10-K

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Table of Contents
Item 8. Financial Statements and Supplementary Data.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007

COMMISSION FILE NUMBER: 0-19797

WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)

Texas
(State of
incorporation) 74-1989366
(IRS Employer
Identification No.)

550 Bowie St.
Austin, Texas 78703
(Address of principal executive offices)

Registrant's telephone number, including area code:
512-477-4455

Securities registered pursuant to section 12(b) of the Act:
Common Stock, no par value

Indicated by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ý No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ý                Accelerated filer o                Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No ý

The aggregate market value of all common stock held by non-affiliates of the registrant as of April 8, 2007 was $6,569,409,334. The number of shares of the registrant's common stock, no par value, outstanding as of November 25, 2007 was 139,352,596.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant's definitive Proxy Statement for the Annual Meeting of the Stockholders to be held March 10, 2008.

Whole Foods Market, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 2007

Table of Contents

		Page Number
PART I
Item 1.	Business.	3
Item 1A.	Risk Factors.	23
Item 1B.	Unresolved Staff Comments.	29
Item 2.	Properties.	29
Item 3.	Legal Proceedings.	30
Item 4.	Submission of Matters to a Vote of Security Holders.	30
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	30
Item 6.	Selected Financial Data.	33
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	49
Item 8.	Financial Statements and Supplementary Data.	51
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	85
Item 9A.	Controls and Procedures.	85
Item 9B.	Other Information.	85
PART III
Item 10.	Directors and Executive Officers of the Registrant.	86
Item 11.	Executive Compensation.	86
Item 12.	Security Ownership of Certain Beneficial Owners and Management.	86
Item 13.	Certain Relationships and Related Transactions.	86
Item 14.	Principal Accounting Fees and Services.	86
PART IV
Item 15.	Exhibits, Financial Statement Schedules.	87
SIGNATURES		89

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        This Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 concerning our current expectations, assumptions, estimates and projections about the future. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to risks and uncertainties that could cause our actual results to differ materially from those indicated in the forward-looking statements. See "Item 1A. Risk Factors" for a discussion of risks and uncertainties that may affect our business.

PART I

Item 1. Business.

General

        Whole Foods Market is the world's leading natural and organic foods supermarket and America's first national "Certified Organic" grocer. Our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available. Since the purity of our food and the health of our bodies are directly related to the purity and health of our environment, our core mission is devoted to the promotion of organically grown foods, food safety concerns, and the sustainability of our entire ecosystem. Through our growth, we have had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance over the last 27 years.

        Whole Foods Market, Inc. is a Texas corporation incorporated in 1980. The Company is based in Austin, Texas and conducts business through various wholly owned subsidiaries. Unless otherwise specified, references to Whole Foods Market or the Company in this Report include its consolidated subsidiaries. We operate in one reportable segment, natural and organic foods supermarkets.

        We opened our first store in Austin, Texas in 1980 and completed our initial public offering in January 1992. As of September 30, 2007, we operated 276 stores organized into 11 geographic operating regions, each with its own leadership team: 263 stores in 37 U.S. states and the District of Columbia; seven stores in Canada; and six stores in the United Kingdom. This includes 74 stores (net of divested locations) acquired from Wild Oats Markets, Inc. ("Wild Oats") on August 28, 2007: 70 stores in 22 U.S. states and four stores in Canada. Unless otherwise noted, all information in Part I of this Form 10-K is adjusted to include this acquisition.

        Our sales have grown rapidly through new store openings, acquisitions and comparable store sales growth, from approximately $92 million in fiscal year 1991, excluding the effect of pooling-of-interests transactions completed since 1991, to approximately $6.6 billion in fiscal year 2007, a compounded annual growth rate of approximately 30%. We are a Fortune 500 company, ranking number 411 based on our fiscal year 2006 sales of approximately $5.6 billion. Our 276 stores average approximately 34,000 square feet in size, approximately $32 million in annual sales, and are approximately 8.2 years old. Excluding Wild Oats, our stores average 37,000 square feet in size, approximately $33 million in annual sales, and are approximately 7.9 years old. Our stores are supported by 11 regional offices and our Austin headquarters, regional distribution centers, bakehouse facilities, commissary kitchens, seafood-processing facilities, produce procurement centers, a national meat purchasing office, a confectionary, and a specialty coffee, tea procurement and brewing operation.

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        We aspire to become an international brand synonymous with not just natural and organic foods, but also with being the best food retailer in every community in which we are located. We believe our heavy emphasis on perishable products is helping us reach that goal, differentiating our stores from conventional supermarkets and enabling us to attract a broader customer base. Perishable product sales accounted for approximately 67% of our total retail sales at Whole Foods Market locations in fiscal year 2007. We believe that all shoppers, not just natural and organic food shoppers, appreciate great produce, dairy, meat, seafood, bakery and prepared foods, and it is our strength of execution in perishables along with our unparalleled customer service that has attracted many of our most loyal customers.

The Natural and Organic Products Industry

        According to a leading trade publication for the industry, sales of natural products across all retail and direct-to-consumer channels grew to approximately $57 billion in 2006, a 10% increase over the prior year. The natural and organic products we offer in our stores include food and beverages, dietary supplements, personal care products, household goods, organic cotton clothing, and related educational products. We believe the growth in sales of natural and organic foods is being driven by numerous factors, including:

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heightened awareness of the role that food and nutrition play in long-term health, which has led to healthier eating patterns;



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a better-educated and wealthier populace whose median age is increasing each year;



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increasing consumer concern over the purity and safety of food due to the presence of pesticide residues, growth hormones, artificial ingredients and other chemicals, and genetically engineered ingredients; and



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environmental concerns due to the degradation of water and soil quality.

        Natural foods can be defined as foods that are minimally processed, largely or completely free of artificial ingredients, preservatives and other non-naturally occurring chemicals and as near to their whole, natural state as possible. Organic products are grown through methods intended to support and enhance the earth's natural balance. Generally, organic food products are produced using:

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agricultural management practices intended to promote and enhance ecosystem health;



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no genetically engineered seeds or crops, sewage sludge, long-lasting pesticides, herbicides or fungicides;



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livestock management practices intended to promote healthy, humanely treated animals by providing organically grown feed, fresh air and outdoor access while using no antibiotics or growth hormones; and



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food processing practices intended to protect the integrity of the organic product and disallow irradiation, genetically modified organisms ("GMOs") or synthetic preservatives.

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Organic Rule

        In October 2002, the United States Department of Agriculture's ("USDA") Organic Rule was implemented into Federal law. The Organic Rule was created to address the rapid, consistent growth of the organics industry over the past 20-plus years and the need for a set of national organic standards to serve as clear guidelines as to what is considered organic for the industry and its customers. Under the Organic Rule, all products labeled as "organic" in any form must be certified by a USDA-accredited certifying agency. Furthermore, all retailers, including Whole Foods Market, that handle, store, and sell organic products must implement measures to protect their organic integrity by:

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preventing the commingling of organic and conventional products;



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protecting organic products from contact with prohibited substances (such as sanitation and pest control products);



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labeling organic products properly and clearly; and



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keeping proper records with regard to organic handling procedures and vendor relationships.

        Whole Foods Market played an active leadership role in the development of the national organic standards. Margaret Wittenberg, our Vice President of Global Communications and Quality Standards, served on the National Organic Standards Board ("NOSB") from 1995 to 2000. The NOSB members were appointed by the Secretary of Agriculture to act as industry advisors to the USDA's National Organic Program, developing the standards and protocols that form the backbone of the USDA's Organic Rule. As the sole retail representative on the NOSB, Ms. Wittenberg contributed a broad, realistic perspective on how the standards could work most effectively at the retail level.

        Whole Foods Market has been devoted to protecting organic integrity for years, and we are pleased to have the USDA's Organic Rule as a guiding standard. In May 2003, Whole Foods Market became America's first national "Certified Organic" grocer through certification from Quality Assurance International ("QAI"), a federally recognized independent third-party certification organization. This voluntary certification tells our customers that we have gone the extra mile by not only following the USDA's Organic Rule, but following a strict set of operating procedures designed to ensure that the products we sell and label as organic are indeed organic—procedures that are not specifically required by the Organic Rule.

        QAI's Organic Certification Program for Retailers verifies businesses handle organic goods according to stringent national guidelines, from receipt through re-packing to final sale to customers. To receive certification, retailers must agree to adhere to a strict set of standards set forth by the USDA, submit documentation, and open their facilities to on-site inspections—all designed to assure Americans that the chain of organic integrity is preserved. The certification is one more example of our commitment to the promotion of organic agriculture and the integrity of the certified organic label.

Business Strategy

        Whole Foods Market is the world's leading natural and organic foods supermarket. We believe that much of our success to date is because we remain a uniquely mission-driven Company. We are highly selective about what we sell. We believe in providing an empowering work environment for our team members, and we are committed to sustainable agriculture. Our motto, "Whole Foods, Whole People, Whole Planet," emphasizes that our vision reaches far beyond just food retailing.

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Whole Foods

        We obtain our products locally and from all over the world, often from small, uniquely dedicated food artisans. We strive to offer the highest quality, least processed, most flavorful and naturally preserved foods. We believe that food in its purest state, unadulterated by artificial additives, sweeteners, colorings and preservatives, is the best tasting and most nutritious food available.

Whole People

        We recruit the best people we can to become part of our team. We empower them to make many operational decisions, creating a respectful workplace where team members are treated fairly and are highly motivated to succeed. We look for team members who are passionate about food, but also well-rounded human beings who can play a critical role in helping to build our Company into a profitable and beneficial part of every community in which we operate.

Whole Planet

        We believe companies, like individuals, must assume their share of responsibility for our planet. We actively support organic farming on a global basis because we believe it is the best method for promoting sustainable agriculture and protecting the environment and farm workers. On a local basis, we are actively involved in our communities by supporting food banks, sponsoring neighborhood events, and contributing at least 5% of our after-tax profits in the form of cash or products to not-for-profit organizations.

        In October 2007, Whole Foods Market received the Green Power Partner of the Year award from the U.S. Environmental Protection Agency ("EPA") for the second consecutive year. The award recognizes our leadership in accelerating the development of new renewable energy capacity nationwide after increasing our green power purchasing to include more than 509 million kilowatt hours of wind-based renewable energy credits. This is enough renewable energy to offset 100 percent of the electricity used in all of our stores and facilities in the U.S. and Canada. This was the fourth consecutive year the Company was recognized with a green power leadership award by the EPA.

Core Values

        Our core values reflect what is truly important to us as an organization. They are the underpinning of our corporate culture and the soul of our Company. They transcend our size and growth rate, so regardless of how large we become, by maintaining our core values we are able to preserve what has always been special about our Company. Our five stated core values include:

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selling the highest quality natural and organic products available;



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satisfying and delighting our customers;



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supporting team member happiness and excellence;



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creating wealth through profits and growth; and



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caring about our communities and our environment.

        These core values speak to our belief in a balanced way of doing business. They very succinctly express the purpose of our business, which is not only to make profits, but to create value for all of our major stakeholders—our customers, team members, suppliers, investors, and the community and environment. All are linked interdependently. In 2007, Business Ethics magazine ranked us number 54 on its "100 Best Corporate Citizens List for 2007," a list honoring companies that excel at serving a variety of stakeholders well.

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Foundations

        In 2005, we created two independent, non-profit organizations, the Animal Compassion Foundation™ and Whole Planet Foundation™, designed to reach our larger community stakeholders. The two private foundations were initially funded with seed money totaling over $1 million raised from two global "Five Percent Days," in which five percent of the amount of all customer purchases at our stores was donated to the foundations. Both foundations, which are based in Austin, Texas and have their own boards of directors, are aligned with the mission we set forth more than 25 years ago with respect to community involvement and responsibility. As we have grown and are doing more business around the world, we believe it has become increasingly important for us to extend our vision of "community" from our backyards to the global markets in which we are trading.

        The Animal Compassion Foundation was established as a natural progression of our efforts to help producers evolve their practices for raising farm animals naturally and humanely. Dedicated to improving the lives of farm animals, the Animal Compassion Foundation seeks to learn and share best practices that support the animals' needs and behaviors by supporting a worldwide network of producers and researchers, and leading and funding on-farm research and producer workshops. More specifically, the Animal Compassion Foundation is focusing on four primary areas:

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providing research money for on-farm and academic studies;



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offering low-cost producer workshops that provide both theoretical background and practical application;



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creating an interactive website that allows online users to access species-specific case studies, animal husbandry techniques and strategies, and links to other resources; and



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offering consultative services to both individual groups and producer groups.

        The Whole Planet Foundation's mission is to create economic partnerships with the poor in the developing-world communities that supply our stores with product. Through innovative assistance for entrepreneurship—including direct micro-credit loans and tangible support for other community partnership projects—the Whole Planet Foundation seeks to expand the energy and creativity of every person with whom it works in order to create wealth and prosperity in emerging economies. Micro-credit is a system pioneered by Professor Muhammad Yunus, founder of the Grameen Bank in Bangladesh and recipient of the 2006 Nobel Peace Prize. The philosophy behind micro-credit is to provide the poor access to credit without requiring contracts or collateral, enabling them to rise out of poverty through their own efforts. The Whole Planet Foundation believes micro-credit is one of the best methods to help individuals lift themselves out of poverty through their own ingenuity. The Whole Planet Foundation is partnered with Grameen Trust in Costa Rica, Guatemala, India and soon Indonesia to support micro-lending programs in communities where the Company sources products. The Whole Planet Foundation is also supporting micro-lending programs with other outstanding micro-finance institutions such as Adelante Foundation and Pro Mujer Nicaragua with hopes to expand their portfolio to include other partners over time.

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        As of September 30, 2007, the Whole Planet Foundation had committed over $5.2 million in grants to five micro-lending projects. These projects are in Costa Rica, where Whole Foods Market sources bananas and pineapples; Guatemala and Nicaragua, where Whole Foods Market has relationships with coffee farmers; Honduras, where the Company sources bananas and buys coffee; and India, where the Company buys tea. To date, the Whole Planet Foundation's implementing partners have supported over 14,000 micro-entrepreneurs and their families. It is estimated that each woman with whom the foundation works in the developing world supports a family of five, which means our support is indirectly contributing to the prosperity of 70,000 individuals. Micro-entrepreneurs supported by the Whole Planet Foundation's implementing partners are utilizing the loans for home-based businesses such as poultry and pig farming, agriculture, furniture making, tailoring, and selling handicrafts, homemade and bakery-made foods, clothing and footwear. The Whole Planet Foundation hopes to expand its projects in 2008 to include micro-lending in Indonesia, Kenya and Tanzania, where Whole Foods Market sources coffee through its Allegro Coffee Company.

Products

        We offer a broad and differentiated product selection with a strong emphasis on perishable foods designed to appeal to both natural and organic foods and gourmet shoppers. Most of our products are from natural and organic food vendors; however, we do sell certain conventional national brands that meet our quality standards.

Quality Standards

        An integral part of our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available. We evaluate quality in terms of nutrition, freshness, appearance and taste. Our search for quality is a never-ending process involving the careful judgment of buyers throughout the Company.

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We carefully evaluate each and every product that we sell.



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We feature foods that are free of artificial preservatives, colors, flavors, sweeteners and hydrogenated fats.



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We are passionate about great tasting food and the pleasure of sharing it with others.



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We are committed to foods that are fresh, wholesome and safe to eat.



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We seek out and promote organically grown foods.



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We provide food and nutritional products that support health and well-being.

        We monitor the production and environmental practices of our seafood suppliers and support the seafood sustainability work of the Marine Stewardship Council. From time to time, we have stopped selling seafood species that are considered endangered by a consensus of seafood experts.

        We also strictly monitor how animals are raised and what they are fed. Our standards ensure the meat and poultry we sell are:

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raised without added growth hormones or antibiotics;



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never fed animal by-products;



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raised by farmers and ranchers who care about the animals and the environment in which they live; and



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closely monitored from the farm to our stores to ensure compliance with our strict animal welfare and food safety quality standards.

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Animal Welfare Standards

        Whole Foods Market is strongly committed to helping create alternatives to the "factory farm" methods of raising livestock. We have encouraged innovative animal production practices to improve the quality and safety of the meat and poultry sold in our stores, while also supporting humane living conditions for the animals. For this reason, we refuse to sell commercial veal from tethered calves, foie gras from force-fed ducks and live lobsters. In February 2007, we began working with a vendor who meets our animal welfare standards, to sell live lobsters in our Portland, Maine store. In December 2003, we started working through a consultative multi-stakeholder process to develop "Animal Compassionate" standards, farm animal treatment standards that go above and beyond our baseline requirements for meat and poultry sold in our stores, focused on providing environments and conditions for each species that support the animal's natural physical, emotional and behavioral well-being. In 2006, that work was then used as a basis for creating meat and poultry production standards categorized according to a framework for continuous improvement of animal welfare on farms and ranches and to provide our customers with a clear and transparent way to make informed buying decisions based solely on animal welfare considerations. In June 2007, we piloted a five-tiered meat and poultry labeling program at our Kensington store in London based on these standards, which we are currently in the midst of fine-tuning and plan to roll out in the U.S. in 2008. Specific standards related to permissible and prohibited production and handling techniques from parent stock through slaughter are intended to be included for the following species and related products: pigs, cattle, bison, broiler chickens, ducks, goats, rabbits, sheep, turkey, veal, dairy and eggs.

Product Categories

        Our product categories include, but are not limited to: produce, seafood, grocery, meat and poultry, bakery, prepared foods and catering, specialty (beer, wine and cheese), Whole Body (nutritional supplements, vitamins, body care and educational products such as books), floral, pet products and household products.

        Perishable products accounted for approximately 67% of our total retail sales at Whole Foods Market locations in fiscal year 2007. We believe our heavy emphasis on perishable products differentiates us from conventional supermarkets and helps us attract a broader customer base. We believe that all shoppers, not just natural and organic food shoppers, appreciate great produce, dairy, meat, seafood, bakery and prepared foods. We believe it is our strength of execution in perishables that has attracted many of our most loyal customers.

Locally Grown

        Our history and reputation are intimately linked to our support of local farmers. For more than 27 years, we have provided our customers with the broadest possible selection of the highest quality produce available. Our search for produce begins right outside our front door in every community where we do business. We are committed to buying from local producers whose products meet our high quality standards, particularly those who are dedicated to environmentally friendly, sustainable agriculture. We are greatly increasing our efforts in this regard by further empowering our individual store and regional buyers to seek out locally grown products. We value this natural diversity and have firm guidelines for using the term "local" in our stores. For example, only produce that has traveled less than seven hours from the farm to our facility can be labeled "locally grown."

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        Whole Foods Market currently purchases produce from over 3,000 different farms through various suppliers. Of the Company's top 10 produce suppliers, eight represent independent farms with privately held ownership. We believe we can and should do more to support local producers. To that end, we have established a budget of up to $10 million annually to promote local agriculture, especially animal agriculture, wherever we have stores through long-term loans at low interest rates. We completed our first loan through the Local Producer Loan Program in February 2007 and so far have disbursed more than $1 million in loans to over 20 local producers in nine of our 11 regions. Loan recipients must use funds for expansion and not operating expenses, meet Whole Foods Market's quality standards, and have a viable business plan and adequate cash flow to service the debt. Eligible products include agricultural crops, value-added food products, and other all-natural grocery items.

        In addition, at stores in five of our 11 regions, we are now providing space in our parking lots weekly for local farmers to sell their products directly to our customers, working in concert with existing farmers' markets when possible. Our stores have excellent locations and heavy customer traffic to help these farmers' markets flourish, and their presence at our stores provides more local choices for our customers.

Whole Trade™

        On March 29, 2007, we launched our Whole Trade program, a new buying initiative that brings together a set of strict criteria for products from developing countries to ensure: exceptional product quality; more money for producers; better wages and working conditions for workers; sound environmental production practices, and support of poverty eradication via donating 1% of product sales to the Whole Planet Foundation.

        The Whole Trade program gives low-income producers entry into and stability within the global marketplace by ensuring better wages and safer working conditions for workers. It supports equitable systems of trade that are an investment in both farms and communities. Through the Whole Trade program, Whole Foods Market seeks out and promotes foods that are grown using sound environmental practices that encourage biodiversity and healthy soils. In addition to including some products that are grown organically, the Whole Trade program includes products that respect the earth without formal organic certification. These products could be sourced in two ways. Some come from farms that use integrated pest management systems, emphasizing alternatives to chemical use; they also practice soil and water conservation through composting and reforestation. Other products are respectfully harvested from land or water areas that provide shelter and habitat for migratory birds and other species.

        Our Whole Trade Guarantee label is currently featured on more than 400 items, and sales of nearly $8 million to date have generated approximately $80,000 for the Whole Planet Foundation. Our goal is to have more than 50% of our imported products from developing countries meet Whole Trade qualifications within 10 years.

Private Label

        An extension of our leadership position in the natural and organic foods industry is our strong family of private label brands. These products extend the confidence and trust our customers have in our stores to their everyday lives. We've built upon this trust and over the last several years have significantly expanded our private label resources and offerings, which currently feature over 2,000 SKUs led by our primary brands, 365 Everyday Value and 365 Organic.

        In addition to these nationally-driven programs, we have a number of store-made and regionally-made fresh items sold under the Whole Foods Market label. We also offer specialty and organic coffee, tea and drinking chocolates through our Allegro Coffee Company subsidiary.

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365 Everyday Value. In 1997, we introduced a line of products under the "365" label emphasizing everyday value. These products meet our quality standards but are generally less expensive than the alternative products we sell. Our qualitative and quantitative research indicates that the "365" line is a highly recognized and trusted brand with Whole Foods Market shoppers.



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365 Organic Everyday Value. In 2002, we expanded our private label program with the introduction of our "365 Organic" line. The "365 Organic" brand provides all of the benefits of organic food at reduced prices. In 2003, we expanded this program into non-grocery departments, including a successful line of organic fresh vegetables, and in 2006, we began the process of rebranding our Whole Kids Organic line, first introduced in 1998, under the "365 Organic" label with some new kid-friendly designs.



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Whole Brands. In 2004, we introduced a new family of "Whole Brands," each aligned with department-specific quality and sourcing standards. Included under the "Whole Brands" umbrella are "Whole Kitchen" for pre-packaged fresh and frozen grocery, "Whole Treat" for frozen desserts, cookies and candies, "Whole Catch" for pre-packaged fresh and frozen seafood items, "Whole Fields" for produce and produce support items, "Whole Pantry" for items such as herbs, spices and condiments, "Whole Creamery" for cheeses, "Whole Ranch" for pre-packaged fresh and frozen meat, and "Whole Paws" for tasty and healthful pet food. These brands go beyond the basics, offering unique items, including innovative formulations, that embody our high quality standards and supplement our base value line of "365" and "365 Organic" items. Items within "Whole Brands" share a consistent logo format and packaging so that our customers know each is part of a greater family.

        At our Whole Foods Market locations, private label sales in grocery and nutrition accounted for approximately 18% of our total retail sales in those product categories in fiscal year 2007, up from 16% in fiscal year 2006. Total private label sales across all teams accounted for approximately 9% of our retail sales in fiscal year 2007, up from 8% of our retail sales in fiscal year 2006, reflecting the roll-out of approximately 550 new items in fiscal year 2007. We believe our private label sales could grow to a much higher percentage of our sales over time, as we continue to focus on the rapid development and growth of our product lines.

Economic Value Added

        We use Economic Value Added ("EVA"™) as a basis for our business decisions and for determining incentive compensation. In its simplest definition, EVA is equivalent to net operating profits after taxes minus a charge for the cost of invested capital necessary to generate those profits. We believe one of our core strengths is our decentralized culture, where decisions are made at the store level, close to the customer. We believe this is one of our strongest competitive advantages and that EVA is the best financial framework that team members can use to help make decisions that create sustainable shareholder value.

        We use EVA extensively for capital investment decisions, including evaluating new store real estate decisions and store remodeling proposals. We only invest in projects that we believe will add long-term value to the Company. The EVA decision-making model also enhances operating decisions in stores. Our emphasis is on EVA improvement, as we want to challenge our teams to continue to innovate and grow EVA in new ways. We believe that opportunities always exist to increase sales and margins, to lower operating expenses and to make investments that add value in ways that benefit all of our stakeholders. We believe that focusing on EVA improvement encourages continuous improvement of our business.

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        Over 750 leaders throughout the Company are on EVA-based incentive compensation plans, of which the primary measure is EVA improvement. EVA-based plans cover our senior executive leadership, regional leadership and the store leadership team (store team leaders and assistant store team leaders) in all stores. Incentive compensation for each of these groups is determined based on relevant EVA measures at different levels, including the total Company level, the regional level, the store or facility level, and the team level. We believe using EVA in a multi- dimensional approach best measures the results of decisions made at different levels of the Company. We expect EVA to remain a significant component of our compensation structure throughout the Company in the coming years.

        Information about our EVA financial results is not presented because of rules adopted by the Securities and Exchange Commission ("SEC") regarding non-GAAP financial measures. Additional information about our EVA financial results is available on our corporate website at www.wholefoodsmarket.com but is not incorporated by reference into this Form 10-K.

Acquisition of Wild Oats Markets, Inc.

        On August 28, 2007, we completed the acquisition of Wild Oats Markets, Inc., a leading natural and organic foods retailer in North America, in a cash tender offer of $18.50 per share, or approximately $565 million plus the assumption of approximately $148 million in existing debt. To fund the transaction, we entered into a five-year $700 million senior term loan agreement. We also signed a new five-year $250 million revolving credit agreement, which replaced our existing $200 million line of credit.

        At the time of our acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada operating under four banners: Wild Oats Marketplace (nationwide), Henry's Farmers Market (in Southern California), Sun Harvest (in Texas), and Capers Community Market (in British Columbia). All of our 11 operating regions gained stores, with our three smallest regions, the Florida, Rocky Mountain, and Pacific Northwest regions, gaining critical mass. The acquisition provided us with immediate entry into five new states: Arkansas, Indiana, Oklahoma, Tennessee and Utah, and 15 new markets: Bend, OR; Cincinnati, OH; Indianapolis, IN; Lexington, KY; Little Rock, AR; Melbourne, FL; Memphis, TN; Naples, FL; Nashville, TN; Reno, NV; Salt Lake City, UT; Tampa, FL; Tucson, AZ; Tulsa, OK; and Westport, CT.

        On September 30, 2007, we completed the sale of all 27 Henry's Farmers Market and eight Sun Harvest store locations and a related Riverside, CA distribution center to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer. Subsequent to year-end, the Company received proceeds of approximately $165 million for the net assets of those stores, consisting primarily of fixed assets, inventory, and operating leases. Additionally, Whole Foods Market and Smart & Final entered into a transition services agreement under which Whole Foods Market will continue to provide certain general and administrative services for the 35 stores for up to two years. We currently anticipate that the revenue associated with this agreement will be approximately equal to our incremental cost of providing the support.

        Subsequent to year-end, we closed eight Wild Oats stores in Portland, OR; Tualatin, OR; Matthews, KY; West Vancouver, Canada; Mission, KS; Littleton, CO; Omaha, NE; and Saugus, MA. We also temporarily closed the Wild Oats store in Medford, MA for a major renovation; the store is scheduled to re-open in the spring of 2008. In addition, the Wild Oats stores in Nashville, TN and Pasadena, CA were relocated to new Whole Foods Market stores in early November 2007. Net of these closures and relocations, the Company had 63 Wild Oats and Capers locations on November 20, 2007, with plans to close one additional Wild Oats store in Portland, ME in fiscal year 2008. The Company also plans to relocate seven Wild Oats stores in British Columbia, Canada; Littleton, CO; Naples, FL; Indianapolis, IN; St. Louis, MO; Reno, NV; and Salt Lake City, UT as the Whole Foods Market stores currently in development open in those areas.

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        The following table provides additional information by region about the number of Wild Oats stores acquired, divested, closed and relocated, and the ending Wild Oats store count as of November 20, 2007.

	Stores Acquired	Stores Divested		Net Stores Acquired	Stores Closed		Stores Relocated		11/20/07 Store Count
Florida	5	—		5	—		—		5
Mid-Atlantic	6	—		6	(1	)	—		5
Midwest	6	—		6	(1	)	—		5
North Atlantic	5	—		5	(2	)	—		3
Northeast	1	—		1	—		—		1
Northern California	1	—		1	—		—		1
Pacific Northwest	11	—		11	(3	)	—		8
Rocky Mountain	23	—		23	(2	)	—		21
South	3	—		3	—		(1	)	2
Southern Pacific	38	(27	)	11	—		(1	)	10
Southwest	10	(8	)	2	—		—		2
Total	109	(35	)	74	(9	)	(2	)	63
Average size—gross square feet				24,000					24,000
Total gross square footage (in thousands)				1,804					1,535
Average weekly sales—fourth quarter FY 2007(1)				214,000					224,000
Sales per square foot—fourth quarter FY 2007(1)				457					478

(1)

Average weekly sales and sales per square foot calculations assume Wild Oats was owned the entire fourth quarter of fiscal year 2007.

Growth Strategy

        Whole Foods Market's growth strategy is to expand through a combination of new store openings and acquisitions of existing stores. We have a disciplined, opportunistic real estate strategy, opening stores in existing trade areas as well as new markets, including international markets. Our new stores typically range in size between 45,000 and 60,000 square feet and are located on premium real estate sites. We have also grown through acquisitions, with approximately 32% of our existing square footage coming from acquisitions. Because the natural and organic foods retailing industry is highly fragmented and comprised of many smaller local and regional chains, we may continue to pursue acquisitions of smaller chains that provide access to desirable markets, locations and experienced team members. Going forward, however, such acquisitions are not expected to impact our future store growth or financial results due to the size of the Company's existing store base.

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        We have an ongoing relocation strategy and actively relocate some of our smaller stores to larger locations with improved visibility and parking each year. For stores relocated in fiscal years 2003 through 2007, the overall average increase in size was approximately 121%. Our historical store growth is summarized below:

	2007		2006		2005		2004		2003
Stores at beginning of fiscal year	186		175		163		145		135
Stores opened	21		13		15		12		12
Acquired stores	109		1		—		7		—
Divested stores	(35	)	—		—		—		—
Relocations and closures	(5	)	(3	)	(3	)	(1	)	(2	)
Stores at end of fiscal year	276		186		175		163		145
Total gross square footage at end of fiscal year	9,312,000		6,377,000		5,819,000		5,145,000		4,545,000

        The following table provides additional information about the Company's store locations by region as of September 30, 2007:

	Stores at Beginning of Fiscal Year	Stores Opened	Stores Acquired	Stores Divested		Stores Relocated/ Closed		Stores at End of Fiscal Year
Florida	8	1	5	—		—		14
Mid-Atlantic	28	2	6	—		—		36
Midwest	21	4	6	—		—		31
North Atlantic	27	2	5	—		(2	)	32
Northeast	13	2	1	—		—		16
Northern California	20	4	1	—		(1	)	24
Pacific Northwest	5	2	11	—		—		18
Rocky Mountain	10	—	23	—		—		33
South	14	1	3	—		—		18
Southern Pacific	24	2	38	(27	)	(1	)	36
Southwest	16	1	10	(8	)	(1	)	18
Total	186	21	109	(35	)	(5	)	276

        As of November 20, 2007, we had signed leases for 87 stores scheduled to open through fiscal year 2010 totaling approximately 4.5 million square feet, or approximately 48% of our existing square footage. These stores, which average approximately 51,000 square feet in size and are roughly 48% larger than the average size of our existing store base, include 22 relocations and 14 new markets. Our historical growth in stores in development is summarized below:

	November 20, 2007		November 2, 2006		November 9, 2005		November 10, 2004		November 30, 2003
Stores in development	87		88		65		53		35
Average size—gross square feet	51,000		56,000		55,000		49,000		45,000
Total gross square footage in development	4,485,000		5,003,000		3,626,000		2,594,000		1,607,000
As a percentage of existing square footage	48	%	77	%	60	%	50	%	35	%

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        We have continued to sign and open smaller stores, typically in markets where it is hard to develop larger sites, while experimenting with opening some very large format stores. We currently operate nine stores in excess of 65,000 gross square feet and have an additional 13 stores of that size in development, seven of which are relocations. On average, we are pleased with the results of these larger format stores, as we believe they will deliver strong returns over time as they appeal to a broader customer base, take longer to reach capacity, and create a higher barrier to entry, making them less vulnerable to competition. We plan to continue to selectively sign larger sites, which showcase extensive prepared foods and sit-down venues, but going forward, we expect them to be predominantly in dense urban markets or relocations of some of our very successful existing stores.

        As shown in the table above, our total gross square footage and average size of stores in development were lower in fiscal year 2007 than in fiscal year 2006. This was due primarily to two factors: more stores exiting the development pipeline as the acceleration in our new store openings materializes, and a decrease in the average size of new leases signed during the year.

        Tender dates provide some visibility on the timing of our new store openings. For accounting purposes, a lease is considered tendered on the date we take possession of the leased space for construction and other purposes, which is typically when the shell of the store is complete or close to completion. As of November 20, 2007, 20 of our 87 stores in development had been tendered to us. These 20 stores represent approximately 916,000 square feet.

        The "tender period," which we define as the length of time between a store's tender date and opening date, varies depending on several factors, some of which are outside of our control. These factors include the size of the store and complexity of site development, the impact of weather and unforeseen environmental issues, and issues surrounding construction labor unions and local government authorities, among other things. Furthermore, acquired leases, ground leases and owned properties generally have longer tender periods than standard operating leases because we take possession of these locations earlier in the construction process. For stores opened during the past three fiscal years, the average tender period was 8.7 months.

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        The following table provides information about the Company's store development activities:

	Stores Opened During Fiscal Year 2006		Stores Opened During Fiscal Year 2007		Properties Tendered as of November 20, 2007		Total Leases Signed as of November 20, 2007
Number of stores (including relocations)	13		21		20		87
Number of relocations	2		5		4		22
Number of lease acquisitions, ground leases and owned properties	1		4		9		13
New markets	4		3		1		14
Average store size (gross square feet)	50,200		56,500		45,800		51,200
As a percentage of existing store average size	147	%	167	%	133	%	148	%
Total square footage	653,000		1,185,800		915,900		4,485,200
As a percentage of existing square footage	10	%	13	%	10	%	48	%
Average pre-opening expense per store (1)	$2.0 million		$2.6 million
Average pre-opening rent per store (1)	$0.7 million		$0.9 million
Average tender period, in months	7.8		8.8

(1)

Average pre-opening costs are estimated for projects not yet final and exclude the Kensington store in London.

Site Selection

        Most of our stores are located in high-traffic shopping areas and are either freestanding or in a strip center. We also have a number of urban stores located in high-density, mixed-use projects. In selecting store locations, we use an internally developed model to analyze potential markets based on various criteria such as education levels, population density and income levels within certain drive times. We primarily seek to open large-format stores, which typically range in size between 45,000 to 60,000 square feet and are located on premier real estate sites, often in urban, high-population locales. After we have selected a target site, our development group does a comprehensive site study and sales projection. Each project must meet an internal EVA hurdle return, which is generally cumulative positive EVA within seven years.

        The required cash investment for new stores varies depending on the size of the store, geographic location, degree of work performed by the landlord and complexity of site development issues. For stores opened during the past two fiscal years excluding Kensington, the average size was 52,700 square feet and our new store investment averaged approximately $14.4 million excluding pre-opening and relocation expenses, which averaged approximately $2.4 million per store.

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Store Operations

Team Approach to Store Operations

        We strive to promote a strong Company culture featuring a team approach to store operations that we believe is distinctly more empowering of employees than that of the traditional supermarket. Our domestic Whole Foods Market stores each employs between 85 and 600 team members who comprise up to 13 teams per store, each led by a team leader. Each team within a store is responsible for a different product category or aspect of store operations such as customer service, prepared foods, or grocery, among others. Just as we have a regionally-focused framework, we also promote a decentralized team approach to store operations in which many decisions are made by teams at the individual store level. In this structure, an effective store team leader is critical to the success of the store. The store team leader works closely with one or more associate store team leaders, as well as with all of the department team leaders, to operate the store as efficiently and profitably as possible. Twice yearly, our team members are asked to complete a confidential, third party-administered team leader survey, which provides them with an opportunity to give their leaders constructive feedback.

        We believe our success is dependent on the collective energy and intelligence of all of our team members. We strive to create a work environment where motivated team members can flourish and reach their highest potential, and where they are inspired by work that provides them with a greater sense of purpose and mission. For many team members, their job is an extension of their personal philosophy and lifestyle. Together, we go to great lengths to satisfy and delight our customers.

        Team members are involved at all levels of our business. We strive to create a Company-wide consciousness of "shared fate" by uniting the interests of team members as closely as possible with the interests of our shareholders. One way we reinforce this concept is through gainsharing. Our gainsharing program rewards things such as labor productivity that team members can control, giving them a direct stake in the success of our business. We also encourage stock ownership among team members through the following programs:

•

Team Member Stock Option Plan. All full-time and part-time team members are eligible to receive a grant of stock options each year. The annual grant has two components: (i) Annual Leadership Grants to recognize and incentivize team member performance; and (ii) Service Hour Grants to recognize team member service to the Company. In 2007 our Board of Directors awarded approximately 1.7 million options to more than 13,400 team members. Of these stock options, 95% were granted to non-executives, with 47% awarded as Service Hour Grants alone.



•

Team Member Stock Purchase Plan. Through bi-weekly payroll deductions, all U.S.-based non-seasonal team members with at least 400 service hours may elect to purchase unrestricted shares of our stock at 95% of market value on the purchase date. The shares are purchased for the plan participants on a quarterly basis. Approximately 2,000 team members currently participate in this plan.



•

Team Member 401(k) Plan. Whole Foods Market stock is an investment option within the Company's 401(k) plan.

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Store Description

        We do not have a standard store design model. Instead, each store's design is customized to fit the size and configuration of the particular location and community in which it is located. Our culture and philosophy is one of continual innovation and experimentation, and successful experiments are voluntarily picked up and improved upon by our stores and regions. We strive to transform food shopping from a chore into a dynamic experience by building and operating stores with colorful décor, well-trained team members, exciting product mixes, teams of in-store chefs, ever-changing selections, samples, open kitchens, scratch bakeries, hand-stacked produce, prepared foods stations and European-style charcuterie departments. To further a sense of community and interaction with customers, our stores typically include sit-down eating areas, customer comment boards and customer service booths. We have "Take Action" centers for our customers who want to be informed on important issues relative to environmental, legislative, food safety and product quality issues that can directly affect our customers' health and well-being. In addition, some stores offer special services such as massage, valet parking and home delivery. We believe our stores play a unique role as a third place, besides the home and office, where people can gather, interact and learn while at the same time discovering the many joys of eating and sharing food.

Purchasing and Distribution

        Our buyers purchase products for retail sale from local, regional, national and international wholesale suppliers and vendors. The majority of our purchasing occurs at the regional and national levels. This enables us to negotiate better volume discounts with major vendors and distributors, while allowing our regional and store buyers to focus on local products and the unique product mix necessary to keep a neighborhood market feel in our stores. We are increasingly focusing more of our purchasing on producer-direct and manufacture-direct programs, and we remain committed to buying from local producers that meet our high quality standards.

        We own two produce procurement centers which facilitate the procurement and distribution of the majority of the produce we sell. We also operate a national meat purchasing office, a confectionary, four seafood processing and distribution facilities, a specialty coffee and tea procurement and brewing operation, and nine regional distribution centers, which distribute a full range of products to our stores across the U.S., Canada and the United Kingdom. In addition, we have five regional commissary kitchens and 11 bakehouse facilities, all of which distribute products to our stores. Other products are typically procured through a combination of specialty wholesalers and direct distributors.

        United Natural Foods, Inc. is our single largest third-party supplier, accounting for approximately 24% of our total purchases in fiscal year 2007. In November 2006, we extended our long-term relationship with United Natural Foods as our primary supplier of dry grocery and frozen food products. Our seven-year agreement allows us to concentrate our capital and resources on executing on our new store development pipeline and to focus our internal distribution efforts around key perishable departments including produce, prepared foods, bakery, seafood and meat.

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Marketing

        We spend much less on advertising and marketing than conventional supermarkets—approximately 0.5% of our total sales in fiscal year 2007. Instead, we rely primarily on word-of-mouth recommendations and testimonials from our shoppers, as well as the publicity and excitement generated by our new store openings. We allocate our marketing budget among region-wide programs, our individual stores' marketing efforts, and a national brand awareness initiative focusing primarily on national in-store marketing programs and national and major-market public relations. Our stores spend most of their marketing budgets on in-store marketing-related activities, including signage and in-store events such as taste fairs, classes, tours and product samplings. To create goodwill and develop a high profile within the community, each store also has a separate budget for making contributions to a variety of philanthropic and community activities. We presently contribute at least 5% of our after-tax profits in the form of cash or products to not-for-profit organizations.

Customer Service

        Customers are our most important stakeholder, because without our customers, we would have no business. We genuinely care about the well-being of our customers and empower our team members to do whatever it takes to meet or exceed their expectations on every shopping trip. By doing so, we turn our customers into advocates for our business, who do more than shop with us; they recommend Whole Foods Market to their friends and others. We want to serve our customers competently, efficiently, and knowledgeably. We believe that we generate greater appreciation and loyalty from our customers by educating them about natural and organic foods, health, nutrition and the environment through our in-store "Take Action" centers as well as on our corporate website at www.wholefoodsmarket.com, which features hundreds of recipes and a library of information about environmental, legislative, food safety, and product quality issues.

Team Members

        As of September 30, 2007, we had approximately 52,600 team members, including approximately 44,900 full-time, 5,200 part-time and 2,400 temporary team members. Of the total, approximately 6,000 were Wild Oats Markets team members, including approximately 3,700 full-time, 2,000 part-time and 300 temporary team members. We are proud that 90% of our permanent team members are full-time team members, which we believe is very high for the food retailing industry and allows us to better serve our customers.

        One of our core values is supporting team member happiness and excellence, and we believe our innovative and egalitarian work environment with team members involved at all levels of our business is a major reason for our success. We believe happy team members create happy customers, and happy customers create happy investors. Team members who have a voice in shaping the direction of our Company and their future are empowered to make Whole Foods Market not only a great place to shop but a great place to build a career. All of our full-time and part-time team members are eligible to receive stock options. In addition, team members are encouraged to take an active role in choosing the benefits made available by the Company by participating in a Company-wide benefits vote every three years. The Company's second vote was held in fiscal year 2006 to determine the benefits program that will be in place from 2007 through 2009. Approximately 77% of eligible team members voted in this important process, resulting in a benefits package that reflects the needs and desires of the majority of team members in the Company. One outcome of the vote is that Whole Foods Market provides healthcare at no cost to eligible full-time team members. Eligible full-time team members are those who work 30 or more hours per week and have worked a minimum of 800 service hours. Dependent healthcare premiums are shared based on a team member's tenure with the Company; the team member's share decreases as his/her tenure increases.

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        For the past 10 years, our team members have helped Whole Foods Market become one of Fortune magazine's "100 Best Companies to Work for in America." In scoring companies, Fortune places the greatest weight (two-thirds of the total) on responses to a random survey of 400 employees, with the remainder being Fortune's evaluation of each company's credibility, respect, fairness and pride/camaraderie. Ranking number five in 2007, our highest ever, we are one of only 18 companies to make the "100 Best" list for 10 consecutive years since its inception.

Competition

        Food retailing is a large, intensely competitive industry. Our competition varies from region to region and includes but is not limited to local, regional, national and international conventional and specialty supermarkets, other natural foods stores, warehouse membership clubs, smaller specialty stores, and restaurants, each of which competes with us on the basis of product selection, quality, customer service, price or a combination of these factors. We believe our commitment to natural and organic products, high quality standards, our focus on customer service, and our competitive prices on comparable products differentiates us in this segmented marketplace.

        Natural and organic food is one of the fastest growing segments of food retailing today. Most supermarkets offer at least a limited selection of these products, while some have chosen to expand their selection more aggressively. We believe it works to our benefit for conventional supermarkets to offer natural and organic products for two reasons: first, it helps fulfill our Company mission to improve the health, well-being and healing of both people and the planet, and second, it helps create new customers for us by creating a gateway experience. As more people are exposed to the benefits of natural and organic products, we believe they are more likely to become Whole Foods Market customers since we are the category leader for natural and organic products, offering the largest selection and most informed customer service at competitive prices.

        Competition makes us a better retailer. We are constantly evolving, innovating and maturing, and we have a long track record of responding to and improving with competition. We believe we are better positioned from a value and price perspective today than we ever have been. Our buy-side initiatives are continuing to deliver opportunities that will allow us to be more price competitive, and we are leveraging our global buying power to the benefit of our customers. On the sell side, our innovation will accelerate over the next few years as we continue to redefine the marketplace and further differentiate our stores, products, and customer experience from the competition.

        We believe our strong comparable store sales growth, which historically has been significantly higher than the industry average, is evidence of this gateway experience and of our ability to evolve faster than our competition.

Government and Public Affairs

        Our stores are subject to various local, state, federal and international laws, regulations and administrative practices affecting our business. We must comply with provisions regulating health and sanitation standards, food labeling, equal employment, minimum wages and licensing for the sale of food and, in some stores, alcoholic beverages.

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        The manufacturing, processing, formulating, packaging, labeling and advertising of products are subject to regulation by various federal agencies including the Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission ("CPSC"), the United States Department of Agriculture ("USDA") and the EPA. The composition and labeling of nutritional supplements are most actively regulated by the FDA under the provisions of the Federal Food, Drug and Cosmetic Act ("FFDC Act"). The FFDC Act has been revised in recent years with respect to dietary supplements by the Nutrition Labeling and Education Act and by the Dietary Supplement Health and Education Act. We believe we are in material compliance with product labeling requirements.

Trademarks

        Trademarks owned by the Company or its subsidiaries include, but are not limited to: "Whole Foods Market," "365 Everyday Value," "365 Organic Everyday Value," "AFA," "Allegro Coffee Company," "Wild Oats," "Wild Oats Marketplace," "Capers Community Market," "Bread & Circus," "Fresh & Wild," "Fresh Fields," "Global Local," "Green Mission," "Harry's Farmers Market," "Merchant of Vino," "Mrs. Gooch's," "Vine Buys," "Wellspring," "Whole Baby," "Whole Foods, Whole People, Whole Planet," "Whole Kids Organic," and "Whole Trade." The Company or its subsidiaries also holds registrations or applications, and maintains common law trademark rights for stylized logos and brand names for products created by Allegro Coffee Company and many of its private label products.

wholefoodsmarket.com

        Our corporate website at www.wholefoodsmarket.com provides detailed information about our Company, history, product offerings and store locations, with hundreds of recipes and a library of information about environmental, legislative, health, food safety and product quality issues. Our website also provides links to our two foundations—the Animal Compassion Foundation and the Whole Planet Foundation. In addition, access to the Company's SEC filings, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings, and all amendments to those reports, are available through our website free of charge, as soon as reasonably practicable after these reports are filed electronically with the SEC. As with our stores, the focus of our website is customer service. We believe our website provides us with an opportunity to further our relationships with customers, suppliers and investors, to educate them on a variety of issues, and to improve our service levels.

        We have included our website address only as an inactive textual reference. The information contained on our website is not incorporated by reference into this Report on Form 10-K.

Executive Officers of the Registrant

        The following table sets forth the name, age, tenure with the Company in years, and position of each of the persons who was serving as an executive officer of the Company as of November 20, 2007:

Name	Age	Tenure	Position
John P. Mackey	54	29	Chairman of the Board and Chief Executive Officer
A.C. Gallo	54	14	Co-President and Chief Operating Officer
Walter Robb	54	16	Co-President and Chief Operating Officer
Glenda Chamberlain	54	19	Executive Vice President and Chief Financial Officer
James P. Sud	55	10	Executive Vice President of Growth and Business Development
Lee Valkenaar	51	20	Executive Vice President of Global Support

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        John P. Mackey, co-founder of the Company, has served as Chairman of the Board and Chief Executive Officer since 1980.

        A.C. Gallo has served as Co-President of the Company since September 2004 and as Chief Operating Officer since December 2003. Mr. Gallo has held various positions with the Company and with Bread & Circus, Inc., which was acquired by the Company in October 1992, including Vice President and President of the North Atlantic Region, and Executive Vice President of Operations.

        Walter Robb has served as Co-President of the Company since September 2004 and as Chief Operating Officer since December 2003. Since joining the Company in 1991, Mr. Robb has also served as Store Team Leader, President of the Northern Pacific Region, and Executive Vice President of Operations.

        Glenda Chamberlain has served as Executive Vice President and Chief Financial Officer of the Company since December 1988.

        James P. Sud has served as Executive Vice President of Growth and Business Development since February 2001. Mr. Sud joined the Company in May 1997 and served as Vice President and Chief Operating Officer until February 2001. Mr. Sud served as a director of the Company from 1980 to 1997.

        Lee Valkenaar has served as Executive Vice President of Global Support since September 2004. Mr. Valkenaar has held various positions with the Company since 1987, including Store Team Leader, Vice President and President of the Southwest Region, and President of the Mid-Atlantic Region.

Regional Presidents

        The following table sets forth the name, age, tenure with the Company in years, and position of each of the persons who was serving as a regional president of the Company as of November 20, 2007:

Name	Age	Tenure	Position
Scott Allshouse	45	7	President, South Region
Michael Besancon	61	13	President, Southern Pacific Region
Patrick Bradley	47	21	President, Midwest Region
Mark Dixon	45	24	President, Southwest Region
David Lannon	41	14	President, Northern California Region
Ron Megahan	37	18	President, Pacific Northwest Region
Kenneth Meyer	39	12	President, Mid-Atlantic Region
Christina Minardi	41	12	President, Northeast Region
Juan Nunez	49	25	President, Florida Region
William Paradise	47	17	President, Rocky Mountain Region
Jeff Turnas	35	12	President, North Atlantic Region

        Scott Allshouse has served as President of the South Region since November 2004. Mr. Allshouse has held various positions since joining the Company in 2000, including Store Team Leader and Vice President of the South Region.

        Michael Besancon has served as President of the Southern Pacific Region since February 2001. Mr. Besancon has held various positions with the Company since 1994, including Purchasing Director, Vice President of the Southern Pacific Region and President of the Mid-Atlantic Region.

        Patrick Bradley has served as President of the Midwest Region since November 2004. Mr. Bradley has held various positions with the Company and with Mrs. Gooch's Natural Food Markets, Inc., which was acquired by the Company in September 1993, including Store Team Leader and Vice President of the Southern Pacific Region.

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        Mark Dixon has served as President of the Southwest Region since October 2004. Mr. Dixon has held various positions with the Company since 1984, including Store Team Leader and Vice President of the Southwest Region.

        David Lannon was named President of the Northern California Region in October 2007. Mr. Lannon has held various positions with the Company and with Bread & Circus, Inc., which was acquired by the Company in October 1992, including Store Team Leader, Director of Store Operations and Vice President of the North Atlantic Region, and President of the North Atlantic Region.

        Ron Megahan has served as President of the Pacific Northwest Region since September 2004. Mr. Megahan has held various positions with the Company since 1989, including Store Team Leader and President of the Northern Pacific Region.

        Kenneth Meyer has served as President of the Mid-Atlantic Region since October 2004. Mr. Meyer has held various positions with the Company and with Fresh Fields Market, which was acquired by the Company in August 1996, including Store Team Leader, Vice President of the Southwest Region, and President of the South Region.

        Christina Minardi has served as President of the Northeast Region since September 2005. Ms. Minardi has held various positions with the Company and with Fresh Fields Market, which was acquired by the Company in August 1996, including Store Team Leader and Vice President of the North Atlantic Region.

        Juan Nunez has served as President of the Florida Region since September 1998. Mr. Nunez has held various positions with the Company and with Mrs. Gooch's Natural Food Markets, Inc., which was acquired by the Company in September 1993, including Store Team Leader, Director of Store Operations and Vice President of the Southwest Region.

        William Paradise has served as President of the Rocky Mountain Region since September 2004. Mr. Paradise has held various positions with the Company since 1990, including Store Team Leader, Vice President of the Northern Pacific Region, and Vice President and President of the Southwest Region.

        Jeff Turnas was named President of the North Atlantic Region in November 2007. Mr. Turnas has held various positions with the Company and with Merchant of Vino, which was acquired by the Company in December 1997, including Associate Store Team Leader, Regional Specialty Coordinator, Vice President of Purchasing for the Midwest Region, and Vice President of Purchasing for the Northeast Region.

Item 1A. Risk Factors.

        We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward-looking statements that we make from time to time in filings with the SEC, news releases, reports, proxy statements, registration statements and other written communications, as well as oral forward-looking statements made from time to time by representatives of the Company. These risks and uncertainties include, but are not limited to, the risks described below. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. The cautionary statements below discuss important factors that could cause our business, financial condition, operating results and cash flows to be materially adversely affected. The Company does not undertake any obligation to update forward-looking statements.

23

Our Growth Is Significantly Dependent on New Store Openings and Acquisitions

        Our strategy is to expand through a combination of new store openings and, to a lesser extent, acquisitions of existing store locations or businesses. Successful implementation of this strategy is contingent on numerous conditions, some of which are described below, and there can be no assurance that this expansion strategy can be successfully executed.

        Our continued growth depends to a significant degree on our ability to open or acquire new stores in existing and new markets and to operate these stores successfully. Our expansion strategy is dependent on finding suitable locations, and we face intense competition from other retailers for such sites. There can be no assurance that we will continue to grow through new store openings and/or acquisitions. We may not be able to timely open new stores or operate them successfully. Also, we may not be able to successfully hire and train new team members or integrate those team members into the programs and policies of the Company. We may not be able to adapt our distribution, management information and other operating systems to adequately supply products to new stores at competitive prices so that we can operate the stores in a successful and profitable manner.

We May Not Be Able to Successfully Integrate Acquired Businesses into Our Operations

        We may not be able to successfully integrate acquired businesses into our operations and support systems, or the operations of acquired businesses may be adversely affected by the introduction of our decentralized operational approach. Also, the integration of acquired operations into our operations requires the dedication of management resources that may temporarily detract attention from our day-to-day business.

New Stores May Negatively Impact Our Results

        There can be no assurance that our new store openings will be successful or result in greater sales and profitability for the Company. New stores build their sales volumes and refine their merchandise selection over time and, as a result, generally have lower gross margins and higher operating expenses as a percentage of sales than our more mature stores. As we accelerate our rate of new store openings, thus increasing the percentage of our sales from new stores and decreasing the average age of our store base, there may be a negative impact on our results from a lower contribution of these new stores, along with the impact of related pre-opening and relocation costs.

We May Experience Significant Fluctuations in Our Comparable Store Sales

        Our comparable store sales could fluctuate or be lower than our historical average for many reasons including new and acquired stores entering into the comparable store base, the opening of new stores that cannibalize store sales in existing markets, increased competition, price changes in response to competitive factors, possible supply shortages, and cycling against several years of above-average sales results. Our results of operations may be materially impacted by fluctuations in our comparable store sales as the result of lower sales, lower gross profits and/or greater operating costs such as marketing.

24

We May Experience Significant Fluctuations in Our Quarterly Operating Results

        Our quarterly operating results could fluctuate for many reasons, including losses from new stores, variations in the mix of product sales, price changes in response to competitive factors, foreign currency exchange rate fluctuations, increases in store operating costs, possible supply shortages, extreme weather-related disruptions, including hurricanes and earthquakes, and potential uninsured casualty losses or other losses. In addition, our quarterly operating results may fluctuate significantly as the result of the timing of new store openings and pre-opening costs, the timing of acquisitions, store closures and relocations and the range of operating results generated from newly opened. Quarter-to-quarter comparisons of results of operations have been and may be materially impacted by the timing of new store openings.

Increased Competition May Have an Adverse Effect on Profitability

        Our competitors include but are not limited to local, regional, national and international conventional and specialty supermarkets, other natural food stores, warehouse membership clubs, small specialty stores and restaurants. These businesses compete with us in one or more product categories. In addition, some are expanding more aggressively in marketing a range of natural and organic foods, thereby competing directly with us for products, customers and locations. Some of these potential competitors may have been in business longer or may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products. As competition in certain markets intensifies, our results of operations may be negatively impacted through a loss of sales, reduction in margin from competitive price changes, and/or greater operating costs such as marketing.

Our Business May be Sensitive to Economic Conditions that Impact Consumer Spending

        Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending. Future economic conditions affecting disposable consumer income such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, the impact of natural disasters or acts of terrorism, and other matters could reduce consumer spending or cause consumers to shift their spending to lower-priced competitors. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending to our competitors could adversely affect our growth and profitability.

Legal Proceedings Could Materially Impact Our Results

        From time to time, we are party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property, acquisitions, and other proceedings arising in the ordinary course of business. In addition, the FTC is currently pursing an administrative proceeding concerning our recent acquisition of Wild Oats Markets. Our results could be materially impacted by the decisions and expenses related to pending or future proceedings.

We May Be Subject to Product Liability Claims if People Are Harmed By the Products We Sell

        There is increasing governmental scrutiny of and public awareness regarding food safety. We believe that many customers choose to shop our stores because of their interest in health, nutrition and food safety. We believe that our customers hold us to a higher food safety standard than conventional supermarkets. The real or perceived sale of contaminated food products by us could result in product liability claims, the settlement or outcome of which might have a material adverse effect on our sales and operations.

25

The Loss of Key Management Could Negatively Affect Our Business

        We are dependent upon a number of key management and other team members. If we were to lose the services of a significant number of key team members within a short period of time, this could have a material adverse effect on our operations. We do not maintain key person insurance on any team member. Our continued success is also dependent upon our ability to attract and retain qualified team members to meet our future growth needs. We face intense competition for qualified team members, many of whom are subject to offers from competing employers. We may not be able to attract and retain necessary team members to operate our business.

Unions May Attempt to Organize Our Team Members

        Unions have from time to time attempted to organize all or part of our team member base at certain stores and non-retail facilities. Responding to such organization attempts is distracting to management and team members and may have a negative financial impact on a store, facility or the Company as a whole.

Unfavorable Changes in Government Regulation Could Harm Our Business

        Our stores are subject to various international, federal, state and local laws, regulations and administrative practices affecting our business, and we must comply with provisions regulating health and sanitation standards, food labeling, equal employment, minimum wages and licensing for the sale of food and, in some stores, alcoholic beverages. Our new store openings could be delayed or prevented or our existing stores could be impacted by difficulties or failures in our ability to obtain or maintain required approvals or licenses.

        The manufacturing, processing, formulating, packaging, labeling and advertising of products are subject to regulation by various federal agencies including the FDA, FTC, CPSC, USDA and EPA. The composition and labeling of nutritional supplements are most actively regulated by the FDA under the provisions of the FFDC Act. The FFDC Act has been revised in recent years with respect to dietary supplements by the Nutrition Labeling and Education Act and by the Dietary Supplement Health and Education Act.

        The USDA's Organic Rule, implemented into federal law on October 21, 2002, facilitates interstate commerce and the marketing of organically produced food and provides assurance to our customers that such products meet consistent, uniform standards. Compliance with this rule could pose a significant burden on some of our suppliers, which may cause a disruption in some of our product offerings.

        We cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on our business in the future. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have an adverse effect on our results of operations and financial condition.

26

A Widespread Health Epidemic Could Materially Impact Our Business

        The Company's business could be severely impacted by a widespread regional, national or global health epidemic. Our stores are a place where customers come together, interact and learn while at the same time discovering the many joys of eating and sharing food. A widespread health epidemic may cause customers to avoid public gathering places or otherwise change their shopping behaviors. Additionally, a widespread health epidemic could also adversely impact our business by disrupting production and delivery of products to our stores and by impacting our ability to appropriately staff our stores.

Changes in the Availability of Quality Natural and Organic Products Could Impact Our Business

        There is no assurance that quality natural and organic products will be available to meet our future needs. If conventional supermarkets significantly increase their natural and organic product offerings or if new laws require the reformulation of certain products to meet tougher standards, the supply of these products may be constrained. Any significant disruption in the supply of quality natural and organic products could have a material impact on our overall sales and cost of goods sold.

Perishable Foods Product Losses Could Materially Impact Our Results

        We believe our stores more heavily emphasize perishable products than conventional supermarket stores. Perishable products accounted for approximately 67% of total retail sales at Whole Foods Market locations in fiscal year 2007. The Company's emphasis on perishable products may result in significant product inventory losses in the event of extended power outages, natural disasters or other catastrophic occurrences.

Our Stock Price Is Volatile

        The market price of our common stock could be subject to significant fluctuation in response to various market factors and events. These market factors and events include variations in our sales and earnings results, changes in earnings estimates by securities analysts, publicity regarding us, our competitors, the natural products industry generally, new statutes or regulations or changes in the interpretation of existing statutes or regulations affecting the natural products industry specifically, sales of substantial amounts of common stock in the public market or the perception that such sales could occur and other factors. In addition, the stock market in recent years has experienced broad price and volume fluctuations that often have been unrelated to the operating performance of particular companies. These market fluctuations also may adversely affect the market price of our common stock.

Changes in the Number of Stock Option Exercises Could Impact Our Cash Flow

        Our cash flow from the exercise of team member stock options may be adversely affected in the future by fluctuations in the market price of our common stock, changes in income tax law, and changes in the number of stock options we grant.

Capital Needed for Expansion May Not Be Available

        The construction and opening or acquisition of new stores and the development of new production and distribution facilities, along with the remodeling and renovation of existing stores, require significant amounts of capital. In the past, our growth has been funded primarily through proceeds from public offerings, bank debt, private placements of debt, internally generated cash flow, and proceeds from stock option exercises. These and other sources of capital may not be available to us in the future. In addition, restrictive covenants that may be imposed by our lenders may restrict our ability to fund our growth.

27

We May Not Be Able to Adequately Protect Our Intellectual Property Rights

        We rely on a combination of trademark, trade secret and copyright law and internal procedures and nondisclosure agreements to protect our intellectual property. There can be no assurance that our intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. In addition, the laws of certain foreign countries in which our products may be produced or sold do not protect our intellectual property rights to the same extent as the laws of the United States. Failure to protect our proprietary information could have a material adverse effect on our business, results of operations and financial condition.

Self-Insurance Plan Claims Could Materially Impact Our Results

        The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers' compensation, general liability, property insurance, director and officers' liability insurance, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Our results could be materially impacted by claims and other expenses related to such plans if future occurrences and claims differ from these assumptions and historical trends.

Changes in Accounting Standards Could Materially Impact Our Results

        Generally accepted accounting principles and related accounting pronouncements, implementation guidelines, and interpretations for many aspects of our business, such as accounting for insurance and self-insurance, inventories, goodwill and intangible assets, store closures, leases, income taxes and share-based compensation, are highly complex and involve subjective judgments. Changes in these rules or their interpretation could significantly change or add significant volatility to our reported earnings without a comparable underlying change in cash flow from operations.

Effective Tax Rate Changes and Results of Examinations by Taxing Authorities Could Materially Impact Our Results

        Our future effective tax rates could be adversely affected by the earnings mix being lower than historical results in states or countries where we have lower statutory rates and higher than historical results in states or countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws or interpretations thereof. In addition, we are subject to periodic audits and examinations by the Internal Revenue Service ("IRS") and other state and local taxing authorities. Our results could be materially impacted by the determinations and expenses related to these and other proceedings by the IRS and other state and local taxing authorities.

The Company May Discontinue Paying Dividends in the Future

        Dividends are paid at the discretion of the Company's Board of Directors. The continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depend on many factors, including the results of operations and the financial condition of the Company. There is no guarantee that the Company will pay dividends in the future.

28

Failure of our Internal Control Over Financial Reporting Could Materially Impact our Business and Results

        The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. An internal control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, internal control over financial reporting may not prevent or detect misstatements. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud, and could expose us to litigation or adversely affect the market price of our common stock.

Item 1B. Unresolved Staff Comments.

        Not applicable.

Item 2. Properties.

        As of September 30, 2007, we operated 276 stores: 263 stores in 37 U.S. states and the District of Columbia; seven stores in Canada; and six stores in the United Kingdom. This includes 74 stores (net of divested locations) acquired from Wild Oats Markets, Inc. on August 28, 2007: 70 stores in 22 U.S. states and four stores in Canada. We own seven stores, two distribution facilities and land for one store, including the adjacent property, and one distribution center in development. We also own a store and a building on leased land, which is leased to third parties, and have eight stores in development on leased land. All other stores, distribution centers, bakehouses and administrative facilities are leased, with expiration dates ranging from one to 35 years. We have options to renew most of our leases in five-year increments with renewal periods ranging from five to 50 years. The following table shows the number of our stores by state, the District of Columbia, Canada and the United Kingdom as of September 30, 2007:

	Number of Stores		Number of Stores		Number of Stores
Location		Location		Location
Alabama	1	Louisiana	3	Oklahoma	1
Arkansas	1	Maine	2	Oregon	8
Arizona	6	Maryland	7	Pennsylvania	7
California	49	Massachusetts	20	Rhode Island	2
Colorado	19	Michigan	4	South Carolina	2
Canada	7	Minnesota	2	Tennessee	3
Connecticut	4	Missouri	3	Texas	13
District of Columbia	3	Nebraska	2	United Kingdom	6
Florida	14	Nevada	5	Utah	4
Georgia	7	New Jersey	9	Virginia	8
Illinois	15	New Mexico	6	Washington	5
Indiana	2	New York	7	Wisconsin	2
Kansas	3	North Carolina	5
Kentucky	3	Ohio	6

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Item 3. Legal Proceedings.

        From time to time we are a party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property and other proceedings arising in the ordinary course of business which have not resulted in any material losses to date. In addition, the FTC is currently pursing an administrative proceeding concerning our recent acquisition of Wild Oats Markets and the Company has been contacted by the staff of the SEC regarding an inquiry related to online financial message board postings related to Whole Foods Market and Wild Oats Markets. Although management does not expect that the outcome in any of these proceedings, individually or collectively, will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could adversely affect our operating results or cash flows in a particular period.

Item 4. Submission of Matters to a Vote of Security Holders.

        Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Whole Foods Market's common stock is traded on the NASDAQ Global Select Market under the symbol "WFMI."

        In December 2002, the Company was added to the NASDAQ-100 Index. On December 30, 2005, Standard & Poor's added our stock to the S&P 500 index.

        The following sets forth the intra-day quarterly high and low sale prices of the Company's common stock for fiscal years 2007 and 2006:

	High		Low
2007
September 25, 2006 to January 14, 2007	$	66.25	$	45.27
January 15, 2007 to April 8, 2007		52.43		42.13
April 9, 2007 to July 1, 2007		48.06		37.96
July 2, 2007 to September 30, 2007		49.49		36.00
2006
September 26, 2005 to January 15, 2006	$	79.90	$	61.30
January 16, 2006 to April 9, 2006		74.77		58.87
April 10, 2006 to July 2, 2006		74.00		59.42
July 3, 2006 to September 24, 2006		65.49		46.91

        As of November 25, 2007, there were 1,648 holders of record of Whole Foods Market's common stock, and the closing stock price was $40.75.

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        Following is a summary of dividends declared in fiscal years 2007 and 2006 (in thousands, except per share amounts):

	Dividend per Share		Date of Record	Date of Payment	Total Amount
Date of Declaration
Fiscal year 2007:
September 27, 2006	$	0.15	October 13, 2006	October 23, 2006	$	20,971
November 2, 2006		0.18	January 12, 2007	January 22, 2007		25,303
March 5, 2007		0.18	April 13, 2007	April 24, 2007		25,448
June 5, 2007		0.18	July 13, 2007	July 24, 2007		25,019
September 20, 2007		0.18	October 12, 2007	October 23, 2007		25,060	(1)
Fiscal year 2006:
November 9, 2005	$	0.15	January 13, 2006	January 23, 2006	$	20,918
November 9, 2005		2.00	January 13, 2006	January 23, 2006		277,904
March 6, 2006		0.15	April 14, 2006	April 24, 2006		21,004
June 13, 2006		0.15	July 14, 2006	July 24, 2006		21,186

(1)

Dividend accrued at September 30, 2007

        On November 20, 2007, the Company's Board of Directors approved an 11% increase in the Company's quarterly dividend to $0.20 per share payable January 22, 2008 to shareholders of record on January 11, 2008. The Company will pay future dividends at the discretion of the Board of Directors. The continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depend on many factors, including the results of operations and the financial condition of the Company. Subject to these qualifications, the Company currently expects to pay dividends on a quarterly basis.

        On November 8, 2005, the Company's Board of Directors approved a stock repurchase program of up to $200 million over four years. During the fourth quarter of fiscal year 2006, the Company repurchased on the open market approximately 2.0 million shares of Company common stock that were held in treasury at September 24, 2006 for a total of approximately $100 million. On November 6, 2006, the Company's Board of Directors approved a $100 million increase in the Company's stock repurchase program, bringing the total remaining authorization to $200 million. During the third quarter of fiscal year 2007, the Company repurchased approximately 2.5 million additional shares of Company common stock on the open market for a total of approximately $100 million. The average price per share paid for shares held in treasury at September 30, 2007 was $43.98, for a total of approximately $200 million. Subsequent to the end of fiscal year 2007, the Company retired all shares held in treasury at September 30, 2007. The Company's remaining authorization under the stock repurchase program at September 30, 2007, is approximately $100 million through November 8, 2009. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Company's available resources. The repurchase program may be suspended or discontinued at any time without prior notice.

31

        On November 9, 2005, the Company's Board of Directors approved a two-for-one stock split, distributed on December 27, 2005 to shareholders of record at the close of business on December 12, 2005. The stock split was affected in the form of a 100% stock dividend. Shareholders received one additional share of Whole Foods Market common stock for each share owned. All shares reserved for issuance pursuant to the Company's stock option and stock purchase plans were automatically increased by the same proportion. In addition, shares subject to outstanding options or other rights to acquire the Company's stock and the exercise price for such shares were adjusted proportionately. All share and per share amounts in the accompanying financial statements have been adjusted to reflect the effect of the stock split. This was the Company's third stock split since going public in January 1992. The Company previously affected two-for-one stock splits in the form of a 100% stock dividend on November 29, 1993 and on June 4, 2001.

        The following table summarizes information about our Company's equity compensation plans by type as of September 30, 2007 (in thousands, except per share amounts):

		Weighted Average Exercise Price		Options Available for Future Issuance
	Options Outstanding
Plan Category
Approved by security holders	17,211	$	49.80	5,546
Not approved by security holders	—		—	—
Total	17,211	$	49.80	5,546

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Item 6. Selected Financial Data.

Whole Foods Market, Inc.
Summary Financial Information
(In thousands, except per share amounts and operating data)

        The following selected financial data are derived from the Company's consolidated financial statements and should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data."

		Sept. 30, 2007			Sept. 24, 2006			Sept. 25, 2005			Sept. 26, 2004			Sept. 28, 2003
Consolidated Statements of Operations Data (1)
Sales		$	6,591,773		$	5,607,376		$	4,701,289		$	3,864,950		$	3,148,593
Cost of goods sold and occupancy costs			4,295,170			3,647,734			3,052,184			2,523,816			2,070,334
	Gross profit		2,296,603			1,959,642			1,649,105			1,341,134			1,078,259
Direct store expenses			1,711,229			1,421,968			1,223,473			986,040			794,422
General and administrative expenses			217,743			181,244			158,864			119,800			100,693
Pre-opening and relocation costs			70,180			37,421			37,035			18,648			15,765
	Operating income		297,451			319,009			229,733			216,646			167,379
Interest expense			(4,208	)		(32	)		(2,223	)		(7,249	)		(8,114	)
Investment and other income			11,324			20,736			9,623			6,456			5,593
	Income before income taxes		304,567			339,713			237,133			215,853			164,858
Provision for income taxes			121,827			135,885			100,782			86,341			65,943
	Net income	$	182,740		$	203,828		$	136,351		$	129,512		$	98,915
Basic earnings per share		$	1.30		$	1.46		$	1.05		$	1.06		$	0.84
Weighted average shares outstanding			140,088			139,328			130,090			122,648			118,070
Diluted earnings per share		$	1.29			1.41		$	0.99		$	0.99		$	0.79
Weighted average shares outstanding, diluted basis			141,836			145,082			139,950			135,454			130,660
Dividends declared per share		$	0.87		$	2.45		$	0.47		$	0.30		$	—
Consolidated Balance Sheets Data
Net working capital		$	(116,530	)	$	114,211		$	254,146		$	151,147		$	121,574
Total assets			3,213,128			2,042,996			1,889,296			1,521,006			1,213,568
Long-term debt (including current maturities)			760,868			8,655			18,864			170,743			168,715
Shareholders' equity			1,458,804			1,404,143			1,365,676			949,638			744,976
Operating Data
Number of stores at end of fiscal year			276			186			175			163			145
Average store size (gross square footage)			34,000			34,000			33,000			32,000			31,000
Average weekly sales per store		$	617,000		$	593,000		$	537,000		$	482,000		$	424,000
Comparable store sales increase (2)			7.1	%		11.0	%		12.8	%		14.9	%		8.6	%
Identical store sales increase (2)			5.8	%		10.3	%		11.5	%		14.5	%		8.1	%

(1)

Fiscal year 2007 was a 53-week year and fiscal years 2006, 2005, 2004, and 2003 were 52-week years.

(2)

Sales of a store are deemed to be "comparable" commencing in the fifty-third full week after the store was opened or acquired. Identical store sales exclude sales for remodels with expansions of square footage greater than 20% and relocations. Stores closed for eight or more days are excluded from the comparable and identical store base in the first fiscal week of closure until re-opened for a full fiscal week.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

        Whole Foods Market is the world's leading natural and organic foods supermarket and America's first national "Certified Organic" grocer. Our Company mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available. Since the purity of our food and the health of our bodies are directly related to the purity and health of our environment, our core mission is devoted to the promotion of organically grown foods, food safety concerns, and the sustainability of our entire ecosystem. Through our growth, we have had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance over the last 27 years.

        Whole Foods Market, Inc. is a Texas corporation incorporated in 1980. The Company is based in Austin, Texas and conducts business through various wholly owned subsidiaries. We operate in one reportable segment, natural and organic foods supermarkets.

        We opened our first store in Austin, Texas in 1980 and completed our initial public offering in January 1992. As of September 30, 2007, we operated 276 stores organized into 11 geographic operating regions, each with its own leadership team: 263 stores in 37 U.S. states and the District of Columbia; seven stores in Canada; and six stores in the United Kingdom. This includes 74 stores (net of divested locations) acquired from Wild Oats Markets, Inc. ("Wild Oats") on August 28, 2007: 70 stores in 22 U.S. states and four stores in Canada.

        Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. ("Wild Oats"), a leading natural and organic foods retailer in North America, in a cash tender offer of $18.50 per share, or approximately $565 million plus the assumption of approximately $148 million in existing debt. Wild Oats results of operations are included in our Consolidated Statements of Operations for the period beginning August 28, 2007 through September 30, 2007. At the date of acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada operating under four banners: Wild Oats Marketplace nationwide, Henry's Farmers Market ("Henry's") in Southern California, Sun Harvest in Texas, and Capers Community Market ("Capers") in British Columbia. In connection with the acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities related to all 35 Henry's and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer. The Company received proceeds totaling approximately $165 million for the net assets of those stores, consisting primarily of fixed assets, inventories and operating leases. This sale was completed effective September 30, 2007. Of the remaining 74 Wild Oats and Capers banner stores the Company acquired in the Wild Oats Markets transaction, the Company has closed nine stores, including one that will re-open after an extended renovation period, and relocated two stores to date, and currently intends to close an additional store, re-open the renovated location, and relocate an additional seven stores to existing Whole Foods Market sites in development.

        Our results of operations have been and may continue to be materially affected by the timing and number of new store openings. New stores generally become profitable during their first year of operation, although some new stores may incur operating losses for the first one to three years of operations. Our results of operations are reported on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal year 2007 was a 53-week year and fiscal years 2006 and 2005 were 52-week years.

34

Fiscal Year 2007 Executive Summary

        Effective August 28, 2007, the Company completed the acquisition of Wild Oats, a leading natural and organic foods retailer in North America with 109 stores in 23 states and British Columbia at the date of acquisition. In connection with the acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities related to all 35 Henry's and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly-owned subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer. All of our 11 operating regions gained stores, with our three smallest regions, the Florida, Rocky Mountain, and Pacific Northwest regions, gaining critical mass. The acquisition provided us with immediate entry into five new states: Arkansas, Indiana, Oklahoma, Tennessee and Utah, and 15 new markets: Bend, OR; Cincinnati, OH; Indianapolis, IN; Lexington, KY; Little Rock, AR; Melbourne, FL; Memphis, TN; Naples, FL; Nashville, TN; Reno, NV; Salt Lake City, UT; Tampa, FL; Tucson, AZ; Tulsa, OK; and Westport, CT.

        Fiscal year 2007 was a 53-week year and fiscal years 2006 and 2005 were 52-week years. Sales for fiscal year 2007 totaled approximately $6.6 billion, an increase of approximately 17.6% over the prior year, driven by 14% ending square footage growth (excluding acquired Wild Oats locations) and comparable store sales growth of 7.1%. Adjusted to reflect a fifty-two week period in fiscal year 2007, sales increased 15.3% over the prior fiscal year.

        Net income for fiscal year 2007 totaled approximately $182.7 million, and diluted earnings per share were $1.29.

        Our capital expenditures for fiscal year 2007 totaled approximately $529.7 million, of which approximately $389.3 million was for new store development. We opened 21 new stores during fiscal year 2007, and we ended the fiscal year with 276 stores.

        At the end of fiscal year 2007, the Company had total debt of approximately $760.9 million, including a $700 million term loan used to finance the Wild Oats acquisition, approximately $21.8 million in Wild Oats and $2.7 million in Whole Foods Market convertible debentures, approximately $19.4 million in capital lease obligations and approximately $17 million in borrowings on the Company's revolving line of credit. Subsequent to the end of fiscal year 2007, the Company paid off the Wild Oats convertible debentures and the credit line balance.

        Subsequent to the end of fiscal year 2007, the Company received approximately $165.1 million in proceeds from the sale of the Henry's and Sun Harvest stores.

        The Company paid quarterly cash dividends totaling approximately $96.7 million during fiscal year 2007. On September 20, 2007, the Company's Board of Directors approved a quarterly dividend of $0.18 per share that was paid on October 23, 2007 to shareholders of record on October 12, 2007. On November 20, 2007, the Company's Board of Directors approved an 11% increase in the Company's quarterly dividend to $0.20 per share payable January 22, 2008 to shareholders of record on January 11, 2008.

        During fiscal year 2007, the Company repurchased approximately 2.5 million shares of Company common stock on the open market for a total of approximately $100 million. The Company's remaining authorization under the stock repurchase program at September 30, 2007 is approximately $100 million through November 8, 2009.

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Results of Operations

        The following table sets forth the statements of operations data of Whole Foods Market expressed as a percentage of total sales for the fiscal years indicated:

		2007		2006		2005
Sales		100.0	%	100.0	%	100.0	%
Cost of goods sold and occupancy costs		65.2		65.1		64.9
	Gross profit	34.8		34.9		35.1
Direct store expenses		26.0		25.4		26.0
General and administrative expenses		3.3		3.2		3.4
Pre-opening and relocation costs		1.1		0.7		0.8
	Operating income	4.5		5.7		4.9
Interest expense		(0.1	)	—		—
Investment and other income		0.2		0.4		0.2
	Income before income taxes	4.6		6.1		5.0
Provision for income taxes		1.8		2.4		2.1
	Net income	2.8	%	3.6	%	2.9	%

Figures may not add due to rounding.

Sales

        Sales totaled approximately $6.59 billion, $5.61 billion and $4.70 billion in fiscal years 2007, 2006 and 2005, respectively, representing increases of 17.6%, 19.3% and 21.6% over the previous fiscal years, respectively. Adjusted to reflect a fifty-two week period in fiscal year 2007, sales increased 15.3% over the prior fiscal year. Sales for fiscal year 2007 reflect five weeks of sales from Wild Oats stores. Sales for all fiscal years shown reflect increases due to new stores opened and acquired and comparable store sales increases of approximately 7.1%, 11.0% and 12.8% in fiscal years 2007, 2006 and 2005, respectively. Sales of a store are deemed to be comparable commencing in the fifty-third full week after the store was opened or acquired. Identical store sales increased approximately 5.8%, 10.3% and 11.5% in fiscal years 2007, 2006 and 2005, respectively. Sales from relocations and remodels with expansions of square footage greater than 20% are excluded from identical store sales data to reduce the impact of square footage growth on the comparison. Stores closed for eight or more days are excluded from the comparable and identical store base in the first fiscal week of closure until re-opened for a full fiscal week. Ending square footage growth from stores opened and acquired was approximately 46%, 10% and 13% for fiscal years 2007, 2006 and 2005, respectively. In fiscal years 2007, 2006 and 2005, average transactions per week increased approximately 4.3%, 5.6% and 6.9% over the prior fiscal year, respectively, and average basket size increased approximately 2.6%, 5.0% and 5.5% over the prior fiscal year, respectively. The Company believes the integration of the acquired Wild Oats stores into our operations and new store openings will drive strong sales growth and comparable store sales growth in future periods. For fiscal year 2008, on a 52-week to 52-week basis, the Company expects sales growth of 25% to 30%, of which approximately 10% is expected to come from the Wild Oats stores, and comparable store sales growth of 7.5% to 9.5%

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Gross Profit

        Gross profit consists of sales less cost of goods sold and occupancy costs plus contribution from non-retail distribution and food preparation operations. Gross profit totaled approximately $2.30 billion, $1.96 billion and $1.65 billion in fiscal years 2007, 2006 and 2005, respectively. Gross profit as a percentage of sales was 34.8%, 34.9% and 35.1% in fiscal years 2007, 2006 and 2005, respectively. Our gross profit may increase or decrease slightly depending on the mix of sales from new stores or the impact of weather or a host of other factors, including inflation. Relative to other stores in a region, gross profit margins tend to be lower for new stores and increase as stores mature, reflecting lower shrink as volumes increase, as well as increasing experience levels and operational efficiencies of the store teams. We have many buying initiatives in place that are benefiting our customers. Our strategy is to be competitively priced on a market-by-market basis on commodity-type products and on identical product brands in grocery and Whole Body; however, our perishables may be priced at a premium to reflect the higher quality, broader selection, and better customer service available in our produce, meat, seafood, bakery, specialty and prepared foods departments.

Direct Store Expenses

        Direct store expenses totaled approximately $1.71 billion, $1.42 billion and $1.22 billion in fiscal years 2007, 2006 and 2005, respectively. Direct store expenses as a percentage of sales was approximately 26.0%, 25.4% and 26.0% in fiscal years 2007, 2006 and 2005, respectively. Direct store expenses in fiscal year 2005 include natural disaster costs totaling approximately $13.4 million. For all years, higher direct operating expenses of new stores continue to have a partially offsetting impact on store contribution. Direct store expense as a percentage of sales tends to be higher for new stores and decrease as stores mature, reflecting increasing operational productivity of the store teams. The Company does not expect to leverage direct store expenses in fiscal year 2008 due primarily to anticipated investments in labor and benefits at the acquired stores and continued, though more moderate, increases in health care costs as a percentage of sales.

General and Administrative Expenses

        General and administrative expenses totaled approximately $217.7 million, $181.2 million and $158.9 million in fiscal years 2007, 2006 and 2005, respectively. General and administrative expenses as a percentage of sales were 3.3%, 3.2% and 3.4% in fiscal years 2007, 2006 and 2005, respectively. General and administrative expenses in fiscal year 2007 include approximately $13 million, or $0.06 per diluted share, in costs incurred during the fourth quarter related to legal matters, Wild Oats integration efforts and the addition of Wild Oats' expenses. The Company currently expects general and administrative expenses as a percentage of sales in fiscal year 2008 to be in line with the 3.3% reported in fiscal year 2007, due primarily to the temporary costs associated with integrating the Wild Oats acquisition along with the cost of fully staffing the Company's three smallest regions which gained the greatest number of stores, as a percentage of our existing store base, in the merger.

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Pre-opening and Relocation Costs

        Pre-opening costs include rent expense incurred during construction of new stores and other costs related to new store openings, including costs associated with hiring and training personnel, supplies and other miscellaneous costs. Rent expense is generally incurred approximately nine months prior to a store's opening date. Other pre-opening costs are incurred primarily in the 30 days prior to a new store opening. Relocation costs consist of moving costs, remaining lease payments, accelerated depreciation costs and other costs associated with replaced facilities. Pre-opening and relocation costs totaled approximately $70.2 million, $37.4 million and $37.0 million in fiscal years 2007, 2006 and 2005, respectively. Pre-opening and relocation costs as a percentage of sales were 1.1%, 0.7% and 0.8% in fiscal years 2007, 2006 and 2005, respectively. Stores newly opened and relocated were as follows:

	2007	2006	2005
New stores	16	11	12
Relocated stores	5	2	3
Total stores opened	21	13	15

Interest Expense

        Interest expense, net of amounts capitalized, was approximately $4.2 million, $32,000 and $2.2 million in fiscal years 2007, 2006 and 2005, respectively. The increase in net interest expense in fiscal year 2007 over the prior fiscal year includes interest expense on the $700 million term loan we entered into on August 28, 2007 to finance the acquisition of Wild Oats Markets. The reduction in net interest expense in fiscal year 2006 from the prior fiscal year includes the decrease in interest expense on convertible debentures due to the voluntary conversion by holders of approximately $150.1 million of the carrying amount of the debentures to approximately 6.0 million shares of Company common stock during fiscal year 2005. The Company had approximately $17 million outstanding on its revolving line of credit at September 30, 2007 and no amounts outstanding at the end of fiscal years 2006 and 2005. Company made the final principal payment of approximately $5.7 million to retire its senior notes on May 16, 2006. The Company expects interest expense, net of investment and other income, to range from approximately $35 million to $40 million in fiscal year 2008.

Investment and Other Income

        Investment and other income includes investment gains and losses, interest income, rental income and other income totaling approximately $11.3 million, $20.7 million and $9.6 million in fiscal years 2007, 2006 and 2005, respectively. The decrease in investment and other income in fiscal year 2007 from the prior fiscal year primarily resulted from lower average investment balances. The increase in investment and other income in fiscal year 2006 over the prior fiscal year primarily resulted from higher yields on investments and higher average investment balances. Investment and other income for fiscal year 2006 includes approximately $2.1 million of insurance proceeds related to Hurricane Katrina losses.

Income Taxes

        Our effective tax rate on income was approximately 40.0% in fiscal years 2007 and 2006 and approximately 42.5% in fiscal year 2005. The increase in our effective tax rate for fiscal year 2005 resulted primarily from the non-deductible portion of the expense recognized for the accelerated vesting of stock options during the fourth quarter.

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Share-Based Payments

        The Company recognized share-based payments expense totaling approximately $19.9 million in fiscal year 2005. During the fourth quarter of fiscal year 2005, the Company accelerated the vesting of all outstanding stock options, except options held by the members of the executive team and certain options held by team members in the United Kingdom, in order to prevent past option grants from having an impact on future results. The Company recognized an estimated share-based payments expense totaling approximately $17.4 million in fiscal year 2005 related to this acceleration. The Company also recognized share-based payments expense in fiscal year 2005 totaling approximately $2.5 million for modification of terms of certain stock option grants and other compensation based on the intrinsic value of the Company's common stock. The Company's effective tax rate for the fourth quarter and fiscal year 2005 was higher than its historical rate primarily due to the non-deductible portion of the expense recognized for the accelerated vesting of stock options.

        In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 123R, "Share-Based Payment," which requires all companies to recognize an expense for share-based payments, including stock options, based on the fair value of the equity instrument. In April 2005, the Securities and Exchange Commission ("SEC") adopted a final rule amending Rule 4-01(a) of Regulation S-X amending the compliance date for SFAS No. 123R to be effective starting with the first interim or annual reporting period of the first fiscal year beginning on or after June 15, 2005. The provisions of SFAS No. 123R were effective for the Company's first quarter of fiscal year 2006.

        The Company recognized share-based payments expense before income taxes under the requirements of SFAS No. 123R totaling approximately $13.2 million and $9.4 million during fiscal years 2007 and 2006, respectively. Included in the fiscal year 2007 and 2006 total expense is approximately $0.3 million and $1.2 million, respectively, for modification of terms of certain stock option grants and approximately $4.4 million and $3.0 million, respectively, to increase the estimated charge related to the 2005 acceleration based on actual experience. Share-based payments expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

	2007			2006			2005
Cost of goods sold and occupancy costs	$	475		$	264		$	1,192
Direct store expenses		7,093			3,555			10,092
General and administrative expenses		5,607			5,613			8,612
Share-based payments expense before income taxes		13,175			9,432			19,896
Income tax benefit		(4,114	)		(2,724	)		(4,454	)
Net share-based payments expense	$	9,061		$	6,708		$	15,442

        The Company expects share-based payments expense before income taxes of approximately $2.0 million to $3.0 million per quarter in the first two quarters of fiscal year 2008 and approximately $4.0 million to $5.0 million per quarter in the third and fourth quarters of the fiscal year following the Company's annual grant date early in the third quarter, when the majority of options are granted.

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Natural Disaster Costs

        The Company has two stores in the New Orleans area which were damaged by and closed due to Hurricane Katrina during the fourth quarter of fiscal year 2005, and accordingly the Company recorded expenses in fiscal year 2005 totaling approximately $16.5 million for related estimated net losses. The main components of the $16.5 million expense were estimated impaired assets totaling approximately $12.2 million, estimated inventory losses totaling approximately $2.5 million, salaries and relocation allowances for displaced Team Members and other costs totaling approximately $3.4 million, and a $1.0 million special donation from the Company to the American Red Cross, net of accrued estimated insurance proceeds totaling approximately $2.6 million. In fiscal year 2005, approximately $13.4 million of net natural disaster costs is included in "Direct store expenses" in the Consolidated Statements of Operations, approximately $1.0 million is included in "General and administrative expenses," and approximately $2.1 million is included in "Cost of goods sold and occupancy costs." In fiscal year 2006, the Company recognized approximately $7.2 million in pre-tax credits for insurance proceeds and other adjustments related to previously estimated Hurricane Katrina losses, of which approximately $4.2 million is included in "Direct store expenses," approximately $0.9 million is included in "Cost of goods sold and occupancy costs," and approximately $2.1 million is included in "Investment and other income."

Liquidity and Capital Resources

        We generated cash flows from operating activities of approximately $398.6 million, $452.7 million and $410.8 million in fiscal years 2007, 2006 and 2005, respectively. Cash flows from operating activities resulted primarily from our net income less non-cash expenses, income tax benefits that resulted from the exercise of team member stock options and changes in operating working capital. Prior to the adoption of SFAS No. 123R at the beginning of fiscal year 2006, the Company presented the tax savings resulting from tax deductions resulting from the exercise of stock options as an operating cash flow, in accordance with Emerging Issues Task Force ("EITF") Issue No. 00-15, "Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option." SFAS No. 123R requires the Company to reflect the tax savings resulting from tax deductions in excess of expense reflected in its financial statements as a financing cash flow. The Company's excess tax benefit received upon exercise of nonqualified team member stock options totaled approximately $12.8 million and $52.0 million in fiscal years 2007 and 2006, respectively.

        Net cash used in investing activities was approximately $895.0 million, $569.3 million and $322.2 million for fiscal years 2007, 2006 and 2005, respectively. For fiscal year 2007, net cash used in investing activities includes approximately $596.2 million paid for the purchase of Wild Oats. Our principal historical capital requirements have been the funding of the development or acquisition of new stores and acquisition of property and equipment for existing stores. The required cash investment for new stores varies depending on the size of the new store, geographic location, degree of work performed by the landlord and complexity of site development issues. Capital expenditures for fiscal years 2007, 2006 and 2005 totaled approximately $529.7 million, $340.2 million and $324.1 million, respectively, of which approximately $389.3 million, $208.6 million and $207.8 million, respectively, was for new store development and approximately $140.3 million, $131.6 million and $116.3 million, respectively, was for remodels and other additions. The increase in capital expenditures on new stores in fiscal year 2007 was due to the Company's accelerated rate of new store opening in the year. The Company expects a comparable number of new store openings in fiscal year 2008 as in fiscal year 2007. For fiscal year 2008, the Company expects capital expenditures to be in the range of approximately $575 million to $625 million, of which approximately 65% to 70% is related to new stores expected to open in fiscal year 2008 and beyond and approximately 7% to 8% relates to remodels of acquired stores.

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        The following table provides information about the Company's store development activities:

	Stores Opened During Fiscal Year 2006			Stores Opened During Fiscal Year 2007			Properties Tendered as of November 20, 2007		Total Leases Signed as of November 20, 2007
Number of stores (including relocations)		13			21		20		87
Number of relocations		2			5		4		22
Number of lease acquisitions, ground leases and owned properties		1			4		9		13
New markets		4			3		1		14
Average store size (gross square feet)		50,200			56,500		45,800		51,200
As a percentage of existing store average size		147	%		167	%	133	%	148	%
Total square footage		653,000			1,185,800		915,900		4,485,200
As a percentage of existing square footage		10	%		13	%	10	%	48	%
Average pre-opening expense per store	$	2.0 million		$	2.6 million
Average pre-opening rent per store	$	0.7 million		$	0.9 million
Average tender period, in months		7.8			8.8

        Average pre-opening expense per store and average pre-opening rent per store during fiscal year 2007 in the table above exclude the Kensington store opened in London during fiscal year 2007. The Company expects total pre-opening and relocation costs for fiscal year 2008 to range from approximately $80 million to $90 million. Approximately $40 million to $45 million of this total relates to stores expected to open in fiscal year 2008. These ranges are based on estimated tender dates which are subject to change. The Company expects average pre-opening and relocation expense for stores opening in fiscal year 2008 to be consistent with the average for stores that opened in fiscal year 2007, excluding the Kensington store in London. On an average weekly basis, the Company expects quarterly pre-opening and relocation expense to ramp up throughout each quarter of the year.

        Net cash provided by financing activities was approximately $494.1 million and $25.2 million in fiscal years 2007 and 2005, respectively. Net cash used by financing activities was approximately $189.7 million in fiscal year 2006. Net proceeds to the Company from the exercise of stock options by team members are driven by a number of factors, including fluctuations in our stock price, and totaled approximately $54.4 million, $222.0 million and $85.8 million in fiscal years 2007, 2006 and 2005, respectively. The higher rate of stock option exercises in fiscal year 2006 resulted in part from the accelerated vesting of stock options on September 22, 2005.

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        On August 28, 2007, the Company entered into a $700 million, five-year term loan agreement to finance the acquisition of Wild Oats Markets. The loan, which is secured by a pledge of substantially all of the stock of our subsidiaries, bears interest at our option of the alternative base rate or the LIBOR plus an applicable margin, 1% as of September 30, 2007, based on the Company's Moody's and S&P rating. At September 30, 2007, the applicable interest rate based on one-month LIBOR was 6.13%. The term loan agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. At September 30, 2007, we were in compliance with the applicable debt covenants. Subsequent to the end of fiscal year 2007, the Company entered into a three-year interest rate swap agreement with a notional amount of $490 million to fix the interest rate at 5.718%, inclusive of the applicable margin and associated fees, to help manage our exposure to interest rate fluctuations.

        On August 28, 2007, we also replaced our previous revolving credit facility with a new $250 million revolving line of credit that extends to 2012. The credit agreement contains an accordion feature under which the Company can increase the revolving credit facility to $350 million. The credit agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. At September 30, 2007 and September 24, 2006, we were in compliance with the applicable debt covenants. All outstanding amounts borrowed under this agreement bear interest at our option of the alternative base rate or the LIBOR plus an applicable margin, 1% at September 30, 2007, based on the Company's Moody's and S&P rating. At September 30, 2007, the applicable interest rate based on the alternative base rate was 7.75%. Commitment fees of 0.2% at September 30, 2007 of the undrawn amount, reduced by outstanding letters of credit, are payable under this agreement. At September 30, 2007, we had $17 million drawn under this agreement, which was paid off subsequent to year-end. No amounts were drawn under the previous agreement at September 24, 2006. The amount available to the Company under the agreement was effectively reduced to $145.1 million by outstanding letters of credit totaling approximately $87.9 million and current borrowings at September 30, 2007.

        We have outstanding zero coupon convertible subordinated debentures which had a carrying amount of approximately $24.5 million and $8.3 million at September 30, 2007 and September 24, 2006, respectively. The Company assumed convertible debentures totaling approximately $115.0 million in the Wild Oats acquisition, of which approximately $94.2 million was paid off during fiscal year 2007 and approximately $21.8 million, which included a related conversion premium totaling approximately $0.9 million, was paid off subsequent to year-end. The remaining Whole Foods Market debentures have an effective yield to maturity of 5% and a scheduled maturity date of March 2, 2018. The debentures are convertible at the option of the holder, at any time on or prior to maturity, unless previously redeemed or otherwise purchased. The debentures may be redeemed at the option of the holder on March 2, 2008 or March 2, 2013 at the issue price plus accrued original discount to the date of redemption. Subject to certain limitations, at our option, we may elect to pay this purchase price in cash, shares of common stock or any combination thereof. The debentures may also be redeemed in cash at the option of the holder if there is a change in control at the issue price plus accrued original discount to the date of redemption. The Company may redeem the debentures for cash, in whole or in part, at redemption prices equal to the issue price plus accrued original discount to the date of redemption. The debentures are subordinated in the right of payment to all existing and future senior indebtedness. The debentures have a conversion rate of 21.28 shares of Company common stock per $1,000 principal amount at maturity, or approximately 97,000 shares and 311,000 shares at September 30, 2007 and September 24, 2006, respectively. Approximately $5.8 million and $5.0 million of the carrying amount of the debentures were voluntarily converted by holders to approximately 215,000 and 194,000 shares of Company common stock during fiscal years 2007 and 2006, respectively.

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        The Company is committed under certain capital leases for rental of certain equipment, buildings and land. These leases expire or become subject to renewal clauses at various dates through 2028. Capital leases totaling approximately $19.1 million were assumed with the acquisition of Wild Oats Markets.

        The Company expects interest expense, net of investment income, to range from approximately $35 million to $40 million in fiscal year 2008.

        The following table shows payments due by period on contractual obligations as of September 30, 2007 (in thousands):

			Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	Total
Long-term debt obligations	$	741,484	$	24,484	$	—	$	717,000	$	—
Capital lease obligations (including interest)		36,466		1,787		4,068		4,094		26,517
Operating lease obligations		6,029,447		212,711		573,317		620,475		4,622,944

        The table above includes approximately $21.8 million of convertible senior debentures assumed in the Wild Oats acquisition which were paid off subsequent to year-end. Although the timing of any potential redemption is uncertain, the above table reflects the assumption that the remaining Whole Foods Market convertible debentures, shown at accreted value as of September 30, 2007, will be redeemed at the option of the holder on March 2, 2008.

        We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in nature and incidental to the operation of the business. Management believes that such routine commitments and contractual obligations do not have a material impact on our business, financial condition or results of operations.

        Following is a summary of dividends declared in fiscal years 2007 and 2006 (in thousands, except per share amounts):

	Dividend per Share		Date of Record	Date of Payment	Total Amount
Date of Declaration
Fiscal year 2007:
September 27, 2006	$	0.15	October 13, 2006	October 23, 2006	$	20,971
November 2, 2006		0.18	January 12, 2007	January 22, 2007		25,303
March 5, 2007		0.18	April 13, 2007	April 24, 2007		25,448
June 5, 2007		0.18	July 13, 2007	July 24, 2007		25,019
September 20, 2007		0.18	October 12, 2007	October 23, 2007		25,060	(1)
Fiscal year 2006:
November 9, 2005	$	0.15	January 13, 2006	January 23, 2006	$	20,918
November 9, 2005		2.00	January 13, 2006	January 23, 2006		277,904
March 6, 2006		0.15	April 14, 2006	April 24, 2006		21,004
June 13, 2006		0.15	July 14, 2006	July 24, 2006		21,186

(1)

Dividend accrued at September 30, 2007

        On November 20, 2007, the Company's Board of Directors approved an 11% increase in the Company's quarterly dividend to $0.20 per share payable January 22, 2008 to shareholders of record on January 11, 2008. The Company will pay future dividends at the discretion of the Board of Directors. The continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depend on many factors, including the results of operations and the financial condition of the Company. Subject to these qualifications, the Company currently expects to pay dividends on a quarterly basis.

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        On November 8, 2005, the Company's Board of Directors approved a stock repurchase program of up to $200 million over four years. During the fourth quarter of fiscal year 2006, the Company repurchased on the open market approximately 2.0 million shares of Company common stock that were held in treasury at September 24, 2006 for a total of approximately $100 million. On November 6, 2006, the Company's Board of Directors approved a $100 million increase in the Company's stock repurchase program, bringing the total remaining authorization to $200 million. During the third quarter of fiscal year 2007, the Company repurchased approximately 2.5 million additional shares of Company common stock on the open market for a total of approximately $100 million. The average price per share paid for shares held in treasury at September 30, 2007 was $43.98, for a total of approximately $200 million. Subsequent to the end of fiscal year 2007, the Company retired all shares held in treasury at September 30, 2007. The Company's remaining authorization under the stock repurchase program at September 30, 2007 is approximately $100 million through November 8, 2009. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Company's available resources. The repurchase program may be suspended or discontinued at any time without prior notice.

        Our principal historical sources of liquidity have been cash generated by operations, available unrestricted cash and cash equivalents, short-term investments and amounts available under our revolving line of credit. There can be no assurance, however, that we will continue to generate cash flows at or above current levels or that our revolving line of credit or other sources of capital will be available to us in the future. We continually evaluate the need to establish other sources of working capital and will seek those considered appropriate based upon the Company's needs and market conditions. Absent any significant cash acquisition or significant change in market condition, we expect planned expansion and other anticipated working capital and capital expenditure requirements for the next twelve months will be funded by these sources.

Critical Accounting Policies

        The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. Actual amounts may differ from these estimates. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances.

        We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our significant accounting policies are summarized in Note 2 to the consolidated financial statements. We believe that the following accounting policies are the most critical in the preparation of our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.

Insurance and Self-Insurance Liabilities

        The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers' compensation, general liability, property insurance, director and officers' liability insurance, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. While we believe that our assumptions are appropriate, the estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

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Reserves for Closed Properties

        The Company maintains reserves for estimated losses on retail stores, distribution warehouses and other properties that are no longer being utilized in current operations. The Company provides for closed property operating lease liabilities using a discount rate to calculate the present value of the remaining noncancelable lease payments after the closing date, net of estimated subtenant income. The closed property lease liabilities usually are paid over the remaining lease terms, which generally range from one to 17 years. The Company estimates subtenant income and future cash flows based on the Company's experience and knowledge of the market in which the closed property is located, the Company's previous efforts to dispose of similar assets and existing economic conditions.

        Capital lease properties that are closed are reduced to their estimated fair value. Reduction in the carrying values of property, equipment and leasehold improvements are recognized when expected net future cash flows are less than the assets' carrying value. The Company estimates net future cash flows based on its experience and knowledge of the market in which the closed property is located and, when necessary, utilizes local real estate brokers.

        Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known.

Inventory Valuation

        We value our inventories at the lower of cost or market. Cost was determined using the last-in, first-out ("LIFO") method for approximately 81.7% and 93.9% of inventories in fiscal years 2007 and 2006, respectively. Under the LIFO method, the cost assigned to items sold is based on the cost of the most recent items purchased. As a result, the costs of the first items purchased remain in inventory and are used to value ending inventory. The excess of estimated current costs over LIFO carrying value, or LIFO reserve, was approximately $20.0 million and $13.2 million at September 30, 2007 and September 24, 2006, respectively. Costs for remaining inventories are determined by the first-in, first-out ("FIFO") method. Cost was determined using the retail method and the item cost method for inventories in fiscal years 2007 and 2006. Under the retail method, the valuation of inventories at cost and the resulting gross margins are determined by counting each item in inventory, then applying a cost-to-retail ratio for various groupings of similar items to the retail value of inventories. Inherent in the retail inventory method calculations are certain management judgments and estimates which could impact the ending inventory valuation at cost as well as the resulting gross margins. The item cost method involves counting each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor allowances) of each item and recording the actual cost of items sold. The item-cost method of accounting enables management to more precisely manage inventory and purchasing levels when compared to the retail method of accounting.

Goodwill and Intangible Assets

        Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. Goodwill is reviewed for impairment annually, or more frequently if impairment indicators arise, on a reporting unit level. We allocate goodwill to one reporting unit for goodwill impairment testing. We determine fair value utilizing both a market value method and discounted projected future cash flows compared to our carrying value for the purpose of identifying impairment. Our annual impairment review requires extensive use of accounting judgment and financial estimates. Application of alternative assumptions and definitions, such as reviewing goodwill for impairment at a different organizational level, could produce significantly different results.

45

Income Taxes

        We recognize deferred income tax assets and liabilities by applying statutory tax rates in effect at the balance sheet date to differences between the book basis and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Deferred tax assets and liabilities are adjusted to reflect changes in tax laws or rates in the period that includes the enactment date. Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the IRS and other state and local taxing authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates.

Share-Based Payments

        The Company maintains several share-based incentive plans. We historically granted options to purchase common stock under our 1992 Stock Option Plans, as amended. At our annual shareholder's meeting, on March 5, 2007, our shareholders approved a new plan, the Whole Foods Market 2007 Stock Incentive Plan. Options are granted pursuant to this new plan. Under both plans, options are granted at an option price equal to the market value of the stock at the grant date and are generally exercisable ratably over a four-year period beginning one year from grant date and have a five-year term. The grant date is established once the Company's Board of Directors approves the grant and all key terms have been determined. The exercise prices of our stock option grants are the closing price on the grant date. Stock option grant terms and conditions are communicated to team members within a relatively short period of time. Our Company generally approves one primary stock option grant annually, occurring during a trading window.

        Our Company offers a team member stock purchase plan to all full-time team members with a minimum of 400 hours of service. Participating team members may purchase our common stock through payroll deductions. At our annual meeting, shareholders approved a new Team Member Stock Purchase Plan ("TMSPP") which became effective on April 1, 2007. The TMSPP replaces all previous stock purchase plans and provides for a 5% discount on the shares purchase date market value which meets the "Safe Harbor" provisions of SFAS No. 123R, "Share-Based Payment" and therefore is non-compensatory. Under the previous plans, participating team members could elect to purchase unrestricted shares at 100% of market value or restricted shares at 85% of market value on the purchase date.

        Prior to the effective date of revised SFAS No. 123R, the Company applied Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and related interpretations for our stock option grants. APB No. 25 provides that the expense relative to our team member stock options is measured based on the intrinsic value of the stock option at date of grant.

46

        Effective the beginning of the first quarter of fiscal year 2006, the Company adopted the provisions of SFAS No. 123R using the modified prospective transition method. Under this method, prior periods were not restated. The Company uses the Black-Scholes multiple option pricing model which requires extensive use of accounting judgment and financial estimates, including estimates of the expected term team members will retain their vested stock options before exercising them, the estimated volatility of the Company's common stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements. The related share-based payments expense is recognized on a straight-line basis over the vesting period. Application of alternative assumptions could produce significantly different estimates of the fair value of share-based payments and consequently, the related amounts recognized in the Consolidated Statements of Operations. The provisions of SFAS No. 123R apply to new stock options and stock options outstanding, but not yet vested, on the effective date.

        SFAS No. 123R requires the Company to value unvested stock options granted prior to its adoption of SFAS No. 123 under the fair value method and expense these amounts in the income statement over the stock option's remaining vesting period. In the fourth quarter of fiscal year 2005, the Company accelerated the vesting of all outstanding stock options, except options held by the members of the executive team and certain options held by team members in the United Kingdom, in order to prevent past option grants from having an impact on future results. The Company intends to keep its broad-based stock option program in place, but also intends to limit the number of shares granted in any one year so that annual earnings per share dilution from share-based payments expense will not exceed 10%.

        Prior to the adoption of SFAS No. 123R, the Company presented the tax savings resulting from tax deductions resulting from the exercise of stock options as an operating cash flow, in accordance with Emerging Issues Task Force ("EITF") Issue No. 00-15, "Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option." SFAS No. 123R requires the Company to reflect the tax savings resulting from tax deductions in excess of expense reflected in its financial statements as a financing cash flow.

        In November 2005, the FASB issued Staff Position No. FAS 123R-3, "Transition Election Related to Accounting for the Tax Effects of the Share-Based Payment Awards" ("FSP FAS 123R-3"). The Company has elected to adopt the transition guidance for the additional paid-in-capital pool ("APIC pool") in paragraph 81 of SFAS No. 123R. The prescribed transition method is a detailed method to establish the beginning balance of the APIC pool related to the tax effects of share-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of the tax effects of share-based payment awards that are outstanding upon adoption of SFAS No. 123R.

47

Recent Accounting Pronouncements

        In July 2006, the FASB issued Financial Interpretation 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes," an interpretation of SFAS No. 109, "Accounting for Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109. The interpretation applies to all tax positions accounted for in accordance with Statement 109 and requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Subsequent recognition, derecognition, and measurement is based on management's best judgment given the facts, circumstances and information available at the reporting date. FIN 48 is effective for fiscal years beginning after December 15, 2006. Early adoption is permitted as of the beginning of an enterprise's fiscal year, provided the enterprise has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. FIN 48 becomes effective for the Company's first quarter of fiscal year 2008. Although the Company will continue to evaluate the application of FIN 48, the Company does not expect the cumulative impact of the adoption to have a material effect on our consolidated financial statements.

        In September 2006, the SEC issued Staff Accounting Bulletin No.108 ("SAB No. 108"), "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements." SAB No. 108 addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB No. 108 requires an entity to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. The requirements of SAB No. 108 are effective for fiscal years ending after November 15, 2006. SAB 108 was effective for the Company's fiscal year ending September 30, 2007 and had no impact on the Company's consolidated financial statements.

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements that are already required or permitted by other accounting standards, except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value and does not change existing guidance as to whether or not an instrument is carried at fair value. The provisions of SFAS No. 157 are effective for the specified fair value measures for financial statements issued for fiscal years beginning after November 15, 2007. SFAS No. 157 is effective for the Company's fiscal year ending September 27, 2009, with early adoption permitted. We are currently evaluating the impact, if any, that the adoption of SFAS No. 157 will have on our consolidated financial statements.

        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 applies to all entities that elect the fair value option. However, the amendment to SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" applies to all entities with available-for-sale and trading securities. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is effective for the Company's fiscal year ending September 27, 2009. We are currently evaluating the impact, if any, that the adoption of SFAS No. 159 will have on our consolidated financial statements.

48

        In May 2007, the FASB issued Staff Position ("FSP") No. FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48." The FSP amends FIN 48 to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP No. FIN 48-1 should be applied upon the initial adoption of FIN 48, which is effective for fiscal years beginning after December 15, 2006. FSP No. FIN 48-1 becomes effective for the Company's first quarter of fiscal year 2008. Although the Company will continue to evaluate the application of FSP No. FIN 48-1, the adoption will not have a material impact on the Company's consolidated financial statements.

Disclaimer on Forward-Looking Statements

        Except for the historical information contained herein, the matters discussed in this analysis are forward-looking statements that involve risks and uncertainties, including but not limited to general business conditions, the timely development and opening of new stores, the integration of acquired stores, the impact of competition and changes in government regulation. For a discussion of these and other risks and uncertainties that may affect our business, see "Item 1A. Risk Factors." The Company does not undertake any obligation to update forward-looking statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

        We are exposed to interest rate changes and changes in market values of our investments and long-term debt. We do not use financial instruments for trading or other speculative purposes. We are also exposed to foreign exchange fluctuations on our foreign subsidiaries.

Interest Rate Risk

        We seek to minimize the risks from interest rate fluctuations through ongoing evaluation of the composition of our investments and long-term debt. Our line of credit borrowings do not give rise to significant fair value risk because these borrowings have revolving maturities. At September 30, 2007, approximately $17 million was outstanding under our line of credit agreement. At September 24, 2006, the Company held interest-bearing instruments that were classified as cash and cash equivalents and short-term investments. These investments were of a short-term nature, and therefore changes in interest rates would not likely have had a material impact on the valuation of these instruments or interest income. We classified these investments as available-for-sale and, accordingly, recorded them at fair value on our balance sheet. At September 24, 2006, these investments totaled approximately $203.9 million and earned an average interest rate of approximately 3.8%. At September 24, 2006, an unrealized gain of approximately $0.1 million related to these investments was included as a component of shareholders' equity.

        During fiscal year 2007, the Company entered into a $700 million, five-year term loan agreement to finance the acquisition of Wild Oats Markets. The loan bears interest at our option of the alternative base rate or the LIBOR rate plus an applicable margin, 1% as of September 30, 2007, based on the Company's Moody's and S&P rating. Our term loans do not give rise to significant fair value risk because they are variable interest rate loans with revolving maturities which reflect market changes to interest rates. Subsequent to the end of fiscal year 2007, the Company entered into a three-year interest rate swap agreement with a notional amount of $490 million to fix the interest rate at 5.718%, inclusive of the applicable margin and associated fees, to help manage our exposure to interest rate fluctuations.

49

Interest Rate and Market Risk

        Our zero coupon subordinated convertible debentures have fixed interest rates, and the fair value of these instruments is affected by both changes in the market price of our stock and changes in market interest rates. During fiscal year 2007 and 2006 approximately $5.8 million and $5.0 million, respectively, of the carrying amount, of the debentures were converted, at the option of the holder, into Company common stock. The zero coupon subordinated convertible debentures have an effective yield to maturity of 5% and had an outstanding balance of approximately $2.7 million and $8.3 million at September 30, 2007 and September 24, 2006, respectively. At September 30, 2007 the interest rate and market risk associated with the convertible debentures is not material. At September 24, 2006 the estimated fair value of the convertible debentures exceeded the carrying amount by approximately $11.0 million. Should interest rates or the market value of our stock increase or decrease, the estimated fair value of the zero coupon subordinated debentures would decrease or increase accordingly.

Market Risk

        We regularly review the carrying value of our investments to identify and record losses when events and circumstances indicate that such declines in the fair value of such assets below our accounting basis are other-than-temporary.

Foreign Currency Risk

        The Company is exposed to foreign currency exchange risk. We own and operate seven natural and organic foods supermarkets in Canada and six natural and organic foods supermarkets in the United Kingdom. Sales made from the Canadian and United Kingdom stores are made in exchange for Canadian dollars and Great Britain pounds, respectively. We do not hedge against this risk because of the small amounts of funds at risk.

50

Item 8. Financial Statements and Supplementary Data.

Whole Foods Market, Inc.
Index to Consolidated Financial Statements

	Page Number
Report of Independent Registered Public Accounting Firm	52
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	53
Consolidated Balance Sheets at September 30, 2007 and September 24, 2006	54
Consolidated Statements of Operations for the fiscal years ended September 30, 2007, September 24, 2006 and September 25, 2005	55
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the fiscal years ended September 30, 2007, September 24, 2006 and September 25, 2005	56
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2007, September 24, 2006 and September 25, 2005	57
Notes to Consolidated Financial Statements	58

51

Whole Foods Market, Inc.
Report of Independent Registered Public Accounting Firm

To the Board of Directors
Whole Foods Market, Inc.

        We have audited the accompanying consolidated balance sheets of Whole Foods Market, Inc. (the "Company") as of September 24, 2006 and September 30, 2007, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the three fiscal years in the period ended September 30, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whole Foods Market, Inc. at September 24, 2006 and September 30, 2007, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended September 30, 2007, in conformity with U.S. generally accepted accounting principles.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Whole Foods Market, Inc.'s internal control over financial reporting as of September 30, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 27, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Austin, Texas
November 27, 2007

52

Whole Foods Market, Inc.
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

To the Board of Directors
Whole Foods Market, Inc.

        We have audited Whole Foods Market, Inc.'s internal control over financial reporting as of September 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Whole Foods Market, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Wild Oats Markets, Inc., which is included in the 2007 consolidated financial statements of Whole Foods Market, Inc. and constituted 9% and 2% of total and net assets, respectively, as of September 30, 2007 and 2% and 2% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of Whole Foods Market, Inc. also did not include an evaluation of the internal control over financial reporting of Wild Oats Markets, Inc.

        In our opinion, Whole Foods Market, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2007, based on the COSO criteria.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Whole Foods Market, Inc. as of September 24, 2006 and September 30, 2007, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the three fiscal years in the period ended September 30, 2007 of Whole Foods Market, Inc. and our report dated November 27, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Austin, Texas
November 27, 2007

53

Whole Foods Market, Inc.
Consolidated Balance Sheets
(In thousands)
September 30, 2007 and September 24, 2006

Assets		2007		2006
Current assets:
Cash and cash equivalents		$	—	$	2,252
Short-term investments—available-for-sale securities			—		193,847
Restricted cash			2,310		60,065
Accounts receivable			105,209		82,137
Proceeds receivable for divestiture			165,054		—
Merchandise inventories			288,112		203,727
Prepaid expenses and other current assets			40,402		33,804
Deferred income taxes			66,899		48,149
	Total current assets		667,986		623,981
Property and equipment, net of accumulated depreciation and amortization			1,666,559		1,236,133
Goodwill			668,850		113,494
Intangible assets, net of accumulated amortization			97,683		34,767
Deferred income taxes			104,877		29,412
Other assets			7,173		5,209
	Total assets	$	3,213,128	$	2,042,996

Liabilities and Shareholders' Equity		2007			2006
Current liabilities:
Current installments of long-term debt and capital lease obligations		$	24,781		$	49
Accounts payable			225,728			121,857
Accrued payroll, bonus and other benefits due team members			181,290			153,014
Dividends payable			25,060			—
Other current liabilities			327,657			234,850
	Total current liabilities		784,516			509,770
Long-term debt and capital lease obligations, less current installments			736,087			8,606
Deferred lease liabilities			152,552			120,421
Other long-term liabilities			81,169			56
	Total liabilities		1,754,324			638,853
Shareholders' equity:
Common stock, no par value, 300,000 shares authorized; 143,787 and 142,198 shares issued, 139,240 and 139,607 shares outstanding in 2007 and 2006, respectively			1,232,845			1,147,872
Common stock in treasury, at cost			(199,961	)		(99,964	)
Accumulated other comprehensive income			15,722			6,975
Retained earnings			410,198			349,260
Total shareholders' equity			1,458,804			1,404,143
Commitments and contingencies
	Total liabilities and shareholders' equity	$	3,213,128		$	2,042,996

The accompanying notes are an integral part of these consolidated financial statements.

54

Whole Foods Market, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Fiscal years ended September 30, 2007, September 24, 2006 and September 25, 2005

		2007			2006			2005
Sales		$	6,591,773		$	5,607,376		$	4,701,289
Cost of goods sold and occupancy costs			4,295,170			3,647,734			3,052,184
	Gross profit		2,296,603			1,959,642			1,649,105
Direct store expenses			1,711,229			1,421,968			1,223,473
General and administrative expenses			217,743			181,244			158,864
Pre-opening and relocation costs			70,180			37,421			37,035
	Operating income		297,451			319,009			229,733
Interest expense			(4,208	)		(32	)		(2,223	)
Investment and other income			11,324			20,736			9,623
	Income before income taxes		304,567			339,713			237,133
Provision for income taxes			121,827			135,885			100,782
	Net income	$	182,740		$	203,828		$	136,351
Basic earnings per share		$	1.30		$	1.46		$	1.05
Weighted average shares outstanding			140,088			139,328			130,090
Diluted earnings per share		$	1.29		$	1.41		$	0.99
Weighted average shares outstanding, diluted basis			141,836			145,082			139,950
Dividends declared per share		$	0.87		$	2.45		$	0.47

The accompanying notes are an integral part of these consolidated financial statements.

55

Whole Foods Market, Inc.
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(In thousands)
Fiscal years ended September 30, 2007, September 24, 2006 and September 25, 2005

	Shares Outstanding		Common Stock		Common Stock in Treasury			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Shareholders' Equity
Balances at September 26, 2004	124,814		$	535,107	$	—		$	2,053		$	412,478		$	949,638
Net income	—			—		—			—			136,351			136,351
Foreign currency translation adjustments	—			—		—			1,893			—			1,893
Reclassification adjustments for losses included in net income	—			—		—			1,063			—			1,063
Change in unrealized loss on investments, net of income taxes	—			—		—			(604	)		—			(604	)
Comprehensive income	—			—		—			2,352			136,351			138,703
Dividends ($0.47 per share)	—			—		—			—			(62,530	)		(62,530	)
Issuance of common stock pursuant to team member stock plans	5,042			110,293		—			—			—			110,293
Tax benefit related to exercise of team member stock options	—			62,643		—			—			—			62,643
Share-based payments expense	—			19,135		—			—			—			19,135
Conversion of subordinated debentures	6,052			147,794		—			—			—			147,794
Balances at September 25, 2005	135,908			874,972		—			4,405			486,299			1,365,676
Net income	—			—		—			—			203,828			203,828
Foreign currency translation adjustments	—			—		—			2,494			—			2,494
Change in unrealized gain on investments, net of income taxes	—			—		—			76			—			76
Comprehensive income	—			—		—			2,570			203,828			206,398
Dividends ($2.45 per share)	—			—		—			—			(340,867	)		(340,867	)
Issuance of common stock pursuant to team member stock plans	5,510			199,450		—			—			—			199,450
Purchase of treasury stock	(2,005	)		—		(99,964	)		—			—			(99,964	)
Excess tax benefit related to exercise of team member stock options	—			59,096		—			—			—			59,096
Share-based payments expense	—			9,432		—			—			—			9,432
Conversion of subordinated debentures	194			4,922		—			—			—			4,922
Balances at September 24, 2006	139,607			1,147,872		(99,964	)		6,975			349,260			1,404,143
Net income	—			—		—			—			182,740			182,740
Foreign currency translation adjustments	—			—		—			8,824			—			8,824
Change in unrealized loss on investments, net of income taxes	—			—		—			(77	)		—			(77	)
Comprehensive income	—			—		—			8,747			182,740			191,487
Dividends ($0.87 per share)	—			—		—			—			(121,802	)		(121,802	)
Issuance of common stock pursuant to team member stock plans	1,961			52,925		—			—			—			52,925
Purchase of treasury stock	(2,542	)		—		(99,997	)		—			—			(99,997	)
Excess tax benefit related to exercise of team member stock options	—			13,187		—			—			—			13,187
Share-based payments expense	—			13,175		—			—			—			13,175
Conversion of subordinated debentures	214			5,686		—			—			—			5,686
Balances at September 30, 2007	139,240		$	1,232,845	$	(199,961	)	$	15,722		$	410,198		$	1,458,804

The accompanying notes are an integral part of these consolidated financial statements.

56

Whole Foods Market, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Fiscal years ended September 30, 2007, September 24, 2006 and September 25, 2005

			2007			2006			2005
Cash flows from operating activities
Net income			$	182,740		$	203,828		$	136,351
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			186,390			156,223			133,759
	Loss on disposal of fixed assets			5,654			6,291			15,886
	Share-based payments expense			13,175			9,432			19,135
	Deferred income tax benefit			(27,203	)		(15,521	)		(27,873	)
	Tax benefit related to exercise of team member stock options			—			—			62,643
	Excess tax benefit related to exercise of team member stock options			(12,839	)		(52,008	)		—
	Interest accretion			1,255			460			4,120
	Deferred rent			27,681			26,607			16,080
	Other			9,837			693			1,317
	Net change in current assets and liabilities:
		Accounts receivable		(5,179	)		(17,720	)		(2,027	)
		Merchandise inventories		(51,055	)		(32,200	)		(21,486	)
		Prepaid expenses and other current assets		1,345			(7,849	)		(4,151	)
		Accounts payable		42,064			18,509			12,597
		Accrued payroll, bonus and other benefits due team member		1,845			26,033			26,445
		Other current liabilities		22,893			129,886			38,023
	Net cash provided by operating activities			398,603			452,664			410,819
Cash flows from investing activities
Development costs of new store locations				(389,349	)		(208,588	)		(207,792	)
Other property, plant and equipment expenditures				(140,333	)		(131,614	)		(116,318	)
Proceeds from hurricane insurance				—			3,308			—
Acquisition of intangible assets				(25,160	)		(16,332	)		(1,500	)
Change in notes receivable				—			—			13,500
Purchase of available-for-sale securities				(277,283	)		(555,095	)		—
Sale of available-for-sale securities				475,625			362,209			—
Decrease (increase) in restricted cash				57,755			(23,143	)		(10,132	)
Payment for purchase of acquired entities, net of cash acquired				(596,236	)		—			—
	Net cash used in investing activities			(894,981	)		(569,255	)		(322,242	)
Cash flows from financing activities
Dividends paid				(96,742	)		(358,075	)		(54,683	)
Issuance of common stock				54,383			222,030			85,816
Purchase of treasury stock				(99,997	)		(99,964	)		—
Excess tax benefit related to exercise of team member stock options				12,839			52,008			—
Proceeds from long-term borrowings				717,000			—			—
Payments on long-term debt and capital lease obligations				(93,357	)		(5,680	)		(5,933	)
	Net cash provided by (used in) financing activities			494,126			(189,681	)		25,200
Net change in cash and cash equivalents				(2,252	)		(306,272	)		113,777
Cash and cash equivalents at beginning of year				2,252			308,524			194,747
Cash and cash equivalents at end of year			$	—		$	2,252		$	308,524
Supplemental disclosures of cash flow information:
	Interest paid		$	4,561		$	607		$	1,063
	Federal and state income taxes paid		$	152,626		$	70,220		$	74,706
Non-cash transactions:
	Increase in proceeds receivable for divestiture		$	165,054		$	—		$	—
	Conversion of convertible debentures into common stock, net of fees		$	5,686		$	4,922		$	147,794

The accompanying notes are an integral part of these consolidated financial statements.

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Whole Foods Market, Inc.
Notes to Consolidated Financial Statements
Fiscal years ended September 30, 2007, September 24, 2006 and September 25, 2005

(1)   Description of Business

        Whole Foods Market, Inc. and its consolidated subsidiaries (collectively "Whole Foods Market," "Company," or "We") own and operate the largest chain of natural and organic foods supermarkets. Our Company mission is to promote vitality and well-being for all individuals by supplying the highest quality, most wholesome foods available. Through our growth, we have had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance over the last 27 years. We opened our first store in Texas in 1980 and, as of September 30, 2007 we have expanded our operations both by opening new stores and acquiring existing stores from third parties to 276 stores: 263 stores in 37 U.S. states and the District of Columbia; seven stores in Canada; and six stores in the United Kingdom.

        Effective August 28, 2007, the Company completed the acquisition of Wild Oats Markets, Inc. ("Wild Oats"), a leading natural and organic foods retailer in North America, in a cash tender offer of $18.50 per share, or approximately $565 million plus the assumption of approximately $148 million in existing debt. Wild Oats results of operations are included in our Consolidated Statements of Operations for the period beginning August 28, 2007 through September 30, 2007. At the date of acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada operating under four banners: Wild Oats Marketplace nationwide, Henry's Farmers Market ("Henry's") in Southern California, Sun Harvest in Texas, and Capers Community Market ("Capers") in British Columbia. In connection with the acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities related to all 35 Henry's and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer. Subsequent to year-end, the Company received proceeds totaling approximately $165 million for the net assets of those stores, consisting primarily of fixed assets, inventories and operating leases. This sale was completed effective September 30, 2007. Of the remaining 74 Wild Oats and Capers banner stores the Company acquired in the Wild Oats Markets transaction, the Company has closed nine stores, including one that will re-open after an extended renovation period, and relocated two stores to date, and currently intends to close an additional store, re-open the renovated location, and relocate an additional seven stores to existing Whole Foods Market sites in development.

(2)   Summary of Significant Accounting Policies

Definition of Fiscal Year

        We report our results of operations on a 52- or 53-week fiscal year ending on the last Sunday in September. Fiscal year 2007 was a 53-week year and fiscal years 2006 and 2005 were 52-week years.

Principles of Consolidation

        The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. All significant majority-owned subsidiaries are consolidated on a line-by-line basis, and all significant intercompany accounts and transactions are eliminated upon consolidation.

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Cash and Cash Equivalents

        We consider all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

Investments

        We classify as available-for-sale our cash equivalent investments and our short-term and long-term investments in debt and equity securities that have readily determinable fair values. Available-for-sale investments are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale investments are excluded from earnings and are reported as a separate component of shareholders' equity until realized. A decline in the fair value of any available-for-sale security below cost that is deemed to be other-than-temporary or for a period greater than two fiscal quarters results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis of the security is established. Cost basis is established and maintained utilizing the specific identification method.

Restricted Cash

        Restricted cash primarily relates to cash held as collateral to support a portion of our projected workers' compensation obligations.

Inventories

        We value our inventories at the lower of cost or market. Cost was determined using the last-in, first-out ("LIFO") method for approximately 81.7% and 93.9% of inventories in fiscal years 2007 and 2006, respectively. Under the LIFO method, the cost assigned to items sold is based on the cost of the most recent items purchased. As a result, the costs of the first items purchased remain in inventory and are used to value ending inventory. The excess of estimated current costs over LIFO carrying value, or LIFO reserve, was approximately $20.0 million and $13.2 million at September 30, 2007 and September 24, 2006, respectively. Costs for remaining inventories are determined by the first-in, first-out ("FIFO") method.

        Cost was determined using the retail method and the item cost method for inventories in fiscal years 2007 and 2006. Under the retail method, the valuation of inventories at cost and the resulting gross margins are determined by counting each item in inventory, then applying a cost-to-retail ratio for various groupings of similar items to the retail value of inventories. Inherent in the retail inventory method calculations are certain management judgments and estimates which could impact the ending inventory valuation at cost as well as the resulting gross margins. The item cost method involves counting each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor allowances) of each item and recording the actual cost of items sold. The item-cost method of accounting enables management to more precisely manage inventory and purchasing levels when compared to the retail method of accounting.

        Our largest supplier, United Natural Foods, Inc., accounted for approximately 24%, 22% and 22% of our total purchases in fiscal years 2007, 2006 and 2005, respectively.

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Property and Equipment

        Property and equipment is stated at cost, net of accumulated depreciation and amortization. We provide depreciation of equipment over the estimated useful lives (generally three to 15 years) using the straight-line method. We provide amortization of leasehold improvements and real estate assets under capital lease on the straight-line method over the shorter of the estimated useful lives of the improvements or the terms of the related leases. Terms of leases used in the determination of estimated useful lives may include renewal periods at the Company's option if exercise of the option is determined to be reasonably assured at the inception of the lease. We provide depreciation of buildings over the estimated useful lives (generally 20 to 30 years) using the straight-line method. Costs related to a projected site determined to be unsatisfactory and general site selection costs that cannot be identified with a specific store location are charged to operations currently. The Company recognizes a liability for the fair value of a conditional asset retirement obligation when the obligation is incurred. Repair and maintenance costs are expensed as incurred. Interest costs on significant projects constructed or developed for the Company's own use are capitalized as a separate component of the asset. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the balance sheet and any gain or loss is reflected in earnings.

Operating Leases

        The Company leases stores, distribution centers, bakehouses and administrative facilities under operating leases. Store lease agreements generally include rent holidays, rent escalation clauses and contingent rent provisions for percentage of sales in excess of specified levels. Most of our lease agreements include renewal periods at the Company's option. We recognize rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased space for construction and other purposes. We record tenant improvement allowances and rent holidays as deferred rent liabilities and amortize the deferred rent over the terms of the lease to rent. We record rent liabilities for contingent percentage of sales lease provisions when we determine that it is probable that the specified levels will be reached during the fiscal year.

Goodwill

        Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. Goodwill is reviewed for impairment annually, or more frequently if impairment indicators arise, on a reporting unit level. We allocate goodwill to one reporting unit for goodwill impairment testing. We determine fair value utilizing both a market value method and discounted projected future cash flows compared to our carrying value for the purpose of identifying impairment. Our annual impairment review requires extensive use of accounting judgment and financial estimates. Application of alternative assumptions and definitions, such as reviewing goodwill for impairment at a different organizational level, could produce significantly different results.

Intangible Assets

        Intangible assets include acquired leasehold rights, trade names, brand names, liquor licenses, license agreements, non-competition agreements and debt issuance costs. Indefinite-lived intangible assets are reviewed for impairment annually, or more frequently if impairment indicators arise. We amortize definite-lived intangible assets on a straight-line basis over the life of the related agreement, currently one to 48 years for contract-based intangible assets and one to five years for marketing-related and other identifiable intangible assets.

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Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

        We evaluate long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. When the Company commits to relocate a location, a charge to write down the related assets to their estimated net recoverable value is included in the "Pre-opening and relocation costs" line item in the Consolidated Statements of Operations.

Fair Value of Financial Instruments

        The carrying amounts of cash and cash equivalents, trade and other accounts receivable, trade accounts payable, accrued payroll, bonuses and team member benefits, and other accrued expenses approximate fair value because of the short maturity of those instruments. Store closure reserves and estimated worker's compensation claims are recorded at net present value to approximate fair value. Investments are stated at fair value with unrealized gains and losses included as a component of shareholders' equity until realized.

        The carrying amounts of our five-year term loan and outstanding amounts on our revolving line of credit approximate fair value because they have variable interest rates which reflect market changes to interest rates. The fair value of convertible subordinated debentures is estimated using quoted market prices. At September 30, 2007, the difference between the carrying value and the estimated fair value of our convertible debentures is not material. At September 24, 2006, the estimated fair value of the convertible debentures exceeded the carrying amount by approximately $11.0 million.

Insurance and Self-Insurance Reserves

        The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers' compensation, general liability, property insurance, director and officers' liability insurance, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. While we believe that our assumptions are appropriate, the estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

Reserves for Closed Properties

        The Company maintains reserves for estimated losses on retail stores and other properties that are no longer being utilized in current operations. The Company provides for closed property operating lease liabilities using a discount rate to calculate the present value of the remaining noncancelable lease payments after the closing date, net of estimated subtenant income. The closed property lease liabilities usually are paid over the remaining lease terms, which generally range from one to 17 years. The Company estimates subtenant income and future cash flows based on the Company's experience and knowledge of the market in which the closed property is located, the Company's previous efforts to dispose of similar assets and existing economic conditions.

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        The reserves for closed properties include management's estimates for lease subsidies, lease terminations and future payments on exited real estate. At September 30, 2007 and September 24, 2006 these reserves totaled approximately $97.0 million and $0.6 million, respectively. Additions during fiscal year 2007 include approximately $92.7 of closure reserves for Wild Oats Markets locations which were recorded in connection with the acquisition.

        Capital lease properties that are closed are reduced to their estimated fair value. Reduction in the carrying values of property, equipment and leasehold improvements are recognized when expected net future cash flows are less than the assets' carrying value. The Company estimates net future cash flows based on its experience and knowledge of the market in which the closed property is located and, when necessary, utilizes local real estate brokers.

        Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known.

Revenue Recognition

        We recognize revenue for sales of our products at the point of sale. Discounts provided to customers at the point of sale are recognized as a reduction in sales as the products are sold.

Cost of Goods Sold and Occupancy Costs

        Cost of goods sold includes cost of inventory sold during the period, net of discounts and allowances, contribution from non-retail distribution and food preparation operations, shipping and handling costs and occupancy costs. The Company receives various rebates from third party vendors in the form of quantity discounts and payments under cooperative advertising agreements. Quantity discounts and cooperative advertising discounts in excess of identifiable advertising costs are recognized as a reduction of cost of goods sold when the related merchandise is sold.

Advertising

        Advertising and marketing expense for fiscal years 2007, 2006 and 2005 was approximately $33.0 million, $24.0 million and $20.1 million, respectively. These amounts are shown net of vendor allowances received for cooperative advertising of approximately $1.2 million in fiscal years 2006 and 2005. Advertising costs are charged to expense as incurred and are included in the "Direct store expenses" line item in the Consolidated Statements of Operations.

Pre-opening and Relocation Costs

        Pre-opening costs include rent expense incurred during construction of new stores and costs related to new store openings including costs associated with hiring and training personnel, smallwares, supplies and other miscellaneous costs. Rent expense is generally incurred approximately nine months prior to a store's opening date. Other pre-opening costs are incurred primarily in the 30 days prior to a new store opening. Pre-opening costs are expensed as incurred. Relocation costs, which consist of moving costs, remaining lease payments, accelerated depreciation costs, asset impairment costs, other costs associated with replaced facilities and other related expenses, are expensed as incurred.

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Share-Based Payments

        The Company maintains several share-based incentive plans. We historically granted options to purchase common stock under our 1992 Stock Option Plans, as amended. At our annual shareholder's meeting, on March 5, 2007, our shareholders approved a new plan, the Whole Foods Market 2007 Stock Incentive Plan. Under both plans, options are granted at an option price equal to the market value of the stock at the grant date and are generally exercisable ratably over a four-year period beginning one year from grant date and have a five-year term. The grant date is established once the Company's Board of Directors approves the grant and all key terms have been determined. The exercise prices of our stock option grants are the closing price on the grant date. Stock option grant terms and conditions are communicated to team members within a relatively short period of time. Our Company generally approves one primary stock option grant annually, occurring during a trading window.

        Our Company offers a team member stock purchase plan to all full-time team members with a minimum of 400 hours of service. Participating team members may purchase our common stock through payroll deductions. At our 2006 annual meeting, shareholders approved a new Team Member Stock Purchase Plan ("TMSPP") which became effective on April 1, 2007. The TMSPP replaces all previous stock purchase plans and provides for a 5% discount on the shares purchase date market value which meets the "Safe Harbor" provisions of Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment" and therefore is non-compensatory. Under the previous plans, participating team members could elect to purchase unrestricted shares at 100% of market value or restricted shares at 85% of market value on the purchase date.

        Prior to the effective date of revised SFAS No. 123R, the Company applied Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and related interpretations for our stock option grants. APB No. 25 provides that the compensation expense relative to our team member stock options is measured based on the intrinsic value of the stock option at date of grant.

        Effective the beginning of the first quarter of fiscal year 2006, the Company adopted the provisions of SFAS No. 123R using the modified prospective transition method. Under this method, prior periods were not restated. The Company uses the Black-Scholes multiple option pricing model which requires extensive use of accounting judgment and financial estimates, including estimates of the expected term team members will retain their vested stock options before exercising them, the estimated volatility of the Company's common stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements. The related share-based payments expense is recognized on a straight-line basis over the vesting period. Application of alternative assumptions could produce significantly different estimates of the fair value of share-based payments and consequently, the related amounts recognized in the Consolidated Statements of Operations. The provisions of SFAS No. 123R apply to new stock options and stock options outstanding, but not yet vested, on the effective date.

        SFAS No. 123R requires the Company to value unvested stock options granted prior to its adoption of SFAS No. 123 under the fair value method and expense these amounts in the income statement over the stock option's remaining vesting period. In the fourth quarter of fiscal year 2005, the Company accelerated the vesting of all outstanding stock options, except options held by the members of the executive team and certain options held by team members in the United Kingdom, in order to prevent past option grants from having an impact on future results. The Company intends to keep its broad-based stock option program in place, but also intends to limit the number of shares granted in any one year so that annual earnings per share dilution from share-based payments expense will not exceed 10%.

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        Prior to the adoption of SFAS No. 123R, the Company presented the tax savings resulting from tax deductions resulting from the exercise of stock options as an operating cash flow, in accordance with Emerging Issues Task Force ("EITF") Issue No. 00-15, "Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option." SFAS No. 123R requires the Company to reflect the tax savings resulting from tax deductions in excess of expense reflected in its financial statements as a financing cash flow.

        In November 2005, the FASB issued Staff Position No. FAS 123R-3, "Transition Election Related to Accounting for the Tax Effects of the Share-Based Payment Awards" ("FSP FAS 123R-3"). The Company has elected to adopt the transition guidance for the additional paid-in-capital pool ("APIC pool") in paragraph 81 of SFAS No. 123R. The prescribed transition method is a detailed method to establish the beginning balance of the APIC pool related to the tax effects of share-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of the tax effects of share-based payment awards that are outstanding upon adoption of SFAS No. 123R.

Income Taxes

        We recognize deferred income tax assets and liabilities by applying statutory tax rates in effect at the balance sheet date to differences between the book basis and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Deferred tax assets and liabilities are adjusted to reflect changes in tax laws or rates in the period that includes the enactment date. Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. The Company believes that its tax positions are consistent with applicable tax, but certain positions may be challenged by taxing authorities. In evaluating liabilities associated with its various tax filing positions, the Company has accrued for probable liabilities in accordance with the requirements of SFAS No. 5, "Accounting for Contingencies." The Company records these tax contingencies to address the potential exposures that can result from the diverse interpretations of tax statutes, rules and regulations. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the IRS and other state and local taxing authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates.

Earnings per Share

        Basic earnings per share is based on the weighted average number of common shares outstanding during the fiscal period. Diluted earnings per share is based on the weighted average number of common shares outstanding plus, where applicable, the additional common shares that would have been outstanding as a result of the conversion of dilutive options and convertible debt.

Comprehensive Income

        Comprehensive income consists of net income, foreign currency translation adjustments, and unrealized gains and losses on marketable securities, net of income taxes. Comprehensive income is reflected in the Consolidated Statements of Shareholders' Equity and Comprehensive Income. At September 30, 2007, accumulated other comprehensive income consisted of foreign currency translation adjustment gains of approximately $15.7 million. At September 24, 2006, accumulated other comprehensive income consisted of foreign currency translation adjustment gains of approximately $6.9 million and unrealized gains on marketable securities of approximately $0.1 million.

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Foreign Currency Translation

        The Company's Canadian and United Kingdom operations use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income.

Segment Information

        We operate in one reportable segment, natural and organic foods supermarkets. We currently have seven stores in Canada and six stores in the United Kingdom. All of our remaining operations are domestic.

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual amounts could differ from those estimates.

Reclassifications

        Where appropriate, we have reclassified prior years' financial statements to conform to current year presentation.

Recent Accounting Pronouncements

        In July 2006, the FASB issued Financial Interpretation 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes," an interpretation of SFAS No. 109, "Accounting for Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109. The interpretation applies to all tax positions accounted for in accordance with Statement 109 and requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Subsequent recognition, derecognition, and measurement is based on management's best judgment given the facts, circumstances and information available at the reporting date. FIN 48 is effective for fiscal years beginning after December 15, 2006. Early adoption is permitted as of the beginning of an enterprise's fiscal year, provided the enterprise has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. FIN 48 becomes effective for the Company's first quarter of fiscal year 2008. Although the Company will continue to evaluate the application of FIN 48, the Company does not expect the cumulative impact of the adoption to have a material effect on our consolidated financial statements.

        In September 2006, the SEC issued Staff Accounting Bulletin No.108 ("SAB No. 108"), "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements." SAB No. 108 addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB No. 108 requires an entity to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. The requirements of SAB No. 108 are effective for fiscal years ending after November 15, 2006. SAB 108 was effective for the Company's fiscal year ending September 30, 2007 and had no impact on the Company's consolidated financial statements.

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        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements that are already required or permitted by other accounting standards, except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value and does not change existing guidance as to whether or not an instrument is carried at fair value. The provisions of SFAS No. 157 are effective for the specified fair value measures for financial statements issued for fiscal years beginning after November 15, 2007. SFAS No. 157 is effective for the Company's fiscal year ending September 27, 2009, with early adoption permitted. We are currently evaluating the impact, if any, that the adoption of SFAS No. 157 will have on our consolidated financial statements.

        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 applies to all entities that elect the fair value option. However, the amendment to SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" applies to all entities with available-for-sale and trading securities. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is effective for the Company's fiscal year ending September 27, 2009. We are currently evaluating the impact, if any, that the adoption of SFAS No. 159 will have on our consolidated financial statements.

        In May 2007, the FASB issued Staff Position ("FSP") No. FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48". The FSP amends FIN 48 to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP No. FIN 48-1 should be applied upon the initial adoption of FIN 48, which is effective for fiscal years beginning after December 15, 2006. FSP No. FIN 48-1 becomes effective for the Company's first quarter of fiscal year 2008. Although the Company will continue to evaluate the application of FSP No. FIN 48-1, the adoption will not have a material impact on the Company's consolidated financial statements.

(3)   Business Combination

        Effective August 28, 2007, the Company completed the acquisition of Wild Oats, a leading natural and organic foods retailer in North America, in a cash tender offer of $18.50 per share, or approximately $565 million plus the assumption of approximately $148 million in existing debt. At the date of acquisition, Wild Oats had 109 stores in 23 states and British Columbia, Canada operating under four banners: Wild Oats (nationwide), Henry's (in Southern California), Sun Harvest (in Texas) and Capers (in British Columbia). To fund the transaction, we entered into a five-year $700 million senior term loan agreement. We also signed a new five-year $250 million revolving credit agreement, which replaced our existing $200 million revolver. Wild Oats results of operations are included in our consolidated income statements for the period beginning August 28, 2007 through September 30, 2007. In connection with the acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities, consisting primarily of fixed assets, inventories and operating leases, related to all 35 Henry's and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer for approximately $165 million. This sale was completed effective September 30, 2007. Regarding the other 74 Wild Oats and Capers banner stores the Company acquired in the Wild Oats Markets transaction, the Company has closed nine stores, including one that will re-open after an extended renovation period, and relocated two stores to date, and currently intends to close an additional store, re-open the renovated location, and relocate an additional seven stores to existing Whole Foods Market sites in development.

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        Whole Foods Market and Wild Oats have similar missions and core values, and the Company believes the synergies gained from this business combination will create long term value for our customers, vendors and shareholders as well as exciting opportunities for our new and existing team members by making us better positioned to compete in this rapidly changing food retailing environment. All of our 11 operating regions gained stores in the acquisition, with three of our smallest regions, the Florida, Rocky Mountain, and Pacific Northwest regions, gaining critical mass. The acquisition provided us with immediate entry into five new states: Arkansas, Indiana, Oklahoma, Tennessee and Utah, and 15 new markets: Bend, OR; Cincinnati, OH; Indianapolis, IN; Lexington, KY; Little Rock, AR; Melbourne, FL; Memphis, TN; Naples, FL; Nashville, TN; Reno, NV; Salt Lake City, UT; Tampa, FL; Tucson, AZ; Tulsa, OK; and Westport, CT.

        The purchase price of the acquired operations was comprised of (in thousands):

Cash payment to Wild Oats shareholders	$	564,726
Direct costs of the acquisition		34,211
Total purchase price	$	598,937

Direct Costs of the Acquisition

        Direct costs of the acquisition include investment banking fees, legal and accounting fees and other external costs directly related to the acquisition.

Preliminary Purchase Price Allocation

        The acquisition was accounted for under the purchase method of accounting with Whole Foods Market treated as the acquiring entity in accordance with SFAS No. 141, "Business Combinations." Accordingly, the consideration paid by Whole Foods Market to complete the acquisition has been allocated preliminarily to the assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The allocation of purchase price is based upon certain external valuations and other analyses that have not been completed as of the date of this filing due to the timing of the closing of the acquisition late in the Company's fiscal year. Accordingly, the purchase price allocations are preliminary and are subject to future adjustments during the allocation period as defined in SFAS No. 141. In connection with the acquisition, the Company recognized liabilities totaling approximately $8.4 million for estimated costs associated with plans to involuntarily terminate certain team members of Wild Oats and liabilities totaling approximately $100.7 million for estimated costs associated with plans to exit certain activities of Wild Oats, including estimated costs of closure of business activities in certain locations, that were included in the allocation of the acquisition cost. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. Goodwill is non-amortizing for financial statement purposes and is not tax deductible.

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        The preliminary purchase price allocations as of the date of acquisition are as follows (in thousands):

Current assets		$	52,094
Property and equipment			77,107
Goodwill			558,056
Intangible assets			40,607
Deferred income taxes			67,793
Other assets			339
Assets held for sale			172,256
	Total assets acquired		968,252
Current liabilities			145,666
Long-term debt			134,126
Other liabilities			82,321
Liabilities held for sale			7,202
	Total liabilities assumed		369,315
	Net assets acquired	$	598,937

        Estimated fair values of intangible assets acquired are as follows (in thousands):

		Estimated Fair Value		Weighted Average Useful Lives (Years)
Non-amortizing:
	Liquor licenses	$	1,165
Amortizing:
	Trade and brand names		6,579	1
	Favorable operating leases		32,863	16
	Total amortizing		39,442	13
	Total	$	40,607

        Amortizing intangible assets are amortized on a straight-line basis over their remaining expected useful lives of approximately one to 33 years.

        The Company assumed debt totaling approximately $148 million in the acquisition consisting primarily of convertible subordinated debentures and capital lease obligations. The estimated fair value of the debt assumed by the Company was approximately $134 million.

        The estimated values of operating leases with unfavorable terms compared with current market conditions totaled approximately $1.5 million. These leases have an estimated weighted average life of approximately 14 years and are included in other liabilities.

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Henry's and Sun Harvest Divestiture

        In connection with the acquisition of Wild Oats, the Company separately entered into an agreement to sell certain assets and liabilities, consisting primarily of fixed assets, inventories and operating leases, related to all 35 Henry's and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly owned subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer for approximately $165 million. This sale was completed effective September 30, 2007. The proceeds receivable are included on the accompanying Consolidated Balance Sheets under the caption "Proceeds receivable for divestiture." The Company received proceeds totaling approximately $165 million on October 1, 2007. As part of purchase accounting for the Wild Oats acquisition, the Henry's and Sun Harvest net assets were adjusted to fair value and therefore no gain or loss was recognized related to this divestiture. The results of operations for the divested locations are not material and are therefore included in operating income on the accompanying Consolidated Statements of Operations.

        Summary Henry's and Sun Harvest results of operations for the period beginning August 28, 2007 and ending September 30, 2007 are as follows (in thousands):

Sales	$	40,357
Cost of goods sold and occupancy costs		29,354
Gross profit		11,003
Operating expenses		8,304
Income before income taxes	$	2,699

Transition Services Agreement

        In connection with the sale of the Henry's and Sun Harvest stores, Whole Foods Market entered into a transition services agreement with Smart & Final under which Whole Foods Market will continue to provide certain general and administrative services for the 35 stores for up to two years. The transition services agreement provides for payments to the Company calculated for each service area as a certain percentage of total monthly sales of the Henry's and Sun Harvest locations, initially totaling 1.75% of total monthly sales for all services provided under the agreement. The Company currently anticipates that the revenue associated with the agreement will be approximately equal to its incremental cost of providing the support.

Unaudited Pro Forma Financial Information

        The following pro forma financial information presents the combined historical results of the operations of Whole Foods Market and Wild Oats as if the Wild Oats acquisition and the sale of the Henry's and Sun Harvest stores had occurred at the beginning of fiscal years 2007 and 2006, respectively. Certain adjustments have been made to reflect changes in depreciation, amortization and income taxes based on the Company's preliminary estimates of fair values recognized in the application of purchase accounting, and interest expense on borrowings to finance the acquisition. These adjustments are subject to change as the initial estimates are refined over time.

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        Due to differences in accounting calendars, the pro forma results of operations for the fiscal year ended September 30, 2007 combines the fifty-three weeks ended September 30, 2007 for Whole Foods Market with the fifty-two weeks ended September 30, 2007 for Wild Oats. The Wild Oats pro forma results of operations include approximately 47 weeks of Wild Oats results and approximately five weeks of actual results beginning August 25, 2007 which are included in Company's Consolidated Statements of Operations. The pro forma results of operations for the fiscal year ended September 24, 2006 combines the fifty-two weeks of Whole Foods Market's fiscal year ended September 24, 2006 with the fifty-two weeks of Wild Oats' fiscal year ended December 30, 2006. Pro forma results of operations are as follows (in thousands):

		2007		2006
Sales		$	7,295,384	$	6,417,076
Net income			142,788		168,198
Earnings per share:
	Basic	$	1.02	$	1.21
	Diluted		1.01		1.16
Weighted average shares outstanding:
	Basic		140,088		139,328
	Diluted		141,836		145,082

        This pro forma financial information is not intended to represent or be indicative of what would have occurred if the transactions had taken place on the dates presented and are not indicative of what Whole Foods Market's actual results of operations would have been had the acquisition and sale been completed on the dates indicated above. Further, the pro forma combined results do not reflect one-time costs to fully merge and operate the combined organization more efficiently, or anticipated synergies expected to result from the combination and should not be relied upon as being indicative of the future results that Whole Foods Market will experience.

(4)   Natural Disaster Costs

        The Company has two stores in the New Orleans area which were damaged by and closed due to Hurricane Katrina during the fourth quarter of fiscal year 2005, and accordingly the Company recorded expenses totaling approximately $16.5 million for related estimated net losses. The main components of the $16.5 million expense were estimated impaired assets totaling approximately $12.2 million, estimated inventory losses totaling approximately $2.5 million, salaries and relocation allowances for displaced Team Members and other costs totaling approximately $3.4 million, and a $1.0 million special donation from the Company to the American Red Cross, net of accrued estimated insurance proceeds totaling approximately $2.6 million. In fiscal year 2005, approximately $13.4 million of net natural disaster costs is included in "Direct store expenses" in the Consolidated Statements of Operations, approximately $1.0 million is included in "General and administrative expenses," and approximately $2.1 million is included in "Cost of goods sold and occupancy costs." In fiscal year 2006, the Company recognized approximately $7.2 million in pre-tax credits for insurance proceeds and other adjustments related to previously estimated Hurricane Katrina losses, of which approximately $4.2 million is included in "Direct store expenses," approximately $0.9 million is included in "Cost of goods sold and occupancy costs," and approximately $2.1 million is included in "Investment and other income."

(5)   Investments

        At September 24, 2006, we had cash equivalent investments totaling approximately $10.1 million and short-term available-for-sale securities, generally consisting of state and local government obligations totaling approximately $193.8 million. Gross unrealized gains on the securities totaled approximately $77,000 as of September 24, 2006.

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        No cash equivalent investments or short-term available-for-sale securities were held as of September 30, 2007.

(6)   Property and Equipment

        Balances of major classes of property and equipment are as follows (in thousands):

	2007			2006
Land	$	51,746		$	39,993
Buildings and leasehold improvements		1,209,256			955,130
Capitalized real estate leases		24,874			—
Fixtures and equipment		1,022,719			779,050
Construction in progress and equipment not yet in service		174,755			168,105
		2,483,350			1,942,278
Less accumulated depreciation and amortization		(816,791	)		(706,145	)
	$	1,666,559		$	1,236,133

        Depreciation and amortization expense related to property and equipment totaled approximately $181.9 million, $152.4 million and $129.8 million for fiscal years 2007, 2006 and 2005, respectively. Property and equipment included accumulated accelerated depreciation and other asset impairments totaling approximately $10.5 million and $13.1 million at September 30, 2007 and September 24, 2006, respectively. Property and equipment includes approximately $0.9 million, $0.9 million and $3.0 million of interest capitalized during fiscal years 2007, 2006 and 2005, respectively. Development costs of new store locations totaled approximately $389.3 million, $208.6 million and $207.8 million in fiscal years 2007, 2006 and 2005, respectively. The Company's acquisition of Wild Oats Markets during fiscal year 2007 included approximately $77.1 million of property, plant and equipment. As of November 20, 2007, we had signed leases for 87 stores under development.

(7)   Goodwill and Other Intangible Assets

        Goodwill and indefinite-lived intangible assets are reviewed for impairment annually, or more frequently if impairment indicators arise. We allocate goodwill to one reporting unit for goodwill impairment testing. During fiscal year 2007, we acquired goodwill totaling approximately $555.4 million in connection with the acquisition of Wild Oats. During fiscal year 2006, we acquired goodwill totaling approximately $1.1 million, primarily related to the acquisition of one small store in Portland, Maine. We acquired indefinite-lived intangible assets totaling approximately $1.2 million and $50,000 during fiscal years 2007 and 2006, respectively, consisting primarily of liquor licenses. There was no impairment of goodwill or indefinite-lived intangible assets during fiscal years 2007, 2006, or 2005.

        Definite-lived intangible assets are amortized over the useful life of the related agreement. We acquired definite-lived intangible assets totaling approximately $64.8 million and $15.7 million during fiscal years 2007 and 2006, respectively, consisting primarily of acquired leasehold rights. Of the definite-lived intangible assets acquired in fiscal year 2007, approximately $42.8 million were associated with the acquisition of Wild Oats. This transaction is discussed further in Note 3 to the consolidated financial statements, "Business Combinations." Amortization associated with intangible assets totaled approximately $2.7 million, $2.5 million, and $2.8 million during fiscal years 2007, 2006 and 2005, respectively.

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        The components of intangible assets were as follows (in thousands):

	2007					2006
	Gross carrying amount		Accumulated amortization			Gross carrying amount		Accumulated amortization
Indefinite-lived contract-based	$	1,943	$	—		$	774	$	—
Definite-lived contract-based		110,239		(14,650	)		45,579		(11,833	)
Definite-lived marketing-related and other		1,941		(1,790	)		2,242		(1,995	)
	$	114,123	$	(16,440	)	$	48,595	$	(13,828	)

        Amortization associated with the net carrying amount of intangible assets is estimated to be approximately $13.8 million in fiscal year 2008, $7.1 million in fiscal year 2009, $6.9 million in fiscal year 2010, $6.9 million in fiscal year 2011 and $6.8 million in fiscal year 2012.

(8)   Long-Term Debt

        We have long-term debt and obligations under capital leases as follows (in thousands):

	2007		2006
Obligations under capital lease agreements, due in monthly installments through 2029	$	19,384	$	335
Convertible debentures, including accreted interest		24,484		8,320
Revolving line of credit		17,000		—
Senior unsecured notes		700,000		—
Total long-term debt		760,868		8,655
Less current installments		24,781		49
Long-term debt, less current installments	$	736,087	$	8,606

        On August 28, 2007, the Company entered into a $700 million, five-year term loan agreement to finance the acquisition of Wild Oats Markets. The loan, which is secured by a pledge of substantially all of the stock of our subsidiaries, bears interest at our option of the alternative base rate or the LIBOR plus an applicable margin, 1% as of September 30, 2007, based on the Company's Moody's and S&P rating. At September 30, 2007, the applicable interest rate based on one-month LIBOR was 6.13%. The term loan agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. At September 30, 2007, we were in compliance with the applicable debt covenants. Associated with the term loan, the Company also recorded approximately $3.4 million related to debt origination fees, which are being amortized on a straight-line basis over the life of the loan. Subsequent to the end of fiscal year 2007, the Company entered into a three-year interest rate swap agreement with a notional amount of $490 million to fix the interest rate at 5.718%, inclusive of the applicable margin and associated fees, to help manage our exposure to interest rate fluctuations.

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        On August 28, 2007, we also replaced our previous revolving credit facility with a new $250 million revolving line of credit that extends to 2012. The credit agreement contains an accordion feature under which the Company can increase the revolving credit facility to $350 million. The credit agreement contains certain affirmative covenants including maintenance of certain financial ratios and certain negative covenants including limitations on additional indebtedness and payments as defined in the agreement. At September 30, 2007 and September 24, 2006, we were in compliance with the applicable debt covenants. All outstanding amounts borrowed under this agreement bear interest at our option of the alternative base rate or the LIBOR plus an applicable margin, 1% at September 30, 2007, based on the Company's Moody's and S&P rating. At September 30, 2007, the applicable interest rate based on the alternative base rate was 7.75%. Commitment fees of 0.2% at September 30, 2007 of the undrawn amount, reduced by outstanding letters of credit, are payable under this agreement. At September 30, 2007, we had $17 million drawn under this agreement, which was paid off subsequent to year-end. No amounts were drawn under the previous agreement at September 24, 2006. The amount available to the Company under the agreement was effectively reduced to $145.1 million by outstanding letters of credit totaling approximately $87.9 million and current borrowings at September 30, 2007.

        We have outstanding zero coupon convertible subordinated debentures which had a carrying amount of approximately $24.5 million and $8.3 million at September 30, 2007 and September 24, 2006, respectively. The Company assumed convertible debentures totaling approximately $115.0 million in the Wild Oats acquisition, of which approximately $94.2 million was paid off during fiscal year 2007 and approximately $21.8 million, which included a related conversion premium totaling approximately $0.9 million, was paid off subsequent to year-end. The remaining Whole Foods Market debentures have an effective yield to maturity of 5% and a scheduled maturity date of March 2, 2018. The debentures are convertible at the option of the holder, at any time on or prior to maturity, unless previously redeemed or otherwise purchased. The debentures may be redeemed at the option of the holder on March 2, 2008 or March 2, 2013 at the issue price plus accrued original discount to the date of redemption. Subject to certain limitations, at our option, we may elect to pay this purchase price in cash, shares of common stock or any combination thereof. The debentures may also be redeemed in cash at the option of the holder if there is a change in control at the issue price plus accrued original discount to the date of redemption. The Company may redeem the debentures for cash, in whole or in part, at redemption prices equal to the issue price plus accrued original discount to the date of redemption. The debentures are subordinated in the right of payment to all existing and future senior indebtedness. The debentures have a conversion rate of 21.280 shares of Company common stock per $1,000 principal amount at maturity, or approximately 97,000 shares and 311,000 shares at September 30, 2007 and September 24, 2006, respectively. Approximately $5.8 million and $5.0 million of the carrying amount of the debentures were voluntarily converted by holders to shares of Company common stock during fiscal years 2007 and 2006, respectively.

        The Company is committed under certain capital leases for rental of certain equipment, buildings and land. These leases expire or become subject to renewal clauses at various dates through 2028. Capital leases totaling approximately $19.1 million were assumed with the acquisition of Wild Oats Markets. Lease agreements are discussed further in Note 9 to the consolidated financial statements, "Leases."

(9)   Leases

        The Company is committed under certain capital leases for rental of equipment, buildings, and land and certain operating leases for rental of facilities and equipment. These leases expire or become subject to renewal clauses at various dates from 2007 to 2043. Amortization of equipment under capital lease is included with depreciation expense.

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        Rental expense charged to operations under operating leases for fiscal years 2007, 2006 and 2005 totaled approximately $201.0 million, $153.1 million and $124.8 million, respectively. Minimum rental commitments required by all noncancelable leases are approximately as follows (in thousands):

	Capital		Operating
2008	$	1,787	$	212,711
2009		2,029		269,386
2010		2,039		303,931
2011		2,049		311,785
2012		2,045		308,690
Future fiscal years		26,517		4,622,944
		36,466	$	6,029,447
Less amounts representing interest		17,082
Net present value of capital lease obligations		19,384
Less current installments		297
Long-term capital lease obligations, less current installments	$	19,087

        The present values of future minimum obligations for capital leases shown above are calculated based on interest rates determined at the inception of the lease, or upon acquisition of the original lease.

        During fiscal years 2007, 2006 and 2005, we paid contingent rentals totaling approximately $9.9 million, $9.6 million and $7.6 million, respectively. At September 30, 2007, we recorded an asset retirement obligation associated with operating leases totaling approximately $825,000. No asset retirement obligations associated with operating leases were incurred during fiscal years 2006 and 2005. Sublease rental income totaled approximately $3.9 million, $1.6 million and $1.3 million during fiscal years 2007, 2006 and 2005, respectively. John Mackey and Glenda Chamberlain, executive officers of the Company, own approximately 51% and 2%, respectively, of BookPeople, Inc., a retailer of books and periodicals that is unaffiliated with the Company, which leases retail space in Austin, Texas from the Company. The lease provides for an aggregate annual minimum rent of approximately $0.4 million which the Company received in rental income in fiscal years 2007, 2006 and 2005.

(10) Income Taxes

        Components of income tax expense attributable to continuing operations are as follows (in thousands):

	2007			2006			2005
Current federal income tax	$	114,503		$	120,774		$	106,087
Current state income tax		34,138			30,632			22,568
Current foreign income tax		389			—			—
Total current tax		149,030			151,406			128,655
Deferred federal income tax		(17,014	)		(13,350	)		(22,462	)
Deferred state income tax		(5,091	)		(2,171	)		(5,411	)
Deferred foreign income tax		(5,098	)		—			—
Total deferred tax		(27,203	)		(15,521	)		(27,873	)
Total income tax expense	$	121,827		$	135,885		$	100,782

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        Actual income tax expense differed from the amount computed by applying statutory corporate income tax rates to income from continuing operations before income taxes as follows (in thousands):

		2007			2006			2005
Federal tax based on statutory rates		$	106,599		$	118,900		$	82,997
Increase (reduction) in income taxes resulting from:
	Change in valuation allowance		(626	)		(31	)		1,639
	Tax exempt interest		(1,010	)		(1,352	)		—
	Share-based compensation		669			(462	)		3,310
	Deductible state income taxes		(10,167	)		(9,962	)		(6,005	)
	Other, net		2,024			331			1,684
Total federal taxes			97,489			107,424			83,625
State income taxes			29,047			28,461			17,157
Foreign income taxes			(4,709	)		—			—
Total income tax expense		$	121,827		$	135,885		$	100,782

        Current income taxes payable as of September 30, 2007 and September 24, 2006 totaled approximately $26.5 million and $27.2 million, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities for continuing operations are as follows (in thousands):

		2007			2006
Deferred tax assets:
	Compensation-related costs	$	58,457		$	43,303
	Insurance-related costs		27,665			16,889
	Inventories		1,978			—
	Lease and other termination accruals		39,861			18
	Rent differential		42,935			41,717
	Tax basis of fixed assets in excess of financial basis		4,587			—
	Net domestic and international operating loss carryforwards		8,305			10,461
	Capital loss carryforwards		2,810			2,810
	International charitable contribution carryforwards		44			—
	Gross deferred tax assets		186,642			115,198
	Valuation allowance		(9,474	)		(13,271	)
			177,168			101,927
Deferred tax liabilities:
	Financial basis of fixed assets in excess of tax basis		—			(21,858	)
	Inventories		—			(313	)
	Capitalized costs expensed for tax purposes		(1,384	)		(1,290	)
	Other		(4,008	)		(905	)
			(5,392	)		(24,366	)
Net deferred tax asset		$	171,776		$	77,561

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        Deferred taxes for continuing operations have been classified on the consolidated balance sheets as follows (in thousands):

	2007		2006
Current assets	$	66,899	$	48,149
Noncurrent assets		104,877		29,412
Net deferred tax asset	$	171,776	$	77,561

        Approximately $68.0 million of the increase in the net deferred tax asset during fiscal year 2007 related to the recognition of deferred differences related to the acquisition of Wild Oats Markets as a purchase price adjustment.

        As of September 30, 2007, we had international operating loss carryforwards totaling approximately $24.7 million, of which approximately $6.1 million will begin to expire in fiscal year 2014 and approximately $18.6 million has an indefinite life. During fiscal year 2007, approximately $4.3 million of the valuation allowance related to international operating loss carryforwards was released due to improved earnings and the likelihood of using such assets in future periods. In addition, approximately $626,000 of the valuation allowance related to the utilization of certain operating loss carryforwards was released. The valuation allowance also increased by approximately $1.1 million related to the establishment of a valuation allowance on certain acquired state operating loss carryforwards. We have provided a valuation allowance of approximately $9.5 million for deferred tax assets associated with international operating loss carryforwards, state operating loss carryforwards, and capital loss carryforwards for which management has determined it is more likely than not that the deferred tax asset will not be realized. Management believes that it is more likely than not that we will fully realize the remaining domestic deferred tax assets in the form of future tax deductions based on the nature of these deductible temporary differences and a history of profitable operations.

        At September 30, 2007, a provision was not made for any United States or additional foreign taxes on undistributed earnings related to certain foreign operations as those earnings are considered permanently reinvested. It is the Company's intention to utilize those earnings in the foreign operations for an indefinite period of time, or to repatriate such earnings only when tax-efficient to do so.

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(11) Shareholders' Equity

Dividends

        Following is a summary of dividends declared during fiscal year 2007 and 2006 (in thousands, except per share amounts):

Date of Declaration	Dividend per Share		Date of Record	Date of Payment	Total Amount
Fiscal year 2007:
September 27, 2006	$	0.15	October 13, 2006	October 23, 2006	$	20,971
November 2, 2006		0.18	January 12, 2007	January 22, 2007		25,303
March 5, 2007		0.18	April 13, 2007	April 24, 2007		25,448
June 5, 2007		0.18	July 13, 2007	July 24, 2007		25,019
September 20, 2007		0.18	October 12, 2007	October 23, 2007		25,060	(1)
Fiscal year 2006:
November 9, 2005	$	0.15	January 13, 2006	January 23, 2006	$	20,918
November 9, 2005		2.00	January 13, 2006	January 23, 2006		277,904
March 6, 2006		0.15	April 14, 2006	April 24, 2006		21,004
June 13, 2006		0.15	July 14, 2006	July 24, 2006		21,186

(1)

Dividend accrued at September 30, 2007

        On November 20, 2007, the Company's Board of Directors approved an 11% increase in the Company's quarterly dividend to $0.20 per share payable January 22, 2008 to shareholders of record on January 11, 2008. The Company will pay future dividends at the discretion of the Board of Directors. The continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depend on many factors, including the results of operations and the financial condition of the Company. Subject to these qualifications, the Company currently expects to pay dividends on a quarterly basis.

Treasury Stock

        On November 8, 2005, the Company's Board of Directors approved a stock repurchase program of up to $200 million over four years. During the fourth quarter of fiscal year 2006, the Company repurchased on the open market approximately 2.0 million shares of Company common stock that were held in treasury at September 24, 2006 for a total of approximately $100 million. On November 6, 2006, the Company's Board of Directors approved a $100 million increase in the Company's stock repurchase program, bringing the total remaining authorization to $200 million. During the third quarter of fiscal year 2007, the Company repurchased approximately 2.5 million additional shares of Company common stock on the open market for a total of approximately $100 million. The average price per share paid for shares held in treasury at September 30, 2007 was $43.98, for a total of approximately $200 million. Subsequent to the end of fiscal year 2007, the Company retired all shares held in treasury at September 30, 2007. The Company's remaining authorization under the stock repurchase program at September 30, 2007, is approximately $100 million through November 8, 2009. The specific timing and repurchase of future amounts will vary based on market conditions, securities law limitations and other factors and will be made using the Company's available resources. The repurchase program may be suspended or discontinued at any time without prior notice.

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(12) Earnings per Share

        The computation of basic earnings per share is based on the number of weighted average common shares outstanding during the period. The computation of diluted earnings per share includes the dilutive effect of common stock equivalents consisting of common shares deemed outstanding from the assumed exercise of stock options and the assumed conversion of zero coupon convertible subordinated debentures.

        A reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations follows (in thousands, except per share amounts):

		2007		2006		2005
Net income (numerator for basic earnings per share)		$	182,740	$	203,828	$	136,351
Interest on 5% zero coupon convertible subordinated debentures, net of income taxes			98		283		2,539
Adjusted net income (numerator for diluted earnings per share)		$	182,838	$	204,111	$	138,890
Weighted average common shares outstanding (denominator for basic earnings per share)			140,088		139,328		130,090
Potential common shares outstanding:
	Assumed conversion of 5% zero coupon convertible subordinated debentures		116		363		3,414
	Assumed exercise of stock options		1,632		5,391		6,446
Weighted average common shares outstanding and potential additional common shares outstanding (denominator for diluted earnings per share)			141,836		145,082		139,950
Basic earnings per share		$	1.30	$	1.46	$	1.05
Diluted earnings per share		$	1.29	$	1.41	$	0.99

        The computation of diluted earnings per share does not include options to purchase approximately 10.6 million, 4.3 million, and 158,000 shares of common stock at the end of fiscal years 2007, 2006 and 2005, respectively, due to their antidilutive effect.

(13) Share-Based Payments

        Share-based payments expense before income taxes recognized during fiscal years 2007, 2006 and 2005 totaled approximately $13.2 million, $9.4 million and $19.9 million, respectively. Share-based payments expense was included in the following line items on the Consolidated Statements of Operations for the periods indicated (in thousands):

	2007			2006			2005
Cost of goods sold and occupancy costs	$	475		$	264		$	1,192
Direct store expenses		7,093			3,555			10,092
General and administrative expenses		5,607			5,613			8,612
Share-based payments expense before income taxes		13,175			9,432			19,896
Income tax benefit		(4,114	)		(2,724	)		(4,454	)
Net share-based payments expense	$	9,061		$	6,708		$	15,442

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Stock Option Plan

        We historically granted options to purchase common stock under our 1992 Stock Option Plans, as amended. At our annual shareholder's meeting on March 5, 2007, our shareholders approved a new plan, the Whole Foods Market 2007 Stock Incentive Plan. The fiscal year 2007 options were granted pursuant to this new plan. Our Company has, in connection with certain of our business combinations, assumed the stock option plans of the acquired companies. All options outstanding under our Company's previous plans and plans assumed in business combinations continue to be governed by the terms and conditions of those grants. Under these plans, options are granted at an option price equal to the market value of the stock at the grant date and are generally exercisable ratably over a four-year period beginning one year from grant date. Options granted in fiscal years 2007 and 2006 expire five years from the date of grant and options granted in fiscal year 2005 expire seven years from date of grant. Certain options granted during fiscal year 2005 were granted fully vested. The market value of the stock is determined as the closing stock price at the grant date. At September 30, 2007, September 24, 2006 and September 25, 2005 approximately 5.5 million, 6.5 million and 7.7 million shares of our common stock, respectively, were available for future stock option grants.

        The following table summarizes option activity (in thousands, except per share amounts):

	Number of Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding options at September 26, 2004	16,140		$	25.69
Options granted	12,112			59.82
Options exercised	(4,996	)		21.64
Options expired	(711	)		37.33
Outstanding options at September 25, 2005	22,545		$	44.58
Options granted	1,444			69.00
Options exercised	(5,466	)		36.00
Options expired	(202	)		56.57
Options forfeited	(46	)		64.52
Outstanding options at September 24, 2006	18,275		$	48.82
Options granted	1,704			39.77
Options exercised	(1,879	)		26.30
Options expired	(704	)		60.64
Options forfeited	(185	)		58.70
Outstanding options at September 30, 2007	17,211		$	49.80	3.99	$	117,247
Vested/expected to vest at September 30, 2007	16,878		$	49.82	3.98	$	115,134
Exercisable options at September 30, 2007	14,407		$	49.65	3.94	$	101,377

        The weighted average fair values of options granted during fiscal years 2007, 2006 and 2005 were $9.76, $17.04 and $15.19, respectively. The aggregate intrinsic value of stock options at exercise, represented in the table above, was approximately $45.3 million during fiscal year 2007. Total gross unrecognized share-based payments expense related to nonvested stock options was approximately $27.5 million as of the end of fiscal year 2007, related to approximately 2.8 million shares. We anticipate this expense to be recognized over a weighted average period of approximately two years.

79

        A summary of options outstanding and exercisable at September 30, 2007 follows (share amounts in thousands):

Range of Exercise Prices					Options Outstanding			Options Exercisable
From		To		Number Outstanding	Weighted Average Remaining Life (in Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$	11.44	$	27.82	2,966	1.71	$	22.31	2,966	$	22.31
	29.88		39.61	2,258	3.59		39.47	2,232		39.51
	39.74		51.83	1,892	4.54		40.11	170		41.73
	54.17		60.74	4,081	4.59		54.23	4,028		54.22
	66.81		66.81	4,719	4.96		66.81	4,683		66.81
	66.96		73.14	1.295	3.61		69.01	328		69.01
	Total			17,211	3.99	$	49.80	14,407	$	49.65

        Share-based payments expense related to vesting stock options recognized during fiscal years 2007 and 2006 totaled approximately $8.1 million and $4.6 million, respectively.

        During fiscal year 2005, the Company accelerated the vesting of all outstanding stock options, except options held by the members of the executive team and certain options held by team members in the United Kingdom, in order to prevent past option grants from having an impact on future results. The Company recognized a share-based payments charge totaling approximately $17.4 million related to this acceleration, which was determined by measuring the intrinsic value on the date of the acceleration for all options that would have expired in the future unexercisable had the acceleration not occurred. The calculation of this charge required that management make estimates and assumptions concerning future team member turnover. During fiscal year 2007 and fiscal year 2006 the Company recognized an additional $4.4 million and $3.0 million share-based payments charge, respectively, related to this acceleration to adjust for actual experience. Additional adjustments in future periods may be necessary as actual results could differ from these estimates and assumptions.

        The Company also recognized share-based payments expense totaling approximately $0.3 million, $1.2 million and $2.5 million for modifications of terms of certain stock option grants and other compensation based on the intrinsic value of the Company's common stock during fiscal years 2007, 2006 and 2005, respectively.

        During fiscal year 2007, the Company issued 4,500 stock options to the Whole Planet Foundation. These options were granted at an option price equal to the market value of the stock at the grant date and are exercisable ratably over a four-year period beginning one year from grant date and have a five-year life. The total grant-date fair value of $61,000 was expensed in fiscal year 2007 as a charitable contribution.

        The fair value of stock option grants has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2007		2006		2005
Expected dividend yield	1.80	%	1.26	%	0.84	%
Risk-free interest rate	4.75	%	5.04	%	4.14	%
Expected volatility	31.22	%	29.40	%	48.30	%
Expected life, in years	3.29		3.22		2.10

80

        Risk-free interest rate is based on the US treasury yield curve on the date of the grant for the time period equal to the expected term of the grant for fiscal years 2007 and 2006 and the seven-year zero coupon treasury bill rate on the date of the grant for fiscal year 2005. Expected volatility is calculated using a ratio of implied volatility based on comparable Long-Term Equity Anticipation Securities ("LEAPS") and four-year historical volatility for fiscal years 2007 and 2006. The Company determined the use of implied volatility versus historical volatility represents a more accurate calculation of option fair value. In fiscal year 2005, expected volatility was calculated using the daily historical volatility over the last seven years. Expected life is calculated in two tranches based on weighted average percentage of unexpired options and exercise-after-vesting information over the last five years for fiscal years 2007 and 2006. During fiscal year 2005, expected life was calculated in five salary tranches based on weighted average exercise-after-vesting information over the last seven years. Unvested options are included in the term calculation using the "mid-point scenario" which assumes that unvested options will be exercised half-way between vest and expiration date. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience.

        In addition to the above valuation assumptions, SFAS No. 123R requires the company to estimate an annual forfeiture rate for unvested options and true up fair value expense accordingly. The company monitors actual forfeiture experience and adjusts the rate from time to time as necessary.

        Prior to the effective date of SFAS No. 123R, the Company applied APB No. 25 and related interpretations for our stock option grants. APB No. 25 provides that the compensation expense relative to our team member stock options is measured based on the intrinsic value of the stock option at date of grant.

        Had we previously recognized share-based payments expense as prescribed by SFAS No. 123, previously reported net income, basic earnings per share and diluted earnings per share would have changed to the pro forma amounts shown below (in thousands, except per share amounts):

		2005
Reported net income		$	136,351
Share-based compensation expense, net of income taxes			15,309
Pro forma expense, net of income taxes			(179,616	)
Pro forma net income (loss)		$	(27,956	)
Basic earnings per share:
	Reported	$	1.05
	Share-based compensation expense		0.12
	Pro forma adjustment		(1.38	)
	Pro forma basic earnings (loss) per share	$	(0.21	)
Diluted earnings per share:
	Reported	$	0.99
	Share-based compensation expense		0.12
	Pro forma adjustment		(1.31	)
	Pro forma diluted earnings (loss) per share	$	(0.20	)

        Pro forma disclosures for fiscal years 2007 and 2006 are not presented because the amounts are recognized in the Consolidated Statement of Operations.

81

Team Member Stock Purchase Plan

        Our Company offers a team member stock purchase plan to all full-time team members with a minimum of 400 hours of service. Participating team members may purchase our common stock through payroll deductions. At our annual shareholders' meeting, on March 5, 2007, shareholders approved a new TMSPP which became effective on April 1, 2007. The TMSPP replaces all previous stock purchase plans and provides for a 5% discount on the shares purchase date market value which meets the "Safe Harbor" provisions of SFAS No. 123R and therefore is non-compensatory. Under the previous plans, participating team members could elect to purchase unrestricted shares at 100% of market value or restricted shares at 85% of market value on the purchase date.

        In fiscal years 2007 and 2006, we recognized approximately $0.3 million and $0.6 million, respectively, of share-based payments expense related to team member stock purchase plan discounts. We issued approximately 83,000, 51,000 and 40,000 shares under this plan in fiscal years 2007, 2006 and 2005, respectively. At September 30, 2007, September 24, 2006 and September 25, 2005 approximately 286,000, 369,000, and 420,000 shares of our common stock, respectively, were available for future issuance.

(14) Team Member 401(k) Plan

        Our Company offers a team member 401(k) plan to all team members with a minimum of 1,000 services hours in one year. In fiscal years 2007, 2006 and 2005, the Company made a matching contribution to the plan of approximately $2.3 million in cash.

(15) Quarterly Results (unaudited)

        The Company's first quarter consists of 16 weeks, and the second, third and fourth quarters consist of 12 weeks. Fiscal year 2007 is a 53-week year with thirteen weeks in the fourth quarter. 2006 is a 52-week year with twelve weeks in the fourth quarter. Because the first quarter is longer than the remaining quarters, it typically represents a larger share of our annual sales from existing stores. Quarter to quarter comparisons of results of operations have been and may be materially impacted by the timing of new store openings. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.

82

        The following tables set forth selected quarterly unaudited consolidated statements of operations information for the fiscal years ended September 30, 2007 and September 24, 2006 (in thousands except per share amounts):

		First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Fiscal Year 2007
Sales		$	1,870,731		$	1,463,210	$	1,514,420		$	1,743,412
Cost of goods sold and occupancy costs			1,229,972			948,738		976,130			1,140,330
	Gross profit		640,759			514,472		538,290			603,082
Direct store expenses			482,797			379,295		394,713			454,424
General and administrative expenses			56,132			45,456		49,003			67,152
Pre-opening and relocation costs			16,284			15,634		14,995			23,267
	Operating income		85,546			74,087		79,579			58,239
Interest expense			(7	)		—		(24	)		(4,177	)
Investment and other income			4,052			2,562		2,223			2,487
	Income before income taxes		89,591			76,649		81,778			56,549
Provision for income taxes			35,836			30,660		32,711			22,620
	Net income	$	53,755		$	45,989	$	49,067		$	33,929
Basic earnings per share		$	0.38		$	0.33	$	0.35		$	0.24
Diluted earnings per share		$	0.38		$	0.32	$	0.35		$	0.24
Dividends declared per share		$	0.33		$	0.18	$	0.18		$	0.18

		First Quarter			Second Quarter		Third Quarter			Fourth Quarter
Fiscal Year 2006
Sales		$	1,666,953		$	1,311,520	$	1,337,886		$	1,291,017
Cost of goods sold and occupancy costs			1,092,018			848,020		866,260			841,436
	Gross profit		574,935			463,500		471,626			449,581
Direct store expenses			424,438			330,470		335,555			331,505
General and administrative expenses			50,889			43,421		43,955			42,979
Pre-opening and relocation costs			8,491			7,324		7,860			13,746
	Operating income		91,117			82,285		84,256			61,351
Interest expense			(3	)		—		(8	)		(21	)
Investment and other income			6,082			4,068		5,581			5,005
	Income before income taxes		97,196			86,353		89,829			66,335
Provision for income taxes			38,878			34,542		35,931			26,534
	Net income	$	58,318		$	51,811	$	53,898		$	39,801
Basic earnings per share		$	0.42		$	0.37	$	0.38		$	0.29
Diluted earnings per share		$	0.40		$	0.36	$	0.37		$	0.28
Dividends declared per share		$	2.15		$	0.15	$	0.15		$	—

        Operating results for the fourth quarter of fiscal year 2007 include Wild Oats for the period beginning August 28, 2007 through September 30, 2007.

83

(16) Commitments and Contingencies

        The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers' compensation, general liability, property insurance, director and officers' liability insurance, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. While we believe that our assumptions are appropriate, the estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

        From time to time we are a party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property and other proceedings arising in the ordinary course of business which have not resulted in any material losses to date. Although not currently anticipated by management, our results could be materially impacted by the decisions and expenses related to pending or future proceedings.

        On July 17, 2007, the Company announced that the Company's Board of Directors had formed a Special Committee to perform an independent internal investigation regarding the online financial message board postings related to Whole Foods Market and Wild Oats Markets and retained the firm of Munger, Tolles & Olson LLP to advise it during its investigation. The result of the Company's internal investigation had no impact on the Company's consolidated financial statements for the year ended September 30, 2007. Additionally, the Company announced that it has been contacted by the staff of the SEC regarding an inquiry related to the same matter. The Company is fully cooperating with the SEC as they work through their inquiry. As of the date of this filing, the SEC's inquiry is not complete.

        The Company has entered into Retention Agreements with certain executive officers of the Company or its subsidiaries which provide for certain benefits upon an involuntary termination of employment, other than for cause, after a "Triggering Event." A Triggering Event includes a merger of the Company with and into an unaffiliated corporation if the Company is not the surviving corporation or the sale of all or substantially all of the Company's assets. The benefits to be received by the executive officer whose employment is terminated after a Triggering Event occurs include receipt of his or her annual salary through the one-year period following the date of the termination of employment and the immediate vesting of any outstanding stock options granted to such executive officer.

84

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

        The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Changes in Internal Control over Financial Reporting

        There have been no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

        The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        Management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Wild Oats Markets, Inc. ("Wild Oats"), which is included in our 2007 consolidated financial statements. The Company completed the acquisition of Wild Oats on August 28, 2007. Wild Oats constituted 9% of Company total assets and 2% of Company net assets as of September 30, 2007. Wild Oats also constituted 2% of Company revenues and 2% of Company net income for the fiscal year ended September 30, 2007.

        Under the supervision and with the participation of the Company's management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company's management concluded that its internal control over financial reporting was effective as of September 30, 2007.

        The Company's independent registered public accounting firm, Ernst & Young LLP, audited management's assessment of internal control over financial reporting and also independently assessed the effectiveness of our internal control over financial reporting. Ernst & Young LLP has issued their attestation report which is included in Part II, Item 8 of this Report on Form 10-K.

Item 9B. Other Information.

        Not applicable.

85

PART III

Item 10. Directors and Executive Officers of the Registrant.

        The information required by this item about our Company's Executive Officers is included in Part I, "Item 1. Business" of this Report on Form 10-K under the caption "Executive Officers of the Registrant." All other information required by this item is incorporated herein by reference from the registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held March 10, 2008 to be filed with the Commission pursuant to Regulation 14A.

        The Company has adopted a Code of Conduct and Ethics for Team Members and Directors pursuant to section 406 of the Sarbanes-Oxley Act. A copy of our Code of Conduct and Ethics is publicly available on our Company website at http://www.wholefoodsmarket.com/investor/corporategovernance/codeofconduct.pdf. The information contained on our Web site is not incorporated by reference into this Report on Form 10-K.

Item 11. Executive Compensation.

        The information required by this item is incorporated herein by reference from the registrant's definitive Proxy Statement for the Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

        The information required by this item about our Company's securities authorized for issuance under equity compensation plans as of September 30, 2007 is included in Part I, "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" of this Report on Form 10-K. All other information required by this item is incorporated herein by reference from the registrant's definitive Proxy Statement for the Annual Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions.

        The information required by this item is incorporated herein by reference from the registrant's definitive Proxy Statement for the Annual Meeting of Shareholders.

Item 14. Principal Accounting Fees and Services.

        The information required by this item is incorporated herein by reference from the registrant's definitive Proxy Statement for the Annual Meeting of Shareholders.

86

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)

The following documents are filed as part of this report:

(1)

Consolidated Financial Statements: See Item 8. Financial Statements and Supplementary Data.

(2)

Financial Statement Schedules: No schedules are required.

(3)

Exhibits are incorporated herein by reference or are filed with this report as indicated below



(b)

Exhibits

3.1	Restated Articles of Incorporation of the Registrant, as amended(5)
3.2	By-laws of the Registrant adopted May 23, 1995, as amended(4)
4.1	Form of Zero Coupon Convertible Subordinated Debentures Due 2018(3)
10.1	Form of Retention Agreement between the executive officers of the Registrant and the Registrant(2)
10.2	Form of amendment to Retention Agreement(1)
10.3	1993 Team Member Stock Ownership Plan(1)
10.4	1993 Team Member Stock Purchase Plan(1)
10.5	1992 Stock Option Plan for Team Members, as amended(1)
10.6	1992 Stock Option Plan for Outside Directors(1)
10.7	2007 Stock Incentive Plan(7)
10.8	2007 Team Member Stock Purchase Plan(8)
10.9	Agreement for Distribution of Products by and between Whole Foods Market Distribution, Inc. and United Natural Foods, Inc. (Portions of this agreement have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)(6)
10.10	Agreement and Plan of Merger dated as of February 21, 2007, by and among Registrant and Wild Oats Markets, Inc.(9)
10.11	Term Loan Agreement dated August 28, 2007 by and among Registrant, Royal Bank of Canada; JP Morgan Chase Bank, N.A.; Wells Fargo Bank, N. A.; Wachovia Bank, N.A.; La Salle Bank Midwest, N.A.; RBC Capital Markets; and J.P. Morgan Securities Inc.(10)
10.12	Revolving Credit Agreement dated August 28, 2007 by and among Registrant, JP Morgan Chase Bank, N.A.; Royal Bank of Canada; Wells Fargo Bank, N.A.; J.P. Morgan Securities Inc.; and RBC Capital Markets(10)
12.1	Computation of Ratio of Earnings to Fixed Charges(10)
21.1	Subsidiaries of the Registrant(10)
23.1	Consent of Ernst & Young LLP(10)
31.1	Certification by Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)(10)
31.2	Certification by Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)(10)
32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350(10)
32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350(10)

(1)

Filed as an exhibit to Registration Statement on Form S-4 (No. 33-63824) and incorporated herein by reference.

(2)

Filed as an exhibit to Registration Statement on Form S-1 (No. 33-44214) and incorporated herein by reference.

(3)

Filed as an exhibit to Registrant's Form 8-K filed October 4, 2004 and incorporated herein by reference.

(4)

Filed as an exhibit to Registrant's Form 8-K filed March 22, 2005 and incorporated herein by reference.

87

(5)

Filed as an exhibit to Registrant's Form 10-Q for the period ended April 9, 2006 filed May 19, 2006 and incorporated herein by reference.

(6)

Filed as an exhibit to Registrant's Form 10-K for the period ended September 24, 2006 filed December 8, 2006 and incorporated herein by reference.

(7)

Filed as Appendix B to Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 5, 2007 filed January 22, 2007 and incorporated herein by reference.

(8)

Filed as Appendix C to Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 5, 2007 filed January 22, 2007 and incorporated herein by reference.

(9)

Filed as an exhibit to Registrant's Form 8-K filed February 21, 2007 and incorporated herein by reference.

(10)

Filed herewith.

88

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

WHOLE FOODS MARKET, INC.

Date: November 29, 2007 By: /s/ Glenda Chamberlain Glenda Chamberlain
Executive Vice President and Chief Financial Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on November 29, 2007.

Name	Title
/s/ John P. Mackey John P. Mackey	Chairman of the Board, Chief Executive Officer and Director     (Principal Executive Officer)
/s/ Glenda Chamberlain Glenda Chamberlain	Executive Vice President and Chief Financial Officer     (Principal Financial and Accounting Officer)
/s/ David W. Dupree David W. Dupree	Director
/s/ Dr. John B. Elstrott Dr. John B. Elstrott	Director
/s/ Gabrielle E. Greene Gabrielle E. Greene	Director
/s/ Shahid M. Hassan Shahid M. Hassan	Director
/s/ Morris J. Siegel Morris J. Siegel	Director
/s/ Dr. Ralph Z. Sorenson Dr. Ralph Z. Sorenson	Director

89

EX-10.11

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Exhibit 10.11

$700 MILLION TERM LOAN AGREEMENT

made and entered into

as of August 28, 2007

by and among

WHOLE FOODS MARKET, INC.,

a Texas corporation,

EACH OF THE FINANCIAL INSTITUTIONS WHICH IS

A SIGNATORY HERETO OR WHICH MAY FROM TIME TO

TIME BECOME A PARTY HERETO,

ROYAL BANK OF CANADA,

as Administrative Agent,

JPMORGAN CHASE BANK, N.A.,

as Syndication Agent,

and Collateral Agent,

WELLS FARGO BANK, N A, WACHOVIA BANK, N.A.

and LASALLE BANK MIDWEST, N.A.

as Co-Documentation Agents

and

RBC CAPITAL MARKETS(1) AND J. P. MORGAN SECURITIES INC.,

as Joint Lead Arrangers and Joint Bookrunners

(1)

RBC Capital Markets is a brand name for the investment banking activities of Royal Bank of Canada.

TABLE OF CONTENTS

	Page
Article I—DEFINITIONS
Section 1.1 Certain Defined Terms	1
Section 1.2 Accounting Terms and Determinations	17
Article II—LOANS; ETC.
Section 2.1 Loans	18
Section 2.2 Commitment Fees; Termination and Reductions	19
Section 2.3 Mandatory Prepayments; Commitment Reduction	19
Section 2.4 Payments	19
Section 2.5 Prepayments of Loans	20
Section 2.6 Application of Payments and Prepayments	21
Section 2.7 Pro Rata Treatment	21
Section 2.8 Payment Dates on the Loans	21
Section 2.9 Interest Options for Loans	21
Section 2.10 Special Provisions Applicable to LIBOR Rate Borrowings	22
Section 2.11 Payment Dates	24
Section 2.12 Sharing of Payments, Etc	24
Section 2.13 Use of Proceeds	25
Section 2.14 Evidence of Debt	25
Article III—CONDITIONS
Section 3.1 All Loans	26
Section 3.2 First Loan	26
Section 3.3 Determinations Under Section 3.2	28
Article IV—REPRESENTATIONS AND WARRANTIES
Section 4.1 Organization	28
Section 4.2 Financial Statements	28
Section 4.3 Enforceable Obligations; Authorization	28
Section 4.4 Other Debt	29
Section 4.5 Litigation	29
Section 4.6 Title	29
Section 4.7 Taxes	29
Section 4.8 Subsidiaries	29
Section 4.9 Representations by Others	29
Section 4.10 Permits, Licenses, Etc	29
Section 4.11 ERISA	29
Section 4.12 Condition of Property	30
Section 4.13 Assumed Names	30
Section 4.14 Investment Company Act	30
Section 4.15 Margin Stock	30
Section 4.16 Agreements	30
Section 4.17 Environmental Matters	30
Section 4.18 Solvency	31
Section 4.19 Target Representations	31

i

Article V—AFFIRMATIVE COVENANTS
Section 5.1 Taxes, Existence, Regulations, Property, Etc	31
Section 5.2 Financial Statements and Information	31
Section 5.3 Financial Tests	32
Section 5.4 Inspection	32
Section 5.5 Further Assurances	32
Section 5.6 Books and Records	32
Section 5.7 Insurance	32
Section 5.8 ERISA	32
Section 5.9 Use of Proceeds	33
Section 5.10 Additional Guaranties	33
Section 5.11 Notice of Events	33
Section 5.12 Environmental Matters	33
Section 5.13 End of Fiscal Year	34
Section 5.14 Consummation of Merger	34
Section 5.15 Maintenance of Ratings	34
Section 5.16 Covenant to Guarantee Obligations and Give Security	34
Section 5.17 Covenant to Give Additional Security	35
Article VI—NEGATIVE COVENANTS
Section 6.1 Indebtedness	35
Section 6.2 Liens	37
Section 6.3 Contingent Obligations	38
Section 6.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets	38
Section 6.5 Nature of Business	39
Section 6.6 Transactions with Related Parties	39
Section 6.7 Loans and Investments	39
Section 6.8 ERISA Compliance	40
Section 6.9 Credit Extensions	40
Section 6.10 Change in Accounting Method	40
Section 6.11 Redemption, Dividends and Distributions	40
Article VII—EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default	41
Section 7.2 Remedies Cumulative	43
Article VIII—THE AGENT
Section 8.1 Authorization and Action	43
Section 8.2 Agents' Reliance, Etc	43
Section 8.3 Royal Bank and Affiliates	44
Section 8.4 Lender Credit Decision	44
Section 8.5 Indemnification	44
Section 8.6 Successor Agents	45
Section 8.7 Other Agents; Arrangers and Managers	45
Article IX—MISCELLANEOUS
Section 9.1 No Waiver	45
Section 9.2 Notices	46
Section 9.3 Jurisdiction; Governing Law; Etc	47

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Section 9.4 Survival; Parties Bound	48
Section 9.5 Counterparts	48
Section 9.6 Survival	48
Section 9.7 Captions	48
Section 9.8 Expenses, Etc	48
Section 9.9 Indemnification	49
Section 9.10 Amendments, Etc	50
Section 9.11 Successors and Assigns	50
Section 9.12 Entire Agreement
Section 9.13 Severability
Section 9.14 Disclosures
Section 9.15 Capital Adequacy
Section 9.16 Withholding Tax
Section 9.17 Waiver of Claims
Section 9.18 Right of Setoff
Section 9.19 USA PATRIOT Act
Section 9.20 Non-Consenting Lenders; Other Lenders
Section 9.21 Confidentiality

EXHIBITS
A	—	Form of Note
B	—	Notice of Assumption
C	—	Officer's Certificate
D	—	Request for Extension of Credit and Certificate of No Default
E	—	Rate Selection Notice
F	—	Form of Assignment and Acceptance
G-A		Form of Security Agreement A
G-B		Form of Security Agreement B
H		Form of Guaranty Agreement
SCHEDULES
1.1(a)		Disclosed Divestitures
1.1(b)		EBIT/EBITDA
1.1(c)		Guarantors
2.1(a)		Commitments
4.8		Subsidiaries
4.13		Assumed Names
4.16		Agreements
6.2(a)		Liens

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        TERM LOAN AGREEMENT (this "Agreement") dated as of August 28, 2007 among WHOLE FOODS MARKET, INC., a Texas corporation (the "Company"), Royal Bank of Canada ("Royal Bank"), as administrative agent (together with any successor administrative agent appointed pursuant to Article VII, the "Agent") for the lenders from time to time parties hereto (the "Lenders"), JPMorgan Chase Bank, N.A., as syndication agent and collateral agent together with any successor collateral agent appointed pursuant to Security Agreement A or Security Agreement B, as applicable (the "Collateral Agent"), Wells Fargo Bank, N A, Wachovia Bank, N.A. and LaSalle Bank Midwest, N.A. as co-documentation agents and RBC Capital Markets and J. P. Morgan Securities Inc., as joint lead arrangers and joint bookrunners (in such capacities, the "Joint Lead Arrangers").

        PRELIMINARY STATEMENTS:

        (1)   Pursuant to the agreement and plan of merger dated as of February 21, 2007 (as amended, supplemented or otherwise modified in accordance with its terms, to the extent permitted hereunder, the "Merger Agreement") among the Company, its wholly-owned subsidiary, WFMI Merger Co., a Delaware corporation ("Merger Sub") and Wild Oats Markets, Inc., a Delaware corporation (the "Target"), the Company, through Merger Sub, has commenced an offer to purchase all the outstanding shares of the Target (the "Tender Offer"). Following the successful consummation of the Tender Offer, the Company, through Merger Sub, will acquire 100% of the outstanding shares of the Target and will merge with and into the Target (the "Merger").

        (2)   The Company has requested that the Lenders lend to the Company up to $700,000,000 for the purposes set forth in Section 2.13.

        (3)   The Lenders have indicated their willingness to lend such amount on the terms and conditions of this Agreement.

        NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows:

ARTICLE I—DEFINITIONS

        Section 1.1    Certain Defined Terms.    Unless a particular word or phrase is otherwise defined or the context otherwise requires, capitalized words and phrases used in the Loan Documents have the meanings provided below.

        "Additional Collateral" has the meaning specified in the Security Agreement B attached hereto as Exhibit G-B.

        "Additional Collateral Trigger" shall mean the date on which (a) the Borrower's corporate credit rating shall be (i) with respect to S&P's corporate credit rating, equal to or lower than BB-, and (ii) with respect to Moody's corporate rating system, equal to or lower than Ba3; or (b) the Borrower's corporate credit rating shall be less than (i) with respect to S&P's corporate credit rating, BB-, or (ii) with respect to Moody's corporate rating system, a rating of Ba3.

        "Additional Security Period" shall mean the period, if any, beginning with the occurrence of the Additional Collateral Trigger until the Maturity Date.

        "Affiliate" shall mean any Person controlling, controlled by or under common control with any other Person; and with respect to an individual, "Affiliate" shall also mean any other individual related to such individual by blood or marriage. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of securities, partnership or other ownership interests, by contract or otherwise.

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        "Agent" shall have the meaning ascribed to it in the recital of parties hereto.

        "Agent's Account" means the Agent's account specified by the Agent in writing to the Company and the Lenders from time to time.

        "Aggregate Commitment" shall mean, on any day, the aggregate of all of the Commitments of the Lenders on such day.

        "Agreement" shall have the meaning ascribed to it in the recital of parties hereto.

        "Agreement Value" means, for each Hedging Agreement, on any date of determination, an amount determined by the Agent equal to the amount, if any, (a) that would be payable by any Loan Party or any of its Subsidiaries to its counterparty to such Hedging Agreement as if (i) such Hedging Agreement was being terminated early on such date of determination, (ii) such Loan Party or Subsidiary was the sole "Affected Party" and (iii) the Agent was the sole party determining such payment amount (with the Agent making such determination pursuant to the terms of the governing documentation); (b) in the case of a Hedge Agreement traded on an exchange, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or any of its Subsidiaries party to such Hedge Agreement based on the settlement price of such Hedge Agreement on such date of determination; or (c) in all other cases, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party to such Hedge Agreement as the amount, if any, by which (i) the present value of the future cash flows to be paid by such Loan Party or Subsidiary exceeds (ii) the present value of the future cash flows to be received by such Loan Party or Subsidiary pursuant to such Hedge Agreement.

        "Alternate Base Rate" shall mean for any day (a) the greater of (i) the Prime Rate and (ii) the Federal Funds Rate plus 0.50% per annum, plus (b) the Applicable Margin in effect on such day. For purposes of this Agreement any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate, respectively. If for any reason the Agent shall have determined (which determination shall be conclusive and binding, absent manifest error) that it is unable to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be the Prime Rate plus the Applicable Margin.

        "Alternate Base Rate Borrowing" shall mean that portion of the principal balance of the Loans at any time bearing interest at the Alternate Base Rate.

        "Annual Audited Financial Statements" shall mean, with respect to each fiscal year of the Company, the Company's 10-K Report filed with the Securities Exchange Commission for such fiscal year, prepared in conformity with Generally Accepted Accounting Principles and accompanied by a report and opinion of independent certified public accountants with an accounting firm of national standing and reputation, which shall state that such financial statements, in the opinion of such accountants, present fairly, in all material respects, the financial position of the Company and its Subsidiaries, on a consolidated basis, as of the date thereof and the results of its operations and cash flows for the period covered thereby in conformity with Generally Accepted Accounting Principles.

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        "Applicable Margin" shall mean with respect to any Loan on any date of determination, the applicable rate per annum for the corresponding rating of the Company's corporate family ratings, and determined in accordance with the following grid:

Moody's and S&P	LIBOR Margin (Per Annum)		ABR Margin (Per Annum)
BBB+ or Baa1	0.375	%	0.00	%
BBB or Baa2	0.500	%	0.00	%
BBB- and Baa3	0.625	%	0.00	%
BBB- or Baa3	0.875	%	0.00	%
BB+ and Ba1	1.00	%	0.00	%
BB+ or Ba1	1.25	%	0.25	%
BB and Ba2	1.375	%	0.375	%
BB or Ba2	1.50	%	0.50	%
Otherwise	1.75	%	0.75	%

For purposes of determining the Applicable Margin in the case of split ratings, where applicable, (i) in the event of a single category split in ratings, the higher of the two ratings shall apply, (ii) in the event of a two-category split in ratings, the rating that is in the middle of the two ratings shall apply and (iii) in the event that there is more than a two-category split in ratings, the rating that is one category above the lower rating will apply.

        "Approved Fund" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

        "Borrowing" shall mean an Alternate Base Rate Borrowing or a LIBOR Rate Borrowing.

        "Business Day" shall mean a day when the main office of the Agent is open for business and banks in New York, New York are generally open for business.

        "Business Entity" shall mean corporations, partnerships, joint ventures, joint stock associations, business trusts and other business entities.

        "Capital Lease Obligations" shall mean the obligations of the Company and its Subsidiaries on a consolidated basis to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal Property which obligations are required to be classified and accounted for as a capital lease on a consolidated balance sheet of the Company and its Subsidiaries under Generally Accepted Accounting Principles (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board, as amended) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with Generally Accepted Accounting Principles (including such Statement No. 13).

        "Change of Control" shall mean any change so that any Unrelated Person (or any Unrelated Persons acting together which would constitute a Group) together with any Affiliate or Related Persons of such Unrelated Person or Unrelated Persons (in each case also constituting Unrelated Persons) shall at any time after the date hereof either (i) Beneficially Own more than fifty percent (50%) of the aggregate voting power of all classes of Voting Stock of the Company, or (ii) succeed

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in having enough of its or their nominees elected by the stockholders to the Board of Directors of the Company so as to constitute a majority of the Board of Directors of the Company. As used herein, (a) "Beneficially Own" shall mean "beneficially own" as defined in Rule 13d-3 of the Securities and Exchange Act of 1934, as amended (the "34 Act") or any successor provision thereto; (b) "Group" shall mean a "group" for purposes of Section 13(d) of the 34 Act or any successor provision; (c) "Unrelated Person" shall mean any Person other than any trust for any employee stock ownership plan of the Company or any Subsidiary of the Company; (d) "Related Person" shall mean as to any Person, any other Person owning (1) five percent (5%) or more of the outstanding common stock of such Person or (2) five percent (5%) or more of the Voting Stock of such Person, and (e) "Voting Stock" shall mean as to any Person, the Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency.

        "Code" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service.

        "Collateral" has the meaning specified in the Security Agreement A attached hereto as Exhibit G-A.

        "Collateral Agent" shall have the meaning ascribed to it in the recital of parties hereto.

        "Commitment" shall mean, as to any Lender, the obligation of such Lender to make Loans in an aggregate principal amount at any one time outstanding up to, but not exceeding, the amount set forth opposite such Lender's name on Schedule 2.1(a) hereto under the caption "Commitment", or as to any Lender that becomes a Party hereto by executing an Assignment and Acceptance, the amount set forth in such Assignment and Acceptance (in each case, as the same may be reduced from time to time pursuant to Section 2.2 hereof).

        "Commitment Fee" with respect to any Lender, shall have the meaning assigned to it in Section 2.2.

        "Commitment Percentage" shall mean, with respect to any Lender, the ratio, expressed as a percentage, of (a) such Lender's Commitment to (b) the Aggregate Commitment.

        "Commitment Termination Date" means September 7, 2007.

        "Confidential Information" means non-public information that any Loan Party furnishes to the Agent or any Lender, unless such information is or becomes (a) generally available to the public (other than as a result of a breach by the Agent or any Lender of its obligations hereunder) or that is or becomes available to the Agent or such Lender from a source other than the Loan Parties that is not, to the best of the Agent's or such Lender's knowledge, acting in violation of a confidentiality agreement with a Loan Party or (b) designated in writing by any Loan Party as non-confidential.

        "Consequential Loss" shall mean, with respect to (a) the Company's payment of principal of a LIBOR Rate Borrowing on a day other than the last day of the applicable LIBOR Interest Period, (b) the Company's failure to borrow a LIBOR Rate Borrowing on the date specified by the Company for any reason, (c) the Company's failure to make any prepayment of the Loans (other than Alternate Base Rate Borrowings) on the date specified by the Company, or (d) any cessation of the LIBOR Rate to apply to the Loans or any part thereof pursuant to Section 2.10 hereof, in each case whether voluntary or involuntary, any loss, expense, penalty, premium or liability incurred by any of the Lenders or the Agent, including any interest paid by any of the Lenders to lenders of funds borrowed by them to make or carry the Loans; a "Consequential Loss" shall mean,

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with respect to the termination or cancellation of any LIBOR Rate Borrowing pursuant to Section 2.10 hereof, in each case whether voluntary or involuntary, any loss, expense, penalty, premium or liability incurred by any of the Lenders or the Agent on account of any reduction resulting from such premature termination or cancellation of such borrowing in such Person's margins or spreads between its cost of funds and the interest earned on the principal of the borrowing so terminated or canceled, including an amount equal to the excess (if any) of (x) interest that would have accrued on any such borrowing during the remainder of the applicable LIBOR Interest Period had such borrowing not been terminated or canceled early, over (y) the interest actually accrued on the principal amount of that terminated or canceled borrowing for such remainder of such LIBOR Interest Period.

        "Consolidated Net Worth" shall mean, at any time, shareholder's equity of the Company as set forth in the most recent consolidated Annual Audited Financial Statements of the Company and its Subsidiaries, determined in accordance with Generally Accepted Accounting Principles, consistently applied.

        "Contingent Obligations" shall mean, as to any Person, without duplication, any obligation of such Person guaranteeing or intended to guarantee the payment or performance of any Indebtedness, leases, dividends or other obligations (collectively "primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including without limitation, any obligation of the Person for whom Contingent Obligations is being determined, whether or not contingent, (a) to purchase any such primary obligation or other property constituting direct or indirect security therefor, (b) assume or contingently agree to become or be secondarily liable in respect of any such primary obligation, (c) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital for the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (d) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (e) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that the term "Contingent Obligations" shall not include (x) endorsements of checks or other negotiable instruments in the ordinary course of business, (y) performance or payment guarantees by the Company of any Indebtedness of any of its Subsidiaries of the type permitted in Section 6.1(f) hereof, and (z) the obligations and liabilities of each Guarantor to the Agent and the Lenders under the Guaranties. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming the Person for whom Contingent Obligations is being determined is required to perform thereunder) as determined by the Agent in good faith.

        "Contribution Agreement" shall mean that certain Contribution Agreement of even effective date herewith, by and among the Company and the Guarantors, as the same may have been or may hereafter be amended, modified, supplemented, restated and joined in pursuant to a Joinder Agreement, from time to time.

        "Convertible Senior Debentures" shall mean those certain the 3.25% Convertible Senior Debentures due 2034 which are governed by that certain Indenture dated June 1, 2004, by and between Target and U.S. Bank National Association as trustee.

        "Credit Facility Hedging Agreements" shall mean any Hedging Agreement now existing or hereafter entered into between the Company and any lender under the Revolving Credit Facility and/or any of their respective Affiliates in connection with all or any portion of the Loans and/or any of the loans under the Revolving Credit Facility for purposes of hedging the risk of variable

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interest rate volatility or fluctuations of interest rates, as any such Hedging Agreement may be modified, supplemented and in effect from time to time.

        "Current Sum" shall mean on any day, as to a particular Lender, the sum of the then outstanding principal balance of such Lender's Loans on such day.

        "Current Sum Percentage" shall mean, with respect to any Lender, the ratio, expressed as a percentage of (a) such Lender's Current Sum to (b) the aggregate Current Sum of all Lenders.

        "Default" means any Event of Default or any other event or circumstance that with the passing of time or the giving of notice, or both, would constitute an Event of Default.

        "Disclosed Divestitures" shall mean the proposed divestitures of the Company and its Subsidiaries set forth in Schedule 1.1(a) hereto.

        "Discontinued Operations" shall mean, as of any day, operations of the Company or its Subsidiaries which have been discontinued, as reflected on the most recent Form 10-K or 10-Q for the Company filed with the Security and Exchange Commission, and which, as of such day, have been fully disposed of or liquidated.

        "EBIT" shall mean for any period for which EBIT is calculated, Net Income of the Company and its Subsidiaries on a consolidated basis for such period plus, without duplication, (a) non-recurring, non-cash charges of the Company and its Subsidiaries on a consolidated basis for such period, (b) non-cash pre-opening rent expenses of the Company and its Subsidiaries on a consolidated basis for such period, (c) taxes of the Company and its Subsidiaries on a consolidated basis for such period, (d) interest expense of the Company and its Subsidiaries on a consolidated basis for such period and (e) non-cash stock compensation expense of the Company and its Subsidiaries on a consolidated basis for such period; provided that EBIT for the three quarters immediately prior to the Effective Date shall be as set forth in Schedule 1.1(b). All components of EBIT shall be determined in accordance with Generally Accepted Accounting Principles, consistently applied.

        "EBITDA" shall mean for any period for which EBITDA is calculated, Net Income of the Company and its Subsidiaries on a consolidated basis for such period plus, without duplication, (a) taxes of the Company and its Subsidiaries on a consolidated basis for such period (calculated after excluding any gain or loss attributable to Discontinued Operations as of such day), (b) depreciation, depletion, obsolescence and amortization of Property of the Company and its Subsidiaries on a consolidated basis for such period (calculated after excluding any depreciation, depletion, obsolescence and amortization applicable to Discontinued Operations as of such day), (c) interest expense of the Company and its Subsidiaries on a consolidated basis for such period (calculated after excluding any interest expense paid in connection with Discontinued Operations as of such day), (d) non-recurring, non-cash charges of the Company and its Subsidiaries on a consolidated basis for such period, (e) non-cash pre-opening rent expenses of the Company and its Subsidiaries on a consolidated basis for such period and (f) non-cash stock compensation expense of the Company and its Subsidiaries on a consolidated basis for such period; provided that EBITDA for the three quarters immediately prior to the Effective Date shall be as set forth in Schedule 1.1(b). All components of EBITDA shall be determined in accordance with Generally Accepted Accounting Principles, consistently applied.

        "Effective Date" has the meaning ascribed thereto in Section 3.2.

        "Eligible Assignee" shall mean (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund or (d) any other Person (other than an individual) approved by the Agent and, except during the continuance of an Event of Default, the Company (each such consent not to be unreasonably

6

withheld or delayed); it being understood that none of the Company nor any of its Affiliates shall, in any event, be an Eligible Assignee.

        "Environmental Claim" shall mean any third party (including any Governmental Authority) action, lawsuit, claim or proceeding (including claims or proceedings at common law) which seeks to impose or alleges liability for (i) preservation, protection, conservation, pollution, contamination of, or releases or threatened releases of Hazardous Substances into the air, surface water, ground water or land or the clean-up, abatement, removal, remediation or monitoring of such pollution, contamination or Hazardous Substances; (ii) generation, recycling, reclamation, handling, treatment, storage, disposal or transportation of Hazardous Substances or solid waste (as defined under the Resource Conservation and Recovery Act and its regulations, as amended from time to time); (iii) exposure to Hazardous Substances; (iv) the safety or health of employees or other Persons in connection with any of the activities specified in any other subclause of this definition; or (v) the manufacture, processing, distribution in commerce, presence or use of Hazardous Substances. An "Environmental Claim" includes a common law action, as well as a proceeding to issue, modify or terminate an Environmental Permit, or to adopt or amend a regulation to the extent that such a proceeding attempts to redress violations of the applicable permit, license, or regulation as alleged by any Governmental Authority.

        "Environmental Liabilities" shall mean all liabilities arising from any Environmental Claim, Environmental Permit or Requirement of Environmental Law under any theory of recovery, at law or in equity, and whether based on negligence, strict liability or otherwise, including: remedial, removal, response, abatement, restoration (including natural resources) investigative, or monitoring liabilities, personal injury and damage to property, natural resources or injuries to persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and obligations, and all costs and expenses necessary to cause the issuance, reissuance or renewal of any Environmental Permit including attorney's fees and court costs. Environmental Liability shall mean any one of them.

        "Environmental Permit" shall mean any permit, license, approval or other authorization under any applicable law, regulation and other requirement of the United States or of any state, municipality or other subdivision thereof relating to pollution or protection of health or the environment, including laws, regulations or other requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or Hazardous Substances or toxic materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, recycling, presence, use, treatment, storage, disposal, transport, or handling of, wastes, pollutants, contaminants or Hazardous Substances.

        "Equipment" shall have the meaning assigned to it in the Texas Business and Commerce Code in force on the date the document using such term was executed.

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules, regulations, rulings and interpretations adopted by the Internal Revenue Service or the Department of Labor thereunder.

        "Eurocurrency Liabilities" has the meaning specified in Regulation D.

        "Event of Default" shall mean any of the events specified in Section 7.1 hereof or otherwise specified as an Event of Default in any other Loan Document, provided there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and Default shall mean any of such events, whether or not any such requirement has been satisfied.

        "Extraordinary Receipt" means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including, without limitation, tax refunds (provided

7

that, for greater clarity and without limiting the foregoing, ordinary tax refunds on account of cash taxes actually paid would be considered ordinary course), pension plan reversions, proceeds of insurance (including, without limitation, any key man life insurance but excluding proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustment received in connection with any purchase agreement; provided, however, that an Extraordinary Receipt shall not include cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments to the extent that such proceeds, awards or payments are received by any Person in respect of any third party claim against such Person and applied to pay (or to reimburse such Person for its prior payment of) such claim and the costs and expenses of such Person with respect thereto.

        "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it.

        "Fee Letter" shall mean that certain fee letter dated as of February 23, 2007 among Royal Bank, JPMorgan Chase Bank, N.A., J. P. Morgan Securities Inc. and the Company.

        "Fixed Charge Coverage Ratio" shall mean as of any day that the Fixed Charge Coverage Ratio is being calculated, the ratio of (a) EBIT plus Operating Lease Expense to (b) interest expense plus Operating Lease Expense. All components of the Fixed Charge Coverage Ratio shall be computed for the Rolling Four Quarters as of such day and determined for the Company and its Subsidiaries on a consolidated basis in accordance with Generally Accepted Accounting Principles, consistently applied; provided, that for purposes of determining interest expense and Operating Lease Expense in the Fixed Charge Coverage Ratio for the (a) fiscal quarter ended September 30, 2007, such interest expense and Operating Lease Expense for the measurement period then ended shall equal such items for such fiscal quarter multiplied by 52/13, (b) fiscal quarter ended January 20, 2008, such interest expense and Operating Lease Expense for the measuring period then ended shall equal such items for the two fiscal quarters then ended multiplied by 52/29, and (c) fiscal quarter ended April 30, 2008, such interest expense and Operating Lease Expense for the measuring period then ended shall equal such items for the three fiscal quarters then ended multiplied by 52/41; provided also that EBIT for the three quarters immediately prior to the Effective Date shall be as set forth in Schedule 1.1(b).

        "Funded Indebtedness" shall mean (a) all Indebtedness of the Company and its Subsidiaries on a consolidated basis which by its terms matures more than one year after the applicable date of calculation of Funded Indebtedness (including without limitation, current maturities or scheduled principal payments of Funded Indebtedness for the applicable period for which Funded Indebtedness is being calculated), and any Indebtedness of the Company and its Subsidiaries on a consolidated basis maturing within one year from such date and (b) without duplication, Capital Lease Obligations of the Company and its Subsidiaries on a consolidated basis. All components of Funded Indebtedness shall be determined in accordance with Generally Accepted Accounting Principles, consistently applied.

        "Generally Accepted Accounting Principles" shall mean, as to a particular Person, those principles and practices (a) which are recognized as such by the Financial Accounting Standards Board or successor organization, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most

8

recent audited financial statements of the relevant Person furnished to the Agent and the Lenders, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and changes in financial position, of such Person.

        "Governmental Authority" shall mean any foreign governmental authority, the United States of America, any state of the United States and any political subdivision of any of the foregoing, and any agency, instrumentality, department, commission, board, bureau, central bank, authority, court or other tribunal, in each case whether executive, legislative, judicial, regulatory or administrative, having jurisdiction over the Agent, any of the Lenders or the Company, any of the Company's Subsidiaries or their respective Property.

        "Guaranties" shall mean that certain Guaranty, substantially in the form of Exhibit H hereto, by the Guarantors party thereto in favor of the Agent dated as of the date hereof, as the same may be amended, supplemented, modified, joined in pursuant to a Joinder Agreement and restated from time to time, and each and every other guaranty executed by any or all of the Guarantors from time to time; each a "Guaranty".

        "Guarantors" shall mean the Persons listed on Schedule 1.1(c) hereto, each Subsidiary that shall hereafter be required to execute and deliver a Guaranty pursuant to the terms of this Agreement and each and every other Person executing a guaranty from time to time guaranteeing the Indebtedness of the Company owing from time to time to the Lenders pursuant to this Agreement or the Notes.

        "Hazardous Substance" shall mean any hazardous or toxic waste, substance or product or material defined or regulated from time to time by any applicable law, rule, regulation or order described in the definition of "Requirements of Environmental Law," including solid waste (as defined under RCRA or its regulations, as amended from time to time), petroleum and any fraction thereof, any radioactive materials and waste.

        "Hedging Agreements" shall mean any transaction (including an agreement with respect thereto) now or hereafter existing which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.

        "Incidental Liens" shall mean (i) Liens for taxes, assessments, levies or other governmental charges (but not Liens for clean up expenses arising pursuant to Requirements of Environmental Law) not yet due (subject to applicable grace periods) or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company in accordance with Generally Accepted Accounting Principles; (ii) carriers', warehousemen's, mechanics', landlords', vendors', materialmen's, repairmen's, sureties' or other like Liens (other than Liens for clean up expenses arising pursuant to Requirements of Environmental Law) arising in the ordinary course of business (or deposits to obtain the release of any such Lien) and securing amounts not yet due or which are being contested in good faith and by appropriate proceedings if, in the case of such contested Liens, adequate reserves with respect thereto are maintained on the books of the Company in accordance with Generally Accepted Accounting Principles; (iii) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (iv) deposits not in excess at any time of $25,000,000 in the aggregate to secure insurance in the ordinary course of business, the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, licenses, franchises, statutory obligations, surety and appeal bonds and performance bonds and

9

other obligations of a like nature incurred in the ordinary course of business and Liens to secure progress or partial payments made to the Company or any Subsidiary and other Liens of like nature made in the ordinary course of business; (v) easements, rights-of-way, covenants, reservations, exceptions, encroachments, zoning and similar restrictions and other similar encumbrances or title defects incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case singly or in the aggregate materially detract from the value or usefulness of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (vi) bankers' liens arising by operation of law; (vii) Liens arising pursuant to any order of attachment, distraint or similar legal process arising in connection with any court proceeding the payment of which is covered in full (subject to customary deductibles) by insurance; (viii) inchoate Liens arising under ERISA to secure contingent liabilities of the Company; and (ix) rights of lessees and sublessees in assets leased by the Company or any Subsidiary not prohibited elsewhere herein.

        "Indebtedness" shall mean, as to any Person, without duplication: (a) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of Property or services; (b) any other indebtedness which is evidenced by a promissory note, bond, debenture or similar instrument; (c) any obligation under or in respect of outstanding letters of credit, acceptances and similar obligations created for the account of such Person; (d) all Capital Lease Obligations of such Person; (e) all indebtedness, liabilities, and obligations secured by any Lien on any Property owned by such Person even though such Person has not assumed or has not otherwise become liable for the payment of any such indebtedness, liabilities or obligations secured by such Lien; (f) net liabilities of such Person under Hedging Agreements (determined by reference to the Agreement Value thereof) and (g) all Contingent Obligations and Synthetic Indebtedness of such Person; provided, that such term shall not mean or include any Indebtedness in respect of which monies sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such Indebtedness may be duly called for redemption and payment) shall be deposited with a depository, agency or trustee acceptable to the Agent in trust for the payment thereof.

        "Interest Option" shall have the meaning ascribed to it in Section 2.9(a) hereof.

        "Interest Payment Dates" shall mean (a) for Alternate Base Rate Borrowings, (1) at all times while the Notes are outstanding, the last Business Day of each March, June, September and December, and (2) the Maturity Date; and (b) for LIBOR Rate Borrowings, (1) if the LIBOR Interest Period applicable to such LIBOR Rate Borrowing is equal to or less than three (3) months, the end of such LIBOR Interest Period, and (2) in all other cases, on that day which is three (3) calendar months following the first day of the applicable LIBOR Interest Period (or, if such day is not a Business Day, on the next succeeding day that is a Business Day) and at the end of such LIBOR Interest Period.

        "Investment" shall mean the purchase or other acquisition of any securities or Indebtedness of, or the making of any loan, advance, transfer of Property or capital contribution to, or the incurring of any liability, contingently or otherwise, in respect of the Indebtedness of, any Person.

        "Investment Grade" shall mean with respect to the Moody's corporate credit rating system a rating of Baa3 or higher and with respect to the S&P corporate credit rating system a rating of BBB- or higher.

        "Joinder Agreement" shall mean any agreement, in Proper Form, executed by a Subsidiary of the Company from time to time, pursuant to which such Subsidiary joins in the execution and delivery of a Guaranty and the Contribution Agreement.

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        "Joint Lead Arrangers" shall have the meaning ascribed to such term in the recitals hereto.

        "Legal Requirement" shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority.

        "Lenders" shall have the meaning ascribed to it in the recital of parties hereto.

        "Leverage Ratio" shall mean as of any day that the Leverage Ratio is calculated, the ratio of Funded Indebtedness of the Company and its Subsidiaries on a consolidated basis as of such day to EBITDA of the Company and its Subsidiaries on a consolidated basis for the Rolling Four Quarters as of such day; provided that EBITDA for the three quarters immediately prior to the Effective Date shall be as set forth in Schedule 1.1(b).

        "LIBOR Business Day" shall mean a Business Day on which transactions in United States Dollar deposits between banks may be carried on in the London, England interbank market.

        "LIBOR Interest Period" shall mean, for each LIBOR Rate Borrowing, a period commencing:

        (a)   on the date of such LIBOR Rate Borrowing, or

        (b)   on the last day of the immediately preceding LIBOR Interest Period in the case of a rollover to a successive LIBOR Interest Period, and ending on the numerically corresponding day one, two, three or (as available) six months thereafter, as the Company shall elect in accordance herewith; provided, (w) any LIBOR Interest Period which would otherwise end on a day which is not a LIBOR Business Day shall be extended to the next succeeding LIBOR Business Day, unless such LIBOR Business Day falls in another calendar month, in which case such LIBOR Interest Period shall end on the next preceding LIBOR Business Day; (x) any LIBOR Interest Period which begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall end on the last LIBOR Business Day of the appropriate calendar month; (y) no LIBOR Interest Period shall ever extend beyond the Maturity Date; and (z) LIBOR Interest Periods shall be selected by the Company in such a manner that the LIBOR Interest Period with respect to any portion of the Loans which shall become due shall not extend beyond such due date.

        "LIBOR Rate" means, for any LIBOR Interest Period for all LIBOR Rate Borrowings comprising part of the same Borrowing, (a) an interest rate per annum equal to the rate per annum obtained by dividing (i) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Reuters Screen LIBOR 01 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such LIBOR Interest Period for a period equal to such LIBOR Interest Period (provided that, if for any reason such rate is not available, the term "LIBOR" shall mean, for any LIBOR Interest Period for all LIBOR Rate Borrowings comprising part of the same Borrowing, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR 01 as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBOR 01, the applicable rate shall be the arithmetic mean of all such rates) by (ii) a percentage equal to 100% minus the LIBOR Reserve Percentage for such LIBOR Interest Period plus (b) the Applicable Margin from time to time in effect during such term.

        "LIBOR Rate Borrowing" shall mean each portion of the principal balance of the Loans at any time bearing interest at the LIBOR Rate.

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        "Lien" shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract, and shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions.

        "Loan Documents" shall mean this Agreement, the Notes, the Guaranties, the Contribution Agreement, the Joinder Agreements, the Fee Letter, Security Agreement A, Security Agreement B, the Credit Facility Hedging Agreements, all instruments, certificates and agreements now or hereafter executed or delivered to the Agent and/or the Lenders pursuant to any of the foregoing, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing.

        "Loan Party" means the Company or any Guarantor.

        "Loans" shall mean the advances of funds described in Section 2.1 hereof. Loan shall mean any one of the Loans.

        "Margin Stock" has the meaning specified in Regulation U.

        "Material Adverse Effect" means a material adverse effect on the validity or enforceability of any material provision of the Loan Documents, on the ability of the Company to consummate the Transactions, on the financial condition of the Company (either individually or taken as a whole with its Subsidiaries), or on the property, business, operations or liabilities of the Company (either individually or taken as a whole with its Subsidiaries).

        "Maturity Date" shall mean the earlier of (a) August 28, 2012 and (b) the date specified by the Agent pursuant to Section 7.1 hereof.

        "Merger" shall have the meaning ascribed to it in the Preliminary Statements hereto.

        "Merger Agreement" shall have the meaning ascribed to it in the Preliminary Statements hereto.

        "Moody's" shall mean Moody's Investors Service, Inc.

        "Net Income" shall mean gross revenues and other proper income credits, less all proper income charges, including taxes on income, all determined in accordance with Generally Accepted Accounting Principles; provided, that there shall not be included in such revenues (i) any income representing the excess of equity in any Subsidiary at the date of acquisition over the investment in such Subsidiary, (ii) any equity in the undistributed earnings of any Person which is not a Subsidiary, (iii) any earnings of any Subsidiary for any period prior to the date such Subsidiary was acquired, except as may be permitted under Generally Accepted Accounting Principles in connection with the pooling of interest method of accounting, and (iv) any gains resulting from the write-up of assets. Net Income shall be determined on a consolidated basis.

        "Net Proceeds" shall mean:

        (a)   with respect to any sale, lease, transfer or other disposition of any asset of the Company or any of its Subsidiaries (except in the case of Disclosed Divestitures listed in part A of Schedule1.1(a)), the excess, if any, of (i) the sum of cash and Permitted Investment Securities received in connection with such sale, lease, transfer or other disposition (including any cash or Permitted Investment Securities received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) less (ii) the sum of (A) the principal amount of any Indebtedness (other than Indebtedness under the Loan Documents) that is required to be repaid in connection with such sale, lease, transfer or other disposition thereof, (B) the reasonable and customary out-of-pocket costs, fees, commissions, premiums and expenses incurred by the Company or its Subsidiaries,

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(C) federal, state, provincial, foreign and local taxes reasonably estimated (on a consolidated basis) to be actually payable within the current or the immediately succeeding tax year as a result of any gain recognized in connection therewith and (D) a reasonable reserve for any purchase price adjustment or any indemnification payments (fixed and contingent) attributable to the seller's obligations to the purchaser undertaken by the Company or any of its Subsidiaries in connection with such sale, lease, transfer or other disposition; provided, however, that, Net Proceeds shall not include any such amounts to the extent such amounts are reinvested or contracted to be so reinvested in capital assets used or useful in the business of the Company and its Subsidiaries within 270 days after the date of receipt thereof or the date such contact is entered into; and

        (b)   with respect to any Extraordinary Receipt that is not otherwise included in clause (a) above, the sum of the cash and Permitted Investment Securities received in connection therewith (including any cash or Permitted Investment Securities received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) less fees, costs, out of pocket expenses and commissions incurred in connection with the receipt thereof; provided, however, that Net Proceeds shall not include any such amounts from Extraordinary Receipts (other than in respect of Customer Penalties) to the extent such amounts are reinvested or contracted to be so reinvested in capital assets used or useful in the business of the Company and its Subsidiaries within 270 days after the date of receipt thereof or the date such contract is entered into.

        "Non-Consenting Lender" means, in the event that the Required Lenders have agreed to any consent, waiver or amendment pursuant to Section 9.10 that requires the consent of one or more Lenders in addition to the Required Lenders, any Lender who is entitled to agree to such consent, waiver or amendment but who does not so agree.

        "Non-Guarantor Subsidiaries" means (a) Subsidiaries of the Company organized under the laws of a jurisdiction located outside of the United States, (b) prior to consummation of the Merger, the Target and its Subsidiaries, and (c) any one or more Subsidiaries of the Company designated by the Company in writing to the Agent from time to time that do not represent, in the aggregate, (i) five percent (5%) or more of the consolidated EBITDA of the Company and its Subsidiaries, or (ii) 5% or more of the consolidated tangible assets of the Company and its Subsidiaries; provided, that no Subsidiary of the Company shall be a Non-Guarantor Subsidiary to the extent that such Subsidiary guaranties any other Indebtedness of the Company.

        "Notes" shall mean the promissory notes, each substantially in the form of Exhibit A attached hereto, of the Company evidencing the Loans, payable to the order of the respective Lenders in the amount of the sum of said Lender's Unused Commitment and the Current Sum owing to said Lender, and all renewals, extensions, modifications, rearrangements and replacements thereof and substitutions therefor. Note shall mean any one of them.

        "Notice of Assumption" shall mean a Notice of Assumption in favor of the Agent, substantially in the form of Exhibit B attached hereto and otherwise in Proper Form.

        "Officer's Certificate" shall mean a certificate substantially in the form of Exhibit C attached hereto.

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        "Operating Lease Expense" shall mean for any period for which Operating Lease Expense is calculated, the aggregate amount of fixed and contingent rentals (exclusive of payments of Capital Lease Obligations) payable by the Company and its Subsidiaries for such period with respect to leases of Property. Operating Lease Expense shall be determined for the Company and its Subsidiaries on a consolidated basis in accordance with Generally Accepted Accounting Principles, consistently applied.

        "Organizational Documents" shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture, and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof as of the date of the Loan Document referring to such Organizational Document and any and all future modifications thereof which are consented to by the Agent.

        "Parties" shall mean all Persons other than the Agent or any Lender executing any Loan Document.

        "Past Due Rate" shall mean, on any day, the Alternate Base Rate plus two percent (2%).

        "Permitted Asset Dispositions" shall have the meaning attributed to such terms in Section 6.4(z) hereof.

        "Permitted Investment Securities" shall mean: (1) readily marketable securities issued or fully guaranteed by the United States of America or any agency or wholly owned corporation thereof; (2) commercial paper rated "Prime 1" by Moody's Investors Service, Inc. or A-1 by Standard and Poor's Corporation with maturities of not more than one hundred eighty (180) days and short term notes payable of any Business Entity where said notes are rated at least "Prime 1" by Moody's Investors Service, Inc. or "A-1" by Standard & Poor's Corporation with maturities of not more than ninety (90) days; (3) certificates of deposit or repurchase certificates issued by any Lender or any other financial institution acceptable to the Agent, all of the foregoing not having a maturity of more than one (1) year from the date of issuance thereof; (4) securities issued by municipalities rated AA or better by Standard & Poor's Corporation not having a maturity of more than one (1) year from the date of issuance thereof; and (5) money market mutual funds having capital surplus of at least $1,000,000,000 and deemed acceptable by the Agent, substantially all of the assets of which are comprised of securities, commercial paper, certificates of deposit or repurchase certificates of the type described in subclauses (1) through (4) above.

        "Permitted Stock Dispositions" shall have the meaning attributed to such terms in Section 6.4(z) hereof.

        "Person" shall mean any individual, corporation, trust, unincorporated organization, Governmental Authority or any other form of entity.

        "Plan" shall mean any plan subject to Title IV of ERISA and maintained for employees of the Company or of any member of a "controlled group of corporations", as such term is defined in the Code, of which the Company or any of its Subsidiaries it may acquire from time to time is a part, or any such plan to which the Company or any of its Subsidiaries it may acquire from time to time is required to contribute on behalf of its employees.

        "Prime Rate" shall mean, for any day, the corporate base rate of interest publicly announced by the Agent from time to time for borrowings made in the United States in U.S. Dollars. The corporate base rate is not necessarily the lowest rate charged by the Lender acting as the administrative agent to its customers.

        "Proper Form" shall mean in form and substance satisfactory to the Agent.

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        "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible.

        "Quarterly Unaudited Financial Statements" shall mean, with respect to each fiscal quarter of the Company (except for the last fiscal quarter), the Company's 10-Q Report filed with the Securities Exchange Commission for such fiscal quarter. All of the Quarterly Unaudited Financial Statements of the Company are to be prepared in accordance with Generally Accepted Accounting Principles and certified as true and correct by a Responsible Officer of the Company.

        "Rate Selection Date" shall mean that Business Day which is (a) in the case of Alternate Base Rate Borrowings, the date one (1) Business Day preceding such borrowing or (b) in the case of LIBOR Rate Borrowings, the date three (3) Business Days preceding the first day of any proposed LIBOR Interest Period.

        "Rate Selection Notice" shall have the meaning ascribed to it in Section 2.9(b)(i) hereof.

        "Register" shall have the meaning assigned to such term in Section 9.11(e).

        "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System.

        "Regulatory Change" shall mean, with respect to any Lender, any change on or after the date of this Agreement in any Legal Requirement (including Regulation D) or the adoption or making on or after such date of any interpretation, directive or request applying to a class of banks including such Lender under any Legal Requirement (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof.

        "Request for Extension of Credit and Certificate of No Default" shall mean a written request for extension of credit substantially in the form of Exhibit D attached hereto.

        "Required Lenders" shall mean two (2) or more Lenders having a majority or greater of the sum of the Aggregate Commitment or if the Aggregate Commitment has been terminated the aggregate Current Sum for all Lenders.

        "Requirements of Environmental Law" shall mean all requirements imposed by any law (including The Resource Conservation and Recovery Act, The Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Water Act, the Clean Air Act, and any state analogues of any of the foregoing), rule, regulation, or order of any Governmental Authority now or hereafter in effect which relate to (i) noise; (ii) pollution, protection or clean-up of the air, surface water, ground water or land; (iii) solid, gaseous or liquid waste or Hazard Substance generation, recycling, reclamation, release, threatened release, treatment, storage, disposal or transportation; (iv) exposure of Persons or property to Hazardous Substances; (v) the safety or health of employees or other Persons or (vi) the manufacture, presence, processing, distribution in commerce, use, discharge, releases, threatened releases, emissions or storage of Hazardous Substances into the environment. Requirement of Environmental Law shall mean any one of them.

        "Responsible Officer" shall mean the chief executive officer, chief financial officer, president of a Loan Party and the general counsel of the Company. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

        "Revolving Credit Facility" shall mean the senior revolving credit facility of the Company dated as of the date hereof among the Company, the financial institutions from time to time parties

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thereto, and JPMorgan Chase Bank, N.A., as administrative agent, as the same may be amended from time to time in accordance with the terms of this Agreement.

        "Rolling Four Quarters" shall mean the then most recently ended four (4) consecutive fiscal quarters of the Company for which, as of such day, financial statements are required to have been given to the Agent and Lenders pursuant to this Agreement.

        "Royal Bank" shall have the meaning ascribed to it in the recital of parties hereto.

        "S&P" shall mean Standard & Poor's, a division of The McGraw Hill Companies, Inc.

        "Security Agreement A" means a security and pledge agreement substantially in the form of Exhibit G-A hereto.

        "Security Agreement B" means a security and pledge agreement substantially in the form of Exhibit G-B hereto.

        "Solvent" and "Solvency" shall mean, with respect to any Person on a particular date, that on such date (a) the fair value (taken on a going concern basis) of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value (taken on a going concern basis) of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. In determining the Solvency of any Loan Party the contribution rights that such Loan Party will have against the other Loan Parties and the subrogation rights that each Guarantor will have against the Company shall be taken into account.

        "Stock" shall mean as to a Business Entity, all capital stock or other indicia of equity rights issued by such Business Entity from time to time.

        "Subsidiary" of any Person shall mean any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than fifty percent (50%) of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries.

        "Synthetic Indebtedness" shall mean the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person (excluding operating leases) but which upon the insolvency or bankruptcy of such Person, to the extent functioning as debt for borrowed money, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

        "Target" shall have the meaning ascribed to it in the Preliminary Statements hereto.

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        "Target Representations" shall mean the representations and warranties made by or on behalf of the Target and its Subsidiaries and contained in the Merger Agreement and the representations and warranties of the Company with respect to the Target and its Subsidiaries set forth in Sections 4.1, 4.3, 4.14, 4.15, 4.18 and 4.19.

        "Target Representation Limitations" means that, on the date of the initial Borrowing hereunder until the earlier of the date of consummation of the Merger and the Commitment Termination Date, the representations and warranties of the Company set forth in Article IV in respect of the Target and its Subsidiaries shall be limited to the Target Representations.

        "Taxes" shall have the meaning ascribed to it in Section 2.10(b) hereof.

        "Tender Offer" shall have the meaning ascribed to it in the Preliminary Statements hereto.

        "Transactions" means the consummation of the Merger and the entering into and borrowings under this Agreement.

        "Unsecured Borrowed Debt" shall mean all Indebtedness resulting from borrowings of the Company (exclusive of intercompany borrowings) from time to time owing to Persons which is not secured by any Liens (other than borrowings from trade creditors in the ordinary course of business).

        "Unused Commitment" shall mean, as to a particular Lender, the outstanding Commitment of such Lender giving effect to any Borrowing on any day.

        Section 1.2    Accounting Terms and Determinations.

Except where specifically otherwise provided:

        (a)   The symbol "$" and the word "dollars" shall mean lawful money of the United States of America.

        (b)   Any accounting term not otherwise defined shall have the meaning ascribed to it under Generally Accepted Accounting Principles.

        (c)   Unless otherwise expressly provided, any accounting concept and all financial covenants shall be determined on a consolidated basis, and financial measurements shall be computed without duplication.

        (d)   Wherever the term "including" or any of its correlatives appears in the Loan Documents, it shall be read as if it were written "including (by way of example and without limiting the generality of the subject or concept referred to)".

        (e)   Wherever the word "herein" or "hereof" is used in any Loan Document, it is a reference to that entire Loan Document and not just to the subdivision of it in which the word is used.

        (f)    References in any Loan Document to Section numbers are references to the Sections of such Loan Document.

        (g)   References in any Loan Document to Exhibits, Schedules, Annexes and Appendices are to the Exhibits, Schedules, Annexes and Appendices to such Loan Document, and they shall be deemed incorporated into such Loan Document by reference.

        (h)   Any term defined in the Loan Documents which refers to a particular agreement, instrument or document shall also mean, refer to and include all modifications, amendments, supplements, restatements, renewals, extensions and substitutions of the same; provided that nothing in this subsection shall be construed to authorize any such modification, amendment, supplement, restatement, renewal, extension or substitution except as may be permitted by other provisions of the Loan Documents.

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        (i)    All times of day used in the Loan Documents mean local time in New York, New York.

        (j)    Defined terms may be used in the singular or plural, as the context requires.

ARTICLE II—LOANS; ETC.

        Section 2.1    Loans.

        (a)   Subject to the terms and conditions hereof, each Lender severally agrees to make up to two loans to the Company from time to time on or prior to the Commitment Termination Date, in an aggregate principal amount at any one time outstanding up to but not exceeding such Lender's Unused Commitment on such date. Loans repaid may not be reborrowed pursuant to the terms of this Agreement. Each Loan shall be in an amount of at least (i) $10,000,000 or (ii) the Unused Commitment of the Lenders, whichever is less. Each repayment of the Loans shall be in an amount of at least $10,000,000 or, if less, the Current Sum.

        (b)   The Company shall give the Agent notice of a request for a Loan in accordance with Section 3.1 hereof. Upon receipt of each such notice, the Agent shall promptly give each of the Lenders notice of receipt thereof, which notice may be by telephone or facsimile. Not later than 12:00 noon on the date specified for the making of such Loan, each Lender shall make available to the Agent, at the Agent's Account, such Lender's Commitment Percentage of such Loan in immediately available funds for the account of the Company. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing same, in immediately available funds, in an account designated by the Company maintained with the Agent or with another financial institution reasonably acceptable to the Agent. If a requested Loan shall not occur on any date specified by the Company as set forth in the applicable Request for Extension of Credit and Certificate of No Default because all of the conditions for such Loan set forth herein or in any of the other Loan Documents shall have not been met, the Agent shall return the amounts so received from the Lenders in respect of such requested Loan to the applicable Lenders as soon as practicable; provided, however, if and to the extent that the Agent fails to return any such amounts to any applicable Lender by the Business Day following the date that the requested Loan was to have been made, the Agent shall pay interest on such unreturned amounts for each date from such date that the requested Loan was to have been made, to the date that such unreturned amounts are returned to such Lender, such interest to accrue at the Federal Funds Rate and to be payable upon written request from such Lender.

        (c)   Unless the Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Agent such Lender's ratable portions of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.1 and the Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Company severally agree to repay or pay to the Agent forthwith on demand such corresponding amount and to pay interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid or paid to the Agent, at (i) in the case of the Company, the interest rate applicable at such time under Section 2.9 to Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Agent such corresponding amount, such amount so paid shall constitute such Lender's Loan as part of such Borrowing for all purposes.

        (d)   The obligations of the Lenders hereunder are several and not joint; therefore, notwithstanding anything herein to the contrary, (i) no Lender shall be required to make Loans at any one time outstanding in excess of such Lender's Commitment, (ii) if a Lender fails to make a Loan as and when required hereunder and the Company subsequently makes a repayment on the Loans, such repayment

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shall be split among the non-defaulting Lenders in accordance with their respective Current Sum Percentages until each Lender has its Commitment Percentage of all of the outstanding Loans, then the balance of such repayment shall be divided among all of the Lenders in accordance with their respective Commitment Percentages (it being understood that any such repayment to a defaulting Lender shall not be deemed to relieve such defaulting Lender from any liability to the Company resulting from such defaulting Lender's failure to make a Loan as and when required hereunder) and (iii) the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (provided, that no Lender shall be responsible for the failure of any other Lender to make a Loan such other Lender is obligated to make hereunder).

        (e)   Notwithstanding anything to the contrary contained in this Section 2.1 or any other provision of this Agreement, the Company covenants and agrees that in no event shall the aggregate amount of the Loans outstanding on any day ever exceed the amount of the Aggregate Commitment then in effect as of such day.

        Section 2.2    Commitment Fees; Termination and Reductions.    In consideration of each Lender's Unused Commitment, the Company agrees to pay to the Agent for the account of each Lender a commitment fee (each a "Commitment Fee"), starting from the date hereof and until the Commitment Termination Date, due and payable monthly on the last day of each month and on the Commitment Termination Date, at the rate of 0.15% per annum on the average daily Unused Commitment of such Lender. All past due Commitment Fees shall bear interest at the Past Due Rate and shall be payable upon demand by the Agent. The Aggregate Commitment may be permanently terminated or reduced as follows, which such reductions shall be applied pro rata:

        (a)   the Company may, upon three (3) Business Days' prior written notice to the Agent, permanently terminate or reduce the aggregate of the Unused Commitments in an amount of at least $10,000,000 or the amount of the aggregate of the Unused Commitments at such time, whichever is less; and

        (b)   any prepayment of the Loans in accordance with the provisions of Section 2.3 hereof shall permanently and automatically reduce the Aggregate Commitment in an amount equal to any such prepayment.

        Section 2.3    Mandatory Prepayments; Commitment Reduction.

        (a)   The Company shall, not later than five Business Days following the date of receipt of any Net Proceeds by any Loan Party or any of its Subsidiaries, by notice to the Agent, prepay an aggregate principal amount of the Loans in an amount equal to the amount of such Net Proceeds, such prepayment to be applied to the Loans on a pro rata basis; provided that this subsection shall not apply to the first $10,000,000 of Net Proceeds received by the Company and its Subsidiaries in any fiscal year of the Company.

        (b)   The Company shall, on the date that is 90 days following the Effective Date, prepay an aggregate principal amount of the Loans in an amount equal to the excess above $10,000,000 of the aggregate principal amount of the Target's Convertible Senior Debentures outstanding on such date.

        (c)   Except to the extent of any Loans borrowed on or prior to such date, the Unused Commitment of each Lender shall be canceled in full on the Commitment Termination Date.

        Section 2.4    Payments.    All sums payable by the Company to the Agent hereunder or pursuant to Notes for its own account or the account of the Lenders shall be payable in United States dollars in immediately available funds not later than 12:00 noon on the date such payment or prepayment is due and shall be made without set-off, counterclaim or deduction of any kind. Any such payment received and accepted by the Agent after such time shall be considered for all purposes (including the payment of interest, to the extent permitted by law) as having been made on the next succeeding Business Day.

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All such payments shall be made to the Agent at the Agent's Account. If any payment or prepayment becomes due and payable on a day which is not a Business Day, then the date for the payment thereof shall be extended to the next succeeding Business Day and interest shall be payable thereon at the then applicable rate per annum during such extension.

        Section 2.5    Prepayments of Loans.

        (a)   In addition to the mandatory prepayments required by Section 2.3 hereof, the Company shall have the right, at its option, to prepay the Loans in whole at any time or in part from time to time, without premium or penalty, except as provided in this Section or subsections (a), (b) or (c) of Section 2.10 hereof. Each partial prepayment under this subsection shall be a principal amount of not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof. Each prepayment under this subsection shall be applied to the prepayment of the aggregate unpaid principal amount of the Notes. Prepayments under this Agreement shall be subject to the following additional conditions:

        i.      In giving notice of prepayment as hereinafter provided, the Company shall specify, for the purpose of paragraphs (ii) and (iii) immediately following, the manner of application of such prepayment as between any outstanding Alternate Base Rate Borrowings and LIBOR Rate Borrowings; provided, that in no event shall any LIBOR Rate Borrowing be partially prepaid.

        ii.     Prepayments applied to any LIBOR Rate Borrowing may be made on any LIBOR Business Day, provided, that (A) the Company shall have given the Agent at least two (2) LIBOR Business Days' prior irrevocable written or facsimile notice of such prepayment, specifying the principal amount of the LIBOR Rate Borrowing to be prepaid, the particular LIBOR Rate Borrowing to which such prepayment is to be applied and the prepayment date; and (ii) if such prepayment is made on any day other than the last day of the LIBOR Interest Period corresponding to the LIBOR Rate Borrowing to be prepaid, the Company shall pay directly to the Agent for the account of the Lenders, on the last day of such LIBOR Interest Period, the Consequential Loss as a result of such prepayment.

        iii.    Prepayments applied to any Alternate Base Rate Borrowing may be made on any Business Day, provided that the Company shall have given the Agent at least five (5) Business Days prior irrevocable written notice or notice by telephone or facsimile (which is to be promptly confirmed in writing) of such prepayment, specifying the principal amount of the Alternate Base Rate Borrowing to be prepaid and the prepayment date.

        (b)   Notice of any prepayment having been given, the principal amount specified in such notice, together with (in the case of any prepayment of a LIBOR Rate Borrowing) interest thereon to the date of prepayment, shall be due and payable on such prepayment date.

        (c)   Any Lender may, if it so elects, fulfill its obligation as to any LIBOR Rate Borrowing by causing a branch, foreign or otherwise, or Affiliate of such Lender to make such Loans and may transfer and carry such Loans at, to or for the account of any branch office or Affiliate of such Lender; provided, that in such event for the purposes of this Agreement such Loans shall be deemed to have been made by such Lender and the obligation of the Company to repay such Loans shall nevertheless be to such Lender and shall be deemed held by it, to the extent of such portions of the Loan, for the account of such branch or affiliate.

        (d)   Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of the Loans hereunder in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender had actually funded and maintained its portion of each LIBOR Rate Borrowing during each LIBOR Interest Period for the Loans through the purchase of deposits having a maturity corresponding to such LIBOR Interest Period and bearing an interest rate equal to the London Interbank Rate for such LIBOR Interest Period.

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        (e)   The Company's obligation to pay increased costs and Consequential Loss with regard to each LIBOR Rate Borrowing as specified in this Section 2.5 hereof shall survive termination of this Agreement.

        Section 2.6    Application of Payments and Prepayments.    Prepayments of the Loans shall be applied first to the principal amount thereof, with the balance to accrued interest. Regularly scheduled payments of the Loans shall be applied first to accrued interest, the balance to the principal. If the Agent receives funds on a date when payments of the Loans are due and such funds are not sufficient to pay all of the obligations of the Company hereunder then due, or if the Agent receives any payments or other amounts owing to Agent or any Lender under any Loan Document, including without limitation, proceeds obtained from the enforcement of the Guaranties, then such funds shall be applied (a) first to fees or expenses of the Agent then due hereunder or under any other Loan Document which are to be paid by the Company or the applicable Guarantor, (b) second, to fees or expenses of the Lenders then due hereunder or under any other Loan Document (other than fees or expenses owing under the Credit Facility Hedge Agreements) which are to be paid by the Company or the applicable Guarantor, and (c) third to the accrued interest on and, to the extent then due, principal of the Loans then outstanding. Each payment received by the Agent hereunder or under any Note for the account of a Lender shall be paid promptly to such Lender, in immediately available funds. If the Agent fails to send to any Lender the product of such Lender's Current Sum Percentage times the aggregate amount of any such payment timely received by the Agent for the account of all the Lenders by the close of business on the Business Day following the date such payment was received by the Agent, the Agent shall pay to such Lender interest on such Lender's pro-rata portion of such payment timely received by the Agent from such date of receipt by the Agent to the date that such Lender receives its pro-rata portion of such payment, such interest to accrue at the Federal Funds Rate and to be payable upon written request from such Lender.

        Section 2.7    Pro Rata Treatment.    Except to the extent otherwise provided herein: (a) each borrowing from the Lenders under Section 2.1 hereof shall be made, each payment of commitment fees shall be made and applied for the account of the Lenders, and each termination or reduction of the Unused Commitments of the Lenders under Section 2.2 hereof shall be applied, pro rata, according to each Lender's Commitment Percentage; and (b) each payment by the Company of principal of or interest on Loans shall be made to the Agent for the account of the Lenders pro rata in accordance with the respective Current Sum Percentage of the Lenders.

        Section 2.8    Payment Dates on the Loans.    Accrued interest on the unpaid balance of the Loans shall be payable on the Interest Payment Dates and at the Maturity Date, commencing with the first of such dates to occur after the date hereof. After the Maturity Date, accrued interest on the Loans shall be payable on demand. On the Maturity Date, the outstanding principal balance of the Loans shall be fully due and payable.

        Section 2.9    Interest Options for Loans.

        (a)    Options Available.    The Loans shall bear interest at the Alternate Base Rate; provided, that (1) all past due principal and interest shall bear interest at the Past Due Rate which shall be payable on demand, and (2) subject to the provisions hereof, the Company shall have the option of having all or any portion of the outstanding principal amount of the Loans bear interest until their respective maturities at a rate per annum equal to the LIBOR Rate (together with the Alternate Base Rate, individually herein called an "Interest Option" and collectively called "Interest Options"). The records of the Agent with respect to Interest Options, LIBOR Interest Periods and the amounts of Loans to which they are applicable shall be binding and conclusive, absent manifest error. Interest on the Loans shall be calculated at the Alternate Base Rate except where it is expressly provided pursuant to this Agreement that the LIBOR Rate is to apply.

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        (b)    Designation and Conversion.    The Company shall have the right to designate or convert its Interest Options in accordance with the provisions hereof. Provided no Event of Default has occurred and is continuing and subject to the provisions of the last sentence of Subsection 2.09(a) hereinabove and of Section 2.10 hereof, the Company may elect to have the LIBOR Rate apply or continue to apply to all or any portion of the outstanding principal balance of the Loans. Each change in Interest Options shall be a conversion of the rate of interest applicable to the specified portion of the Loans, but such conversion alone shall not change the outstanding principal amount of the Loans and such conversion shall not be construed to make this Agreement a revolving credit facility. The Interest Options shall be designated or converted in the manner provided below:

        i.      The Company shall give the Agent notice by telephone or facsimile promptly confirmed by written notice (the "Rate Selection Notice") substantially in the form of Exhibit E hereto. Each such telephone or facsimile and written notice shall specify the amount and type of borrowings which are the subject of the designation, if any; the amount and type of borrowings into which such borrowings are to be converted or for which an Interest Option is designated; the proposed date for the designation or conversion (which, in the case of conversion of LIBOR Rate Borrowings, shall be the last day of the LIBOR Interest Period applicable thereto) and the LIBOR Interest Period or Periods, if any, selected by the Company. Such notice by telephone or facsimile shall be irrevocable and shall be given to the Agent no later than the applicable Rate Selection Date. If (a) a new Loan is to be a LIBOR Rate Borrowing, (b) an existing LIBOR Rate Borrowing is maturing at the time that a new Loan is being requested and the Company is electing to have such existing portion of the outstanding principal balance of the Loans going forward bear interest at the same Interest Option and for the same LIBOR Interest Period as the new Loan, or (c) a portion of an Alternate Base Rate Borrowing is to be converted so as to bear interest at the same Interest Option and for the same LIBOR Interest Period as the new Loan, then the Rate Selection Notice shall be included in the Request for Extension of Credit and Certificate of No Default applicable to the new Loan, which shall be given to the Agent no later than the applicable Rate Selection Date.

        ii.     No more than five (5) LIBOR Interest Periods shall be in effect at any one time. Each LIBOR Rate Borrowing shall be in the amount of at least $10,000,000.

        iii.    Principal included in any borrowing shall not be included in any other borrowing which exists at the same time.

        iv.    Each designation or conversion shall occur on a Business Day (and, for LIBOR Rate Borrowings, on a LIBOR Business Day).

        v.     Except as provided in Section 2.10 hereof, no LIBOR Rate Borrowing shall be converted on any day other than the last day of the applicable LIBOR Interest Period.

        (c)    Computations.    Interest based on the Alternate Base Rate, to the extent determined by reference to the Prime Rate, will be computed on the basis of 365 (or 366) days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. All other interest and fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable.

        Section 2.10    Special Provisions Applicable to LIBOR Rate Borrowings.

        (a)    Options Unlawful.    If, after the date of this Agreement, the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by the Agent or any Lender with any request or directive (whether or not having the force of law) of any Governmental Authority shall at any time make it unlawful or impossible for any Lender to permit the establishment of or to maintain any LIBOR Rate Borrowing, the commitment of the Lenders to establish or maintain the

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LIBOR Rate affected by such adoption or change shall forthwith be canceled and the Company shall forthwith, upon demand by the Agent to the Company, (1) convert the LIBOR Rate with respect to which such demand was made to the Alternate Base Rate; (2) pay all accrued and unpaid interest to date on the amount so converted; and (3) pay any amounts required to compensate the Agent and the Lenders for any additional cost or expense which the Agent or any Lender may incur as a result of such adoption of or change in such Legal Requirement or in the interpretation or administration thereof and any Consequential Loss which the Agent or any Lender may incur as a result of such conversion to the Alternate Base Rate. If, when the Agent so notifies the Company, the Company has given a Rate Selection Notice specifying one or more borrowings of the type with respect to which such demand was made but the selected LIBOR Interest Period or LIBOR Interest Periods has not yet begun, such Rate Selection Notice shall be deemed to be of no force and effect, as if never made, and the balance of the Loans specified in such Rate Selection Notice shall bear interest at the Alternate Base Rate until a different available Interest Option shall be designated in accordance herewith.

        (b)    Increased Cost of Borrowings.    If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by the Agent or any Lender with any request or directive (whether or not having the force of law) from any Governmental Authority shall at any time as a result of any portion of the principal balance of the Loans being maintained on the basis of the LIBOR Rate:

        i.      subject any Lender (or make it apparent that any Lender is subject) to any tax (including any United States interest equalization tax), levy, impost, duty, charge, fee (collectively, "Taxes"), or any deduction or withholding for any Taxes on or from the payment due under any LIBOR Rate Borrowing or other amounts due hereunder, other than income and franchise taxes of the United States and its political subdivisions; or

        ii.     change the basis of taxation of payments due from the Company to the Agent or any Lender under any LIBOR Rate Borrowing (otherwise than by a change in the rate of taxation of the overall net income of the Agent or any Lender); or

        iii.    impose, modify, increase or deem applicable any reserve requirement (excluding that portion of any reserve requirement included in the calculation of the Eurocurrency Reserve Requirement, special deposit requirement or similar requirement (including state law requirements and Regulation D) imposed, modified, increased or deemed applicable by any Governmental Authority against assets held by the Agent or any Lender, or against deposits or accounts in or for the account of the Agent or any Lender, or against loans made by the Agent or any Lender, or against any other funds, obligations or other Property owned or held by the Agent or any Lender; or

        iv.    impose on the Agent or any Lender any other condition regarding any LIBOR Rate Borrowing;

and the result of any of the foregoing is to increase the cost to any Lender of agreeing to make or of making, renewing or maintaining such borrowing on the basis of the LIBOR Rate, or reduce the amount of principal or interest received by any Lender, then, upon demand by the Agent, the Company shall pay to the Agent, from time to time as specified by the Agent, additional amounts which shall compensate such Lender for such increased cost or reduced amount. The Agent will promptly notify the Company in writing of any event, upon becoming actually aware of it, which will entitle any Lender to additional amounts pursuant to this paragraph. The Agent's determination of the amount of any such increased cost, increased reserve requirement or reduced amount shall be conclusive and binding, absent manifest error, provided that the calculation thereof is set forth in reasonable detail in such notice.

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        The Company shall have the right, if it receives from the Agent any notice referred to in the preceding paragraph, upon three (3) Business Days' notice to the Agent, either (i) to repay in full (but not in part) any borrowing with respect to which such notice was given, together with any accrued interest thereon, or (ii) to convert the LIBOR Rate in effect with respect to such borrowing to the Alternate Base Rate; provided, that any such repayment or conversion shall be accompanied by payment of (x) the amount required to compensate the appropriate Lender or Lenders for the increased cost or reduced amount referred to in the preceding paragraph; (y) all accrued and unpaid interest to date on the amount so repaid or converted, and (z) any Consequential Loss which may be incurred as a result of such repayment or conversion.

        (c)    Inadequacy of Pricing and Rate Determination.    If for any reason with respect to any LIBOR Interest Period the Agent shall have determined (which determination shall be conclusive and binding upon the Company, and, in the case of clause (2) below, shall be presumed to be made upon notice from such Lender) that: (1) the Agent is unable through its customary general practices to determine a rate at which the Agent is offered deposits in United States dollars by prime banks in the interbank market in London, England in the appropriate amount for the appropriate period, or by reason of circumstances affecting the interbank market in London, England, generally, prime banks are not being offered deposits in United States dollars in the interbank market in London, England, for the applicable LIBOR Interest Period and in an amount equal to the amount of the LIBOR Rate Borrowing requested by the Company, or (2) the LIBOR Rate will not adequately and fairly reflect the cost to any Lender of making and maintaining any LIBOR Rate Borrowing hereunder for any proposed LIBOR Interest Period, then the Agent shall give the Company notice thereof and thereupon, (A) any Rate Selection Notice previously given by the Company designating a LIBOR Rate which has not commenced as of the date of such notice from the Agent shall be deemed for all purposes hereof to be of no force and effect, as if never given, and (B) until the Agent shall notify the Company that the circumstances giving rise to such notice from the Agent no longer exist, each Rate Selection Notice requesting a LIBOR Rate Borrowing shall be deemed a request for an Alternate Base Rate Borrowing, and each outstanding LIBOR Rate Borrowing then in effect shall be converted, without any notice to or from the Company, upon the termination of the LIBOR Interest Period then in effect, to an Alternate Base Rate Borrowing.

        (d)    Indemnification.    The Company shall indemnify the Agent and each of the Lenders against and hold each of them harmless from any loss or expense which they may incur or sustain as a consequence of any untimely payment (mandatory or optional) or default by the Company in the payment of any principal amount of or interest on the Loans, or any failure by the Company to convert or to borrow any LIBOR Rate Borrowing on the date specified by the Company, in each case including any interest payable by any Lender to the lenders of the funds obtained by it in order to make or maintain any LIBOR Rate Borrowing (or any portion thereof), and, to the extent not covered above, any Consequential Loss. This agreement shall survive the payment of the Loans. A certificate as to any additional amounts payable pursuant to this paragraph submitted by the Agent or any Lender to the Company shall be conclusive and binding upon the Company, absent manifest error, provided the calculation thereof is set forth in reasonable detail in such notice.

        Section 2.11    Payment Dates.    Whenever any payment to be made hereunder in respect of the Loans shall be stated to be due on a day which is neither a Business Day nor a LIBOR Business Day, such payment may be made on the next succeeding Business Day, or, subject to the definition of LIBOR Interest Period in the case of any payment of the Loans to which the LIBOR Rate applies, on the next succeeding LIBOR Business Day, and such extension of time shall in each such case be included in computing interest and commitment fees in connection with such payment.

        Section 2.12    Sharing of Payments, Etc.    The Company agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim a Lender may otherwise have, upon the occurrence and during the continuance of any Event of Default, each Lender shall be entitled, at its

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option, to offset balances held by it for the account of the Company at any of its offices against any principal of or interest on any of such Lender's Loans to the Company hereunder or any other obligation of the Company hereunder, which is not paid (regardless of whether such balances are then due to the Company), in which case it shall promptly notify the Company and the Agent thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof. If a Lender shall obtain payment of any principal of or interest on any Loan made by it under this Agreement or other obligation then due to such Lender hereunder, through the exercise of any right of set-off (including, without limitation, any right of setoff or lien granted under Section 9.18 hereof), banker's lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Lenders participations in the Loans made by, or the other obligations of the Company hereunder of, the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with their respective Commitment Percentages. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Company agrees, to the fullest extent it may effectively do so under applicable law, that any Lender so purchasing a participation in the Loans made by, or other obligations hereunder of, the other Lenders may exercise, upon the occurrence and during the continuance of any Event of Default, all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of said Loans or other obligations in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Company.

        Section 2.13    Use of Proceeds.    Subject to the terms and conditions contained herein, the proceeds of the Loans shall be used solely (a) to finance the Tender Offer and the Merger, (b) to refinance certain existing Indebtedness of the Target; and (c) to pay costs and expenses relating to the Transactions.

        Section 2.14    Evidence of Debt.

        (a)   Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Company agrees that upon notice by any Lender to the Company (with a copy of such notice to the Agent) to the effect that a Note or other evidence of indebtedness is required or appropriate in order for such Lender to evidence (whether for purposes of enforcement or otherwise) the Loans owing to, or to be made by, such Lender, the Company shall promptly execute and deliver to such Lender Party, with a copy to the Agent, a Note, in substantially the form of Exhibit A hereto, payable to the order of such Lender in a principal amount equal to the Commitment of such Lender. All references to Notes in the Loan Documents shall mean Notes, if any, to the extent issued hereunder.

        (b)   The Register maintained by the Agent pursuant to Section 9.11(e) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of Loans comprising such Borrowing and, if appropriate, the LIBOR Interest Period applicable thereto, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iv) the amount of any sum received by the Agent from the Borrower hereunder and each Lender's share thereof.

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        (c)   Entries made in good faith by the Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Company to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement.

ARTICLE III—CONDITIONS

        Section 3.1    All Loans.    The obligation of each Lender to make any Loan is subject to the accuracy of all representations and warranties of the Company on the date of such Loan, to the performance by the Company of its obligations under the Loan Documents and to the satisfaction of the following further conditions:

        (a)   the Agent shall have received the following, all of which shall be duly executed and in Proper Form:

        i.      by no later than 11:00 a.m. (New York City time) on the applicable Rate Selection Date, notice by telephone or facsimile from the Company of the proposed date and amount of such Loan, and

        ii.     no later than 1:00 p.m. (New York City time) on the applicable Rate Selection Date, a Request for Extension of Credit and Certificate of No Default, signed by a Responsible Officer;

        (b)   no Default shall have occurred and be continuing, or would result therefrom; and

        (c)   the representations and warranties contained in the Loan Documents are true and correct on and as of such date (except any representation and warranty that expressly indicates that it is being made as of a specific date, and then as of such date).

        Section 3.2    First Loan.    In addition to the matters described in Section 3.1 hereof, the obligation of any Lender to make the initial Loan on the date thereof (the "Effective Date") is subject to the satisfaction of the following conditions precedent:

        (a)   The Agent shall have received on or before the Effective Date the following, each dated such day (unless otherwise specified), in Proper Form and (except for the Notes) in sufficient copies for each Lender:

        i.      Counterparts to this Agreement executed by the Company and each Lender;

        ii.     The Notes payable to the order of the Lenders to the extent requested by the Lenders pursuant to the terms hereof;

        iii.    The Guaranty and the Contribution Agreement duly executed and delivered by each Guarantor as of the Effective Date;

        iv.    Certified copies of the resolutions of the board of directors (or equivalent body) of each Loan Party approving the Transaction and each Loan Document to which it is or is to be a party.

        v.     a security agreement in substantially the form of Exhibit G-A authorized and executed by the parties thereto.

        vi.    copies of proper financing statements in respect of all the Loan Parties, together with evidence that such financing statements have been presented for filing on or before the

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Effective Date in all jurisdictions that the Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement A, covering the Collateral described therein.

        vii.   A copy of a certificate of the Secretary of State of the jurisdiction of incorporation of each Loan Party, dated reasonably near the Effective Date certifying (A) as to a true and correct copy of the charter of such Loan Party and each amendment thereto on file in such Secretary's office and (B) that (1) such amendments are the only amendments to such Loan Party's charter on file in such Secretary's office, (2) such Loan Party has paid all franchise taxes to the date of such certificate and (3) such Loan Party is duly incorporated and in good standing or presently subsisting under the laws of the State of the jurisdiction of its incorporation.

        viii.  A certificate of each Loan Party signed on behalf of such Loan Party by its secretary or any assistant secretary, dated the Effective Date (the statements made in which certificate shall be true on and as of the Effective Date), certifying as to (A) the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State's certificate referred to in Section 3.2(a)(v), (B) a true and correct copy of the bylaws of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.2(a)(iv) were adopted and on the Effective Date, (C) the absence of any proceeding for the dissolution or liquidation of such Loan Party, (D) the truth in all material respects of the representations and warranties contained in the Loan Documents as though made on and as of the Effective Date, (E) the absence of any event occurring and continuing, or resulting from the initial Borrowing hereunder, that constitutes a Default, and (F) certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder.

        ix.    A certificate, in form and substance reasonably satisfactory to the Lenders, attesting to the Solvency of the Company and its Subsidiaries, on a consolidated basis, both before and after giving effect to the Transactions, from its chief financial officer.

        x.     Audited annual financial statements of the Company and the Target for the three fiscal years most recently ended and interim financial statements for the fiscal quarters ended thereafter and prior to the Effective Date and for the most recent quarter for which financial statements are available, pro forma financial statements as to the Company and its Subsidiaries giving effect to the Transactions, and forecasts prepared by management of the Company, each in form and substance reasonably satisfactory to the Lenders, of balance sheets, income statements and cash flow statements on an annual basis for each year following the Effective Date until the Termination Date.

        xi.    A favorable opinion of counsel for the Loan Parties, in form and substance reasonably satisfactory to the Lenders.

        (b)   The Tender Offer shall have been consummated, or shall be consummated substantially concurrently with the initial Borrowing hereunder, on substantially the terms and conditions set forth in the Merger Agreement, without any amendment or waiver of any material term thereof that is adverse, in any material respect, to the interests of the Lenders, and the Company shall have acquired not less than a majority of the capital stock of the Target.

        (c)   The Company's existing revolving credit facilities with JPMorgan Chase Bank, N.A. shall have been terminated.

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        (d)   The Target's existing credit and letter of credit facilities with Bank of America, N.A. shall have been terminated and all loans, if any, outstanding thereunder, as well as all accrued interest and fees thereunder, if any, shall have been paid in full.

        (e)   There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or, to the knowledge of the Loan Parties or any of their Subsidiaries, threatened before any Governmental Authority that has had or could reasonably be expected to have a Material Adverse Effect on the legality, validity or enforceability of any Loan Document or the consummation of the Transactions.

        (f)    All governmental authorizations and third-party consents and approvals required to be obtained under the Merger Agreement in connection with the Transactions shall have been obtained (without the imposition of any conditions that materially and adversely impair the rights and remedies of the Lenders under the Loan Documents) and shall remain in effect.

        (g)   The Company shall have paid all accrued fees and expenses of the Agent that are due and payable in accordance herewith (including the accrued fees and expenses of counsel to the Agent and fees due and payable to the Joint Lead Arrangers pursuant to the Fee Letter).

        Section 3.3    Determinations Under Section 3.2.    For purposes of determining compliance with the conditions specified in Section 3.2, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the initial Borrowing hereunder specifying its objection thereto and shall not have made available to the Agent such Lender's ratable portion of such Borrowing.

ARTICLE IV—REPRESENTATIONS AND WARRANTIES

        To induce the Agent and the Lenders to enter into this Agreement, subject to the Target Representation Limitations, the Company represents and warrants to the Agent and the Lenders as follows:

        Section 4.1    Organization.    Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the state of its incorporation; has all power and authority to conduct its business as presently conducted; and is duly qualified to do business and in good standing in each and every state in the United States of America where its business requires such qualification, except where failure to qualify could not reasonably be expected to have a Material Adverse Effect.

        Section 4.2    Financial Statements.    The financial statements of the Company and its Subsidiaries on a consolidated basis delivered to the Agent and the Lenders in connection with this Agreement fairly present, in accordance with Generally Accepted Accounting Principles, the financial condition and the results of operations of the Company and its Subsidiaries as of the dates and for the periods indicated. Since the date of the last audited financial statements of the Company, no event, development or circumstance has occurred or exists that could reasonably be expected to have a Material Adverse Effect.

        Section 4.3    Enforceable Obligations; Authorization.    The Loan Documents are legal, valid and binding obligations of the Company and the Guarantors, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally and by general equitable principles. The execution, delivery and performance of the Loan Documents have all been duly authorized by all necessary action; are within the power and authority of the Company and the Guarantors; do not and will not contravene or violate any Legal Requirement or the Organizational Documents of the Company or any Guarantors; do not and will not

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result in the breach of, or constitute a default under, any agreement or instrument by which the Company or any Guarantors or any of their respective Property may be bound or affected; and do not and will not result in the creation of any Lien upon any Property of the Company or any Guarantors except as expressly contemplated therein. All necessary permits, registrations and consents for the execution, delivery and performance by the Company and its Subsidiaries of the Loan Documents have been obtained.

        Section 4.4    Other Debt.    Neither the Company nor any of its Subsidiaries is in default in the payment of any other Indebtedness or under any agreement, mortgage, deed of trust, security agreement or lease to which it is a party, the result of which has, would or could reasonably be expected to have a Material Adverse Effect.

        Section 4.5    Litigation.    There is no litigation or administrative proceeding pending or, to the knowledge of the Company, threatened against, nor any outstanding judgment, order or decree affecting, the Company or any of its Subsidiaries before or by any Governmental Authority or arbitral body which in the aggregate have, or if adversely determined, could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in default with respect to any material judgment, order or decree of any Governmental Authority.

        Section 4.6    Title.    Each of the Company and its Subsidiaries has good and marketable title to its Property (other than negligible assets not material to the operations of the Company or any of its Subsidiaries), free and clear of all Liens except for Incidental Liens.

        Section 4.7    Taxes.    Each of the Company and its Subsidiaries has filed all tax returns required to have been filed and paid all taxes shown thereon to be due, except those for which extensions have been obtained and except for those which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with Generally Accepted Accounting Principles.

        Section 4.8    Subsidiaries.    As of the date hereof, the Company has no Subsidiaries other than as listed on Schedule 4.8 attached hereto. Except as expressly indicated on Schedule 4.8 attached hereto, each of the Company's Subsidiaries is wholly owned by the Company.

        Section 4.9    Representations by Others.    All representations and warranties made by or on behalf of the Company or any of its Subsidiaries in any Loan Document shall constitute representations and warranties of the Company hereunder.

        Section 4.10    Permits, Licenses, Etc.    The Company and each of its Subsidiaries possess all permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names, trade name rights and copyrights which are required to conduct its business, and which the failure of the Company or any of its Subsidiaries to so possess would or could reasonably be expected to have a material adverse affect on the financial condition or operations of the Company and its Subsidiaries on a consolidated basis.

        Section 4.11    ERISA.    No Reportable Event (as defined in Section 4043(b) of ERISA but excluding those events as to which the 30-day notice period is waived by applicable regulations) has occurred with respect to any Plan. Each Plan complies in all material respects with all applicable provisions of ERISA, and the Company and each of its Subsidiaries have filed all reports required by ERISA and the Code to be filed with respect to each Plan. The Company has no knowledge of any event which could result in a liability of the Company or any of its Subsidiaries to the Pension Benefit Guaranty Corporation other than for applicable premiums. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any Plan. No event has occurred and no condition exists that might reasonably be expected to constitute grounds for a Plan to be terminated under circumstances which would cause the lien provided under Section 4068 of ERISA to attach to any Property of the Company or any of its

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Subsidiaries. No event has occurred and no condition exists that might reasonably be expected to cause the lien provided under Section 302 of ERISA or Section 412 of the Code to attach to any Property of the Company or any of its Subsidiaries.

        Section 4.12    Condition of Property.    The Property used or to be used in the continuing operations of the Company and its Subsidiaries, when taken as a whole, is in good repair, working order and condition.

        Section 4.13    Assumed Names.    Neither the Company nor any of its Subsidiaries is currently conducting its business under any assumed name or names, except as set forth on Schedule 4.13 attached hereto.

        Section 4.14    Investment Company Act.    Neither the Company nor any of its Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, as amended, or, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company, within the meaning of said Act.

        Section 4.15    Margin Stock.    The Company is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, other than in respect of the Transaction.

        Section 4.16    Agreements.    Schedule 4.16 attached hereto is a complete and correct list of (i) all credit agreements for borrowed money (other than the indebtedness governed hereby), indentures and capitalized leases and all Property subject to any Lien securing such Indebtedness or lease obligation, (ii) each letter of credit and guaranty for which the liability or potential liability of the Company and its Subsidiaries on a consolidated basis is in excess of $250,000, (iii) all other material instruments in effect as of the date hereof providing for, evidencing, securing or otherwise relating to any indebtedness for borrowed money of the Company or any of its Subsidiaries (other than the Indebtedness hereunder and Indebtedness secured by Incidental Liens), and (iv) all obligations of the Company or any of its Subsidiaries to issuers of appeal bonds issued for account of the Company or any of its Subsidiaries. The Company shall, upon request by the Agent, deliver to the Agent and the Lenders a complete and correct copy of all such credit agreements, indentures, capitalized leases, letters of credit, guarantees and other instruments or leases described in Schedule 4.16 or arising after the date hereof, including any modifications or supplements thereto, as in effect on the date hereof.

        Section 4.17    Environmental Matters.    No activity of the Company or any of its Subsidiaries requires any Environmental Permit which has not been obtained and which is not now in full force and effect, except to the extent failure to have any such Environmental Permit could not reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries are in compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Requirement of Environmental Law or Environmental Permit, except where failure to be in such compliance could not reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries (and, to the best knowledge of the Company, each of the prior owners or operators and predecessors in interest with respect to any of its or its Subsidiaries' Property) (i) have obtained and maintained in effect all Environmental Permits, the failure to obtain which could reasonably be expected to have a Material Adverse Effect, (ii) along with their respective Property have been and are in compliance with all applicable Requirements of Environmental Law and Environmental Permits where such failure to comply therewith could reasonably be expected to have a Material Adverse Effect, (iii) along with their Property are not subject to any (A) Environmental Claims or (B) Environmental Liabilities, in either case direct or contingent, and whether known or unknown, arising from or based upon any act, omission, event, condition or circumstance occurring or existing on or prior to the date hereof which could reasonably be expected to have a Material Adverse Effect, and (iv) have not received individually or collectively

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any notice of any violation or alleged violation of any Requirements of Environmental Law or Environmental Permit or any Environmental Claim in connection with their respective Property which could reasonably be expected to have a Material Adverse Effect. The present and future liability (including any Environmental Liability and any other damage to Persons or Property), if any, of the Company and with respect to the Property of any of the Company or any of its Subsidiaries which is reasonably expected to arise in connection with Requirements of Environmental Law, Environmental Permits and other environmental matters will not have a Material Adverse Effect on the Company and its Subsidiaries on a consolidated basis.

        Section 4.18    Solvency.    The Company and its Subsidiaries are, on a consolidated basis, Solvent.

        Section 4.19    Target Representations.    As to any date of determination prior to the consummation of the Merger, the Company makes the Target Representations, except where the failure of any Target Representation to be true and correct on such date would not be material and adverse to the interests of the Lenders.

ARTICLE V—AFFIRMATIVE COVENANTS

        The Company covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will do, cause each of its Subsidiaries to do, and if necessary cause to be done, each and all of the following:

        Section 5.1    Taxes, Existence, Regulations, Property, Etc.    At all times (a) pay when due all taxes and governmental charges of every kind upon it or against its income, profits or property, unless and only to the extent that the same shall be contested in good faith and reserves deemed adequate by the Agent have been established therefor; (b) do all things necessary to preserve its corporate existence, qualifications, rights and franchises in all States where such qualification is necessary or desirable; (c) comply in all material respects with all applicable Legal Requirements (including all applicable Requirements of Environmental Laws) in respect of the conduct of its business and the ownership of its Property; and (d) cause its Property to be protected, maintained and kept in good repair and make all replacements and additions to its Property as may be reasonably necessary to conduct its business properly and efficiently.

        Section 5.2    Financial Statements and Information.    Furnish to the Agent and each Lender copies of each of the following: (a) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Company, Annual Audited Financial Statements of the Company and its Subsidiaries, prepared on a consolidated basis; (b) as soon as available and in any event within forty-five (45) days after the end of each quarter (excluding the fourth quarter) of each fiscal year of the Company, Quarterly Unaudited Financial Statements of the Company and its Subsidiaries, prepared on a consolidated basis; (c) concurrently with the financial statements provided for in clauses (a) and (b) hereof, an Officer's Certificate which shall include such schedules, computations and other information, in reasonable detail, as may be reasonably required by the Agent or any Lender to demonstrate compliance with the covenants set forth herein or reflecting any non-compliance therewith as of the applicable date, all certified as true, correct and complete by a Responsible Officer of the Company; (d) promptly upon their becoming available, all financial statements (other than the Annual Audited Financial Statements and Quarterly Unaudited Financial Statements), registration statements, reports and proxy statements which the Company or any of its Subsidiaries may file with the Securities and Exchange Commission, and (e) such other information relating to the financial condition and affairs of the Company and any of its Subsidiaries as from time to time may be reasonably requested by the Agent or any Lender. In addition to the financial information and reports to be delivered in accordance with the prior sentence, if the most recent Annual Audited Financial Statements or Quarterly Unaudited Financial Statements of the Company, as applicable, demonstrate that the financial condition of the Company and its Subsidiaries, on a consolidated basis, has been negatively

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impacted as at the end of the immediately preceding fiscal quarter or fiscal year represented by such Annual Audited Financial Statements or Quarterly Unaudited Financial Statements, as applicable, for one or more reasons (said determination of negative impact to be made by the Agent in its reasonable discretion), upon the periodic request of the Agent (until the conditions attributable to such negative impact have been addressed and rectified to the reasonable satisfaction of the Agent), the Company agrees that it shall promptly provide the Agent and the Lenders with additional information relating to the financial condition and affairs of the Company and its Subsidiaries as may be reasonably requested by the Agent, including, but not limited to, reports setting out in sufficient detail the financial performance of each retail location for any and all stores and operations maintained by the Company and/or any of its Subsidiaries.

        Notwithstanding the foregoing, information required to be delivered pursuant to clauses (a), (b) and (d) of this Section 5.2 shall be deemed to have been delivered if such information shall be available on the website of the Securities and Exchange Commission at http://www.sec.gov and the Company shall have notified the Agent of the availability of all such financial information; provided, that the Company shall deliver paper copies of such information to the Agent or any Lender that reasonably requests such delivery. Information required to be delivered pursuant to this Section 5.2 (other than a Notice of Default) may also be delivered by electronic means pursuant to Section 9.2(b).

        Section 5.3    Financial Tests.    (a) Have at all times a FIXED CHARGE COVERAGE RATIO of not less than 1.50 to 1.00; and (b) have at all times a LEVERAGE RATIO of not more than 3.00 to 1.00.

        Section 5.4    Inspection.    Permit the Agent and the Lenders to inspect its Property, to examine its files, books and records and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all at such times and intervals and to such extent as the Agent or any Lender may reasonably desire; provided that, in the absence of an Event of Default, no more than one such visit shall be permitted at the expense of the Company in any fiscal year.

        Section 5.5    Further Assurances.    Promptly execute and deliver any and all other and further instruments which may be requested by the Agent or any Lender to cure any defect in the execution and delivery of any Loan Document or more fully to describe particular aspects of the Company's agreements set forth in the Loan Documents or so intended to be.

        Section 5.6    Books and Records.    Maintain books of record and account in accordance with Generally Accepted Accounting Principles.

        Section 5.7    Insurance.    Maintain at all times insurance with such insurers, on such of its Property, officers, directors and employees, in such amounts and against such risks as is customarily maintained by other Persons of similar size and engaged in businesses substantially similar to its businesses, and furnish the Agent satisfactory evidence thereof promptly upon request.

        Section 5.8    ERISA.    At all times: (a) make contributions to each Plan in a timely manner and in an amount sufficient to comply with the minimum funding standards requirements of ERISA; (b) immediately upon acquiring knowledge of (i) any Reportable Event in connection with any Plan for which no administrative or statutory exemption exists or (ii) any "prohibited transaction", as such term is defined in Section 4975 of the Code, in connection with any Plan, that could result in the imposition of material damages or a material excise tax on the Company, furnish the Agent a statement executed by a Responsible Officer of the Company setting forth the details thereof and the action which the Company or any such Subsidiary proposes to take with respect thereto and, when known, any action taken by the Internal Revenue Service with respect thereto; (c) notify the Agent promptly upon receipt by the Company or any of its Subsidiaries of any notice of the institution of any proceedings or other actions which may result in the termination of any Plan by the Pension Benefit Guaranty Corporation and furnish the Agent with copies of such notice; (d) pay when due all required premium payments to

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the Pension Benefit Guaranty Corporation; (e) furnish the Agent with copies of the annual report for each Plan filed with the Internal Revenue Service not later than ten (10) days after the Agent requests such report; (f) furnish the Agent with copies of any request for waiver of the funding standards or extension of the amortization periods required by Sections 303 and 304 of ERISA or Section 412 of the Code promptly after the request is submitted to the Secretary of the Treasury, the Department of Labor or the Internal Revenue Service, as the case may be; and (g) pay when due all installment contributions required under Section 302 of ERISA or Section 412 of the Code or within 10 days of a failure to make any such required contributions furnish the Agent with written notice of such failure.

        Section 5.9    Use of Proceeds.    Subject to the terms and conditions contained herein, use the proceeds of the Loans (a) to finance the Tender Offer and the Merger, (b) to refinance certain existing Indebtedness of the Target and (c) to pay costs and expenses relating to the Transactions. No proceeds of the Loans shall be used in violation of Regulation U of the Board of Governors of the Federal Reserve System or any successor regulation thereof or of any other rule, statute or regulation governing Margin Stock from time to time.

        Section 5.10    Additional Guaranties.    Notify the Agent promptly upon creation or acquisition by the Company or any of its Subsidiaries of any additional Subsidiary of the Company after the date hereof, and in connection therewith, furnish the Agent with the Organizational Documents of such newly acquired or created Subsidiary and sufficient information to disclose to the Agent in reasonable detail the ownership structure and capitalization of such Subsidiary, and, except with respect to a Non-Guarantor Subsidiary, promptly cause such newly created or acquired Subsidiary of the Company to execute and deliver to the Agent for the ratable benefit of the Lenders and the lenders under the Revolving Credit Facility, a Joinder Agreement, together with such related certificates, opinions, and documents as the Agent or any Lender may reasonably require.

        Section 5.11    Notice of Events.    Notify the Agent immediately upon acquiring knowledge of the occurrence of, or if the Company or any of its Subsidiaries causes or intends to cause, as the case may be: (1) the institution of any lawsuit or administrative proceeding affecting the Company or any of its Subsidiaries, the adverse determination under which could reasonably be expected to have a Material Adverse Effect; (2) the occurrence of any Material Adverse Effect; (3) any Event of Default or any Default, together with a detailed statement by an appropriate officer or other responsible party acceptable to the Agent on behalf of the Company of the steps being taken to cure the effect of such Event of Default or Default; (4) the occurrence of a default or event of default by the Company or any of its Subsidiaries under any agreement or series of related agreements to which it is a party, which default or event of default could reasonably be expected to have a Material Adverse Effect; and (5) any material change in the accuracy of the representations and warranties of the Company or any of its Subsidiaries in this Agreement or any other Loan Document. The Company will notify, or cause each Guarantor to notify, the Agent in writing within 30 days prior to the date that the Company or any Guarantor changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records. Any notice of a name change delivered to the Agent shall be accompanied by such certificates of Governmental Authorities as the Agent or any Lender may require substantiating such name change.

        Section 5.12    Environmental Matters.    Without limiting the generality of Section 5.1(c) hereof, (a) comply in all material respects with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Requirement of Environmental Law or Environmental Permit; (b) obtain and maintain in effect all Environmental Permits, the failure to obtain which could reasonably be expected to have a Material Adverse Effect; and (c) keep its Property free of any Environmental Claims or Environmental Liabilities which could reasonably be expected to have a Material Adverse Effect.

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        Section 5.13    End of Fiscal Year.    The Company shall cause each of its fiscal years and each of its Subsidiaries' fiscal years to end on the last Sunday of each September.

        Section 5.14    Consummation of Merger.    The Company shall use commercially reasonable efforts to consummate the Merger within 90 days following the Effective Date.

        Section 5.15    Maintenance of Ratings.    The Company shall use commercially reasonable efforts to maintain corporate family (or equivalent) ratings from each of Moody's and S&P.

        Section 5.16    Covenant to Guarantee Obligations and Give Security.    Except in connection with the Disclosed Divestitures listed in part A of Schedule 1.1(a), the Loan Parties will upon (x) the request of the Agent, (y) the formation or acquisition of any new direct or indirect Subsidiaries by any Loan Party or (z) the acquisition of any material property by any Loan Party, in each case at the Loan Parties' expense:

        (a)   Grant the Collateral Agent for the ratable benefit of the Lenders and the lenders under the Revolving Credit Facility, and upon the terms and conditions set forth in Security Agreement A, a security interest in, each Loan Party's right, title and interest in and to the Collateral pursuant to the terms of the Security Agreement A.

        (b)   within 15 days after such request, formation or acquisition, (i) cause each such Subsidiary to duly execute and deliver to the Agent such guaranties or guaranty supplements so as to cause such Subsidiary to guarantee all of the Guaranteed Obligations, as defined in the Guaranty, (ii) duly execute and deliver, and cause each such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver, to the Collateral Agent, pledges, assignments, security agreement supplements and other security agreements covering the Collateral and, as specified by and in form and substance reasonably satisfactory to the Agent, securing payment of all the obligations of the applicable Loan Party or such Subsidiary, as the case may be, under the Loan Documents and the Revolving Credit Facility and constituting Liens on all such Collateral, or (iii) take whatever action, including to file Uniform Commercial Code financing statements, as may be necessary or advisable in the opinion of the Agent to vest in the Collateral Agent (or its designee) valid and subsisting Liens in the Collateral as provided in this Section 5.16(b),

        (c)   within 60 days after such request, formation or acquisition, deliver to the Agent, upon the request of the Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Collateral Agent and the Lenders, of counsel for the Loan Parties reasonably acceptable to the Agent as to the matters contained in clause (b) above, as to such guaranties, guaranty supplements, pledges, assignments, security agreement supplements and security agreements being legal, valid and binding obligations of each Loan Party party thereto enforceable in accordance with their terms, as to the matters contained in clause (b)(ii) above, as to such recordings, filings, notices, endorsements and other actions being sufficient to create valid perfected Liens on such Collateral to the extent a Lien can be created by filing under the Uniform Commercial Code, and as to such other matters as the Agent may reasonably request, in each case to the extent that such Collateral has a value in excess of $10,000,000.

        (d)   The Loan Parties will, upon the incurrence of inter-company debt not included in Part II of Schedule I to Security Agreement A on the Effective Date, promptly cause each Subsidiary payee under such inter-company debt to execute and deliver to the Collateral Agent, pledges, assignments, and security agreement supplements and other security agreements covering such Collateral and as specified by and in form and substance reasonably satisfactory to the Agent, securing payment of all the obligations of the applicable Loan Party or such Subsidiary, as the case may be, under the Loan Documents and the Revolving Credit Facility and constituting Liens on all such Collateral

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        (e)   at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action as the Agent may reasonably deem necessary or desirable in obtaining the full benefits of, or in perfecting and preserving the Liens of, such guaranties, pledges, assignments, security agreement supplements and security agreements in the Collateral.

        Section 5.17    Covenant to Give Additional Security.    At any time during the Additional Security Period the Loan Parties will upon (x) the request of the Agent, (y) the formation or acquisition of any new direct or indirect Subsidiaries by any Loan Party or (z) the acquisition of any material property by any Loan Party, then the Loan Parties shall, in each case at the Loan Parties' expense:

        (a)   Grant the Collateral Agent for the ratable benefit of the Lenders and the lenders under the Revolving Credit Facility, and upon the terms and conditions set forth in the Security Agreement B, a security interest in, each Loan Party's right, title and interest in and to the Additional Collateral pursuant to the terms of the Security Agreement B.

        (b)   within 15 days after such request, formation or acquisition, (i) duly execute and deliver, and cause each such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver, to the Collateral Agent, a supplement to Security Agreement B, securing payment of all the obligations of the applicable Loan Party or such Subsidiary, as the case may be, under the Loan Documents and the Revolving Credit Facility and constituting Liens on all such properties, provided that no real property (or interest therein) shall be subjected to a security interest in favor of the Agent for the benefit of the Lenders, or (ii) take whatever action contemplated by Security Agreement B, including to file Uniform Commercial Code financing statements, as may be necessary or advisable in the opinion of the Agent to vest in the Agent (or its designee) valid and subsisting Liens as provided in this Section 5.17(b).

        (c)   within 60 days after such request, formation or acquisition, deliver to the Agent, upon the request of the Collateral Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Agent and the Lenders, of counsel for the Loan Parties reasonably acceptable to the Agent as to the matters contained in clauses (a) and (b) above, as the Agent may reasonably request, in each case to the extent that such Additional Collateral has a value in excess of $10,000,000.

        (d)   at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action contemplated under Security Agreement B and as the Agent may reasonably deem necessary or desirable in obtaining the full benefits of, or in perfecting and preserving the Liens of, such guaranties, pledges, assignments, security agreement supplements, intellectual property security agreement supplements and security agreements.

ARTICLE VI—NEGATIVE COVENANTS

        The Company covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will not, and will not suffer or permit any of its Subsidiaries to, do any of the following:

        Section 6.1    Indebtedness.    Create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, or become or remain liable with respect to any Indebtedness, whether direct, indirect, absolute, contingent or otherwise, except the following:

        (a)   Indebtedness pursuant to this Agreement, the Guaranties and any other Loan Document;

        (b)   Indebtedness under the Revolving Credit Facility including, without limitation, the letters of credit under the Revolving Credit Facility which are permitted under Section 6.1(1) hereof, in

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an aggregate principal amount (as to the loans thereunder) not to exceed $350,000,000 at any time outstanding;

        (c)   in addition to and cumulative of any other Indebtedness permitted in this Section 6, in the case of the Company only, Unsecured Borrowed Debt; provided that, immediately before and immediately after the incurrence of such Unsecured Borrowed Debt, the Company and its Subsidiaries shall be in pro forma compliance with the financial covenants set forth in Section 5.3 hereof;

        (d)   Indebtedness secured by Liens permitted by Section 6.2 hereof;

        (e)   secured Indebtedness of the Company and Indebtedness of any one or more of the Company's Subsidiaries, provided, that the aggregate amount of all such Indebtedness outstanding at any time (exclusive of Indebtedness permitted in Section 6.1(i) hereof) may not exceed five percent (5%) of Consolidated Net Worth;

        (f)    other liabilities existing on the date of this Agreement and set forth on Schedule 4.16 attached hereto, and all renewals and extensions (but not increases) thereof, provided that there shall be no material change in the obligors thereunder;

        (g)   current accounts payable and unsecured current liabilities, not the result of borrowings, to vendors, suppliers and persons providing services, for expenditures on ordinary trade terms for goods and services normally required by the Company or any of its Subsidiaries in the ordinary course of its business;

        (h)   agreements of intent to acquire a Person issued by the Company or any of its Subsidiaries in anticipation of acquiring such Person if such acquisition is permitted under the terms and conditions of this Agreement;

        (i)    the Indebtedness of any Subsidiary of the Company to the Company or to any Guarantor, as permitted in Section 6.7(f) of this Agreement;

        (j)    guarantees by the Company or any of its Subsidiaries of the Indebtedness of any of their respective Subsidiaries permitted to be incurred, created or existing pursuant to Section 6.3, provided, that such guarantees are not directly or indirectly secured by any Liens;

        (k)   current and deferred taxes;

        (l)    any obligation under or in respect of outstanding letters of credit (including without limitation, letters of credit under the Revolving Credit Facility), acceptances and similar obligations created for the account of the Company or any of its Subsidiaries, and any Hedging Agreements (other than the Credit Facility Hedging Agreements) entered into by the Company and its Subsidiaries in the ordinary course; provided that the sum of (i) the aggregate amount of such Indebtedness and (ii) the aggregate amount of Contingent Obligations outstanding at any time for the Company and its Subsidiaries, on a consolidated basis, may not exceed five percent (5%) of Consolidated Net Worth;

        (m)  Indebtedness or other obligations of the Company under Capital Lease Obligations for equipment for use in new retail locations hereafter opened and operated by the Company or any of its Subsidiaries, so long as the capitalized amount of such obligations hereafter entered into does not exceed five percent (5%) of Consolidated Net Worth in the aggregate, together with guaranties of such obligations by any or all Subsidiaries of the Company now or hereafter existing; and

        (n)   Indebtedness evidenced by those certain zero coupon convertible subordinated debentures of the Company due 2018 which are governed by that certain Indenture dated March 2, 1998, by

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and among the Company and Chase Bank of Texas, National Association, Trustee, outstanding on the date hereof.

        (o)   Indebtedness of Target under its Convertible Senior Debentures.

        (p)   any obligation under or in respect of outstanding letters of credit (excluding the letters of credit issued under the Revolving Credit Facility) or other workers' compensation coverage payment or reimbursement obligations secured by cash or cash equivalents created for the account of the Company or any of its Subsidiaries as fiscal security for, or otherwise in connection with, workers' compensation coverage secured for the Company and/or any of its Subsidiaries (it being agreed that any letters of credit or other such payment or reimbursement obligations issued in accordance with the provisions of this Section 6.1(p) shall not be included within letters of credit for purposes of determining compliance with Section 6.1(l) hereof or included within Contingent Obligations for purposes of determining compliance with Section 6.3 hereof).

The Company, the Agent, the Lenders and each Guarantor (by its execution of a Guaranty or a Joinder Agreement) agree that, notwithstanding anything contained in this Section 6.1, in Section 6.7(f) or in any other provision contained in this Agreement which may appear to be to the contrary, any and all Indebtedness of (i) the Company from time to time owed to any Subsidiary of the Company or of (ii) any Subsidiary of the Company from time to time owed to the Company or to any Guarantor (together with any and all Liens from time to time securing the same as permitted by Section 6.2(f) hereof) is hereby made and at all times hereafter shall be inferior and subordinate in all respects to the Indebtedness from time to time owing to the Agent or any Lender pursuant hereto and to any Lien, if any, from time to time hereafter securing any of such Indebtedness pursuant to the terms hereof.

        Section 6.2    Liens.    Create or suffer to exist any Lien upon any of its Property now owned or hereafter acquired, or acquire any Property upon any conditional sale or other title retention device or arrangement or any purchase money security agreement; or in any manner directly or indirectly sell, assign, pledge or otherwise transfer any of its accounts or contract rights; provided, however, that the Company and its Subsidiaries (or any of them) may create or suffer to exist:

        (a)   Liens in effect on the date hereof and which are described on Schedule 6.2(a) attached hereto, provided, that the Property covered thereby does not increase either in quantity or value;

        (b)   Liens securing any Indebtedness otherwise permitted pursuant to Sections 6.1(e) and (l) hereof, provided that the aggregate amount of all such secured Indebtedness outstanding at any time may not exceed five percent (5%) of Consolidated Net Worth;

        (c)   Liens in favor of the Collateral Agent pursuant to the terms of Security Agreement A and/or Security Agreement B, as applicable;

        (d)   Incidental Liens;

        (e)   purchase money security interests and liens in Equipment and/or real property of the Company or any of its Subsidiaries in favor of the seller or sellers of such Equipment and/or real property or their successors and assigns, or purchase money security interests and liens in favor of any third-party lender which loaned the money to purchase any such Equipment and/or real property to the Company or such Subsidiary, provided, that neither the sales price of, nor the amount of any loan made to acquire any of, such Equipment and/or real property is greater than the fair value of such Equipment and/or real property so acquired;

        (f)    Liens in favor of the Company or any Guarantor securing any Indebtedness owed by a Subsidiary of the Company permitted pursuant to Section 6.1(i) hereof;

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        (g)   informational filings of financing statements against the Company or any of its Subsidiaries by lessors under any operating lease or any permitted Capital Lease Obligation now or hereafter entered into by the Company or any of its Subsidiaries with any lessor, so long as the applicable financing statement covers only the asset or assets leased pursuant to the applicable operating lease or Capital Lease Obligation; and

        (h)   Liens against cash or cash equivalents of the Company and/or any of its Subsidiaries securing the obligations of, under or in respect of outstanding letters of credit or other workers' compensation coverage payment or reimbursement obligations otherwise permitted pursuant to Section 6.1(o) hereof;

provided, however, that, notwithstanding anything contained above in this Section 6.2 to the contrary, in no event may the Company or any Subsidiary of the Company ever create or suffer to exist any Lien upon any of the Stock of any of its Subsidiaries, directly or indirectly, in favor of any Person other than the Agent for the benefit of the Lenders and, subject to subsection (d) above, under the Revolving Credit Facility, create or suffer to exist any agreement, whether oral or in writing, with any Person other than the Agent and the Lenders pursuant to this Section 6.2, and, subject to subsection (d) above, under the Revolving Credit Facility, which would or could prohibit the Company or any of its Subsidiaries from creating or permitting to exist any Lien in favor of the Agent or the Lenders for the benefit of all of the Lenders for Indebtedness from time to time arising under this Agreement.

        Section 6.3    Contingent Obligations.    Except for guaranties by Subsidiaries of the Company which are otherwise permitted by Sections 6.1(l) and 6.1(m) hereof, and the Guaranties, create, incur, suffer or permit to exist, directly or indirectly, any Contingent Obligations if such Contingent Obligations would cause the sum of (a) the aggregate amount of Contingent Obligations outstanding for the Company and its Subsidiaries, and (b) the aggregate amount of outstanding Indebtedness permitted by Section 6.1(l), on a consolidated basis, to exceed five percent (5%) of Consolidated Net Worth.

        Section 6.4    Mergers, Consolidations and Dispositions and Acquisitions of Assets.    In any single transaction or series of related transactions, directly or indirectly:

        (a)   Wind up its affairs, liquidate or dissolve;

        (b)   Be a party to any merger or consolidation (other than the Merger) and except as permitted under Section 6.4(e);

        (c)   Sell, convey, lease or otherwise dispose of all or any material part of the assets (except for the sale of inventory in the ordinary course of business) of the Company and/or its Subsidiaries, or agree to take any such action, if such sale, lease or conveyance of assets is not otherwise permitted for the applicable fiscal year by Section 6.4(z) hereof;

        (d)   Sell, assign, pledge, transfer or otherwise dispose of, or in any way part with control of, any Stock of any of its Subsidiaries or any Indebtedness or obligations of any character of any of its Subsidiaries, or permit any such Subsidiary so to do with respect to any Stock of any other Subsidiary or any Indebtedness or obligations of any character of the Company or any of its other Subsidiaries, or permit any of its Subsidiaries to issue any additional Stock other than (i) to the Company or any of its Subsidiaries or (ii) to purchase or acquire for a consideration any Stock of the Company or any of its other Subsidiaries to the extent permitted under Section 6.11(a) hereof; or

        (e)   Take any action with a view toward dissolution, liquidation or termination;

provided, however, that:

        (x)   Any of the Company's Subsidiaries may merge or consolidate with any one or more of the Company's other Subsidiaries, or with any other Business Entity or Business Entities; provided

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that each surviving Business Entity after any such merger or consolidation shall be a wholly-owned Subsidiary of the Company or of a wholly-owned Subsidiary of the Company, and, provided, further, that the surviving Business Entity shall simultaneously with such merger, execute and deliver to the Agent a Notice of Assumption, appropriately completed;

        (y)   Any of the Company's Subsidiaries may (i) sell, transfer or otherwise dispose of any Stock of the Company or any of its Subsidiaries to the Company or another Subsidiary of the Company or (ii) sell, lease, transfer or otherwise dispose of any of its assets to another Subsidiary of the Company; provided that if all or substantially all of the transferring Subsidiary's assets are being sold, leased, transferred or otherwise disposed of, then the Subsidiary to whom the sale, lease, transfer or disposition was made must, unless it is already a Guarantor, simultaneously execute and deliver to the Agent a Notice of Assumption. If such transferring Subsidiary is a wholly-owned Subsidiary of the Company, it may wind up its affairs, liquidate or dissolve following the consummation of any such sale, lease, transfer or disposal of all or substantially all of its assets; and

        (z)   Subject to the limitations set forth below, (i) (A) a proposed sale, lease or conveyance of assets of one or more of the Subsidiaries of the Company (a "Permitted Asset Disposition") or (B) a proposed sale of the Stock of one or more Subsidiaries of the Company (a "Permitted Stock Disposition"), in a single transaction or series of related transactions, to a Person or Persons which is not or are not an Affiliate or Affiliates of the Company or any of its Subsidiaries, on an arms-length basis, may occur in any fiscal year of the Company so long as the aggregate consideration paid by such acquiring Person or Persons (inclusive of the fair value of any non-cash Property received as consideration) from all Permitted Asset Dispositions and all Permitted Stock Dispositions which occur during such fiscal year does not exceed five percent (5%) of Consolidated Net Worth and (ii) the Company may consummate the Disclosed Divestitures; provided, however, that no Permitted Asset Disposition (other than a Disclosed Divestiture) or Permitted Stock Disposition may occur if a Default shall have then occurred and is then continuing or would be caused by such proposed Permitted Asset Disposition or Permitted Stock Disposition, in each case if consummated; provided further that the ability to consummate such Disclosed Divestiture shall not constitute a waiver of any such Default.

        Section 6.5    Nature of Business.    Materially change the nature of its business or enter into any business which is substantially different from the business in which it is presently engaged; provided, however, that vertical integration within the natural foods industry shall not be deemed to be a violation of this Section 6.5.

        Section 6.6    Transactions with Related Parties.    Enter into any transaction, contract or agreement of any kind with any officer, director or holder of any of the outstanding Stock of the Company or any of its Subsidiaries (or any Affiliate of such Person), unless such transaction, contract or agreement is made upon terms and conditions not less favorable to such Person than those which could have been obtained from wholly independent and unrelated sources. Other than pursuant to agreements of the Target in effect on the date hereof, the Company will not permit the compensation of any officer, stockholder, director, partner or proprietor of the Company or any of its Subsidiaries to be excessive, taking into consideration the financial circumstances of the Company or such Subsidiary and the position and qualifications of such Person.

        Section 6.7    Loans and Investments.    Make, directly or indirectly, any loan or advance to or have any Investment in any Person, or make any commitment to make such loan, advance or Investment, except:

        (a)   Stock of any Subsidiary, subject to the terms of Section 6.7(h) as to Investments in internet strategy lines of business;

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        (b)   Permitted Investment Securities;

        (c)   Stock received in the settlement of debts (created in the ordinary course of business);

        (d)   travel advances in the ordinary course of business to officers and employees;

        (e)   customer obligations and receivables owing to the Company and arising out of sales or leases made or the rendering of services by the Company in the ordinary course of business;

        (f)    so long as no Default shall have occurred and is then continuing, and subject to the terms of Section 6.1 hereof, loans by the Company or any Guarantor to any Subsidiary of the Company;

        (g)   so long as no Default has occurred and is then continuing, or would result therefrom, loans to any Person which is not a Subsidiary of the Company or of any of the Company's Subsidiaries, provided, that the aggregate of all of such loans does not exceed at any time five percent (5%) of Consolidated Net Worth; and

        (h)   so long as no Default shall have occurred and is then continuing, or would result therefrom, Investments by the Company and/or any Guarantor in internet strategy lines of business.

        Section 6.8    ERISA Compliance.    At any time permit any Plan to engage in any "prohibited transaction" as defined in ERISA; incur any "accumulated funding deficiency" as defined in ERISA; or be terminated in a manner which could result in the imposition of a Lien on any Property of the Company or any of its Subsidiaries pursuant to ERISA.

        Section 6.9    Credit Extensions.    Extend credit other than normal and prudent extensions of credit to customers for goods and services in the ordinary course of business.

        Section 6.10    Change in Accounting Method.    Make any material change in accounting method except as may be required by Generally Accepted Accounting Principles as they are from time to time in effect.

        Section 6.11    Redemption, Dividends and Distributions.    At any time (1) each of the Company's Moody's and S&P rating have been downgraded below Investment Grade, or (2) either of the Company's Moody's or S&P rating has been downgraded by at least two categories below Investment Grade:

        (a)   Redeem, retire or otherwise acquire, directly or indirectly, any shares of its Stock if such redemption or repurchase would cause the sum of (A) and (B) below to exceed the sum of (i) $150,000,000, plus (ii) fifty percent (50%) of the aggregate of Net Income, depreciation, amortization and non-cash stock compensation expense of the Company and its Subsidiaries, on a consolidated basis, for each fiscal quarter of the Company ending after August 28, 2007 (said amount to not be adjusted or changed for a particular fiscal quarter if the aggregate Net Income, depreciation, amortization and non-cash stock compensation expense of the Company and its Subsidiaries, on a consolidated basis, for such fiscal quarter is negative): (A) the aggregate cost paid by the Company for such Stock so redeemed or repurchased on or after July 1, 2007, as shown on the consolidated financial statements of the Company and its Subsidiaries to be delivered pursuant to Sections 5.2(a) and (b) hereof; and (B) the aggregate cash dividends paid by the Company to owners of Stock in the Company on or after July 1, 2007;

        (b)   Pay any dividend except (i) dividends paid to the Company or any Subsidiary of the Company which is a direct parent of the Subsidiary paying a dividend, (ii) dividends payable in Stock or in rights or warrants to purchase Stock, or (iii) cash dividends paid by the Company to owners of Stock in the Company if the aggregate amount of such cash dividends payable by the Company to owners of Stock in the Company on or after August 28, 2007, together with the aggregate cost paid by the Company for Stock redeemed or repurchased on or after July 1, 2007

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(as shown on the consolidated financial statements of the Company and its Subsidiaries to be delivered pursuant to Sections 5.2(a) and (b) hereof), does not exceed (i) $150,000,000, plus (ii) fifty percent (50%) of the aggregate of Net Income, depreciation, amortization and non-cash stock compensation expense of the Company and its Subsidiaries, on a consolidated basis, for each fiscal quarter of the Company ending after July 1, 2007 (said amount to not be adjusted or changed for a particular fiscal quarter if the aggregate Net Income, depreciation, amortization and non-cash stock compensation expense of the Company and its Subsidiaries, on a consolidated basis, for such fiscal quarter is negative); or

        (c)   Make any other distribution of any Property or cash to stockholders as such, except as permitted under Section 6.4(e)(y).

ARTICLE VII—EVENTS OF DEFAULT AND REMEDIES

        Section 7.1    Events of Default.    If any of the following events shall occur, then the Agent may, unless directed to the contrary by the Required Lenders in writing actually received by the Agent prior to the Agent doing so (and, if directed by the Required Lenders, shall), do any or all of the following: (1) without notice to the Company or any other Person, declare the Loans and the Notes then outstanding to be, and thereupon the Loans and the Notes shall forthwith become, immediately due and payable, together with all accrued interest thereon, the Commitment Fees and all other amounts then payable hereunder, without notice of any kind, notice of acceleration or of intention to accelerate, presentment and demand or protest, or other notice of any kind all of which are hereby expressly WAIVED by the Company; (2) without notice to the Company, terminate the Commitments and thereupon all of the Lenders shall be relieved of any obligation to make any additional Loans; (3) by notice in writing to the Company, accelerate the Maturity Date to a date as early as the date of the notice, and (4) exercise any and all other rights pursuant to the Loan Documents:

        (a)   The Company shall fail to pay or prepay any principal of or interest of any Loan, the Commitment Fees or any other obligation hereunder as and when due and, solely in respect of interest, fees and obligations other than principal, such failure remains uncured after three (3) Business Days, in the case of interest, and five (5) Business Days, in the case of fees and such other obligations, in each case from such due date; or

        (b)   The Company or any of its Subsidiaries (i) shall fail to pay at maturity, or within any applicable period of grace, any principal of or interest on any other borrowed money obligation in excess of $20,000,000 in principal amount (unless such payment is being contested in good faith by appropriate proceedings and adequate reserves have been provided therefor), (ii) shall otherwise be in default under the provisions of any instrument or document evidencing, securing or guaranteeing any other borrowed money obligation of the Company or any of its Subsidiaries, including, without limitation, in respect of the Revolving Credit Facility, in excess of $20,000,000 in principal amount if such default continues beyond any applicable grace or curative period, if any, and such default would entitle the holder of such borrowed money obligation to declare such obligation to be due prior to its stated maturity, or (iii) is in default under or in violation of any Legal Requirement, which failure could or does have a Material Adverse Effect; or

        (c)   Any representation or warranty made in connection with any Loan Document shall prove to have been materially incorrect, false or misleading when made or deemed to have been made; or

        (d)   Default shall occur in the punctual and complete performance of (i) any of the affirmative covenants contained in Section 5 (other than Section 5.3) and such default shall not be cured within ten (10) days after the Agent has given written notice to the Company that such default has occurred, (or immediately in the case of Sections 5.14, 5.16, or 5.17) (ii) any of the

41

negative covenants contained in Section 6, or (iii) any covenant contained in Section 5.3 or any other covenant of the Company or any other Person contained in any Loan Document; or

        (e)   Any judgments or orders in the aggregate for the payment of money in excess of $20,000,000 shall be rendered against the Company or any of its Subsidiaries at any time, regardless of whether the same is being appealed or reserves established therefor or paid in full; provided, however, that any such judgment or order shall not give rise to an Event of Default under this Section 7.1(e) if and for so long as the amount of such judgment or order is covered by a valid and binding policy of insurance in favor of the Company or any of its Subsidiaries as to which coverage in respect of such claim has not been disputed; or

        (f)    The Company or any Subsidiary of the Company shall claim, or any court shall find or rule, that the Agent for the benefit of the Lenders does not have a valid Lien on any Collateral or Additional Collateral, as the case may be, having a value in the aggregate in excess of $5,000,000 which may have been provided to secure the Indebtedness arising pursuant hereto from time to time by the Company or any of its Subsidiaries; or

        (g)   Any order shall be entered in any proceeding against the Company or any of its Subsidiaries decreeing the dissolution, liquidation or split-up thereof, and such order shall remain in effect for thirty (30) days; provided, however, the provisions of this subparagraph (g) shall not apply to any divestiture by the Company or any of its Subsidiaries of any Subsidiary acquired after the effective date of this Agreement as a result of anti-trust issues or concerns; or

        (h)   The occurrence of an event of default or default under any Loan Document other than this Agreement; or

        (i)    The Company or any of its Subsidiaries shall have concealed, removed, or permitted to be concealed or removed, any part of its Property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or

        (j)    A change shall occur in the assets, liabilities, financial condition, business or affairs of the Company or any of its Subsidiaries which, in the reasonable opinion of the Required Lenders, would or does have a Material Adverse Effect; provided, however, the occurrence of any such Material Adverse Effect shall not be deemed to be an Event of Default hereunder until the Agent shall have provided the Company with written notice that the Required Lenders have determined that such a Material Adverse Effect has occurred; or

        (k)   A Change of Control shall occur.

In addition to the actions permitted to be taken by the Agent under the terms of the initial paragraph of this Section 7.1, if any of the following events shall occur, then the Loans and the Notes together with all accrued interest thereon, the Commitment Fees and all other amounts then payable hereunder shall automatically, without demand, presentment, protest, notice of intent to accelerate, notice of acceleration or other notice to any Person of any kind, all of which are hereby expressly WAIVED by the Company, become immediately due and payable and all Commitments shall be immediately and automatically terminated and the Maturity Date shall immediately and automatically be accelerated to the date of such occurrence:

        (x)   The Company or any of its Subsidiaries shall make a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian, receiver or liquidator of all or any substantial part of its business, estate or assets or shall commence any proceeding under any bankruptcy, reorganization, arrangement, insolvency,

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readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or

        (y)   Any such petition or application shall be filed or any such proceeding shall be commenced against the Company or any of its Subsidiaries and the Company or such Subsidiary by any act or omission shall indicate approval thereof, consent thereto or acquiescence therein which shall not have been dismissed within 60 days, or an order shall be entered appointing a trustee, custodian, receiver or liquidator of all or any substantial part of the assets of the Company or any of its Subsidiaries or granting relief to the Company or any of its Subsidiaries or approving the petition in any such proceeding, and such order shall remain in effect for more than sixty (60) days; or

        (z)   The Company or any of its Subsidiaries shall admit in writing its inability to pay its debts as they become due or fail generally to pay its debts as they become due or suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its Property which is not released, stayed, bonded or vacated within thirty (30) days after its issue or levy.

        Section 7.2    Remedies Cumulative.    No remedy, right or power conferred upon the Agent or any Lender is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative.

ARTICLE VIII—THE AGENT

        Section 8.1    Authorization and Action.    (a) Each Lender hereby irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the obligations of the Company or any Guarantor), no Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders, and all holders of Notes, and the Agent agrees to request from the Company any information that is reasonably requested by any Lender; provided, however, that no Agent shall be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement or applicable law.

        (b)   The Agent and/or the Collateral Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties.

        (c)   Each of the Lenders hereby appoints and authorizes the Collateral Agent to take such action as collateral agent on its behalf and to exercise such powers under the Security Agreement A and Security Agreement B as are specifically delegated to the Collateral Agent by the terms of such Loan Documents, together with such other powers as are reasonably incidental thereto.

        Section 8.2    Agents' Reliance, Etc.    Neither the Agent nor the Collateral Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (a) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to

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be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (c) shall not have any duty to ascertain or to inquire as to the performance, observance or satisfaction of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or the existence at any time of any Default under the Loan Documents or to inspect the property (including the books and records) of any Loan Party; (d) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (e) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy or electronic communication) believed by it to be genuine and signed or sent by the proper party or parties.

        Section 8.3    Royal Bank and Affiliates.    With respect to its Commitments, the Loan made by it and any Note issued to it, Royal Bank shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though each were not an Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Royal Bank in its individual capacity. Royal Bank and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from, act as a counterparty to any Hedging Agreements and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if Royal Bank were not the Agent and without any duty to account therefor to the Lenders. No Agent shall have any duty to disclose any information obtained or received by it or any of its Affiliates relating to any Loan Party or any of its Subsidiaries to the extent such information was obtained or received in any capacity other than as the Agent.

        Section 8.4    Lender Credit Decision.    Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

        Section 8.5    Indemnification.    Each Lender severally agrees to indemnify the Agent (to the extent not promptly reimbursed by the Company) from and against such Lender's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Agent under the Loan Documents (collectively, the "Indemnified Costs"); provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct as found in a final, non-appealable judgment by a court of competent jurisdiction. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Company under Section 9.8, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Company. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 8.5 applies whether any such investigation, litigation or proceeding is brought by any Lender or any other Person.

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For purposes of this Section 8.5, each Lender's ratable share of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Loans outstanding at such time and owing to such Lender and (ii) the aggregate Unused Commitments at such time. The failure of any Lender to reimburse the Agent promptly upon demand for its ratable share of any amount required to be paid by the Lenders to the Agent as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse the Agent for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse the Agent for such other Lender's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender contained in this Section 8.6 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents.

        Section 8.6    Successor Agents.    The Agent may resign at any time by giving written notice thereof to the Lenders and the Company. Upon any such resignation, the Lenders (in consultation with the Company) shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. If within 30 days after written notice is given of the retiring Agent's resignation under this Section 8.6 no successor Agent shall have been appointed and shall have accepted such appointment, then on such 30^th day (a) the retiring Agent's resignation or removal shall become effective, (b) the retiring Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (c) the Lenders shall thereafter perform all duties of the retiring Agent under the Loan Documents until such time, if any, as the Lenders appoint a successor Agent as provided above. After any retiring Agent's resignation or removal hereunder as Agent as to the Facility shall have become effective, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

        Section 8.7    Other Agents; Arrangers and Managers.    None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a "syndication agent," "documentation agent," "bookrunner," or "lead arranger" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than to the extent expressly set forth herein and, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.

ARTICLE IX—MISCELLANEOUS

        Section 9.1    No Waiver.    No waiver of any Default shall be deemed to be a waiver of any other Default. No failure to exercise and no delay on the part of the Agent or any Lender in exercising any right or power under any Loan Document or at law or in equity shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or the abandonment or discontinuance of steps to enforce any such right or power, preclude any further or other exercise thereof or the exercise of any other right or power. No course of dealing between the Company and the Agent or any Lender shall operate as a waiver of any right or power of the Agent or any Lender. No amendment, modification or waiver of any provision of this Agreement or any other Loan Document nor any

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consent to any departure therefrom shall be effective unless the same is in writing and signed by the Person against whom it is sought to be enforced, and then it shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Company or any other Person shall entitle the Company or any other Person to any other or further notice or demand in similar or other circumstances.

        Section 9.2    Notices.

        (a)   All notices and other communications provided for hereunder shall be either (x) in writing (including facsimile or electronic communication) and mailed, faxed or delivered or (y) as and to the extent set forth in Section 9.2(b) and in the proviso to this Section 9.2(a), in an electronic medium and delivered as set forth in Section 9.2(b), if to any Loan Party, to the Company at its address at 550 Bowie Street, Austin, Texas 78703, Attention: Glenda Chamberlain, Chief Financial Officer, and Faxed to: 512 482 7205, with copy to the General Counsel's Office at the same address and faxed to: 512 482 7217; if to any initial Lender party to this Agreement on date hereof, at the address specified for such Lender on Schedule 2.1(a) hereto; if to any other Lender, at the address specified in the Assignment and Acceptance pursuant to which it became a Lender; if to the Agent, at its address at 200 Bay Street, 12th Floor, South Tower, Royal Bank Plaza, Toronto, Ontario M5J 2W7, Attention: Manager, Agency, Fax: 416-842-4023; or, as to any Party, at such other address as shall be designated by such party in a written notice to the other parties; provided, however, that materials and information described in Section 9.2(b) shall be delivered to the Agent in accordance with the provisions thereof or as otherwise specified to the Company by the Agent. Except as otherwise provided herein, all notices, consents, certificates, waivers, documents and other communications required or permitted to be delivered to any party under the terms of any Loan Document (a) must be in writing, (b) must be personally delivered, transmitted by a recognized courier service or transmitted by facsimile, and (c) must be directed to such party at its address or facsimile number set forth above or on Schedule 2.1(a) hereto. Except as provided in subsection (b) below, all notices will be deemed to have been duly given and received on the date of delivery if delivered personally, three (3) days after delivery to the courier if transmitted by courier, or the date of transmission during normal business hours with confirmation if transmitted by facsimile, whichever occurs first, except that notices and communications to the Agent or the Collateral Agent pursuant to Article II, III or VII shall not be effective until received by such Agent. Any party may change its address or facsimile number for purposes hereof by notice to all other parties. Delivery by telecopier of an executed counterpart of a signature page to any amendment or waiver of any provision of this Agreement or the Notes shall be effective as delivery of an original executed counterpart thereof.

        (b)   The Company hereby agrees that it will provide to the Agent all information, documents and other materials that it is obligated to furnish to the Agent pursuant to the Loan Documents, including, without limitation, all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, Borrowing (including any election of an interest rate or LIBOR Interest Period relating thereto), (ii) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (iii) provides notice of any Default or Event of Default under this Agreement or (iv) comprises original executed counterparts, original governmental certificates, in each case, required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any Borrowing thereunder (all such non-excluded communications being referred to herein collectively as "Communications"), by transmitting the Communications in an electronic/soft medium in a format reasonably acceptable to the Agent to an electronic mail address specified by the Agent to the Company. In addition, the Company agrees to continue to provide the Communications to the Agent in the manner specified in the Loan Documents but only to the extent requested by the

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Agent. The Company further agrees that the Agent may make the Communications available to the Lenders by posting the Communications on IntraLinks or a substantially similar electronic transmission system (the "Platform"); provided that, unless otherwise indicated by the Company, all such information so made available to the Lender Parties shall be treated by the Agent as confidential information.

        (c)   THE PLATFORM IS PROVIDED "AS IS" AND "AS AVAILABLE." THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL THE AGENT OR ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES (COLLECTIVELY, "AGENT PARTIES") HAVE ANY LIABILITY TO THE COMPANY, ANY LENDER OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF THE COMPANY'S OR THE AGENT'S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF THE AGENT OR THE COLLATERAL AGENT PARTY IS FOUND IN A FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED PRIMARILY FROM SUCH AGENT PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

        (d)   The Agent agrees that the receipt of the Communications by the Agent at its e-mail address set forth above shall constitute effective delivery of the Communications to the Agent for purposes of the Loan Documents. Each Lender agrees that notice to it (as provided in the next sentence) specifying that the Communications have been posted to the Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender agrees to notify the Agent in writing (including by electronic communication) from time to time of such Lender's e-mail address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such e-mail address. Nothing herein shall prejudice the right of the Agent or any Lender to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.

        Section 9.3    Jurisdiction; Governing Law; Etc.

        (a)   Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the fullest extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this

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Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction.

        (b)   EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

        (c)   THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

        (d)   EACH OF THE COMPANY, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE LOANS OR THE ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

        Section 9.4    Survival; Parties Bound.    All representations, warranties, covenants and agreements made by or on behalf of the Company in connection herewith shall survive the execution and delivery of the Loan Documents, shall not be affected by any investigation made by any Person, and shall bind the Company and its successors, trustees, receivers and assigns and inure to the benefit of the successors and assigns of the Agent and the Lenders, provided that the undertaking of the Lenders hereunder to make Loans to the Company shall not inure to the benefit of any successor or assign of the Company. The term of this Agreement shall be until the final maturity of each Note and the payment of all amounts due under the Loan Documents.

        Section 9.5    Counterparts.    This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed signature page of this Agreement by facsimile transmission or electronic transmission (i.e., a "pdf" or "tif") shall be effective as delivery of an original executed counterpart of this Agreement.

        Section 9.6    Survival.    The obligations of the Company under Sections 2.15(d), 2.6, 2.10(b), 2.10(d), 9.8, 9.9, 9.16 and 9.17 hereof shall survive the repayment of the Loans and the termination of the Commitments.

        Section 9.7    Captions.    The headings and captions appearing in the Loan Documents have been included solely for convenience and shall not be considered in construing the Loan Documents.

        Section 9.8    Expenses, Etc.    Whether or not any Loan is ever made, the Company shall pay or reimburse on demand each of the Lenders and the Agent for paying: (a) the reasonable fees and expenses of Shearman & Sterling LLP, counsel to the Agent or any other legal counsel engaged by the Agent, in connection with (i) the preparation, execution and delivery of this Agreement (including the exhibits and schedules hereto) and the Loan Documents and the making of the Loans hereunder and (ii) any modification, supplement or waiver of any of the terms of this Agreement or any other Loan Document made as a result of any request by the Company; (b) all reasonable costs and expenses (including reasonable attorneys' fees) of the Lenders and the Agent in connection with the

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enforcement of this Agreement or any other Loan Document; (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority after the effective date hereof in respect of this Agreement or any other Loan Document or any other document referred to herein or therein; (d) all costs, expenses, taxes, assessments and other charges incurred after the effective date hereof in connection with any filing, registration, recording or perfection of any security interest contemplated by Section 5.10 of this Agreement; and (e) expenses of mutually agreed due diligence and syndication.

        Section 9.9    Indemnification.    The Company shall indemnify the Agent, the Lenders and each Affiliate thereof and their respective directors, officers, employees, counsel and agents from, and hold each of them harmless against, any and all losses, liabilities (including Environmental Liabilities), claims (including Environmental Claims) or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any (a) actual or proposed use by the Company of the proceeds of any extension of credit by any Lender hereunder, (b) breach by the Company of this Agreement or any other Loan Document, (c) violation by the Company or any of its Subsidiaries of any law, rule, regulation or order including any Requirements of Environmental Law, (d) Liens or security interests granted on any Property pursuant to or under the Loan Documents, to the extent resulting from any Hazardous Substance, petroleum, petroleum product or petroleum waste located in, on or under any such property, (e) ownership by the Lenders or the Agent of any Property following foreclosure under the Loan Documents, to the extent such losses, liabilities, claims or damages arise out of or result from any Hazardous Substance, petroleum, petroleum product or petroleum waste located in, on or under such Property, including losses, liabilities, claims or damages which are imposed upon Persons under laws relating to or regulating Hazardous Substances, petroleum, petroleum products or petroleum wastes solely by virtue of ownership, (f) any Lender or the Agent being deemed an operator of any such Property by a court or other regulatory or administrative agency or tribunal or other third party, to the extent such losses, liabilities, claims or damages arise out of or result from any Hazardous Substance, petroleum, petroleum product or petroleum waste located in on or under such Property, (g) the making of the extensions of credit hereunder and the consummation of any of the transactions contemplated in the Loan Documents or (h) investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to any of the foregoing, and the Company shall reimburse the Agent and each Lender, and each Affiliate thereof and their respective directors, officers, employees, counsel and agents, upon demand for any expenses (including legal fees) incurred in connection with any such investigation or proceeding, AND WHETHER ANY SUCH LOSS, LIABILITY, CLAIM OR DAMAGE RESULTS FROM THE NEGLIGENCE OF ANY SUCH INDEMNIFIED PERSON; but excluding any such losses, liabilities, claims, damages or expenses incurred by a Person or any Affiliate thereof or their respective directors, officers, employees, counsel or agents by reason of the gross negligence or willful misconduct of such Person, affiliate, director, officer, employee or agent. Promptly after receipt by an indemnified person of notice of any claim or the commencement of any action, such indemnified person shall, if any claim in respect thereof is to be made against the Company under this Section 9.10, notify the Company in writing of the claim or the commencement of that action. The Company shall not be liable for any settlement of any such claim or action involving the payment of monetary damages effected without its written consent not to be unreasonably withheld. If any such claim or action shall be brought against an indemnified person and it shall notify the Company thereof, the Company shall be entitled to participate in the joint defense thereof.

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        Section 9.10    Amendments, Etc.    No amendment or waiver of any provision of this Agreement, the Notes or any other Loan Document (except for the Credit Facility Hedging Agreements), nor any consent to any departure by the Company therefrom, shall in any event be effective unless the same shall be agreed or consented to by the Required Lenders and the Company, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver or consent shall, unless in writing and signed by each Lender, do any of the following: (a) increase any Commitment of any of the Lenders or subject the Agent or any of the Lenders to any additional obligations; (b) reduce the principal of, or interest on, any Loan, or any fee hereunder; (c) waive or postpone any scheduled date fixed for any payment of principal of, or interest on, any Loan, or any fee or other sum to be paid hereunder; (d) change the percentage of any of the Commitments or of the aggregate unpaid principal amount of any of the Loans, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Agreement; (e) change any provision contained in Sections 2.4, 2.7, 9.8 or 9.9 hereof or this Section 9.10 or Sections 9.15 or 9.18 hereof; (f) release all or any substantial part of the security for the obligations of the Company under this Agreement, any Application or any Note; (g) release any Guarantor from any Guaranty (except for Guarantors sold by the Company or any of its Subsidiaries pursuant to the terms of Section 6.4(y) hereof); (h) change the definition of "Required Lenders" contained herein; (i) modify the requirement of unanimous written approval by the Lenders of any unilateral reduction by the Lenders of the Aggregate Commitment as provided for in Section 2.2; or (j) waive or postpone any prepayment required by Section 2.3 hereof. Anything in this Section 9.10 to the contrary, no amendment, waiver or consent shall be made with respect to Section 8 without the consent of the Agent.

        Section 9.11    Successors and Assigns.

        (a)   This Agreement shall be binding upon and inure to the benefit of the Company, the Agent and the Lenders and their respective successors and assigns. The Company may not assign or transfer any of its rights or obligations hereunder without the prior written consent of all of the Lenders.

        (b)   Each Lender may sell participations to any Person in all or part of any Loan, or all or part of its Notes or Commitments, to another bank or other entity, in which event, without limiting the foregoing, the provisions of Sections 2.12, 9.09, 9.15 and 9.16 shall inure to the benefit of each purchaser of a participation and the pro rata treatment of payments, as described in Section 2.9, shall be determined as if such Lender had not sold such participation. In the event any Lender shall sell any participation, (i) the Company, the Agent and the other Lenders shall continue to deal solely and directly with such selling Lender in connection with such selling Lender's rights and obligations under the Loan Documents (including the Note held by such selling Lender), (ii) such Lender shall retain the sole right and responsibility to enforce the obligations of the Company relating to the Loans, including the right to approve any amendment, modification or waiver of any provision of this Agreement other than (and then only if expressly permitted by the applicable participation agreement) amendments, modifications or waivers with respect to (A) any fees payable hereunder to the Lenders and (B) the amount of principal or the rate of interest payable on, or the dates fixed for the scheduled repayment of principal of, the Loans and other sums to be paid to the Lenders hereunder, and (iii) the Company agrees, to the fullest extent it may effectively do so under applicable law, that any participant of a Lender may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such participant were a direct holder of Loans if such Lender has previously given notice of such participation to the Company and such participant agrees to be bound by Section 2.12 as if it were a Lender.

        (c)   Each Lender may assign to one or more Lenders or Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the same portion of the related Loan at the time owing to it) (a "Ratable Assignment"); provided, however, that, (i) the aggregate amount of the Commitment and Loan of the assigning Lender subject

50

to each such assignment (determined as of the date the Assignment and Acceptance (as defined below) with respect to such assignment is delivered to the Agent) shall in no event be less than $5,000,000 (unless all of the assigning Lender's Commitment and Loan is being assigned); and (ii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in its records, an Assignment and Acceptance in the form of Exhibit F attached hereto (each an "Assignment and Acceptance") with blanks appropriately completed, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,500 (for which the Company shall have no liability, and provided that only one such fee shall be required in the case of simultaneous assignments to related entities). Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, unless a shorter period of time may be agreed to by the Agent in its sole and absolute discretion, (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) the Lender thereunder shall, to the extent provided in such assignment, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

        (d)   By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such Lender assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assignor Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any of its Subsidiaries or the performance or observance by the Company of any of its obligations hereunder; (iii) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with copies of the financial statements of the Company previously delivered in accordance herewith and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assignor Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all obligations that by the terms of the Loan Documents are required to be performed by it as a Lender.

        (e)   The Agent shall maintain at its office a copy of each Assignment and Acceptance delivered to it and a record of the names and addresses of the Lenders and the Commitments of, and principal amount of the Loans owing to each Lender from time to time (the "Register"). The entries in the register shall be conclusive, in the absence of manifest error, and the Company, the Agent and the Lenders may treat each person the name of which is recorded therein as a Lender hereunder for all purposes of the Loan Documents. Such records shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice.

        (f)    Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and the assignee thereunder together with the Note, if any, subject to such assignment, the written consent to such assignment and the fee payable in respect thereto, the Agent shall, if such Assignment and

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Acceptance has been completed with blanks appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company and the Lenders. Contemporaneously with the receipt by the Company of such Assignment and Acceptance, the Company, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note payable to the order of such assignee in an amount equal to the Commitment and Loan assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment and Loan hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment and Loan retained by it hereunder. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the surrendered Note. Thereafter, such surrendered Note shall be marked canceled and returned to the Company.

        (g)   Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.11, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Company furnished to such Lender by or on behalf of the Company.

        (h)   Each Lender agrees that, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.11, the Company will not be responsible for the accuracy and completeness of any written materials furnished by such Lender to any actual or prospective assignee or participant, other than copies of (i) documents furnished to such Lender pursuant to clause (a), (b), (c) or (d) of Section 5.2 hereof, and (ii) any other documents which are prepared by the Company for use in such connection and which contain a statement to such effect.

        (i)    Notwithstanding anything herein to the contrary, each Lender may pledge and assign all or any portion of its rights and interests under the Loan Documents to any Federal Reserve Bank.

        (j)    Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Agent and the Company (an "SPC") the option to provide all or any part of any Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement; provided, however, that (i) nothing herein shall constitute a commitment by any SPC to fund any Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of an Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that (i) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would be liable, (ii) no SPC shall be entitled to the benefits of Sections 2.10 and 9.15 (or any other increased costs protection provision) and (iii) the Granting Lender shall for all purposes, including, without limitation, the approval of any amendment or waiver of any provision of any Loan Document, remain the Lender of record hereunder. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior Debt of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained in this Agreement, any SPC may (i) with notice to, but without prior consent of, the Company and the Agent, assign all or any portion of its interest in any Loan to the Granting Lender and (ii) disclose on a confidential basis any non-public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or guarantee or credit or liquidity enhancement to such SPC. This subsection (j) may not be amended without the

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prior written consent of each Granting Lender, all or any part of whose Loans are being funded by the SPC at the time of such amendment.

        Section 9.12    Release of Collateral.    Upon the sale, lease, transfer or other disposition of any item of Collateral or Additional Collateral of any Loan Party (including, without limitation, as a result of the sale, in accordance with the terms of the Loan Documents, of the Loan Party that owns such Collateral or Additional Collateral) in accordance with the terms of the Loan Documents, the Collateral Agent will, at the Borrower's expense, execute and deliver to such Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral or Additional Collateral from the assignment and security interest granted under the Security Agreements A or B, as applicable in accordance with the terms of the Loan Documents.

        Section 9.13    Entire Agreement.    This Agreement embodies the entire agreement and understanding among the Company, the Agent and the Lenders relating to the subject matter hereof and supersedes all prior proposals, agreements and understandings relating to the subject matter hereof. The Company certifies that it is relying on no representation, warranty, covenant or agreement except for those set forth in this Agreement and the other Loan Documents of even date herewith.

        Section 9.14    Severability.    If any provision of any Loan Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby.

        Section 9.15    Disclosures.    Every reference in the Loan Documents to disclosures of the Company to the Agent and the Lenders in writing, to the extent that such references refer to disclosures at or prior to the execution of this Agreement, shall be deemed strictly to refer only to written disclosures delivered to the Agent and the Lenders in an orderly manner concurrently with the execution hereof.

        Section 9.16    Capital Adequacy.

        (a)   If after the date of this Agreement, any Lender shall have determined that the adoption or effectiveness (regardless of whether previously announced) of any applicable Legal Requirement or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, has or would have the effect of increasing the cost of, or reducing the rate of return on the capital of such Lender (or any holding company of which such Lender is a part) as a consequence of its obligations hereunder or under any Note to a level below that which such Lender or holding company could have achieved but for such adoption, change or compliance by an amount deemed by such Lender to be material, then from time to time, upon written demand to the Company by such Lender (with a copy to the Agent), the Company shall pay to such Lender, but only with respect to periods arising after such demand by such Lender and applicable periods prior to such demand by such Lender if such adoption, change or compliance is retroactive in application, such additional amount or amounts as will compensate such Lender or holding company for such reduction.

        (b)   The certificate of any Lender setting forth such amount or amounts as shall be necessary to compensate such Lender or its holding company as specified in Subsection 9.15(a) above (and setting forth the calculation thereof in reasonable detail) shall be delivered as soon as practicable to the Company and shall be conclusive and binding, absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within five days after such Lender delivers such certificate. In preparing such certificate, such Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method.

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        Section 9.17    Withholding Tax.

        (a)   As used in this Section 9.17, the following terms shall have the following meanings:

            i.  "Indemnifiable Tax" means any Tax, but excluding, in any case, any Tax that (a) would not be imposed in respect of a payment to a Lender under this Agreement, under the Notes held by such Lender or under any of the other Loan Documents except for a present or former connection between the jurisdiction of the Governmental Authority imposing such Tax and such holder (or a shareholder or other Person with an interest in such holder), including a connection arising from such holder's (or shareholder of such holder or such other Person) being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such holder having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement, the Notes or any other Loan Documents, or (b) is imposed under United States federal income tax law.

           ii.  "Tax" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest thereon and penalties and additions thereto) that is imposed by any Governmental Authority in respect of a payment to a Lender under this Agreement or under any of the other Loan Documents.

        (b)   If the Company is required by any applicable Legal Requirement to make any deduction or withholding for or on account of any Tax from any payment to be made by it under this Agreement in respect of the Loans or under any other Loan Documents, then the Company shall (i) promptly notify the applicable Lender hereunder that is entitled to such payment of such requirement to so deduct or withhold such Tax, (ii) pay to the relevant authorities the full amount required to be so deducted or withheld, (iii) promptly forward to such Lender an official receipt (or certified copies thereof), or other documentation reasonably acceptable to such Lender, evidencing such payment to such Governmental Authorities and (iv) if such Tax is an Indemnifiable Tax, pay, to the extent permitted by law, to such holder, in addition to whatever net amount of such payment is paid to such Lender, such additional amount as is necessary to ensure that the total amount actually received by such Lender (free and clear of Indemnifiable Tax) will equal the full amount of the payment such Lender would have received had no such deduction or withholding been required. If the Company pays any additional amount to a Lender pursuant to the preceding sentence and such Lender shall receive a refund of an Indemnifiable Tax with respect to which, in the good faith opinion of such Lender, such payment was made, such Lender shall pay to the Company the amount of such refund promptly upon receipt thereof.

        (c)   In the event that any Governmental Authority notifies the Company that it has improperly failed to withhold or deduct any Tax from a payment received by any Lender under this Agreement, the Company shall timely and fully pay such Tax to such Governmental Authority and such Lender shall, upon receipt of written notice of such payment, immediately pay to the Company, an amount necessary in order that the amount of such payment to the Company after payment of all Taxes with respect to such payment, shall equal the amount that the Company paid to such Governmental Authority pursuant to this clause (c).

        (d)   Each Lender shall, upon request by the Company, take requested measures to mitigate the amount of Indemnifiable Tax required to be deducted or withheld from any payment made by the Company under this Agreement or under any other Loan Documents if such measures can, in the sole and absolute opinion of such Lender, be taken without such Lender suffering any economic, legal, regulatory or other disadvantage (provided, however, that no such Lender shall be required to designate a funding office that is not located in the United States of America).

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        Section 9.18    Waiver of Claims.    The Company hereby waives and releases the Agent and all Lenders from any and all claims or causes of action which the Company may own, hold or claim in respect of any of them as of the date hereof.

        Section 9.19    Right of Setoff.    Upon the occurrence and during the continuance of any Event of Default, the Lenders each are hereby authorized at any time and from time to time, without notice to the Company or any of the Guarantors (any such notice being expressly waived by the Company and by the Guarantors by their execution of a Guaranty or a Joinder Agreement), to setoff and apply any and all deposits (general or special, time or demand, provisional or final, whether or not such setoff results in any loss of interest or other penalty, and including without limitation all certificates of deposit) at any time held, and any other funds or property at any time held, and other Indebtedness at any time owing by such Lender to or for the credit or the account of the Company or any such Guarantor against any and all of the Indebtedness arising in connection with this Agreement irrespective of whether or not such Lender will have made any demand under this Agreement, the Notes or any other Loan Document. Each of the Company and the Guarantors (by their execution of a Guaranty or a Joinder Agreement) also hereby grants to each of the Lenders a security interest in and hereby transfers, assigns, sets over, and conveys to each of the Lenders, as security for payment of all Loans, all such deposits, funds or property of the Company or any such Guarantor or Indebtedness of any Lender to the Company or any such Guarantor. Should the right of any Lender to realize funds in any manner set forth hereinabove be challenged and any application of such funds be reversed, whether by court order or otherwise, the Lenders shall make restitution or refund to the Company pro rata in accordance with their respective Commitment Percentages. Each Lender agrees to promptly notify the Company and the Agent after any such setoff and application, provided that the failure to give such notice will not affect the validity of such setoff and application. The rights of the Agent and the Lenders under this Section are in addition to other rights and remedies (including without limitation other rights of setoff) which the Agent or the Lenders may have. This Section is subject to the terms and provisions of Section 2.12 hereof.

        Section 9.20    USA PATRIOT Act.    Each Lender that is subject to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act") hereby notifies the Company that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Company, which information includes the name and address of the Company and other information that will allow such Lender to identify the Company in accordance with the Act, and such notice is sufficient as to each such Lender. The Company shall, and shall cause each of its Subsidiaries to, provide to the extent commercially reasonable, such information and take such actions as are reasonably requested by the Agent or any Lender in order to assist the Agent and the Lenders in maintaining compliance with the Act.

        Section 9.21    Non-Consenting Lenders; Other Lenders.    If at any time, any Lender becomes a Non-Consenting Lender or makes a demand for increased costs or a withholding tax gross-up under Section 2.10 or Section 9.17, then the Company may, at its sole cost and expense, on five Business Days' prior written notice to the Agent and such Lender, replace such Lender by causing such Lender to (and such Lender shall be obligated to) assign pursuant to Section 9.11 all of its rights and obligations under this Agreement to one or more Eligible Assignees; provided that neither the Agent nor any Lender shall have any obligation to the Company to find a replacement Lender or other such Person; provided, further, that such Non-Consenting Lender or other Lender shall be entitled to receive the full outstanding principal amount of Loans so assigned, together with accrued interest and fees payable in respect of such Loans as of the date of such assignment and any other costs payable to such Lender under this Agreement.

        Section 9.22    Confidentiality.    Neither the Agent nor any Lender shall disclose any Confidential Information to any Person without the prior written consent of the Company, other than (a) to such Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and to

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actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, provided that to the extent practicable and permitted by applicable law, the party requested to disclose any information will provide prompt written notice of such request to the Company, will allow the Company a reasonable opportunity to seek appropriate protective measures prior to disclosure (at the Company's sole cost and expense), (c) as requested or required by any state, federal or foreign authority or examiner (including the National Association of Insurance Commissioners or any similar organization or quasi-regulatory authority) regulating such Lender, (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Lender, (e) to the extent reasonably necessary after consultation with counsel, in connection with any litigation or proceeding to which the Agent or such Lender or any of its Affiliates may be a party, provided that, to the extent reasonably practicable, the party requested to disclose any such information will provide prompt written notice of such request to the Company and will allow the Company a reasonable opportunity to seek appropriate protective measures prior to such disclosure) or (f) in connection with the exercise of any right or remedy under this Agreement or any other Loan Document.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above.

WHOLE FOODS MARKET, INC., as the Company
By:	Name: Title:
ROYAL BANK OF CANADA, as the Agent
By:	Name: Title:
ROYAL BANK OF CANADA, as Lender
By:	Name: Title:
JPMORGAN CHASE BANK, N.A., as Lender
By:	Name: Title:

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$700 MILLION TERM LOAN AGREEMENT
TABLE OF CONTENTS
ARTICLE III—CONDITIONS
ARTICLE IV—REPRESENTATIONS AND WARRANTIES
ARTICLE V—AFFIRMATIVE COVENANTS
ARTICLE VI—NEGATIVE COVENANTS

EX-10.12

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Exhibit 10.12

$250 MILLION REVOLVING CREDIT AGREEMENT

made and entered into

as of August 28, 2007

by and among

WHOLE FOODS MARKET, INC.,
a Texas corporation,

EACH OF THE FINANCIAL INSTITUTIONS WHICH IS
A SIGNATORY HERETO OR WHICH MAY FROM TIME TO
TIME BECOME A PARTY HERETO,

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and Collateral Agent,

ROYAL BANK OF CANADA,

as Syndication Agent,

WELLS FARGO BANK, N.A., LASALLE BANK MIDWEST, N.A., and

WACHOVIA BANK, N.A.,

as Co-Documentation Agents,

and

J. P. MORGAN SECURITIES INC. AND RBC CAPITAL MARKETS(1),

as Joint Lead Arrangers and Joint Bookrunners

(1)

RBC Capital Markets is a brand name for the investment banking activities of Royal Bank of Canada.

Table of Contents

Section		Page
ARTICLE I—Definitions
Section 1.1	Certain Defined Terms	1
Section 1.2	Accounting Terms and Determinations	18
ARTICLE II—LOANS; ETC.
Section 2.1	Loans	19
Section 2.2	Commitment Fees; Termination and Reductions	20
Section 2.3	Mandatory Prepayments; Commitment Reduction	21
Section 2.4	Payments	21
Section 2.5	Prepayments of Loans	21
Section 2.6	Application of Payments and Prepayments	23
Section 2.7	Pro Rata Treatment	23
Section 2.8	Payment Dates on the Loans	23
Section 2.9	Interest Options for Loans	23
Section 2.10	Special Provisions Applicable to LIBOR Rate Borrowings	24
Section 2.11	Payment Dates	26
Section 2.12	Sharing of Payments, Etc.	26
Section 2.13	Use of Proceeds	27
Section 2.14	Evidence of Debt	27
Section 2.15	Letters of Credit	28
Section 2.16	Increase of Commitments	31
ARTICLE III—Conditions
Section 3.1	All Loans	33
Section 3.2	First Loan	34
Section 3.3	Determinations Under Section 3.2	35
ARTICLE IV—Representations and Warranties
Section 4.1	Organization	35
Section 4.2	Financial Statements	36
Section 4.3	Enforceable Obligations; Authorization	36
Section 4.4	Other Debt	36
Section 4.5	Litigation	36
Section 4.6	Title	36
Section 4.7	Taxes	36
Section 4.8	Subsidiaries	36
Section 4.9	Representations by Others	36
Section 4.10	Permits, Licenses, Etc.	37
Section 4.11	ERISA	37
Section 4.12	Condition of Property	37
Section 4.13	Assumed Names	37
Section 4.14	Investment Company Act	37
Section 4.15	Margin Stock	37
Section 4.16	Agreements	37
Section 4.17	Environmental Matters	38
Section 4.18	Solvency	38
Section 4.19	Target Representations	38

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ARTICLE V—Affirmative Covenants
Section 5.1	Taxes, Existence, Regulations, Property, Etc.	38
Section 5.2	Financial Statements and Information	38
Section 5.3	Financial Tests	39
Section 5.4	Inspection	39
Section 5.5	Further Assurances	39
Section 5.6	Books and Records	40
Section 5.7	Insurance	40
Section 5.8	ERISA	40
Section 5.9	Use of Proceeds	40
Section 5.10	Additional Guaranties	40
Section 5.11	Notice of Events	40
Section 5.12	Environmental Matters	41
Section 5.13	End of Fiscal Year	41
Section 5.14	Consummation of Merger	41
Section 5.15	Maintenance of Ratings	41
ARTICLE VI—Negative Covenants
Section 6.1	Indebtedness	43
Section 6.2	Liens	44
Section 6.3	Contingent Obligations	45
Section 6.4	Mergers, Consolidations and Dispositions and Acquisitions of Assets	45
Section 6.5	Nature of Business	46
Section 6.6	Transactions with Related Parties	46
Section 6.7	Loans and Investments	47
Section 6.8	ERISA Compliance	47
Section 6.9	Credit Extensions	47
Section 6.10	Change in Accounting Method	47
Section 6.11	Redemption, Dividends and Distributions	47
ARTICLE VII—Events of Default and Remedies
Section 7.1	Events of Default	48
Section 7.2	Remedies Cumulative	50
ARTICLE VIII—The Agent and the Issuers
Section 8.1	Authorization and Action	50
Section 8.2	Agent's and Issuers' Reliance, Etc.	51
Section 8.3	JPMorgan and Affiliates	51
Section 8.4	Lender Credit Decision	51
Section 8.5	Indemnification	52
Section 8.6	Successor Agents	52
Section 8.7	Other Agents; Arrangers and Managers	52
ARTICLE IX—Miscellaneous
Section 9.1	No Waiver	53
Section 9.2	Notices	53
Section 9.3	Jurisdiction; Governing Law; Etc.	55
Section 9.4	Survival; Parties Bound	55
Section 9.5	Counterparts	55

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Section 9.6	Survival	56
Section 9.7	Captions	56
Section 9.8	Expenses, Etc	56
Section 9.9	Indemnification	56
Section 9.10	Amendments, Etc	57
Section 9.11	Successors and Assigns	57
Section 9.12	Entire Agreement
Section 9.13	Severability
Section 9.14	Disclosures
Section 9.15	Capital Adequacy
Section 9.16	Withholding Tax
Section 9.17	Waiver of Claims
Section 9.18	Right of Setoff
Section 9.19	USA PATRIOT Act
Section 9.20	Non-Consenting Lenders; Other Lenders
Section 9.21	Confidentiality

EXHIBITS

A	—	Form of Note
B	—	Notice of Assumption
C	—	Officer's Certificate
D	—	Request for Extension of Credit and Certificate of No Default
E	—	Rate Selection Notice
F	—	Form of Assignment and Acceptance
G-A	—	Form of Security Agreement A
G-B	—	Form of Security Agreement B
H	—	Form of Guaranty Agreement
SCHEDULES
1.1(a)		Disclosed Divestitures
1.1(b)		EBIT/EBITDA
1.1(c)		Guarantors
1.1(d)		Existing Letters of Credit
2.1(a)		Commitments
4.8		Subsidiaries
4.13		Assumed Names
4.16		Agreements
6.2(a)		Liens

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        REVOLVING CREDIT AGREEMENT (this "Agreement") dated as of August 28, 2007 among WHOLE FOODS MARKET, INC., a Texas corporation (the "Company"), JPMorgan Chase Bank, N.A. ("JPMorgan"), as administrative agent (together with any successor administrative agent appointed pursuant to Article VII, the "Agent") and collateral agent (together with any successor collateral agent appointed pursuant to Security Agreement A or Security Agreement B, as applicable, the "Collateral Agent") for the lenders from time to time parties hereto (the "Lenders"), Royal Bank of Canada, as syndication agent, Wells Fargo Bank, N A, Wachovia Bank, N.A. and LaSalle Bank Midwest, N.A. as co-documentation agents, and J. P. Morgan Securities Inc. and RBC Capital Markets, as joint lead arrangers and joint bookrunners (in such capacities, the "Joint Lead Arrangers").

        PRELIMINARY STATEMENTS:

        (1)   Pursuant to the agreement and plan of merger dated as of February 21, 2007 (as amended, supplemented or otherwise modified in accordance with its terms, to the extent permitted hereunder, the "Merger Agreement") among the Company, its wholly-owned subsidiary, WFMI Merger Co., a Delaware corporation ("Merger Sub") and Wild Oats Markets, Inc., a Delaware corporation (the "Target"), the Company, through Merger Sub, has commenced an offer to purchase all the outstanding shares of the Target (the "Tender Offer"). Following the successful consummation of the Tender Offer, the Company, through Merger Sub, will acquire 100% of the outstanding shares of the Target and will merge with and into the Target (the "Merger").

        (2)   The Company has requested that the Lenders provide a $250,000,000 revolving line of credit to the Company to (i) finance the Tender Offer and the Merger Transactions and to pay related fees and expenses, and (ii) support new store development, other acquisitions, the issuance of standby letters of credit and other general corporate purposes, including but not limited to, the repurchase of stock and refinancing of existing Indebtedness of the Target, subject to the terms and conditions set forth herein.

        (3)   The Lenders have indicated their willingness to lend such amount on the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows:

ARTICLE I—Definitions

        Section 1.1    Certain Defined Terms.    Unless a particular word or phrase is otherwise defined or the context otherwise requires, capitalized words and phrases used in the Loan Documents have the meanings provided below.

        "Additional Collateral" has the meaning specified in the Security Agreement B attached hereto as Exhibit G-B.

        "Additional Collateral Trigger" shall mean the date on which (a) the Borrower's corporate credit rating shall be (i) with respect to S&P's corporate credit rating, equal to or lower than BB-, and (ii) with respect to Moody's corporate rating system, equal to or lower than Ba3; or (b) the Borrower's corporate credit rating shall be less than (i) with respect to S&P's corporate credit rating, BB-, or (ii) with respect to Moody's corporate rating system, a rating of Ba3.

        "Additional Security Period" shall mean the period, if any, beginning with the occurrence of the Additional Collateral Trigger until the Maturity Date.

        "Affiliate" shall mean any Person controlling, controlled by or under common control with any other Person; and with respect to an individual, "Affiliate" shall also mean any other individual related to such individual by blood or marriage. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or

1

indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of securities, partnership or other ownership interests, by contract or otherwise.

        "Agent" shall have the meaning ascribed to it in the recital of parties hereto.

        "Agent's Account" means the Agent's account specified by the Agent in writing to the Company and the Lenders from time to time.

        "Aggregate Commitment" shall mean, on any day, the aggregate of all of the Commitments of the Lenders on such day.

        "Agreement" shall have the meaning ascribed to it in the recital of parties hereto.

        "Agreement Value" means, for each Hedging Agreement, on any date of determination, an amount determined by the Agent equal to the amount, if any, (a) that would be payable by any Loan Party or any of its Subsidiaries to its counterparty to such Hedging Agreement as if (i) such Hedging Agreement was being terminated early on such date of determination, (ii) such Loan Party or Subsidiary was the sole "Affected Party" and (iii) the Agent was the sole party determining such payment amount (with the Agent making such determination pursuant to the terms of the governing documentation); (b) in the case of a Hedge Agreement traded on an exchange, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or any of its Subsidiaries party to such Hedge Agreement based on the settlement price of such Hedge Agreement on such date of determination; or (c) in all other cases, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party to such Hedge Agreement as the amount, if any, by which (i) the present value of the future cash flows to be paid by such Loan Party or Subsidiary exceeds (ii) the present value of the future cash flows to be received by such Loan Party or Subsidiary pursuant to such Hedge Agreement.

        "Alternate Base Rate" shall mean for any day (a) the greater of (i) the Prime Rate, and (ii) the Federal Funds Rate plus 0.50% per annum, plus (b) the Applicable Margin in effect on such day. For purposes of this Agreement any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate, respectively. If for any reason the Agent shall have determined (which determination shall be conclusive and binding, absent manifest error) that it is unable to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be the Prime Rate plus the Applicable Margin.

        "Alternate Base Rate Borrowing" shall mean that portion of the principal balance of the Loans at any time bearing interest at the Alternate Base Rate.

        "Annual Audited Financial Statements" shall mean, with respect to each fiscal year of the Company, the Company's 10-K Report filed with the Securities Exchange Commission for such fiscal year, prepared in conformity with Generally Accepted Accounting Principles and accompanied by a report and opinion of independent certified public accountants with an accounting firm of national standing and reputation, which shall state that such financial statements, in the opinion of such accountants, present fairly, in all material respects, the financial position of the Company and its Subsidiaries, on a consolidated basis, as of the date thereof and the results of its operations and cash flows for the period covered thereby in conformity with Generally Accepted Accounting Principles.

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        "Applicable Commitment Fee Percentage" shall mean with respect to any Loan on any date of determination, the applicable rate per annum for the corresponding rating of the Company's corporate family ratings, and determined in accordance with the following grid:

Moody's and S&P	Percentage (Per Annum)
BBB+ or Baa1	0.09	%
BBB or Baa2	0.125	%
BBB- and Baa3	0.15	%
BBB- or Baa3	0.175	%
BB+ and Ba1	0.20	%
BB+ or Ba1	0.225	%
BB and Ba2	0.25	%
BB or Ba2	0.30	%
Otherwise	0.35	%

For purposes of determining the Applicable Commitment Fee Percentage in the case of split ratings, where applicable, (i) in the event of a single category split in ratings, the higher of the two ratings shall apply, (ii) in the event of a two-category split in ratings, the rating that is in the middle of the two ratings shall apply and (iii) in the event that there is more than a two-category split in ratings, the rating that is one category above the lower rating will apply.

        "Applicable Margin" shall mean with respect to any Loan on any date of determination, the applicable rate per annum for the corresponding rating of the Company's corporate family ratings, and determined in accordance with the following grid:

Moody's and S&P	LIBOR Margin (Per Annum)		ABR Margin (Per Annum)
BBB+ or Baa1	0.375	%	0.00	%
BBB or Baa2	0.500	%	0.00	%
BBB- and Baa3	0.625	%	0.00	%
BBB- or Baa3	0.875	%	0.00	%
BB+ and Ba1	1.00	%	0.00	%
BB+ or Ba1	1.25	%	0.25	%
BB and Ba2	1.375	%	0.375	%
BB or Ba2	1.50	%	0.50	%
Otherwise	1.75	%	0.75	%

For purposes of determining the Applicable Margin in the case of split ratings, where applicable, (i) in the event of a single category split in ratings, the higher of the two ratings shall apply, (ii) in the event of a two-category split in ratings, the rating that is in the middle of the two ratings shall apply and (iii) in the event that there is more than a two-category split in ratings, the rating that is one category above the lower rating will apply.

        "Applications" shall mean all applications and agreements for Letters of Credit, or similar instruments or agreements, in Proper Form, now or hereafter executed by any Person in connection with any Letter of Credit now or hereafter issued or to be issued under the terms hereof at the request of any Person.

        "Approved Fund" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

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        "Borrowing" shall mean an Alternate Base Rate Borrowing or a LIBOR Rate Borrowing.

        "Business Day" shall mean a day when the main office of the Agent is open for business and banks in New York, New York are generally open for business.

        "Business Entity" shall mean corporations, partnerships, joint ventures, joint stock associations, business trusts and other business entities.

        "Capital Lease Obligations" shall mean the obligations of the Company and its Subsidiaries on a consolidated basis to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal Property which obligations are required to be classified and accounted for as a capital lease on a consolidated balance sheet of the Company and its Subsidiaries under Generally Accepted Accounting Principles (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board, as amended) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with Generally Accepted Accounting Principles (including such Statement No. 13).

        "Change of Control" shall mean any change so that any Unrelated Person (or any Unrelated Persons acting together which would constitute a Group) together with any Affiliate or Related Persons of such Unrelated Person or Unrelated Persons (in each case also constituting Unrelated Persons) shall at any time after the date hereof either (i) Beneficially Own more than fifty percent (50%) of the aggregate voting power of all classes of Voting Stock of the Company, or (ii) succeed in having enough of its or their nominees elected by the stockholders to the Board of Directors of the Company so as to constitute a majority of the Board of Directors of the Company. As used herein, (a) "Beneficially Own" shall mean "beneficially own" as defined in Rule 13d-3 of the Securities and Exchange Act of 1934, as amended (the "34 Act") or any successor provision thereto; (b) "Group" shall mean a "group" for purposes of Section 13(d) of the 34 Act or any successor provision; (c) "Unrelated Person" shall mean any Person other than any trust for any employee stock ownership plan of the Company or any Subsidiary of the Company; (d) "Related Person" shall mean as to any Person, any other Person owning (1) five percent (5%) or more of the outstanding common stock of such Person or (2) five percent (5%) or more of the Voting Stock of such Person, and (e) "Voting Stock" shall mean as to any Person, the Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency.

        "Code" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service.

        "Collateral" has the meaning specified in the Security Agreement A attached hereto as Exhibit G-A.

        "Collateral Agent" shall have the meaning ascribed to it in the recital of parties hereto.

        "Commitment" shall mean, as to any Lender, the obligation of such Lender to make Loans and incur liability for the Letters of Credit Exposure Amount in an aggregate principal amount at any one time outstanding up to, but not exceeding, the amount set forth opposite such Lender's name on Schedule 2.1(a) hereto under the caption "Commitment", or as to any Lender that becomes a Party hereto by executing an Assignment and Acceptance, the amount set forth in such Assignment and Acceptance (in each case, as the same may be reduced from time to time pursuant to Section 2.2 hereof and increased from time to time pursuant to Section 2.16 hereof).

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        "Commitment Fee", with respect to any Lender, shall have the meaning assigned to it in Section 2.2.

        "Commitment Increase Agreement" shall have the meaning assigned to it in Section 2.16(c).

        "Commitment Increase Notice" shall have the meaning assigned to it in Section 2.16(a).

        "Commitment Percentage" shall mean, with respect to any Lender, the ratio, expressed as a percentage, of (a) such Lender's Commitment to (b) the Aggregate Commitment.

        "Confidential Information" means non-public information that any Loan Party furnishes to the Agent or any Lender, unless such information is or becomes (a) generally available to the public (other than as a result of a breach by the Agent or any Lender of its obligations hereunder) or that is or becomes available to the Agent or such Lender from a source other than the Loan Parties that is not, to the best of the Agent's or such Lender's knowledge, acting in violation of a confidentiality agreement with a Loan Party or (b) designated in writing by any Loan Party as non-confidential.

        "Consequential Loss" shall mean, with respect to (a) the Company's payment of principal of a LIBOR Rate Borrowing on a day other than the last day of the applicable LIBOR Interest Period, (b) the Company's failure to borrow a LIBOR Rate Borrowing on the date specified by the Company for any reason, (c) the Company's failure to make any prepayment of the Loans (other than Alternate Base Rate Borrowings) on the date specified by the Company, or (d) any cessation of the LIBOR Rate to apply to the Loans or any part thereof pursuant to Section 2.10 hereof, in each case whether voluntary or involuntary, any loss, expense, penalty, premium or liability incurred by any of the Lenders or the Agent, including any interest paid by any of the Lenders to lenders of funds borrowed by them to make or carry the Loans; a "Consequential Loss" shall mean, with respect to the termination or cancellation of any LIBOR Rate Borrowing pursuant to Section 2.10 hereof, in each case whether voluntary or involuntary, any loss, expense, penalty, premium or liability incurred by any of the Lenders or the Agent on account of any reduction resulting from such premature termination or cancellation of such borrowing in such Person's margins or spreads between its cost of funds and the interest earned on the principal of the borrowing so terminated or canceled, including an amount equal to the excess (if any) of (x) interest that would have accrued on any such borrowing during the remainder of the applicable LIBOR Interest Period had such borrowing not been terminated or canceled early, over (y) the interest actually accrued on the principal amount of that terminated or canceled borrowing for such remainder of such LIBOR Interest Period.

        "Consolidated Net Worth" shall mean, at any time, shareholder's equity of the Company as set forth in the most recent consolidated Annual Audited Financial Statements of the Company and its Subsidiaries, determined in accordance with Generally Accepted Accounting Principles, consistently applied.

        "Contingent Obligations" shall mean, as to any Person, without duplication, any obligation of such Person guaranteeing or intended to guarantee the payment or performance of any Indebtedness, leases, dividends or other obligations (collectively "primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including without limitation, any obligation of the Person for whom Contingent Obligations is being determined, whether or not contingent, (a) to purchase any such primary obligation or other property constituting direct or indirect security therefor, (b) assume or contingently agree to become or be secondarily liable in respect of any such primary obligation, (c) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital for the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (d) to purchase property, securities or services primarily for the purpose of

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assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (e) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that the term "Contingent Obligations" shall not include (x) endorsements of checks or other negotiable instruments in the ordinary course of business, (y) performance or payment guarantees by the Company of any Indebtedness of any of its Subsidiaries of the type permitted in Section 6.1(f) hereof, and (z) the obligations and liabilities of each Guarantor to the Agent and the Lenders under the Guaranties. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming the Person for whom Contingent Obligations is being determined is required to perform thereunder) as determined by the Agent in good faith.

        "Contribution Agreement" shall mean that certain Contribution Agreement of even effective date herewith, by and among the Company and the Guarantors, as the same may have been or may hereafter be amended, modified, supplemented, restated and joined in pursuant to a Joinder Agreement, from time to time.

        "Convertible Senior Debentures" shall mean those certain the 3.25% Convertible Senior Debentures due 2034 which are governed by that certain Indenture dated June 1, 2004, by and between Target and U.S. Bank National Association as trustee.

        "Credit Facility Hedging Agreements" shall mean any Hedging Agreement now existing or hereafter entered into between the Company and any Lender and/or any of their respective Affiliates in connection with all or any portion of the Loans and/or any of the loans under the Term Loan Facility for purposes of hedging the risk of variable interest rate volatility or fluctuations of interest rates, as any such Hedging Agreement may be modified, supplemented and in effect from time to time.

        "Current Sum" shall mean on any day, as to a particular Lender, the sum of (a) the then outstanding principal balance of such Lender's Loans on such day plus (b) the product of (i) such Lender's Commitment Percentage times (ii) the Letter of Credit Exposure Amount on such day.

        "Current Sum Percentage" shall mean, with respect to any Lender, the ratio, expressed as a percentage of (a) such Lender's Current Sum to (b) the aggregate Current Sum of all Lenders.

        "Default" means any Event of Default or any other event or circumstance that with the passing of time or the giving of notice, or both, would constitute an Event of Default.

        "Disclosed Divestitures" shall mean the proposed divestitures of the Company and its Subsidiaries set forth in Schedule 1.1(a) hereto.

        "Discontinued Operations" shall mean, as of any day, operations of the Company or its Subsidiaries which have been discontinued, as reflected on the most recent Form 10-K or 10-Q for the Company filed with the Security and Exchange Commission, and which, as of such day, have been fully disposed of or liquidated.

        "EBIT" shall mean for any period for which EBIT is calculated, Net Income of the Company and its Subsidiaries on a consolidated basis for such period plus, without duplication, (a) non-recurring, non-cash charges of the Company and its Subsidiaries on a consolidated basis for such period, (b) non-cash pre-opening rent expenses of the Company and its Subsidiaries on a consolidated basis for such period, (c) taxes of the Company and its Subsidiaries on a consolidated basis for such period, (d) interest expense of the Company and its Subsidiaries on a consolidated basis for such period and (e) non-cash stock compensation expense of the Company and its Subsidiaries on a consolidated basis for such period; provided that EBIT for the three quarters

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immediately prior to the Effective Date shall be as set forth in Schedule 1.1(b). All components of EBIT shall be determined in accordance with Generally Accepted Accounting Principles, consistently applied.

        "EBITDA" shall mean for any period for which EBITDA is calculated, Net Income of the Company and its Subsidiaries on a consolidated basis for such period plus, without duplication, (a) taxes of the Company and its Subsidiaries on a consolidated basis for such period (calculated after excluding any gain or loss attributable to Discontinued Operations as of such day), (b) depreciation, depletion, obsolescence and amortization of Property of the Company and its Subsidiaries on a consolidated basis for such period (calculated after excluding any depreciation, depletion, obsolescence and amortization applicable to Discontinued Operations as of such day), (c) interest expense of the Company and its Subsidiaries on a consolidated basis for such period (calculated after excluding any interest expense paid in connection with Discontinued Operations as of such day), (d) non-recurring, non-cash charges of the Company and its Subsidiaries on a consolidated basis for such period, (e) non-cash pre-opening rent expenses of the Company and its Subsidiaries on a consolidated basis for such period and (f) non-cash stock compensation expense of the Company and its Subsidiaries on a consolidated basis for such period; provided that EBITDA for the three quarters immediately prior to the Effective Date shall be as set forth in Schedule 1.1(b). All components of EBITDA shall be determined in accordance with Generally Accepted Accounting Principles, consistently applied.

        "Effective Date" has the meaning ascribed thereto in Section 3.2.

        "Eligible Assignee" shall mean (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund or (d) any other Person (other than an individual) approved by the Agent and, except during the continuance of an Event of Default, the Company (each such consent not to be unreasonably withheld or delayed); it being understood that none of the Company nor any of its Affiliates shall, in any event, be an Eligible Assignee.

        "Environmental Claim" shall mean any third party (including any Governmental Authority) action, lawsuit, claim or proceeding (including claims or proceedings at common law) which seeks to impose or alleges liability for (i) preservation, protection, conservation, pollution, contamination of, or releases or threatened releases of Hazardous Substances into the air, surface water, ground water or land or the clean-up, abatement, removal, remediation or monitoring of such pollution, contamination or Hazardous Substances; (ii) generation, recycling, reclamation, handling, treatment, storage, disposal or transportation of Hazardous Substances or solid waste (as defined under the Resource Conservation and Recovery Act and its regulations, as amended from time to time); (iii) exposure to Hazardous Substances; (iv) the safety or health of employees or other Persons in connection with any of the activities specified in any other subclause of this definition; or (v) the manufacture, processing, distribution in commerce, presence or use of Hazardous Substances. An "Environmental Claim" includes a common law action, as well as a proceeding to issue, modify or terminate an Environmental Permit, or to adopt or amend a regulation to the extent that such a proceeding attempts to redress violations of the applicable permit, license, or regulation as alleged by any Governmental Authority.

        "Environmental Liabilities" shall mean all liabilities arising from any Environmental Claim, Environmental Permit or Requirement of Environmental Law under any theory of recovery, at law or in equity, and whether based on negligence, strict liability or otherwise, including: remedial, removal, response, abatement, restoration (including natural resources) investigative, or monitoring liabilities, personal injury and damage to property, natural resources or injuries to persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and obligations, and all costs and expenses necessary to cause the issuance, reissuance or renewal of any Environmental

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Permit including attorney's fees and court costs. Environmental Liability shall mean any one of them.

        "Environmental Permit" shall mean any permit, license, approval or other authorization under any applicable law, regulation and other requirement of the United States or of any state, municipality or other subdivision thereof relating to pollution or protection of health or the environment, including laws, regulations or other requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or Hazardous Substances or toxic materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, recycling, presence, use, treatment, storage, disposal, transport, or handling of, wastes, pollutants, contaminants or Hazardous Substances.

        "Equipment" shall have the meaning assigned to it in the Texas Business and Commerce Code in force on the date the document using such term was executed.

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules, regulations, rulings and interpretations adopted by the Internal Revenue Service or the Department of Labor thereunder.

        "Eurocurrency Liabilities" has the meaning specified in Regulation D.

        "Event of Default" shall mean any of the events specified in Section 7.1 hereof or otherwise specified as an Event of Default in any other Loan Document, provided there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and Default shall mean any of such events, whether or not any such requirement has been satisfied.

        "Extraordinary Receipt" means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including, without limitation, tax refunds (provided that, for greater clarity and without limiting the foregoing, ordinary tax refunds on account of cash taxes actually paid would be considered ordinary course), pension plan reversions, proceeds of insurance (including, without limitation, any key man life insurance but excluding proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustment received in connection with any purchase agreement; provided, however, that an Extraordinary Receipt shall not include cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments to the extent that such proceeds, awards or payments are received by any Person in respect of any third party claim against such Person and applied to pay (or to reimburse such Person for its prior payment of) such claim and the costs and expenses of such Person with respect thereto.

        "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it.

        "Fee Letter" shall mean that certain fee letter dated as of March 16, 2007 among JPMorgan, J. P. Morgan Securities Inc., Royal Bank of Canada, and the Company.

        "Fixed Charge Coverage Ratio" shall mean as of any day that the Fixed Charge Coverage Ratio is being calculated, the ratio of (a) EBIT plus Operating Lease Expense to (b) interest expense plus Operating Lease Expense. All components of the Fixed Charge Coverage Ratio shall be

8

computed for the Rolling Four Quarters as of such day and determined for the Company and its Subsidiaries on a consolidated basis in accordance with Generally Accepted Accounting Principles, consistently applied; provided, that for purposes of determining interest expense and Operating Lease Expense in the Fixed Charge Coverage Ratio for the (a) fiscal quarter ended September 30, 2007, such interest expense and Operating Lease Expense for the measurement period then ended shall equal such items for such fiscal quarter multiplied by ⁵²/13, (b) fiscal quarter ended January 20, 2008, such interest expense and Operating Lease Expense for the measuring period then ended shall equal such items for the two fiscal quarters then ended multiplied by ⁵²/29, and (c) fiscal quarter ended April 30, 2008, such interest expense and Operating Lease Expense for the measuring period then ended shall equal such items for the three fiscal quarters then ended multiplied by ⁵²/41; provided also that EBIT for the three quarters immediately prior to the Effective Date shall be as set forth in Schedule 1.1(b).

        "Funded Indebtedness" shall mean (a) all Indebtedness of the Company and its Subsidiaries on a consolidated basis which by its terms matures more than one year after the applicable date of calculation of Funded Indebtedness (including without limitation, current maturities or scheduled principal payments of Funded Indebtedness for the applicable period for which Funded Indebtedness is being calculated), and any Indebtedness of the Company and its Subsidiaries on a consolidated basis maturing within one year from such date and (b) without duplication, Capital Lease Obligations of the Company and its Subsidiaries on a consolidated basis. All components of Funded Indebtedness shall be determined in accordance with Generally Accepted Accounting Principles, consistently applied.

        "Generally Accepted Accounting Principles" shall mean, as to a particular Person, those principles and practices (a) which are recognized as such by the Financial Accounting Standards Board or successor organization, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent audited financial statements of the relevant Person furnished to the Agent and the Lenders, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and changes in financial position, of such Person.

        "Governmental Authority" shall mean any foreign governmental authority, the United States of America, any state of the United States and any political subdivision of any of the foregoing, and any agency, instrumentality, department, commission, board, bureau, central bank, authority, court or other tribunal, in each case whether executive, legislative, judicial, regulatory or administrative, having jurisdiction over the Agent, any of the Lenders or the Company, any of the Company's Subsidiaries or their respective Property.

        "Guaranties" shall mean that certain Guaranty, substantially in the form of Exhibit H hereto, by the Guarantors party thereto in favor of the Agent dated as of the date hereof, as the same may be amended, supplemented, modified, joined in pursuant to a Joinder Agreement and restated from time to time, and each and every other guaranty executed by any or all of the Guarantors from time to time; each a "Guaranty".

        "Guarantors" shall mean the Persons listed on Schedule 1.1(c) hereto, each Subsidiary that shall hereafter be required to execute and deliver a Guaranty pursuant to the terms of this Agreement and each and every other Person executing a guaranty from time to time guaranteeing the Indebtedness of the Company owing from time to time to the Lenders pursuant to this Agreement or the Notes.

        "Hazardous Substance" shall mean any hazardous or toxic waste, substance or product or material defined or regulated from time to time by any applicable law, rule, regulation or order described in the definition of "Requirements of Environmental Law," including solid waste (as

9

defined under RCRA or its regulations, as amended from time to time), petroleum and any fraction thereof, any radioactive materials and waste.

        "Hedging Agreements" shall mean any transaction (including an agreement with respect thereto) now or hereafter existing which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.

        "Incidental Liens" shall mean (i) Liens for taxes, assessments, levies or other governmental charges (but not Liens for clean up expenses arising pursuant to Requirements of Environmental Law) not yet due (subject to applicable grace periods) or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company in accordance with Generally Accepted Accounting Principles; (ii) carriers', warehousemen's, mechanics', landlords', vendors', materialmen's, repairmen's, sureties' or other like Liens (other than Liens for clean up expenses arising pursuant to Requirements of Environmental Law) arising in the ordinary course of business (or deposits to obtain the release of any such Lien) and securing amounts not yet due or which are being contested in good faith and by appropriate proceedings if, in the case of such contested Liens, adequate reserves with respect thereto are maintained on the books of the Company in accordance with Generally Accepted Accounting Principles; (iii) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (iv) deposits not in excess at any time of $25,000,000 in the aggregate to secure insurance in the ordinary course of business, the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, licenses, franchises, statutory obligations, surety and appeal bonds and performance bonds and other obligations of a like nature incurred in the ordinary course of business and Liens to secure progress or partial payments made to the Company or any Subsidiary and other Liens of like nature made in the ordinary course of business; (v) easements, rights-of-way, covenants, reservations, exceptions, encroachments, zoning and similar restrictions and other similar encumbrances or title defects incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case singly or in the aggregate materially detract from the value or usefulness of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (vi) bankers' liens arising by operation of law; (vii) Liens arising pursuant to any order of attachment, distraint or similar legal process arising in connection with any court proceeding the payment of which is covered in full (subject to customary deductibles) by insurance; (viii) inchoate Liens arising under ERISA to secure contingent liabilities of the Company; and (ix) rights of lessees and sublessees in assets leased by the Company or any Subsidiary not prohibited elsewhere herein.

        "Indebtedness" shall mean, as to any Person, without duplication: (a) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of Property or services; (b) any other indebtedness which is evidenced by a promissory note, bond, debenture or similar instrument; (c) any obligation under or in respect of outstanding letters of credit (including without limitation, the Letters of Credit), acceptances and similar obligations created for the account of such Person; (d) all Capital Lease Obligations of such Person; (e) all indebtedness, liabilities, and obligations secured by any Lien on any Property owned by such Person even though such Person has not assumed or has not otherwise become liable for the payment of any such indebtedness, liabilities or obligations secured by such Lien;

10

(f) net liabilities of such Person under Hedging Agreements (determined by reference to the Agreement Value thereof) and (g) all Contingent Obligations and Synthetic Indebtedness of such Person; provided, that such term shall not mean or include any Indebtedness in respect of which monies sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such Indebtedness may be duly called for redemption and payment) shall be deposited with a depository, agency or trustee acceptable to the Agent in trust for the payment thereof.

        "Interest Option" shall have the meaning ascribed to it in Section 2.9(a) hereof.

        "Interest Payment Dates" shall mean (a) for Alternate Base Rate Borrowings, (1) at all times while the Notes are outstanding, the last Business Day of each March, June, September and December, and (2) the Maturity Date; and (b) for LIBOR Rate Borrowings, (1) if the LIBOR Interest Period applicable to such LIBOR Rate Borrowing is equal to or less than three (3) months, the end of such LIBOR Interest Period, and (2) in all other cases, on that day which is three (3) calendar months following the first day of the applicable LIBOR Interest Period (or, if such day is not a Business Day, on the next succeeding day that is a Business Day) and at the end of such LIBOR Interest Period.

        "Investment" shall mean the purchase or other acquisition of any securities or Indebtedness of, or the making of any loan, advance, transfer of Property or capital contribution to, or the incurring of any liability, contingently or otherwise, in respect of the Indebtedness of, any Person.

        "Investment Grade" shall mean with respect to the Moody's corporate credit rating system a rating of Baa3 or higher and with respect to the S&P corporate credit rating system a rating of BBB- or higher.

        "Issuer" shall mean any Lender which is an issuer of a Letter of Credit. The initial Issuers will be JPMorgan and Bank of America, N.A; provided that Bank of America, N.A. shall only be an Issuer with respect to any outstanding Letters of Credit described in Schedule 1.1(d) issued by Bank of America, N.A., and as such Letters of Credit issued by Bank of America, N.A. expire and are required to be renewed or replaced, then subject to the applicable terms of this Agreement, such Letters of Credit will be replaced with Letters of Credit issued by JPMorgan.

        "Joinder Agreement" shall mean any agreement, in Proper Form, executed by a Subsidiary of the Company from time to time, pursuant to which such Subsidiary joins in the execution and delivery of a Guaranty and the Contribution Agreement.

        "Joint Lead Arrangers" shall have the meaning ascribed to such term in the recitals hereto.

        "JPMorgan" shall have the meaning ascribed to it in the recital of parties hereto.

        "Legal Requirement" shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority.

        "Lenders" shall have the meaning ascribed to it in the recital of parties hereto.

        "Letter of Credit Advances" shall mean all sums which may from time to time be paid by any and all of the Lenders pursuant to the Letters of Credit, or any of them, together with all other sums, fees, reimbursements or other obligations which may be due to any or all of the Lenders pursuant to the Letters of Credit, or any of them.

        "Letter of Credit Exposure Amount" shall mean at any time the sum of (i) the aggregate undrawn amount of all Letters of Credit outstanding at such time plus (ii) the aggregate amount of all Letter of Credit Advances for which the Lenders have not been reimbursed and which remain unpaid at such time.

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        "Letter of Credit Fee Payment Date" shall mean, with respect to any Letter of Credit, the date of issuance thereof and the last Business Day of each March, June, September and December which occurs after the date of issuance, but prior to the expiry date of said Letter of Credit.

        "Letter of Credit Termination Date" shall mean a date which is three (3) months prior to the Maturity Date.

        "Letters of Credit" shall mean (a) all irrevocable standby letters of credit and all commercial letters of credit issued by any Issuer pursuant to the terms set forth in this Agreement and (b) all outstanding letters of credit issued by JPMorgan or Bank of America, N.A. prior to the date hereof for the account of the Company or any of its Subsidiaries (including the Target) described as "Revolving Credit Facility Letters of Credits" on Schedule 1.1(d).

        "Leverage Ratio" shall mean as of any day that the Leverage Ratio is calculated, the ratio of Funded Indebtedness of the Company and its Subsidiaries on a consolidated basis as of such day to EBITDA of the Company and its Subsidiaries on a consolidated basis for the Rolling Four Quarters as of such day; provided that EBITDA for the three quarters immediately prior to the Effective Date shall be as set forth in Schedule 1.1(b).

        "LIBOR Business Day" shall mean a Business Day on which transactions in United States Dollar deposits between banks may be carried on in the London, England interbank market.

        "LIBOR Interest Period" shall mean, for each LIBOR Rate Borrowing, a period commencing:

        (a)   on the date of such LIBOR Rate Borrowing, or

        (b)   on the last day of the immediately preceding LIBOR Interest Period in the case of a rollover to a successive LIBOR Interest Period, and ending on the numerically corresponding day one, two, three or (as available) six months thereafter, as the Company shall elect in accordance herewith; provided, (w) any LIBOR Interest Period which would otherwise end on a day which is not a LIBOR Business Day shall be extended to the next succeeding LIBOR Business Day, unless such LIBOR Business Day falls in another calendar month, in which case such LIBOR Interest Period shall end on the next preceding LIBOR Business Day; (x) any LIBOR Interest Period which begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall end on the last LIBOR Business Day of the appropriate calendar month; (y) no LIBOR Interest Period shall ever extend beyond the Maturity Date; and (z) LIBOR Interest Periods shall be selected by the Company in such a manner that the LIBOR Interest Period with respect to any portion of the Loans which shall become due shall not extend beyond such due date.

        "LIBOR Rate" means, for any LIBOR Interest Period for all LIBOR Rate Borrowings comprising part of the same Borrowing, (a) an interest rate per annum equal to the rate per annum obtained by dividing (i) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Reuters Screen LIBOR 01 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such LIBOR Interest Period for a period equal to such LIBOR Interest Period (provided that, if for any reason such rate is not available, the term "LIBOR" shall mean, for any LIBOR Interest Period for all LIBOR Rate Borrowings comprising part of the same Borrowing, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR 01 as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBOR 01, the applicable rate shall be the arithmetic mean of all such rates) by (ii) a percentage equal to 100% minus the LIBOR

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Reserve Percentage for such LIBOR Interest Period plus (b) the Applicable Margin from time to time in effect during such term.

        "LIBOR Rate Borrowing" shall mean each portion of the principal balance of the Loans at any time bearing interest at the LIBOR Rate.

        "Lien" shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract, and shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions.

        "Loan Documents" shall mean this Agreement, the Notes, the Guaranties, the Contribution Agreement, the Joinder Agreements, Letters of Credit, the Applications, the Fee Letter, Security Agreement A, Security Agreement B, the Credit Facility Hedging Agreement, all instruments, certificates and agreements now or hereafter executed or delivered to the Agent and/or the Lenders pursuant to any of the foregoing, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing.

        "Loan Party" means the Company or any Guarantor.

        "Loans" shall mean the advances of funds described in Section 2.1 hereof. Loan shall mean any one of the Loans.

        "Margin Stock" has the meaning specified in Regulation U.

        "Material Adverse Effect" means a material adverse effect on the validity or enforceability of any material provision of the Loan Documents, on the ability of the Company to consummate the Transactions, on the financial condition of the Company (either individually or taken as a whole with its Subsidiaries), or on the property, business, operations or liabilities of the Company (either individually or taken as a whole with its Subsidiaries).

        "Maturity Date" shall mean the earlier of (a) August 28, 2012 and (b) the date specified by the Agent pursuant to Section 7.1 hereof.

        "Merger" shall have the meaning ascribed to it in the Preliminary Statements hereto.

        "Merger Agreement" shall have the meaning ascribed to it in the Preliminary Statements hereto.

        "Moody's" shall mean Moody's Investors Service, Inc.

        "Net Income" shall mean gross revenues and other proper income credits, less all proper income charges, including taxes on income, all determined in accordance with Generally Accepted Accounting Principles; provided, that there shall not be included in such revenues (i) any income representing the excess of equity in any Subsidiary at the date of acquisition over the investment in such Subsidiary, (ii) any equity in the undistributed earnings of any Person which is not a Subsidiary, (iii) any earnings of any Subsidiary for any period prior to the date such Subsidiary was acquired, except as may be permitted under Generally Accepted Accounting Principles in connection with the pooling of interest method of accounting, and (iv) any gains resulting from the write-up of assets. Net Income shall be determined on a consolidated basis.

        "Net Proceeds" shall mean:

        (a)   with respect to any sale, lease, transfer or other disposition of any asset of the Company or any of its Subsidiaries (except in the case of Disclosed Divestitures listed in part A of Schedule 1.1(a)), the excess, if any, of (i) the sum of cash and Permitted Investment Securities received in connection with such sale, lease, transfer or other disposition (including any cash or Permitted Investment Securities received by way of deferred payment pursuant to,

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or by monetization of, a note receivable or otherwise, but only as and when so received) less (ii) the sum of (A) the principal amount of any Indebtedness (other than Indebtedness under the Loan Documents) that is required to be repaid in connection with such sale, lease, transfer or other disposition thereof, (B) the reasonable and customary out-of-pocket costs, fees, commissions, premiums and expenses incurred by the Company or its Subsidiaries, (C) federal, state, provincial, foreign and local taxes reasonably estimated (on a consolidated basis) to be actually payable within the current or the immediately succeeding tax year as a result of any gain recognized in connection therewith and (D) a reasonable reserve for any purchase price adjustment or any indemnification payments (fixed and contingent) attributable to the seller's obligations to the purchaser undertaken by the Company or any of its Subsidiaries in connection with such sale, lease, transfer or other disposition; provided, however, that Net Proceeds shall not include any such amounts to the extent such amounts are reinvested or contracted to be so reinvested in capital assets used or useful in the business of the Company and its Subsidiaries within 270 days after the date of receipt thereof or the date such contact is entered into; and

        (b)   with respect to any Extraordinary Receipt that is not otherwise included in clause (a) above, the sum of the cash and Permitted Investment Securities received in connection therewith (including any cash or Permitted Investment Securities received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) less fees, costs, out of pocket expenses and commissions incurred in connection with the receipt thereof; provided, however, that Net Proceeds shall not include any such amounts from Extraordinary Receipts (other than in respect of Customer Penalties) to the extent such amounts are reinvested or contracted to be so reinvested in capital assets used or useful in the business of the Company and its Subsidiaries within 270 days after the date of receipt thereof or the date such contract is entered into.

        "New Lender" shall have the meaning assigned to it in Section 2.16(b).

        "New Lender Agreement" shall have the meaning assigned to it in Section 2.16(b).

        "Non-Consenting Lender" means, in the event that the Required Lenders have agreed to any consent, waiver or amendment pursuant to Section 9.10 that requires the consent of one or more Lenders in addition to the Required Lenders, any Lender who is entitled to agree to such consent, waiver or amendment but who does not so agree.

        "Non-Guarantor Subsidiaries" means (a) Subsidiaries of the Company organized under the laws of a jurisdiction located outside of the United States, (b) prior to consummation of the Merger, the Target and its Subsidiaries, and (c) any one or more Subsidiaries of the Company designated by the Company in writing to the Agent from time to time that do not represent, in the aggregate, (i) five percent (5%) or more of the consolidated EBITDA of the Company and its Subsidiaries or (ii) five percent (5%) or more of the consolidated tangible assets of the Company and its Subsidiaries; provided, that no Subsidiary of the Company shall be a Non-Guarantor Subsidiary to the extent that such Subsidiary guaranties any other Indebtedness of the Company.

        "Notes" shall mean the promissory notes, each substantially in the form of Exhibit A attached hereto, of the Company evidencing the Loans, payable to the order of the respective Lenders in the amount of the sum of said Lender's Unused Commitment and the Current Sum owing to said Lender, and all renewals, extensions, modifications, rearrangements and replacements thereof and substitutions therefor. Note shall mean any one of them.

        "Notice of Assumption" shall mean a Notice of Assumption in favor of the Agent, substantially in the form of Exhibit B attached hereto and otherwise in Proper Form.

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        "Officer's Certificate" shall mean a certificate substantially in the form of Exhibit C attached hereto.

        "Operating Lease Expense" shall mean for any period for which Operating Lease Expense is calculated, the aggregate amount of fixed and contingent rentals (exclusive of payments of Capital Lease Obligations) payable by the Company and its Subsidiaries for such period with respect to leases of Property. Operating Lease Expense shall be determined for the Company and its Subsidiaries on a consolidated basis in accordance with Generally Accepted Accounting Principles, consistently applied.

        "Organizational Documents" shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture, and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof as of the date of the Loan Document referring to such Organizational Document and any and all future modifications thereof which are consented to by the Agent.

        "Parties" shall mean all Persons, other than the Agent, any Lender or any Issuer, executing any Loan Document.

        "Past Due Rate" shall mean, on any day, the Alternate Base Rate plus two percent (2%).

        "Permitted Asset Dispositions" shall have the meaning attributed to such terms in Section 6.4(z) hereof.

        "Permitted Investment Securities" shall mean: (1) readily marketable securities issued or fully guaranteed by the United States of America or any agency or wholly owned corporation thereof; (2) commercial paper rated "Prime 1" by Moody's Investors Service, Inc. or A-1 by Standard and Poor's Corporation with maturities of not more than one hundred eighty (180) days and short term notes payable of any Business Entity where said notes are rated at least "Prime 1" by Moody's Investors Service, Inc. or "A-1" by Standard & Poor's Corporation with maturities of not more than ninety (90) days; (3) certificates of deposit or repurchase certificates issued by any Lender or any other financial institution acceptable to the Agent, all of the foregoing not having a maturity of more than one (1) year from the date of issuance thereof; (4) securities issued by municipalities rated AA or better by Standard & Poor's Corporation not having a maturity of more than one (1) year from the date of issuance thereof; and (5) money market mutual funds having capital surplus of at least $1,000,000,000 and deemed acceptable by the Agent, substantially all of the assets of which are comprised of securities, commercial paper, certificates of deposit or repurchase certificates of the type described in subclauses (1) through (4) above.

        "Permitted Stock Dispositions" shall have the meaning attributed to such terms in Section 6.4(z) hereof.

        "Person" shall mean any individual, corporation, trust, unincorporated organization, Governmental Authority or any other form of entity.

        "Plan" shall mean any plan subject to Title IV of ERISA and maintained for employees of the Company or of any member of a "controlled group of corporations", as such term is defined in the Code, of which the Company or any of its Subsidiaries it may acquire from time to time is a part, or any such plan to which the Company or any of its Subsidiaries it may acquire from time to time is required to contribute on behalf of its employees.

        "Prime Rate" shall mean, for any day, the prime rate as determined from time to time by JPMorgan as being its prime rate for that day. Without notice to the Company or any other Person, the Prime Rate shall automatically fluctuate upward and downward as and in the amount

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by which said Prime Rate fluctuates, with each change to be effective as of the date of each change in said Prime Rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer, and JPMorgan disclaims any statement, representation, or warranty to the contrary. JPMorgan may make commercial loans or other loans at rates of interest at, above, or below the Prime Rate.

        "Proper Form" shall mean in form and substance satisfactory to the Agent and, in the case of any Application, the applicable Issuer.

        "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible.

        "Quarterly Unaudited Financial Statements" shall mean, with respect to each fiscal quarter of the Company (except for the last fiscal quarter), the Company's 10-Q Report filed with the Securities Exchange Commission for such fiscal quarter. All of the Quarterly Unaudited Financial Statements of the Company are to be prepared in accordance with Generally Accepted Accounting Principles and certified as true and correct by a Responsible Officer of the Company.

        "Rate Selection Date" shall mean that Business Day which is (a) in the case of Alternate Base Rate Borrowings, the Business Day of such borrowing or (b) in the case of LIBOR Rate Borrowings, the date three (3) Business Days preceding the first day of any proposed LIBOR Interest Period.

        "Rate Selection Notice" shall have the meaning ascribed to it in Section 2.9(b)(i) hereof.

        "Re-Allocation Date" shall have the meaning assigned to it in Section 2.16(e).

        "Register" shall have the meaning assigned to such term in Section 9.11(e).

        "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System.

        "Regulatory Change" shall mean, with respect to any Lender, any change on or after the date of this Agreement in any Legal Requirement (including Regulation D) or the adoption or making on or after such date of any interpretation, directive or request applying to a class of banks including such Lender under any Legal Requirement (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof.

        "Request for Extension of Credit and Certificate of No Default" shall mean a written request for extension of credit substantially in the form of Exhibit D attached hereto.

        "Required Lenders" shall mean two (2) or more Lenders having a majority or greater of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, the aggregate Current Sum for all Lenders.

        "Requirements of Environmental Law" shall mean all requirements imposed by any law (including The Resource Conservation and Recovery Act, The Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Water Act, the Clean Air Act, and any state analogues of any of the foregoing), rule, regulation, or order of any Governmental Authority now or hereafter in effect which relate to (i) noise; (ii) pollution, protection or clean-up of the air, surface water, ground water or land; (iii) solid, gaseous or liquid waste or Hazard Substance generation, recycling, reclamation, release, threatened release, treatment, storage, disposal or transportation; (iv) exposure of Persons or property to Hazardous Substances; (v) the safety or health of employees or other Persons or (vi) the manufacture, presence, processing, distribution in commerce, use, discharge, releases, threatened releases, emissions or storage of Hazardous Substances into the environment. Requirement of Environmental Law shall mean any one of them.

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        "Responsible Officer" shall mean the chief executive officer, chief financial officer, president of a Loan Party and the general counsel of the Company. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

        "Rolling Four Quarters" shall mean the then most recently ended four (4) consecutive fiscal quarters of the Company for which, as of such day, financial statements are required to have been given to the Agent and Lenders pursuant to this Agreement.

        "S&P" shall mean Standard & Poor's, a division of The McGraw-Hill Companies, Inc.

        "Security Agreement A" means a security and pledge agreement substantially in the form of Exhibit G-A hereto.

        "Security Agreement B" means a security and pledge agreement substantially in the form of Exhibit G-B hereto.

        "Solvent" and "Solvency" shall mean, with respect to any Person on a particular date, that on such date (a) the fair value (taken on a going concern basis) of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value (taken on a going concern basis) of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. In determining the Solvency of any Loan Party the contribution rights that such Loan Party will have against the other Loan Parties and the subrogation rights that each Guarantor will have against the Company shall be taken into account.

        "Stock" shall mean as to a Business Entity, all capital stock or other indicia of equity rights issued by such Business Entity from time to time.

        "Subsidiary" of any Person shall mean any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than fifty percent (50%) of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries.

        "Synthetic Indebtedness" shall mean the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person (excluding operating leases) but which upon the insolvency or bankruptcy of such Person, to the extent functioning as debt for borrowed money, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

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        "Target" shall have the meaning ascribed to it in the Preliminary Statements hereto.

        "Target Representations" shall mean the representations and warranties made by or on behalf of the Target and its Subsidiaries and contained in the Merger Agreement and the representations and warranties of the Company with respect to the Target and its Subsidiaries set forth in Sections 4.1, 4.3, 4.14, 4.15, 4.18 and 4.19

        "Target Representation Limitations" means that, on the date of the initial Borrowing hereunder until the earlier of the date of consummation of the Merger and the Commitment Termination Date (as defined in the Term Loan Facility), the representations and warranties of the Company set forth in Article IV in respect of the Target and its Subsidiaries shall be limited to the Target Representations.

        "Taxes" shall have the meaning ascribed to it in Section 2.10(b) hereof.

        "Tender Offer" shall have the meaning ascribed to it in the Preliminary Statements hereto.

        "Term Loan Facility" shall mean the senior term loan facility of the Company dated as of the date hereof among the Company, the financial institutions from time to time parties thereto, and Royal Bank of Canada, as administrative agent, as the same may be amended from time to time in accordance with the terms of this Agreement.

        "Transactions" means the consummation of the Merger and the entering into and borrowings under this Agreement.

        "Uncommitted Money Market Borrowings" shall mean any Indebtedness for borrowed funds advanced by any lender to the Company under any "discretionary guidance," "bid line" or other type of uncommitted money market loan facility.

        "Unsecured Borrowed Debt" shall mean all Indebtedness resulting from borrowings of the Company (exclusive of intercompany borrowings) from time to time owing to Persons which is not secured by any Liens (other than borrowings from trade creditors in the ordinary course of business).

        "Unused Commitment" shall mean, as to a particular Lender, the difference of such Lender's Commitment on such day less the Current Sum applicable to such Lender on such day.

        Section 1.2    Accounting Terms and Determinations.

        Except where specifically otherwise provided:

        (a)   The symbol "$" and the word "dollars" shall mean lawful money of the United States of America.

        (b)   Any accounting term not otherwise defined shall have the meaning ascribed to it under Generally Accepted Accounting Principles.

        (c)   Unless otherwise expressly provided, any accounting concept and all financial covenants shall be determined on a consolidated basis, and financial measurements shall be computed without duplication.

        (d)   Wherever the term "including" or any of its correlatives appears in the Loan Documents, it shall be read as if it were written "including (by way of example and without limiting the generality of the subject or concept referred to)".

        (e)   Wherever the word "herein" or "hereof" is used in any Loan Document, it is a reference to that entire Loan Document and not just to the subdivision of it in which the word is used.

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        (f)    References in any Loan Document to Section numbers are references to the Sections of such Loan Document.

        (g)   References in any Loan Document to Exhibits, Schedules, Annexes and Appendices are to the Exhibits, Schedules, Annexes and Appendices to such Loan Document, and they shall be deemed incorporated into such Loan Document by reference.

        (h)   Any term defined in the Loan Documents which refers to a particular agreement, instrument or document shall also mean, refer to and include all modifications, amendments, supplements, restatements, renewals, extensions and substitutions of the same; provided that nothing in this subsection shall be construed to authorize any such modification, amendment, supplement, restatement, renewal, extension or substitution except as may be permitted by other provisions of the Loan Documents.

        (i)    All times of day used in the Loan Documents mean local time in New York, New York.

        (j)    Defined terms may be used in the singular or plural, as the context requires.

ARTICLE II—LOANS; ETC.

        Section 2.1    Loans.

        (a)   Subject to the terms and conditions hereof, each Lender severally agrees to make Loans to the Company from time to time prior to the Maturity Date, in an aggregate principal amount at any one time outstanding (including its liability for the Letter of Credit Exposure Amount at such time) up to but not exceeding such Lender's Commitment on such date. Loans repaid prior to the Maturity Date may be reborrowed pursuant to the terms of this Agreement. Each Loan which is not made to repay a Letter of Credit Advance pursuant to Section 2.4 hereof shall be in an amount of at least (i) $5,000,000 or (ii) the Unused Commitment of the Lenders, whichever is less. Each repayment of the Loans shall be in an amount of at least $5,000,000 or, if less, the Current Sum.

        (b)   The Company shall give the Agent notice of a request for a Loan in accordance with Section 3.1 hereof. Upon receipt of each such notice, the Agent shall promptly give each of the Lenders notice of receipt thereof, which notice may be by telephone or facsimile. Not later than 1:30 P.M. (New York Time) on the date specified for the making of such Loan, each Lender shall make available to the Agent, at the Agent's Account, such Lender's Commitment Percentage of such Loan in immediately available funds for the account of the Company. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing same, in immediately available funds, in an account designated by the Company maintained with the Agent or with another financial institution reasonably acceptable to the Agent. If a requested Loan shall not occur on any date specified by the Company as set forth in the applicable Request for Extension of Credit and Certificate of No Default because all of the conditions for such Loan set forth herein or in any of the other Loan Documents shall have not been met, the Agent shall return the amounts so received from the Lenders in respect of such requested Loan to the applicable Lenders as soon as practicable; provided, however, if and to the extent that the Agent fails to return any such amounts to any applicable Lender by the Business Day following the date that the requested Loan was to have been made, the Agent shall pay interest on such unreturned amounts for each date from such date that the requested Loan was to have been made, to the date that such unreturned amounts are returned to such Lender, such interest to accrue at the Federal Funds Rate and to be payable upon written request from such Lender.

        (c)   Unless the Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Agent such Lender's ratable portions of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.1 and the Agent may, in

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reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Company severally agree to repay or pay to the Agent forthwith on demand such corresponding amount and to pay interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid or paid to the Agent, at (i) in the case of the Company, the interest rate applicable at such time under Section 2.9 to Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Agent such corresponding amount, such amount so paid shall constitute such Lender's Loan as part of such Borrowing for all purposes.

        (d)   The obligations of the Lenders hereunder are several and not joint; therefore, notwithstanding anything herein to the contrary, (i) no Lender shall be required to make Loans at any one time outstanding in excess of such Lender's Commitment, (ii) if a Lender fails to make a Loan as and when required hereunder and the Company subsequently makes a repayment on the Loans, such repayment shall be split among the non-defaulting Lenders in accordance with their respective Current Sum Percentages until each Lender has its Commitment Percentage of all of the outstanding Loans, then the balance of such repayment shall be divided among all of the Lenders in accordance with their respective Commitment Percentages (it being understood that any such repayment to a defaulting Lender shall not be deemed to relieve such defaulting Lender from any liability to the Company resulting from such defaulting Lender's failure to make a Loan as and when required hereunder) and (iii) the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (provided, that no Lender shall be responsible for the failure of any other Lender to make a Loan such other Lender is obligated to make hereunder).

        (e)   Notwithstanding anything to the contrary contained in this Section 2.1 or any other provision of this Agreement, the Company covenants and agrees that in no event shall the aggregate amount of the Loans and the Letter of Credit Exposure Amount outstanding on any day ever exceed the amount of the Aggregate Commitment then in effect as of such day less the aggregate amount of Uncommitted Money Market Borrowings then outstanding as of such day.

        Section 2.2    Commitment Fees; Termination and Reductions.    In consideration of each Lender's Unused Commitment, the Company agrees to pay to the Agent for the account of each Lender a commitment fee (each a "Commitment Fee") (computed on the basis of the actual number of days elapsed in a year composed of 360 days) in an amount equal to the product of (A) the Applicable Commitment Fee Percentage in effect for the period for which the Commitment Fee is being computed times (B) such Lender's Unused Commitment. The Commitment Fee shall be due and payable in arrears on the last Business Day of each March, June, September and December prior to the Maturity Date and on the Maturity Date, with each Commitment Fee to commence as of the date hereof and to be effective as to any reduction in the Commitment or change in the Applicable Commitment Fee Percentage as of the date of any such decrease or change, and each Commitment Fee shall cease to accrue (except with respect to past due interest on any unpaid portion thereof) on the Maturity Date. All past due Commitment Fees shall bear interest at the Past Due Rate and shall be payable upon demand by the Agent. The Aggregate Commitment may be permanently terminated or reduced as follows, which such reductions shall be applied pro rata:

        (a)   the Company may, upon three (3) Business Days' prior written notice to the Agent, permanently terminate or reduce the Aggregate Commitment in an amount of at least $10,000,000 or the amount of the Aggregate Commitment at such time, whichever is less; and

        (b)   any prepayment of the Loans and Letter of Credit Advances in accordance with the provisions of Section 2.3 hereof shall permanently and automatically reduce the Aggregate Commitment in an amount equal to any such prepayment.

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        Section 2.3    Mandatory Prepayments; Commitment Reduction.

        (a)   If the Current Sum applicable to a Lender at any time exceeds such Lender's Commitment, the Agent shall notify the Company in writing of the deficiency by overnight priority delivery service provided by a nationally recognized delivery service or, if the officer of the Agent providing such notice to the Company is located in Austin, Texas, by hand delivery confirmed by written receipt. Within three Business Days after the actual receipt of such notice, the Company shall make a prepayment on such Lender's Note or otherwise reimburse the Agent for Letter of Credit Advances or cause the one or more Letters of Credit to be canceled and surrendered in an amount sufficient to reduce such Current Sum to an amount no greater than such Commitment.

        (b)   The Company shall, not later than five Business Days following the date of receipt of any Net Proceeds by any Loan Party or any of its Subsidiaries, by notice to the Agent, prepay the Indebtedness outstanding under the Term Loan Facility and the Loans in an amount equal to the amount of such Net Proceeds, to be applied in the following order: (i) first, to be applied against the Indebtedness outstanding under the Term Loan Facility; and (ii) second, the balance of such Net Proceeds, if any, shall be applied against the aggregate principal amount of the Loans, such prepayment to be applied to the Loans on a pro rata basis; provided that this subsection shall not apply to the first $10,000,000 of Net Proceeds received by the Company and its Subsidiaries in any fiscal year of the Company.

        (c)   The Company shall, on the date that is 90 days following the Effective Date, prepay an aggregate principal amount of the Indebtedness outstanding under the Term Loan Facility in an amount equal to the excess above $10,000,000 of the aggregate principal amount of the Target's Convertible Senior Debentures outstanding on such date.

        Section 2.4    Payments.    All sums payable by the Company to the Agent hereunder or pursuant to Notes for its own account or the account of the Lenders shall be payable in United States dollars in immediately available funds not later than 12:00 noon on the date such payment or prepayment is due and shall be made without set-off, counterclaim or deduction of any kind. Any such payment received and accepted by the Agent or any Issuer after such time shall be considered for all purposes (including the payment of interest, to the extent permitted by law) as having been made on the next succeeding Business Day. All such payments shall be made to the Agent at the Agent's Account. If any payment or prepayment becomes due and payable on a day which is not a Business Day, then the date for the payment thereof shall be extended to the next succeeding Business Day and interest shall be payable thereon at the then applicable rate per annum during such extension.

        Section 2.5    Prepayments of Loans.

        (a)   In addition to the mandatory prepayments required by Section 2.3 hereof, the Company shall have the right, at its option, to prepay the Loans in whole at any time or in part from time to time, without premium or penalty, except as provided in this Section or subsections (a), (b) or (c) of Section 2.10 hereof. Each partial prepayment under this subsection shall be a principal amount of not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof. Each prepayment under this subsection shall be applied to the prepayment of the aggregate unpaid principal amount of the Notes. Prepayments under this Agreement shall be subject to the following additional conditions:

            i.  In giving notice of prepayment as hereinafter provided, the Company shall specify, for the purpose of paragraphs (ii) and (iii) immediately following, the manner of application of such prepayment as between any outstanding Alternate Base Rate Borrowings and LIBOR Rate Borrowings; provided, that in no event shall any LIBOR Rate Borrowing be partially prepaid.

           ii.  Prepayments applied to any LIBOR Rate Borrowing may be made on any LIBOR Business Day, provided, that (A) the Company shall have given the Agent at least two (2) LIBOR Business Days' prior irrevocable written or facsimile notice of such prepayment, specifying the principal amount of the LIBOR Rate Borrowing to be prepaid, the particular LIBOR Rate

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Borrowing to which such prepayment is to be applied and the prepayment date; and (ii) if such prepayment is made on any day other than the last day of the LIBOR Interest Period corresponding to the LIBOR Rate Borrowing to be prepaid, the Company shall pay directly to the Agent for the account of the Lenders, on the last day of such LIBOR Interest Period, the Consequential Loss as a result of such prepayment.

          iii.  Prepayments applied to any Alternate Base Rate Borrowing may be made on any Business Day, provided that the Company shall have given the Agent at least five (5) Business Days prior irrevocable written notice or notice by telephone or facsimile (which is to be promptly confirmed in writing) of such prepayment, specifying the principal amount of the Alternate Base Rate Borrowing to be prepaid and the prepayment date.

        (b)   Notice of any prepayment having been given, the principal amount specified in such notice, together with (in the case of any prepayment of a LIBOR Rate Borrowing) interest thereon to the date of prepayment, shall be due and payable on such prepayment date.

        (c)   Any Lender may, if it so elects, fulfill its obligation as to any LIBOR Rate Borrowing by causing a branch, foreign or otherwise, or Affiliate of such Lender to make such Loans and may transfer and carry such Loans at, to or for the account of any branch office or Affiliate of such Lender; provided, that in such event for the purposes of this Agreement such Loans shall be deemed to have been made by such Lender and the obligation of the Company to repay such Loans shall nevertheless be to such Lender and shall be deemed held by it, to the extent of such portions of the Loan, for the account of such branch or affiliate.

        (d)   Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of the Loans hereunder in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender had actually funded and maintained its portion of each LIBOR Rate Borrowing during each LIBOR Interest Period for the Loans through the purchase of deposits having a maturity corresponding to such LIBOR Interest Period and bearing an interest rate equal to the London Interbank Rate for such LIBOR Interest Period.

        (e)   The Company's obligation to pay increased costs and Consequential Loss with regard to each LIBOR Rate Borrowing as specified in this Section 2.5 hereof shall survive termination of this Agreement.

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        Section 2.6    Application of Payments and Prepayments.    Prepayments of the Loans shall be applied first to the principal amount thereof, with the balance to accrued interest. Regularly scheduled payments of the Loans shall be applied first to accrued interest, the balance to the principal. If the Agent receives funds on a date when payments of the Loans are due and such funds are not sufficient to pay all of the obligations of the Company hereunder then due, or if the Agent receives any payments or other amounts owing to Agent or any Lender under any Loan Document, including without limitation, proceeds obtained from the enforcement of the Guaranties, then such funds shall be applied (a) first, to fees or expenses of the Agent then due hereunder or any other Loan Document which are to be paid by the Company or the applicable Guarantor, (b) second, to fees or expenses of the Lenders then due hereunder or any other Loan Document (other than fees or expenses owing under Credit Facility Hedging Agreements) which are to be paid by the Company or the applicable Guarantor, including without limitation, Commitment Fees to the extent then due, (c) third, to the accrued interest on and, to the extent then due, principal of the Loans and any Letter of Credit Advances then outstanding, and (d) fourth, to amounts owing under Credit Facility Hedge Agreements. Each payment received by the Agent hereunder or under any Note for the account of a Lender shall be paid promptly to such Lender, in immediately available funds. If the Agent fails to send to any Lender the product of such Lender's Current Sum Percentage times the aggregate amount of any such payment timely received by the Agent for the account of all the Lenders by the close of business on the Business Day following the date such payment was received by the Agent, the Agent shall pay to such Lender interest on such Lender's pro-rata portion of such payment timely received by the Agent from such date of receipt by the Agent to the date that such Lender receives its pro-rata portion of such payment, such interest to accrue at the Federal Funds Rate and to be payable upon written request from such Lender.

        Section 2.7    Pro Rata Treatment.    Except to the extent otherwise provided herein: (a) each borrowing from the Lenders under Section 2.1 hereof shall be made, each payment of commitment fees shall be made and applied for the account of the Lenders, and each termination or reduction of the Unused Commitments of the Lenders under Section 2.2 hereof shall be applied, pro rata, according to each Lender's Commitment Percentage; (b) each payment by the Company of principal of or interest on Loans shall be made to the Agent for the account of the Lenders pro rata in accordance with the respective Current Sum Percentage of the Lenders; (c) each Letter of Credit will be issued for the account of the Lenders severally and ratably among the Lenders in accordance with their respective Commitment Percentages, and (d) the Lenders (other than the applicable Issuer) shall purchase from any Issuer participations in the Letters of Credit issued by such Issuer, to the extent of their respective Commitment Percentages.

        Section 2.8    Payment Dates on the Loans.    Accrued interest on the unpaid balance of the Loans shall be payable on the Interest Payment Dates and at the Maturity Date, commencing with the first of such dates to occur after the date hereof. After the Maturity Date, accrued interest on the Loans shall be payable on demand. On the Maturity Date, the outstanding principal balance of the Loans shall be fully due and payable.

        Section 2.9    Interest Options for Loans.

        (a)    Options Available.    The Loans shall bear interest at the Alternate Base Rate; provided, that (1) all past due principal and interest shall bear interest at the Past Due Rate which shall be payable on demand, and (2) subject to the provisions hereof, the Company shall have the option of having all or any portion of the outstanding principal amount of the Loans bear interest until their respective maturities at a rate per annum equal to the LIBOR Rate (together with the Alternate Base Rate, individually herein called an "Interest Option" and collectively called "Interest Options"). The records of the Agent with respect to Interest Options, LIBOR Interest Periods and the amounts of Loans to which they are applicable shall be binding and conclusive, absent manifest error. Interest on the Loans

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shall be calculated at the Alternate Base Rate except where it is expressly provided pursuant to this Agreement that the LIBOR Rate is to apply.

        (b)    Designation and Conversion.    The Company shall have the right to designate or convert its Interest Options in accordance with the provisions hereof. Provided no Event of Default has occurred and is continuing and subject to the provisions of the last sentence of Subsection 2.09(a) hereinabove and of Section 2.10 hereof, the Company may elect to have the LIBOR Rate apply or continue to apply to all or any portion of the outstanding principal balance of the Loans. Each change in Interest Options shall be a conversion of the rate of interest applicable to the specified portion of the Loans, but such conversion alone shall not change the outstanding principal amount of the Loans. The Interest Options shall be designated or converted in the manner provided below:

            i.  The Company shall give the Agent notice by telephone or facsimile promptly confirmed by written notice (the "Rate Selection Notice") substantially in the form of Exhibit E hereto. Each such telephone or facsimile and written notice shall specify the amount and type of borrowings which are the subject of the designation, if any; the amount and type of borrowings into which such borrowings are to be converted or for which an Interest Option is designated; the proposed date for the designation or conversion (which, in the case of conversion of LIBOR Rate Borrowings, shall be the last day of the LIBOR Interest Period applicable thereto) and the LIBOR Interest Period or Periods, if any, selected by the Company. Such notice by telephone or facsimile shall be irrevocable and shall be given to the Agent no later than the applicable Rate Selection Date. If (a) a new Loan is to be a LIBOR Rate Borrowing, (b) an existing LIBOR Rate Borrowing is maturing at the time that a new Loan is being requested and the Company is electing to have such existing portion of the outstanding principal balance of the Loans going forward bear interest at the same Interest Option and for the same LIBOR Interest Period as the new Loan, or (c) a portion of an Alternate Base Rate Borrowing is to be converted so as to bear interest at the same Interest Option and for the same LIBOR Interest Period as the new Loan, then the Rate Selection Notice shall be included in the Request for Extension of Credit and Certificate of No Default applicable to the new Loan, which shall be given to the Agent no later than the applicable Rate Selection Date.

           ii.  No more than five (5) LIBOR Interest Periods shall be in effect at any one time. Each LIBOR Rate Borrowing shall be in the amount of at least $5,000,000.

          iii.  Principal included in any borrowing shall not be included in any other borrowing which exists at the same time.

          iv.  Each designation or conversion shall occur on a Business Day (and, for LIBOR Rate Borrowings, on a LIBOR Business Day).

           v.  Except as provided in Section 2.10 hereof, no LIBOR Rate Borrowing shall be converted on any day other than the last day of the applicable LIBOR Interest Period.

        (c)    Computations.    Interest based on the Alternate Base Rate, to the extent determined by reference to the Prime Rate, will be computed on the basis of 365 (or 366) days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. All other interest and fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable.

        Section 2.10    Special Provisions Applicable to LIBOR Rate Borrowings.

        (a)    Options Unlawful.    If, after the date of this Agreement, the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by the Agent or any Lender with any request or directive (whether or not having the force of law) of any Governmental Authority shall

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at any time make it unlawful or impossible for any Lender to permit the establishment of or to maintain any LIBOR Rate Borrowing, the commitment of the Lenders to establish or maintain the LIBOR Rate affected by such adoption or change shall forthwith be canceled and the Company shall forthwith, upon demand by the Agent to the Company, (1) convert the LIBOR Rate with respect to which such demand was made to the Alternate Base Rate; (2) pay all accrued and unpaid interest to date on the amount so converted; and (3) pay any amounts required to compensate the Agent and the Lenders for any additional cost or expense which the Agent or any Lender may incur as a result of such adoption of or change in such Legal Requirement or in the interpretation or administration thereof and any Consequential Loss which the Agent or any Lender may incur as a result of such conversion to the Alternate Base Rate. If, when the Agent so notifies the Company, the Company has given a Rate Selection Notice specifying one or more borrowings of the type with respect to which such demand was made but the selected LIBOR Interest Period or LIBOR Interest Periods has not yet begun, such Rate Selection Notice shall be deemed to be of no force and effect, as if never made, and the balance of the Loans specified in such Rate Selection Notice shall bear interest at the Alternate Base Rate until a different available Interest Option shall be designated in accordance herewith.

        (b)    Increased Cost of Borrowings.    If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by the Agent or any Lender with any request or directive (whether or not having the force of law) from any Governmental Authority shall at any time as a result of any portion of the principal balance of the Loans being maintained on the basis of the LIBOR Rate:

            i.  subject any Lender (or make it apparent that any Lender is subject) to any tax (including any United States interest equalization tax), levy, impost, duty, charge, fee (collectively, "Taxes"), or any deduction or withholding for any Taxes on or from the payment due under any LIBOR Rate Borrowing or other amounts due hereunder, other than income and franchise taxes of the United States and its political subdivisions; or

           ii.  change the basis of taxation of payments due from the Company to the Agent or any Lender under any LIBOR Rate Borrowing (otherwise than by a change in the rate of taxation of the overall net income of the Agent or any Lender); or

          iii.  impose, modify, increase or deem applicable any reserve requirement (excluding that portion of any reserve requirement included in the calculation of the Eurocurrency Reserve Requirement, special deposit requirement or similar requirement (including state law requirements and Regulation D) imposed, modified, increased or deemed applicable by any Governmental Authority against assets held by the Agent or any Lender, or against deposits or accounts in or for the account of the Agent or any Lender, or against loans made by the Agent or any Lender, or against any other funds, obligations or other Property owned or held by the Agent or any Lender; or

          iv.  impose on the Agent or any Lender any other condition regarding any LIBOR Rate Borrowing;

and the result of any of the foregoing is to increase the cost to any Lender of agreeing to make or of making, renewing or maintaining such borrowing on the basis of the LIBOR Rate, or reduce the amount of principal or interest received by any Lender, then, upon demand by the Agent, the Company shall pay to the Agent, from time to time as specified by the Agent, additional amounts which shall compensate such Lender for such increased cost or reduced amount. The Agent will promptly notify the Company in writing of any event, upon becoming actually aware of it, which will entitle any Lender to additional amounts pursuant to this paragraph. The Agent's determination of the amount of any such increased cost, increased reserve requirement or reduced amount shall be conclusive and binding, absent manifest error, provided that the calculation thereof is set forth in reasonable detail in such notice.

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The Company shall have the right, if it receives from the Agent any notice referred to in the preceding paragraph, upon three (3) Business Days' notice to the Agent, either (i) to repay in full (but not in part) any borrowing with respect to which such notice was given, together with any accrued interest thereon, or (ii) to convert the LIBOR Rate in effect with respect to such borrowing to the Alternate Base Rate; provided, that any such repayment or conversion shall be accompanied by payment of (x) the amount required to compensate the appropriate Lender or Lenders for the increased cost or reduced amount referred to in the preceding paragraph; (y) all accrued and unpaid interest to date on the amount so repaid or converted, and (z) any Consequential Loss which may be incurred as a result of such repayment or conversion.

        (c)    Inadequacy of Pricing and Rate Determination.    If for any reason with respect to any LIBOR Interest Period the Agent shall have determined (which determination shall be conclusive and binding upon the Company, and, in the case of clause (2) below, shall be presumed to be made upon notice from such Lender) that: (1) the Agent is unable through its customary general practices to determine a rate at which the Agent is offered deposits in United States dollars by prime banks in the interbank market in London, England in the appropriate amount for the appropriate period, or by reason of circumstances affecting the interbank market in London, England, generally, prime banks are not being offered deposits in United States dollars in the interbank market in London, England, for the applicable LIBOR Interest Period and in an amount equal to the amount of the LIBOR Rate Borrowing requested by the Company, or (2) the LIBOR Rate will not adequately and fairly reflect the cost to any Lender of making and maintaining any LIBOR Rate Borrowing hereunder for any proposed LIBOR Interest Period, then the Agent shall give the Company notice thereof and thereupon, (A) any Rate Selection Notice previously given by the Company designating a LIBOR Rate which has not commenced as of the date of such notice from the Agent shall be deemed for all purposes hereof to be of no force and effect, as if never given, and (B) until the Agent shall notify the Company that the circumstances giving rise to such notice from the Agent no longer exist, each Rate Selection Notice requesting a LIBOR Rate Borrowing shall be deemed a request for an Alternate Base Rate Borrowing, and each outstanding LIBOR Rate Borrowing then in effect shall be converted, without any notice to or from the Company, upon the termination of the LIBOR Interest Period then in effect, to an Alternate Base Rate Borrowing.

        (d)    Indemnification.    The Company shall indemnify the Agent and each of the Lenders against and hold each of them harmless from any loss or expense which they may incur or sustain as a consequence of any untimely payment (mandatory or optional) or default by the Company in the payment of any principal amount of or interest on the Loans, or any failure by the Company to convert or to borrow any LIBOR Rate Borrowing on the date specified by the Company, in each case including any interest payable by any Lender to the lenders of the funds obtained by it in order to make or maintain any LIBOR Rate Borrowing (or any portion thereof), and, to the extent not covered above, any Consequential Loss. This agreement shall survive the payment of the Loans. A certificate as to any additional amounts payable pursuant to this paragraph submitted by the Agent or any Lender to the Company shall be conclusive and binding upon the Company, absent manifest error, provided the calculation thereof is set forth in reasonable detail in such notice.

        Section 2.11    Payment Dates.    Whenever any payment to be made hereunder in respect of the Loans shall be stated to be due on a day which is neither a Business Day nor a LIBOR Business Day, such payment may be made on the next succeeding Business Day, or, subject to the definition of LIBOR Interest Period in the case of any payment of the Loans to which the LIBOR Rate applies, on the next succeeding LIBOR Business Day, and such extension of time shall in each such case be included in computing interest and commitment fees in connection with such payment.

        Section 2.12    Sharing of Payments, Etc.    The Company agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim a Lender may otherwise have, upon the occurrence and during the continuance of any Event of Default, each Lender shall be entitled, at its

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option, to offset balances held by it for the account of the Company at any of its offices against any principal of or interest on any of such Lender's Loans to the Company hereunder, such Lender's Commitment Percentage of the Letter of Credit Exposure Amount or any other obligation of the Company hereunder, which is not paid (regardless of whether such balances are then due to the Company), in which case it shall promptly notify the Company and the Agent thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof. If a Lender shall obtain payment of any principal of or interest on any Loan made by it under this Agreement, any Letter of Credit Exposure Amount or other obligation then due to such Lender hereunder, through the exercise of any right of set-off (including, without limitation, any right of setoff or lien granted under Section 9.18 hereof), banker's lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Lenders participations in the Loans made by, the Letter of Credit Exposure Amount of, or the other obligations of the Company hereunder of, the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with their respective Commitment Percentages. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Company agrees, to the fullest extent it may effectively do so under applicable law, that any Lender so purchasing a participation in the Loans made by, Letter of Credit Exposure Amount of, or other obligations hereunder of, the other Lenders may exercise, upon the occurrence and during the continuance of any Event of Default, all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of said Loans, Letter of Credit Exposure Amount or other obligations in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Company.

        Section 2.13    Use of Proceeds.    The proceeds of the Loans shall be used solely (i) to finance the Transactions, (ii) to refinance certain existing Indebtedness of the Target, (c) to pay costs and expenses relating to the Transactions, and (d) to support new store development, other acquisitions, the issuance of standby Letters of Credit and other general corporate purposes, including but not limited to, the repurchase of Stock.

        Section 2.14    Evidence of Debt.    (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Company agrees that upon notice by any Lender to the Company (with a copy of such notice to the Agent) to the effect that a Note or other evidence of indebtedness is required or appropriate in order for such Lender to evidence (whether for purposes of enforcement or otherwise) the Loans owing to, or to be made by, such Lender, the Company shall promptly execute and deliver to such Lender Party, with a copy to the Agent, a Note, in substantially the form of Exhibit A hereto, payable to the order of such Lender in a principal amount equal to the Commitment of such Lender. All references to Notes in the Loan Documents shall mean Notes, if any, to the extent issued hereunder.

        (b)   The Register maintained by the Agent pursuant to Section 9.11(e) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of Loans comprising such Borrowing and, if appropriate, the LIBOR Interest Period applicable thereto, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder,

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and (iv) the amount of any sum received by the Agent from the Borrower hereunder and each Lender's share thereof.

        (c)   Entries made in good faith by the Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Company to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement.

        Section 2.15    Letters of Credit.

        (a)   Subject to the terms and conditions contained herein, the Company shall have the right to utilize the Aggregate Commitment from time to time prior to the Letter of Credit Termination Date, by obtaining from any Issuer one or more Letters of Credit for the account of the Company or any of its Subsidiaries (with the Company being jointly and severally liable under the terms of the applicable Application for any Letter of Credit issued for the account of any of the Company's Subsidiaries) in such amounts and in favor of such beneficiaries as the Company from time to time shall request; provided, that in no event shall any Issuer have any obligation to issue any Letter of Credit if (i) the face amount of such Letter of Credit plus the Letter of Credit Exposure Amount at such time would exceed $200,000,000, (ii) the face amount of such Letter of Credit plus the aggregate of each Lender's Current Sum at such time, would exceed the Aggregate Commitment, (iii) such Letter of Credit would have an expiry date later than the Maturity Date, (iv) either such Letter of Credit is not in such form and does not contain such terms as shall be satisfactory to the Agent in its sole and absolute discretion or the Company has not executed and delivered such Applications and other instruments and agreements relating to such Letter of Credit as the Agent shall have requested or (v) an event has occurred and is continuing which constitutes a Default as provided in Section 7 of this Agreement. The Company promises to pay to the order of an Issuer the amount of all Letter of Credit Advances made by such Issuer, together with accrued interest thereon (if any). Each Letter of Credit Advance shall be considered for all purposes as a demand obligation owing by the Company to the applicable Issuer of the Letter of Credit to which it relates, and each Letter of Credit Advance shall bear interest from the date thereof at the Past Due Rate, without notice of presentment, demand, protest or other formalities of any kind (said past due interest on such Letter of Credit Advance being payable on demand). To effect repayment of any such Letter of Credit Advance and any interest accrued thereon, the Agent may, but shall not be obligated to, at any time deem that the Company has requested an additional Loan as an Alternate Base Rate Borrowing under this Agreement to be made to satisfy such Letter of Credit Advance and any interest accrued thereon (if any), and if the Agent deems that the Company has requested an additional Loan as an Alternate Base Rate Borrowing to be made under this Agreement to satisfy such Letter of Credit Advance and any interest accrued thereon (if any), the Lenders shall satisfy such Letter of Credit Advance and any interest accrued thereon (if any) by (subject to the terms and conditions of Section 2.1 hereof) making an additional Loan as an Alternate Base Rate Borrowing under this Agreement, if such Letter of Credit Advance is (and such Loan is to be) made prior to the Maturity Date. Each Issuer will pay to each Lender such Lender's Commitment Percentage of all amounts received from the Company by such Issuer, if any, for application, in whole or in part, against the Letter of Credit Advances or Loans made by such Lender in respect to any Letter of Credit, but only to the extent such Lender has made its full pro rata payment of each drawing under the Letter of Credit to which such Letter of Credit Advance relates. All rights, powers, benefits and privileges of this Agreement with respect to the Loans, all security therefor and guaranties thereof (including the Guaranties) and all restrictions, provisions for repayment or acceleration and all

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other covenants, warranties, representations and agreements of the Company contained in this Agreement with respect to the Loans shall apply to each such Letter of Credit Advance.

        (b)   In consideration of the issuance of each Letter of Credit pursuant to the provisions of this Section 2.15, the Company agrees to pay to the applicable Issuer a letter of credit fee in arrears on each Letter of Credit Fee Payment Date equal to the product of (A) the Applicable Margin then in effect for LIBOR Rate Borrowings times (B) the amount available for drawings under such Letter of Credit issued by such Issuer on such Letter of Credit Fee Payment Date times (C) the number of days from, but not including, such Letter of Credit Fee Payment Date through and including the next to occur Letter of Credit Fee Payment Date (or expiry date, if sooner) applicable to such Letter of Credit divided by 360; provided, that in no event shall the fee to be paid on any Letter of Credit Fee Payment Date for any such Letter of Credit ever be less than $500. In addition, with respect to each Letter of Credit, the Company shall pay to the applicable Issuer, for the benefit of such Issuer only, a fronting fee, in advance, on such Letter of Credit, which shall be due and payable on each Letter of Credit Fee Payment Date. The fronting fee amount so payable shall be equal to the product of (A) one-eighth of one percent (¹/8%) times (B) the amount available for drawings under such Letter of Credit on such Letter of Credit Fee Payment Date times (C) the number of days from, but not including, such Letter of Credit Fee Payment Date through and including the next to occur Letter of Credit Fee Payment Date (or expiry date, if sooner) applicable to such Letter of Credit divided by 360.

        (c)   Each Issuer will pay to each Lender, as soon as practicable after receiving any payment of letter of credit fees (other than any fronting fee payable only for the benefit of such Issuer), an amount equal to the product of (A) such Lender's Commitment Percentage times (B) the amount of such fees received (other than any fronting fee payable only for the benefit of such Issuer). If any Issuer fails to send to any Lender such Lender's pro-rata portion of any payment of letter of credit fees timely received by such Issuer hereunder by the close of business on the Business Day such payment was received by such Issuer, such Issuer shall pay to such Lender interest on such Lender's pro-rata portion of the letter of credit fees timely received by such Issuer from such date of receipt by such Issuer to the date that such Lender receives its pro-rata portion of such payment, such interest to accrue at the Federal Funds Rate and to be payable upon written request from such Lender. The obligations of the Company under this Agreement in respect of the Letters of Credit and Letter of Credit Advances shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including the following circumstances:

        (1)   any lack of validity or enforceability of this Agreement, any Letter of Credit or any Loan Document;

        (2)   any amendment or waiver of default under or any consent to departure from the terms of this Agreement or any Letter of Credit without the express prior written consent of the Agent and the Issuer of such Letter of Credit;

        (3)   the existence of any claim, set-off, defense or other right which any beneficiary or any transferee of any Letter of Credit (or any entities for whom any such beneficiary or any such transferee may be acting), or any Person (other than the Agent or the Lenders) may have, whether in connection with this Agreement, the Letters of Credit, the transactions contemplated hereby or any unrelated transaction;

        (4)   any statement, draft, certificate, or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; provided that each Issuer will examine each document presented under each Letter of Credit issued by such Issuer to ascertain that such document appears on its face to comply with the terms thereof; and

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        (5)   any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

In the event that any restriction or limitation is imposed upon or determined or held to be applicable to the Agent, any Lender, any Issuer or the Company by, under or pursuant to any Legal Requirement now or hereafter in effect or by reason of any interpretation thereof by any Governmental Authority, which in the respective sole judgment of the Agent, any Lender or any Issuer would prevent any Lender or Issuer from legally incurring liability under a Letter of Credit issued or proposed to be issued hereunder, then the Agent shall give prompt written notice thereof to the Company, whereupon the Lenders and the Issuers shall have no obligation to issue any additional Letters of Credit then or at any time thereafter. In addition, if as a result of any Regulatory Change which imposes, modifies or deems applicable (x) any tax, reserve, special deposit or similar requirement against letters of credit issued by any Issuer or participated in by any Lender; (y) any fee, expense or assessment against Letters of Credit issued by any Issuer, the Agent or any Lender for deposit insurance, or (z) any other charge, expense or condition which increases the actual cost to any Issuer, the Agent or any Lender of issuing or maintaining the Letters of Credit, or reduces any amount receivable by the Agent, any Lender or any Issuer hereunder in respect of any Letter of Credit or any participation therein (which increase in cost, or reduction in amount receivable, shall be the result of such Issuer's, the Agent's or such Lender's reasonable allocation of the aggregate of such increases or reductions resulting from such event), then the Company shall pay to such Issuer, the Agent or such Lender, upon demand and from time to time, amounts sufficient to compensate such Person for each such increase from the effective date of such increase to the date of demand therefor. Each such demand shall be accompanied by a certificate setting forth in reasonable detail the calculation of the amount then being demanded in accordance with the preceding sentence and each such certificate shall be conclusive absent manifest error.

        (d)   THE COMPANY HEREBY INDEMNIFIES AND HOLDS HARMLESS EACH ISSUER, EACH LENDER AND THE AGENT FROM AND AGAINST ANY AND ALL CLAIMS AND DAMAGES, LOSSES, LIABILITIES, COSTS OR EXPENSES WHICH SUCH ISSUER, SUCH LENDER OR THE AGENT MAY INCUR (OR WHICH MAY BE CLAIMED AGAINST SUCH ISSUER, SUCH LENDER OR THE AGENT BY ANY PERSON WHATSOEVER) IN CONNECTION WITH THE EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT, INCLUDING ANY CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS OR EXPENSES WHICH SUCH ISSUER, THE AGENT OR SUCH LENDER, AS THE CASE MAY BE, MAY INCUR (WHETHER INCURRED AS A RESULT OF ITS OWN NEGLIGENCE OR OTHERWISE) BY REASON OF OR IN CONNECTION WITH THE FAILURE OF ANY OTHER LENDER (WHETHER AS A RESULT OF ITS OWN NEGLIGENCE OR OTHERWISE) TO FULFILL OR COMPLY WITH ITS OBLIGATIONS TO SUCH ISSUER, THE AGENT OR SUCH LENDER, AS THE CASE MAY BE, HEREUNDER (BUT NOTHING HEREIN CONTAINED SHALL AFFECT ANY RIGHTS THE COMPANY MAY HAVE AGAINST SUCH DEFAULTING LENDER); PROVIDED, THAT THE COMPANY SHALL NOT BE REQUIRED TO INDEMNIFY ANY ISSUER, ANY LENDER OR THE AGENT FOR ANY CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS OR EXPENSES TO THE EXTENT, BUT ONLY TO THE EXTENT, CAUSED BY (I) THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE PARTY SEEKING INDEMNIFICATION OR (II) SUCH ISSUER'S, SUCH LENDER'S OR THE AGENT'S (AS THE CASE MAY BE) FAILURE TO PAY UNDER ANY LETTER OF CREDIT AFTER THE PRESENTATION TO IT OF A REQUEST REQUIRED TO BE PAID UNDER APPLICABLE LAW. NOTHING IN THIS SECTION 2.4(C) IS INTENDED TO LIMIT THE OBLIGATIONS OF THE COMPANY UNDER ANY OTHER PROVISION OF THIS AGREEMENT.

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        (e)   The Company shall give the Agent the Application for a Letter of Credit in accordance with the terms of Section 3.1 hereof. Upon receipt of any such Application (which such Application, when so received by the Agent, shall be deemed received by JPMorgan in its capacity as an Issuer if JPMorgan will be the Issuer of the applicable Letter of Credit), the Agent shall promptly notify each Lender that a Letter of Credit has been requested in the amount reflected in such Application and inform such Lender of the amount of its pro-rata portion of such proposed Letter of Credit (based upon such Lender's Commitment Percentage).

        (f)    If at any time any Issuer shall have made a payment to a beneficiary of a Letter of Credit in respect of a drawing or in respect of an acceptance created in connection with a drawing under any Letter of Credit issued by such Issuer, each other Lender will pay to such Issuer immediately upon demand by the Issuer at any time during the period commencing after such payment until reimbursement thereof in full by the Company, an amount equal to the product of (A) such Lender's Commitment Percentage times (B) the amount of such payment made by such Issuer to a beneficiary under such Letter of Credit, together with interest on such amount for each day from the date of demand by such Issuer for such payment (or, if such demand is made after 11:00 a.m. on such date, from the next succeeding Business Day) to the date of payment by such Lender to such Issuer of such amount at a rate of interest per annum equal to the Federal Funds Rate for such period. Nothing herein shall be deemed to require any Lender to pay to any Issuer any amount as reimbursement for any payment made by any Issuer to acquire (discount) for its own account prior to maturity thereof any acceptance created under a Letter of Credit.

        (g)   Simultaneously with any Issuer's issuance and delivery of any Letter of Credit, such Issuer shall be deemed, without further action, to have sold to each other Lender, and such other Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuer, a participation interest equal to such other Lender's Commitment Percentage at such time in such Letter of Credit and all of the Letter of Credit Exposure Amount related to such Letter of Credit; provided, that no such Lender shall be obligated to participate in a particular Letter of Credit if such Letter of Credit was issued or honored solely as a result of such Issuer's gross negligence or willful misconduct.

        Section 2.16    Increase of Commitments.

        (a)   At any time, provided that no Event of Default shall have occurred and be continuing, the Company may request from time to time one or more increases of the Aggregate Commitment by notice to the Agent in writing of the amount of each such proposed increase (each such notice, a "Commitment Increase Notice"). Any such Commitment Increase Notice must offer each Lender the opportunity to subscribe for its pro rata share of the requested increase in the Aggregate Commitment, and the Agent shall promptly provide to each Lender a copy of any Commitment Increase Notice received by the Agent. Within 10 days after receipt by the Agent of the applicable Commitment Increase Notice, each Lender wishing to subscribe for its pro rata share of the requested increase in the Aggregate Commitment must deliver written notice of such fact to the Agent. If any portion of the requested increase in the Aggregate Commitment is not subscribed for by the Lenders within such 10-day period, the Company may, in its sole discretion, but with the consent of the Agent as to any Person that is not at such time a Lender (which consent shall not be unreasonably withheld or delayed so long as such Person is an Eligible Assignee), offer to any existing Lender or to one or more additional banks or financial institutions the opportunity to participate in all or a portion of such unsubscribed portion of the requested increase in the Aggregate Commitment pursuant to Section 2.16 (b) or (c) below, as applicable;

        (b)   Any additional bank or financial institution that the Company selects to offer a participation in the unsubscribed portion of the increased Aggregate Commitment, and that elects to become a party to this Agreement and obtain a Commitment, shall execute an agreement (a "New Lender Agreement"), in Proper Form, with the Company and the Agent, whereupon such bank or financial

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institution (a "New Lender") shall become a Lender for all purposes hereunder to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and the signature pages hereof shall be deemed to add the name of such New Lender and Schedule 2.1(a) attached hereto shall be deemed amended to add the name and Commitment of such New Lender, provided that the Commitment of any such New Lender shall be in an amount not less than $5,000,000;

        (c)   Any Lender that accepts an offer by the Company to increase its Commitment pursuant to this Section 2.16 shall, in each case, execute a commitment increase agreement (a "Commitment Increase Agreement"), in Proper Form, with the Company and the Agent, whereupon such Lender shall be bound by and entitled to the benefits of this Agreement with respect to the full amount of its Commitment as so increased, and Schedule 2.1(a) attached hereto shall be deemed to be amended to reflect such increase in the Commitment of such Lender;

        (d)   The effectiveness of any New Lender Agreement or Commitment Increase Agreement shall be contingent upon receipt by the Agent of such corporate resolutions of the Company and legal opinions of counsel to the Company, if any, as the Agent shall reasonably request with respect thereto, in each case in Proper Form;

        (e)   If any bank or financial institution becomes a New Lender pursuant to Section 2.16(b) or if any Lender's Commitment is increased pursuant to Section 2.16(c), additional Loans and additional liability for the Letter of Credit Exposure Amount made or incurred on or after the effectiveness thereof (the "Re-Allocation Date") shall be made pro rata based on each Lender's (including each New Lender's) respective Commitment Percentage in effect on and after such Re-Allocation Date (except to the extent that any such pro rata borrowings or incurring of liability would result in any Lender making an aggregate principal amount of Loans and incurring liability for the Letter of Credit Exposure Amount in excess of its Commitment, in which case such excess amount will be allocated to, and made or incurred by, such New Lender and/or Lenders with such increased Commitments to the extent of, and pro rata based on, their respective Commitment Percentages), and continuations of LIBOR Rate Borrowings outstanding on such Re-Allocation Date shall be effected by repayment of such LIBOR Rate Borrowings on the last day of the LIBOR Interest Period applicable thereto and the extension of new LIBOR Rate Borrowings pro rata based on the Lenders' respective Commitment Percentages in effect on and after such Re-Allocation Date. In the event that on any such Re-Allocation Date there are Alternate Base Rate Borrowings outstanding, the Company shall make prepayments thereof and borrow new Alternate Base Rate Borrowings so that, after giving effect thereto, the Alternate Base Rate Borrowings outstanding are held pro rata based on the Lenders' respective Commitment Percentages in effect on and after such Re-Allocation Date. In the event that on any such Re-Allocation Date there are LIBOR Rate Borrowings outstanding, such LIBOR Rate Borrowings shall remain outstanding with the respective holders thereof until the expiration of their respective LIBOR Interest Periods (unless the Company elects to prepay any thereof in accordance with the applicable provisions of this Agreement), and interest on and repayments of such LIBOR Rate Borrowings will be paid thereon to the respective Lenders holding such LIBOR Rate Borrowings pro rata based on the respective principal amounts thereof outstanding;

        (f)    Notwithstanding anything to the contrary in this Section 2.16, (i) no Lender shall have any obligation to increase its Commitment under this Section 2.16 unless it agrees in writing to do so in its sole discretion, (ii) no Lender shall have any right to decrease the amount of its Commitment as a result of any requested increase of the Aggregate Commitment pursuant to this Section 2.16, (iii) neither the Agent nor any Lender shall have any obligation to find or locate any New Lender to participate in any unsubscribed portion of any increase in the Aggregate Commitment requested by the Company, (iv) each increase in the Aggregate Commitment requested by the Company shall not be less than $10,000,000, (v) after giving effect to any increase in the Aggregate Commitment pursuant to this Section 2.16, the Aggregate Commitment shall not exceed $350,000,000, and (vi) in the event of any

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reduction in the Aggregate Commitment pursuant to Section 2.2 or any other provision of this Agreement, the ability of the Company to request increases in the Aggregate Commitment pursuant to this Section 2.16 shall automatically terminate; and

        (g)   The Company shall execute and deliver to the Agent (for delivery by the Agent to each applicable Lender) a new Note payable to each applicable Lender (including each New Lender) participating in any increase of the Aggregate Commitment in the original principal amount of such Lender's Commitment after giving effect to any increase of the Aggregate Commitment.

ARTICLE III——Conditions

        Section 3.1    All Loans.    The obligation of each Lender to make any Loan or of any Issuer to issue any Letter of Credit (including without limitation, any extension of the expiry date of any Letter of Credit or increase in the face amount of any Letter of Credit) is subject to the accuracy of all representations and warranties of the Company on the date of such Loan or issuance of such Letter of Credit, to the performance by the Company of its obligations under the Loan Documents and to the satisfaction of the following further conditions:

        (a)   the Agent shall have received the following, all of which shall be duly executed and in Proper Form: (1) in the case of a Loan, other than a Loan to be made to repay a Letter of Credit Advance pursuant to Section 2.4 hereof,:

            i.  by no later than 12:00 noon (New York City time) on the applicable Rate Selection Date, notice by telephone or facsimile from the Company of the proposed date and amount of such Loan, and

           ii.  no later than 2:00 p.m. (New York City time) on the applicable Rate Selection Date, a Request for Extension of Credit and Certificate of No Default, signed by a Responsible Officer;

or, in the case of issuance of a Letter of Credit, a completed Application (as may be required by the Agent or the applicable Issuer) signed by a Responsible Officer of the Company by 10:00 a.m. five (5) Business Days prior to the proposed date of issuance of such Letter of Credit and payment of the first quarterly letter of credit fee as and by the time required in Section 2.15(b) of this Agreement, along with, in each case, such financial information as the Agent may reasonably require to substantiate compliance with all financial covenants contained herein by the Company; and (2) such other Applications, certificates and other documents as the Agent may reasonably require;

        (b)   no Default shall have occurred and be continuing, or would result therefrom;

        (c)   the representations and warranties contained in the Loan Documents are true and correct on and as of such date (except any representation and warranty that expressly indicates that it is being made as of a specific date, and then as of such date);

        (d)   the making of such Loan or the issuance of such Letter of Credit, shall not be prohibited by, or subject the Agent, the applicable Issuer or any Lender to any penalty or onerous condition under, any Legal Requirement; and

        (e)   the Company shall have paid all legal fees and expenses of the type described in Section 9.8 hereof through the date of such Loan or the issuance of such Letter of Credit.

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        Section 3.2    First Loan.    In addition to the matters described in Section 3.1 hereof, the obligation of any Lender to make the initial Loan or of any Issuer to issue the first Letter of Credit on the date thereof (the "Effective Date") is subject to the satisfaction of the following conditions precedent:

        (a)   The Agent shall have received on or before the Effective Date the following, each dated such day (unless otherwise specified), in Proper Form and (except for the Notes) in sufficient copies for each Lender:

            i.  Counterparts to this Agreement executed by the Company and each Lender;

           ii.  The Notes payable to the order of the Lenders to the extent requested by the Lenders pursuant to the terms hereof;

          iii.  The Guaranty and the Contribution Agreement duly executed and delivered by each Guarantor as of the Effective Date;

          iv.  Certified copies of the resolutions of the board of directors (or equivalent body) of each Loan Party approving the Transaction and each Loan Document to which it is or is to be a party.

           v.  A security agreement in substantially the form of Exhibit G-A authorized and executed by the parties thereto.

          vi.  Copies of proper financing statements in respect of all the Loan Parties, together with evidence that such financing statements have been presented for filing on or before the Effective Date in all jurisdictions that the Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement A, covering the Collateral described therein.

         vii.  A copy of a certificate of the Secretary of State of the jurisdiction of incorporation of each Loan Party, dated reasonably near the Effective Date certifying (A) as to a true and correct copy of the charter of such Loan Party and each amendment thereto on file in such Secretary's office and (B) that (1) such amendments are the only amendments to such Loan Party's charter on file in such Secretary's office, (2) such Loan Party has paid all franchise taxes to the date of such certificate and (3) such Loan Party is duly incorporated and in good standing or presently subsisting under the laws of the State of the jurisdiction of its incorporation.

        viii.  A certificate of each Loan Party signed on behalf of such Loan Party by its secretary or any assistant secretary, dated the Effective Date (the statements made in which certificate shall be true on and as of the Effective Date), certifying as to (A) the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State's certificate referred to in Section 3.2(a)(v), (B) a true and correct copy of the bylaws of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.2(a)(iv) were adopted and on the Effective Date, (C) the absence of any proceeding for the dissolution or liquidation of such Loan Party, (D) the truth in all material respects of the representations and warranties contained in the Loan Documents as though made on and as of the Effective Date, (E) the absence of any event occurring and continuing, or resulting from the initial Borrowing hereunder, that constitutes a Default, and (F) certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder.

          ix.  A certificate, in form and substance reasonably satisfactory to the Lenders, attesting to the Solvency of the Company and its Subsidiaries, on a consolidated basis, both before and after giving effect to the Transactions, from its chief financial officer.

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           x.  Audited annual financial statements of the Company and the Target for the three fiscal years most recently ended and interim financial statements for the fiscal quarters ended thereafter and prior to the Effective Date and for the most recent quarter for which financial statements are available, pro forma financial statements as to the Company and its Subsidiaries giving effect to the Transactions, and forecasts prepared by management of the Company, each in form and substance reasonably satisfactory to the Lenders, of balance sheets, income statements and cash flow statements on an annual basis for each year following the Effective Date until the Termination Date.

          xi.  A favorable opinion of counsel for the Loan Parties, in form and substance reasonably satisfactory to the Lenders.

        (b)   The Tender Offer shall have been consummated, or shall be consummated substantially concurrently with the initial Borrowing hereunder, on substantially the terms and conditions set forth in the Merger Agreement, without any amendment or waiver of any material term thereof that is adverse, in any material respect, to the interests of the Lenders, and the Company shall have acquired not less than a majority of the capital stock of the Target.

        (c)   The Target's existing credit and letter of credit facilities with Bank of America, N.A. shall have been terminated and all loans, if any, outstanding thereunder, as well as all accrued interest and fees thereunder, if any, shall have been paid in full.

        (d)   There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or, to the knowledge of the Loan Parties or any of their Subsidiaries, threatened before any Governmental Authority that has had or could reasonably be expected to have a Material Adverse Effect on the legality, validity or enforceability of any Loan Document or the consummation of the Transactions.

        (e)   All governmental authorizations and third-party consents and approvals required to be obtained under the Merger Agreement in connection with the Transactions shall have been obtained (without the imposition of any conditions that materially and adversely impair the rights and remedies of the Lenders under the Loan Documents) and shall remain in effect.

        (f)    The Company shall have paid all accrued fees and expenses of the Agent that are due and payable in accordance herewith (including the accrued fees and expenses of counsel to the Agent and fees due and payable to the Joint Lead Arrangers pursuant to the Fee Letter).

        Section 3.3    Determinations Under Section 3.2.    For purposes of determining compliance with the conditions specified in Section 3.2, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the initial Borrowing hereunder specifying its objection thereto and shall not have made available to the Agent such Lender's ratable portion of such Borrowing.

ARTICLE IV—Representations and Warranties

        To induce the Agent and the Lenders to enter into this Agreement, subject to the Target Representation Limitations, the Company represents and warrants to the Agent and the Lenders as follows:

        Section 4.1    Organization.    Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the state of its incorporation; has all power and authority to conduct its business as presently conducted; and is duly qualified to do business and in good standing in each and every state in the United States of America where its business requires such

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qualification, except where failure to qualify could not reasonably be expected to have a Material Adverse Effect.

        Section 4.2    Financial Statements.    The financial statements of the Company and its Subsidiaries on a consolidated basis delivered to the Agent and the Lenders in connection with this Agreement fairly present, in accordance with Generally Accepted Accounting Principles, the financial condition and the results of operations of the Company and its Subsidiaries as of the dates and for the periods indicated. Since the date of the last audited financial statements of the Company, no event, development or circumstance has occurred or exists that could reasonably be expected to have a Material Adverse Effect.

        Section 4.3    Enforceable Obligations; Authorization.    The Loan Documents are legal, valid and binding obligations of the Company and the Guarantors, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally and by general equitable principles. The execution, delivery and performance of the Loan Documents have all been duly authorized by all necessary action; are within the power and authority of the Company and the Guarantors; do not and will not contravene or violate any Legal Requirement or the Organizational Documents of the Company or any Guarantors; do not and will not result in the breach of, or constitute a default under, any agreement or instrument by which the Company or any Guarantors or any of their respective Property may be bound or affected; and do not and will not result in the creation of any Lien upon any Property of the Company or any Guarantors except as expressly contemplated therein. All necessary permits, registrations and consents for the execution, delivery and performance by the Company and its Subsidiaries of the Loan Documents have been obtained.

        Section 4.4    Other Debt.    Neither the Company nor any of its Subsidiaries is in default in the payment of any other Indebtedness or under any agreement, mortgage, deed of trust, security agreement or lease to which it is a party, the result of which has, would or could reasonably be expected to have a Material Adverse Effect.

        Section 4.5    Litigation.    There is no litigation or administrative proceeding pending or, to the knowledge of the Company, threatened against, nor any outstanding judgment, order or decree affecting, the Company or any of its Subsidiaries before or by any Governmental Authority or arbitral body which in the aggregate have, or if adversely determined, could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in default with respect to any material judgment, order or decree of any Governmental Authority.

        Section 4.6    Title.    Each of the Company and its Subsidiaries has good and marketable title to its Property (other than negligible assets not material to the operations of the Company or any of its Subsidiaries), free and clear of all Liens except for Incidental Liens.

        Section 4.7    Taxes.    Each of the Company and its Subsidiaries has filed all tax returns required to have been filed and paid all taxes shown thereon to be due, except those for which extensions have been obtained and except for those which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with Generally Accepted Accounting Principles.

        Section 4.8    Subsidiaries.    As of the date hereof, the Company has no Subsidiaries other than as listed on Schedule 4.8 attached hereto. Except as expressly indicated on Schedule 4.8 attached hereto, each of the Company's Subsidiaries is wholly owned by the Company.

        Section 4.9    Representations by Others.    All representations and warranties made by or on behalf of the Company or any of its Subsidiaries in any Loan Document shall constitute representations and warranties of the Company hereunder.

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        Section 4.10    Permits, Licenses, Etc.    The Company and each of its Subsidiaries possess all permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names, trade name rights and copyrights which are required to conduct its business, and which the failure of the Company or any of its Subsidiaries to so possess would or could reasonably be expected to have a material adverse affect on the financial condition or operations of the Company and its Subsidiaries on a consolidated basis.

        Section 4.11    ERISA.    No Reportable Event (as defined in Section 4043(b) of ERISA but excluding those events as to which the 30-day notice period is waived by applicable regulations) has occurred with respect to any Plan. Each Plan complies in all material respects with all applicable provisions of ERISA, and the Company and each of its Subsidiaries have filed all reports required by ERISA and the Code to be filed with respect to each Plan. The Company has no knowledge of any event which could result in a liability of the Company or any of its Subsidiaries to the Pension Benefit Guaranty Corporation other than for applicable premiums. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any Plan. No event has occurred and no condition exists that might reasonably be expected to constitute grounds for a Plan to be terminated under circumstances which would cause the lien provided under Section 4068 of ERISA to attach to any Property of the Company or any of its Subsidiaries. No event has occurred and no condition exists that might reasonably be expected to cause the lien provided under Section 302 of ERISA or Section 412 of the Code to attach to any Property of the Company or any of its Subsidiaries.

        Section 4.12    Condition of Property.    The Property used or to be used in the continuing operations of the Company and its Subsidiaries, when taken as a whole, is in good repair, working order and condition.

        Section 4.13    Assumed Names.    Neither the Company nor any of its Subsidiaries is currently conducting its business under any assumed name or names, except as set forth on Schedule 4.13 attached hereto.

        Section 4.14    Investment Company Act.    Neither the Company nor any of its Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, as amended, or, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company, within the meaning of said Act.

        Section 4.15    Margin Stock.    The Company is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, other than in respect of the Transaction.

        Section 4.16    Agreements.    Schedule 4.16 attached hereto is a complete and correct list of (i) all credit agreements for borrowed money (other than the indebtedness governed hereby), indentures and capitalized leases and all Property subject to any Lien securing such Indebtedness or lease obligation, (ii) each letter of credit and guaranty for which the liability or potential liability of the Company and its Subsidiaries on a consolidated basis is in excess of $250,000, (iii) all other material instruments in effect as of the date hereof providing for, evidencing, securing or otherwise relating to any indebtedness for borrowed money of the Company or any of its Subsidiaries (other than the Indebtedness hereunder and Indebtedness secured by Incidental Liens), and (iv) all obligations of the Company or any of its Subsidiaries to issuers of appeal bonds issued for account of the Company or any of its Subsidiaries. The Company shall, upon request by the Agent, deliver to the Agent and the Lenders a complete and correct copy of all such credit agreements, indentures, capitalized leases, letters of credit, guarantees and other instruments or leases described in Schedule 4.16 or arising after the date hereof, including any modifications or supplements thereto, as in effect on the date hereof.

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        Section 4.17    Environmental Matters.    No activity of the Company or any of its Subsidiaries requires any Environmental Permit which has not been obtained and which is not now in full force and effect, except to the extent failure to have any such Environmental Permit could not reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries are in compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Requirement of Environmental Law or Environmental Permit, except where failure to be in such compliance could not reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries (and, to the best knowledge of the Company, each of the prior owners or operators and predecessors in interest with respect to any of its or its Subsidiaries' Property) (i) have obtained and maintained in effect all Environmental Permits, the failure to obtain which could reasonably be expected to have a Material Adverse Effect, (ii) along with their respective Property have been and are in compliance with all applicable Requirements of Environmental Law and Environmental Permits where such failure to comply therewith could reasonably be expected to have a Material Adverse Effect, (iii) along with their Property are not subject to any (A) Environmental Claims or (B) Environmental Liabilities, in either case direct or contingent, and whether known or unknown, arising from or based upon any act, omission, event, condition or circumstance occurring or existing on or prior to the date hereof which could reasonably be expected to have a Material Adverse Effect, and (iv) have not received individually or collectively any notice of any violation or alleged violation of any Requirements of Environmental Law or Environmental Permit or any Environmental Claim in connection with their respective Property which could reasonably be expected to have a Material Adverse Effect. The present and future liability (including any Environmental Liability and any other damage to Persons or Property), if any, of the Company and with respect to the Property of any of the Company or any of its Subsidiaries which is reasonably expected to arise in connection with Requirements of Environmental Law, Environmental Permits and other environmental matters will not have a Material Adverse Effect on the Company and its Subsidiaries on a consolidated basis.

        Section 4.18    Solvency.    The Company and its Subsidiaries are, on a consolidated basis, Solvent.

        Section 4.19    Target Representations.    As to any date of determination prior to the consummation of the Merger, the Company makes the Target Representations, except where the failure of any Target Representation to be true and correct on such date would not be material and adverse to the interests of the Lenders.

ARTICLE V—AFFIRMATIVE COVENANTS

        The Company covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will do, cause each of its Subsidiaries to do, and if necessary cause to be done, each and all of the following:

        Section 5.1    Taxes, Existence, Regulations, Property, Etc.    At all times (a) pay when due all taxes and governmental charges of every kind upon it or against its income, profits or property, unless and only to the extent that the same shall be contested in good faith and reserves deemed adequate by the Agent have been established therefor; (b) do all things necessary to preserve its corporate existence, qualifications, rights and franchises in all States where such qualification is necessary or desirable; (c) comply in all material respects with all applicable Legal Requirements (including all applicable Requirements of Environmental Laws) in respect of the conduct of its business and the ownership of its Property; and (d) cause its Property to be protected, maintained and kept in good repair and make all replacements and additions to its Property as may be reasonably necessary to conduct its business properly and efficiently.

        Section 5.2    Financial Statements and Information.    Furnish to the Agent and each Lender copies of each of the following: (a) as soon as available and in any event within ninety (90) days after the end

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of each fiscal year of the Company, Annual Audited Financial Statements of the Company and its Subsidiaries, prepared on a consolidated basis; (b) as soon as available and in any event within forty-five (45) days after the end of each quarter (excluding the fourth quarter) of each fiscal year of the Company, Quarterly Unaudited Financial Statements of the Company and its Subsidiaries, prepared on a consolidated basis; (c) concurrently with the financial statements provided for in clauses (a) and (b) hereof, an Officer's Certificate which shall include such schedules, computations and other information, in reasonable detail, as may be reasonably required by the Agent or any Lender to demonstrate compliance with the covenants set forth herein or reflecting any non-compliance therewith as of the applicable date, all certified as true, correct and complete by a Responsible Officer of the Company; (d) promptly upon their becoming available, all financial statements (other than the Annual Audited Financial Statements and Quarterly Unaudited Financial Statements), registration statements, reports and proxy statements which the Company or any of its Subsidiaries may file with the Securities and Exchange Commission, and (e) such other information relating to the financial condition and affairs of the Company and any of its Subsidiaries as from time to time may be reasonably requested by the Agent or any Lender. In addition to the financial information and reports to be delivered in accordance with the prior sentence, if the most recent Annual Audited Financial Statements or Quarterly Unaudited Financial Statements of the Company, as applicable, demonstrate that the financial condition of the Company and its Subsidiaries, on a consolidated basis, has been negatively impacted as at the end of the immediately preceding fiscal quarter or fiscal year represented by such Annual Audited Financial Statements or Quarterly Unaudited Financial Statements, as applicable, for one or more reasons (said determination of negative impact to be made by the Agent in its reasonable discretion), upon the periodic request of the Agent (until the conditions attributable to such negative impact have been addressed and rectified to the reasonable satisfaction of the Agent), the Company agrees that it shall promptly provide the Agent and the Lenders with additional information relating to the financial condition and affairs of the Company and its Subsidiaries as may be reasonably requested by the Agent, including, but not limited to, reports setting out in sufficient detail the financial performance of each retail location for any and all stores and operations maintained by the Company and/or any of its Subsidiaries.

        Notwithstanding the foregoing, information required to be delivered pursuant to clauses (a), (b) and (d) of this Section 5.2 shall be deemed to have been delivered if such information shall be available on the website of the Securities and Exchange Commission at http://www.sec.gov and the Company shall have notified the Agent of the availability of all such financial information; provided, that the Company shall deliver paper copies of such information to the Agent or any Lender that reasonably requests such delivery. Information required to be delivered pursuant to this Section 5.2 (other than a Notice of Default) may also be delivered by electronic means pursuant to Section 9.2(b).

        Section 5.3    Financial Tests.    (a) Have at all times a FIXED CHARGE COVERAGE RATIO of not less than 1.50 to 1.00; and (b) have at all times a LEVERAGE RATIO of not more than 3.00 to 1.00.

        Section 5.4    Inspection.    Permit the Agent and the Lenders to inspect its Property, to examine its files, books and records and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all at such times and intervals and to such extent as the Agent or any Lender may reasonably desire; provided that, in the absence of an Event of Default, no more than one such visit shall be permitted at the expense of the Company in any fiscal year.

        Section 5.5    Further Assurances.    Promptly execute and deliver any and all other and further instruments which may be requested by the Agent or any Lender to cure any defect in the execution and delivery of any Loan Document or more fully to describe particular aspects of the Company's agreements set forth in the Loan Documents or so intended to be.

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        Section 5.6    Books and Records.    Maintain books of record and account in accordance with Generally Accepted Accounting Principles.

        Section 5.7    Insurance.    Maintain at all times insurance with such insurers, on such of its Property, officers, directors and employees, in such amounts and against such risks as is customarily maintained by other Persons of similar size and engaged in businesses substantially similar to its businesses, and furnish the Agent satisfactory evidence thereof promptly upon request.

        Section 5.8    ERISA.    At all times: (a) make contributions to each Plan in a timely manner and in an amount sufficient to comply with the minimum funding standards requirements of ERISA; (b) immediately upon acquiring knowledge of (i) any Reportable Event in connection with any Plan for which no administrative or statutory exemption exists or (ii) any "prohibited transaction", as such term is defined in Section 4975 of the Code, in connection with any Plan, that could result in the imposition of material damages or a material excise tax on the Company, furnish the Agent a statement executed by a Responsible Officer of the Company setting forth the details thereof and the action which the Company or any such Subsidiary proposes to take with respect thereto and, when known, any action taken by the Internal Revenue Service with respect thereto; (c) notify the Agent promptly upon receipt by the Company or any of its Subsidiaries of any notice of the institution of any proceedings or other actions which may result in the termination of any Plan by the Pension Benefit Guaranty Corporation and furnish the Agent with copies of such notice; (d) pay when due all required premium payments to the Pension Benefit Guaranty Corporation; (e) furnish the Agent with copies of the annual report for each Plan filed with the Internal Revenue Service not later than ten (10) days after the Agent requests such report; (f) furnish the Agent with copies of any request for waiver of the funding standards or extension of the amortization periods required by Sections 303 and 304 of ERISA or Section 412 of the Code promptly after the request is submitted to the Secretary of the Treasury, the Department of Labor or the Internal Revenue Service, as the case may be; and (g) pay when due all installment contributions required under Section 302 of ERISA or Section 412 of the Code or within 10 days of a failure to make any such required contributions furnish the Agent with written notice of such failure.

        Section 5.9    Use of Proceeds.    Subject to the terms and conditions contained herein, use the proceeds of the Loans (a) to finance the Tender Offer and the Merger, (b) to refinance certain existing Indebtedness of the Target, (c) to pay costs and expenses relating to the Transactions, and (d) support new store development, other acquisitions, the issuance of standby Letters of Credit and other general corporate purposes, including but not limited to, dividend payments and the repurchase of Stock. No proceeds of the Loans shall be used in violation of Regulation U of the Board of Governors of the Federal Reserve System or any successor regulation thereof or of any other rule, statute or regulation governing Margin Stock from time to time.

        Section 5.10    Additional Guaranties.    Notify the Agent promptly upon creation or acquisition by the Company or any of its Subsidiaries of any additional Subsidiary of the Company after the date hereof, and in connection therewith, furnish the Agent with the Organizational Documents of such newly acquired or created Subsidiary and sufficient information to disclose to the Agent in reasonable detail the ownership structure and capitalization of such Subsidiary, and, except with respect to a Non-Guarantor Subsidiary, promptly cause such newly created or acquired Subsidiary of the Company to execute and deliver to the Agent, for the ratable benefit of the Lenders and the lenders under the Term Loan Facility, a Joinder Agreement, together with such related certificates, opinions, and documents as the Agent or any Lender may reasonably require.

        Section 5.11    Notice of Events.    Notify the Agent immediately upon acquiring knowledge of the occurrence of, or if the Company or any of its Subsidiaries causes or intends to cause, as the case may be: (1) the institution of any lawsuit or administrative proceeding affecting the Company or any of its Subsidiaries, the adverse determination under which could reasonably be expected to have a Material Adverse Effect; (2) the occurrence of any Material Adverse Effect; (3) any Event of Default or any

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Default, together with a detailed statement by an appropriate officer or other responsible party acceptable to the Agent on behalf of the Company of the steps being taken to cure the effect of such Event of Default or Default; (4) the occurrence of a default or event of default by the Company or any of its Subsidiaries under any agreement or series of related agreements to which it is a party, which default or event of default could reasonably be expected to have a Material Adverse Effect; and (5) any material change in the accuracy of the representations and warranties of the Company or any of its Subsidiaries in this Agreement or any other Loan Document. The Company will notify, or cause each Guarantor to notify, the Agent in writing within 30 days prior to the date that the Company or any Guarantor changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records. Any notice of a name change delivered to the Agent shall be accompanied by such certificates of Governmental Authorities as the Agent or any Lender may require substantiating such name change.

        Section 5.12    Environmental Matters.    Without limiting the generality of Section 5.1(c) hereof, (a) comply in all material respects with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Requirement of Environmental Law or Environmental Permit; (b) obtain and maintain in effect all Environmental Permits, the failure to obtain which could reasonably be expected to have a Material Adverse Effect; and (c) keep its Property free of any Environmental Claims or Environmental Liabilities which could reasonably be expected to have a Material Adverse Effect.

        Section 5.13    End of Fiscal Year.    The Company shall cause each of its fiscal years and each of its Subsidiaries' fiscal years to end on the last Sunday of each September.

        Section 5.14    Consummation of Merger.    The Company shall use commercially reasonable efforts to consummate the Merger within 90 days following the Effective Date.

        Section 5.15    Maintenance of Ratings.    The Company shall use commercially reasonable efforts to maintain corporate family (or equivalent) ratings from each of Moody's and S&P.

        Section 5.16    Covenant to Guarantee Obligations and Give Security.    Except in connection with the Disclosed Divestitures listed in part A of Schedule 1.1(a), the Loan Parties will upon (x) the request of the Agent, (y) the formation or acquisition of any new direct or indirect Subsidiaries by any Loan Party or (z) the acquisition of any material property by any Loan Party, in each case at the Loan Parties' expense:

        (a)   grant to the Collateral Agent, for the ratable benefit of the Lenders and the lenders under the Term Loan Facility, and upon the terms and conditions set forth in the Security Agreement A, a security interest in, each Loan Party's right, title and interest in and to the Collateral pursuant to the terms of the Security Agreement A.

        (b)   within 15 days after such request, formation or acquisition, (i) cause each such Subsidiary to duly execute and deliver to the Agent such guaranties or guaranty supplements so as to cause each such Subsidiary to guarantee all Guaranteed Obligations, as defined in the Guaranties, (ii) duly execute and deliver, and cause each such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver, to the Collateral Agent, pledges, assignments, security agreement supplements and other security agreements, covering the Collateral and as specified by and in form and substance reasonably satisfactory to the Agent, securing payment of all the obligations of the applicable Loan Party or such Subsidiary, as the case may be, under the Loan Documents and the Term Loan Facility and constituting Liens on all Collateral, or (iii) take whatever action, including to file Uniform Commercial Code financing statements, as may be necessary or advisable in the opinion of the Agent, to vest in the Collateral Agent (or its designee), valid and subsisting Liens in the Collateral as provided in this Section 5.16(b).

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        (c)   within 60 days after such request, formation or acquisition, deliver to the Agent, upon the request of the Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Collateral Agent and the Lenders, of counsel for the Loan Parties reasonably acceptable to the Agent as to the matters contained in clause (b) above, as to such guaranties, guaranty supplements, pledges, assignments, security agreement supplements and security agreements being legal, valid and binding obligations of each Loan Party party thereto enforceable in accordance with their terms, as to the matters contained in clause (b)(iii) above, as to such recordings, filings, notices, endorsements and other actions being sufficient to create valid perfected Liens on such Collateral to the extent a Lien can be created by filing under the Uniform Commercial Code, and as to such other matters as the Agent may reasonably request, in each case to the extent that such Collateral has a value in excess of $10,000,000.

        (d)   The Loan Parties will, upon the incurrence of inter-company debt not included in Part II of Schedule I to Security Agreement A on the Effective Date, promptly cause each Subsidiary payee under such inter-company debt to execute and deliver to the Collateral Agent, pledges, assignments, and security agreement supplements and other security agreements covering such Collateral and as specified by and in form and substance reasonably satisfactory to the Agent, securing payment of all the obligations of the applicable Loan Party or such Subsidiary, as the case may be, under the Loan Documents and the Term Loan Facility and constituting Liens on all such Collateral.

        (e)   at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action as the Agent may reasonably deem necessary or desirable in obtaining the full benefits of, or in perfecting and preserving the Liens of, such guaranties, pledges, assignments, security agreement supplements and security agreements in the Collateral.

        Section 5.17    Covenant to Give Additional Security.    At any time during the Additional Security Period, the Loan Parties will upon (x) the request of the Agent, (y) the formation or acquisition of any new direct or indirect Subsidiaries by any Loan Party or (z) the acquisition of any material property by any Loan Party, then the Loan Parties shall, in each case at the Loan Parties' expense:

        (a)   grant to the Collateral Agent for the ratable benefit of the Lenders and the lenders under the Term Loan Facility, and upon the terms and conditions set forth in the Security Agreement B, a security interest in, each Loan Party's right, title and interest in and to the Additional Collateral pursuant to the terms of the Security Agreement B.

        (b)   within 15 days after such request, formation or acquisition, (i) duly execute and deliver, and cause each such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver, to the Collateral Agent, a supplement to Security Agreement B, securing payment of all the obligations of the applicable Loan Party or such Subsidiary, as the case may be, under the Loan Documents and the Term Loan Facility and constituting Liens on all such properties, provided that no real property (or any interest therein) shall be subjected to a security interest in favor of the Agent for the benefit of the Lenders, or (ii) take whatever action contemplated by Security Agreement B, including to file Uniform Commercial Code financing statements, as may be necessary or advisable in the opinion of the Agent to vest in the Collateral Agent (or its designee) valid and subsisting Liens as provided in this Section 5.17(b).

        (c)   within 60 days after such request, formation or acquisition, deliver to the Agent, upon the request of the Collateral Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Agent and the Lenders, of counsel for the Loan Parties reasonably acceptable to the Agent as to the matters contained in clauses (a) and (b) above, as the Agent may reasonably request, in each case to the extent that such Additional Collateral has a value in excess of $10,000,000.

        (d)   at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action contemplated under the Security Agreement B as the Agent may reasonably deem necessary or desirable in obtaining the full benefits of, or in perfecting and preserving the Liens of, such guaranties, pledges, assignments, security agreement supplements, intellectual property security agreement supplements and security agreements.

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ARTICLE VI—NEGATIVE COVENANTS

        The Company covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will not, and will not suffer or permit any of its Subsidiaries to, do any of the following:

        Section 6.1    Indebtedness.    Create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, or become or remain liable with respect to any Indebtedness, whether direct, indirect, absolute, contingent or otherwise, except the following:

        (a)   Indebtedness pursuant hereto, the Guaranties and any other Loan Document;

        (b)   Indebtedness under the Term Loan Facility in an aggregate principal amount (as to the loans thereunder) not to exceed at any time outstanding the difference between $700,000,000 and the aggregate amount of all principal payments and prepayments made under the Term Loan Facility after the date hereof;

        (c)   in addition to and cumulative of any other Indebtedness permitted in this Section 6, in the case of the Company only, Unsecured Borrowed Debt; provided that, immediately before and immediately after the incurrence of such Unsecured Borrowed Debt, the Company and its Subsidiaries shall be in pro forma compliance with the financial covenants set forth in Section 5.3 hereof;

        (d)   Indebtedness secured by Liens permitted by Section 6.2 hereof;

        (e)   secured Indebtedness of the Company and Indebtedness of any one or more of the Company's Subsidiaries, provided, that the aggregate amount of all such Indebtedness outstanding at any time (exclusive of Indebtedness permitted in Section 6.1(i) hereof) may not exceed five percent (5%) of Consolidated Net Worth;

        (f)    other liabilities existing on the date of this Agreement and set forth on Schedule II attached hereto, and all renewals and extensions (but not increases) thereof, provided that there shall be no material change in the obligors thereunder;

        (g)   current accounts payable and unsecured current liabilities, not the result of borrowings, to vendors, suppliers and persons providing services, for expenditures on ordinary trade terms for goods and services normally required by the Company or any of its Subsidiaries in the ordinary course of its business;

        (h)   agreements of intent to acquire a Person issued by the Company or any of its Subsidiaries in anticipation of acquiring such Person if such acquisition is permitted under the terms and conditions of this Agreement;

        (i)    the Indebtedness of any Subsidiary of the Company to the Company or to any Guarantor, as permitted in Section 6.7(f) of this Agreement;

        (j)    guarantees by the Company or any of its Subsidiaries of the Indebtedness of any of their respective Subsidiaries permitted to be incurred, created or existing pursuant to Section 6.3, provided, that such guarantees are not directly or indirectly secured by any Liens;

        (k)   current and deferred taxes;

        (l)    any obligation under or in respect of outstanding letters of credit (including without limitation, the Letters of Credit), acceptances and similar obligations created for the account of the Company or any of its Subsidiaries, and any Hedging Agreements (other than Credit Facility Hedging Agreements) entered into by the Company and its Subsidiaries in the ordinary course; provided that the sum of (i) the aggregate amount of such Indebtedness and (ii) the aggregate

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amount of Contingent Obligations outstanding at any time for the Company and its Subsidiaries, on a consolidated basis, may not exceed five percent (5%) of Consolidated Net Worth;

        (m)  Indebtedness or other obligations of the Company under Capital Lease Obligations for equipment for use in new retail locations hereafter opened and operated by the Company or any of its Subsidiaries, so long as the capitalized amount of such obligations hereafter entered into does not exceed five percent (5%) of Consolidated Net Worth in the aggregate, together with guaranties of such obligations by any or all Subsidiaries of the Company now or hereafter existing;

        (n)   Indebtedness evidenced by those certain zero coupon convertible subordinated debentures of the Company due 2018 which are governed by that certain Indenture dated March 2, 1998, by and among the Company and Chase Bank of Texas, National Association, Trustee, outstanding on the date hereof; and

        (o)   Indebtedness of Target under its Convertible Senior Debentures.

        (p)   any obligation under or in respect of outstanding letters of credit (excluding the Letters of Credit) or other workers' compensation coverage payment or reimbursement obligations secured by cash or cash equivalents created for the account of the Company or any of its Subsidiaries as fiscal security for, or otherwise in connection with, workers' compensation coverage secured for the Company and/or any of its Subsidiaries (it being agreed that any letters of credit or other such payment or reimbursement obligations issued in accordance with the provisions of this Section 6.1(o) shall not be included within letters of credit for purposes of determining compliance with Section 6.1(l) hereof or included within Contingent Obligations for purposes of determining compliance with Section 6.3 hereof).

The Company, the Agent, the Lenders and each Guarantor (by its execution of a Guaranty or a Joinder Agreement) agree that, notwithstanding anything contained in this Section 6.1, in Section 6.7(f) or in any other provision contained in this Agreement which may appear to be to the contrary, any and all Indebtedness of (i) the Company from time to time owed to any Subsidiary of the Company or of (ii) any Subsidiary of the Company from time to time owed to the Company or to any Guarantor (together with any and all Liens from time to time securing the same as permitted by Section 6.2(f) hereof) is hereby made and at all times hereafter shall be inferior and subordinate in all respects to the Indebtedness from time to time owing to the Agent or any Lender pursuant hereto and to any Lien, if any, from time to time hereafter securing any of such Indebtedness pursuant to the terms hereof.

        Section 6.2    Liens.    Create or suffer to exist any Lien upon any of its Property now owned or hereafter acquired, or acquire any Property upon any conditional sale or other title retention device or arrangement or any purchase money security agreement; or in any manner directly or indirectly sell, assign, pledge or otherwise transfer any of its accounts or contract rights; provided, however, that the Company and its Subsidiaries (or any of them) may create or suffer to exist:

        (a)   Liens in effect on the date hereof and which are described on Schedule 6.2(a) attached hereto, provided, that the Property covered thereby does not increase either in quantity or value;

        (b)   Liens securing any Indebtedness otherwise permitted pursuant to Sections 6.1(e) and (l) hereof, provided that the aggregate amount of all such secured Indebtedness outstanding at any time may not exceed five percent (5%) of Consolidated Net Worth;

        (c)   Liens in favor of the Collateral Agent pursuant to the terms of Security Agreement A and/or Security Agreement B, as applicable;

        (d)   Incidental Liens;

        (e)   purchase money security interests and liens in Equipment and/or real property of the Company or any of its Subsidiaries in favor of the seller or sellers of such Equipment and/or real

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property or their successors and assigns, or purchase money security interests and liens in favor of any third-party lender which loaned the money to purchase any such Equipment and/or real property to the Company or such Subsidiary, provided, that neither the sales price of, nor the amount of any loan made to acquire any of, such Equipment and/or real property is greater than the fair value of such Equipment and/or real property so acquired;

        (f)    Liens in favor of the Company or any Guarantor securing any Indebtedness owed by a Subsidiary of the Company permitted pursuant to Section 6.1(i) hereof;

        (g)   informational filings of financing statements against the Company or any of its Subsidiaries by lessors under any operating lease or any permitted Capital Lease Obligation now or hereafter entered into by the Company or any of its Subsidiaries with any lessor, so long as the applicable financing statement covers only the asset or assets leased pursuant to the applicable operating lease or Capital Lease Obligation; and

        (h)   Liens against cash or cash equivalents of the Company and/or any of its Subsidiaries securing the obligations of, under or in respect of outstanding letters of credit or other workers' compensation coverage payment or reimbursement obligations otherwise permitted pursuant to Section 6.1(o) hereof.

provided, however, that, notwithstanding anything contained above in this Section 6.2 to the contrary, in no event may the Company or any Subsidiary of the Company ever create or suffer to exist any Lien upon any of the Stock of any of its Subsidiaries, directly or indirectly, in favor of any Person other than the Agent for the benefit of the Lenders and, subject to subsection (d) above, under the Term Loan Facility, create or suffer to exist any agreement, whether oral or in writing, with any Person other than the Agent and the Lenders pursuant to this Section 6.2, and, subject to subsection (d) above, under the Term Loan Facility, which would or could prohibit the Company or any of its Subsidiaries from creating or permitting to exist any Lien in favor of the Agent or the Lenders for the benefit of all of the Lenders for Indebtedness from time to time arising under this Agreement.

        Section 6.3    Contingent Obligations.    Except for guaranties by Subsidiaries of the Company which are otherwise permitted by Sections 6.1(l) and 6.1(m) hereof, and the Guaranties, create, incur, suffer or permit to exist, directly or indirectly, any Contingent Obligations if such Contingent Obligations would cause the sum of (a) the aggregate amount of Contingent Obligations outstanding for the Company and its Subsidiaries, and (b) the aggregate amount of outstanding Indebtedness permitted by Section 6.1(l), on a consolidated basis, to exceed five percent (5%) of Consolidated Net Worth.

        Section 6.4    Mergers, Consolidations and Dispositions and Acquisitions of Assets.    In any single transaction or series of related transactions, directly or indirectly:

        (a)   Wind up its affairs, liquidate or dissolve;

        (b)   Be a party to any merger or consolidation (other than the Merger) and except as permitted under Section 6.4(e);

        (c)   Sell, convey, lease or otherwise dispose of all or any material part of the assets (except for the sale of inventory in the ordinary course of business) of the Company and/or its Subsidiaries, or agree to take any such action, if such sale, lease or conveyance of assets is not otherwise permitted for the applicable fiscal year by Section 6.4(z) hereof;

        (d)   Sell, assign, pledge, transfer or otherwise dispose of, or in any way part with control of, any Stock of any of its Subsidiaries or any Indebtedness or obligations of any character of any of its Subsidiaries, or permit any such Subsidiary so to do with respect to any Stock of any other Subsidiary or any Indebtedness or obligations of any character of the Company or any of its other Subsidiaries, or permit any of its Subsidiaries to issue any additional Stock other than (i) to the Company or any of its Subsidiaries or (ii) to purchase or acquire for a consideration any Stock of

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the Company or any of its other Subsidiaries to the extent permitted under Section 6.11(a) hereof; or

        (e)   Take any action with a view toward dissolution, liquidation or termination;

provided, however, that:

        (x)   Any of the Company's Subsidiaries may merge or consolidate with any one or more of the Company's other Subsidiaries, or with any other Business Entity or Business Entities; provided that each surviving Business Entity after any such merger or consolidation shall be a wholly-owned Subsidiary of the Company or of a wholly-owned Subsidiary of the Company, and, provided, further, that the surviving Business Entity shall simultaneously with such merger, execute and deliver to the Agent a Notice of Assumption, appropriately completed;

        (y)   Any of the Company's Subsidiaries may (i) sell, transfer or otherwise dispose of any Stock of the Company or any of its Subsidiaries to the Company or another Subsidiary of the Company or (ii) sell, lease, transfer or otherwise dispose of any of its assets to another Subsidiary of the Company; provided that if all or substantially all of the transferring Subsidiary's assets are being sold, leased, transferred or otherwise disposed of, then the Subsidiary to whom the sale, lease, transfer or disposition was made must, unless it is already a Guarantor, simultaneously execute and deliver to the Agent a Notice of Assumption. If such transferring Subsidiary is a wholly-owned Subsidiary of the Company, it may wind up its affairs, liquidate or dissolve following the consummation of any such sale, lease, transfer or disposal of all or substantially all of its assets; and

        (z)   Subject to the limitations set forth below, (i) (A) a proposed sale, lease or conveyance of assets of one or more of the Subsidiaries of the Company (a "Permitted Asset Disposition") or (B) a proposed sale of the Stock of one or more Subsidiaries of the Company (a "Permitted Stock Disposition"), in a single transaction or series of related transactions, to a Person or Persons which is not or are not an Affiliate or Affiliates of the Company or any of its Subsidiaries, on an arms-length basis, may occur in any fiscal year of the Company so long as the aggregate consideration paid by such acquiring Person or Persons (inclusive of the fair value of any non-cash Property received as consideration) from all Permitted Asset Dispositions and all Permitted Stock Dispositions which occur during such fiscal year does not exceed five percent (5%) of Consolidated Net Worth and (ii) the Company may consummate the Disclosed Divestitures; provided, however, that no Permitted Asset Disposition (other than a Disclosed Divestiture) or Permitted Stock Disposition may occur if a Default shall have then occurred and is then continuing or would be caused by such proposed Permitted Asset Disposition or Permitted Stock Disposition, in each case if consummated; provided further that the ability to consummate such Disclosed Divestiture shall not constitute a waiver of any such Default.

        Section 6.5    Nature of Business.    Materially change the nature of its business or enter into any business which is substantially different from the business in which it is presently engaged; provided, however, that vertical integration within the natural foods industry shall not be deemed to be a violation of this Section 6.5.

        Section 6.6    Transactions with Related Parties.    Enter into any transaction, contract or agreement of any kind with any officer, director or holder of any of the outstanding Stock of the Company or any of its Subsidiaries (or any Affiliate of such Person), unless such transaction, contract or agreement is made upon terms and conditions not less favorable to such Person than those which could have been obtained from wholly independent and unrelated sources. Other than pursuant to agreements of the Target in effect on the date hereof, the Company will not permit the compensation of any officer, stockholder, director, partner or proprietor of the Company or any of its Subsidiaries to be excessive,

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taking into consideration the financial circumstances of the Company or such Subsidiary and the position and qualifications of such Person.

        Section 6.7    Loans and Investments.    Make, directly or indirectly, any loan or advance to or have any Investment in any Person, or make any commitment to make such loan, advance or Investment, except:

        (a)   Stock of any Subsidiary, subject to the terms of Section 6.7(h) as to Investments in internet strategy lines of business;

        (b)   Permitted Investment Securities;

        (c)   Stock received in the settlement of debts (created in the ordinary course of business);

        (d)   travel advances in the ordinary course of business to officers and employees;

        (e)   customer obligations and receivables owing to the Company and arising out of sales or leases made or the rendering of services by the Company in the ordinary course of business;

        (f)    so long as no Default shall have occurred and is then continuing, and subject to the terms of Section 6.1 hereof, loans by the Company or any Guarantor to any Subsidiary of the Company;

        (g)   so long as no Default has occurred and is then continuing or would result therefrom, loans to any Person which is not a Subsidiary of the Company or of any of the Company's Subsidiaries, provided, that the aggregate of all of such loans does not exceed at any time five percent (5%) of Consolidated Net Worth; and

        (h)   so long as no Default shall have occurred and is then continuing or would result therefrom, Investments by the Company and/or any Guarantor in internet strategy lines of business.

        Section 6.8    ERISA Compliance.    At any time permit any Plan to engage in any "prohibited transaction" as defined in ERISA; incur any "accumulated funding deficiency" as defined in ERISA; or be terminated in a manner which could result in the imposition of a Lien on any Property of the Company or any of its Subsidiaries pursuant to ERISA.

        Section 6.9    Credit Extensions.    Extend credit other than normal and prudent extensions of credit to customers for goods and services in the ordinary course of business.

        Section 6.10    Change in Accounting Method.    Make any material change in accounting method except as may be required by Generally Accepted Accounting Principles as they are from time to time in effect.

        Section 6.11    Redemption, Dividends and Distributions.    At any time (1) each of the Company's Moody's and S&P rating have been downgraded below Investment Grade, or (2) either of the Company's Moody's or S&P rating has been downgraded by at least two categories below Investment Grade:

        (a)   Redeem, retire or otherwise acquire, directly or indirectly, any shares of its Stock if such redemption or repurchase would cause the sum of (A) and (B) below to exceed the sum of (i) $150,000,000, plus (ii) fifty percent (50%) of the aggregate of Net Income, depreciation, amortization and non-cash stock compensation expense of the Company and its Subsidiaries, on a consolidated basis, for each fiscal quarter of the Company ending after August 28, 2007 (said amount to not be adjusted or changed for a particular fiscal quarter if the aggregate Net Income, depreciation, amortization and non-cash stock compensation expense of the Company and its Subsidiaries, on a consolidated basis, for such fiscal quarter is negative): (A) the aggregate cost paid by the Company for such Stock so redeemed or repurchased on or after July 1, 2007, as shown on the consolidated financial statements of the Company and its Subsidiaries to be

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delivered pursuant to Sections 5.2(a) and (b) hereof; and (B) the aggregate cash dividends paid by the Company to owners of Stock in the Company on or after July 1, 2007;

        (b)   Pay any dividend except (i) dividends paid to the Company or any Subsidiary of the Company which is a direct parent of the Subsidiary paying a dividend, (ii) dividends payable in Stock or in rights or warrants to purchase Stock, or (iii) cash dividends paid by the Company to owners of Stock in the Company if the aggregate amount of such cash dividends payable by the Company to owners of Stock in the Company on or after August 28, 2007, together with the aggregate cost paid by the Company for Stock redeemed or repurchased on or after July 1, 2007 (as shown on the consolidated financial statements of the Company and its Subsidiaries to be delivered pursuant to Sections 5.2(a) and (b) hereof), does not exceed (i) $150,000,000 plus (ii) fifty percent (50%) of the aggregate of Net Income, depreciation, amortization and non-cash stock compensation expense of the Company and its Subsidiaries, on a consolidated basis, for each fiscal quarter of the Company ending after July 1, 2007 (said amount to not be adjusted or changed for a particular fiscal quarter if the aggregate Net Income, depreciation, amortization and non-cash stock compensation expense of the Company and its Subsidiaries, on a consolidated basis, for such fiscal quarter is negative); or

        (c)   Make any other distribution of any Property or cash to stockholders as such, except as permitted under Section 6.4(e)(y).

ARTICLE VII—EVENTS OF DEFAULT AND REMEDIES

        Section 7.1    Events of Default.    If any of the following events shall occur, then the Agent may, unless directed to the contrary by the Required Lenders in writing actually received by the Agent prior to the Agent doing so (and, if directed by the Required Lenders, shall), do any or all of the following: (1) without notice to the Company or any other Person, declare the Loans and the Notes then outstanding to be, and thereupon the Loans and the Notes shall forthwith become, immediately due and payable, together with all accrued interest thereon, the Commitment Fees and all other amounts then payable hereunder, without notice of any kind, notice of acceleration or of intention to accelerate, presentment and demand or protest, or other notice of any kind all of which are hereby expressly WAIVED by the Company; (2) without notice to the Company, terminate the Commitments and thereupon each Issuer and all of the Lenders shall be relieved of any obligation to issue any additional Letters of Credit or make any additional Loans; (3) by notice in writing to the Company, accelerate the Maturity Date to a date as early as the date of the notice, (4) demand that the Company and the Guarantors provide the Agent, for the ratable benefit of the Lenders, and the Company and the Guarantors jointly and severally agree upon such demand to, provide cash collateral in an amount equal to the aggregate Letter of Credit Exposure Amount then outstanding, on terms and pursuant to documents and agreements satisfactory in all respects to the Agent, and (5) exercise any and all other rights pursuant to the Loan Documents:

        (a)   The Company shall fail to pay or prepay any principal of or interest of any Loan, the Commitment Fees or any other obligation hereunder or under any Applications as and when due and, solely in respect of interest, fees and obligations other than principal, such failure remains uncured after three (3) Business Days, in the case of interest, and five (5) Business Days, in the case of fees and such other obligations, in each case from such due date; or

        (b)   The Company or any of its Subsidiaries (i) shall fail to pay at maturity, or within any applicable period of grace, any principal of or interest on any other borrowed money obligation in excess of $20,000,000 in principal amount (unless such payment is being contested in good faith by appropriate proceedings and adequate reserves have been provided therefor), (ii) shall otherwise be in default under the provisions of any instrument or document evidencing, securing or guaranteeing any other borrowed money obligation of the Company or any of its Subsidiaries,

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including, without limitation, in respect of the Term Loan Facility, in excess of $20,000,000 in principal amount if such default continues beyond any applicable grace or curative period, if any, and such default would entitle the holder of such borrowed money obligation to declare such obligation to be due prior to its stated maturity, or (iii) is in default under or in violation of any Legal Requirement, which failure could or does have a Material Adverse Effect; or

        (c)   Any representation or warranty made in connection with any Loan Document shall prove to have been materially incorrect, false or misleading when made or deemed to have been made; or

        (d)   Default shall occur in the punctual and complete performance of (i) any of the affirmative covenants contained in Section 5 (other than Section 5.3) and such default shall not be cured within ten (10) days after the Agent has given written notice to the Company that such default has occurred (or immediately in the case of Sections 5.14, 5.16, or 5.17), (ii) any of the negative covenants contained in Section 6, or (iii) any covenant contained in Section 5.3 or any other covenant of the Company or any other Person contained in any Loan Document; or

        (e)   Any judgments or orders in the aggregate for the payment of money in excess of $20,000,000 shall be rendered against the Company or any of its Subsidiaries at any time, regardless of whether the same is being appealed or reserves established therefor or paid in full; provided, however, that any such judgment or order shall not give rise to an Event of Default under this Section 7.1(e) if and for so long as the amount of such judgment or order is covered by a valid and binding policy of insurance in favor of the Company or any of its Subsidiaries as to which coverage in respect of such claim has not been disputed; or

        (f)    The Company or any Subsidiary of the Company shall claim, or any court shall find or rule, that the Agent for the benefit of the Lenders does not have a valid Lien on any Collateral or Additional Collateral, as the case may be, having a value in the aggregate in excess of $5,000,000 which may have been provided to secure the Indebtedness arising pursuant hereto from time to time by the Company or any of its Subsidiaries; or

        (g)   Any order shall be entered in any proceeding against the Company or any of its Subsidiaries decreeing the dissolution, liquidation or split-up thereof, and such order shall remain in effect for thirty (30) days; provided, however, the provisions of this subparagraph (g) shall not apply to any divestiture by the Company or any of its Subsidiaries of any Subsidiary acquired after the effective date of this Agreement as a result of anti-trust issues or concerns; or

        (h)   The occurrence of an event of default or default under any Loan Document other than this Agreement; or

        (i)    The Company or any of its Subsidiaries shall have concealed, removed, or permitted to be concealed or removed, any part of its Property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or

        (j)    A change shall occur in the assets, liabilities, financial condition, business or affairs of the Company or any of its Subsidiaries which, in the reasonable opinion of the Required Lenders, would or does have a Material Adverse Effect; provided, however, the occurrence of any such Material Adverse Effect shall not be deemed to be an Event of Default hereunder until the Agent shall have provided the Company with written notice that the Required Lenders have determined that such a Material Adverse Effect has occurred; or

        (k)   A Change of Control shall occur.

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In addition to the actions permitted to be taken by the Agent under the terms of the initial paragraph of this Section 7.1, if any of the following events shall occur, then the Loans and the Notes together with all accrued interest thereon, the Commitment Fees and all other amounts then payable hereunder (including contingent obligations with respect to Letters of Credit) shall automatically, without demand, presentment, protest, notice of intent to accelerate, notice of acceleration or other notice to any Person of any kind, all of which are hereby expressly WAIVED by the Company, become immediately due and payable and all Commitments shall be immediately and automatically terminated and the Maturity Date shall immediately and automatically be accelerated to the date of such occurrence:

        (x)   The Company or any of its Subsidiaries shall make a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian, receiver or liquidator of all or any substantial part of its business, estate or assets or shall commence any proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or

        (y)   Any such petition or application shall be filed or any such proceeding shall be commenced against the Company or any of its Subsidiaries and the Company or such Subsidiary by any act or omission shall indicate approval thereof, consent thereto or acquiescence therein which shall not have been dismissed within 60 days, or an order shall be entered appointing a trustee, custodian, receiver or liquidator of all or any substantial part of the assets of the Company or any of its Subsidiaries or granting relief to the Company or any of its Subsidiaries or approving the petition in any such proceeding and such order shall remain in effect for more than 60 days; or

        (z)   The Company or any of its Subsidiaries shall admit in writing its inability to pay its debts as they become due or fail generally to pay its debts as they become due or suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its Property which is not released, stayed, bonded or vacated within thirty (30) days after its issue or levy.

        Section 7.2    Remedies Cumulative.    No remedy, right or power conferred upon the Agent or any Lender is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative.

ARTICLE VIII—THE AGENT AND THE ISSUERS

        Section 8.1    Authorization and Action.    (a) Each Lender hereby irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. Each Lender hereby irrevocably appoints and authorizes each Issuer to act as its agent under the Letters of Credit which such Issuer has issued with such powers as are specifically delegated to such Issuer by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the obligations of the Company or any Guarantor), neither Agent nor any Issuer shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders, and all holders of Notes, and the Agent agrees to request from the Company any information that is reasonably requested by any Lender; provided, however, that neither the Agent nor any Issuer shall be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement or applicable law.

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        (a)   The Agent, the Collateral Agent and/or any Issuer may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties.

        (b)   Each of the Lenders hereby appoints and authorizes the Collateral Agent to take such action as collateral agent on its behalf and to exercise such powers under the Security Agreement A and Security Agreement B as are specifically delegated to the Collateral Agent by the terms of such Loan Documents, together with such other powers as are reasonably incidental thereto.

        Section 8.2    Agents', Collateral Agent's and Issuers' Reliance, Etc.    Neither the Agent nor the Collateral Agent nor any Issuer nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent and any Issuer each: (a) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (c) shall not have any duty to ascertain or to inquire as to the performance, observance or satisfaction of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or the existence at any time of any Default under the Loan Documents or to inspect the property (including the books and records) of any Loan Party; (d) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (e) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy or electronic communication) believed by it to be genuine and signed or sent by the proper party or parties.

        Section 8.3    JPMorgan and Affiliates.    With respect to its Commitments and its Letter of Credit Exposure, the Loan made by it and any Note issued to it, JPMorgan shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though each were not an Agent or an Issuer; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include JPMorgan in its individual capacity. JPMorgan and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from, act as a counterparty to any Hedging Agreements and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if JPMorgan were not the Agent or an Issuer and without any duty to account therefor to the Lenders. No Agent or Issuer shall have any duty to disclose any information obtained or received by it or any of its Affiliates relating to any Loan Party or any of its Subsidiaries to the extent such information was obtained or received in any capacity other than as the Agent or an Issuer, respectively.

        Section 8.4    Lender Credit Decision.    Each Lender acknowledges that it has, independently and without reliance upon the Agent, any Issuer or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, any Issuer or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

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        Section 8.5    Indemnification.    (a) Each Lender severally agrees to indemnify the Agent and any Issuer (to the extent not promptly reimbursed by the Company) from and against such Lender's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent or any Issuer in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Agent or any Issuer under the Loan Documents (collectively, the "Indemnified Costs"); provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's or any Issuer's gross negligence or willful misconduct as found in a final, non-appealable judgment by a court of competent jurisdiction. Without limitation of the foregoing, each Lender agrees to reimburse the Agent and any Issuer promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Company under Section 9.8, to the extent that the Agent or any Issuer is not promptly reimbursed for such costs and expenses by the Company. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 8.5 applies whether any such investigation, litigation or proceeding is brought by any Lender or any other Person.

For purposes of this Section 8.5, each Lender's ratable share of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Loans and Letter of Credit Exposure outstanding at such time and owing to such Lender and (ii) the aggregate Unused Commitments at such time. The failure of any Lender to reimburse the Agent or any Issuer promptly upon demand for its ratable share of any amount required to be paid by the Lenders to the Agent or any Issuer as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse the Agent or any Issuer for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse the Agent or any Issuer for such other Lender's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender contained in this Section 8.6 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents.

        Section 8.6    Successor Agents.    The Agent may resign at any time by giving written notice thereof to the Lenders and the Company. Upon any such resignation, the Lenders (in consultation with the Company) shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. If within 30 days after written notice is given of the retiring Agent's resignation under this Section 8.6 no successor Agent shall have been appointed and shall have accepted such appointment, then on such 30^th day (a) the retiring Agent's resignation or removal shall become effective, (b) the retiring Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (c) the Lenders shall thereafter perform all duties of the retiring Agent under the Loan Documents until such time, if any, as the Lenders appoint a successor Agent as provided above. After any retiring Agent's resignation or removal hereunder as Agent as to the Facility shall have become effective, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

        Section 8.7    Other Agents; Arrangers and Managers.    None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a "syndication agent,"

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"documentation agent," "bookrunner," or "lead arranger" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than to the extent expressly set forth herein and, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.

ARTICLE IX—MISCELLANEOUS

        Section 9.1    No Waiver.    No waiver of any Default shall be deemed to be a waiver of any other Default. No failure to exercise and no delay on the part of the Agent or any Lender in exercising any right or power under any Loan Document or at law or in equity shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or the abandonment or discontinuance of steps to enforce any such right or power, preclude any further or other exercise thereof or the exercise of any other right or power. No course of dealing between the Company and the Agent or any Lender shall operate as a waiver of any right or power of the Agent or any Lender. No amendment, modification or waiver of any provision of this Agreement or any other Loan Document nor any consent to any departure therefrom shall be effective unless the same is in writing and signed by the Person against whom it is sought to be enforced, and then it shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Company or any other Person shall entitle the Company or any other Person to any other or further notice or demand in similar or other circumstances.

        Section 9.2    Notices.

        (a)   All notices and other communications provided for hereunder shall be either (x) in writing (including facsimile or electronic communication) and mailed, faxed or delivered or (y) as and to the extent set forth in Section 9.2(b) and in the proviso to this Section 9.2(a), in an electronic medium and delivered as set forth in Section 9.2(b), if to any Loan Party, to the Company at its address at 550 Bowie Street, Austin, Texas 78703, Attention: Glenda Chamberlain and Chief Financial Officer, Faxed to: 512-482-7205, with copy to the General Counsel's Office at the same address and faxed to 512-482-7217; if to any initial Lender party to this Agreement on date hereof, at the address specified for such Lender on Schedule 2.1(a) hereto; if to any other Lender, at the address specified in the Assignment and Acceptance pursuant to which it became a Lender; if to the Agent, at its address at 221 W. 6^th Street, 2^nd Floor, Austin, Texas 78701, Mail Code TX3-8229, Attention: Manager, Commercial Lending Group, Fax: 512-479-2814; or, as to any Party, at such other address as shall be designated by such party in a written notice to the other parties; provided, however, that materials and information described in Section 9.2(b) shall be delivered to the Agent in accordance with the provisions thereof or as otherwise specified to the Company by the Agent. Except as otherwise provided herein, all notices, consents, certificates, waivers, documents and other communications required or permitted to be delivered to any party under the terms of any Loan Document (a) must be in writing, (b) must be personally delivered, transmitted by a recognized courier service or transmitted by facsimile, and (c) must be directed to such party at its address or facsimile number set forth above or on Schedule 2.1(a) hereto. Except as provided in subsection (b) below, all notices will be deemed to have been duly given and received on the date of delivery if delivered personally, three (3) days after delivery to the courier if transmitted by courier, or the date of transmission during normal business hours with confirmation if transmitted by facsimile, whichever occurs first, except that notices and communications to the Agent or the Collateral Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. Any party may change its address or facsimile number for purposes hereof by notice to all other parties. Delivery by telecopier of an executed counterpart of a

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signature page to any amendment or waiver of any provision of this Agreement or the Notes shall be effective as delivery of an original executed counterpart thereof.

        (b)   The Company hereby agrees that it will provide to the Agent all information, documents and other materials that it is obligated to furnish to the Agent pursuant to the Loan Documents, including, without limitation, all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, Borrowing (including any election of an interest rate or LIBOR Interest Period relating thereto), (ii) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (iii) provides notice of any Default or Event of Default under this Agreement or (iv) comprises original executed counterparts, original governmental certificates, in each case, required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any Borrowing thereunder (all such non-excluded communications being referred to herein collectively as "Communications"), by transmitting the Communications in an electronic/soft medium in a format reasonably acceptable to the Agent to an electronic mail address specified by the Agent to the Company. In addition, the Company agrees to continue to provide the Communications to the Agent in the manner specified in the Loan Documents but only to the extent requested by the Agent. The Company further agrees that the Agent may make the Communications available to the Lenders by posting the Communications on IntraLinks or a substantially similar electronic transmission system (the "Platform"); provided that, unless otherwise indicated by the Company, all such information so made available to the Lender Parties shall be treated by the Agent as confidential information.

        (c)   THE PLATFORM IS PROVIDED "AS IS" AND "AS AVAILABLE". THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL THE AGENT OR ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES (COLLECTIVELY, "AGENT PARTIES") HAVE ANY LIABILITY TO THE COMPANY, ANY LENDER OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF THE COMPANY'S OR THE AGENT'S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF THE AGENT OR THE COLLATERAL AGENT PARTY IS FOUND IN A FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED PRIMARILY FROM SUCH AGENT PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

        (d)   The Agent agrees that the receipt of the Communications by the Agent at its e-mail address set forth above shall constitute effective delivery of the Communications to the Agent for purposes of the Loan Documents. Each Lender agrees that notice to it (as provided in the next sentence) specifying that the Communications have been posted to the Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender agrees to notify the Agent in writing (including by electronic communication) from time to time of such Lender's e-mail address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing

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notice may be sent to such e-mail address. Nothing herein shall prejudice the right of the Agent or any Lender to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.

        Section 9.3    Jurisdiction; Governing Law; Etc.

        (a)   Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the fullest extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction.

        (b)   EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

        (c)   THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

        (d)   EACH OF THE COMPANY, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE LOANS OR THE ACTIONS OF THE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

        Section 9.4    Survival; Parties Bound.    All representations, warranties, covenants and agreements made by or on behalf of the Company in connection herewith shall survive the execution and delivery of the Loan Documents, shall not be affected by any investigation made by any Person, and shall bind the Company and its successors, trustees, receivers and assigns and inure to the benefit of the successors and assigns of the Agent and the Lenders, provided that the undertaking of the Lenders hereunder to make Loans to the Company and to issue Letters of Credit for the account of the Company shall not inure to the benefit of any successor or assign of the Company. The term of this Agreement shall be until the final maturity of each Note and the payment of all amounts due under the Loan Documents.

        Section 9.5    Counterparts.    This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed signature page of this Agreement by facsimile transmission or electronic transmission

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(i.e., a "pdf" or "tif") shall be effective as delivery of an original executed counterpart of this Agreement.

        Section 9.6    Survival.    The obligations of the Company under Sections 2.5(e), 2.10(b), 2.10(d), 2.15(d), 9.8, 9.9, 9.16 and 9.17 hereof shall survive the repayment of the Loans and the termination of the Commitments and the Letters of Credit.

        Section 9.7    Captions.    The headings and captions appearing in the Loan Documents have been included solely for convenience and shall not be considered in construing the Loan Documents.

        Section 9.8    Expenses, Etc.    Whether or not any Loan is ever made or any Letter of Credit ever issued, the Company shall pay or reimburse on demand each of the Lenders and the Agent for paying: (a) the reasonable fees and expenses of Locke Liddell & Sapp LLP, counsel to the Agent or any other legal counsel engaged by the Agent, in connection with (i) the preparation, execution and delivery of this Agreement (including the exhibits and schedules hereto) and the Loan Documents and the making of the Loans and the issuance of Letters of Credit hereunder and (ii) any modification, supplement or waiver of any of the terms of this Agreement, any of the Letters of Credit or any other Loan Document made as a result of any request by the Company; (b) all reasonable costs and expenses (including reasonable attorneys' fees) of the Lenders and the Agent in connection with the enforcement of this Agreement, the Letters of Credit or any other Loan Document; (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority after the effective date hereof in respect of this Agreement, any Letter of Credit or any other Loan Document or any other document referred to herein or therein; (d) all costs, expenses, taxes, assessments and other charges incurred after the effective date hereof in connection with any filing, registration, recording or perfection of any security interest contemplated by Section 5.10 of this Agreement; and (e) expenses of mutually agreed due diligence and syndication.

        Section 9.9    Indemnification.    The Company shall indemnify the Agent, the Lenders, each Issuer and each Affiliate thereof and their respective directors, officers, employees, counsel and agents from, and hold each of them harmless against, any and all losses, liabilities (including Environmental Liabilities), claims (including Environmental Claims) or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any (a) actual or proposed use by the Company of the proceeds of any extension of credit (whether a Loan or a Letter of Credit) by any Lender or any Issuer hereunder, (b) breach by the Company of this Agreement or any other Loan Document, (c) violation by the Company or any of its Subsidiaries of any law, rule, regulation or order including any Requirements of Environmental Law, (d) Liens or security interests granted on any Property pursuant to or under the Loan Documents, to the extent resulting from any Hazardous Substance, petroleum, petroleum product or petroleum waste located in, on or under any such property, (e) ownership by the Lenders or the Agent of any Property following foreclosure under the Loan Documents, to the extent such losses, liabilities, claims or damages arise out of or result from any Hazardous Substance, petroleum, petroleum product or petroleum waste located in, on or under such Property, including losses, liabilities, claims or damages which are imposed upon Persons under laws relating to or regulating Hazardous Substances, petroleum, petroleum products or petroleum wastes solely by virtue of ownership, (f) any Lender or the Agent being deemed an operator of any such Property by a court or other regulatory or administrative agency or tribunal or other third party, to the extent such losses, liabilities, claims or damages arise out of or result from any Hazardous Substance, petroleum, petroleum product or petroleum waste located in on or under such Property, (g) the making of the extensions of credit hereunder and the consummation of any of the transactions contemplated in the Loan Documents or (h) investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to any of the foregoing, and the Company shall reimburse the Agent and each Lender, and each Affiliate thereof and their respective directors, officers, employees, counsel and agents, upon demand for any expenses (including legal fees) incurred in connection with any such investigation or proceeding, AND WHETHER ANY SUCH LOSS,

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LIABILITY, CLAIM OR DAMAGE RESULTS FROM THE NEGLIGENCE OF ANY SUCH INDEMNIFIED PERSON; but excluding any such losses, liabilities, claims, damages or expenses incurred by a Person or any Affiliate thereof or their respective directors, officers, employees, counsel or agents by reason of the gross negligence or willful misconduct of such Person, affiliate, director, officer, employee or agent. Promptly after receipt by an indemnified person of notice of any claim or the commencement of any action, such indemnified person shall, if any claim in respect thereof is to be made against the Company under this Section 9.10, notify the Company in writing of the claim or the commencement of that action. The Company shall not be liable for any settlement of any such claim or action involving the payment of monetary damages effected without its written consent not to be unreasonably withheld. If any such claim or action shall be brought against an indemnified person and it shall notify the Company thereof, the Company shall be entitled to participate in the joint defense thereof.

        Section 9.10    Amendments, Etc.    No amendment or waiver of any provision of this Agreement, the Notes or any other Loan Document (except for the Credit Facility Hedging Agreements), nor any consent to any departure by the Company therefrom, shall in any event be effective unless the same shall be agreed or consented to by the Required Lenders and the Company, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver or consent shall, unless in writing and signed by each Lender, do any of the following: (a) increase any Commitment of any of the Lenders or subject the Agent or any of the Lenders to any additional obligations, other than as increased pursuant to the terms of Section 2.16; (b) reduce the principal of, or interest on, any Loan, any Letter of Credit Exposure Amount or any fee hereunder; (c) waive or postpone any scheduled date fixed for any payment of principal of, or interest on, any Loan, any Letter of Credit Exposure Amount or any fee or other sum to be paid hereunder; (d) change the percentage of any of the Commitments or of the aggregate unpaid principal amount of any of the Loans, any Letter of Credit Exposure Amount, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Agreement; (e) change any provision contained in Sections 2.4, 2.7, 9.8 or 9.9 hereof or this Section 9.10 or Sections 9.15 or 9.18 hereof; (f) release all or any substantial part of the security for the obligations of the Company under this Agreement, any Application or any Note; (g) release any Guarantor from any Guaranty (except for Guarantors sold by the Company or any of its Subsidiaries pursuant to the terms of Section 6.4(y) hereof); (h) change the definition of "Required Lenders" contained herein (i) modify the requirement of unanimous written approval by the Lenders of any unilateral reduction by the Lenders of the Aggregate Commitment as provided for in Section 2.2; or (j) waive or postpone any prepayment required by Section 2.3 hereof. Anything in this Section 9.10 to the contrary, no amendment, waiver or consent shall be made with respect to Section 8 without the consent of the Agent, and anything in this Section 9.10 to the contrary, no amendment, waiver or consent shall be made with respect to any provisions regarding the rights and obligations of an Issuer hereunder without the consent of the applicable Issuer(s).

        Section 9.11    Successors and Assigns.

        (a)   This Agreement shall be binding upon and inure to the benefit of the Company, the Agent, the Issuers and the Lenders and their respective successors and assigns. The Company may not assign or transfer any of its rights or obligations hereunder without the prior written consent of all of the Lenders.

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        (b)   Each Lender may sell participations to any Person in all or part of any Loan, or all or part of its Notes, the Letter of Credit Exposure Amount or Commitments, to another bank or other entity, in which event, without limiting the foregoing, the provisions of Sections 2.12, 9.09, 9.15 and 9.16 shall inure to the benefit of each purchaser of a participation and the pro rata treatment of payments, as described in Section 2.9, shall be determined as if such Lender had not sold such participation. In the event any Lender shall sell any participation, (i) the Company, the Agent and the other Lenders shall continue to deal solely and directly with such selling Lender in connection with such selling Lender's rights and obligations under the Loan Documents (including the Note held by such selling Lender), (ii) such Lender shall retain the sole right and responsibility to enforce the obligations of the Company relating to the Loans and Letter of Credit Exposure Amount, including the right to approve any amendment, modification or waiver of any provision of this Agreement other than (and then only if expressly permitted by the applicable participation agreement) amendments, modifications or waivers with respect to (A) any fees payable hereunder to the Lenders and (B) the amount of principal or the rate of interest payable on, or the dates fixed for the scheduled repayment of principal of, the Loans and other sums to be paid to the Lenders hereunder, and (iii) the Company agrees, to the fullest extent it may effectively do so under applicable law, that any participant of a Lender may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such participant were a direct holder of Loans if such Lender has previously given notice of such participation to the Company and such participant agrees to be bound by Section 2.12 as if it were a Lender.

        (c)   Each Lender may assign to one or more Lenders or Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the same portion of the related Loan at the time owing to it and its Letter of Credit Exposure Amount) (a "Ratable Assignment"); provided, however, that, (i) the aggregate amount of the Commitment, Loan and Letter of Credit Exposure Amount (without duplication) of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance (as defined below) with respect to such assignment is delivered to the Agent) shall in no event be less than $5,000,000 (unless all of the assigning Lender's Commitment, Loan and Letter of Credit Exposure Amount is being assigned); and (ii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in its records, an Assignment and Acceptance in the form of Exhibit F attached hereto (each an "Assignment and Acceptance") with blanks appropriately completed, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,500 (for which the Company shall have no liability, and provided that only one such fee shall be required in the case of simultaneous assignments to related entities). Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, unless a shorter period of time may be agreed to by the Agent in its sole and absolute discretion, (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) the Lender thereunder shall, to the extent provided in such assignment, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

        (d)   By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such Lender assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or

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document furnished pursuant thereto; (ii) such assignor Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any of its Subsidiaries or the performance or observance by the Company of any of its obligations hereunder; (iii) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with copies of the financial statements of the Company previously delivered in accordance herewith and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assignor Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all obligations that by the terms of the Loan Documents are required to be performed by it as a Lender.

        (e)   The Agent shall maintain at its office a copy of each Assignment and Acceptance delivered to it and a record of the names and addresses of the Lenders and the Commitments of, and principal amount of the Loans owing to, and the Letter of Credit Exposure Amount of, each Lender from time to time (the "Register"). The entries in the register shall be conclusive, in the absence of manifest error, and the Company, the Agent and the Lenders may treat each person the name of which is recorded therein as a Lender hereunder for all purposes of the Loan Documents. Such records shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice.

        (f)    Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and the assignee thereunder together with the Note, if any, subject to such assignment, the written consent to such assignment and the fee payable in respect thereto, the Agent shall, if such Assignment and Acceptance has been completed with blanks appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company and the Lenders. Contemporaneously with the receipt by the Company of such Assignment and Acceptance, the Company, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note payable to the order of such assignee in an amount equal to the Commitment, Loan and Letter of Credit Exposure Amount (without duplication) assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment, Loan and/or Letter of Credit Exposure hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment, Loan and/or Letter of Credit Exposure retained by it hereunder. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the surrendered Note. Thereafter, such surrendered Note shall be marked canceled and returned to the Company.

        (g)   Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.11, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Company furnished to such Lender by or on behalf of the Company.

        (h)   Each Lender agrees that, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.11, the Company will not be responsible for the accuracy and completeness of any written materials furnished by such Lender to any actual or prospective assignee or participant, other than copies of (i) documents furnished to such Lender pursuant to clause (a), (b), (c) or (d) of Section 5.2 hereof, and (ii) any other documents which are prepared by the Company for use in such connection and which contain a statement to such effect.

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        (i)    Notwithstanding anything herein to the contrary, each Lender may pledge and assign all or any portion of its rights and interests under the Loan Documents to any Federal Reserve Bank.

        Section 9.12    Release of Collateral.    Upon the sale, lease, transfer or other disposition of any item of Collateral or Additional Collateral of any Loan Party (including, without limitation, as a result of the sale, in accordance with the terms of the Loan Documents, of the Loan Party that owns such Collateral or Additional Collateral) in accordance with the terms of the Loan Documents, the Collateral Agent will, at the Borrower's expense, execute and deliver to such Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral or Additional Collateral from the assignment and security interest granted under the Security Agreements A or B, as applicable in accordance with the terms of the Loan Documents

        Section 9.13    Entire Agreement.    This Agreement embodies the entire agreement and understanding among the Company, the Agent and the Lenders relating to the subject matter hereof and supersedes all prior proposals, agreements and understandings relating to the subject matter hereof. The Company certifies that it is relying on no representation, warranty, covenant or agreement except for those set forth in this Agreement and the other Loan Documents of even date herewith.

        Section 9.14    Severability.    If any provision of any Loan Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby.

        Section 9.15    Disclosures.    Every reference in the Loan Documents to disclosures of the Company to the Agent and the Lenders in writing, to the extent that such references refer to disclosures at or prior to the execution of this Agreement, shall be deemed strictly to refer only to written disclosures delivered to the Agent and the Lenders in an orderly manner concurrently with the execution hereof.

        Section 9.16    Capital Adequacy.

        (a)   If after the date of this Agreement, any Issuer or Lender shall have determined that the adoption or effectiveness (regardless of whether previously announced) of any applicable Legal Requirement or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority or comparable agency charged with the interpretation or administration thereof, or compliance by any Issuer or Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, has or would have the effect of increasing the cost of, or reducing the rate of return on the capital of such Issuer or Lender (or any holding company of which such Issuer or Lender is a part) as a consequence of its obligations hereunder or under any Letter of Credit or its Note to a level below that which such Issuer, Lender or holding company could have achieved but for such adoption, change or compliance by an amount deemed by such Issuer or Lender to be material, then from time to time, upon written demand to the Company by such Issuer or Lender (with a copy to the Agent), the Company shall pay to such Issuer or Lender, but only with respect to periods arising after such demand by such Issuer or Lender and applicable periods prior to such demand by such Issuer or Lender if such adoption, change or compliance is retroactive in application, such additional amount or amounts as will compensate such Issuer, Lender or holding company for such reduction.

        (b)   The certificate of any Lender setting forth such amount or amounts as shall be necessary to compensate such Lender or its holding company as specified in Subsection 9.15(a) above (and setting forth the calculation thereof in reasonable detail) shall be delivered as soon as practicable to the Company and shall be conclusive and binding, absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within five days after such Lender delivers such certificate. In preparing such certificate, such Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method.

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        Section 9.17    Withholding Tax.

        (a)   As used in this Section 9.17, the following terms shall have the following meanings:

            i.  "Indemnifiable Tax" means any Tax, but excluding, in any case, any Tax that (a) would not be imposed in respect of a payment to a Lender under this Agreement, under the Notes held by such Lender or under any of the other Loan Documents except for a present or former connection between the jurisdiction of the Governmental Authority imposing such Tax and such holder (or a shareholder or other Person with an interest in such holder), including a connection arising from such holder's (or shareholder of such holder or such other Person) being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such holder having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement, the Notes or any other Loan Documents, or (b) is imposed under United States federal income tax law.

           ii.  "Tax" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest thereon and penalties and additions thereto) that is imposed by any Governmental Authority in respect of a payment to a Lender under this Agreement or under any of the other Loan Documents.

        (b)   If the Company is required by any applicable Legal Requirement to make any deduction or withholding for or on account of any Tax from any payment to be made by it under this Agreement in respect of the Loans or under any other Loan Documents, then the Company shall (i) promptly notify the applicable Lender hereunder that is entitled to such payment of such requirement to so deduct or withhold such Tax, (ii) pay to the relevant authorities the full amount required to be so deducted or withheld, (iii) promptly forward to such Lender an official receipt (or certified copies thereof), or other documentation reasonably acceptable to such Lender, evidencing such payment to such Governmental Authorities and (iv) if such Tax is an Indemnifiable Tax, pay, to the extent permitted by law, to such holder, in addition to whatever net amount of such payment is paid to such Lender, such additional amount as is necessary to ensure that the total amount actually received by such Lender (free and clear of Indemnifiable Tax) will equal the full amount of the payment such Lender would have received had no such deduction or withholding been required. If the Company pays any additional amount to a Lender pursuant to the preceding sentence and such Lender shall receive a refund of an Indemnifiable Tax with respect to which, in the good faith opinion of such Lender, such payment was made, such Lender shall pay to the Company the amount of such refund promptly upon receipt thereof.

        (c)   In the event that any Governmental Authority notifies the Company that it has improperly failed to withhold or deduct any Tax from a payment received by any Lender under this Agreement, the Company shall timely and fully pay such Tax to such Governmental Authority and such Lender shall, upon receipt of written notice of such payment, immediately pay to the Company, an amount necessary in order that the amount of such payment to the Company after payment of all Taxes with respect to such payment, shall equal the amount that the Company paid to such Governmental Authority pursuant to this clause (c).

        (d)   Each Lender shall, upon request by the Company, take requested measures to mitigate the amount of Indemnifiable Tax required to be deducted or withheld from any payment made by the Company under this Agreement or under any other Loan Documents if such measures can, in the sole and absolute opinion of such Lender, be taken without such Lender suffering any economic, legal, regulatory or other disadvantage (provided, however, that no such Lender shall be required to designate a funding office that is not located in the United States of America).

61

        Section 9.18    Waiver of Claims.    The Company hereby waives and releases the Agent and all Lenders from any and all claims or causes of action which the Company may own, hold or claim in respect of any of them as of the date hereof.

        Section 9.19    Right of Setoff.    Upon the occurrence and during the continuance of any Event of Default, the Lenders each are hereby authorized at any time and from time to time, without notice to the Company or any of the Guarantors (any such notice being expressly waived by the Company and by the Guarantors by their execution of a Guaranty or a Joinder Agreement), to setoff and apply any and all deposits (general or special, time or demand, provisional or final, whether or not such setoff results in any loss of interest or other penalty, and including without limitation all certificates of deposit) at any time held, and any other funds or property at any time held, and other Indebtedness at any time owing by such Lender to or for the credit or the account of the Company or any such Guarantor against any and all of the Indebtedness arising in connection with this Agreement irrespective of whether or not such Lender will have made any demand under this Agreement, the Notes or any other Loan Document. Each of the Company and the Guarantors (by their execution of a Guaranty or a Joinder Agreement) also hereby grants to each of the Lenders a security interest in and hereby transfers, assigns, sets over, and conveys to each of the Lenders, as security for payment of all Loans and Letter of Credit Exposure Amount, all such deposits, funds or property of the Company or any such Guarantor or Indebtedness of any Lender to the Company or any such Guarantor. Should the right of any Lender to realize funds in any manner set forth hereinabove be challenged and any application of such funds be reversed, whether by court order or otherwise, the Lenders shall make restitution or refund to the Company pro rata in accordance with their respective Commitment Percentages. Each Lender agrees to promptly notify the Company and the Agent after any such setoff and application, provided that the failure to give such notice will not affect the validity of such setoff and application. The rights of the Agent and the Lenders under this Section are in addition to other rights and remedies (including without limitation other rights of setoff) which the Agent or the Lenders may have. This Section is subject to the terms and provisions of Section 2.12 hereof.

        Section 9.20    USA PATRIOT Act.    Each Lender that is subject to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act") hereby notifies the Company that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Company, which information includes the name and address of the Company and other information that will allow such Lender to identify the Company in accordance with the Act, and such notice is sufficient as to each such Lender. The Company shall, and shall cause each of its Subsidiaries to, provide to the extent commercially reasonable, such information and take such actions as are reasonably requested by the Agent or any Lender in order to assist the Agent and the Lenders in maintaining compliance with the Act.

        Section 9.21    Non-Consenting Lenders; Other Lenders.    If at any time, any Lender becomes a Non-Consenting Lender or makes a demand for increased costs or a withholding tax gross-up under Section 2.10 or Section 9.17, then the Company may, at its sole cost and expense, on five Business Days' prior written notice to the Agent and such Lender, replace such Lender by causing such Lender to (and such Lender shall be obligated to) assign pursuant to Section 9.11 all of its rights and obligations under this Agreement to one or more Eligible Assignees; provided that neither the Agent nor any Lender shall have any obligation to the Company to find a replacement Lender or other such Person; provided, further, that such Non-Consenting Lender or other Lender shall be entitled to receive the full outstanding principal amount of Loans so assigned, together with accrued interest and fees payable in respect of such Loans as of the date of such assignment and any other costs payable to such Lender under this Agreement.

        Section 9.22    Confidentiality.    Neither the Agent nor any Lender shall disclose any Confidential Information to any Person without the prior written consent of the Company, other than (a) to such Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and to

62

actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, provided that to the extent practicable and permitted by applicable law, the party requested to disclose any information will provide prompt written notice of such request to the Company, will allow the Company a reasonable opportunity to seek appropriate protective measures prior to disclosure (at the Company's sole cost and expense), (c) as requested or required by any state, federal or foreign authority or examiner (including the National Association of Insurance Commissioners or any similar organization or quasi-regulatory authority) regulating such Lender, (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Lender, (e) to the extent reasonably necessary after consultation with counsel, in connection with any litigation or proceeding to which the Agent or such Lender or any of its Affiliates may be a party, provided that, to the extent reasonably practicable, the party requested to disclose any such information will provide prompt written notice of such request to the Company and will allow the Company a reasonable opportunity to seek appropriate protective measures prior to such disclosure) or (f) in connection with the exercise of any right or remedy under this Agreement or any other Loan Document.

        Section 9.23    Termination of Existing Revolving Credit Facility.    Reference is hereby made to that certain Third Amended and Restated Credit Agreement dated effective October 1, 2004 by and between the Borrower, the Agent and the financial institutions that are parties thereto as a "Lender" (collectively the "Existing Facility Lenders"), as previously amended pursuant to the terms of that certain First Amendment of Third Amended and Restated Credit Agreement dated effective November 7, 2005, executed by and among the Borrower, the Agent and the Existing Facility Lenders, and that certain Second Amendment of Third Amended and Restated Credit Agreement dated effective December 15, 2006, executed by and among the Borrower, the Agent and the Existing Facility Lenders (said Third Amended and Restated Credit Agreement, as now or hereafter amended, modified, restated, and supplemented from time to time, shall hereinafter be collectively referred to as the "Existing Facility Credit Agreement"). By their execution and delivery of this Agreement, the Borrower, the Agent and the Existing Facility Lenders agree that (a) as of the Effective Date, the Aggregate Commitment (as defined in the Existing Facility Credit Agreement) has been permanently terminated, (b) the Agent and the Existing Facility Lenders have no further commitments or other obligations under the terms of the Existing Facility Credit Agreement, and (c) except for indemnification obligations that survive the termination of the Existing Facility Credit Agreement, the Borrower has no further obligations under the terms of the Existing Facility Credit Agreement.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]

63

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above.

WHOLE FOODS MARKET, INC., as the Company
By:
	Name: Glenda Chamberlain Title: Exec. Vice President

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

JPMORGAN CHASE BANK, N.A., as the Agent
By:
	Name: Joe E. Holt Title: Chairman—Austin Region
JPMORGAN CHASE BANK, N.A., as Lender
By:
	Name: Joe E. Holt Title: Chairman—Austin Region

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

ROYAL BANK OF CANADA, as Lender
By:
	Name: Title:

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

Wells Fargo Bank, N.A., as Lender
By:
	Name: Susan L. Coulter Title: Vice President

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

LaSalle Bank Midwest National Association, as Lender
By:
	Name: Matthew R. Klein Title: Assistant Vice President

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

Wachovia Bank, N.A., as Lender
By:
	Name: Beth Rue Title: Vice President

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

Fortis Capital, as Lender
By:
	Name: Gill Dickson Title: Director
By:
	Name: Timothy Streb Title: Managing Director

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

US Bank, N.A., as Lender
By:
	Name: Patrick McGraw Title: Vice President

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

Bank of America, N.A., as Lender
By:
	Name: Thomas J. Kane Title: Senior Vice President

Whole Foods Market, Inc.—Revolving Credit Agreement Signature Page

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Exhibit 10.12

Table of Contents
ARTICLE I—Definitions
ARTICLE III——Conditions
ARTICLE IV—Representations and Warranties

EX-12.1

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Exhibit 12.1

Whole Foods Market, Inc.
Computation of Ratio of Earnings to Fixed Charges
(In thousands, except ratio data)

	Sept 30, 2007	Sept 24, 2006	Sept 25, 2005	Sept 26, 2004	Sept 28, 2003
Earnings:
Income before income taxes	304,567	339,713	237,133	215,853	164,858
Rent expense	200,999	153,059	124,772	99,929	83,491
	x 1/3	x 1/3	x 1/3	x 1/3	x 1/3
One-third of rent expense	67,000	51,020	41,591	33,310	27,830
Interest expense	4,208	32	2,223	7,249	8,114
Fixed charges to add to earnings	71,208	51,052	43,814	40,559	35,944
Total available earnings	375,775	390,765	280,947	256,412	200,802
Fixed Charges:
Interest expense	4,208	32	2,223	7,249	8,114
Capitalized interest	882	928	2,976	2,132	1,385
Total interest	5,090	960	5,199	9,381	9,499
One-third of rent expense	67,000	51,020	41,591	33,310	27,830
Total fixed charges	72,090	51,980	46,790	42,691	37,329
Ratio of earnings to fixed charges	5.21x	7.52x	6.00x	6.01x	5.38x

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Exhibit 12.1
Whole Foods Market, Inc. Computation of Ratio of Earnings to Fixed Charges (In thousands, except ratio data)

EX-21.1

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Exhibit 21.1

SUBSIDIARIES OF WHOLE FOODS MARKET, INC.

Name	State or Jurisdiction of Incorporation or Organization
Allegro Coffee Company	Colorado
Fresh & Wild Holding Limited	England and Wales
Fresh & Wild Limited	England and Wales
Freshlands Holdings Limited	England and Wales
Freshlands Limited	England and Wales
Mrs. Gooch's Natural Food Markets, Inc.	California
Nature's Heartland, Inc.	Massachusetts
The Sourdough, A European Bakery, Inc.	Texas
WFM Beverage Corp.	Texas
WFM Beverage Holding Company	Texas
WFM Cobb Property Investments, LLC	Delaware
WFM IP Investments, Inc.	Delaware
WFM IP Management, Inc.	Delaware
WFM Private Label Management, Inc.	Delaware
WFM Private Label, L.P.	Delaware
WFM Procurement Investments, Inc.	Delaware
WFM Purchasing Management, Inc.	Delaware
WFM Purchasing, L.P.	Delaware
WFM Select Fish, Inc.	Delaware
WFM Southern Nevada, Inc.	Delaware
Whole Food Company, Inc.	Louisiana
Whole Foods Market Brand 365, LLC	California
Whole Foods Market California, Inc.	California
Whole Foods Market Canada, Inc.	Canada
Whole Foods Market Distribution, Inc.	Delaware
Whole Foods Market Finance, Inc.	Delaware
Whole Foods Market Group, Inc.	Delaware
Whole Foods Market IP, L.P.	Delaware
Whole Foods Market Pacific Northwest, Inc.	Delaware
Whole Foods Market Procurement, Inc.	Delaware
Whole Foods Market Rocky Mountain/Southwest I, Inc.	Delaware
Whole Foods Market Rocky Mountain/Southwest, L.P.	Texas
Whole Foods Market Services, Inc.	Delaware
Whole Foods Market Southwest Investments, Inc.	Delaware
Wild Oats Markets, Inc.	Delaware
Yellow Frames Limited	England and Wales

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Exhibit 21.1
SUBSIDIARIES OF WHOLE FOODS MARKET, INC.

EX-23.1

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-11271, 333-11273, 333-35809, 33-79072, 33-48392, 333-73876, 333-91086, 333-101565 and 333-116631) and(Form S-3 Nos. 333-51419, 333-00968, 333-43555, 333-27745, 33-68362 and 333-113476) of Whole Foods Market, Inc. of our reports dated November 27, 2007, with respect to the consolidated financial statements of Whole Foods Market, Inc. and the effectiveness of internal control over financial reporting of Whole Foods Market, Inc., included in this Annual Report (Form 10-K) for the fiscal year ended September 30, 2007.

/s/ Ernst & Young LLP

Austin, Texas
November 27, 2007

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Exhibit 23.1

EX-31.1

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Exhibit 31.1

Certification by Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)

I, John P. Mackey, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Whole Foods Market, Inc.

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosures controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 29, 2007	By:	/s/ JOHN P. MACKEY
			John P. Mackey Chief Executive Officer

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Exhibit 31.1

Certification by Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)

EX-31.2

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Exhibit 31.2

Certification by Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)

I, Glenda Chamberlain, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Whole Foods Market, Inc.

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosures controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 29, 2007	By:	/s/ GLENDA CHAMBERLAIN
			Glenda Chamberlain Chief Financial Officer

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Exhibit 31.2

Certification by Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)

EX-32.1

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Exhibit 32.1

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350

In connection with the Annual Report of Whole Foods Market, Inc. (the "Company") on Form 10-K for the period ending September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John P. Mackey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, that:

(1)

The Report fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ JOHN P. MACKEY John P. Mackey
Chief Executive Officer
November 29, 2007

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Exhibit 32.1

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350

EX-32.2

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Exhibit 32.2

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350

In connection with the Annual Report of Whole Foods Market, Inc. (the "Company") on Form 10-K for the period ending September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Glenda Chamberlain, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §v1350, that:

(1)

The Report fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ GLENDA CHAMBERLAIN Glenda Chamberlain
Chief Financial Officer
November 29, 2007

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Exhibit 32.2

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350