Document:

EXHIBIT 10.70
                                                                   -------------

                         WARREN FIVE CENTS SAVINGS BANK

                           LOAN AND SECURITY AGREEMENT
                     BETWEEN WARREN FIVE CENTS SAVINGS BANK
                                       AND
                             ANNIE'S HOMEGROWN, INC.

                                                                June _____, 2001

                                 P R E A M B L E

         ANNIE'S HOMEGROWN, INC. ("Borrower") is a Delaware corporation
qualified to conduct business in the Commonwealth of Massachusetts with a
principal place of business and chief executive office at 395 Main Street,
Wakefield, Massachusetts 01880, and has requested that WARREN FIVE CENTS SAVINGS
BANK, a Massachusetts banking corporation with a mailing address of 10 Main
Street, Peabody, Massachusetts 01960 (the "Bank") make certain credit facilities
available to it, including a revolving line of credit, the proceeds of which
shall be available for general business purposes, secured by the personal
property owned by the Borrower.

         1.     GRANT OF SECURITY INTEREST.

         The Borrower for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, hereby grants to the Bank a continuing security
interest in the Collateral (as defined in Section 3) and in the products and
proceeds thereof. The security interest granted hereby is to secure payment and
performance of all Obligations (as defined in Section 3) of Borrower to the
Bank, now existing or hereafter arising.

         2.     LOANS.

         (A) ____ Revolving Loans. The Bank hereby establishes a revolving line
of credit in the Borrower's favor pursuant to which Bank shall from time to
time, in the absence of a demand for payment or an Event of Default (as defined
herein), and based upon circumstances existing at the time of any request, make
such loans to Borrower as Borrower may request (the "Revolving Loans"). Borrower
agrees that the aggregate principal amount of loans outstanding will not exceed
at any time the lesser of (i) $1,500,000.00 (the "Credit Limit"), or (ii) the
Borrowing Base (as defined in Section 3). The Borrower acknowledges that the
Borrowing Base is designated for monitoring purposes and that the Bank is not
obligated to make any Revolving Loans, and may choose to make Revolving Loans,
in excess thereof. The revolving line of credit established hereby shall be
payable on demand. The revolving line of credit shall be evidenced by a
Revolving Note (the "Revolving Note") in the form annexed as Exhibit 2(a). All
Revolving Loans will bear interest, calculated on the basis of actual days
elapsed and a 360-day year and payable monthly in arrears at a fluctuating per
annum rate equal to the Bank's Base Rate from time to time (as defined in
Section 3) plus one (1.00%) percent. The proceeds of the Revolving Loans shall
be used for short term working capital for the Borrower.
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         (B) ____ Borrower hereby authorizes and directs Bank, in Bank's sole
discretion (provided, however, Bank shall have no obligation to do so), (i) to
pay accrued interest as the same becomes due and payable pursuant to this
Agreement or pursuant to any note or other agreement between Borrower and Bank,
and to treat the same as a loan to Borrower which shall be added to Borrower's
respective loan balances pursuant to this Agreement; or (ii) to apply the
proceeds of Collateral, including without limitation, payments on Account
Receivables, and other payments from sales or leases of Equipment or Inventory
and any other funds to the payment of such items or to the payment of any other
amounts then due to Bank from Borrower.

         3.   CERTAIN DEFINITIONS. As used herein the following terms have the
meanings set forth below:

         "Accounts Receivable" means all Borrower's accounts, accounts
receivable, contract rights, notes, bills, drafts, acceptances, instruments,
documents, chattel paper and all other debts, obligations and liabilities in
whatever form owing to Borrower from any Person (as defined below) for goods
sold by it or for services rendered by it, or however otherwise established or
created, all guaranties and security therefor, all right, title and interest of
Borrower in the goods or services which gave rise thereto, including rights to
reclamation and stoppage in transit and all rights of an unpaid seller of goods
or services; whether any of the foregoing be now existing or hereafter arising,
now or hereafter received by or owing or belonging to Borrower.

         "Base Rate" means the rate per annum from time to time announced by
Bank as its Base Rate, it being understood that such rate is a reference rate,
not necessarily the lowest, established from time to time which serves as the
basis upon which effective interest rates are calculated for loans making
reference thereto. The effective interest rate applicable to Borrower's
Revolving Loans shall change on the date of each change in the Base Rate.
Principal and interest shall be payable at Bank's office in Peabody in lawful
money of the United States of America without set-off, deduction or
counterclaim. Borrower authorizes Bank to charge any of its deposit account(s)
with Bank for all payments hereunder. Borrower also agrees and acknowledges that
all loans are secured by the Collateral and constitute Obligations.

         "Borrowing Base" means the sum of the following (as shown on Bank's
records at any time):

         (a) eighty (80%) percent of the unpaid face amount of all Eligible
Accounts (as defined below), PLUS

         (b) thirty (30%) percent of Eligible Inventory, but not to exceed
$200,000.00.

         "Cash Flow" means on a trailing four quarters' basis, earnings before
gross interest expense, depreciation, amortization and income taxes, less
unfinanced capital expenditures, less member distributions, less related company
payments, loans and advances (if applicable), less cash taxes paid for the
period.

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         "Collateral" means all Accounts Receivable, Inventory, Equipment and
Related Collateral and all other property of the Borrower or another Person (as
defined below), now owned or hereafter acquired, in which Bank is granted a Lien
hereunder, or which is designated as Collateral or in which Bank is granted a
Lien to secure any of the Obligations pursuant to an agreement supplemental
hereto or otherwise (whether or not such agreement makes reference to this
Agreement or Obligations of the Borrower hereunder).

         "Current Assets" means, at any date as of which the amount thereof
shall be determined, all assets that should, in accordance with GAAP, be
classified as current assets on the balance sheet of Borrower, which shall
include cash and cash equivalents net of Accounts Receivable and Inventory.

         "Current Liabilities" means, at any date as of which the amount thereof
shall be determined, all liabilities that should, in accordance with GAAP, be
classified as current liabilities on the balance sheet of Borrower.

         "Current Ratio" shall mean Borrower's Current Assets divided by
Borrower's Current Liabilities.

         "Debt Service Coverage Ratio" shall mean Borrower's Cash Flow divided
by Total Debt Service Requirements.

         "Debt to Worth Ratio" shall mean Borrower's Total Liabilities divided
by Tangible Net Worth, determined in accordance with GAAP.

         "Eligible Account" means an Account Receivable of the Borrower which
initially and at all times until collected in full:

         (A) ____ is not more than ninety (90) days from the date of invoice;
provided that if at any time fifty (50%) percent or more of the aggregate amount
of the Accounts Receivable due from any account debtor are unpaid in whole or in
part more than ninety (90) days from the respective dates of invoice, from and
after such time none of the Accounts Receivable (then existing or thereafter
arising) due from such account debtor shall be deemed to be Eligible Accounts
until such time as less than fifty (50%) percent of Accounts Receivable due from
such account debtor are (as a result of actual payments received thereon) no
more than ninety (90) days from the date of invoice; accounts payable by
Borrower to an account debtor shall be netted against Eligible Accounts due from
such account debtor, and the difference (if positive) shall constitute Eligible
Accounts from such account debtor for purposes of determining the Borrowing Base
(notwithstanding paragraphs (C) and (F) below);

         (B) ____ arose in the ordinary course of business from the domestic
performance of services or the outright sale of goods (excluding conditional
sale or sale and return); such services have been performed or such goods have
been shipped to the account debtor; and in the case of goods,

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the Borrower has possession of or has delivered to Bank shipping and delivery
receipts evidencing shipment;

         (C)  is not owed by an account debtor who is a supplier, employee or
parent, subsidiary or other affiliate of the Borrower;

         (D)  ____ is not evidenced by a promissory note or other instrument, is
subject to a perfected security interest in favor of Bank and is not subject to
any other Lien (as defined below);

         (E) ____ is not owed by an account debtor whose principal place of
business is located outside of the United States of America; provided, however,
that such Account may constitute a Eligible Account (i) if foreign credit
insurance (satisfactory to Bank in all respects) is obtained for such Account
Receivable listing the Bank as an additional insured, or (ii) if it is supported
by letter(s) of credit issued to the Borrower by financial institution(s)
acceptable to Bank;

         (F) ____ is a non-contingent obligation that is not subject to set-off,
credit, defense, warranty claim, allowance or adjustment by the account debtor
except normal discount allowed in the ordinary course for prompt payment, and
such account debtor has not complained as to its liability thereon nor returned
any of the subject goods;

         (G) ____ did not arise out of any sale made on an advanced billing,
bill and hold, dating or delayed shipment basis the receivable for which is more
than thirty (30) days past due;

         (H) ____ is owed by an account debtor as to which Borrower has received
no notice and has no knowledge of bankruptcy, insolvency or other facts which
make collection doubtful, and has not been turned over to a collection agency or
attorney;

         (I) ____ the account debtor is not located in the State of New Jersey,
or the State of Minnesota or any other state denying creditors access to its
courts in the absence of such creditor's qualification to conduct business as a
foreign corporation in such state or complying with other filing or reporting
requirements unless Borrower has filed all legally required filings and reports,
obtained any necessary authorities or certificates to do business, and paid any
applicable taxes and/or fees to the applicable state agency in such state;

         (J) ____ if owed by the United States of America, has been properly
assigned to the Bank pursuant to the Federal Assignment of Claims Act, and is
not subject to any right of offset or other claims;

         (K)  has not been designated by Bank in its sole discretion as
unacceptable for any reason by notice to the Borrower;

         Characterization of any Account Receivable due from an account debtor
as an Eligible Account shall not be deemed a determination by Bank as to its
actual value nor in any way obligate Bank to accept any Account Receivable
subsequently arising from such account debtor to be, or to continue to deem such
Account Receivable to be, an Eligible Account; it is the

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Borrower's responsibility to determine the creditworthiness of account debtors
and all risks concerning the same and collection of Accounts Receivable are with
the Borrower. All Accounts Receivable which are not Eligible Accounts also
constitute Collateral.

         "Eligible Inventory" means Inventory of the Borrower which initially
and at all times until sold is:

         (a)  new and unused in first-class condition, merchantable and salable
through normal trade channels;

         (b) at a location which has been identified in writing to Bank;

         (c) subject to a perfected security interest in favor of Bank and owned
by Borrower free and clear of any lien except in favor of Bank;

         (d) not obsolete; not scrap, waste, defective goods and the like;

         (e) ______ has been produced by Borrower in accordance with the Federal
Fair Labor Standards Act of 1938, as amended, and all rules, regulations and
order promulgated thereunder;

         (f) ____ not stored with a bailee, warehouseman, processor or similar
party unless Bank has given its prior written consent thereto and Borrower has
caused each such bailee, warehouseman, processor or similar party to issue and
deliver to Bank warehouse receipts and lien waivers in Bank's name for such
inventory, and in the case of processors, unless such are goods segregated and
labeled as belonging to Borrower or Borrower has perfected its interest therein
by retaining a security interest therein and filing financing statements against
such processor pursuant to ss.9-315 of the Uniform Commercial Code;

         (g) has not been designated by Bank in its reasonable discretion as
unacceptable for any reason by notice to Borrower;

         (h) ____ is and has been since the date of this Agreement valued for
financial reporting purposes on a basis consistent with the basis applied for
prior financial periods and net of all reserves established by Borrower; and

         (i) ____ not held on consignment by a customer unless (i) Borrower has
perfected its interest therein by filing financing statements against such
customer and by prior notification of secured parties of such customer as
required by ss.2-326(3)(c) and 9-114 of the Uniform Commercial Code, (ii) Bank
has consented in writing that such Inventory is eligible, and (iii) such
consignor has acknowledged Bank's first priority claim in such Inventory. The
provisions of this paragraph shall not be deemed a consent by bank to Borrower's
establishment of any consignment relationship.

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         "Equipment" means Borrower's machinery, equipment, furnishings,
fixtures and other goods (as defined in Article 9 of the Uniform Commercial
Code) which is not Inventory, whether now owned or thereafter acquired by
Borrower and wherever located, all replacements and substitutions therefor or
accessions thereto and all proceeds thereof, and including, also without
limitation, all proceeds of fire or other insurance covering the aforesaid
property.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. "Plan" means any employee plan subject to provisions of Title IV of
ERISA maintained for employees of Borrower, any subsidiary of Borrower or any
other trade or business under common control with Borrower within the meaning of
Section 414(c) of the Internal Revenue Code or the regulations thereunder.
"Reportable Event" means any reportable event as defined in ERISA. "PBGC" means
the Pension Benefit Guaranty Corporation.

         "Financial Statements" means the balance sheet of Borrower as of
______, 2001, statement of income, and changes in financial position, and notes
thereto, of Borrower for the years or, as appropriate, quarter ended on such
dates, reviewed by independent certified public accountants of recognized
standing to present fairly the financial position and results of operations of
Borrower at such dates and for such periods in accordance with GAAP, together
with all future financial statements whether prepared by management of the
Borrower or certified public accountants on behalf of Borrower.

         "GAAP" means generally accepted accounting principles applies
consistently as was done in the preparation of the Financial Statements, with
such changes or modifications thereto as may be approved in writing by the Bank.

         "Indebtedness" shall mean, with respect to any Person (as defined
below), (i) all indebtedness for borrowed money or for the deferred purchase
price of property or services, and all obligations under leases which are or
should be, under generally accepted accounting principles, recorded as capital
leases, in respect of which such Person is directly or contingently liable as
obligor, guarantor, endorser or otherwise, or in respect of which such Person
otherwise assures a creditor against loss, (ii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by (or
for which the holder has an existing right, contingent or otherwise, to be
secured by) any Lien upon property (including without limitation accounts
receivable and contract rights) owned by such Person, whether or not such Person
has assumed or become liable for the payment thereof, and (iii) all other
liabilities or obligations which would, in accordance with generally accepted
accounting principles, be classified as liabilities of such Person.

         "Inventory" means all inventory of the Borrower of whatever name,
nature, kind or description, all goods held for sale or lease or to be furnished
under contracts of service, finished goods, work in process, raw materials,
materials used or consumed by Borrower, parts, supplies, all wrapping,
packaging, advertising, labelling, and shipping materials, devices, names and
marks, all contracts rights and documents relating to any of the foregoing,
whether any of the foregoing be now existing or hereafter arising, wherever
located, now owned or hereafter acquired by Borrower.

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         "Lien" means any mortgage, pledge, assignment, lien, charge,
encumbrance or security interest of any kind whatsoever, or the interest of a
vendor or lessor under a conditional sale, title retention or capital lease
agreement.

         "Obligation(s)" means all loans, advances, debts, liabilities,
obligations (including without limitation for reimbursement in connection with
guaranties and letters of credit), agreements, undertakings, covenants and
duties owing or to be performed or observed by the Borrower to or in favor of
Bank, of every kind and description (whether or not evidenced by any note or
other instrument; for the payment or money; arising out of this Agreement or any
other agreement between Bank and the Borrower or any other instrument of
Borrower in favor of Bank; arising out of or relating or similar to transactions
described herein; or contemplated as of the date hereof), direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising.

         "Person" means any individual, partnership, firm, association, business
enterprise, trust, estate, company, joint venture, governmental authority,
corporation or other entity.

         "Related Collateral" means all Borrower's general intangibles; trade
names, marks and secrets; patents, trademarks, copyrights and other intellectual
property; customer lists; goodwill; cash; deposit accounts; tax refunds; claims
under insurance policies (whether or not proceeds of other Collateral); rights
of set off; rights under judgments; tort claims and choses in action; computer
programs and software; books and records including without limitation all
electronically recorded data); contract rights; and all contracts and agreements
to or of which it is a party or beneficiary, whether any of the foregoing be now
existing or hereafter arising, now or hereafter received by or belonging to
Borrower.

         "Tangible Net Worth" shall mean Borrower's Total Assets determined in
accordance with GAAP, consistently applied, subtracting therefrom Total
Liabilities and intangibles, including goodwill ( as determined in accordance
with such principles so applied).

         "Total Assets" means, at any date as of which the amount thereof shall
be determined, all assets that should, in accordance with GAAP, be classified as
all assets on the balance sheet of the Borrower.

         "Total Debt Service Requirements" means on a trailing four quarters'
basis regularly scheduled payments of principal and/or interest and amounts due
under any capitalized leases.

         "Total Liabilities" means at any date as of which the amount thereof
shall be determined, all obligations that shall, in accordance with GAAP, be
classified as liabilities on the balance sheet of the Borrower, including, in
any event, all Indebtedness.

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<PAGE>

         "Uniform Commercial Code". The following terms which are defined in the
Massachusetts Uniform Commercial Code shall, unless the context otherwise
requires, have the same meanings herein: "account", "account debtor", "chattel
paper", "document", "general intangible", "inventory", "instrument", and
"proceeds".

         Accounting terms used and not otherwise defined in this Agreement have
the meanings determined by, and all calculations with respect to accounting or
financial matters unless otherwise provided herein shall be computed in
accordance with, GAAP.

         4. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
(and at the time of each loan hereunder shall be deemed to represent and
warrant) to Bank that:

         (A) ____ Borrower is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware and is duly qualified
to do business and is in good standing in every other state in which such
qualification may be necessary by reason of the nature or location of Borrower's
assets or operations;

         (B) ____ The execution, delivery and performance of Borrower's
obligations hereunder are within its powers, have been duly authorized by all
necessary corporate action and other action, require no action by or in respect
of, or filing with, any governmental authority, and do not contravene or
constitute a default under any of the charter, by-laws, or other constituent
documents of Borrower or, to the knowledge of Borrower under any provision of
applicable law or regulation or any judgment, order, decree, injunction or
material agreement or other instrument by which it or any of its properties may
be bound, or result in creation or imposition of any Lien on any of their assets
except in favor of Bank;

         (C) ____ This Agreement has been duly executed and delivered by and
constitutes a valid and binding agreement of the Borrower, enforceable against
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or other similar law affecting creditors' rights
generally;

         (D) ____ Borrower's Financial Statements which have been furnished to
Bank have been prepared in accordance with GAAP applied on a basis consistent
with that of prior financial periods and are true and correct and fairly present
its financial position as at the close of business on the date(s) thereof and
the results of its operations during the period(s) covered thereby. Borrower has
no liabilities, contingent or otherwise, involving material amounts which are
not disclosed in said statements or the notes thereto. Since the date of the
most recent of such statements there has occurred no material adverse change in
its financial condition or business;

         (E) ____ It owns all of the assets reflected in the most recent of such
Financial Statements, except assets sold or otherwise disposed of in the
ordinary course of business since the date thereof, and such assets together
with any assets acquired since such date, including without limitation the
Collateral, are subject to no Liens except (i) as reflected in such statement or
the notes thereto or (ii) in favor of Bank;

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         (F) ____ Borrower's charter documents have been duly filed and are in
proper order. All its respective books and records are accurate and up-to-date;

         (G) ____ Borrower has made or filed all tax returns, reports and
declarations relating to any material tax liability required by any jurisdiction
to which it is subject (any tax liability which may result in a Lien on any
Collateral being hereby deemed material); has paid all taxes shown or determined
to be due thereon except those being contested in good faith; and has made
adequate provision for the payment of all taxes so contested or in respect of
subsequent periods;

         (H) ____ To Borrower's knowledge, it (i) is subject to no charter,
corporate or other legal restriction, or any judgment, award, decree, order,
governmental rule or regulation or contractual restriction which could have a
material adverse effect on its financial condition, business or prospects, and
(ii) is in compliance with its charter documents, and by-laws, all contractual
requirements by which it or any of its properties may be bound and all
applicable laws, rules and regulations (including without limitation those
relating to environmental protection) other than laws, rules or regulations the
validity or applicability of which it is contesting in good faith or provisions
of any of the foregoing the failure to comply with which cannot reasonably be
expected to materially adversely affect its financial condition, business or
prospects or the value of any Collateral;

         (I) ____ There is no action, suit, proceeding or investigation pending
or, to its knowledge, threatened against or affecting it or any of its assets
before or by any court or other governmental authority which, if determined
adversely to it, would have a material adverse effect on its financial
condition, business or prospects or the value, title or extent of any
Collateral;

         (J) ____ It is in compliance with ERISA; no Reportable Event has
occurred and is continuing with respect to any Plan; and it has no unfunded
vested liability under any Plan.

         (K) ____ Its principal executive office and the office where it keeps
its records concerning its Accounts Receivable and other assets is (and has been
for more than four (4) months prior to the date of this Agreement) that shown at
the beginning of this Agreement, and all of its Equipment and other goods are
stored at that location and the locations set forth on Schedule 4(m);

         (L) ____ To the best of its knowledge, Borrower has taken all necessary
action to assess, evaluate and correct all of the hardware, software, embedded
microchips and other processing capabilities it uses in its primary business
operations, to ensure that it will be able to function accurately and without
interruption or ambiguity using date information before, during and after
January 1, 2000.

         5.  BORROWER'S REPORTS AND NOTICES. Borrower will deliver to Bank:

         (A) ____ at the time of each Revolving Loan and within twenty (20) days
after the close of each monthly fiscal period, a Borrowing Base Certificate for
the Borrower in form reasonably acceptable to Bank containing a summary and
reconciliation of Accounts Receivable created

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since the prior such certificate, together with (if required and as frequently
as requested by Bank) copies of invoices, sales journals and schedules of credit
memorandums relating to such Accounts Receivable and an Inventory valuation
report;

         (B) ____ within twenty (20) days after the close of each monthly fiscal
period of Borrower, monthly Accounts Receivable and Accounts Payable aging
reports in form reasonably satisfactory to Bank showing a total amount due to
and payable by the Borrower from each account debtor, breaking down the
receivables and payables by days past due as follows: 0-30 days, 31-60 days,
61-90 days and 91 days plus;

         (C) ____ within thirty (30) days after the close of each quarterly
fiscal period of Borrower, quarterly financial statements including a balance
sheet and statement of profit and loss reflecting the financial condition of the
Borrower at the end of such period and the results of its operations during such
period, such balance sheet and statement of profit and loss to be certified by
Borrower's chief financial officer to fairly present its financial condition at
the end of such period and the results of its operations during such period in
accordance with GAAP, consistently applied, subject to changes resulting from
year-end audit adjustments;

         (D) ____ annually, as soon as available but in any event within ninety
(90) days after the close of each fiscal year of Borrower, a full and complete
signed copy of a financial statement or statements prepared on an audited basis,
by independent certified public accountants reasonably acceptable to Bank, which
shall include a balance sheet of Borrower and all of its related affiliates and
subsidiaries as at the end of such year, a statement of profit and loss, a
statement of cash flows of Borrower and all of its related affiliates and
subsidiaries reflecting the results of its operations during such year, and
annually within thirty (30) days of filing with taxing authorities, copies of
the state and federal tax returns for the Borrower and all of its related
affiliates and subsidiaries;

         (E) ____ promptly, such other information concerning the Borrower, the
Collateral, the operation of Borrower's business or its financial condition and
copies of such governmental filings and other documentation as Bank may from
time to time reasonably request;

         (F) promptly notice of:

                  (a) any event described in Section 10 or any event which, with
         notice or lapse of time or both, might become such an event;

                  (b) ____ any change of Borrower's officers, directors, and key
         employees, change of location of its principal offices, change of
         Borrower's name, any sale or purchase out of the ordinary course of
         Borrower's business and any other material change in the business or
         financial affairs of Borrower or any change in the legal status of the
         Borrower;

                  (c) ____ the institution or commencement of any action, suit,
         proceeding or investigation against or affecting Borrower or any of its
         assets which, if determined

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         adversely to Borrower, could have a material adverse effect on the
         financial condition, business or prospects of Borrower or the value,
         title or extent of any Collateral;

                  (d) any judgment, award, decree, order or determination
         relating thereto;

                  (e) ____ the imposition or creation of any Lien, other than
         taxes that are not yet due and payable, against any asset of Borrower
         except in favor of Bank;

                  (f) any Reportable Event, together with a statement of
         Borrower's Manager as to the details thereof and a copy of its notice
         thereof to the PBGC;

                  (g) ____ any potential or known release or threat of release
         of hazardous or toxic chemicals, materials or oil from any site owned
         or operated by Borrower or the incurrence of any expense or loss in
         connection therewith or upon Borrower's obtaining knowledge of any
         investigation, action or the incurrence of any expense or loss by any
         governmental authority in connection with the containment or removal of
         any hazardous or toxic chemical, material or oil for which expense or
         loss Borrower may be liable or potentially responsible; or

                  (h) any loss or destruction of Collateral or other material
         assets whether or not covered by insurance;

         (G) ____ immediately after receipt or filing, a copy of (i) any notice
it may receive from the PBGC relating to the PBGC's intention to terminate or
appoint a trustee to administer any Plan and (ii) any report or notice relating
to any Reportable Event which Borrower may file under ERISA with the PBGC, the
Internal Revenue Service or the United States Department of Labor; and

         (H) ____ if requested by Bank, within five (5) days after the accrual
in accordance with applicable law of Borrower's obligation to make deposits for
F.I.C.A and withholding taxes, evidence reasonably satisfactory to Bank that
such deposits have been made as required.

         6. _____ BANK'S REPORTS. After the end of each month, Bank will render
to Borrower a statement of Borrower's loan account with Bank hereunder, showing
all applicable credits and debits. Each statement shall be considered correct
and to have been accepted by Borrower and shall be conclusively binding upon
Borrower in respect of all charges, debits and credits of whatsoever nature
contained therein under this Agreement, and the closing balance shown therein,
unless Borrower notifies Bank in writing of any discrepancy within thirty (30)
days from the date of any such statement.

         7.  BORROWER'S AFFIRMATIVE COVENANTS. Borrower agrees that it will:

         (A) ____ maintain property and liability insurance with responsible
insurance companies (and with deductibles) satisfactory to Bank in such amounts
and covering such risks as is usually

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carried by companies engaged in similar businesses and owning similar properties
in the same general areas as Borrower operates;

         (B) ____ maintain insurance naming Bank as first mortgagee and/or loss
payee with responsible insurance companies (and with deductibles) satisfactory
to Bank covering Borrower's Equipment, Inventory, and other insurable Related
Collateral, in such amounts as is usually carried by companies engaged in
similar businesses and in any event not less than Bank may from time to time
require, and deliver to Bank copies of such insurance policies (and all renewals
thereof) together with lender's loss payable endorsements naming Bank as secured
party, executed by the insurer(s), such policies to provide that coverage may
not be modified or terminated without thirty (30) days prior notice to the Bank;

         (C) ____ maintain its existence in good standing, and its qualification
to do business in good standing in every state in which such qualification may
be necessary by reason of the nature or location of its assets or operations,
and comply with its operating agreement, charter documents, and by-laws, all
contractual requirements by which it or any of its properties may be bound and
all applicable laws, rules and regulations (including without limitation ERISA
and those relating to environmental protection) other than laws, rules or
regulations the validity or applicability of which the Borrower shall contest in
good faith or provisions of any of the foregoing the failure to comply with
which cannot reasonably be expected to materially adversely affect the financial
condition, business or prospects of Borrower or the value, title or extent of
any Collateral;

         (D) ____ continue to engage primarily in its respective present
business and maintain and preserve all of its properties necessary for the
conduct thereof in good working order and condition, ordinary wear and tear
excepted;

         (E) ____ pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or property, or upon this
Agreement or any notes evidencing Obligations, including without limitation
taxes, assessments, charges or levies relating to real and personal property,
the Collateral, franchises, income, unemployment, old age benefits, withholding,
or sales or use, prior to the date on which penalties attach thereto, and all
lawful claims (whether for any of the foregoing or otherwise) which, if unpaid,
might give rise to a Lien upon any property of Borrower, except any of the
foregoing which is being contested in good faith and by appropriate proceedings
and for which Borrower has established adequate reserves; and

         (F) ____ establish and maintain its primary operating and deposit
accounts and deposit relationship with the Bank.

         8. BORROWER'S NEGATIVE COVENANTS. Without the prior written consent
of Bank:

         (A) ____ Borrower will not permit its Debt To Worth Ratio to be greater
than 1.00 to 1.00 as of each fiscal year end, to be tested at each fiscal year
end;

                                       12
<PAGE>

         (B) ____ Borrower will not permit its Tangible Net Worth to be less
than $1,800,000.00 as of each fiscal year end, to be tested at each fiscal year
end;

         (C) ____ Borrower will not permit its Current Ratio to be less than
1.85 to 1.00 as of each fiscal year end, to be tested at each fiscal year end;

         (D) Borrower will achieve and maintain a minimum net profit at each
fiscal year end of $100,000.00;

         (E) ____ Borrower will not sell, assign, exchange or otherwise dispose
of any of the Collateral (other than Collateral consisting of (i) scrap, waste,
defective goods and the like; (ii) obsolete goods; and (iii) finished goods,
including used equipment, sold in the ordinary course of business) or any
interest therein to any other Person;

         (F) ____ Borrower will not create, permit to be created or suffer to
exist any Lien upon any of the Collateral or any other property of Borrower, now
owned or hereafter acquired, except: (i) landlord's carriers', warehousemen's,
mechanics and other similar Liens arising by operation of law in the ordinary
course of Borrower's business; (ii) arising out of pledges or deposits under
workmen's compensation, unemployment insurance, old age pension, social
security, retirement benefits or other similar legislation; (iii) purchase money
Liens arising in the ordinary course of business (so long as the Indebtedness
secured thereby does not exceed $5,000.00 in the aggregate and such Lien extends
to no other property); or (iv) in favor of Bank;

         (G) ____ Borrower will not pay any dividends on or make any
distribution on account of any of Borrower's stock; or redeem, purchase or
otherwise acquire, directly or indirectly, any of such interest; provided,
however, that if the Borrower is in compliance with all the covenants, terms,
and provisions of this Agreement, Borrower may make distributions to its
shareholders during any fiscal year of Borrower to satisfy in whole or in part
the amount necessary to pay federal and state income taxes upon Borrower's
undistributed income for such year (so long as such distribution will not cause
Borrower to be in default of any of the foregoing financial covenants);

         (H) ____ Borrower will not enter into any lease or other transaction
with any director, shareholder, officer or affiliate on terms any less favorable
than those which might be obtained at the time from persons who (or entities
which) are not such a director, shareholder, officer or affiliate;

         (I) ____ Borrower will not make any loans or advances to any Person,
including without limitation Borrower's directors, shareholders, officers, and
employees, except advances to directors, officers, or employees with respect to
expenses incurred by them in the ordinary course of their duties which are
properly reimbursable by Borrower;

         (J) ____ Borrower will not assume, guaranty, endorse or otherwise
become directly or contingently liable in respect of (including without
limitation by way of agreement, contingent or otherwise, to purchase, provide
funds to or otherwise invest in a debtor or otherwise to assure a

                                       13
<PAGE>

creditor against loss), any Indebtedness (except guaranties by endorsement of
instruments for deposit or collection in the ordinary course of business) of any
Person;

         (K) ____ Borrower will not merge or consolidate with or into any
corporation, or enter into any joint venture or partnership with any person,
firm or corporation; convey, lease or transfer or otherwise dispose of any
substantial part of its assets or business (whether in one or more transactions)
except for the sale of Inventory in the ordinary course of its business;

         (L) ____ Borrower will not incur any Indebtedness exceeding $10,000.00
in the aggregate other than (i) trade debt and ordinary operating expenses
incurred in the ordinary course of Borrower's business, or (ii) Obligations owed
to the Bank.

         9. ADDITIONAL COVENANTS AS TO FURTHER SECURITY AND ASSURANCES.

         (A) ____ Borrower will at all times maintain sufficient Collateral in
which Bank has a perfected first-rank security interest to ensure that loans
outstanding hereunder do not in the aggregate exceed the Borrowing Base from
time to time in effect, and shall immediately make such principal payments as
may at any time to be necessary to eliminate any such excess.

         (B) ____ Borrower will notify Bank, at least thirty (30) days prior to
any such event, of any change in Borrower's exact legal name, any change in its
place(s) of business or locations(s) of Equipment, or other goods as set forth
in Section 4 or its establishment of any new place of business or location of
Inventory or office where its records concerning Accounts Receivable and other
assets are kept.

         (C) ____ At Bank's request, Borrower at its expense (i) will promptly
and duly execute and deliver such documents and assurances and take such actions
as may be necessary or desirable or as Bank may request in order to correct any
defect, error or omission which may at any time be discovered or in order to
more effectively carry out the intent and purpose of this Agreement and to
establish, perfect and protect Bank's security interest, rights and remedies
created or intended to be created hereunder and (ii) without limiting the
generality of the above, will join with Bank in executing financing and
continuation statements pursuant to the Uniform Commercial Code or other notices
appropriate under applicable Federal or state law in form satisfactory to Bank
and filing the same in all public offices and jurisdictions wherever and
whenever requested by Bank (including without limitation upon the occurrence of
any event referred to in paragraph (B) above or (F) below).

         (D) ____ Upon an Event of Default under the Revolving Loans and
expiration of applicable grace or cure periods (if any), if the Bank shall so
require, Borrower will, immediately upon receipt of all checks, drafts, cash and
other remittances in payment of any Collateral sold or on account of Borrower's
Accounts Receivable (including without limitation tax refunds, insurance
proceeds and notes), hold the same in trust for Bank and deliver the same to
Bank in the form received together with Borrower's endorsement thereon where
necessary to permit collection thereof. Bank will credit all such payments
(conditional upon final collection) against interest

                                       14
<PAGE>

accrued on or principal of loans outstanding hereunder; PROVIDED THAT for
purposes of computing interest, Borrower shall not be given credit for items
subject to collection until three (3) business days after their receipt by Bank
(For purposes of determining the Borrowing Base, Borrower shall be given
immediate credit for the same). The order and method of application shall be in
Bank's sole discretion and proceeds which in Bank's discretion are not so
applied shall be credited to Borrower's deposit account(s) with Bank. Bank will
at all times have the right to require Borrower (i) to enter into a lockbox
arrangement with Bank for the collection of such remittances and payments or
(ii) to maintain its deposit accounts at Bank or, in the alternative, at another
financial institution which has agreed to accept drafts drawn on it by Bank
under a written depository transfer agreement with Bank, and to block Borrower's
account and waive its own rights as against such account.

         (E) ____ Bank will at any time following the occurrence of any Event of
Default hereunder have the right to take physical possession of the Collateral
and to maintain such possession on Borrower's premises or to remove the
Collateral or any part thereof to such other places as Bank may desire. If Bank
exercises such right, Borrower shall upon Bank's request assemble the same and
make it available to Bank at a place reasonably convenient to Bank. If any
Collateral is in the possession or control of any of Borrower's agents or
processors, Borrower shall at Bank's request (before or after Demand) notify
them of Bank's security interest therein and, at Bank's request, instruct them
to hold the same for Bank's account and subject to Bank's instructions.

         (F) ____ Borrower shall perform any and all further steps requested by
Bank to perfect Bank's security interest in Equipment and Inventory. A physical
listing of all Inventory, Equipment, and other goods, wherever located, shall be
taken by Borrower at least annually and whenever reasonably requested by Bank,
the cost of which shall be borne by the Bank.

         (G) ____ Bank may at any time (i) in its own name or in the name of
others communicate with account debtors in order to verify with them to Bank's
satisfaction the existence, amount and terms of any Accounts Receivable and the
absence of any reductions, discounts, defenses or offsets with respect thereto
or (ii) notify account debtors that Collateral has been assigned to Bank and
that payments by such account debtors shall be made directly to Bank. At Bank's
request Borrower will notify any or all such account debtors of such assignment,
give instructions and/or indicate on billings to such account debtors that their
Accounts Receivable shall be paid to Bank and/or supply such account debtors
with a copy of this Agreement.

         (H) ____ Bank shall have full power, in its own name or that of
Borrower, to collect, endorse, compromise, settle, sell or otherwise deal with
any or all of the Collateral or proceeds thereof. Borrower does hereby make,
constitute and appoint any officer or agent of Bank as Borrower's true and
lawful attorney-in-fact, with power of substitution: (i) to endorse the name of
Borrower or any of its trustees, officers, or agents upon any notes, checks,
drafts, money orders, or other instruments of payment (including under any
policy of insurance on Collateral) or Collateral that may come into possession
of Bank in full or part payment of any amounts owing to Bank; (ii) to sign and
endorse the name of Borrower or any of its members, trustees, officers, or
agents upon any invoice, freight or express bill, bill of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts Receivable, and any

                                       15
<PAGE>

instruments or documents relating thereto or to Borrower's rights therein; (iii)
to give written notice to such offices and officials of the United States Postal
Service to effect such change or changes of address so that all mail addressed
to Borrower may be delivered directly to Bank; (iv) to take any and all other
actions necessary or appropriate to collect, compromise, settle, sell or
otherwise deal with any or all of the Collateral or proceeds thereof; and (v) to
obtain, adjust, settle and cancel any insurance referred to in this Agreement;
hereby granting to each said attorney-in-fact or his substitute full power to do
any and all things necessary or appropriate to be done in and about the premises
as fully and effectually as Borrower might or could do, and hereby ratifying all
that any said attorney-in-fact or his substitute shall lawfully do or cause to
be done by virtue hereof. Provided, however, that except to the extent
reasonably necessary to Bank's usual and good faith administration of the loans,
the foregoing powers and appointment shall not be exercised until after the
occurrence of an event described in Section 10.

         (I) ____ Borrower hereby assigns to Bank all sums, including without
limitation return of premiums, which may become payable under any policy of
insurance on Collateral and directs each insurance company issuing any such
policy to make payment thereof directly to Bank.

         (J) ____ If any Accounts Receivable arise from contracts with the
United States or any department, agency or instrumentality thereof, Borrower
will immediately notify Bank thereof and execute any instruments and take any
steps requested by Bank in order that all monies due and to become due
thereunder shall be assigned to Bank and notice thereof given to the Federal
authorities under the Federal Assignment of Claims Act.

         (K) ____ In its sole discretion if Borrower has not done so prior to
cancellation or imposition of any penalties (as applicable), Bank may: (i)
discharge taxes and Liens levied or placed on Collateral; (ii) pay for insurance
thereon or the maintenance and preservation thereof; or (iii) if Borrower shall
fail to make deposits in respect of F.I.C.A. and withholding taxes referred to
in Section 5, make such deposits or pay such taxes, in whole or in part, or set
up such reserves as sank shall in its sole discretion deem necessary in respect
of Borrower's liability on any of the foregoing. Any amount so paid, deposited
or reserved for shall constitute a loan for all purposes hereunder. Nothing
herein shall be deemed to obligate Bank to do any of the foregoing and the
making of any one or more such payments, deposits or reserves shall not
constitute an agreement by Bank to take any further or similar action or a
waiver of any right of Bank hereunder.

         (L) ____ Borrower will at all times keep accurate records of the
Collateral and will permit Bank or its agents or representatives at any
reasonable time, (using Bank's usual reasonable examination practices and
procedures) and from time to time to visit Borrower's place(s) of business,
without hindrance or delay, to inspect Inventory and other goods and examine,
check, audit and make copies and abstracts from Borrower's records and books of
account (including without limitation corporate minutes, and records, journals,
orders, receipts and correspondence relating to Collateral, account debtors,
transactions unrelated to Collateral and Borrower's general financial condition,
business and affairs); to remove any of such books and records temporarily for
the purpose of having copies made; and to discuss with any of Borrower's
appropriate directors, officers and employees the Collateral and Borrower's
general financial condition, business and affairs.

                                       16
<PAGE>

         (M) ____ Borrower hereby grants to Bank, for a term commencing on the
date hereof and continuing so long as any of the Obligations remain outstanding,
at a rental of $1.00 for such entire term, the right to the use of all premises
or places of business which Borrower now or hereafter may have and where any
Collateral may be located; PROVIDED THAT Bank agrees not to exercise such right
unless and until after the occurrence of any one or more of the events described
in Section 10 hereof or until Bank determines to exercise its rights against
Collateral hereunder.

         (N) ____ Borrower hereby grants to Bank for a term to commence on the
date of this Agreement and continuing thereafter until all debts and Obligations
of any kind or character owed to Bank are fully paid and discharged, a
non-exclusive, irrevocable, royalty-free license in connection with the Bank's
exercise of its rights hereunder, to use, apply or affix any trademark,
servicemark, tradename, logo or the like and to use any patents, franchises,
licenses, and goodwill in which the Borrower now or hereafter has rights, which
license may be used by Bank upon and after the occurrence of any one or more of
the events described in Section 10 hereof. This license shall be in addition to,
and not in lieu of, the inclusion of all of Borrower's trademarks, servicemarks,
tradenames, logos, goodwill, patents, franchises and licenses in the related
Collateral.

         (O) ____ If any Accounts Receivable are at any time evidenced by
promissory notes, trade acceptances or other instruments for the payment of
money, Borrower will immediately deliver the same to Bank appropriately endorsed
to Bank's order and, regardless of the form of such endorsement, Borrower hereby
waives presentment, demand, notice of dishonor, protest, notice of protest and
all other notices with respect thereto.

         (P) Intentionally Deleted.

         (Q) ____ In the event of the sale, exchange or disposition of any of
the Collateral, other than finished goods in the ordinary course of business, or
any interest therein (and no such sale, exchange or other disposition is hereby
authorized or consented to), Bank's security interest shall nevertheless
continue in such Collateral (including without limitation all proceeds, cash and
non-cash) notwithstanding such sale, exchange or other disposition; all of said
proceeds shall remain Collateral hereunder and shall be transferred and paid
over to Bank immediately, and shall be applied at Bank's option to the payment
of Obligations; and Bank's receipt of any such proceeds shall not be deemed or
construed to be an authorization of or consent to any such sale, exchange or
other disposition.

         (R) ____ Any and all deposits or other sums at anytime credited by or
due from Bank to Borrower shall at all times constitute security for Obligations
and may be set-off against any Obligations at any time whether or not they are
then due or other security held by Bank is considered by Bank to be adequate.
Any and all instruments, documents, policies and certificates of insurance,
securities, goods, accounts, choses in action, general intangibles, chattel
paper, cash, property and the proceeds thereof (whether or not the same are
Collateral or proceeds thereof) owned by Borrower or in which Borrower has an
interest, which now or hereafter are at

                                       17
<PAGE>

any time in possession or control of Bank or in transit by mail or carrier to or
from Bank or in the possession of any third party acting in Bank's behalf,
without regard to whether Bank received the same in pledge, for safekeeping, as
agent for collection or transmission or otherwise or whether Bank had
conditionally released the same, shall constitute security for Obligations and
may be applied at any time to Obligations which are then owing, whether due or
not due. Bank shall be entitled to presume, in the absence of clear and specific
written notice to the contrary hereinafter provided by Borrower to Bank that any
and all deposits maintained by Borrower with Bank are general accounts as to
which no person or entity other than Borrower has any legal or equitable
interest whatsoever.

         (S) ____ All advances by Bank to Borrower under this Agreement and
under any other agreement constitute one general loan, and all indebtedness of
Borrower to Bank under this and under any other agreement constitute one general
Obligation. Each advance to Borrower hereunder or otherwise shall be made upon
the security of all of the Collateral held and to be held by Bank. It is
expressly understood and agreed that all of the rights of Bank contained in this
Agreement shall likewise apply, insofar as applicable, to any modification of or
supplement to this Agreement and to any other agreements between Bank and
Borrower. Any default of this Agreement by Borrower shall constitute, likewise,
a default by Borrower of any other existing agreement with Bank, and any default
by Borrower of any other agreement with Bank shall constitute a default of this
Agreement. The entire Obligation of Borrower to Bank shall become due and
payable when payments become due and payable hereunder upon termination of the
Agreement.

         10. ____ EVENTS OF DEFAULT. Although the Bank may demand payment of all
sums due under the Note at any time, the Bank, at its option may also declare
the entire principal balance of the Revolving Loans and all accrued unpaid
interest thereon to be immediately due and payable without demand, notice or
protest (which is hereby waived) upon the occurrence of any more of the
following events ("Events of Default").

         (A) ____ failure by Borrower to pay any amount when due under this
Agreement or any note, including, but not limited to, the notes referred to in
Section 2 of this Agreement, after the expiration of any applicable grace
period;

         (B) failure by Borrower to pay upon demand (or when due, if not payable
on demand) any other Obligation;

         (C) ____ failure by Borrower to perform, discharge, observe or comply
with any Obligation (other than for payment) in accordance with the terms
thereof;

         (D) ____ any representation, warranty or statement of Borrower to Bank
heretofore, now or hereafter made in connection with any Obligation (including
without limitation any made in a document provided by Borrower under Section 5)
is found to have been false or misleading in any material respect as of the time
when made;

                                       18
<PAGE>

         (E) ____ occurrence of any event of default as defined in any other
instrument evidencing or governing Indebtedness of Borrower (other than
Obligations) now or hereafter outstanding, or any event or condition which
entitles any holder or trustee of such Indebtedness to accelerate its maturity;

         (F) ____ Borrower's dissolution, liquidation, termination, dissolution
or ceasing to carry on actively any substantial part of its current business;

         (G) ____ commencement by Borrower of a voluntary proceeding seeking
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law, or seeking appointment of a trustee, receiver, liquidator or
other similar official for it or any substantial part of its assets; or its
consent to any of the foregoing in an involuntary proceeding against it; or
Borrower shall generally not be paying its debts as they become due or admit in
writing its inability to do so; or an assignment for the benefit of, or the
offering to or entering into by Borrower of any composition, extension,
reorganization or other agreement or arrangement with, its creditors;

         (H) ____ commencement of an involuntary proceeding against Borrower
seeking relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law, or seeking appointment of a trustee, receiver, liquidator
or other similar official for it or any substantial part of its assets, which
proceeding remains undismissed and unstayed for sixty (60) days; or entry of an
order for relief against Borrower in any such proceeding;

         (I) ____ service upon Bank of a writ naming Bank as trustee for
Borrower, or of any other similar process of attachment;

         (J) entry of any uninsured judgment or judgments against Borrower which
is not dissolved within thirty (30) days of entry;

         (K) ____ attachment of any Lien not permitted hereunder upon property
of Borrower not in favor of Bank without Bank's prior written consent and such
lien is not dissolved or bonded over to the satisfaction of the Bank within
thirty (30) days of its attachment;

         (L) ____ entry of any court order which enjoins, restrains or in any
way prevents Borrower from conducting all or any part of its business;

         (M) ____ any change in the legal or beneficial ownership of the shares
of Borrower from that existing at the date hereof;

         (N) any loss, theft, damage or destruction to or of any material
asset(s) of Borrower not covered by insurance;

         (O) ____ reclamation or repossession of, or any action by a creditor to
reclaim or repossess not dismissed within 30 days, any material asset(s) of
Borrower;

                                       19
<PAGE>

         (P) ____ there shall occur and be continuing any Reportable Event which
constitutes grounds for termination of or for appointment by a United States
district court of a trustee to administer any Plan; the PBGC shall institute
proceedings to terminate or to appoint a trustee to administer any Plan; a
United States district court shall appoint a trustee to administer any Plan; or
any Plan shall be terminated in circumstances giving rise to liabilities having
a material adverse effect on Borrower's financial condition; or

         (Q) ____ termination of, failure to make any payment required under or
any other default under any guaranty of or other instrument or agreement
securing any of the Obligations.

         11.  BANK'S RIGHTS AND REMEDIES UPON DEFAULT. Following the occurrence
of any one or more of the events described in Section 10 above:

         (A) ____ (i) If it has not already done so, Bank may decline to make
any or all further loans hereunder; (ii) All Obligations shall become
immediately due and payable at Bank's option without notice to Borrower; (iii)
Borrower shall be obligated to deliver to Bank cash collateral in an amount
equal to the aggregate amounts then undrawn on all letters of credit or
outstanding on acceptances issued by Bank for Borrower's account; (iv) Bank may
proceed to enforce payment of any of the foregoing and shall have and may
exercise any and all rights under the Uniform Commercial Code or which are
afforded to Bank herein or otherwise; and (v) all Obligations (including without
limitation principal, interest accrued to the time of demand, amounts payable
under Section 12 or upon entry of any judgment) shall bear interest payable on
demand at the rate per annum five (5.00%) percent in excess of the contract rate
of interest otherwise payable; and

         (B) ____ Bank may sell, lease or otherwise dispose of and deliver any
or all Collateral at public or private sale, for cash, upon credit or otherwise,
at such prices and upon such terms as Bank deems advisable in its sole
discretion. Any requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to Borrower at its address set forth herein at least ten
(10) days before the time of sale or other disposition. Bank may be the
purchaser at any such sale, if it is public, and in such event Bank shall have
all rights of a good faith, bona fide purchaser for value from a secured party
after default. The proceeds of any sale may be applied (in whatever order and
manner Bank elects in its sole discretion) to all costs and expenses of sale
(including without limitation reasonable attorneys fees and disbursements) and
to the payment of Obligations, and any remaining proceeds shall be applied in
accordance with Article 9, Part 5, of the Uniform Commercial Code. Borrower
shall remain liable to Bank for any deficiency.

         12. ATTORNEYS FEES, INDEMNIFICATION, ETC.

         (A) ____ Borrower shall pay to Bank on demand any and all expenses,
including, but not limited to, a collection charge on all Accounts collected,
all attorneys' fees and expenses, and all other expenses of like or unlike
nature which may be expended by the Bank to obtain or enforce payment of any
Account Receivable either as against the account debtor, Borrower, or any

                                       20
<PAGE>

guarantor or surety of Borrower or in the prosecution or defense of any action
or concerning any matter growing out of or connected with the subject matter of
this Agreement, the Obligations or the Collateral or any of Bank's rights or
interests therein or thereto, including, without limiting the generality of the
foregoing, any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings, and all costs and expenses incurred or paid by Bank in connection
with the administration, supervision, protection or realization on any security
held by Bank for the debt secured hereby, whether such security was granted by
Borrower or by any other person primarily or secondarily liable (with or without
recourse) with respect to such debt, and all costs and expenses incurred by Bank
in connection with the defense, settlement or satisfaction of any action, claim
or demand asserted against Bank in connection with the debt secured hereby, all
of which amounts shall be considered advances to protect Bank's security, and
shall be secured hereby. At its option, and without limiting any other rights or
remedies, Bank may at any time pay or discharge any taxes, liens, security
interests or other encumbrances at any time levied against or placed on any of
the Collateral, and may procure and pay any premiums on any insurance required
to be carried by Borrower, and provide for the maintenance and preservation of
any of the Collateral, and otherwise take any action reasonably deemed necessary
to Bank to protect its security, and all amounts expended by Bank in connection
with any of the foregoing matters, including reasonable attorneys' fees, shall
be considered Obligations of Borrower and shall be secured hereby.

         (B) ____ Bank shall be authorized to make loans hereunder upon the oral
or written request in the name of Borrower of (i) the Person executing this
Agreement on Borrower's behalf; (ii) the Person(s) from time to time holding the
office of Manager of Borrower; and (iii) such other Persons as Borrower may from
time to time designate in appropriate certificates of resolutions delivered to
Bank. All such loans shall be conclusively deemed to have been authorized by
Borrower and to have been made pursuant to duly authorized requests therefor on
its behalf. Bank shall further be entitled to rely on any communication,
instrument or document believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person(s), and with respect to all legal
matters shall be entitled to rely on advice of legal counsel.

         (C) ____ In the absence of gross negligence or willful misconduct,
neither Bank nor any attorney-in-fact pursuant to Section 9 shall be liable to
Borrower or any other Person for any act or omission, any mistake of fact or any
error of judgment in exercising any right or remedy granted herein.

         (D) ____ Bank shall be entitled to retain Collateral or require
substitution therefor to the extent required to assure Bank of satisfaction of
Borrower's Obligations under this Section 12.

         13.  MISCELLANEOUS PROVISIONS.

         (A) ____ Unless otherwise specified herein, all notices hereunder shall
be in writing, if to Borrower, addressed to it at its address recited in the
Preamble of this Agreement, and if to Bank, at 10 Main Street, Peabody,
Massachusetts 01960, Attention: Frank P. Romano, Vice President. Written notices
and communications shall be effective and shall be deemed received on the day

                                       21
<PAGE>

when delivered by hand or sent by facsimile transmission; on the next day if by
commercial courier and on the third day after sending if by registered or
certified mail, postage prepaid.

         (B) ____ No failure to exercise and no delay in exercising on the part
of Bank, any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right or remedy. Waiver by Bank of
any right or remedy on any one occasion shall not be construed as a bar to or
waiver thereof or of any other right or remedy on any future occasion. Without
limiting the generality of the foregoing, Borrower expressly agrees that no
failure by Bank to detect or to communicate with Borrower or take action in
response to any failure by Borrower to perform of observe any Obligation shall
operate as a waiver of any right or remedy of Bank; Bank's rights and remedies
hereunder, under any agreement or instrument supplemental hereto or under any
other agreement or instrument shall be cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.

         (C) ____ This Agreement shall be binding upon and shall inure to the
benefit of Borrower and Bank and their respective successors and assigns;
PROVIDED THAT Borrower may not assign or transfer any rights or Obligation
hereunder without Bank's prior written consent.

         (D) ____ The headings contained herein are for convenience only and
shall not affect the construction hereof. If one or more provisions of this
Agreement (or the application thereof) shall be invalid, illegal or
unenforceable in any respect in any jurisdiction, the same shall not, to the
fullest extent permitted by applicable law, invalidate or render illegal or
unenforceable such provision (or its application) in any other jurisdiction or
any other provision of this Agreement (or its application). This Agreement is
the entire agreement of the parties with respect to the subject matter hereof
and supersedes any prior written or verbal communications or instruments
relating thereto.

         (E) ____ This Agreement shall continue in full force and effect so long
as any of the Obligations remains outstanding or has not been fully and finally
paid, performed or satisfied.

         (F) ____ Borrower acknowledges that the transactions contemplated
hereby are commercial transactions and waives, to the fullest extent it may do
so under applicable law, such rights as it may have or hereafter have to notices
and/or hearings under applicable Federal or state laws relating to exercise of
any of Bank's rights, including without limitation the right to deprive Borrower
of or affect its use, possession or enjoyment of property prior to rendition of
a final judgment against Borrower.

         14.  GOVERNING LAW; JURISDICTION; ARTICLE 9 CHANGES.

         (A) ____ This Agreement shall take effect as a sealed instrument and
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.

         (B) ____ Borrower irrevocably submits to the non-exclusive jurisdiction
of any Federal or state court sitting in Massachusetts over any suit, action or
proceeding arising out of or relating

                                       22
<PAGE>

to this Agreement. Borrower irrevocably waives, to the fullest extent it may
effectively do so under applicable law, any objection it may have or hereafter
have to the laying of the venue of any such suit, action or proceeding brought
it may have or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court and any claim that the same has
been brought in an inconvenient forum. Any Borrower not located in Massachusetts
irrevocably appoints the Secretary of State of the Commonwealth of Massachusetts
as its authorized agent to accept and acknowledge on its behalf any and all
process which may be served in any such suit, action or proceeding, consents to
such process being served either (i) by mailing a copy thereof by registered or
certified mail, postage prepaid, return receipt requested, to Borrower's address
in the preamble to this Agreement or (ii) by serving the same upon such agent
and agrees that such service shall in every respect be deemed effective service
upon Borrower, but only if and in the event the Bank is unable to effect regular
service upon Borrower at the address set forth herein or at such other address
as Borrower may subsequently designate as its principal place of business.

         (C). ___ The parties acknowledge and agree to the following provisions
of this Agreement in anticipation of the possible application, in one or more
jurisdictions to the transactions contemplated hereby, of the revised Article 9
of the Uniform Commercial Code in the form or substantially in the form approved
by the American Law Institute and the National Conference of Commissioners on
Uniform State Law and contained in the 2000 Official Text of the Uniform
Commercial Code ("REVISED ARTICLE 9").

         (a) ____ Attachment. In applying the law of any jurisdiction in which
Revised Article 9 is in effect, the Collateral is all assets of the Borrower,
whether or not within the scope of Revised Article 9. The Collateral shall
include, without limitation, the following categories of assets as defined in
Revised Article 9: goods (including inventory, equipment and any accessions
thereto), instruments (including promissory notes), documents, accounts
(including health-care-insurance receivables), chattel paper (whether tangible
or electronic), deposit accounts, letter-of-credit rights (whether or not the
letter of credit is evidenced by a writing), commercial tort claims, securities
and all other investment property, general intangibles (including payment
intangibles and software), supporting obligations and any and all proceeds of
any thereof, wherever located, whether now owned and hereafter acquired. If the
Borrower shall at any time, whether or not Revised Article 9 is in effect in any
particular jurisdiction, acquire a commercial tort claim, as defined in Revised
Article 9, the Borrower shall immediately notify the Bank in a writing signed by
the Borrower of the brief details thereof and grant to the Bank in such writing
a security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance satisfactory to
the Bank; (b) Perfection by Filing. The Bank may at any time and from time to
time, file financing statements, continuation statements and amendments thereto
that describe the Collateral as all assets of the Borrower or words of similar
effect and which contain any other information required by Part 5 of Revised
Article 9 for the sufficiency or filing office acceptance of any financing
statement, continuation statement or amendment, including whether the Borrower
is an organization, the type of organization and any organization identification
number issued to the Borrower. The Borrower agrees to furnish any such
information to the Bank promptly upon request. Any such financing statements,
continuation statements or amendments may be signed by the Bank on behalf of the
Borrower,
                                       23
<PAGE>

and may be filed at any time in any jurisdiction whether or not Revised Article
9 is then in effect in that jurisdiction. (c) Other Perfection, etc. The
Borrower shall at any time and from time to time, whether or not Revised Article
9 is in effect in any particular jurisdiction, take such steps as the Bank may
reasonably request for the Bank (i) to obtain an acknowledgement, in form and
substance satisfactory to the Bank, of any bailee having possession of any of
the Collateral that the bailee holds such Collateral for the Bank, (ii) to
obtain "control" of any investment property, deposit accounts, letter-of-credit
rights or electronic chattel paper (as such terms are defined in Revised Article
9 with corresponding provisions in Rev. ss.ss. 9-104, 9-105, 9-106 and 9-107
relating to what constitutes "control" for such items of Collateral), with any
agreements establishing control to be in form and substance satisfactory to the
Bank, and (iii) otherwise to insure the continued perfection and priority of the
Bank's security interest in any of the Collateral and of the preservation of its
rights therein, whether in anticipation and following the effectiveness of
Revised Article 9 in any jurisdiction. (d) Other Provisions. In applying the law
of any jurisdiction in which Revised Article 9 is in effect, the following
references to sections in this Agreement to existing Article 9 of that
jurisdiction shall be to the Revised Article 9 Section of that jurisdiction
indicated below: (e) Savings Clause. Nothing contained in this ss.14 shall be
construed to narrow the scope of the Bank's security interest in any of the
Collateral or the perfection or priority thereof or to impair or otherwise limit
any of the rights, powers, privileges or remedies of the Bank hereunder except
(and then only to the extent) mandated by Revised Article 9 to the extent then
applicable.

         Executed as an instrument under seal on the date first above written.

Signed in the presence of:                   ANNIE'S HOMEGROWN, INC.

/s/ JAMES F. STERIO                          By /s/ PAUL B. NARDONE
-------------------------                       --------------------------------
                                                PAUL B. NARDONE, President

                                             WARREN FIVE CENTS SAVINGS BANK

                                             By /s/ FRANK P. ROMANO
                                                --------------------------------
                                                FRANK P. ROMANO, Vice President

                                       24
<PAGE>

                                   EXHIBIT "A"

                         WARREN FIVE CENTS SAVINGS BANK

                           BORROWING BASE CERTIFICATE

[Note: the Borrowing Base Certificate has been superceded by a version provided
by the Bank]

<PAGE>

                                   EXHIBIT "B"

                             COMPLIANCE CERTIFICATE

       I, __________________________, Chief Financial Officer of Annie's
Homegrown, Inc. a Massachusetts corporation (the "Company"), do hereby certify,
pursuant to Section 5 of the Loan and Security Agreement dated as of
______________, 200_, by and among the Company and Warren Five Cents Savings
Bank (the "Bank") (as amended from time to time, the "Loan Agreement"), as
follows:

       1. _____ I have reviewed and am familiar with the terms of the Loan
Agreement and have made, or have caused to be made under my supervision, a
reasonable review of the transactions and conditions (financial or otherwise) of
the Company during the accounting period covered by the attached financial
statements (the "Financial Statements").

       2. _____ The examinations described in paragraph 1, above, did not
disclose the existence or continuance of any condition or event, and no such
condition or event exists, which constitutes an Event of Default or an event
which, with the giving of notice or lapse of time or both, would constitute an
Event of Default during or at the end of the accounting period covered by the
attached Financial Statements or as of the date of this Certificate, except as
forth below.

       3. _____ The Financial Statements, as of _________, ____, have been
prepared in accordance with GAAP applied on a basis consistent with the
application of those principles in the preparation of the Company's
____________, _____, financial statements referred to in the Loan Agreement.

       4. _____ Schedule 1, attached hereto, sets forth true, complete and
accurate computations used in determining compliance with the various financial
covenants to be satisfied by the Company under the Loan Agreement as of the date
of each such computation as disclosed on Schedule 1.

       Capitalized terms used herein, but not defined herein, shall have the
meanings ascribed thereto in the Loan Agreement.

       The foregoing certifications, together with the computations set forth in
Schedule 1 attached hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this _____ day of
___________, ____.

                                                    ANNIE'S HOMEGROWN, INC.

                                                    By__________________________

                                                    Name________________________

                                                    Title_______________________
<PAGE>

                             ANNIE'S HOMEGROWN, INC.

                       SCHEDULE 1 - COMPLIANCE CERTIFICATE

                  Financial Statements as of __________________

<PAGE>

                                  EXHIBIT 4(M)

                                      NONE

<PAGE>

                                   SCHEDULE 3

                  ACCOUNT DEBTOR OR SUPPLIER, ETC. RECEIVABLES

                                  See attachedEXHIBIT 10.71
                                                                   -------------

                                                                 EXECUTION COPY

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

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                               CERES ORGANICS, LLC

                      A DELAWARE LIMITED LIABILITY COMPANY

                               AS OF JULY 2, 2001

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

<PAGE>

THE SECURITIES THAT ARE THE SUBJECT OF THIS CERES ORGANICS, LLC LIMITED
LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE MICHIGAN UNIFORM
SECURITIES ACT AND ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH
HEREIN.

                               CERES ORGANICS, LLC

                       LIMITED LIABILITY COMPANY AGREEMENT

         This Limited Liability Company Agreement (the "Agreement") is dated as
of July 2, 2001 and is between and among the persons set forth on Exhibit A
(each a "Member" and collectively the "Members").

         WHEREAS, the Members have caused a Certificate of Formation for Ceres
Organics, LLC (the "Company") to be filed with the Secretary of State of
Delaware, and they intend to form a limited liability company in accordance with
the Delaware Limited Liability Company Act, Chapter 18, Title 6, Delaware Code,
Section 18-101 ET. SEQ. (the "Act"); and

         WHEREAS, the Members wish to provide for the operation and management
of the Company for the purposes stated in this Agreement.

         NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:

                                   ARTICLE I

                            FORMATION OF THE COMPANY

         SECTION 1.1. FORMATION.

         The Members acknowledge that a Certificate of Formation for the Company
was filed on their behalf with the Delaware Secretary of State as of July 3,
2001. Each Member agrees to be bound by and comply with the provisions of that
Certificate of Formation and this Agreement.

         SECTION 1.2. NAME.

         The name of the Company will be "Ceres Organics, LLC" or any other name
that the Members may select from time to time.

         SECTION 1.3. REGISTERED OFFICE AND AGENT FOR SERVICE OF PROCESS.

         The registered office and the Company's resident agent for service of
process in the State of Delaware will be The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware 19801.

<PAGE>

         SECTION 1.4. PURPOSE AND CHARACTER OF BUSINESS.

         The Company has been organized for the purpose of engaging in all
lawful activities that are or may become reasonably necessary or useful to the
Company or its Members as determined by the Members, and in particular to be a
supplier of certified organic semolina flour, durum patent flour, durum wheat,
other pasta wheat-based flours and products (the "Business").

         SECTION 1.5. POWERS.

         The Company will have all powers that are lawful and necessary or
convenient to carry out its purpose as described above in section 1.4. Except as
otherwise expressly provided in this Agreement, no Member will have any
authority to act for, to bind, to commit or to assume any obligation or
responsibility on behalf of the Company, its properties or any other Member.

         SECTION 1.6. DURATION.

         The Company is to have perpetual existence, unless sooner dissolved by
agreement of the Members or by operation of law.

         SECTION 1.7. FILINGS, REPORTS AND FORMALITIES.

         The Managers will cause the Company to make all filings and to submit
all reports required under the Act with respect to the Company. The Managers
will also cause the Company to make any filings or to take any actions required
of the Company under the laws of each jurisdiction where the Company conducts
its business. The Company will comply with all requirements necessary to
maintain the limited liability of the Company's Members under Delaware law and
under the laws of each jurisdiction in which the Company does its business.

                                   ARTICLE II

                                     MEMBERS

         SECTION 2.1. REPRESENTATIONS BY THE MEMBERS.

         To induce the other Member to enter into this Agreement, each Member
represents and warrants to the other Member that, as of the date of this
Agreement:

                  SECTION 2.1.1. Its execution and delivery of this Agreement
                  and its performance of all obligations under this Agreement do
                  not and will not result in a breach, violation or default
                  under any agreement, commitment, order, judgment or decree by
                  which it or any of its properties are bound, or any statute,
                  regulation, order or other law to which it is subject;

                  SECTION 2.1.2. It is capable, financially and in all other
                  respects, of fulfilling its responsibilities under this
                  Agreement; and

                  SECTION 2.1.3. This Agreement is binding upon and enforceable
                  against it in accordance with the Agreement's terms.

                                       2
<PAGE>

         SECTION 2.2. NEW MEMBERS.

         After the filing of the Company's original Certificate of Formation, a
person or entity may be admitted as an additional Member upon the unanimous
written consent of the Members provided that all new Members consent to be bound
by all the terms and conditions of this Agreement and execute a counterpart.

         SECTION 2.3. RESTRICTIONS ON TRANSFER.

         No Member will sell, transfer, pledge, make a gift of, encumber or
otherwise dispose of or assign any or all of its interest in the Company without
the prior written consent of all the other Members except as set forth in
section 4.6.

         SECTION 2.4. RIGHTS OF CREDITOR AGAINST A MEMBER.

         On application to a court of competent jurisdiction by any judgment
creditor of a Member, the court may charge the membership interest of the Member
with payment of the unsatisfied amount of the judgment with interest. To the
extent so charged, the judgment creditor has only the rights of an assignee of
the membership interest. This Agreement shall not deprive any Member of the
benefit of any exemption laws applicable to the Member's membership interest.

         SECTION 2.5. ANNUAL MEETINGS.

         An annual meeting of the Members shall be held at such time and on such
date as shall be fixed by the Managers commencing with the calendar year after
the year in which the Agreement is executed. The purpose of the meeting shall be
to elect the Managers and Officers and the transaction of such other business as
may come prior to the meeting. If the election of the Managers or the Officers
shall not be held on the date designated herein for the annual meeting of the
Members, or at the adjournment thereof, the Managers shall cause the election to
be held at a special meeting of the Members as soon thereafter as may be
convenient.

                  SECTION 2.5.1. Failure to hold the annual meeting at the
                  designated time shall not work a forfeiture or dissolution of
                  the Company.

                  SECTION 2.5.2. At the first annual meeting of Members and at
                  each annual meeting thereafter, the Members shall elect the
                  Managers and Officers to hold office until the next succeeding
                  annual meeting.

         SECTION 2.6. SPECIAL MEETINGS.

         Special meetings of the Members may be called by the Managers or by
unanimous consent of the Members entitled to vote at the meeting, or by such
other persons as may be provided in the Certificate of Formation.

         SECTION 2.7. PLACE OF MEETINGS.

         The Managers may determine whether meetings of Members shall be held:
(i) at the principal office of the Company; (ii) by means of remote
communication; or (iii) at

                                       3
<PAGE>

such other place, if any, whether within or outside of the State of Delaware, as
may be named in the notice of meeting provided to the Members.

         SECTION 2.8. NOTICE OF MEMBERS' MEETINGS.

                  SECTION 2.8.1. Except where some other notice is required by
                  law, notice by a form of electronic transmission consented to
                  by the Member to whom the notice is given or written notice of
                  each meeting of Members, stating the place, if any, date and
                  hour of the meeting, the means of remote communications, if
                  any, by which the Members may be deemed to be present in
                  person and vote at such meeting, and, in case of a special
                  meeting, the purpose for which the meeting is called shall be
                  delivered not less than ten days nor more than fifty days
                  before the date of the meeting, either personally, by mail or
                  electronic mail, by or at the direction of the Managers or
                  person calling the meeting to each Member of record entitled
                  to vote at such meeting.

                  SECTION 2.8.2. Notice to Members, if mailed, shall be deemed
                  delivered as to any Member when deposited in the United States
                  mail, addressed to the Member, with postage prepaid, but, if
                  three successive letters mailed to the last-known address of
                  any Member are returned as undeliverable, no further notices
                  to such Member shall be necessary until another address for
                  such Member is made known to the Company.

                  SECTION 2.8.3. Notice to Members, if sent by electronic
                  transmission, shall be deemed delivered as to any Member
                  provided that any such electronic transmission sets forth or
                  is delivered with information from which the Company can
                  determine the date on which such electronic transmission was
                  transmitted and that it was sent to the electronic address the
                  Member provided to the Company.

                  SECTION 2.8.4. When a meeting is adjourned to another time or
                  place, notice need not be given of the adjourned meeting if
                  the time and place thereof are announced at the meeting at
                  which the adjournment is taken. At the adjourned meeting the
                  Company may transact any business that might have been
                  transacted at the original meeting. If the adjournment is for
                  more than thirty days, a notice of the adjourned meeting shall
                  be given to each Member entitled to vote at the meeting.

         SECTION 2.9. WAIVER OF NOTICE.

                  SECTION 2.9.1. When any notice is required to be given to any
                  Member of the Company under the provisions of the Certificate
                  of Formation or this Agreement, a waiver thereof in writing
                  signed by the person entitled to such notice or a waiver by
                  electronic transmission by the person entitled to such notice,
                  whether before, at, or after the time stated therein, shall be
                  equivalent to the giving of such notice.

                  SECTION 2.9.2. By attending a meeting, a Member:

                                       4
<PAGE>

                           2.9.2.1. Waives objection to lack of notice or
                           defective notice of such meeting unless the Member,
                           at the beginning of the meeting, objects to the
                           holding of the meeting or the transacting of business
                           at the meeting; and

                           2.9.2.2. Waives objection to consideration at such
                           meeting of a particular matter not within the purpose
                           or purposes described in the meeting notice unless
                           the Member objects to considering the matter when it
                           is presented.

         SECTION 2.10. VOTING RECORD.

         The person having charge of the membership records of the Company shall
prepare and make, at least ten days before every meeting of Members, a complete
record of the Members entitled to vote at the meeting, arranged in alphabetical
order and showing the address of each Member. Such record shall be open to the
examination of any Member, for any purpose germane to the meeting, during usual
business hours, for a period of at least ten days prior to the meeting: (i) on a
reasonably accessible electronic network, provided that the information required
to gain access to such list is provided with the notice of the meeting, or (ii)
during usual business hours, at the principal place of business of the Company.
The original membership records shall be the only evidence as to the identity of
the Members entitled to examine the record or transfer books or to vote at any
meeting of Members.

         SECTION 2.11. QUORUM OF MEMBERS - VOTE REQUIRED.

         Unless otherwise provided in the Certificate of Formation, all Members
entitled to vote shall constitute a quorum at the meeting of Members. If a
quorum is present, the unanimous affirmative vote of the Members represented at
the meeting and entitled to vote on the subject matter shall be the act of the
Members. If a quorum is not represented at any meeting of the Members, such
meeting may be adjourned for a period not to exceed sixty days at any one
adjournment.

         SECTION 2.12. VOTING OF MEMBERSHIPS BY CERTAIN MEMBERS.

                  SECTION 2.12.1. Membership standing in the name of a
                  corporation may be voted by such officer, agent or proxy as
                  the by-laws of such corporation may prescribe, or, in the
                  absence of such provision, as the Board of Directors of such
                  corporation may determine. If a Member is a corporation,
                  trust, or other entity and is dissolved or terminated, the
                  powers of that Member may be exercised by its legal
                  representative or successor.

                  SECTION 2.12.2. If a Member who is an individual dies or a
                  court of competent jurisdiction adjudges the Member to be
                  incompetent to manage the Member's person or the Member's
                  property, the Member's executor, administrator, guardian,
                  conservator, or other legal representative may exercise all of
                  the Member's rights for the purpose of settling the Member's
                  estate or administering the Member's property.

                                       5
<PAGE>

                  SECTION 2.12.3. A Member whose shares are pledged shall be
                  entitled to vote such membership until the membership has been
                  transferred into the name of the pledgee. No transfer to a
                  pledgee may occur without the unanimous consent of the
                  remaining Members.

         SECTION 2.13. INFORMAL ACTION BY MEMBERS.

                  SECTION 2.13.1. Unless the Certificate of Formation provides
                  otherwise, action required or permitted to be taken at a
                  Members' meeting may be taken without a meeting if the action
                  is evidenced by one or more written consents describing the
                  action taken, signed by each Member entitled to vote. Action
                  taken under this subsection 2.13.1 is effective when all
                  Members entitled to vote have signed the consent, unless the
                  consent specifies a different effective date. Any copy,
                  facsimile, electronic transmission or other reliable
                  reproduction of a consent in writing may be substituted or
                  used in lieu of the original writing for any and all purposes
                  for which the original could be used, provided that such copy,
                  facsimile, electronic transmission or other reproduction shall
                  be a complete reproduction of the entire writing.

                  SECTION 2.13.2. A telegram, cablegram or other electronic
                  transmission consenting to an action taken and transmitted by
                  a Member or a person authorized to act for a Member, shall be
                  deemed to be written, signed and dated for the purposes of
                  this subsection 2.13.2, provided that any such telegram,
                  cablegram or other electronic transmission sets forth or is
                  delivered with information from which the Company can
                  determine (i) that the telegram, cablegram or other electronic
                  transmission was transmitted by the Member or by a person
                  authorized to act for the Member and (ii) the date on which
                  such Member or authorized person transmitted such telegram,
                  cablegram or other electronic transmission. The date on which
                  such telegram, cablegram or other electronic transmission is
                  transmitted shall be deemed to be the date on which such
                  consent was signed. No consent given by telegram, cablegram or
                  other electronic transmission shall be deemed to have been
                  delivered until such consent is reproduced in paper form and
                  until such paper form shall be delivered to the Secretary of
                  the Company.

                  SECTION 2.13.3. Unanimous written consent of the Members
                  entitled to vote has the same force and effect as a unanimous
                  vote of such Members and may be stated as such in any
                  document.

         SECTION 2.14. VOTING BY BALLOT.

         Voting on any question or in any election may be by voice vote unless
the presiding officer shall order or any Member shall demand that voting be by
ballot.

                                       6
<PAGE>

         SECTION 2.15. RESPONSIBILITIES OF MEMBERS.

         The day-to-day business and affairs of the Company shall be allocated
among the Members as follows (or as otherwise determined by the Managers):

                  SECTION 2.15.1. ANNIE'S RESPONSIBILITIES. Annie's Homegrown,
                  Inc. ("Annie's") shall be responsible for providing the
                  following day-to-day services for the Company: the financial,
                  accounting, marketing and administrative aspects, including
                  billing customers, paying vendors, overseeing licensing,
                  certification, taxation, legal, and certain selling and
                  marketing tasks as mutually agreed upon by all Members. Upon
                  execution of this Agreement and on behalf of the Company,
                  Annie's shall:

                           2.15.1.1. Proceed to collect the remaining
                           receivables that the Company assumes from Ceres
                           Organic Harvest, Inc. ("Ceres") and all on-going
                           receivables;

                           2.15.1.2. Pay the payables and other liabilities that
                           the Company assumes from Ceres, which shall be no
                           greater than $125,000, and all on-going payables and
                           liabilities; and

                           2.15.1.3. Prepare an opening balance sheet, attached
                           as Exhibit B, setting forth the assets and
                           liabilities on which the Company's working capital is
                           based (the "Opening Balance Sheet").

                  SECTION 2.15.2. CERES' RESPONSIBILITIES. Ceres shall be
                  responsible for providing the following day-to-day services
                  for the Company: the sourcing, manufacturing, marketing and
                  quality control aspects, including purchasing, logistics,
                  overseeing production, inspection, maintaining compliance with
                  organic certification rules and regulations, quality control
                  and certain selling and marketing tasks as mutually agreed
                  upon by all Members.

                  SECTION 2.15.3. MANAGEMENT FEES. Each Member is entitled to
                  receive management fees to fully reimburse it for all services
                  and out-of-pocket costs rendered on behalf of the Company.
                  Each Member shall submit a monthly management fee invoice to
                  the Company for all agreed, out-of-pocket costs and relevant
                  management services rendered by such Member, including but not
                  limited to consulting, management, accounting services, rent
                  and licenses, at cost on a pro-rated basis of percentage of
                  use. The other Member shall approve each monthly management
                  fee invoice submitted by a Member prior to payment by the
                  Company.

                  SECTION 2.15.4. PAYMENT FOR BORROWING COSTS. If the Managers
                  determine at any time that additional funds are needed to meet
                  the expenses and obligations of the Company, Annie's shall
                  have the right to lend the Company the amount of the
                  additional funds needed by establishing a revolving line of
                  credit in the Company's favor (the

                                       7
<PAGE>

                  "Revolving Loans"), pursuant to the Revolving Line of Credit
                  Agreement, Revolving Demand Note and Security Agreement
                  attached as Exhibits C, D and E respectively. The Company
                  agrees to repay all Revolving Loans under the following terms
                  and conditions:

                           2.15.4.1. All Revolving Loans that Annie's makes to
                           the Company shall bear interest at a rate mutually
                           agreed upon by the Members and Annie's at the time
                           such Revolving Loans are made; and

                           2.15.4.2. Annie's shall submit to the Company a
                           monthly invoice for Annie's borrowing costs on any
                           such Revolving Loans and the Company shall remit such
                           payment on the last day of the following month.

                                  ARTICLE III

                            MANAGEMENT OF THE COMPANY

         SECTION 3.1. MANAGERS.

         The initial Managers of the Company shall be as stated in Exhibit A to
this Agreement. The number of Managers may be increased or decreased by
amendment to this Agreement, but no decrease shall have the effect of shortening
the term of any incumbent Managers. The initial Managers shall hold office until
the first annual meeting of Members and until their successor or successors have
been elected and qualified. With respect to the rights of Members to vote for
the Managers, the Managers shall be elected by unanimous vote of the Members.
The Managers shall hold office until the next annual meeting of Members or until
their successor or successors shall have been elected and qualified.

         SECTION 3.2. BOARD OF DIRECTORS.

         The Managers shall act as the Company's Board of Directors.

         SECTION 3.3. ELECTION OF OFFICERS.

         The Officers of the Company shall be a President, a Vice-President, a
Treasurer, a Secretary and such other officers as the Managers may elect or
appoint (individually, an "Officer" and collectively, the "Officers"). The
initial Officers of the Company shall be as stated in Exhibit A to this
Agreement. The number of Officers may be increased or decreased by amendment to
this Agreement, but no decrease shall have the effect of shortening the term of
any incumbent Officer. The initial Officers shall hold office until the first
annual meeting of Members and until their successor or successors have been
elected and qualified. With respect to the rights of Members to vote for the
Officers, the Officers shall be elected by unanimous vote of the Members. The
Officers shall hold office until the next annual meeting of Members or until
their successor or successors shall have been elected and qualified.

                  SECTION 3.3.1. PRESIDENT. The President shall be the chief
                  executive officer of the Company. Subject to the direction of
                  the Managers, the

                                       8
<PAGE>

                  President shall have general and active charge, control and
                  supervision over the overall management and direction of the
                  business, property and affairs of the Company and for all
                  other matters not expressly reserved to the other Officers and
                  the Board of Directors. The President shall further be
                  responsible for overseeing that the responsibilities of Ceres
                  under subsection 2.15.2 are discharged. The President shall
                  preside, when present, at all meetings of the Members and of
                  the Officers. In the absence or disability of the President,
                  or in case of an unfilled vacancy in that office, the Managers
                  may designate the Vice-President or other Officer of the
                  Company to perform the duties and exercise the powers of the
                  President.

                  SECTION 3.3.2. VICE-PRESIDENT. Unless another Officer of the
                  corporation is so designated by the Managers, the
                  Vice-President shall be the chief operating officer of the
                  Company and shall, subject to the direction of the Managers,
                  have general responsibility for its day-to-day operations and
                  for all other matters not expressly reserved to the other
                  Officers and the Board of Directors. The Vice-President shall
                  further be responsible for overseeing that the
                  responsibilities of Annie's under subsection 2.15.1 are
                  discharged. In addition, the Vice-President shall have such
                  other powers and perform such other duties as may be assigned
                  him by the Managers. In the absence or disability of the
                  Vice-President, or in case of an unfilled vacancy in that
                  office, the Managers may designate the Secretary or other
                  Officer of the Company to perform the duties and exercise the
                  powers of the Vice-President.

                  SECTION 3.3.3. TREASURER. The Treasurer shall have
                  responsibility for the care and custody of the funds and books
                  of account of the Company and shall have and exercise all the
                  powers and duties commonly incident to such office. The
                  Treasurer may endorse for deposit or collection all checks,
                  notes, drafts and instruments for the payment of money,
                  payable to the Company or to its order. He shall cause to be
                  kept accurate books of account of all monies received and paid
                  on account of the Company.

                  SECTION 3.3.4. SECRETARY. The Secretary shall keep accurate
                  records of all meetings and actions of the Members and the
                  Managers and shall perform all the duties commonly incident to
                  such office and shall perform such other duties and have such
                  other powers as the Members shall from time to time designate
                  or as may be otherwise provided for in this Agreement. An
                  Assistant Secretary, upon appointment by the Managers, shall
                  have all the powers of the Secretary except as specifically
                  limited by a vote of the Managers. In the absence of the
                  Secretary and any Assistant Secretary, a Secretary Pro Tempore
                  may be elected or appointed by the Managers to perform the
                  Secretary's duties.

                                       9
<PAGE>

         SECTION 3.4. DUTIES OF THE MANAGERS AND OFFICERS.

         The Managers and Officers shall perform the duties of Managers and
Officers in good faith, in a manner the Managers and the Officers reasonably
believe to be in the best interests of the Company, and with such care as an
ordinarily prudent person in a like position would use under similar
circumstances. A person who so performs the Managers' or Officers' duties shall
not have any liability by reason of being or having been a Manager or an Officer
of the Company.

         SECTION 3.5. RESIGNATION OF MANAGERS AND OFFICERS.

         The Managers or any Officer of the Company may resign at any time by
giving written notice to the Members. The resignation of a Manager or an Officer
shall take effect upon receipt of notice thereof or at such later time as shall
be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. At a
Members' meeting called expressly for the purpose of electing a new Manager or a
Managers' meeting called expressly for the purpose of electing a new Officer, a
new Manager or Officer, as the case may be, may be elected by the unanimous vote
of the Members then entitled to vote.

         SECTION 3.6. REMOVAL OF MANAGERS AND OFFICERS.

         At a Members' meeting called expressly for the purpose of removing a
Manager or an Officer, the Manager or Officer may be removed, with or without
cause by the unanimous vote of the Members then entitled to vote.

         SECTION 3.7. COMMITTEES.

         By vote of the Managers, the Board of Directors may designate two or
more Officers to constitute a committee, any of which shall have such authority
in the management of the Company as outlined in the resolution approved
unanimously by the Members and as shall be prescribed by the Act.

         SECTION 3.8. COMPENSATION OF MANAGERS AND OFFICERS.

         The Managers and each Officer shall receive such compensation for his
services as may be approved from time to time by the Board of Directors. In
addition, the Managers and Officers shall be entitled to reimbursement for
out-of-pocket expenses incurred by them in connection with the performance of
their duties for the Company.

         SECTION 3.9. MANAGEMENT OF THE COMPANY.

         The following matters will require, and be determined by, the unanimous
approval or consent of the Managers:

                  SECTION 3.9.1. The admission of a new Member;

                  SECTION 3.9.2. Any modification of or amendment to this
                  Agreement;

                  SECTION 3.9.3. The execution of any agreement or contract by
                  the Company;

                                       10
<PAGE>

                  SECTION 3.9.4. The execution of any financing agreement;

                  SECTION 3.9.5. The execution of any lease of real estate;

                  SECTION 3.9.6. The incorporation of any new business venture
                  into the Company;

                  SECTION 3.9.7. Any application for or consent to the
                  appointment of a receiver, trustee or liquidator of the
                  Company or any of its properties or assets;

                  SECTION 3.9.8. Any filing of a voluntary petition in
                  bankruptcy or petition or answer seeking reorganization or an
                  arrangement with creditors or to take advantage of any
                  bankruptcy, reorganization, insolvency or
                  readjustment-of-debts law or statute or any answer admitting
                  the material allegations of a petition filed against it in any
                  proceeding under any such law;

                  SECTION 3.9.9. Dissolution of the Company;

                  SECTION 3.9.10. Any general assignment for the benefit of
                  creditors; and

                  SECTION 3.9.11. The selection and retention of the Company's
                  accountant.

                                   ARTICLE IV

                      CONTRACTING DEBT AND COMPANY PROPERTY

         SECTION 4.1. CONTRACTING DEBT.

         Except as otherwise provided in the Act, or the Certificate of
Formation, no debt shall be contracted or liability incurred by or on behalf of
the Company, except by the Manager, acting unanimously.

         SECTION 4.2. COMPANY PROPERTY.

         Real and personal property owned or purchased by the Company shall be
held and owned, and conveyance made, in the Company name. Instruments and
documents providing for the acquisition, mortgage, or disposition of property of
the Company shall be valid and binding upon the Company if executed by one or
more Managers of the Company.

         SECTION 4.3. THE ASSUMPTION OF CERES' SUPPLY BUSINESS.

                  SECTION 4.3.1. Upon execution of this Agreement, Ceres:

                           4.3.1.1. Will obtain all necessary waivers and
                           consents from its bank, ComericA, in connection with
                           the joint venture created by this Agreement between
                           Annie's and Ceres, including without limitation

                                       11
<PAGE>

                           waivers and consents authorizing the transfer of
                           certain assets and collateral identified herein;

                           4.3.1.2. Will notify its bank of its intention to
                           transfer certain assets listed on Exhibit A to the
                           Company;

                           4.3.1.3. Will provide ComericA and Annie's, on or
                           about March 31, 2001, an accounts receivable report
                           listing all sales made that are receivable in
                           relation to the Company's business;

                           4.3.1.4. Shall unconditionally and irrevocably
                           transfer and assign to ComericA all of its right,
                           title and interest in open receivables in an amount
                           sufficient to satisfy the Credit Line balance with
                           ComericA pursuant to the Amendment, Assignment and
                           Assumption Agreement, attached hereto as Exhibit F;

                           4.3.1.5. Shall unconditionally and irrevocably
                           transfer and assign to the Company all of its right,
                           title and interest in all remaining receivables that
                           are directly related to the Company's business
                           pursuant to the Amendment, Assignment and Assumption
                           Agreement, attached hereto as Exhibit F;

                           4.3.1.6. Shall unconditionally and irrevocably
                           transfer and assign to the Company all of its right,
                           title and interest in all of its inventory that is
                           related to the Company's business pursuant to the
                           Amendment, Assignment and Assumption Agreement,
                           attached hereto as Exhibit F;

                           4.3.1.7. Shall unconditionally and irrevocably
                           transfer and assign to the Company all of its right,
                           title and interest in all of its remaining payables
                           and other liabilities, up to a maximum of $125,000,
                           that are related to the Company's business pursuant
                           to the Amendment, Assignment and Assumption
                           Agreement, attached hereto as Exhibit F;

                           4.3.1.8. Shall unconditionally and irrevocably
                           transfer and assign to the Company all of its right,
                           title and interest in the Supply Agreement, effective
                           as of January 1, 1999, entered into between Annie's
                           and Ceres, pursuant to the Amendment, Assignment and
                           Assumption Agreement, attached hereto as Exhibit F;
                           and

                           4.3.1.9. Shall notify all of its vendors and
                           customers that the Company will assume the
                           performance of all of Ceres' contractual duties
                           related to supplying certified organic semolina
                           flour, durum patent flour, durum wheat, other pasta
                           wheat-based flours and products, other pasta related
                           products, and anything that relates thereto.

                  SECTION 4.3.2. As of April 1, 2001, the Company will assume up
                  to a maximum of $125,000 of the net working capital, whether
                  positive or

                                       12
<PAGE>

                  negative, that is associated with the assets contributed by
                  Ceres as identified in Exhibit A.

                  SECTION 4.3.3. If, at any time during the term of this
                  Agreement, Annie's and Ceres shall mutually agree that the
                  Company shall assume Ceres' additional supply business (the
                  "Additional Business"), then the Company shall assume any
                  negative working capital equal to an agreed projection of one
                  year's net profit, and the first year's total profit for the
                  Additional Business shall be applied to such negative working
                  capital, with any remainder, overage or underage, being
                  applied to Ceres.

         SECTION 4.4. SUPPLY AGREEMENT AMENDED, ASSIGNED AND ASSUMED.

         The five-year term supply agreement, effective as of January 1, 1999,
entered into between Annie's and Ceres, is hereby amended and assigned by Ceres
to the Company and is otherwise ratified and confirmed, and attached hereto as
Exhibit G (the "Supply Agreement"). Notwithstanding the forgoing, the Members
may mutually agree to lower the semolina fees that Annie's pays at a certain
volume pursuant to the Supply Agreement; and if such agreement is reached the
original $2.50/cwt semolina fee shall be used to calculate the Formula should
Annie's elect to exercise its Option to purchase the Company as set forth in
section 4.6.

         SECTION 4.5. BUSINESS TRANSACTIONS WITH MEMBERS.

         Except as may be provided in the Certificate of Formation, a Member may
lend money to, act as surety for, and transact other business with the Company
and, subject to other applicable law, has the same rights and obligations with
respect thereto as a person who is not a Member.

         SECTION 4.6. ANNIE'S OPTION TO PURCHASE THE COMPANY.

         Annie's shall have the option to purchase Ceres' interest in the
Company five years following the execution of this Agreement (the "Option") for
a price equal to one-times net operating profit after interest and depreciation,
before taxes for the previous consecutive twelve months (the "Formula"). Prior
to Annie's exercise of the Option, the Net Profits and Net Losses of the
Company, for the then current fiscal year, shall be allocated among the Members
in the manner set forth in section 5.4 of this Agreement. The Formula will be
calculated in accordance with generally accepted accounting principles ("GAAP").

                                   ARTICLE V

                                 FISCAL MATTERS

         SECTION 5.1. FISCAL YEAR.

         The Fiscal Year of the Company shall end on the last day of December in
each calendar year.

                                       13
<PAGE>

         SECTION 5.2. FORM OF CONTRIBUTION.

         The contributions of a Member may be in cash, property, or services
rendered or a promissory note or other obligation to contribute cash or property
or to perform services. The contributions of each Member shall be as provided in
Exhibit A to this Agreement.

         SECTION 5.3. LIABILITY FOR CONTRIBUTIONS.

                  SECTION 5.3.1. A Member is obligated to the Company to perform
                  any enforceable promise to contribute cash or property or to
                  perform services, even if the Member is unable to perform
                  because of death, disability, or any other reason.

                  SECTION 5.3.2. The obligation of a Member to make a
                  contribution or return money or other property paid or
                  distributed in violation of this section may be compromised
                  only by consent in writing of all the Members. Notwithstanding
                  the compromise, a creditor of the Company who extends credit
                  or otherwise acts in reliance on the original obligation may
                  enforce the original obligation.

         SECTION 5.4. ALLOCATION OF NET PROFITS AND NET LOSSES.

         From the Company's inception, the Net Profits and Net Losses of the
Company for each fiscal year shall be allocated among the Members in the manner
provided in Exhibit A to this Agreement. Subject to the foregoing, distributions
to the Members shall be made at such time, in such amounts and in the manner, as
the Members shall determine provided that:

                  SECTION 5.4.1. The Company's Net Assumed Negative Working
                  Capital (the "NANWC") is equal to or greater than zero; -----
                  and

                  SECTION 5.4.2. The amount and timing of the Net Profits
                  distributions to each Member is sufficient to cover the
                  Member's state and federal taxes owed on account of the
                  Member's interest in the Company for the current fiscal year.

         SECTION 5.5. DISTRIBUTIONS.

         Provided that the Company's NANWC is equal to or greater than zero,
distributions of cash or other assets of the Company shall be allocated among
the Members and shall be made at such time, in such amounts and in the manner,
as the Managers shall determine.

         SECTION 5.6. ACCOUNTING DECISIONS, TAX ELECTIONS AND REQUIRED
REGULATORY ALLOCATIONS.

                  SECTION 5.6.1. ACCOUNTING DECISIONS. All decisions as to
                  accounting matters, except as specifically provided to the
                  contrary herein, shall be made by the Managers in accordance
                  with generally accepted accounting principles ("GAAP").

                                       14
<PAGE>

                  SECTION 5.6.2. LIMITATION ON AND REALLOCATION OF LOSSES. At no
                  time shall any allocations of Net Losses, or any item of loss
                  or deduction, be made to a Member if and to the extent such
                  allocation would cause such Member to have, or would increase
                  the deficit in, any Adjusted Capital Account Deficit of such
                  Member at the end of any fiscal year. To the extent any Net
                  Losses or items are not allocated to one or more Members
                  pursuant to the preceding sentence, such Net Losses shall be
                  allocated to the Members to which such losses or items may be
                  allocated without violation of this section 5.6.

                  SECTION 5.6.3. MINIMUM GAIN CHARGEBACK. If there is a net
                  decrease in the Minimum Gain of the Company during any fiscal
                  year, then items of income or gain of the Company for such
                  fiscal year (and, if necessary, subsequent fiscal years) shall
                  be allocated to each Member in an amount equal to such
                  Member's share of the net decrease in the Minimum Gain,
                  determined in accordance with Treasury Regulations Section
                  1.704-2(d)(1). A Member's share of the net decrease in the
                  Minimum Gain of the Company shall be determined in accordance
                  with Treasury Regulations Section 1.704-2(g). The items of
                  income and gain to be so allocated shall be determined in
                  accordance with Treasury Regulations Sections
                  1.704-2(j)(2)(i).

                  SECTION 5.6.4. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions
                  for any fiscal year or other period (not including any Member
                  Nonrecourse Deductions allocated pursuant to subsection 5.6.5)
                  shall be allocated among the Members in proportion to their
                  respective Percentage Interests. Solely for purposes of
                  determining each Member's proportionate share of the "excess
                  nonrecourse liabilities" of the Company, within the meaning of
                  Treasury Regulations Section 1.752-3(a)(3), each Member's
                  interest in the Company's Net Profits shall be equal to his,
                  her or its Percentage Interest. The items of losses,
                  deductions and IRC Section 705(a)(2)(b) expenditures to be so
                  allocated shall be determined in accordance with Treasury
                  Regulations Section 1.704-2(j)(1)(ii).

                  SECTION 5.6.5. MEMBER NONRECOURSE DEDUCTIONS. Any Member
                  Nonrecourse Deductions for any fiscal year or other period
                  shall be allocated to the Member who bears the economic risk
                  of loss with respect to the nonrecourse liability, as
                  determined and defined under Treasury Regulations Section
                  1.704-2(b)(4) to which such Member Nonrecourse Deductions are
                  attributable in accordance with Treasury Regulations Section
                  1.704-2(i)(1). The items of losses, deductions and IRC Section
                  705(a)(2)(b) expenditures to be so allocated shall be
                  determined in accordance with Treasury Regulations Section
                  1.704-2(j)(1)(ii).

                  SECTION 5.6.6. MEMBER MINIMUM GAIN CHARGEBACK. Notwithstanding
                  any contrary provisions of this Article V, other than
                  subsection 5.6.3 above, if there is a net decrease in Member
                  Minimum Gain attributable to Member Nonrecourse Debt during
                  any fiscal year, then each Member who

                                       15
<PAGE>

                  has a share of such Member Minimum Gain, determined in
                  accordance with Treasury Regulations Section 1.704-2(i), shall
                  be allocated items of income and gain of the Company,
                  determined in accordance with Treasury Regulations Section
                  1.704-2(j)(2)(ii), for such fiscal year (and, if necessary,
                  subsequent fiscal years) in an amount equal to each such
                  Member's share of the net decrease in such Member Minimum
                  Gain, determined in accordance with Treasury Regulations
                  Section 1.704-(2)(i)(3) and (2)(i)(5).

                  SECTION 5.6.7. QUALIFIED INCOME OFFSET. If any Member
                  unexpectedly receives an item described in Treasury
                  Regulations Section 1.704-(b)(2)(ii)(d)(4), (5) or (6), items
                  of income and gain shall be allocated to each such Member in
                  an amount and manner sufficient to eliminate, as quickly as
                  possible and to the extent required by Treasury Regulations
                  Section 1.704-1(b)(2)(ii)(d), the Adjusted Capital Account
                  Deficit of such Member, provided that an allocation pursuant
                  to this subsection 5.6.7 shall be made if and only to the
                  extent that such Member would have an Adjusted Capital Account
                  Deficit after all other allocations provided for in this
                  Article V have been tentatively made as if this subsection
                  5.6.7 were not in the Agreement.

                  SECTION 5.6.8. BASIS ADJUSTMENT. To the extent an adjustment
                  to the adjusted tax basis of any Company asset pursuant to
                  either of IRC Sections 734(b) or 743(b) is required pursuant
                  to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) to be
                  taken into account in determining Capital Accounts, the amount
                  of such adjustment to the Capital Accounts shall be treated as
                  an item of gain (if the adjustment increases the basis of the
                  asset) or loss (if the adjustment decreases such basis) and
                  such gain or loss shall be allocated to the Members in a
                  manner consistent with the manner in which their Capital
                  Accounts are required to be adjusted pursuant to such Section
                  of the Treasury Regulations.

                  SECTION 5.6.9. GROSS INCOME ALLOCATION. In the event any
                  Member has a Capital Account deficit at the end of any Company
                  fiscal year, which is in excess of the sum of the items to be
                  credited to a Member's Capital Account under Clause (a) of the
                  definition of Adjusted Capital Account Deficit, then each such
                  Member shall be allocated items of income and gain in the
                  amount of such excess as quickly as possible provided that an
                  allocation pursuant to this subsection 5.6.9 shall be made if
                  and only to the extent that such Member would have a Capital
                  Account deficit in excess of such sum after all other
                  allocations provided for in this Article V have been
                  tentatively made as if this subsection 5.6.9 were not in this
                  Agreement. As among Members having such excess if there are
                  not sufficient items of income and gain to eliminate all such
                  excesses, such allocations shall be made in proportion to the
                  amount of any such excess.

                  SECTION 5.6.10. MANAGER SHARE. Any other provision of this
                  Agreement notwithstanding, the Managers in their capacity as
                  Members

                                       16
<PAGE>

                  shall at all times have allocated and distributed to them not
                  less than an aggregate of 1% of each item of income, gain,
                  loss deduction and credit allocated or distributed hereunder.

         SECTION 5.7. CURATIVE ALLOCATIONS.

         The allocations set forth in subsection 5.6 are intended to comply with
certain requirements of Treasury Regulations Section 1.704-1(b) and 1.704-2 and
shall be interpreted consistently therewith. Such allocations may not be
consistent with the manner in which the Members intend to divide Company
distributions and to make Net Profit and Net Loss allocations.

         SECTION 5.8. TAX ALLOCATIONS AND BOOK ALLOCATIONS.

         Except as otherwise provided in this section 5.8, for federal income
tax purposes, each item of income, gain, loss and deduction shall, to the extent
appropriate, be allocated among the Members in the same manner as its
correlative item of "book" income, gain, loss or deduction has been allocated
pursuant to the other provisions of this Article V.

                  SECTION 5.8.1. In accordance with IRC Section 704(c) and the
                  Treasury Regulations thereunder, depreciation, amortization,
                  gain and loss, as determined for tax purposes, with respect to
                  any property whose Book Value differs from its adjusted basis
                  for federal income tax purposes shall, for tax purposes, be
                  allocated among the Members so as to take account of any
                  variation between the adjusted basis of such property to the
                  Company for federal income tax purposes and its Book Value,
                  such allocation to be made by Approval of the Managers in any
                  manner which is permissible under said IRC Section 704(c) and
                  the Treasury Regulations thereunder and the Treasury
                  Regulations under IRC Section 704(b).

                  SECTION 5.8.2. In the event the Book Value of any property of
                  the Company is subsequently adjusted, subsequent allocations
                  of income, gain, loss and deduction with respect to any such
                  property shall take into account any variation between the
                  adjusted basis of such assets for federal income tax purposes
                  and its Book Value in the manner provided under Section 704(c)
                  of the IRC and the Treasury Regulations thereunder.

                  SECTION 5.8.3. Allocations pursuant to this section 5.8 are
                  solely for purposes of federal, state and local taxes and
                  shall not affect, or in any way be taken into account in
                  computing, any Member's Capital Account or share of Net
                  Profits, Net Losses, other items, or distributions pursuant to
                  any provision of this Agreement.

         SECTION 5.9. GENERAL ALLOCATION AND DISTRIBUTION RULES.

                  SECTION 5.9.1. For purposes of determining the Net Profits,
                  Net Losses or any other items allocable to any period, Net
                  Profits, Net Losses and any such other items shall be
                  determined on a daily, monthly, or other basis,

                                       17
<PAGE>

                  as determined by Approval of the Managers using any
                  permissible method under IRC Section 706 and the Treasury
                  Regulations thereunder. Except as otherwise provided in this
                  Agreement, all items of income, gain, loss and deduction shall
                  be allocable among the Members in the same proportions as the
                  Net Profits or Net Losses for the fiscal year in which such
                  item is included is allocated.

                  SECTION 5.9.2. Upon the admission of a new Member or the
                  Transfer of an interest, the new and old Members or the
                  transferor and transferee shall be allocated shares of Net
                  Profits and Net Losses and other allocations and shall receive
                  distributions, if any, based on the portion of the fiscal year
                  that the new or transferred Company interest was held by the
                  new and old Members, or the transferor and transferee,
                  respectively. For the purpose of allocating Net Profits and
                  Net Losses and other allocations and distributions, (i) such
                  admission or Transfer shall be deemed to have occurred on the
                  first day of the month in which it occurs, or if such date
                  shall not be permitted for allocation purposes under the IRC
                  or the Treasury Regulations, on the nearest date otherwise
                  permitted under the IRC or the Treasury Regulations, and (ii)
                  if required by the IRC or the Treasury Regulations, the
                  Company shall close its books on an interim basis on the last
                  day of the previous calendar month.

         SECTION 5.10. TAX WITHHOLDING.

         If the Company incurs a withholding tax obligation with respect to the
share of income allocated to any Member, (a) any amount which is (i) actually
withheld from a distribution that would otherwise have been made to such Member
and (ii) paid over in satisfaction of such withholding tax obligation shall be
treated for all purposes under this Agreement as if such amount had been
distributed to such Member, and (b) any amount which is so paid over by the
Company, but which exceeds the amount, if any, actually withheld from a
distribution which would otherwise have been made to such Member, shall be
treated as an interest-free advance to such Member. Amounts treated as advanced
to any Member pursuant to this subparagraph (i) shall be repaid by such Member
to the Company within thirty-days after the Managers, acting by Approval, give
notice to such Member making demand therefor. Any amounts so advanced and not
timely repaid shall bear interest, commencing on the expiration of said
thirty-day period, compounded monthly on unpaid balances, at an annual rate
equal to the Applicable Federal Rate as of such expiration date. The Company
shall collect any unpaid amounts from any Company distributions that would
otherwise be made to such Member.

         SECTION 5.11. DISTRIBUTIONS TO COVER MEMBERS' TAX LIABILITY.

         The Managers shall, at a minimum, distribute to Members amounts
intended to cover the potential federal, state or local tax obligations of such
Members on account of the cumulative allocation to them of taxable income in
excess of tax losses pursuant to this Agreement. For purposes of the foregoing,
such federal, state and local tax obligations of each Member shall be assumed to
equal the highest effective combined

                                       18
<PAGE>

federal and state income tax rate applicable to any Member multiplied by each
Member's Percentage Interest multiplied by the cumulative allocation to all
Members of taxable income in excess of tax losses determined as described in the
definition of Net Profits and Net Losses without the adjustments listed therein,
with the result reduced by the cumulative amount previously distributed pursuant
to this section 5.11. Partial distributions made to Members pursuant to this
section 5.11 shall be made in proportion to their respective amounts calculated
under the previous sentence. For purposes of applying section 5.11 to subsequent
distributions to the Members, distributions made pursuant to this section 5.11
shall be disregarded and shall not be deemed to have been made pursuant to
section 5.11.

         SECTION 5.12. TAX ELECTIONS AND DEPRECIATION.

         The Company will treat elections for federal income tax purposes as
follows:

                  SECTION 5.12.1. In the event of a transfer of all or any part
                  of the Membership Interest of any Member or in the event an
                  election pursuant to Section 754 of the IRC (or corresponding
                  provisions of succeeding law) is made by a Member, the Company
                  shall elect if requested by the transferee or by a Member (as
                  the case may be), pursuant to Sections 734, 743 and 754 of the
                  IRC (or corresponding provisions of future law) and pursuant
                  to similar provisions of applicable state or local income tax
                  laws, to adjust the basis of the assets of the Company.

                  SECTION 5.12.2. In the event a Member is admitted to the
                  Company at any time during a given month, the Member will be
                  deemed to have been admitted to the Company as of the first
                  day of such month.

                  SECTION 5.12.3. All other elections required or permitted to
                  be made by the Company under the Code shall be made by the
                  Managers, after consultation with the accountants of the
                  Company, in such manner as will, in their opinion, be most
                  advantageous to the Members.

         SECTION 5.13. TAX MATTERS PARTNER.

         Neil Raiff is hereby designated as the Tax Matters Partner. The Tax
Matters Partner shall be vested with the authority and responsibility necessary
to comply with the provisions of Sections 6221 through 6232 of the IRC and the
applicable Treasury Regulations. In the event that the Tax Matters Partner shall
cease to serve in such capacity, the Company shall designate a successor Tax
Matters Partner in accordance with Treasury Regulation Sections 301.6231(a)
(7)-1(T) or any successor Regulation. The cost of attorneys' and accountants'
filing fees and out of pocket expenses reasonably related to the execution of
the duties and obligations of the Tax Matters Partner shall be deemed Company
expenses. In the event the Company's funds available for such expenses do not
appear to be adequate, the Tax Matters Partner may condition its continuation of
any administrative proceeding upon the receipt of assurances from the Members
for the prompt reimbursement of such expenses not expected to be payable from
available Company funds.

                                       19
<PAGE>

                                   ARTICLE VI

                          LIABILITY AND INDEMNIFICATION

         SECTION 6.1. LIABILITY OF MEMBERS AND MANAGERS.

         Members and the Managers of the Company are not liable under a
judgment, decree, or order of a court, or in any other manner, for a debt,
obligation, or liability of the Company.

         SECTION 6.2. INDEMNIFICATION OF MANAGERS, EMPLOYEES OR AGENTS.

                  SECTION 6.2.1. AS USED IN THIS SECTION 6.2:

                           6.2.1.1. "Expenses" includes attorneys' fees.

                           6.2.1.2. "Liability" means the obligation to pay a
                           judgment, settlement, penalty, fine, including an
                           excise tax assessed with respect to an employee
                           benefit plan, or reasonable expense incurred with
                           respect to a proceeding.

                           6.2.1.3. "Official capacity" when used with respect
                           to the Managers means the office of Manager in the
                           Company and when used with respect to a person other
                           than the Manager, means the employment or agency
                           relationship undertaken by the employee or agent on
                           behalf of the Company. Official capacity does not
                           include service for any other foreign or domestic
                           limited liability company or for any corporation,
                           partnership, joint venture, trust, other enterprise,
                           or employee benefit plan.

                           6.2.1.4. "Party" includes an individual who was, is,
                           or is threatened to be made a named defendant or
                           respondent in a proceeding.

                           6.2.1.5. "Proceeding" means any threatened, pending
                           or completed action, suit, or proceeding whether
                           civil, criminal, administrative or investigative and
                           whether formal or informal.

                           6.2.1.6. The Company may indemnify against liability
                           incurred in any proceeding an individual made a party
                           to the proceeding because the individual is or was
                           the Manager if:

                              i) The individual acted in good faith;

                              ii) The individual reasonably believed:

                                 (a) In the case of conduct in the individual's
                                 official capacity, that the individual's
                                 conduct was in the Company's best interests; or

                                       20
<PAGE>

                                 (b) In all other cases, that the individual's
                                 conduct was at least not opposed to the
                                 Company's best interests; and

                              iii) In the case of any criminal proceeding, the
                              individual had no reasonable cause to believe the
                              individual's conduct was unlawful.

                           6.2.1.7. The termination of any proceeding by
                           judgment, order, settlement or conviction, or upon a
                           plea of NOLO CONTENDERE or its equivalent is not of
                           itself determinative that the individual did not meet
                           the standard of conduct set forth in section 6.2.

                           6.2.1.8. The Company may not indemnify the Managers
                           under this subsection 6.2.1.6 either:

                              i) In connection with a proceeding by or in the
                              right of the Company in which a Manager was
                              adjudged liable to the Company; or

                              ii) In connection with any proceeding charging
                              improper personal benefit to a Manager, whether or
                              not involving action in the Manager's official
                              capacity in which the Manager was adjudged liable
                              on the basis that personal benefit was improperly
                              received by the Manager.

                           6.2.1.9. Indemnification permitted under this
                           subsection 6.2.1 in connection with a proceeding by
                           or in the right of the Company is limited to
                           reasonable expenses incurred in connection with the
                           proceeding.

                  SECTION 6.2.2. Unless limited by the Certificate of Formation,
                  the Company shall be required to indemnify a Manager of the
                  Company who was wholly successful, on the merits or otherwise,
                  in defense of any proceeding in which the Manager was a party,
                  against reasonable expenses incurred by the Manager in
                  connection with the proceeding.

                  SECTION 6.2.3. Unless limited by the Certificate of Formation,
                  a Manager who is or was a party to a proceeding may apply for
                  indemnification to the court conducting the proceeding or to
                  another court of competent jurisdiction. On receipt of an
                  application, the court, after giving any notice the court
                  considers necessary, may order indemnification in the manner
                  provided by law.

                           6.2.3.1. The Company may not indemnify the Manager
                           under subsection 6.2 unless authorized in the
                           specific case after a determination has been made
                           that indemnification of the Manager is permissible in
                           the circumstances because the Manager has met the
                           standard of conduct set forth in subsection 6.2.1.6.

                                       21
<PAGE>

                           6.2.3.2. Any indemnification or advance under
                           subsections 6.2.3.1 or 6.2.3.4 shall be made
                           promptly, and in any event within ninety days, upon
                           the written request of the person seeking to be
                           indemnified, unless a determination is reasonably and
                           promptly made by unanimous vote of disinterested
                           Members that such person acted in a manner set forth
                           in such subsections so as to justify the Company's
                           not indemnifying such person or making such an
                           advance. In the event that there are no disinterested
                           Members, the Members shall promptly appoint
                           independent legal counsel to decide whether the
                           person acted in the manner set forth in such
                           subsections so as to justify the Company's not
                           indemnifying such person or making such an advance.
                           The right to indemnification or advances as granted
                           by this Article VI shall be enforceable by such
                           person in any court of competent jurisdiction, if the
                           disinterested Members or independent legal counsel
                           denies the claim therefore, in whole or in part, or
                           if no disposition of such claim is made within ninety
                           days.

                           6.2.3.3. Authorization of indemnification and
                           evaluation as to reasonableness of expenses shall be
                           made in the same manner as the determination that
                           indemnification is permissible.

                           6.2.3.4. The Company may pay for or reimburse the
                           reasonable expenses incurred by the Manager who is a
                           party to a proceeding in advance of the final
                           disposition of the proceeding if:

                              i) The Manager furnishes the Company a written
                              affirmation of the Manager's good-faith belief
                              that the Manager has met the standard of conduct
                              described in subsection 6.2.1.6; and

                              ii) The Managers furnishes the Company a written
                              undertaking executed personally or on the
                              Manager's behalf, to repay the advance if it is
                              determined that the Manager did not meet such
                              standard of conduct.

                  SECTION 6.2.4. Unless limited by the Certificate of Formation:

                           6.2.4.1. The Company may indemnify and advance
                           expenses pursuant to subsection 6.2.3.4 of this
                           section to an employee or agent of the Company who is
                           not the Manager to the same extent as the Manager;
                           and

                           6.2.4.2. The Company may indemnify and advance
                           expenses to an employee or agent of the Company who
                           is not the Manager to a greater extent if consistent
                           with law.

                  SECTION 6.2.5. The Company may purchase and maintain insurance
                  on behalf of a person who is or was a Manager, employee,
                  fiduciary, or agent of the Company or who, while the Manager,
                  employee, fiduciary, or agent

                                       22
<PAGE>

                  of the Company, is or was serving at the request of the
                  Company as Manager, officer, partner, trustee, employee,
                  fiduciary or agent of any other foreign or domestic limited
                  liability company or any corporation, partnership, joint
                  venture, trust, other enterprise, or employee benefit plan
                  against any liability asserted against or incurred by such
                  person in any such capacity or arising out of such person's
                  status as such, whether or not the Company would have the
                  power to indemnify such person against such liability under
                  the provisions of the Act. Any such insurance may be procured
                  from any insurance company designated by the Members of the
                  Company, whether such insurance company is formed under the
                  laws of this state or any other jurisdiction of the United
                  States or elsewhere.

                  SECTION 6.2.6. Any indemnification of or advance of expenses
                  to a Manager in accordance with this section, if arising out
                  of a proceeding by or on behalf of the Company, shall be
                  reported in writing to the Members with or before the notice
                  of the next Members' meeting.

                                   ARTICLE VII

                                     RECORDS

         SECTION 7.1. RECORDS.

                  SECTION 7.1.1. The Company shall keep at the Company office
                  or, if none, at the registered office, the following:

                           7.1.1.1. A current list of the full name and last
                           known business, residence, or mailing address of each
                           Member and Manager, both past and present;

                           7.1.1.2. A copy of the Certificate of Formation and
                           all amendments thereto, together with executed copies
                           of any powers of attorney pursuant to which any
                           amendment has been executed;

                           7.1.1.3. Copies of the Company's federal, state, and
                           local income tax returns and reports, if any, for the
                           three most recent years;

                           7.1.1.4. Copies of any currently effective written
                           operating agreements, copies of any writings
                           permitted or required under Section 5.3, and copies
                           of any financial statements of the Company for the
                           three most recent years;

                           7.1.1.5. Minutes of every annual and special meeting
                           and any meeting ordered pursuant to Section 2.5 and
                           2.6;

                           7.1.1.6. Any written consents obtained from Members
                           pursuant to Section 2.13.

                                       23
<PAGE>

                  SECTION 7.1.2. Such records are subject to inspection and
                  copying at the reasonable request, and at the expense, of any
                  Member during ordinary business hours.

                                  ARTICLE VIII

                           INFORMATION AND ACCOUNTING

         SECTION 8.1. INFORMATION AND ACCOUNTING.

         A Member of the Company shall have the right to:

                  SECTION 8.1.1. Inspect and copy Company records, as provided
                  in Section 8.1;

                  SECTION 8.1.2. Obtain from the Managers from time to time,
                  subject to such reasonable standards as may be set forth in
                  the Agreement or otherwise established by the Managers, upon
                  reasonable demand for any purpose reasonably related to the
                  Member's interest as a Member:

                           8.1.2.1. True and full information regarding the
                           state of the business and financial condition of the
                           Company and any other information regarding the
                           affairs of the Company;

                           8.1.2.2. Promptly after becoming available, a copy of
                           the Company's federal, state, and local income tax
                           returns for each year; and

                  SECTION 8.1.3. Have a formal accounting of Company affairs
                  whenever circumstances render it just and reasonable.

                                   ARTICLE IX

                              POWERS OF THE COMPANY

         SECTION 9.1. POWERS.

         The Company may conduct any business that a partnership with limited
partners may lawfully conduct and may not conduct any business that is
prohibited by law to such partnership. The Company may:

                  SECTION 9.1.1. Sue and be sued, complain and defend, and
                  participate in administrative or other proceedings, in its
                  name;

                  SECTION 9.1.2. Purchase, take, receive, lease or otherwise
                  acquire, own, hold, improve, use, and otherwise deal in and
                  with real or personal property, or an interest in it, wherever
                  situated;

                  SECTION 9.1.3. Sell, convey, assign, encumber, mortgage,
                  pledge, lease, exchange, transfer, and otherwise dispose of
                  all or any part of its property and assets;

                                       24
<PAGE>

                  SECTION 9.1.4. Lend money to and otherwise assist its Members
                  and employees, except as otherwise provided in the Agreement;

                  SECTION 9.1.5. Purchase, take, receive, subscribe for or
                  otherwise acquire, own, hold, vote, use, employ, sell,
                  mortgage, lend, pledge, or otherwise dispose of, and otherwise
                  use and deal in and with, shares of other interests in or
                  obligations of other limited liability companies, domestic or
                  foreign corporations, associations, general or limited
                  partnerships, or individuals or direct or indirect obligations
                  of the United States or of any government, state, territory,
                  governmental district, or municipality or of any
                  instrumentality of any of them;

                  SECTION 9.1.6. Make contract and guarantees and incur
                  liabilities, borrow money at such rates of interest as the
                  Company may determine, issue its notes, bonds, and other
                  obligations, and secure any of its obligations by mortgage or
                  pledge of all or any part of its property, franchises, and
                  income;

                  SECTION 9.1.7. Lend money for its proper purposes, invest and
                  reinvest its funds and take and hold real property and
                  personal property for the payment of funds so loaned or
                  invested;

                  SECTION 9.1.8. Conduct its business, carry on its operations,
                  and have and exercise the powers granted by this article in
                  any state, territory, district, or possession of the United
                  States or in any foreign country;

                  SECTION 9.1.9. Elect the Managers and appoint Officers and
                  agents of the Company and define their duties and fix their
                  compensation;

                  SECTION 9.1.10. Make and alter operating agreements, not
                  inconsistent with its Certificate of Formation or with the
                  laws of this state, for the administration and regulation of
                  the affairs of the Company;

                  SECTION 9.1.11. Indemnify a Member or a Manager or former
                  Members or Managers of the Company as provided in Section 6.2.

                  SECTION 9.1.12. Cease its activities and surrender its
                  Certificate of Formation;

                  SECTION 9.1.13. Have and exercise all powers necessary or
                  convenient to effect any or all of the purposes for which the
                  Company is organized; and

                  SECTION 9.1.14. Become a Member of a general partnership,
                  limited partnership, joint venture, or similar association or
                  any other limited liability company.

                                       25
<PAGE>

                                    ARTICLE X

                                   DISSOLUTION

         SECTION 10.1. DISSOLUTION.

                  SECTION 10.1.1. The Company shall be dissolved upon the
                  occurrence of any of the following events:

                           10.1.1.1. When the period fixed for the duration of
                           the Company in the Certificate of Formation expires;

                           10.1.1.2. By the unanimous written agreement of all
                           Members;

                           10.1.1.3. Upon ninety-days prior written notice of a
                           Member if: (i) the Company's financial statements
                           show two or more quarters of consecutive losses, or
                           (ii) the Managers cannot agree on key business
                           issues; or

                           10.1.1.4. Upon the resignation, expulsion,
                           bankruptcy, or dissolution of a Member or the
                           occurrence of any other event which terminates the
                           continued membership of a Member in the Company.

                           SECTION 10.1.2. As soon as possible following the
                           occurrence of any of the events specified in section
                           10.1.1 effecting the dissolution of the Company, the
                           Company shall execute a statement of intent to
                           dissolve in such form as shall be prescribed by the
                           Secretary of State of Delaware. A Manager of the
                           Company shall execute the statement of intent to
                           dissolve.

         SECTION 10.2. EXECUTION BY JUDICIAL ACT.

         Any person who is adversely affected by the failure or refusal of the
Company to execute and file any amendment, statement of intent to dissolve, or
other document to be filed under the Act may petition the Delaware Court of
Chancery to direct the execution and filing of the amendment, statement of
intent to dissolve, or other document. If the Delaware Court of Chancery finds
that it is proper for the amendment, statement of intent to dissolve, or other
document to be executed and filed and that there has been a failure or refusal
to execute and file such document, it shall order the secretary of state to
record an appropriate amendment, statement of intent to dissolve, or other
document.

         SECTION 10.3. LIQUIDATION AND DISTRIBUTION OF ASSETS.

         Notwithstanding anything to the contrary in this Agreement, upon a
liquidation within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury
regulations, if any Member has a deficit Capital Account (after giving effect to
all contributions, distributions, allocations and other Capital Account
adjustments for all taxable years, including the year during which such
liquidation occurs), such Member shall have the obligation to make a Capital
Contribution to the Company in the amount of such deficit;

                                       26
<PAGE>

and, until such Capital Contribution is made, the negative balance of such
Member's Capital Account shall be considered a debt owed by such Member to the
Company.

         SECTION 10.4. NON-COMPETITION FOLLOWING DISSOLUTION

         In the event that Annie's terminates its continued membership in the
Company pursuant to subsection 10.1.1.3, for a period of three (3) years
following dissolution of the Company, Annie's agrees that it will not directly
or indirectly engage in the Business conducted by the Company as defined in
section 1.4 as such Business was conducted at the date of dissolution or as
conducted during the six (6) months prior thereto, anywhere in the United States
without the written consent of Ceres, provided, however, that nothing in this
Section shall prevent or restrict in any way Annie's ability to procure organic
semolina flour for its own branded products.

                                   ARTICLE XI

                                  MISCELLANEOUS

         SECTION 11.1. GOVERNING LAW.

         This Agreement and all rights and liabilities of the Members hereunder
will be subject to and governed by the laws of the State of Delaware, without
respect to the choice of law rules.

         SECTION 11.2. NEGOTIATION, MEDIATION AND ARBITRATION.

         Any controversies, disputes, disagreements or claims arising out of or
relating to this Agreement or the breach of this Agreement, in law or equity, to
enforce or interpret this Agreement or to resolve disputes between the Members
arising out of this Agreement, shall be decided first by negotiation, then by
mediation and finally by neutral binding arbitration under the American
Arbitration Association's Expedited Procedures of the Commercial Arbitration
Rules. If the Managers or Members are unable to resolve any dispute by
negotiation, either Member may require that the dispute go before a mediator,
mutually agreeable to the Managers or Members, as the case may be, to resolve
the dispute. If the Members are unable to reach an agreement through mediation,
or if the Members cannot agree upon a mediator, the Members shall submit the
underlying dispute to binding arbitration which shall be conducted in Delaware.

         SECTION 11.3. MULTIPLE COUNTERPARTS.

         This Agreement may be executed and acknowledged in multiple
counterparts, each of which will be an original, but all of which will be and
constitute one instrument.

         SECTION 11.4. ENTIRE AGREEMENT.

         This Agreement and all Exhibits and Schedules attached hereto
constitute the entire agreement between the Members with respect to the subject
matter hereof. This Agreement supersedes any prior agreement or understanding
among the Members, written or oral, except the Revolving Line of Credit
Agreement, Demand Note, Security

                                       27
<PAGE>

Agreement, Assignment and Assumption Agreement, and Supply Agreement, and may
not be modified or amended in any manner other than as set forth herein.

         SECTION 11.5. SEVERABILITY.

         If one or more of the covenants, agreements or provisions (or their
application) hereof will be invalid, illegal or unenforceable in any respect,
the validity of the remaining covenants, agreements or provisions (or their
application) hereof will be in no way affected, prejudiced or disturbed thereby.

         SECTION 11.6. GENDER; WORD USAGE.

         For the purpose of this Agreement, pronouns in one gender shall include
all other genders, where appropriate. The singular will include the plural,
where appropriate. The term "includes" will not be restrictive and the term "or"
will not be exclusive.

                                  ARTICLE XII

                           DEFINITIONS AND APPLICATION

         SECTION 12.1. DEFINITIONS.

         As used in this Agreement, unless the context otherwise requires:

                  SECTION 12.1.1. "Adjusted Capital Account Deficit" means, with
                  respect to any Member, the deficit balance, if any, in such
                  Member's Capital Account as of the end of the relevant fiscal
                  year, after giving effect to the following adjustments:

                           12.1.1.1. Credit to such Capital Account any amounts
                           which such Member is obligated to restore pursuant to
                           any provision of this Agreement or is deemed to be
                           obligated to restore pursuant to Treasury Regulations
                           Sections 1.704-2(g)(l) and 1.704-2(i)(5); and

                           12.1.1.2. Debit to such Capital Account the items
                           described in Treasury Regulations Section
                           1.704-1(b)(2)(ii)(d)(4), (5) and (6).

                           12.1.1.3. The foregoing definition is intended to
                           comply with the provisions of Treasury Regulations
                           Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
                           consistently therewith.

                  SECTION 12.1.2. "Agreement" means this agreement which is a
                  valid written agreement of the Members as to the affairs of
                  the Company and the conduct of its business.

                  SECTION 12.1.3. "Applicable Federal Rate" means the Applicable
                  Federal Rate as that term is defined in IRC Section 7872,
                  whether the short-term, mid-term or long-term rate, as the
                  case may be, as published from time to time by the Secretary
                  of the Treasury based on average market yields for relevant
                  recent periods.

                                       28
<PAGE>

                  SECTION 12.1.4. "Bankrupt" means bankrupt or a debtor under
                  the federal bankruptcy code of 1978, Title 11 of the United
                  States Code, as amended, or an insolvent under any state
                  insolvency act.

                  SECTION 12.1.5. "Book Value" means, with respect to any asset
                  of the Company, such asset's adjusted basis for federal income
                  tax purposes, except that:

                           12.1.5.1. The initial Book Value of any asset
                           contributed by a Member to the Company shall be the
                           gross fair market value of such asset (not reduced
                           for any liabilities to which it is subject or which
                           the Company assumes), as such value is determined and
                           for which credit is given to the contributing Member
                           under this Agreement;

                           12.1.5.2. The Book Values of all assets of the
                           Company shall be adjusted to equal their respective
                           gross fair market values, as determined by Approval
                           of the Managers, at and as of the following times:

                              i) The acquisition of an additional or new
                              interest in the Company by a new or existing
                              Member in exchange for other than a de minimis
                              capital contribution by such Member, if the
                              Managers acting by Approval reasonably determine
                              that such adjustment is necessary or appropriate
                              to reflect the relative economic interests of the
                              Members;

                              ii) The distribution by the Company to a Member of
                              more than a de minimis amount of any assets of the
                              Company (including cash or cash equivalents) as
                              consideration for all or any portion of an
                              interest in the Company, if the Managers acting by
                              Approval reasonably determine that such adjustment
                              is necessary or appropriate to reflect the
                              relative economic interests of the Members;

                              iii) The liquidation of the Company within the
                              meaning of Treasury Regulations Section
                              1.704-1(b)(2)(ii)(g);and

                           12.1.5.3. The Book Value of the assets of the Company
                           shall be increased (or decreased) to reflect any
                           adjustment to the adjusted basis of such assets
                           pursuant to Section 734(b) or Section 743(b) of the
                           IRC, but only to the extent such adjustments are
                           taken into account in determining Capital Accounts
                           pursuant to Treasury Regulations Section
                           1.704-1(b)(2)(iv)(m); provided, however, that Book
                           Value shall not be adjusted pursuant to this clause
                           (iii) to the extent that the Managers, acting by
                           Approval, determine that an adjustment pursuant to
                           clause (ii) hereof is necessary or

                                       29
<PAGE>

                           appropriate in connection with the transaction that
                           would otherwise result in an adjustment pursuant to
                           this clause (iii).

                           12.1.5.4. If the Book Value of an asset has been
                           determined or adjusted pursuant to the preceding
                           clauses (i), (ii) or (iii), such Book Value shall
                           thereafter be adjusted by the Depreciation taken into
                           account with respect to such asset for purposes of
                           computing Net Profits and Net Losses, and the amount
                           of the adjustment shall thereafter be taken into
                           account as gain or loss from the distribution of such
                           asset for purposes of computing Net Profits or Net
                           Losses.

                  SECTION 12.1.6. "Business" means any trade, occupation,
                  profession or other commercial activity engaged in for gain,
                  profit, or livelihood.

                  SECTION 12.1.7. "Capital Account" shall mean a capital account
                  maintained and adjusted in accordance with the IRC and the
                  Treasury Regulations, including the Treasury Regulations under
                  Sections 704(b) and (c) of the IRC. The Capital Account of
                  each Member shall be:

                           12.1.7.1. Credited with all payments made to the
                           Company by such Member on account of capital
                           contributions (and as to any property other than cash
                           or a promissory note of the contributing Member, the
                           agreed (as between the Members) fair market value of
                           such property, net of liabilities secured by such
                           property and assumed by the Company or subject to
                           which such contributed property is taken) and by such
                           Member's allocable share of Profits and items in the
                           nature of income and gain of the Company;

                           12.1.7.2. Charged with the amount of any
                           distributions to such Member (and as to any
                           distributions of property other than cash or a
                           promissory note of a Member of the Company, by the
                           agreed fair market value of such property, net of
                           liabilities secured by such property and assumed by
                           such Member or subject to which such distributed
                           property is taken), and by such Member's allocable
                           share of Losses and items in the nature of losses and
                           deductions of the Company;

                           12.1.7.3. Adjusted simultaneously with the making of
                           any adjustment to the Book Value of the Company's
                           assets pursuant to the definition thereof, to reflect
                           the aggregate net adjustments to such Book Value as
                           if the Company recognized Net Profit or Net Loss
                           equal to the respective amount of such aggregate net
                           adjustments immediately before the event causing such
                           adjustments; and

                           12.1.7.4. Otherwise appropriately adjusted to reflect
                           transactions of the Company and the Members.

                                       30
<PAGE>

                  SECTION 12.1.8. "Certificate of Formation" means the
                  Certificate of Formation filed with the secretary of state for
                  the purpose of forming a limited liability Company as
                  specified in Section 18-101(a) of the Act.

                  SECTION 12.1.9. "Capital Contribution" shall mean any
                  contribution to the capital of the Company in cash or property
                  by a Member whenever made.

                  SECTION 12.1.10. "Court" includes every court and judge having
                  jurisdiction in a case.

                  SECTION 12.1.11. "Fiscal Year" shall mean the period
                  terminating on December 31 of each year during the term hereof
                  or on such earlier date in any year in which the Company shall
                  be dissolved as provided herein.

                  SECTION 12.1.12. The "Delaware Limited Liability Company Act"
                  shall be known and cited as "the Act".

                  SECTION 12.1.13. "Foreign Limited Liability Company" means a
                  limited liability Company formed under the laws of any
                  jurisdiction other than this jurisdiction.

                  SECTION 12.1.14. "IRC" shall mean the Internal Revenue Code of
                  1986 or corresponding provisions of subsequent superseding
                  federal revenue laws.

                  SECTION 12.1.15. "Limited Liability Company" or "Company"
                  means this limited liability Company which is organized and
                  existing under the Act and which has two or more Members.

                  SECTION 12.1.16. "Managers" means a person elected by the
                  Members of this Company to manage the Company pursuant to this
                  agreement.

                  SECTION 12.1.17. "Member" means a person with an ownership
                  interest in this limited liability Company with the rights and
                  obligations specified under this agreement.

                  SECTION 12.1.18. "Membership Interest" means a Member's share
                  of the Net Profits and Net Losses of this Company and the
                  right to receive distributions of such Company's assets.

                  SECTION 12.1.19. "Minimum Gain" shall have the meaning given
                  in Treasury Regulations Section 1.704-2(d).

                  SECTION 12.1.20. "Member Minimum Gain" shall mean "Member
                  nonrecourse debt minimum gain" as set forth in Treasury
                  Regulations Section 1.704-2(i)(3).

                  SECTION 12.1.21. "Member Nonrecourse Debt" shall have the
                  meaning given in Treasury Regulations Section 1.704-2(b)(4).

                                       31
<PAGE>

                  SECTION 12.1.22. "Member Nonrecourse Deductions" shall have
                  the meaning given in Treasury Regulations Section
                  1.704-2(i)(2).

                  SECTION 12.1.23. "Net Assumed Negative Working Capital" shall
                  mean the excess of current liabilities over current assets
                  that are shown on the .

                  SECTION 12.1.24. "Net Profits" and "Net Losses" shall mean the
                  income, gain, loss, deductions, and credits of the Company in
                  the aggregate or separately stated as appropriate, as of the
                  close of each Fiscal Year on the Company's tax return filed
                  for federal income tax purposes.

                  SECTION 12.1.25. "Nonrecourse Deductions" shall have the
                  meaning given in Treasury Regulations Section 1.704-2(b)(1).

                  SECTION 12.1.26. "Percentage Interest" shall be the percentage
                  interest of a Member set forth in Exhibit A, as amended from
                  time to time.

                           12.1.26.1. "Person" means any natural person,
                           partnership (whether general or limited), limited
                           liability company, trust, estate, association or
                           corporation.

                  SECTION 12.1.27. "Registered Office" means the business
                  address of the registered agent on file with the secretary of
                  state.

                  SECTION 12.1.28. "Transfer" and any grammatical variation
                  thereof shall refer to any sale, exchange, issuance,
                  redemption, assignment, distribution, encumbrance,
                  hypothecation, gift, pledge, retirement, resignation, transfer
                  or other withdrawal, disposition or alienation in any way as
                  to any interest as a Member. Transfer shall specifically,
                  without limitation of the above, include assignments and
                  distributions resulting from death, incompetency, bankruptcy,
                  liquidation and dissolution.

                  SECTION 12.1.29. "Treasury Regulations" shall include
                  proposed, temporary, and final regulations promulgated under
                  the IRC in effect as of the date of filing the Certificate of
                  Formation and the corresponding sections of any regulations
                  subsequently issued that amend or supersede those regulations.

                            [SIGNATURE PAGE FOLLOWS.]

                                       32
<PAGE>

                                      MEMBERS:

                                      ANNIE'S HOMEGROWN, INC.      (50%)

                                      By: _____________________________
                                          Paul Nardone, President

                                      CERES ORGANIC HARVEST, INC.  (50%)

                                      By: _____________________________
                                          Brittin Eustis, President

                                      MANAGERS:

                                      _____________________________
                                      Brittin Eustis

                                      _____________________________
                                      Paul Nardone

                                       33
<PAGE>

                                    EXHIBIT A

                    MANAGEMENT, CONTRIBUTIONS AND ALLOCATIONS

1.       MANAGERS.  (Section 3.1)

         There shall be two Managers. The names of the initial Managers are as
follows:

         --------------------------- ------------------------------------------
         POSITION                    NAME
         --------------------------- ------------------------------------------
         Manager                     Brittin Eustis
         --------------------------- ------------------------------------------
         Manager                     Paul Nardone
         --------------------------- ------------------------------------------

2.       OFFICERS.  (Section 3.3)

         There shall be four Officers of the Company. The names and titles of
the initial Officers are as follows:

         --------------------------- ------------------------------------------
         OFFICE                      NAME
         --------------------------- ------------------------------------------
         President                   Brittin Eustis
         --------------------------- ------------------------------------------
         Vice-President              Paul Nardone
         --------------------------- ------------------------------------------
         Secretary                   Casey Adams
         --------------------------- ------------------------------------------
         Treasurer                   Neil Raiff
         --------------------------- ------------------------------------------

3.       CONTRIBUTIONS OF MEMBERS.  (Sections 4.3.1.1, 4.3.2 and 5.2)

         The contributions of each Member shall be as follows:

         --------------------------- ------------------------------------------
         MEMBER                      DESCRIPTION OF CONTRIBUTIONS
         --------------------------- ------------------------------------------
         ANNIE'S                     HOMEGROWN, INC. All
                                     goodwill and intangible
                                     assets related to the
                                     Company's business,
                                     including relationships
                                     with vendors, customers,
                                     both potential and current,
                                     all working capital and
                                     financing structures to
                                     fund the Company's
                                     business.
         --------------------------- ------------------------------------------
         CERES ORGANIC HARVEST, INC. Certified organic semolina flour, durum
                                     patent flour, durum wheat, other pasta
                                     wheat-based flours and products, and other
                                     pasta related products; including any
                                     purchase order or pending transaction, any
                                     accounts receivable, any accounts payable,
                                     and any inventory purchased that relates to
                                     the Company's business; all goodwill and
                                     intangible assets related to the Company's
                                     business, including relationships with
                                     potential and current vendors and
                                     customers.
         --------------------------- ------------------------------------------

                                       A-1
<PAGE>

4.       ALLOCATION OF NET PROFITS AND NET LOSSES (Section 5.4)
         Subject to the provisions of Section 5.4, the Net Profits and Net
Losses of the Company for each fiscal year will be allocated as follows:

         --------------------------- ------------------------------------------
         MEMBER                      ALLOCATION
         --------------------------- ------------------------------------------
         Annie's Homegrown, Inc.     50%
         --------------------------- ------------------------------------------
         Ceres Organic Harvest, Inc. 50%
         --------------------------- ------------------------------------------

                                       A-2
<PAGE>

                                    EXHIBIT B

                    OPENING BALANCE SHEET (Section 2.15.1.3)

                                       B-1
<PAGE>

                                    EXHIBIT C

               REVOLVING LINE OF CREDIT AGREEMENT (Section 2.15.4)

                                       C-1
<PAGE>

                                    EXHIBIT D

                     REVOLVING DEMAND NOTE (Section 2.15.4)

                                       D-1
<PAGE>

                                    EXHIBIT E

                       SECURITY AGREEMENT (Section 2.15.4)

                                       E-1
<PAGE>

                                    EXHIBIT F

          AMENDMENT, ASSIGNMENT AND ASSUMPTION AGREEMENT (Section 4.3)

                                       F-1
<PAGE>

                                    EXHIBIT G

                         SUPPLY AGREEMENT (Section 4.4)

                                       G-1
<PAGE>

                                TABLE OF CONTENTS

ARTICLE I                  FORMATION OF THE COMPANY............................1

     SECTION 1.1.          Formation...........................................1

     SECTION 1.2.          Name................................................1

     SECTION 1.3.          Registered Office and Agent for Service of Process..1

     SECTION 1.4.          Purpose and Character of Business...................2

     SECTION 1.5.          Powers..............................................2

     SECTION 1.6.          Duration............................................2

     SECTION 1.7.          Filings, Reports and Formalities....................2

ARTICLE II                 MEMBERS.............................................2

     SECTION 2.1.          Representations by the Members......................2

     SECTION 2.2.          New Members.........................................3

     SECTION 2.3.          Restrictions on Transfer............................3

     SECTION 2.4.          Rights of Creditor Against a Member.................3

     SECTION 2.5.          Annual Meetings.....................................3

     SECTION 2.6.          Special Meetings....................................3

     SECTION 2.7.          Place of Meetings...................................3

     SECTION 2.8.          Notice of Members' Meetings.........................4

     SECTION 2.9.          Waiver of Notice....................................4

     SECTION 2.10.         Voting Record.......................................5

     SECTION 2.11.         Quorum of Members - Vote Required...................5

     SECTION 2.12.         Voting of Memberships by Certain Members............5

     SECTION 2.13.         Informal Action by Members..........................6

     SECTION 2.14.         Voting by Ballot....................................6

     SECTION 2.15.         Responsibilities of Members.........................7

ARTICLE III                MANAGEMENT OF THE COMPANY...........................8

     SECTION 3.1.          Managers............................................8

     SECTION 3.2.          Board of Directors..................................8

     SECTION 3.3.          Election of Officers................................8

     SECTION 3.4.          Duties of the Managers and Officers................10

     SECTION 3.5.          Resignation of Managers and Officers...............10

     SECTION 3.6.          Removal of Managers and Officers...................10

     SECTION 3.7.          Committees.........................................10

     SECTION 3.8.          Compensation of Managers and Officers..............10

     SECTION 3.9.          Management of the Company..........................10

ARTICLE IV                 CONTRACTING DEBT AND COMPANY PROPERTY..............11

     SECTION 4.1.          Contracting Debt...................................11

     SECTION 4.2.          Company Property...................................11

     SECTION 4.3.          The Assumption of Ceres' Supply Business...........11

                                       i
<PAGE>

     SECTION 4.4.          Supply Agreement Amended, Assigned and Assumed.....13

     SECTION 4.5.          Business Transactions with Members.................13

     SECTION 4.6.          Annie's Option to Purchase the Company.............13

ARTICLE V                  FISCAL MATTERS.....................................13

     SECTION 5.1.          Fiscal Year........................................13

     SECTION 5.2.          Form of Contribution...............................14

     SECTION 5.3.          Liability for Contributions........................14

     SECTION 5.4.          Allocation of Net Profits and Net Losses...........14

     SECTION 5.5.          Distributions......................................14

     SECTION 5.6.          Accounting Decisions, Tax Elections and Required
                             Regulatory Allocations...........................14

     SECTION 5.7.          Curative Allocations...............................17

     SECTION 5.8.          Tax Allocations and Book Allocations...............17

     SECTION 5.9.          General Allocation and Distribution Rules..........17

     SECTION 5.10.         Tax Withholding....................................18

     SECTION 5.11.         Distributions to Cover Members' Tax Liability......18

     SECTION 5.12.         Tax Elections and Depreciation.....................19

     SECTION 5.13.         Tax Matters Partner................................19

ARTICLE VI                 LIABILITY AND INDEMNIFICATION......................20

     SECTION 6.1.          Liability of Members and Managers..................20

     SECTION 6.2.          Indemnification of Managers, Employees or Agents...20

ARTICLE VII                RECORDS............................................23

     SECTION 7.1.          Records............................................23

ARTICLE VIII               INFORMATION AND ACCOUNTING.........................24

     SECTION 8.1.          Information and Accounting.........................24

ARTICLE IX                 POWERS OF THE COMPANY..............................24

     SECTION 9.1.          Powers.............................................24

ARTICLE X                  DISSOLUTION........................................25

     SECTION 10.1.         Dissolution........................................26

     SECTION 10.2.         Execution by Judicial Act..........................26

     SECTION 10.3.         Liquidation and Distribution of Assets.............26

     SECTION 10.4.         Non-Competition following Dissolution..............27

ARTICLE XI                 MISCELLANEOUS......................................27

     SECTION 11.1.         Governing Law......................................27

                                       ii
<PAGE>

     SECTION 11.2.         Negotiation, Mediation and Arbitration.............27

     SECTION 11.3.         Multiple Counterparts..............................27

     SECTION 11.4.         Entire Agreement...................................27

     SECTION 11.5.         Severability.......................................28

     SECTION 11.6.         Gender; Word Usage.................................28

ARTICLE XII                DEFINITIONS AND APPLICATION........................28

     SECTION 12.1.         Definitions........................................28

EXHIBIT A                  MANAGEMENT, CONTRIBUTIONS AND ALLOCATIONS.........A-1

EXHIBIT B                  OPENING BALANCE SHEET.............................B-1

EXHIBIT C                  REVOLVING LINE OF CREDIT AGREEMENT ...............C-1

EXHIBIT D                  REVOLVING DEMAND NOTE.............................D-1

EXHIBIT E                  SECURITY AGREEMENT................................E-1

EXHIBIT F                  AMENDMENT, ASSIGNMENT AND ASSUMPTION AGREEMENT....F-1

EXHIBIT G                  SUPPLY AGREEMENT..................................G-1

                                      iii

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