexclusive License.
        Each
        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 any 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.

       

      11.6. Assembly
        of Collateral.
        The
        Agent may require any Borrower to assemble the Collateral and make it available
        to the Agent at the Borrowers' sole risk and expense at a place or places
        which
        are reasonably convenient to both the Agent and the Lead Borrower.

       

      
        
          
          

        

        
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      11.7. Rights
        and Remedies.
        The
        rights, remedies, powers, privileges, and discretions of the Agent hereunder
        (herein, the “Agent’s
        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
        12 - Revolving
        Credit Fundings and Distributions:

       

      12.1. Revolving
        Credit Funding Procedures.
        Subject
        to Section 12.2:

       

      (a) The
        Agent
        shall advise each Revolving Credit Lender, no later than 2:00 p.m. on a date
        on
        which any Revolving Credit Loan is to be made on that date. 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. Advice of a Revolving
        Credit Loan shall include the amount of and interest rate applicable to the
        subject Revolving Credit Loan.

       

      (b) Subject
        to that Revolving Credit Lender's Revolving Credit Dollar Commitment, each
        Revolving Credit Lender, by no later than the end of business on the day
        on
        which the subject Revolving Credit Loan is to be made, shall Transfer that
        Revolving Credit Lender's Revolving Credit Percentage Commitment of the subject
        Revolving Credit Loan to the Agent.

       

      12.2. Agent's
        Covering of Fundings:

       

      (a) Each
        Revolving Credit Lender shall make available to the Agent, as provided herein,
        that Revolving Credit Lender's Revolving Credit Percentage Commitment of
        the
        following: 

       

      (i) Each
        Revolving Credit Loan, up to the maximum amount of that Revolving Credit
        Lender's Revolving Credit Dollar Commitment of the Revolving Credit
        Loans.

       

      (ii) Up
        to the
        maximum amount of that Revolving Credit Lender's Revolving Credit 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 Revolving Credit Lender, subject to Section 12.3(a), timely shall
        make
        available to the Agent that Revolving Credit Lender's Revolving Credit
        Percentage Commitment of each Revolving Credit Loan, notice of which is provided
        pursuant to Section 12.1 and shall make available, to the extent not "covered"
        by a Revolving Credit Loan, that Revolving Credit Lender's Revolving Credit
        Percentage Commitment of any honoring of an L/C.

       

      (ii) In
        reliance upon such assumption, make available the corresponding amount to
        the
        Borrowers.

       

      (iii) (Assume
        that each Revolving Credit Lender timely shall pay, and shall make available,
        to
        the Agent all other amounts which that Revolving Credit Lender is obligated
        to
        so pay and/or make available hereunder or under any of the Loan
        Documents. 

       

      
        
          
          

        

        
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      (c) In
        the
        event that, in reliance upon any of such assumptions, the Agent makes available,
        a Revolving Credit Lender's Revolving Credit Percentage Commitment of one
        or
        more Revolving Credit Loans, or any other amount to be made available hereunder
        or under any of the Loan Documents, which amount a Revolving Credit Lender
        (a
        "Delinquent
        Revolving Credit 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"
        (and is
        so referred to herein).

       

      (ii) All
        interest paid by the Borrowers on account of the Revolving Credit Loan or
        coverage of the subject L/C Drawing which consist of the Agent's Cover shall
        be
        retained by the Agent until the Agent's Cover, with interest, has been
        paid.

       

      (iii) The
        Delinquent Revolving Credit Lender shall pay to the Agent, on demand, interest
        at a rate equal to the prevailing federal funds rate on any Agent's Cover
        in
        respect of that Delinquent Revolving Credit Lender

       

      (iv) The
        Agent
        shall have succeeded to all rights to payment to which the Delinquent Revolving
        Credit Lender otherwise would have been entitled hereunder in respect of
        those
        amounts paid by or in respect of the Borrowers on account of the Agent's
        Cover
        together with interest until it is repaid. 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 Revolving Credit Lender
        is
        then participating. For purposes of distributions to be made pursuant to
        Section
        12.3(a) (which relates to ordinary course distributions) or Section 13.6
        (which
        relates to distributions of proceeds of a Liquidation) below, amounts shall
        be
        deemed distributable to a Delinquent Revolving Credit 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 Revolving Credit
        Lender would otherwise have been entitled to a distribution.

       

      (v) Subject
        to Subsection 12.2(c)(iv), the Delinquent Revolving Credit Lender shall be
        entitled to receive any payments from the Borrowers to which the Delinquent
        Revolving Credit 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 12.2(c)(ii), above.

       

      (d) A
        Delinquent Revolving Credit Lender shall not be relieved of any obligation
        of
        such Delinquent Revolving Credit Lender hereunder (all and each of which
        shall
        constitute continuing obligations on the part of any Delinquent Revolving
        Credit
        Lender). 

       

      (e) A
        Delinquent Revolving Credit Lender may cure its status as a Delinquent Revolving
        Credit Lender by paying the Agent the aggregate of the following:

       

      (i) The
        Agent's Cover (to the extent not previously repaid by the Borrowers and retained
        by the Agent in accordance with Subsection 12.2(c)(iv)), above) with respect
        to
        that Delinquent Revolving Credit Lender. 

       

      Plus

       

      (ii) The
        aggregate of the amount payable under Subsection 12.2(c)(iii), above (which
        relates to interest to be paid by that Delinquent Revolving Credit
        Lender).

       

      Plus
        

       

      (iii) All
        such
        costs and expenses as may be incurred by the Agent in the enforcement of
        the
        Agent's rights against such Delinquent Revolving Credit Lender. 

       

      
        
          
          

        

        
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      12.3. Ordinary
        Course Distributions.
        (This
        Section 12.3 applies unless the provisions of Section 13.6 (which relates
        to
        distributions in the event of a Liquidation) becomes operative).

       

      (a) 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 Revolving Credit Lender shall settle up
        on
        amounts advanced under the Revolving Credit and collected funds received
        in the
        Concentration Account.

       

      (b) The
        Agent
        shall distribute to each Revolving Credit Lender, such Person's respective
        pro-rata share of interest payments on the Revolving Credit Loans when actually
        received and collected by the Agent (excluding the Two (2) Business Days
        for
        settlement provided for in Section 7.3(a), which shall be for the account
        of the
        Agent only). For purposes of calculating interest due to a Revolving Credit
        Lender, that Revolving Credit Lender shall be entitled to receive interest
        on
        the actual amount contributed by that Revolving Credit Lender towards the
        principal balance of the Revolving Credit Loans outstanding during the
        applicable period covered by the interest payment made by the Borrowers.
        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 Revolving Credit Lender, until the Agent has distributed to that Revolving
        Credit Lender its pro-rata share thereof.

       

      (c) No
        Revolving Credit 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 7.3(a). Any such float shall be for the account of the Agent
        only.

       

      (d) No
        Revolving Credit Lender shall have any interest in, or right to receive any
        part
        of, the any fees to be paid by the Borrowers to the Agent pursuant to the
        Fee
        Letter.

       

      (e) 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 (and if such Person(s) is (are) the Revolving Credit Lenders, pro-rata
        based upon their respective Revolving Credit Commitment Percentages at the
        date
        on which the expense, in respect of which such reimbursement is being made,
        was
        incurred). 

       

      (f) Each
        distribution pursuant to this Section 12.3 is subject to Section 12.2(c),
        above.

       

      Article
        13 - Acceleration
        and Liquidation:

       

      13.1. Acceleration
        Notices

       

      (a) The
        Agent
        may give the Revolving Credit Lenders an Acceleration Notice at any time
        following the occurrence of an Event of Default.

       

      (b) The
        SuperMajority Lenders may give the Agent an Acceleration Notice at any time
        following the occurrence of an Event of Default. Such notice may be by multiple
        counterparts, provided that counterparts executed by the requisite Revolving
        Credit Lenders are received by the Agent within a period of five (5) consecutive
        Business Days.

       

      13.2. Acceleration.
        Unless
        stayed by judicial or statutory process, the Agent shall Accelerate the
        Liabilities on account of the Revolving Credit within a commercially reasonable
        time following:

       

      (a) The
        Agent's giving of an Acceleration Notice to the Revolving Credit Lenders
        as
        provided in Section 13.1(a).

       

      
        
          
          

        

        
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      (b) The
        Agent's receipt of an Acceleration Notice from the SuperMajority Lenders,
        in
        compliance with Section 13.1(b).

       

      13.3. 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
        Liabilities on account of the Revolving Credit.

       

      13.4. Actions
        At and Following Initiation of Liquidation

       

      (a) At
        the
        initiation of a Liquidation the Agent and the Revolving Credit Lenders shall
        "net out" each Revolving Credit Lender's respective contributions towards
        the
        Revolving Credit Loans, so that each Revolving Credit Lender holds that
        Revolving Credit Lender's Revolving Credit Percentage Commitment of the
        Revolving Credit Loans and advances. 

       

      (b) Following
        the initiation of a Liquidation, each Revolving Credit Lender shall contribute,
        towards any L/C thereafter honored and not immediately reimbursed by the
        Borrowers, that Revolving Credit Lender's Revolving Credit Percentage Commitment
        of such honoring.

       

      13.5. Agent's
        Conduct of Liquidation

       

      (a) Any
        Liquidation shall be conducted by the Agent, with the advice and assistance
        of
        the Revolving Credit 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 any Revolving Credit Lender)
        unless indemnified to the Agent's satisfaction by the Revolving Credit 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
        Revolving Credit Lender shall execute all such instruments and documents
        not
        inconsistent with the provisions of this Agreement 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.

       

      13.6. 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 future
        expenses which may be incurred by the Agent in the exercise of rights as
        a
        secured creditor of the Borrowers and prior claims which the Agent anticipates
        may need to be paid.

       

      (b) The
        Agent
        shall distribute the net proceeds of Liquidation in accordance with the relative
        priorities set forth in Section 13.7.

       

      
        
          
          

        

        
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      (c) Each
        Revolving Credit 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, pro-rata, 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.

       

      13.7. Relative
        Priorities To Proceeds of Liquidation  

       

      (a) All
        distributions of proceeds of a Liquidation shall be net of payment over to
        the
        Agent as reimbursement for all reasonable third party costs and expenses
        incurred by the Agent and to Lenders' Special Counsel and to any funded reserve
        established pursuant to Section 13.6(a).

       

      (b) The
        proceeds of a Liquidation, net of those amounts described in Section
        12.2(c)(iv), shall be distributed based on the following
        priorities:

       

      (i) To
        the
        Revolving Credit Lenders (other than any Delinquent Revolving Credit Lender),
        pro-rata, to the unpaid principal balance of the Revolving Credit; and
        then

       

      (ii) To
        the
        Revolving Credit Lenders (other than any Delinquent Revolving Credit Lender),
        pro-rata, to accrued interest on the Revolving Credit; and then

       

      (iii) To
        the
        Revolving Credit Lenders (other than any Delinquent Revolving Credit Lender),
        pro-rata, to those fees distributable hereunder to the Revolving Credit Lenders;
        and then

       

      (iv) To
        any
        Delinquent Revolving Credit Lenders, pro-rata to amounts to which such Revolving
        Credit Lenders otherwise would have been entitled pursuant to Sections
        13.7(b)(i), 13.7(b)(ii), 13.7(b)(iii); and then

       

      (v) To
        the
        Revolving Credit Lenders, pro-rata, to the extent of the Revolving Credit
        Early
        Termination Fee; and then

       

      (vi) To
        any
        other Liabilities.

       

      Article
        14 - The
        Agent: 

       

      14.1. Appointment
        of The Agent

       

      (a) Each
        Lender appoints and designates Wells Fargo Retail Finance, LLC as the "Agent"
        hereunder and under the Loan Documents. 

       

      (b) Each
        Revolving Credit Lender authorizes the Agent:

       

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

       

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

       

      14.2. Responsibilities
        of Agent 

       

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

       

      
        
          
          

        

        
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      (b) Neither
        the Agent nor any of its Affiliates shall be responsible to any Revolving
        Credit
        Lender for any of the following:

       

      (i) Any
        recitals, statements, representations or warranties made by any Borrower
        or any
        other Person.

       

      (ii) Any
        appraisals or other assessments of the assets of any Borrower or of any other
        Person responsible for or on account of the Liabilities.

       

      (iii) The
        value, validity, effectiveness, genuineness, enforceability, or sufficiency
        of
        the Loan Agreement, the Loan Documents or any other document referred to
        or
        provided for therein.

       

      (iv) Any
        failure by any Borrower or any other Person (other than the Agent) to perform
        its obligations under the Loan Documents. 

       

      (c) The
        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 by the Agent 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.

       

      (d) Neither
        the Agent, nor any of its directors, officers, or employees shall be responsible
        for any action taken or omitted to be 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.
        

       

      (e) The
        Agent
        shall not have any responsibility in any event for more funds than the Agent
        actually receives and collects.

       

      (f) The
        Agent, in its separate capacity as a Lender, shall have the same rights and
        powers hereunder as any other Lender.

       

      14.3. Concerning
        Distributions By the Agent 

       

      (a) The
        Agent
        in the Agent's 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 Revolving Credit 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 the Agent, the distribution of any amount received by the
        Agent
        might involve the Agent in liability, or might be prohibited hereby, or might
        be
        questioned by any Person, then the Agent may refrain from making distribution
        until the Agent's right to make distribution has been adjudicated by a court
        of
        competent jurisdiction.

       

      
        
          
          

        

        
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      (d) The
        proceeds of any Revolving Credit Lender's exercise of any right of, or in
        the
        nature of, set-off shall be deemed, First, to the extent that a Revolving
        Credit
        Lender is entitled to any distribution hereunder, to constitute such
        distribution and Second, shall be shared with the other Revolving Credit
        Lenders
        as if distributed pursuant to (and shall be deemed as distributions under)
        Section 13.7.

       

      (e) Each
        Revolving Credit Lender recognizes that the crediting of the Borrowers 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.

       

      (f) In
        the
        event that (x) a court of competent jurisdiction shall adjudge that any amount
        received and distributed by the Agent is to be repaid or disgorged or (y)
        those
        Lenders adversely affected thereby determine to effect such repayment or
        disgorgement, then each Revolving Credit Lender to which any such distribution
        shall have been made shall repay, to the Agent which had made such distribution,
        that Revolving Credit Lender's pro-rata share of the amount so adjudged or
        determined to be repaid or disgorged.

       

      14.4. Dispute
        Resolution.
        Any
        dispute among the Revolving Credit Lenders and/or the Agent concerning the
        interpretation, administration, or enforcement of the financing arrangements
        contemplated by this or any other Loan Document or the interpretation or
        administration of this or any other Loan Document which cannot be resolved
        amicably shall be resolved in the United States District Court for the District
        of Massachusetts, sitting in Boston or in the Superior Court of Suffolk County,
        Massachusetts, to the jurisdiction of which courts each Revolving Credit
        Lender
        hereto hereby submits.

       

      14.5. Distributions
        of Notices and Other Documents.
        The
        Agent will forward to each Revolving Credit Lender, promptly after the Agent's
        receipt thereof, a copy of each notice or other document furnished to the
        Agent
        pursuant to this Agreement, including monthly, quarterly, and annual financial
        statements received from the Lead Borrower pursuant to Article 4.28 of this
        Agreement, other than any of the following: 

       

      (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
        to the
        Revolving Credit Lenders by the Lead Borrower.

       

      (d) Any
        notice or document of which the Agent has knowledge that such notice or document
        had been forwarded to the Revolving Credit Lenders other than by the Agent.
        

       

      14.6. Confidential
        Information

       

      (a) Each
        Revolving Credit Lender will maintain, as confidential, all of the
        following:

       

      (i) Proprietary
        approaches, techniques, and methods of analysis which are applied by the
        Agent
        in the administration of the credit facility contemplated by this
        Agreement.

       

      (ii) Proprietary
        forms and formats utilized by the Agent in providing reports to the Revolving
        Credit Lenders pursuant hereto, which forms or formats are not of general
        currency.

       

      (iii) The
        results of financial examinations, reviews, inventories, analysis, appraisals,
        and other information concerning, relating to, or in respect of any Borrower
        and
        prepared by or at the request of, or furnished to any of, the Revolving Credit
        Lenders by or on behalf of the Agent.

       

      
        
          
          

        

        
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      (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.

       

      14.7. Reliance
        by Agent. The
        Agent
        shall be entitled to rely upon any certificate, notice or other document
        (including any cable, telegram, telex, or facsimile) reasonably believed
        by the
        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 the Agent. As to any matters not
        expressly provided for in this Agreement, any Loan Document, or in any other
        document referred to therein, the 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 Revolving Credit Lenders.

       

      14.8. Non-Reliance
        on Agent and Other Revolving Credit Lenders

       

      (a) Each
        Revolving Credit Lender represents to all other Revolving Credit Lenders
        and to
        the Agent that such Revolving Credit Lender: 

       

      (i) Independently
        and without reliance on any representation or act by Agent or by any other
        Revolving Credit Lender, and based on such documents and information as that
        Revolving Credit Lender has deemed appropriate, has made such Revolving Credit
        Lender's own appraisal of the financial condition and affairs of the Borrowers
        and decision to enter into this Agreement.

       

      (ii) Has
        relied upon that Revolving Credit Lender's review of the Loan Documents by
        that
        Revolving Credit Lender and by counsel to that Revolving Credit Lender as
        that
        Revolving Credit Lender deemed appropriate under the circumstances.

       

      (b) Each
        Revolving Credit Lender agrees that such Revolving Credit Lender, independently
        and without reliance upon Agent or any other Revolving Credit Lender, and
        based
        upon such documents and information as such Revolving Credit Lender shall
        deem
        appropriate at the time, will continue to make such Revolving Credit Lender's
        own appraisals of the financial condition and affairs of the Borrowers when
        determining whether to take or not to take any discretionary action under
        this
        Agreement. 

       

      (c) The
        Agent, in the discharge of that Agent's duties hereunder, shall not


       

      (i) Be
        required to make inquiry of, or to inspect the properties or books of, any
        Person.

       

      (ii) Have
        any
        responsibility for the accuracy or completeness of any financial examination,
        review, inventory, analysis, appraisal, and other information concerning,
        relating to, or in respect of any Borrower and prepared by or at the request
        of,
        or furnished to any of, the Revolving Credit Lenders by or on behalf of the
        Agent. 

       

      (d) Except
        for notices, reports, and other documents and information expressly required
        to
        be furnished to the Revolving Credit Lenders by the Agent hereunder (as to
        which, see Section 14.5), the 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 the Agent. 

       

      (e) Each
        Revolving Credit Lender, at such Revolving Credit Lender's request, shall
        have
        reasonable access to all nonprivileged documents in the possession of the
        Agent,
        which documents relate to the Agent's performance of its duties
        hereunder.

       

      
        
          
          

        

        
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      14.9. Indemnification.
        Without
        limiting the liabilities of the Borrowers under any this or any of the other
        Loan Documents, each Revolving Credit Lender shall indemnify the Agent,
        pro-rata, 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 the 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 Revolving Credit 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 the Agent as to which a final judicial determination has been
        or is
        made (in a proceeding in which the 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. 

       

      14.10. Resignation
        of Agent.

       

      (a) The
        Agent
        may resign at any time by giving 60 days prior written notice thereof to
        the
        Revolving Credit Lenders. Upon receipt of any such notice of resignation,
        the
        SuperMajority Lenders shall have the right to appoint a successor to such
        Agent
        (and if no Event of Default has occurred, with the consent of the Lead Borrower,
        not to be unreasonably withheld and, in any event, deemed given by the Lead
        Borrower if no written objection is provided by the Lead Borrower to the
        (resigning) Agent within seven (7) Business Days notice of such proposed
        appointment). If a successor Agent shall not have been so appointed and accepted
        such appointment within 30 days after the giving of notice by the resigning
        Agent, then the resigning Agent may appoint a successor Agent, with the consent
        of the Lead Borrower (so long as no Event of Default shall have occurred
        and be
        continuing), such consent not to be unreasonably withheld or delayed, which
        shall be a financial institution having a combined capital and surplus in
        excess
        of $250,000,000.00. The consent of the Lead Borrower otherwise required by
        this
        Section 14.10(a) shall not be required if an Event of Default has
        occurred.

       

      (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) Person has had an opportunity to be heard) that such Person 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
        other
        Loan Documents shall continue in effect for the retiring Person's benefit
        in
        respect of any actions taken or omitted to be taken by it while it was acting
        as
        Agent. 

       

      Article
        15 - Action
        By Agent - Consents - Amendments - Waivers:

       

      15.1. Administration
        of Credit Facilities. 

       

      (a) Except
        as
        otherwise specifically provided in this Agreement, the Agent may take any
        action
        with respect to the credit facility contemplated by the Loan Documents as
        the
        Agent determines to be appropriate , provided, however, the Agent is not
        under
        any affirmative obligation to take any action which it is not required by
        this
        Agreement or the Loan Documents specifically to so take.

       

      (b) Except
        as
        specifically provided in the following Sections of this Agreement, whenever
        a
        Loan Document or this Agreement provides that action may be taken or omitted
        to
        be taken in an Agent's discretion, the Agent shall have the sole right to
        take,
        or refrain from taking, such action without, and notwithstanding, any vote
        of
        the Revolving Credit Lender:

       

      
        
          
          

        

        
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                  Actions
                    Described in
                    Section

                	Type of Consent Required
	 	 
	
                  15.2

                	Majority Lenders
	
                  15.3

                	SuperMajority Lenders
	
                  15.4

                	Certain Consent
	
                  15.5

                	Unanimous Consent
	
                  15.6

                	Consent of the
                  Agent


        

         

      

      (c) The
        rights granted to the Revolving Credit Lenders in those sections referenced
        in
        Section 15.1(b) shall not otherwise limit or impair the Agent's exercise
        of its
        discretion under the Loan Documents. 

       

      15.2. Actions
        Requiring or On Direction of Majority Lenders.
        Except
        as otherwise provided in this Agreement, the Consent or direction of the
        Majority Lenders is required for any amendment, waiver, or modification of
        any
        Loan Document.

       

      15.3. Actions
        Requiring or On Direction of SuperMajority Lenders.
        The
        Consent or direction of the SuperMajority Lenders is required as
        follows:

       

      (a) The
        SuperMajority Lenders may direct the Agent to require the prompt repayment
        of
        Protective OverAdvances have been outstanding for more than 45 consecutive
        Business Days or more than twice in any twelve month period (the Revolving
        Credit Lenders recognizing that, except as described in this Section 15.3(a),
        any loan or advance under the Revolving Credit which results in a Protective
        OverAdvance may be made by the Agent in its discretion without the Consent
        of
        the Revolving Credit Lenders and that each Revolving Credit Lender shall
        be
        bound thereby.

       

      (b) The
        SuperMajority Lenders may direct the Agent to suspend the Revolving Credit
        (including the making of any Protective OverAdvances), if any Borrower is
        then
        In Default, following which direction, and for as long as a Borrower is In
        Default, the only Revolving Credit Loans which may be made are the
        following:

       

      (i) Protective
        OverAdvances not otherwise terminated as provided in 15.3(a).

       

      (ii) Revolving
        Credit Loans made to "cover" the honoring of L/C's.

       

      (iii) Revolving
        Credit Loans made with Consent of the SuperMajority Lenders.

       

      (c) The
        SuperMajority Lenders may undertake the following if an Event of Default
        has
        occurred and not been duly waived, :

       

      (i) Give
        the
        Agent an Acceleration Notice in accordance with Section 13.1(b). 

       

      (ii) Direct
        the Agent to increase the rate of interest to the default rate of interest
        as
        provided in, and to the extent permitted by, this Agreement.

       

      (d) The
        Consent of the SuperMajority Lenders shall be required to authorize the Agent
        to
        affirmatively subordinate the Liabilities to any material obligation of any
        Borrower, unless such subordination is otherwise required pursuant to this
        or is
        permitted by this Agreement.

       

      15.4. Action
        Requiring Certain Consent.
         The
        Consent or direction of the following is required for the following
        actions:

       

      (a) Any
        forgiveness of all or any portion of any payment Liability: All Lenders whose
        payment Liability is being so forgiven: (other than any Delinquent Revolving
        Credit Lender).

       

      
        
          
          

        

        
          -79-

          
            

          

        

        
          
          

        

         

      

      (b) Any
        decrease in any interest rate or fee payable under any of the Loan Documents
        (other than any fee payable to the Agent (for which the consent of the Agent
        shall be required): A Lenders adversely affected thereby (other than any
        Delinquent Revolving Credit Lender).

       

      (c) Any
        waiver, amendment, or modification which has the effect of increasing any
        Revolving Credit Dollar Commitment or Revolving Credit Percentage Commitment
        shall be subject to the Consent of all Revolving Credit Lenders (other than
        any
        Delinquent Revolving Credit Lender) except that no Consent shall be required
        for
        any such increase which is the result of the application of the following
        Sections of this Agreement:

       

      (i) Section
        15.9 (which relates to NonConsenting Revolving Credit Lenders).

       

      (ii) Section
        16.1 (which relates to assignments and assumptions).

       

      (d) Volitional
        Disgorgement as described in 14.3(f): Each
        Lender (other than any Delinquent Revolving Credit Lender) which is adversely
        affected thereby.

       

      15.5. Actions
        Requiring or Directed By Unanimous Consent.
        None of
        the following may take place except with Unanimous Consent:

       

      (a) Any
        release of a material portion of the Collateral, but such Consent to such
        release is not required if any of the following conditions is
        satisfied:

       

      (i) Such
        release is otherwise required or provided for in the Loan
        Documents.

       

      (ii) Such
        release is being made to facilitate a Liquidation.

       

      (iii) No
        OverLoan exists immediately after giving effect to the application to the
        Loan
        Account of the net proceeds received on account of the transaction in which
        such
        release is made but only where any of the following conditions is not
        satisfied:

       

      (b) Any
        amendment of the Definitions of "Borrowing Base" or "Availability" or of
        any
        Definition of any component thereof, such that more credit would be available
        to
        the Borrowers, based on the same assets, as would have been available to
        the
        Borrowers immediately prior to such amendment , it being understood, however,
        that:

       

      (i) The
        foregoing shall not limit the adjustment by the Agent of any Reserve in the
        Agent's administration of the Revolving Credit as otherwise permitted by
        this
        Agreement.

       

      (ii) The
        foregoing shall not prevent the Agent, in its administration of the Revolving
        Credit, from restoring any component of Borrowing Base which had been lowered
        by
        the Agent back to the value of such component, as stated in this Agreement
        or to
        an intermediate value.

       

      (iii) The
        amendment of any financial performance covenant to which direct or indirect
        reference is made in the Definition of "Availability" or "Borrowing Base"
        or in
        the Definition of any component thereof shall be subject to amendment as
        otherwise provided in this Agreement (and by Consent of the Majority Lenders
        if
        not subject to any other specific provision of this Agreement).

       

      (c) Any
        release of any Person obligated on account of the Liabilities.

       

      (d) The
        making of any Revolving Credit Loan which, when made, exceeds Availability
        and
        is not a Protective OverAdvance, subject, however, to the
        following:

       

      
        
          
          

        

        
          -80-

          
            

          

        

        
          
          

        

         

      

      (i) No
        Consent is required in connection with the making of any Revolving Credit
        Loan
        to "cover" any honoring of a drawing under any L/C.

       

      (ii) Each
        Lender recognizes that subsequent to the making of a Revolving Credit Loan
        which
        does not constitute a Protective OverAdvance, the unpaid principal balance
        of
        the Loan Account may exceed Borrowing Base on account of changed circumstances
        beyond the control of the Agent (such as a drop in collateral value).


       

      (e) Any
        amendment which has the effect of limiting the Agent's right or ability to
        make
        Protective OverAdvances.

       

      (f) The
        waiver of the obligation of the Borrowers to reduce the unpaid principal
        balance
        of loans under the Revolving Credit to an amount so that no OverLoan (other
        than
        a Protective OverAdvance) is outstanding.

       

      (g) Any
        amendment of this Article 15 - .

       

      (h) Amendment
        of any of the following Definitions: 

       

      "Majority
        Lender"

       

      "Protective
        OverAdvance"

       

      "SuperMajority
        Lenders

       

      "Unanimous
        Consent"

       

      15.6. Actions
        Requiring Agent's Consent.

       

      (a) No
        action, amendment, or waiver of compliance with, any provision of the Loan
        Documents or of this Agreement which affects the Agent in its capacity as
        Agent
        may be undertaken without the written consent of the Agent.

       

      (b) No
        action
        referenced herein which affects the rights, duties, obligations, or liabilities
        of the Agent shall be effective without the written consent of the
        Agent.

       

      15.7. Miscellaneous
        Actions

       

      (a) Notwithstanding
        any other provision of this Agreement, no single Revolving Credit Lender
        independently may exercise any right of action or enforcement against or
        with
        respect to any Borrower.

       

      (b) The
        Agent
        shall be fully justified in failing or refusing to take action under this
        Agreement or any Loan Document on behalf of any Revolving Credit Lender unless
        the Agent shall first 

       

      (i) receive
        such clear, unambiguous, written instructions as the Agent deems appropriate;
        and

       

      (ii) be
        indemnified to the Agent's satisfaction by the Revolving Credit Lenders against
        any and all liability and expense which may be incurred by the Agent by reason
        of taking or continuing to take any such action, unless such action had been
        grossly negligent, in willful misconduct, or in bad faith.

       

      (c) The
        Agent
        may establish reasonable procedures for the providing of direction and
        instructions from the Revolving Credit Lenders to the Agent, including its
        reliance on multiple counterparts, facsimile transmissions, and time limits
        within which such direction and instructions must be received in order to
        be
        included in a determination of whether the requisite Lenders have provided
        their
        direction, Consent, or instructions.

       

      
        
          
          

        

        
          -81-

          
            

          

        

        
          
          

        

      

       

      15.8. Actions
        Requiring Lead Borrower's Consent.
        The Lead
        Borrower's consent is required for any amendment of this Agreement, except
        that
        each of the following Articles of this Agreement may be amended without the
        consent of the Lead Borrower:

       

      
        	Article	Title of Article
	 	 
	12	Revolving Credit Fundings and
                Distributions
	13	Acceleration and Liquidation
	14	The Agent
	15	Action By Agents - Consents - Amendments
                -
                Waivers
	16	Assignments and
                Participations


      

       

      15.9. NonConsenting
        Revolving Credit Lender

       

      (a) In
        the
        event that a Revolving Credit Lender (in this Section 15.9, a "NonConsenting
        Revolving Credit Lender")
        does
        not provide its Consent to a proposal by the Agent to take action which requires
        consent under this Article 15, then one or more Revolving Credit Lenders
        who
        provided Consent to such action may require the assignment, without recourse
        and
        in accordance with the procedures outlined in Section 16.1, below, of the
        NonConsenting Revolving Credit Lender's commitment hereunder on fifteen (15)
        days written notice to the Agent and to the NonConsenting Revolving Credit
        Lender. 

       

      (b) At
        the
        end of such fifteen (15) days, and provided that the NonConsenting Revolving
        Credit Lender delivers the Revolving Credit Note held by the NonConsenting
        Revolving Credit Lender to the Agent, the Revolving Credit Lenders who have
        given such written notice shall Transfer the following to the NonConsenting
        Revolving Credit Lender:

       

      (i) Such
        NonConsenting Revolving Credit Lender's pro-rata share of the principal and
        interest of the Revolving Credit Loans to the date of such
        assignment.

       

      (ii) All
        fees
        distributable hereunder to the NonConsenting Revolving Credit Lender to the
        date
        of such assignment.

       

      (iii) Any
        out-of-pocket costs and expenses for which the NonConsenting Revolving Credit
        Lender is entitled to reimbursement from the Borrowers.

       

      (c) In
        the
        event that the NonConsenting Revolving Credit Lender fails to deliver to
        the
        Agent the Revolving Credit Note held by the NonConsenting Revolving Credit
        Lender as provided in Section 15.9(b), then:

       

      (i) The
        amount otherwise to be Transferred to the NonConsenting Revolving Credit
        Lender
        shall be Transferred to the Agent and held by the Agent, without interest,
        to be
        turned over to the NonConsenting Revolving Credit Lender upon delivery of
        the
        Revolving Credit Note held by that NonConsenting Revolving Credit
        Lender.

       

      (ii) The
        Revolving Credit Note held by the NonConsenting Revolving Credit Lender shall
        have no force or effect whatsoever.

       

      (iii) The
        NonConsenting Revolving Credit Lender shall cease to be a "Revolving Credit
        Lender".

       

      (iv) The
        Revolving Credit Lender(s) which have Transferred the amount to the Agent
        as
        described above shall have succeeded to all rights and become subject to
        all of
        the obligations of the NonConsenting Revolving Credit Lender as "Revolving
        Credit Lender".

       

      
        
          
          

        

        
          -82-

          
            

          

        

        
          
          

        

         

      

      (d) In
        the
        event that more than One (1) Revolving Credit Lender wishes to require such
        assignment, the NonConsenting Revolving Credit Lender's commitment hereunder
        shall be divided among such Revolving Credit Lenders, pro-rata based upon
        their
        respective Revolving Credit Percentage Commitments, with the Agent coordinating
        such transaction.

       

      (e) The
        Agent
        shall coordinate the retirement of the Revolving Credit Note held by the
        NonConsenting Revolving Credit Lender and the issuance of Revolving Credit
        Notes
        to those Revolving Credit Lenders which "take-out" such NonConsenting Revolving
        Credit Lender, provided, however, no processing fee otherwise to be paid
        as
        provided in Section 16.2(b) shall be due under such circumstances.

       

      Article
        16 - Assignments
        By Revolving Credit Lenders:

       

      16.1. Assignments
        and Assumptions:

       

      (a) Except
        as
        provided herein, each Revolving Credit Lender (in this Section 16.1(a), an
        "Assigning
        Revolving Credit Lender")
        may
        assign to one or more Eligible Assignees (in this Section 16.1(a), each an
        "Assignee
        Revolving Credit Lender")
        all or
        a portion of that Revolving Credit Lender's interests, rights and obligations
        under this Agreement and the Loan Documents (including all or a portion of
        its
        Commitment) and the same portion of the Revolving Credit Loans at the time
        owing
        to it, and of the Revolving Credit Note held by the Assigning Revolving Credit
        Lender, provided that:

       

      (i) The
        Agent
        shall have given its prior written consent to such assignment, which consent
        shall not be unreasonably withheld, but need not be given if the proposed
        assignment would result in any resulting Revolving Credit Lender's having
        a
        Dollar Commitment of less than the "minimum hold" amount specified in Section
        16.1(a)(iii) or if there would be more than Three (3) Revolving Credit
        Lenders.

       

      (ii) Each
        such
        assignment shall be of a constant, and not a varying, percentage of all the
        Assigning Revolving Credit Lender's rights and obligations under this
        Agreement.

       

      (iii) Following
        the effectiveness of such assignment, the Assigning Revolving Credit Lender's
        Dollar Commitment (if not an assignment of all of the Assigning Revolving
        Credit
        Lender's Commitment) shall not be less than $5,000,000.00.

       

      16.2. Assignment
        Procedures.
        (This
        Section 16.2 describes the procedures to be followed in connection with an
        assignment effected pursuant to this Article 16 - and permitted by Section
        16.1).

       

      (a) The
        parties to such an assignment shall execute and deliver to the Agent, for
        recording in the Register, an Assignment
        and Acceptance substantially
        in the form of EXHIBIT
        16.2,
        annexed
        hereto. 

       

      (b) The
        Assigning Revolving Credit Lender shall deliver to the Agent, with such
        Assignment and Acceptance, the Revolving Credit Note held by the subject
        Assigning Revolving Credit Lender and the Agent's processing fee of $2,500.00,
        provided, however, no such processing fee shall be due where the Assigning
        Revolving Credit Lender is one of the Revolving Credit Lenders at the initial
        execution of this Agreement.

       

      (c) The
        Agent
        shall maintain a copy of each Assignment and Acceptance delivered to it and
        a
        register or similar list (the "Register")
        for
        the recordation of the names and addresses of the Revolving Credit Lenders
        and
        of the Revolving Credit Percentage Commitment and Revolving Credit Percentage
        Commitment of each Revolving Credit Lender. The Register shall be available
        for
        inspection by the Revolving Credit 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 Revolving
        Credit
        Lenders. The Agent and the Revolving Credit Lenders may treat each Person
        whose
        name is recorded in the Register as a "Revolving Credit Lender" hereunder
        for
        all purposes of this Agreement. 

       

      
        
          
          

        

        
          -83-

          
            

          

        

        
          
          

        

         

      

      (d) The
        Assigning Revolving Credit Lender and Assignee Revolving Credit Lender, directly
        between themselves, shall make all appropriate adjustments in payments for
        periods prior to the effective date of an Assignment and
        Assumption.

       

      16.3. 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 Revolving Credit Lender: 

       

      (A) Shall
        be
        a party to this Agreement and the Loan Documents (and to any amendments thereof)
        as fully as if the Assignee Revolving Credit Lender had executed
        each.

       

      (B) Shall
        have the rights of a Revolving Credit Lender hereunder to the extent of the
        Revolving Credit Percentage Commitment and Revolving Credit Percentage
        Commitment assigned by such Assignment and Acceptance.

       

      (ii) The
        Assigning Revolving Credit Lender shall be released from the Assigning Revolving
        Credit Lender's obligations under this Agreement and the Loan Documents to
        the
        extent of the Commitment assigned by such Assignment and
        Acceptance.

       

      (iii) The
        Agent
        shall undertake to obtain and distribute replacement Revolving Credit Notes
        to
        the subject Assigning Revolving Credit Lender and Assignee Revolving Credit
        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.

       

      Article
        17 - Notices:

       

      17.1. Notice
        Addresses.
        All
        notices, demands, and other communications made in respect of any Loan Document
        (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 seven (7) days written notice to all others given
        by
        certified mail, return receipt requested:

       

      If
        to the
        Agent:

       

      Wells
        Fargo Retail Finance, LLC

      One
        Boston Place - - 18th
        Floor

      Boston,
        Massachusetts 02108

      Attention: David
        Molinario, Vice President

      Fax:            
        617-523-4032

       

      
        
          
          

        

        
          -84-

          
            

          

        

        
          
          

        

         

      

      With
        a
        copy to:

       

      Riemer
        & Braunstein LLP

      Three
        Center Plaza

      Boston,
        Massachusetts 02108

      Attention: Donald
        E.
        Rothman, Esquire

      Fax:
        617-880-3456

       

      If
        to the
        Lead Borrower and all Borrowers:

       

      DrugMax,
        Inc.

      312
        Farmington Avenue

      Farmington,
        Connecticut 06032

      Attention: Edgardo
        A. Mercadante

      Fax: 860-
        679-9337

       

      With
        a
        copy to:

       

      Robinson
        & Cole LLP

      280
        Trumbull Street

      Hartford,
        Connecticut 06103-3597

      Attention: John
        B.
        Lynch, Esquire

      Fax: 860-275-8299

       

      17.2. 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 and no later than Three (3)
        hours
        prior to the close of customary business hours of the recipient, when delivered.
        Otherwise, at the opening of the then next Business Day. 

       

      (iv) By
        Facsimile transmission (which must include a header on which the party sending
        such transmission is indicated): If sent on a Business Day after 9:00 AM
        and no
        later than Three (3) hours prior to the close of customary business hours
        of the
        recipient, one (1) hour after being sent. Otherwise, at the opening of the
        then
        next Business Day.

       

      (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.

       

      17.3. Wire
        Instructions. Notice Given.
        Subject
        to change in the same manner that a notice address may be changed (as to
        which,
        see Section 17.1), wire transfers to the Agent shall be made in accordance
        with
        the following wire instructions:

       

      Wells
        Fargo Bank

      San
        Francisco, CA

      ABA
        Number: # 121-000-248 

      Account
        Name: Wells Fargo Retail Finance, LLC

      Account
        Number: 4945088607: 

      Reference:
        DrugMax, Inc.

       

      
        
          
          

        

        
          -85-

          
            

          

        

        
          
          

        

      

       

      Article
        18 - Term:

       

      18.1. Termination
        of Revolving Credit.
        The
        Revolving Credit shall remain in effect (subject to suspension as provided
        in
        Section 2.6) until the Termination Date. 

       

      18.2. Actions
        On Termination.

       

      (a) On
        the
        Termination Date, the Borrowers shall pay the Agent (whether or not then
        due),
        in immediately available funds, all then Liabilities including, without
        limitation: the following:

       

      (i) The
        entire balance of the Loan Account (including the unpaid principal balance
        of
        the Revolving Credit Loans).

       

      (ii) Any
        payments due on account of the indemnification obligations included in Section
        2.10(e).

       

      (iii) Any
        accrued and unpaid Unused Line Fee.

       

      (iv) Any
        applicable Revolving Credit Early Termination Fee.

       

      (v) Any
        remaining installment of any fees owed to the Agent under the Fee
        Letter.

       

      (vi) All
        unreimbursed costs and expenses of the Agent and of Lenders' Special Counsel
        for
        which each Borrower is responsible.

       

      (vii) All
        other
        Liabilities.

       

      (b) On
        the
        Termination Date, the Borrowers shall also shall make such arrangements
        concerning any L/C's then outstanding, any Bank Products and Bank Product
        Obligations, and with respect to any other continuing Liabilities (such as
        the
        Borrower's continuing Liability to reimburse the Lender as set forth in Section
        19.9) and continuing indemnification Liability set forth in Section 19.13
        as are
        reasonably satisfactory to the Agent.

       

      (c) Until
        such payment (Section 18.2(a))) and arrangements concerning L/C's, Bank
        Products, and Bank Product Obligations (Section 18.2(b)), all provisions
        of this
        Agreement, other than those included in Article 2 which place any obligation
        on
        the Agent or any Revolving Credit Lender to make any loans or advances or
        to
        provide any financial accommodations to any Borrower shall remain in full
        force
        and effect until all Liabilities shall have been paid in full. 

       

      (d) The
        release by the Agent of the Collateral Interests granted the Agent by the
        Borrowers hereunder may be upon such conditions and indemnifications as the
        Agent may require.

       

      Article
        19 - General:

       

      19.1. 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.

       

      19.2. Publicity.
        The
        Agent may issue a "tombstone" notice of the establishment of the credit facility
        contemplated by this Agreement and may make reference to each Borrower (and
        may
        utilize any logo or other distinctive symbol associated with each Borrower)
        in
        connection with any advertising, promotion, or marketing (including reference
        in
        any "case study" of the creditor facility contemplated hereby) undertaken
        by the
        Agent.

       

      
        
          
          

        

        
          -86-

          
            

          

        

        
          
          

        

         

      

      19.3. Successors
        and Assigns.
        This
        Agreement shall be binding upon the Borrowers and their respective
        representatives, successors, and assigns and shall inure to the benefit of
        the
        Agent and each Revolving Credit Lender and their respective successors and
        assigns, provided, however, no trustee or other fiduciary appointed with
        respect
        to any Borrower shall have any rights hereunder. In the event that the Agent
        or
        any Revolving Credit 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. 

       

      19.4. 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.

       

      19.5. Amendments.
        Course of Dealing. 

       

      (a) This
        Agreement and the other Loan Documents incorporate all discussions and
        negotiations between each Borrower and the Agent and each Revolving Credit
        Lender, 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 any Revolving Credit Lender to give notice to the
        Lead
        Borrower of any 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 Borrowing Base is determined shall
        obligate the Agent to continue to determine Borrowing Base in that manner.
        

       

      (b) Each
        Borrower may undertake any action otherwise prohibited hereby, and may omit
        to
        take any action otherwise required hereby, upon and with the express prior
        written consent of the Agent. Subject to Article 15, no consent, modification,
        amendment, or waiver of any provision of any Loan Document shall be effective
        unless executed in writing by or on behalf of the party to be charged with
        such
        modification, amendment, or waiver (and if such party is the Agent then by
        a
        duly authorized officer thereof). Any modification, amendment, or waiver
        provided by the Agent shall be in reliance upon all representations and
        warranties theretofore made to the Agent by or on behalf of the Borrowers
        (and
        any guarantor, endorser, or surety of the Liabilities) and consequently may
        be
        rescinded in the event that any of such representations or warranties was
        not
        true and complete in all material respects when given.

       

      19.6. Power
        of Attorney.
        In
        connection with all powers of attorney included in this Agreement, each Borrower
        hereby grants unto the Agent (acting through any of its officers) full power
        to
        do any and all things necessary or appropriate in connection with the exercise
        of such powers as fully and effectually as that 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 any Borrower and each
        shall
        survive the same. All powers 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.

       

      19.7. 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 Sections 13.6 and 13.7 and any other applicable
        provisions of this Agreement. The Borrowers shall remain liable for any
        deficiency remaining following such application. 

       

      
        
          
          

        

        
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      19.8. Increased
        Costs.
        If, as a
        result of any Requirement of Law, or of the interpretation or application
        thereof by any court or by any governmental or other authority or entity
        charged
        with the administration thereof, whether or not having the force of law,
        which:

       

      (a) subjects
        any Revolving Credit Lender to any taxes or changes the basis of taxation,
        or
        increases any existing taxes, on payments of principal, interest or other
        amounts payable by any Borrower to the Agent or any Revolving Credit Lender
        under this Agreement (except for taxes on the Agent or any Revolving Credit
        Lender based on net income or capital imposed by the jurisdiction in which
        the
        principal or lending offices of the Agent or that Revolving Credit Lender
        are
        located);

       

      (b) imposes,
        modifies or deems applicable any reserve, cash margin, special deposit or
        similar requirements against assets held by, or deposits in or for the account
        of or loans by or any other acquisition of funds by the relevant funding
        office
        of any Revolving Credit Lender;

       

      (c) imposes
        on any Revolving Credit Lender any other condition with respect to any Loan
        Document; or

       

      (d) imposes
        on any Revolving Credit Lender a requirement to maintain or allocate capital
        in
        relation to the Liabilities;

       

      and
        the
        result of any of the foregoing, in such Revolving Credit Lender's reasonable
        opinion, is to increase the cost to that Revolving Credit Lender of making
        or
        maintaining any loan, advance or financial accommodation or to reduce the
        income
        receivable by that Revolving Credit Lender in respect of any loan, advance
        or
        financial accommodation by an amount which that Revolving Credit Lender deems
        to
        be material, then upon written notice from the Agent, from time to time,
        to the
        Lead Borrower (such notice to set out in reasonable detail the facts giving
        rise
        to and a summary calculation of such increased cost or reduced income), the
        Borrowers shall forthwith pay to the Agent, for the benefit of the subject
        Revolving Credit Lender, upon receipt of such notice, that amount which shall
        compensate the subject Revolving Credit Lender for such additional cost or
        reduction in income. 

       

      19.9. Costs
        and Expenses of the Agent.

       

      (a) The
        Borrowers shall pay from time to time on demand all Costs of Collection and
        all
        reasonable costs, expenses, and disbursements (including attorneys' reasonable
        fees and expenses) which are incurred by the Agent 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 in connection with or in respect to the
        credit facility contemplated hereby or which otherwise are incurred with
        respect
        to the Liabilities.

       

      (b) The
        Borrowers shall pay from time to time on demand all reasonable costs and
        expenses (including attorneys' reasonable fees and expenses) incurred, following
        the occurrence of any Event of Default, by the Revolving Credit Lenders to
        Lenders' Special Counsel.

       

      (c) Each
        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, provided
        that notice of such payment shall be given to Lead Borrower. 

       

      (d) The
        undertaking on the part of each Borrower in this Section 19.9 shall survive
        payment of the Liabilities and/or any termination, release, or discharge
        executed by the Agent in favor of any Borrower, other than a termination,
        release, or discharge which makes specific reference to this Section
        19.9.

       

      19.10. Copies
        and Facsimiles.
        Each
        Loan Document and all documents and papers which relates thereto which have
        been
        or may be hereinafter furnished the Agent or any Revolving Credit Lender
        may be
        reproduced by that Revolving Credit Lender or by the Agent by any photographic,
        microfilm, xerographic, digital imaging, or other process, and such Person
        making such reproduction may destroy any document so reproduced. Any such
        reproduction 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.

       

      
        
          
          

        

        
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      19.11. Massachusetts
        Law.
        This
        Agreement and all rights and obligations hereunder, including matters of
        construction, validity, and performance, shall be governed by the law of
        The
        Commonwealth of Massachusetts. 

       

      19.12. Consent
        to Jurisdiction. 

       

      (a) Each
        Borrower agrees that any legal action, proceeding, case, or controversy against
        any 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, each Borrower, for itself and in respect of its property, accepts,
        submits, and consents generally and unconditionally, to the jurisdiction
        of the
        aforesaid courts. 

       

      (b) Each
        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 the Lead Borrower at the Lead Borrower's address
        for
        notices as specified herein, such service to become effective five (5) Business
        Days after such mailing. 

       

      (c) Each
        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) Each
        Borrower agrees that any action commenced by any 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. 

       

      19.13. Indemnification.
        Each
        Borrower shall indemnify, defend, and hold the Agent and each Revolving Credit
        Lender 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 any 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
        Borrowers or of any other guarantor or endorser of the Liabilities, including
        all costs, expenses, liabilities, and damages as may be suffered by any
        Indemnified Person in connection with (x) the Collateral; (y) the occurrence
        of
        any Event of Default; or (z) the exercise of any rights or remedies under
        any of
        the Loan Documents (each of such claims which may be defended, compromised,
        settled, or pursued by the Indemnified Person with counsel of the Lender's
        selection, but at the expense of the Borrowers) other than any claim as to
        which
        a final determination is made in a judicial proceeding (in which the Agent
        and
        any other Indemnified Person has had an opportunity to be heard), which
        determination includes a specific finding that the Indemnified Person seeking
        indemnification had acted in a grossly negligent manner or in actual bad
        faith.
        This indemnification shall survive payment of the Liabilities and/or any
        termination, release, or discharge executed by the Agent in favor of the
        Borrowers, other than a termination, release, or discharge duly executed
        on
        behalf of the Agent which makes specific reference to this Section
        19.13.

       

      
        
          
          

        

        
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      19.14. 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 (and then only to the extent so
        provided), 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) Unless
        otherwise specifically provided for herein or in a specific Loan Document
        (and
        then only to the extent so provided), as between the parties hereto or to
        any
        Loan Document, the definitions of the following terms, as included in the
        UCC,
        are deemed to be as follows for purposes of the performance of obligations
        arising under or in respect of any Loan Document: 

       

      (i) "Authenticate"
        means "signed".

       

      (ii) "Record"
        means written information in a tangible form.

       

      (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. 

       

      (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 limitational.

       

      (h) Text
        which is shown in italics (except for parenthesized italicized text), shown
        in
        bold, shown IN ALL CAPITAL LETTERS, or in any combination of the foregoing,
        shall be deemed to be conspicuous.

       

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

       

      (j) 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).

       

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

       

      (l) The
        term
        "Dollars" and the symbol "$" each refers to United States Dollars.

       

      (m) 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.

       

      (n) 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.

       

      (o) Except
        as
        otherwise specifically provided, all references to time are to Boston,
        Massachusetts, time.

       

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

       

      
        
          
          

        

        
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      (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".

       

      (q) The
        Loan
        Documents shall be construed and interpreted in a harmonious manner and in
        keeping with the intentions set forth in Section 19.15, 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.
        

       

      19.15. Intent.
        It is
        intended that: 

       

      (a) This
        Agreement take effect as a sealed instrument.

       

      (b) The
        scope
        of all Collateral Interests created by any Borrower to secure the Liabilities
        be
        broadly construed in favor of the Agent and that they cover all assets of
        each
        Borrower.

       

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

       

      (d) All
        reasonable costs, expenses, and disbursements incurred by the Agent and,
        to the
        extent provided in Section 19.9 each Revolving Credit Lender, in connection
        with
        such Person's relationship(s) with any Borrower shall be borne by the
        Borrowers.

       

      (e) Unless
        otherwise explicitly provided herein, the Agent's consent to any action of
        any
        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(a).

       

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

       

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

       

      
        
          
          

        

        
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      19.18. Maximum
        Interest Rate.
        Regardless of any provision of any Loan Document, neither the Agent nor any
        Revolving Credit Lender shall 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."


       

      19.19. Waivers. 

       

      (a) Each
        Borrower (and all guarantors, endorsers, and sureties of the Liabilities)
        make
        each of the waivers included in Section 19.19(b), below, knowingly, voluntarily,
        and intentionally, and understands that Agent and each Revolving Credit Lender,
        in establishing the facilities contemplated hereby and in providing loans
        and
        other financial accommodations to or for the account of the Borrowers as
        provided herein, whether not or in the future, is relying on such waivers.
        

       

      (b) EACH
        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 ANY
        REVOLVING CREDIT LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY
        IS INITIATED BY OR AGAINST THE AGENT OR ANY REVOLVING CREDIT LENDER OR IN
        WHICH
        THE AGENT OR ANY REVOLVING CREDIT LENDER IS JOINED AS A PARTY LITIGANT),
        WHICH
        CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST
        OR BETWEEN ANY BORROWER OR ANY OTHER PERSON AND THE AGENT AND EACH REVOLVING
        CREDIT 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, 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.


      
        
          
          

        

        
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      IN
        WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
        executed by their respective authorized officers as a sealed instrument as
        of
        the day and year first above written.

       

      LEAD
        BORROWER

       

      DRUGMAX,
        INC., a
        Nevada
        corporation

       

      By:_________________________________

       

      Print
        Name:__________________________

       

      Title:_______________________________

       

      BORROWERS

       

      VALLEY
        DRUG COMPANY, an
        Ohio
        corporation

       

      By:_________________________________

       

      Print
        Name:__________________________

       

      Title:
        _______________________________

       

      VALLEY
        DRUG COMPANY SOUTH, a
        Louisiana corporation

       

      By:_________________________________

       

      Print
        Name:__________________________

       

      Title:
        _______________________________

       

      FAMILYMEDS,
        INC.,
        a Connecticut corporation

       

      By:_________________________________

       

      Print
        Name:__________________________

       

      Title:
        _______________________________

       


      
        
          
          

        

        
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      AGENT

       

      WELLS
        FARGO RETAIL FINANCE, LLC

       

      By_________________________________

       

      Print
        Name:__________________________

       

      Title:_______________________________

       

      REVOLVING
        CREDIT LENDERS

       

      WELLS
        FARGO RETAIL FINANCE, LLC

       

      By:________________________________

       

      Print
        Name:_________________________

       

      Title:_______________________________

       

      


      
        
          
          

        

        
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