WILD OATS MARKETS INC, S-1, 1996-08-30

WILD OATS MARKETS INC
S-1, 1996-08-30

Previous: HOUGH GROUP OF FUNDS, POS AM, 1996-08-30

Next: MUNICIPAL INVT TR FD MULTISTATE SER 65 DEFINED ASSET FUNDS, 497, 1996-08-30

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996

REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Form S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
WILD OATS MARKETS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 5499 84-1100630
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or Number)
organization)
</TABLE>

1645 BROADWAY
BOULDER, COLORADO 80302
(303) 440-5220
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
MICHAEL C. GILLILAND
CHIEF EXECUTIVE OFFICER
WILD OATS MARKETS, INC.
1645 BROADWAY
BOULDER, COLORADO 80302
(303) 440-5220
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------
Copies to:

<TABLE>
<S> <C>
JAMES C. T. LINFIELD, ESQ. THERESE A. MROZEK, ESQ.
CARRIE L. SCHIFF, ESQ. NORA L. GIBSON, ESQ.
COOLEY GODWARD CASTRO BROBECK, PHLEGER & HARRISON LLP
HUDDLESON & TATUM, LLP TWO EMBARCADERO PLACE
2595 CANYON BOULEVARD, SUITE 250 2200 GENG ROAD
BOULDER, COLORADO 80302-6737 PALO ALTO, CALIFORNIA 94303
(303) 546-4000 (415) 424-0160
</TABLE>

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

Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /

------------------------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
==============================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF REGISTRATION
TO BE REGISTERED OFFERING PRICE(1)(2) FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value.............. $46,000,000 $15,862
==============================================================================================
</TABLE>

(1) Includes shares of Common Stock issuable upon exercise of the Underwriters'
over-allotment option.

(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933, as amended.

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

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

================================================================================
<PAGE> 2

***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************

SUBJECT TO COMPLETION, DATED AUGUST 30, 1996

WILD OATS COMMUNITY MARKET LOGO

COMMON STOCK

Of the shares of Common Stock offered hereby, shares
are being sold by the Company and shares are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders.

Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Common Stock on
the Nasdaq National Market, upon completion of this offering, under the symbol
"OATS."

SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THE PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==========================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discounts(1) Company(2) Stockholders(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
Total(3).............. $ $ $ $
==========================================================================================
</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$650,000. The Selling Stockholders are not responsible for offering
expenses.
(3) The Company and certain of the Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to additional shares
of Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $ ,
the Underwriting Discounts will total $ , Proceeds to Company will
total $ , and Proceeds to Selling Stockholders will total
$ . See "Principal and Selling Stockholders" and "Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, as and if delivered to and accepted by the Underwriters and subject to
their right to reject any orders in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about ,
1996.

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

MONTGOMERY SECURITIES SMITH BARNEY INC.
, 1996
<PAGE> 3

Five photographs, including one picture of two Wild Oats grocery bags
overflowing with groceries (no brand names showing) and four pictures of
exterior store fronts.
<PAGE> 4

Ten photographs, including seven pictures of store interiors and three
pictures of private label products. One picture of private label products
contains fragments of quotations from the product packaging, including "Health
is the primary duty of life. Oscar Wilde. Hurt not the earth, neither the sea
nor the trees. Revelations. The frog does not drink up the pond in which it
lives. Buddhist proverb. Life is not merely to be alive, but to be well.
Martial."
<PAGE> 5

Nine photographs, including six pictures of store interiors, two pictures
of private label products and one picture of informational signage. The picture
of informational signage includes the following text: "great
Organics . . . organics care for earth's soil, air and water, preserving these
resources for our children's children. organics provide greater nutrition and
flavor than conventional produce. organics are safer for human consumption,
especially for growing children. organics support smaller, non-industrial farms,
especially family farms in our area. look for our organic symbol" (also contains
picture of organic fruits and vegetables).

Wild Oats(R), Wild Oats Community Markets(R), Wild Cafe(TM), Wild Nuts(TM),
Wild Honey(TM), Wild Water(TM), Alfalfa's(TM) and Capers(TM) are trademarks
owned by the Company.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 6

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise specified, all information in
this Prospectus assumes: (i) a [ ] for [ ] stock split of the Common
Stock to be effected prior to the closing of this offering; (ii) the conversion
of each outstanding share of preferred stock into Common Stock upon the closing
of this offering; and (iii) no exercise of the Underwriters' over-allotment
option. Unless otherwise indicated, references herein to fiscal years of the
Company are to the Company's 52-or 53-week fiscal year, which ends on the
Saturday nearest to December 31 of each year, and references to fiscal years of
Alfalfa's, Inc. are to Alfalfa's 52- or 53-week fiscal year, which ends on the
Sunday nearest to June 30 of each year. Except as otherwise indicated in this
Prospectus or the financial statements included elsewhere in this Prospectus,
all references to "Wild Oats" and the "Company" refer to Wild Oats Markets, Inc.
and its predecessors or subsidiaries.

THE COMPANY

Wild Oats Markets, Inc. ("Wild Oats" or the "Company") is the second
largest natural foods supermarket chain in North America with the largest
natural foods store base in the western United States. The Company currently
operates 39 stores in eight states, including California, Colorado, Kansas,
Missouri, Nevada, New Mexico, Utah, Washington, and British Columbia, Canada.

Since acquiring its first natural foods store in 1987, Wild Oats has
pursued an aggressive growth strategy. The Company has grown from six natural
foods stores located primarily in Colorado at the end of 1991, to 21 stores in
six states at the end of 1995, representing a compound annual growth rate of
36.8%. During this period, the Company's sales increased from $25.2 million to
$98.5 million, representing a compound annual growth rate of 40.6%. In the first
half of 1996, the Company opened three stores and acquired three additional
stores and sales increased 59.1% to $68.1 million from $42.8 million in the
first half of 1995. Historically, the Company's growth resulted from the
acquisition of independent and small chain natural foods store operators, the
opening of new stores and positive comparable store sales growth.

In July 1996, Wild Oats completed the acquisition of Alfalfa's Inc.,
("Alfalfa's"), a leading natural foods supermarket chain operating 11 stores in
three states and Canada. For its fiscal year ended June 30, 1996, Alfalfa's had
sales of $85.6 million. Through the acquisition of Alfalfa's, the Company
combined two natural foods retailers with similar operating strategies and
complementary store bases, increased the Company's penetration of existing
markets, entered new geographic markets and created a stronger platform for
future growth. The Company believes the successful integration of Alfalfa's will
result in future operating efficiencies created by: (i) warehousing,
distribution and administrative economies of scale; (ii) improved merchandise
buying terms as a result of the Company's larger size; and (iii) the
implementation of coordinated merchandising and marketing strategies. On a pro
forma basis, after giving effect to the Company's 1996 acquisitions, including
the acquisition of Alfalfa's, the Company had sales of $182.4 million for 1995
and $117.9 million for the first half of 1996.

The Company's stores feature a broad selection of high quality natural and
gourmet foods and related products at "down to earth" competitive prices and
offer consumers a one-stop, full-service shopping alternative to both
conventional supermarkets and traditional health food stores. The Company's
flexible store strategy, which includes large supermarket format stores and
medium-sized urban format stores, allows it to open stores in a variety of
locations and to adapt the store layout to specific site characteristics. The
Company also customizes the product mix and design of each store to reflect
regional themes and local cultural traditions. The Company's stores range in
size from 5,000 to 35,000 square feet and feature between 10,000 and 25,000
stock keeping units ("SKUs"). The Company seeks to offer the highest quality
products throughout its merchandise categories and emphasizes unique products
not typically found in conventional supermarkets. Each store strives to create a
fun, friendly and educational environment that makes grocery shopping enjoyable
and encourages shoppers to spend more time in the store and to purchase new
products. Well-trained and knowledgeable store staff and informational signage
serve to educate the customer as to the benefits of natural foods and related
products. In addition, many of the stores offer cafe seating areas, espresso

3
<PAGE> 7

and fresh juice bars, and in-store massage therapists, all of which emphasize
the comfortable, relaxed nature of the Wild Oats shopping experience. Each store
also actively seeks to sponsor programs which support the local community.

The Company's growth strategy includes increasing sales and income through
new store expansion and increased sales at existing stores. The Company pursues
a strategy of clustering stores in each of its markets to increase overall
sales, take advantage of operating efficiencies and further penetrate markets.
The Company intends to continue to strengthen its position in its existing
markets in the western United States and to enter new regions. Wild Oats plans
to open two additional stores in the remainder of 1996 and anticipates opening
or acquiring seven stores in 1997. While the Company believes that most of its
growth will result from new store openings, it continues to evaluate possible
acquisition opportunities in both new and existing markets. The Company
periodically evaluates the location and positioning of its stores and may close,
consolidate or relocate stores from time-to-time. As part of this strategy, the
Company has identified two stores for closure.

According to The Natural Foods Merchandiser, a leading industry
publication, growth in the natural foods industry has accelerated from a 10%
increase in sales in 1991 to a 22% increase in sales in each of 1994 and 1995,
when the market reached $9.1 billion in sales. The Company believes that this
growth is being propelled by several factors, including healthier eating
patterns, increasing concern regarding food purity and safety, and greater
environmental awareness. The natural foods industry is highly fragmented;
however, there has been considerable consolidation in the industry as natural
foods supermarket chains have acquired smaller independent competitors. The
Company believes natural foods supermarkets, with their extensive product
offerings and broad customer appeal, will continue to lead the overall growth
and consolidation in the natural foods industry.

The Company was incorporated in Colorado in 1987 and reincorporated in
Delaware in 1993. In July 1996, in connection with the acquisition of Alfalfa's,
Inc., the Company effected a merger into WO Holdings, Inc., a Delaware
corporation, which subsequently changed its name to Wild Oats Markets, Inc. The
Company's executive offices are located at 1645 Broadway, Boulder, Colorado, and
its telephone number is (303) 440-5220.

4
<PAGE> 8

THE OFFERING

<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company........................ [ ] shares
Common Stock offered by the Selling Stockholders........... [ ] shares
Common Stock to be outstanding after the offering.......... [ ] shares (1)
Use of proceeds............................................ To repay outstanding bank
debt, finance new store
openings and possible
acquisitions and for working
capital and other general
corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol..................... OATS
</TABLE>

- ---------------
(1) Excludes [ ] shares of Common Stock issuable upon exercise of options
outstanding under the Company's stock option plans as of August 1, 1996 (of
which [ ] shares are vested as of such date), and the [ ]
shares of Common Stock reserved for issuance upon exercise of outstanding
warrants. As of August 1, 1996, the weighted average exercise prices of the
Company's stock options and warrants were $[ ] and $[ ] per
share, respectively. See "Capitalization," "Management--Stock Option Plans"
and Note 7 of Notes to Consolidated Financial Statements of Wild Oats
Markets, Inc.

5
<PAGE> 9

SUMMARY FINANCIAL AND OPERATING DATA OF WILD OATS MARKETS, INC.
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR --------------------
------------------------------------------------------- JULY 1, JUNE 29,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales....................... $25,222 $36,638 $47,266 $65,219 $98,517 $42,785 $ 68,102
Store contribution.......... 2,047 2,859 3,915 4,897 6,281 3,918 4,957
Income from operations...... 1,084 1,160 1,675 2,580 779 1,858 1,388
Net income(1)............... 580 616 804 1,327 376 1,068 458
Unaudited pro forma net
income per common
share(2)(3)...............
Unaudited pro forma weighted
average number of common
shares outstanding(3).....

SELECTED OPERATING DATA:
Number of stores at end of
period.................... 6 9 11 14 21 17 27
Average square feet per
store..................... 8,039 11,802 11,196 11,780 13,653 11,736 13,884
Average sales per square
foot(4)................... $ 500 $ 386 $ 383 $ 432 $ 442 $ 490 $ 421
Comparable store sales
increase(5)............... 8% 13% 5% 13% 7% 12% 0%
</TABLE>

SUMMARY FINANCIAL AND OPERATING DATA OF ALFALFA'S, INC.
(IN THOUSANDS, EXCEPT OPERATING DATA)

6
<PAGE> 10

SUMMARY PRO FORMA COMBINED FINANCIAL DATA OF WILD OATS MARKETS, INC.
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
1995 JUNE 29, 1996
------------- -------------
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Sales.......................................................................... $ 182,432 $ 117,928
Store contribution............................................................. 11,723 9,023
Income from operations......................................................... 937 2,983
Unaudited pro forma net income(6).............................................. 564 1,446
Unaudited pro forma net income per common share(6).............................
Pro forma weighted average number of
common shares outstanding(6)(7)..............................................
Number of stores at end of period.............................................. 35 23
</TABLE>

<TABLE>
<CAPTION>
JUNE 29, 1996
--------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(8) ADJUSTED(6)
------------ ------------ ------------
<S> <C> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital (deficit)..................................... $ 499 $ (255) $
Total assets.................................................. 47,807 95,678
Long-term debt, including capitalized lease obligations....... 17,342 17,472
Redeemable convertible preferred stock........................ 18,009 --
Stockholders' equity (deficit)................................ (4,809) 51,557
</TABLE>

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

(1) On July 3, 1993, Wild Oats changed its corporate status from an S
corporation to a C corporation. Net income for 1991, 1992 and 1993 are shown
pro forma (unaudited) to reflect income taxes for Wild Oats as if it had
been a C corporation for all periods presented. See Note 8 of Notes to the
Consolidated Financial Statements of Wild Oats Markets, Inc.

(2) A portion of the net proceeds from the offering will be used to repay
certain indebtedness. If, at the beginning of the year ended December 30,
1995 and the six-month period ended June 29, 1996, the Company had sold a
sufficient number of shares at $[ ] per share to repay the
indebtedness, and used the net proceeds therefor, supplemental pro forma net
income per common share would have been $[ ] and $[ ] for the
respective periods.

(3) See Note 1 of Notes to Consolidated Financial Statements of Wild Oats
Markets, Inc.

(4) Average sales per square foot is calculated by dividing annualized total
sales by the total square footage of stores open during the period. See
"Business--Properties."

(5) Sales of a store are deemed to be comparable commencing in the thirteenth
full month after the store was opened or acquired.

(6) Reflects the sale of the [ ] shares of Common Stock offered by the
Company hereby at an assumed initial public offering price per share of
$ and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."

(7) See Note [ ] of Notes to the Pro Forma Combined Condensed Statement of
Operations (Unaudited).

(8) Reflects the sale by the Company of [ ] shares of its Series E
Preferred Stock and the acquisition of Alfalfa's in July 1996, and the
conversion of all outstanding shares of preferred stock into Common Stock,
which will occur upon the completion of this offering.

7
<PAGE> 11

RECENT ACQUISITIONS AND NEW STORE OPENINGS

ALFALFA'S ACQUISITION

In July 1996, Wild Oats acquired Alfalfa's, a leading natural foods
supermarket chain headquartered in Boulder, Colorado. Prior to the acquisition,
Alfalfa's was a privately-owned company which operated 11 stores, including
eight Alfalfa's stores in Colorado, New Mexico and Washington and three Capers
stores in British Columbia, Canada. The Alfalfa's and Capers stores range in
size from 6,500 to 25,000 square feet and offer a broad selection of natural and
gourmet foods and related products. For its fiscal year ended June 30, 1996,
Alfalfa's had sales of $85.6 million. Subsequent to the acquisition, the Company
identified for closure the Alfalfa's Seattle, Washington store.

As a result of the acquisition, Wild Oats is the second largest natural
foods supermarket chain in North America and operates the largest natural foods
store base in the western United States. Through the acquisition of Alfalfa's,
the Company combined two natural foods retailers with similar operating
strategies and complementary store bases, increased the Company's penetration of
existing markets, entered new geographic markets and created a stronger platform
for future growth.

Alfalfa's stores and Wild Oats' stores overlap in four markets: Santa Fe,
New Mexico and Denver, Boulder and Fort Collins, Colorado. In 1995, Wild Oats
opened two stores in Denver and Alfalfa's opened one store in Santa Fe. The
opening of these additional stores resulted in a decline in sales, a temporary
decline in operating results at certain of the existing Wild Oats and Alfalfa's
stores and negatively affected results of operations at both companies in 1995
and the first half of 1996. However, overall sales increased significantly in
these markets and, over time, the affected stores have generally achieved
store-level contribution margins comparable to prior levels on the lower base of
sales. As a result, the Company believes these markets are large enough to
support these stores and that planned cannibalization resulting from the
implementation of the Company's store clustering strategy will contribute to the
Company's overall growth. See "Pro Forma Combined Condensed Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Certain key members of Alfalfa's management have joined Wild Oats.
Together, management has begun the integration of Alfalfa's operations into Wild
Oats, including: (i) the consolidation and relocation of the Company's corporate
headquarters; (ii) the incorporation of the best practices of both companies
across certain store-level departments, particularly in the areas of perishables
and natural living; (iii) the creation and implementation of a single marketing
and private label strategy; and (iv) the selection and implementation of
combined point-of-sale and pricing information systems. The Company intends to
continue to conduct this integration in stages and expects to complete it by the
end of 1997. The Company believes the continuing integration of Alfalfa's will
result in future operating efficiencies created by: (i) warehousing,
distribution and administrative economies of scale; (ii) improved merchandise
buying terms as a result of the Company's larger size; and (iii) the
implementation of coordinated merchandising and marketing strategies. The
Company anticipates that it will operate existing stores under their current
names and new stores primarily under the name Wild Oats. There can be no
assurance that the Company will not encounter unanticipated problems or
liabilities in connection with the integration of Alfalfa's or that the
integration will result in enhanced store operations or improved profitability.
See "Risk Factors--Integration of Alfalfa's."

OTHER 1996 ACQUISITIONS AND OPENINGS TO DATE

Salt Lake City Acquisition. In June 1996, the Company acquired the assets
of three natural foods stores ranging in size from 7,000 to 10,000 square feet
and operating as New Frontiers in Salt Lake City, Utah. The Company is currently
operating these stores and is in the process of remodeling them. The Company
anticipates renaming these stores Wild Oats when the remodeling is completed in
the fall of 1996.

New Store Openings. Through August 1996, the Company opened four stores:
(i) a 14,000 square foot store in West Hollywood, California in February; (ii) a
9,000 square foot store in San Francisco, California in

8
<PAGE> 12

April; (iii) a 23,500 square foot store in Mission Viejo, California in May; and
(iv) a 25,000 square foot store in St. Louis, Missouri in August.

1995 ACQUISITIONS AND OPENINGS

Northern California Acquisition. In April 1995, the Company acquired the
assets of two natural foods stores operating as Living Foods: (i) a 7,500 square
foot store in Berkeley; and (ii) an 8,500 square foot store in San Anselmo. The
Company remodeled these stores and renamed them Wild Oats at the end of 1995.

New Store Openings. In 1995, the Company opened five stores: (i) an 18,600
square foot store in Denver, Colorado in May; (ii) a 35,000 square foot store in
Greenwood Village, Colorado in August; (iii) an 8,200 square foot store in Santa
Monica, California in September; (iv) a 22,000 square foot store in Mission,
Kansas in October; and (v) a 22,000 square foot store in Albuquerque, New Mexico
in November.

9
<PAGE> 13

RISK FACTORS

An investment in the Common Stock being offered hereby involves a high
degree of risk. In addition to other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing any of the Common Stock offered hereby. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.

INTEGRATION OF ALFALFA'S

In July 1996, the Company significantly increased its store base through
the acquisition of Alfalfa's, a natural foods supermarket chain operating 11
stores in Colorado, New Mexico and Washington and British Columbia, Canada.
Alfalfa's achieved increases in operating income for the four consecutive years
prior to fiscal 1996 when it experienced an operating loss largely as a result
of pre-opening expenses associated with the opening of stores in Santa Fe, New
Mexico and Vancouver, British Columbia and Seattle, Washington. Subsequent to
the acquisition, the Company identified for closure the Alfalfa's Seattle,
Washington store. The Company is in the process of integrating Alfalfa's
production, warehousing and distribution, administration and other operational
functions into Wild Oats. The Company is also implementing changes to certain
aspects of both Wild Oats' and Alfalfa's store-level operations based on
selected practices from each company. The Company intends to convert the
currently different Wild Oats and Alfalfa's point-of-sale and pricing systems to
a single system and is in the process of transferring the Alfalfa's accounting
function to the Company's system. Integrating the operations of the two
companies could have a material adverse effect on the Company's operations. For
example, the process could: (i) interrupt the Company's business; (ii) divert
management's attention from the Company's existing stores and expansion plans;
(iii) place further pressure on the Company's executive officers; and (iv)
result in additional administrative expense. In addition, certain members of
Alfalfa's management team have joined Wild Oats. The successful integration of
Alfalfa's is dependent, in part, on the assimilation and retention of these
members of management. There can be no assurance that the Company will not
encounter unanticipated problems or liabilities as it combines the operations of
Wild Oats and Alfalfa's or that the integration of Alfalfa's will result in
enhanced store operations or improved profitability at the Company. The future
operating and financial performance of the Company will depend in part on its
ability to integrate and operate the Alfalfa's stores successfully and to manage
this larger store base. Failure to successfully complete this integration of
operations would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Recent Acquisitions and New
Store Openings," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Acquisition of Alfalfa's," "Business--Management
Information Systems" and "Pro Forma Combined Condensed Financial Statements."

UNCERTAIN ABILITY TO EXECUTE GROWTH STRATEGY

The Company's ability to implement its growth strategy depends to a
significant degree upon its ability to open or acquire stores in existing and
new markets and to integrate and operate those stores profitably. While the
Company plans to expand primarily through the opening of new stores, it will
continue to pursue acquisitions of natural foods retailers where attractive
opportunities exist. The Company's growth strategy is dependent upon a number of
factors, including its ability to: (i) access adequate capital resources; (ii)
expand into regions where it has no operating experience; (iii) identify markets
that meet its site selection criteria; (iv) locate suitable store sites and
negotiate acceptable lease terms; (v) locate acquisition targets and negotiate
acceptable acquisition terms; (vi) hire, train and integrate management and
store employees; and (vii) expand its distribution and other operating systems.
In addition, the Company pursues a strategy of clustering stores in each of its
markets to increase overall sales, take advantage of operating efficiencies and
further penetrate markets. In the past, when the Company has opened a store in a
market where it had an existing presence, the Company has experienced a decline
in the sales and operating results at certain of its existing stores in these
markets. The Company intends to continue to pursue its store clustering strategy
and expects these trends to continue. Further, acquisitions involve a number of
additional risks, such as short-term

10
<PAGE> 14

negative effects on the Company's reported operating results, diversion of
management's attention, unanticipated problems or legal liabilities, and the
integration of potentially dissimilar operations, some or all of which could
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company anticipates opening two stores during the
remainder of 1996 (for a total of five store openings and 14 store acquisitions
in 1996, including the acquisition of Alfalfa's), and opening or acquiring seven
stores in 1997. The Company currently has signed leases for two stores planned
to open in 1996 and for two stores planned to open in 1997. There can be no
assurance that the Company will achieve its planned expansion in existing
markets, enter new markets, or operate or integrate its existing, newly-opened
or newly-acquired stores profitably. If the Company fails to do so, the
Company's business, results of operation and financial condition will be
materially and adversely affected. See "Business--Growth Strategy."

FLUCTUATIONS IN FINANCIAL RESULTS; NON-RECURRING CHARGE

The Company's results of operations may fluctuate significantly from
period-to-period as the result of a variety of factors, including: (i) the
number, timing and mix of store openings, acquisitions or closings; (ii) the
ratio of stores opened to stores acquired; (iii) the opening of stores by the
Company or its competitors in markets where the Company has existing stores;
(iv) comparable store sales results; and (v) the ratio of urban format to
supermarket format stores. The Company incurs significant pre-opening expenses
and new stores typically experience an initial period of operating losses. As a
result, the opening of a significant number of stores in a single period will
have an adverse effect on the Company's results of operations. For example, the
Company's profitability was lower in 1995 than in 1994 due in part to the
opening of a significantly larger number of stores in 1995 than in 1994. In
addition, the Company's store base is geographically concentrated and shifts in
economic or demographic trends and consumer preferences in a particular market
could have an adverse effect on the Company's results of operations. Due to the
foregoing factors, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and that such comparisons
cannot be relied upon as indicators of future financial performance.

A variety of factors affect the Company's comparable store sales results,
including, among others, the relative proportion of new stores to mature stores,
the opening of stores by the Company or its competitors in markets where the
Company has existing stores, the timing of promotional events, the Company's
ability to execute its operating strategy effectively, changes in consumer
preferences for natural foods and general economic conditions. Past increases in
comparable store sales may not be indicative of future performance. Comparable
store sales results in the last half of 1995 and the first half of 1996 were
negatively affected primarily by planned cannibalization resulting from the
implementation of the Company's store clustering strategy and a competitive
store opening by Alfalfa's in Santa Fe, New Mexico. The Company experienced a
comparable store sales decrease in the first quarter of 1996 and there can be no
assurance that comparable store sales for any particular period will not
decrease in the future. As a result, following this offering, the Company's
comparable store sales could cause the price of the Common Stock to fluctuate
substantially. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

During late August 1996, the Company decided to close certain Wild Oats
facilities which were considered redundant as a result of the acquisition of
Alfalfa's and to close certain Alfalfa's operations which it had initially
intended to keep open. As a result, the Company will incur an approximate $5.5
million non-recurring charge in the third quarter of 1996, of which $4.2 million
is expected to be non-cash. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Non-Recurring Charge" and Note 11
of Notes to Consolidated Financial Statements of Wild Oats Markets, Inc.

MANAGEMENT OF GROWTH

The Company's business has grown considerably in size, increasing from six
stores located primarily in Colorado in 1991, to its current size of 39 stores
in eight states and Canada. The Company has identified two stores for closure,
including the Alfalfa's Seattle, Washington store. The Company's continued
growth may place a significant strain on the Company's management, distribution
capabilities, working capital, and financial and management control systems. In
order for the Company to manage its expanding store base successfully,
management will be required to anticipate the changing demands of the Company's
growing

11
<PAGE> 15

operations and to adapt systems and procedures accordingly. There can be no
assurance that the Company will anticipate all of the changing demands that its
expanding operations will impose on such systems. To support its planned store
growth, the Company will be required to hire and train a greater number of store
managers and store employees than it has in the past, and there can be no
assurance that the training and supervision of a larger number of employees will
not adversely affect the performance of the Company's stores or the levels of
customer service that the Company seeks to maintain in such stores. The Company
will also need to continually evaluate the adequacy of its management
information systems, including its inventory control and distribution systems.
Currently, certain important functions, including certain store-level accounting
and inventory management systems, are processed manually. There can be no
assurances that the Company's current systems will be adequate for its future
needs, or that the Company will be successful in implementing new systems.
Failure to upgrade its information systems or unexpected difficulties
encountered with these systems during expansion could adversely affect the
Company's business, financial condition and results of operations. The Company's
inability to manage growth effectively could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business--Management Information Systems."

ANTI-TRUST REGULATIONS

In February 1996, Wild Oats received a Civil Investigative Demand and
Request for Production of Documents from the New Mexico Attorney General's
office alleging possible violations of New Mexico's anti-trust laws as a result
of the acquisition of Alfalfa's. The focus of the investigation is on the
effect, if any, of the acquisition on competition in New Mexico. In May 1996,
the Company received a letter from the New Mexico Attorney General's office
indicating that it would recommend that Wild Oats divest one of its three stores
in Santa Fe, New Mexico in connection with the acquisition. The Company replied
refuting the Attorney General's claim but has not received a response from the
Attorney General's office. The Attorney General's office has not taken any legal
action with respect to the acquisition. The Company believes that the
acquisition complies with federal and state anti-trust law and will continue to
vigorously defend its position in New Mexico. However, there can be no assurance
that the state of New Mexico will not take legal action with respect to the
acquisition, including, but not limited to, demanding the divestiture of one or
more stores in the Santa Fe market to a competitor of the Company. If the
Attorney General of New Mexico elects to take legal action and is successful,
such a result could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Legal
Proceedings."

COMPETITION

The Company's competitors currently include other independent and
multi-unit natural foods supermarkets, smaller traditional natural foods stores,
conventional supermarkets and specialty grocery stores. A number of other
natural foods supermarkets offer a range of natural foods products similar to
those offered in the Company's stores. While certain conventional supermarkets,
smaller traditional natural foods stores and small specialty stores do not offer
as full a range of products as the Company, they do compete with Wild Oats in
one or more product categories. Many of the Company's competitors have been in
business longer and have greater financial or marketing resources than the
Company and may be able to devote greater resources to securing suitable
locations and to the sourcing, promotion and sale of their products. In
addition, should any of the Company's competitors reduce prices, the Company may
be required to implement price reductions in order to remain competitive, which
could have an adverse impact on its business, financial condition and results of
operations. As Wild Oats enters new geographic markets, its success will depend
in part on its ability to gain market share from established competitors. In
addition, traditional and specialty grocery stores may expand more aggressively
in marketing a broader range of natural foods and related products and thereby
compete directly with the Company for products, customers and locations. The
Company expects competition from both new and existing competitors to increase
in its markets and there can be no assurance that the Company will be able to
compete effectively in the future. See "Business--Competition."

12
<PAGE> 16

DEPENDENCE ON KEY PERSONNEL

The Company believes that its continued success will depend to a
significant extent upon the leadership and performance of Michael C. Gilliland,
Wild Oats' co-founder and the Chief Executive Officer of the Company, and S.M.
Hassan, Alfalfa's co-founder and the President of the Company. The loss of the
services of Mr. Gilliland, Mr. Hassan or other of the Company's key personnel
could have a material adverse effect upon the Company. The Company is currently
seeking to hire a Chief Operating Officer. There can be no assurance that the
Company will be able to attract and retain qualified employees. See
"Management."

PRODUCT SOURCING

The Company's business is dependent on its ability to source products from
a small number of distributors and from a large number of relatively small
vendors on a timely basis and at competitive prices. Based on its previous
purchasing patterns, the Company anticipates that it will continue to purchase
approximately half of its products through one wholesale distributor. The
Company has no supply contracts with these parties and any vendor or distributor
could discontinue selling to the Company at any time. Any disruption in its
product supply could have a material adverse effect on its results of
operations. In addition, even where the Company has access to alternative
sources of supply, the failure of a vendor or distributor to meet the Company's
demands may temporarily disrupt store-level merchandise selection. See
"Business--Purchasing and Distribution."

ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; NO
DIVIDENDS

Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or,
if one develops subsequent to this offering, that it will be maintained. The
initial public offering price of the Common Stock will be established by
negotiation among the Company, the Selling Stockholders and the representatives
of the Underwriters. See "Underwriting" for factors to be considered in
determining the initial public offering price. The market price of the shares of
Common Stock could be subject to significant fluctuations in response to the
Company's operating results and other factors, including announcements by its
competitors. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. These fluctuations,
as well as a shortfall in sales or earnings compared to public market analysts'
expectations, changes in analysts' recommendations or projections, and general
economic and market conditions, may adversely affect the market price of the
Common Stock. The Company has never paid any cash dividends and does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

The sale of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. Upon completion of this offering, the Company will have
outstanding an aggregate of [ ] shares of Common Stock assuming: (i) no
exercise of the Underwriters' over-allotment option; and (ii) no exercise of
outstanding options. The [ ] shares of Common Stock sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), unless such
shares are held by "affiliates" of the Company, as that term is defined under
the Securities Act and the Regulations promulgated thereunder.

The remaining [ ] shares of Common Stock are "Restricted Shares"
and are subject to restrictions under the Securities Act. [ ]
Restricted Shares are subject to lock-up agreements under which the holders have
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of this Prospectus without the prior written consent of
Montgomery Securities. Approximately [ ] Restricted Shares will be
eligible for sale in the public market pursuant to Rule 144(k) under the
Securities Act as of the date of this Prospectus. Of those shares [ ]
shares are held by [ ] stockholders. Beginning 90 days after the date of
this Prospectus, approximately [ ] Restricted Shares will be eligible
for sale in the public market pursuant to Rule 144 and Rule 701 under the
Securities

13
<PAGE> 17

Act. Beginning 180 days after the date of the Prospectus, approximately
[ ] Restricted Shares will become available for sale in the public
market subject to the volume and other limitations of Rule 144. The remaining
[ ] Restricted Shares will begin to be eligible for sale in April 1997.
In addition, holders of approximately [ ] shares of Common Stock and
outstanding warrants for [ ] shares of Common Stock have registration
rights with respect to such shares. The Company intends to file a registration
statement on Form S-8 90 days after the date of this Prospectus to register
[ ] shares of Common Stock authorized for issuance under the Company's
equity incentive plans, of which options exercisable for [ ] shares are
outstanding. See "Management--Stock Option Plans," "Description of Capital
Stock--Registration Rights," and "Shares Eligible for Future Sale."

ANTI-TAKEOVER CONSIDERATIONS

The Company's Certificate of Incorporation and Bylaws contain provisions
which may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of the Common Stock and the voting and other rights of the holders of the
Common Stock. These provisions include, but are not limited to, a classified
Board of Directors and the authority of the Board of Directors to issue up to
[ ] shares of preferred stock and to fix the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The Company has no present plans to issue shares of preferred stock. In
addition, certain provisions of Delaware law applicable to the Company could
have the effect of discouraging certain attempts to acquire the Company which
could deprive the Company's stockholders of the opportunities to sell their
shares of Common Stock at prices higher than prevailing market prices. See
"Description of Capital Stock."

CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS

Following completion of this offering, directors, executive officers and
principal stockholders of the Company, and certain of their affiliates, will
beneficially own approximately [ ]% of the outstanding shares of Common Stock.
Accordingly, these persons, individually and as a group, will be able to
effectively control the Company and direct its affairs and business, including
any determination with respect to the acquisition or disposition of assets by
the Company, future issuances of Common Stock or other securities by the
Company, declaration of dividends in the Common Stock and the election of
directors. Such concentration of ownership may also have the effect of delaying,
deferring or preventing a change in control of the Company. Pursuant to an
agreement between the Company and certain investors, certain parties holding an
aggregate of [ ] shares of Common Stock have agreed that for four years
after this offering they will vote their shares in favor of electing nominees of
certain investors to the Board of Directors and to the Audit and Compensation
Committees of the Board. See "Management--Board of Directors" and "Principal and
Selling Stockholders."

DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this offering will therefore incur immediate and substantial
dilution of $[ ] per share. See "Dilution."

14
<PAGE> 18

USE OF PROCEEDS

The net proceeds to the Company from the sale of the [ ] shares of
Common Stock offered by the Company hereby are estimated to be $[ ]
($[ ] if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $[ ] per share and after
deducting the estimated underwriting discount and offering expenses payable by
the Company. The Company will not receive any proceeds from the sale of the
[ ] shares of Common Stock offered by the Selling Stockholders. See
"Principal and Selling Stockholders."

The Company intends to use approximately $17.0 million of the proceeds of
the offering to repay its bank indebtedness under the Company's revolving line
of credit (the "Revolving Line"). The Revolving Line bears interest at the
lender's prime rate and has a final maturity of February 2002. The repayment of
the foregoing debt by the Company will retire substantially all of the Company's
indebtedness. Following this offering, the Company will have approximately $20.0
million of available borrowing capacity, subject to certain covenants and other
restrictions applicable to the Revolving Line. The Company is currently in
discussion with the lender to increase its borrowing capacity under the
Revolving Line. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources." The remaining
$[ ] of the net proceeds will be used to finance store openings and
possible acquisitions and for working capital and general corporate purposes.
The Company intends to open two additional stores in 1996 and anticipates
opening or acquiring seven stores in 1997. There can be no assurance that the
Company will achieve its planned expansion in existing markets or enter new
markets. Historically, the Company's cash requirements to open a store have
ranged from $1.0 million to $2.0 million, excluding inventory costs and initial
operating losses. The amounts and timing of such expenditures will depend upon
the availability of new store sites and other factors, many of which are beyond
the Company's control. See "Business--Site Selection and Store Format." Although
the Company has no present commitments or agreements with respect to any
acquisitions, funds may be used in connection with future acquisitions if such
opportunities develop. Costs to acquire future stores, if any, are impossible to
predict and could vary materially from the cost of opening stores. Pending such
uses, the net proceeds of this offering will be invested in short-term,
interest-bearing securities.

DIVIDEND POLICY

The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the future earnings, operations, capital
requirements and financial condition of the Company. In addition, the Revolving
Line contains various financial covenants which restrict, among other things,
the Company's ability to pay dividends. As of the date of this Prospectus, the
Company could not pay dividends under the terms of the Revolving Line. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

15
<PAGE> 19

CAPITALIZATION

The following table sets forth at June 29, 1996, the current debt and
capitalized lease obligations as well as the capitalization of the Company: (i)
on an actual basis; (ii) on a pro forma basis after giving effect to the sale of
[ ] shares of Series E Preferred Stock and the acquisition of Alfalfa's
in July 1996, the conversion of all outstanding shares of preferred stock into
Common Stock, and the retirement of the Company's treasury stock in August 1996;
and (iii) on a pro forma as adjusted basis to give effect to the sale of the
[ ] shares of Common Stock being offered by the Company hereby, and the
application of the estimated net proceeds therefrom, assuming an initial public
offering price of $[ ] per share. See "Pro Forma Combined Condensed
Financial Statements."

<TABLE>
<CAPTION>
JUNE 29, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable and current portion of long-term debt,
including capitalized lease obligations............ $ 1,675 $ 1,935 $
======== ======== ========
Long-term debt, including capitalized lease
obligations........................................ $ 17,342 $ 17,472 $
Redeemable convertible preferred stock, $.001 par
value.............................................. 18,009 -- --
-------- -------- --------
Stockholders' equity(1):
Common stock, $.001 par value...................... 1 2
Additional paid-in capital......................... 2,883 53,884
Retained earnings.................................. (2,329) (2,329)
Treasury stock..................................... (5,364) --
Total stockholders' equity................. (4,809) 51,557
-------- -------- --------
Total capitalization..................... $ 30,542 $ 69,029 $
======== ======== ========
</TABLE>

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

(1) Excludes [ ] shares of Common Stock issuable upon exercise of options
outstanding under the Company's stock option plans as of August 1, 1996 (of
which [ ] shares will be vested as of such date), and [ ]
shares of Common Stock reserved for issuance upon exercise of outstanding
warrants. As of August 1, 1996, the weighted average exercise prices of the
Company's stock options and warrants were $[ ] and $[ ] per share,
respectively. See "Capitalization," "Management--Stock Option Plans" and
Note 7 of Notes to Consolidated Financial Statements of Wild Oats Markets,
Inc.

16
<PAGE> 20

DILUTION

The pro forma net tangible book value of the Company at June 29, 1996, was
approximately $6.0 million or $[ ] per share. "Net tangible book value" per
share represents the amount of the Company's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of the [ ] shares of Common Stock
offered hereby (at an assumed initial public offering price of $[ ] per
share), and the receipt of the estimated net proceeds therefrom, the pro forma
net tangible book value of the Company at June 29, 1996 would have been
approximately $[ ], or $[ ] per share. This represents an immediate
increase in such net tangible book value of $[ ] per share to existing
stockholders and an immediate dilution of $[ ] per share to new investors.
The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share as of June 29,
1996....................................................
Increase per share attributable to new investors...........
--------
Pro forma net tangible book value per share after this
offering...................................................
--------
Dilution per share to new investors.......................... $
========
</TABLE>

The following table summarizes on a pro forma basis as of June 29, 1996,
the differences between existing stockholders and the new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average consideration paid per share
by the existing investors and by the investors purchasing shares of Common Stock
in this offering (based upon an assumed initial public offering price of
$[ ] per share):

<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------ ------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............. % $ % $
New investors........................
------- ------- ------- -------
Total.............................. 100.0% $ 100.0%
======= ====== ======= ======
</TABLE>

- ---------------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by the existing stockholders to [ ] or [ ]% (or [ ]
or [ ]% if the over-allotment option is exercised in full) of the total
number of shares of Common Stock to be outstanding after this offering, and
will increase the number of shares to be purchased by new investors to
[ ] or [ ]% (or [ ] or [ ]% if the over-allotment option is
exercised in full) of the total shares of Common Stock to be outstanding.
See "Principal and Selling Stockholders."

Included on a pro forma basis as of June 29, 1996 is the sale by the
Company of [ ] shares of Series E Preferred Stock, the acquisition of
Alfalfa's in July 1996 and the conversion of all outstanding shares of preferred
stock into Common Stock. The above tables and calculations assume no exercise of
outstanding options or warrants. As of June 29, 1996, there were [ ] shares
of Common Stock issuable upon exercise of options outstanding under the
Company's stock option plans (of which [ ] shares will be vested as of such
date), and [ ] shares of Common Stock reserved for issuance upon exercise of
outstanding warrants. As of June 29, 1996, the weighted average exercise prices
of the Company's stock options and warrants were $[ ] and $[ ] per
share, respectively. Additionally, on August 1, 1996 the Company granted options
exercisable for, in the aggregate, [ ] shares of Common Stock at a weighted
average exercise price of $[ ]. See "Capitalization," "Management--Stock
Option Plans" and Note 7 to Consolidated Financial Statements of Wild Oats
Markets, Inc.

17
<PAGE> 21

SELECTED FINANCIAL AND OPERATING DATA OF WILD OATS MARKETS, INC.
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)

The statement of operations data for each of the three years in the period
ended December 30, 1995 and the balance sheet data as of December 31, 1994 and
December 30, 1995 have been derived from the audited financial statements of the
Company included elsewhere in this Prospectus that have been audited by Price
Waterhouse LLP, independent accountants. The balance sheet data as of December
31, 1991, January 2, 1993 and January 1, 1994 and the statement of operations
data for each of the two years in the period ended January 2, 1993 have been
derived from the audited financial statements of the Company not included in
this Prospectus. The selected financial data with respect to the six months
ended July 1, 1995 and June 29, 1996, are derived from unaudited financial
statements included elsewhere in this Prospectus. The unaudited financial
statements include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation of the
financial position and results of operations for those periods. Operating
results for the six months ended June 29, 1996 are not necessarily indicative of
the results that may be expected for the full year or for any future period. The
selected operating data for all periods presented below have been derived from
internal records of the Company's operations. The data set forth below should be
read in conjunction with the Consolidated Financial Statements of Wild Oats
Markets, Inc., including notes thereto, and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR -------------------
------------------------------------------------------- JULY 1, JUNE 29,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Sales............................................ $25,222 $36,638 $47,266 $65,219 $98,517 $42,785 $68,102
Cost of goods sold and occupancy costs........... 17,450 25,056 32,475 44,817 67,449 28,940 46,424
------- ------- ------- ------- ------- ------- -------
Gross profit..................................... 7,772 11,582 14,791 20,402 31,068 13,845 21,678
Direct store expenses............................ 5,725 8,723 10,876 15,505 24,787 9,927 16,721
------- ------- ------- ------- ------- ------- -------
Store contribution............................... 2,047 2,859 3,915 4,897 6,281 3,918 4,957
Selling, general and administrative expenses..... 833 1,049 1,824 2,317 4,465 1,842 2,783
Pre-opening expenses............................. 130 650 416 -- 1,037 218 786
------- ------- ------- ------- ------- ------- -------
Income from operations........................... 1,084 1,160 1,675 2,580 779 1,858 1,388
Interest expense, net............................ 135 151 350 373 363 87 578
------- ------- ------- ------- ------- ------- -------
Income before income taxes....................... 949 1,009 1,325 2,207 416 1,771 810
Income tax expense(1)............................ 369 393 521 880 40 703 352
------- ------- ------- ------- ------- ------- -------
Net income(1).................................... $ 580 $ 616 $ 804 $ 1,327 $ 376 $ 1,068 $ 458
======= ======= ======= ======= ======= ======= =======
Unaudited pro forma net income per common
share(2)....................................... $ $
======= =======
Unaudited pro forma weighted average number of
common shares outstanding(3)...................
======= =======
SELECTED OPERATING DATA:
Number of stores at end of period................ 6 9 11 14 21 17 27
Average square feet per store.................... 8,039 11,802 11,196 11,780 13,653 11,736 13,884
Average sales per square foot(4)................. $ 500 $ 386 $ 383 $ 432 $ 442 $ 490 $ 421
Comparable store sales increase(5)............... 8% 13% 5% 13% 7% 12% 0%
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)........................ $ 1,193 $(1,400) $ (292) $ 3,278 $ 474 $ 499
Total assets..................................... 4,534 6,763 9,873 24,053 38,376 47,807
Long-term debt, including capitalized lease
obligations.................................... 1,405 1,446 2,494 3,078 13,302 17,342
Redeemable convertible preferred stock........... -- -- 3,164 15,018 16,956 18,009
Stockholders' equity (deficit)................... 1,369 1,301 (358) (2,645) (4,209) (4,809)
</TABLE>

- ---------------
(1) On July 3, 1993, Wild Oats changed its corporate status from an S
corporation to a C corporation. Income tax expense and net income for 1991,
1992 and 1993 are shown pro forma to reflect income taxes for Wild Oats as
if it had been a C corporation for all periods presented.
(2) Supplemental pro forma net income per common share for the year ended
December 31, 1995 and the six-month period ended June 29, 1996, assuming the
notes payable were retired at the beginning of the period using the net
proceeds of the offering, are $[ ] and $[ ], respectively. See
"Use of Proceeds," "Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and Note 1 of Notes to
the Consolidated Financial Statements of Wild Oats Markets, Inc.
(3) See Note 1 of Notes to Consolidated Financial Statements of Wild Oats
Markets, Inc.
(4) Average sales per square foot is calculated by dividing annualized total
sales by the total square footage of stores open during the period. See
"Business--Properties."
(5) Sales of a store are deemed to be comparable commencing in the thirteenth
full month after the store was opened or acquired.

18
<PAGE> 22

SELECTED FINANCIAL AND OPERATING DATA OF ALFALFA'S, INC.
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)

The statement of operations data for each of the three years in the period
ended June 30, 1996 and the balance sheet data as of June 26, 1994, June 25,
1995 and June 30, 1996 have been derived from the audited financial statements
of Alfalfa's included elsewhere in this Prospectus that have been audited by
Deloitte & Touche LLP, independent auditors, with respect to the years ended
1994 and 1995; and Price Waterhouse LLP, independent accountants, with respect
to the financial statements as of and for the year ended June 30, 1996. The
selected balance sheet data as of June 26, 1994 has been derived from the
audited financial statements of Alfalfa's not included in this Prospectus. The
selected operating data for all periods presented below have been derived from
internal records of Alfalfa's operations. The data set forth below should be
read in conjunction with the financial statements, including notes thereto,
included elsewhere in this Prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................................................................. $45,880 $64,852 $85,623
Cost of goods sold and occupancy costs............................................. 30,491 43,379 58,492
------- ------- -------
Gross profit....................................................................... 15,389 21,473 27,131
Direct store expenses.............................................................. 11,437 16,165 22,158
------- ------- -------
Store contribution................................................................. 3,952 5,308 4,973
Selling, general and administrative expenses....................................... 1,754 3,266 4,362
Pre-opening expenses............................................................... 460 325 662
------- ------- -------
Income (loss) from operations...................................................... 1,738 1,717 (51)
Other income (expense)............................................................. (164) (173) (20)
------- ------- -------
Income (loss) before income taxes.................................................. 1,574 1,544 (71)
Income tax expense................................................................. 595 611 22
------- ------- -------
Net income (loss).................................................................. $ 979 $ 933 $ (93)
======= ======= =======
SELECTED OPERATING DATA:
Number of stores at end of period.................................................. 6 9 11
Average square feet per store...................................................... 17,783 17,000 16,418
Average sales per square foot(1)................................................... $ 445 $ 410 $ 484
Comparable store sales increase(2)................................................. 8% 7% 3%
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit).......................................................... $ (611) $ (68) $ (50)
Total assets....................................................................... 9,992 22,791 23,074
Long-term debt, including capitalized lease obligations............................ 1,650 626 130
Stockholders' equity............................................................... 3,246 6,363 5,503
</TABLE>

- ---------------
(1) Average sales per square foot is calculated by dividing annualized total
sales by the total square footage of stores open during the period. See
"Business--Properties."

(2) Sales of a store are deemed to be comparable commencing in the thirteenth
full month after the store was opened or acquired.

19
<PAGE> 23

PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)

In June 1996, the Company acquired the assets of three natural foods stores
located in Salt Lake City, Utah operating as New Frontiers in a cash-for-assets
transaction. In July 1996, Wild Oats acquired all of the outstanding stock of
Alfalfa's, a natural foods supermarket chain headquartered in Boulder, Colorado.
In that transaction, Alfalfa's issued shares of its capital stock in exchange
for shares of the Company's capital stock; however, because the former Wild Oats
stockholders controlled a majority of the voting stock of the combined company
following the acquisition, the transaction was accounted for as a reverse
acquisition with the Company as the acquiror. See "Recent Acquisitions and New
Store Openings."

The transactions referred to in the first paragraph were accounted for
using the purchase method of accounting. The pro forma combined condensed
balance sheet as of June 29, 1996 which follows gives effect to: (i) the
issuance of convertible redeemable Series E Preferred Stock; (ii) the purchase
accounting and estimated fair market value allocation of the net assets acquired
in the acquisition of Alfalfa's; and (iii) the conversion of all redeemable
convertible preferred stock into Common Stock to take place upon the
effectiveness of this offering, as if such events had occurred on that date. The
pro forma combined condensed statements of operation for the fiscal year 1995
and the six months ended June 29, 1996 which follow give effect to the impact of
the acquisition of Alfalfa's and New Frontiers as if the transactions had
occurred at the beginning of those periods. The pro forma financial statements
do not give effect to other acquisitions which both individually and in the
aggregate were immaterial.

In the opinion of the Company all adjustments necessary to present fairly
such pro forma combined financial statements have been made. These unaudited pro
forma financial statements are not necessarily indicative of what actual results
would have been had the transactions occurred at the beginning of the respective
periods nor do they purport to indicate the results of future operations of the
Company. These unaudited pro forma financial statements should be read in
conjunction with the accompanying notes and the historical financial statements
and notes thereto of Wild Oats Markets, Inc., Alfalfa's, Inc., and New
Frontiers, respectively, included elsewhere in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

20
<PAGE> 24

PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL JUNE 29, 1996
----------------------- ---------------------------
WILD OATS ALFALFA'S PRO FORMA PRO FORMA
JUNE 29, 1996 JUNE 30, 1996 ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 2,816 $ 3,591 $ 16,480 (a) $ 6,657
(16,230)(a)
Inventories.............................. 9,849 3,273 13,122
Accounts receivable net, prepaid expenses
and other current assets............... 2,825 641 3,466
Deferred income taxes.................... 495 419 914
---------- ---------- ---------- ----------
Total current assets................ 15,985 7,924 250 24,159
Property and equipment, net.............. 22,145 11,845 (350)(b) 33,640
Intangible assets, net................... 9,400 2,902 24,897 (b) 37,199
Deposits and other....................... 277 403 680
---------- ---------- ---------- ----------
Total assets........................ $ 47,807 $ 23,074 $ 24,797 $ 95,678
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities............................ $ 15,421 $ 7,714 $ 954 (a) $ 24,089
Current portion of long-term
obligations............................ 65 260 325
---------- ---------- ---------- ----------
Total current liabilities........... 15,486 7,974 954 24,414
Long-term obligations.................... 17,342 130 17,472
Deferred income taxes and other.......... 1,779 456 2,235
---------- ---------- ---------- ----------
Total liabilities................... 34,607 8,560 954 44,121
7,682 (a)
16,480 (a)
(9,011)(c)
Redeemable convertible preferred stock... 18,009 9,011 (42,171)(d)
---------- ---------- ---------- ----------
14,195 (a)
(5,503)(c)
Total stockholders' equity (deficit)..... (4,809) 5,503 42,171 (d) 51,557
---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity............................ $ 47,807 $ 23,074 $ 24,797 $ 95,678
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the pro forma combined condensed
balance sheet (unaudited).

21
<PAGE> 25

NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
JUNE 29, 1996

(a) The total estimated purchase price was comprised of the following:

<TABLE>
<S> <C>
Acquisition of Alfalfa's common stock and options.............................. $25,925
Acquisition of Alfalfa's redeemable convertible Series A Preferred Stock....... 12,182
Assumption of Alfalfa's liabilities............................................ 8,560
Costs associated with the acquisition (financing, legal, accounting and
related costs)............................................................... 954
-------
Total acquisition cost............................................... $47,621
=======
</TABLE>

The total acquisitions cost was funded as follows:

<TABLE>
<S> <C>
Cash........................................................................... $16,230
Issuance of Wild Oats common stock and options................................. 14,195
Issuance of Wild Oats redeemable convertible Series D Preferred Stock.......... 7,682
Assumption of Alfalfa's liabilities............................................ 8,560
Accrued expenses related to acquisition........................................ 954
-------
$47,621
=======
</TABLE>

Cash was obtained through the issuance of Wild Oats redeemable convertible
Series E Preferred Stock to third parties resulting in net proceeds of
$16,480.

(b) The estimated purchase price has been allocated to the assets acquired and
liabilities assumed, based on the estimate of the fair values of the assets
and liabilities, as follows:

<TABLE>
<CAPTION>
HISTORICAL COST ESTIMATE OF THE
BASIS OF ASSETS FAIR VALUE OF
ACQUIRED ADJUSTMENTS ASSETS ACQUIRED
--------------- ----------- ---------------
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 3,591 $ 3,591
Inventories................................... 3,273 3,273
Accounts receivable, prepaid expenses and
other current assets........................ 641 641
Deferred income taxes......................... 419 419
Property and equipment, net................... 11,845 $ (350) 11,495
Intangible assets, net........................ 2,902 24,897 27,799
Deposits and other............................ 403 403
----------- ----------- -----------
Total............................... $ 23,074 $ 24,547 $ 47,621
=========== =========== ===========
</TABLE>

(d) Adjustment to reflect the conversion of all redeemable convertible preferred
stock into Common Stock upon effectiveness of this offering.

22
<PAGE> 26

PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
WILD OATS ALFALFA'S NEW FRONTIERS FISCAL YEAR ENDED 1995
YEAR ENDED YEAR ENDED YEAR ENDED ---------------------------------
DECEMBER 30, DECEMBER 31, DECEMBER 31, PRO FORMA PRO FORMA
1995 1995 1995 ADJUSTMENTS COMBINED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Sales................................ $ 98,517 $ 73,770 $ 10,145 $ 182,432
Costs of goods sold and occupancy
costs.............................. 67,449 50,190 6,431 $ (70)(a) 124,000
---------- ---------- ---------- ---------- ----------
Gross profit......................... 31,068 23,580 3,714 70 58,432
Direct store expenses................ 24,787 19,135 2,787 46,709
---------- ---------- ---------- ---------- ----------
Store contribution................... 6,281 4,445 927 70 11,723
Selling, general and administrative
expenses........................... 4,465 3,790 215 622(b) 8,762
45(b)
(375)(c)
Pre-opening expenses................. 1,037 987 2,024
---------- ---------- ---------- ---------- ----------
Income (loss) from operations........ 779 (332) 712 (222) 937
Interest expense, net................ 363 85 17 465
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.... 416 (417) 695 (222) 472
Income tax expense (benefit)......... 40 (224) 261 (169)(d) (92)
---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 376 $ (193) $ 434 $ (53) $ 564
========== ========== ========== ========== ==========
Unaudited pro forma net income per
share.............................. $ $
========= ==========
Unaudited pro forma weighted average
number of common shares
outstanding........................
========= ========== ==========
</TABLE>

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
WILD OATS ALFALFA'S NEW FRONTIERS SIX MONTHS ENDED JUNE 29, 1996
SIX MONTHS SIX MONTHS FIVE MONTHS ---------------------------------
ENDED JUNE 29, ENDED JUNE 30, ENDED MAY 31, PRO FORMA PRO FORMA
1996 1996 1996 ADJUSTMENTS COMBINED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Sales................................ $ 68,102 $ 45,091 $ 4,735 $ $ 117,928
Costs of goods sold and occupancy
costs.............................. 46,424 30,390 2,986 (35)(a) 79,765
---------- ---------- ---------- ---------- ----------
Gross profit......................... 21,678 14,701 1,749 35 38,163
Direct store expenses................ 16,721 11,305 1,114 29,140
---------- ---------- ---------- ---------- ----------
Store contribution................... 4,957 3,396 635 35 9,023
Selling, general and administrative
expenses........................... 2,783 2,225 104 311(b) 5,254
19(b)
(188)(c)
Pre-opening expenses................. 786 786
---------- ---------- ---------- ---------- ----------
Income from operations............... 1,388 1,171 531 (107) 2,983
Interest expense, net................ 578 5 3 586
---------- ---------- ---------- ---------- ----------
Income before income taxes........... 810 1,166 528 (107) 2,397
Income tax expense................... 352 486 198 (85) 951
---------- ---------- ---------- ---------- ----------
Net income........................... $ 458 $ 680 $ 330 $ (22) $ 1,446
========== ========== ========== ========== ==========
Unaudited pro forma net income per
share.............................. $ $
========== ==========
Unaudited pro forma weighted average
number of common shares
outstanding........................
========== ==========
</TABLE>

The accompanying notes are an integral part of the pro forma combined condensed
statement of operations (unaudited)

23
<PAGE> 27

NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)

(a) Elimination of depreciation related to assets written off in Alfalfa's
acquisition of $350, depreciated over a five year life on a straight line
basis.

(b) Amortization of the incremental excess of the acquisition cost over the
related net book value of assets acquired, over 40 years on a straight line
basis, for the following acquisitions:

<TABLE>
<CAPTION>
AMORTIZATION
-----------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 29,
EXCESS 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Alfalfa's............................. $ 24,897 $ 622 $ 311
New Frontiers......................... 1,803 45 19
</TABLE>

(c) Elimination of salaries and benefits of Alfalfa's employees terminated as a
direct result of the acquisition ($305) and discontinuance of ESOP
contributions and related costs ($70).

(d) Tax effect of pro forma adjustments.

24
<PAGE> 28

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BACKGROUND

Wild Oats acquired its first natural foods store in Boulder, Colorado in
1987 and opened the first Wild Oats Market in Boulder in 1988. In recent years,
the Company has pursued an aggressive growth strategy and it currently operates
39 stores. Since inception, the Company has opened 16 stores and acquired 23
stores (including 11 Alfalfa's stores). The Company has identified two stores
for closure, including the Alfalfa's Seattle, Washington store.

Store Openings and Acquisitions. The Company's results of operations have
been and will continue to be affected by, among other things, the number, timing
and mix of store openings, acquisitions or closings in a given period. The
Company incurs significant pre-opening costs with each store opening (as
described below). In addition, new stores typically experience operating losses
during the first six to 12 months of operation. New stores build their sales
volumes and refine their merchandise selection gradually and, as a result,
generally have lower gross margins and higher operating expenses as a percentage
of sales than more mature stores. Therefore, the opening of a significant number
of stores in any period will have an adverse effect on the Company's results of
operations for that period. The Company opened five stores in 1995 (all in the
last seven months of the year) and three stores in the first half of 1996. This
represents the greatest concentration of store openings in any 13 month period
in the Company's history. While store openings contributed to an increase in the
Company's overall sales during these periods, net income decreased, largely as a
result of pre-opening costs (which aggregated approximately $1.0 million in 1995
and $786,000 in the first half of 1996), and initial operating losses at these
new stores.

Upon the acquisition of a natural foods store, the Company immediately
benefits from an existing sales base and, in most cases, profitable store-level
operations. The Company seeks to improve the profitability of acquired single
stores or small chains by integrating them into its volume purchase discount
programs and by implementing certain financial controls and marketing
strategies. To date, all of the Company's acquisitions have been accounted for
by the purchase method, resulting in the recording of goodwill which is
amortized on a straight-line basis over a period of 40 years.

In the second half of 1996, the Company has opened one store and intends to
open two additional stores. The Company anticipates opening or acquiring seven
stores in 1997. The Company believes that most of its future store growth will
be through store openings; however, it will continue to pursue acquisitions of
natural foods retailers where attractive opportunities exist. There can be no
assurance that the Company will achieve its planned expansion in existing
markets or entrance into new markets. See "Risk Factors--Uncertain Ability to
Execute Growth Strategy."

Store Format and Clustering Strategy. The Company operates two store
formats: supermarket and urban. The supermarket format is generally 15,000 to
25,000 square feet, and typically generates higher sales and store contribution
than the 5,000 to 15,000 square foot urban format stores. The Company's results
of operations have been and will continue to be affected by the mix of
supermarket and urban format stores opened or acquired and whether stores are
being opened in markets where the Company has an existing presence. The Company
expects to focus primarily on opening or acquiring supermarket format stores in
the future but will consider additional urban stores when appropriate
opportunities exist. The Company pursues a strategy of clustering its stores
within each of its markets in order to more fully penetrate these markets,
achieve regional operating and marketing efficiencies and enhance name
recognition. The Company believes this strategy has resulted in increased
overall sales in each of its markets. In the past when the Company has opened a
store in a market where it had an existing presence, it has experienced a
decline in sales and a temporary decline in operating results at certain of its
existing stores in these markets. However, over time, the affected stores have
generally achieved store-level contribution margins comparable to their prior
levels on a lower base of sales. The Company intends to continue to pursue its
store clustering strategy and expects these trends to continue. See "Risk
Factors--Uncertain Ability to Execute Growth Strategy."

Comparable Store Sales Results. Sales of a store are deemed to be
comparable commencing in the thirteenth full month after the store was opened or
acquired. The Company believes its comparable store sales

25
<PAGE> 29

increases through 1995 resulted from growth in the natural foods industry,
improved execution of the Company's operating strategy and the achievement of
peak comparable store sales by a number of new stores which were in their second
and third years of operation in 1995. Historical fluctuations in comparable
store sales resulted in part from the Company's small comparable store base and
the timing of additions to the comparable store base. Comparable store sales
results in the last half of 1995 and the first half of 1996 were negatively
affected primarily by planned cannibalization resulting from the implementation
of the Company's store clustering strategy described above and a competitive
store opening by Alfalfa's in Santa Fe, New Mexico. While the Company
continually seeks to increase sales at existing stores, it may not achieve
comparable store sales increases at the same rates as it had prior to 1996.
Furthermore, the Company experienced a comparable store sales decrease in the
first quarter of 1996 and there can be no assurance comparable store sales will
not decrease in the future. See "Risk Factors--Fluctuations in Financial
Results; Non-Recurring Charge."

Pre-Opening Expenses. Pre-opening expenses include labor, rent, utility,
supplies and certain other costs incurred prior to a store's opening. The costs
are accrued during the pre-opening period and are expensed in full when the
store opens. Pre-opening expenses have averaged approximately $250,000 per store
over the past 18 months, although the amount per store may vary depending on the
store format and whether the store is the first to be opened in a market, or is
part of a cluster of stores in that market.

ACQUISITION OF ALFALFA'S

The Company completed the acquisition of Alfalfa's in July 1996. Through
this acquisition, the Company combined two natural foods retailers with similar
operating strategies and complementary store bases, increased its penetration of
existing markets, entered new geographic markets and created a stronger platform
for future growth. Wild Oats' and Alfalfa's stores overlap in four markets:
Santa Fe, New Mexico and Denver, Boulder and Ft. Collins, Colorado. In 1995,
Wild Oats opened two stores in Denver, Colorado and Alfalfa's opened one store
in Santa Fe, New Mexico. The opening of these additional stores resulted in a
decline in sales and a temporary decline in operating results at certain of the
existing Wild Oats and Alfalfa's stores and negatively affected results of
operations at both companies in 1995 and the first half of 1996. However,
overall sales increased significantly in these markets and, over time, the
affected stores have generally achieved store-level contribution margins
comparable to prior levels on the lower base of sales. As a result, the Company
believes these markets are large enough to support these stores and further
believes that planned cannibalization resulting from the implementation of the
Company's store clustering strategy will contribute to the Company's overall
growth.

The Company believes that the successful integration of Alfalfa's will
result in operating efficiencies created by: (i) warehousing, distribution and
administrative economies of scale; (ii) improved merchandise buying terms as a
result of the Company's larger size; and (iii) the implementation of coordinated
merchandising and marketing strategies. Alfalfa's achieved increases in
operating income for the four consecutive years prior to fiscal 1996 when it
experienced an operating loss largely as a result of pre-opening expenses
associated with the opening of stores in Santa Fe, New Mexico and Vancouver,
British Columbia and Seattle, Washington and the performance of its Denver,
Colorado and Seattle, Washington stores. Subsequent to the acquisition, the
Company identified for closure the Alfalfa's Seattle, Washington store.

As a result of the acquisition, the Company recorded incremental goodwill
of approximately $24 million which is amortized on a straight-line basis over 40
years. The future operating and financial performance of the Company will depend
in part on its ability to integrate and operate Alfalfa's successfully and to
enhance the profitability of the acquired business. There can be no assurance
that the Company will be successful in this regard. See "Risk
Factors--Integration of Alfalfa's," "Pro Forma Combined Condensed Financial
Statements" and Note 2 of Notes to the Consolidated Financial Statements of Wild
Oats Markets, Inc.

NON-RECURRING CHARGE

26
<PAGE> 30

former corporate headquarters; and (iii) consolidating certain information
systems and thereby abandoning certain former Wild Oats hardware and software.
In addition, after operating the combined companies for over a month, management
has decided to close two Alfalfa's facilities (one store and one restaurant)
which at the time of the acquisition the Company had planned to retain, which
will result in the remaining $4.0 million of the charge, of which $3.0 million
is expected to be a non-cash write-down. See "Risk Factors--Fluctuations in
Financial Results; Non-Recurring Charge" and Note 11 of Notes to Consolidated
Financial Statements of Wild Oats Markets, Inc.

OTHER

Effective July 3, 1993, Wild Oats revoked its S corporation election for
income tax reporting purposes and became taxable as a C corporation.
Accordingly, the presentation of net income and net income per share for 1993
reflects a provision for income taxes on a pro forma basis as if Wild Oats had
been liable for federal and state income taxes throughout the periods presented.

RESULTS OF OPERATIONS OF WILD OATS

The following table sets forth for the periods indicated, certain selected
income statement data expressed as a percentage of sales:

SIX MONTHS
ENDED
FISCAL YEAR ------------------
------------------------- JULY 1, JUNE 29,
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs......... 68.7 68.7 68.5 67.6 68.2
----- ----- ----- ----- -----
Gross profit................................... 31.3 31.3 31.5 32.4 31.8
Direct store expenses.......................... 23.0 23.8 25.2 23.2 24.5
----- ----- ----- ----- -----
Store contribution............................. 8.3 7.5 6.3 9.2 7.3
Selling, general and administrative expenses... 3.9 3.5 4.4 4.3 4.0
Pre-opening expenses........................... 0.9 -- 1.1 0.5 1.1
----- ----- ----- ----- -----
Income from operations......................... 3.5 4.0 0.8 4.4 2.0
Interest expense, net.......................... 0.7 0.6 0.4 0.2 0.8
----- ----- ----- ----- -----
Income before income taxes..................... 2.8 3.4 0.4 4.2 1.2
Income tax expense............................. 1.1 1.4 -- 1.6 0.5
----- ----- ----- ----- -----
Net income..................................... 1.7% 2.0% 0.4% 2.6% 0.7%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995

Sales in the first half of fiscal 1996 increased 59.1% to $68.1 million
from $42.8 million in the first half of fiscal 1995. This increase was primarily
due to the opening of three stores in the first half of fiscal 1996, one store
late in the first half of fiscal 1995, and four stores in the second half of
fiscal 1995. Comparable store sales were flat in the first half of fiscal 1996
compared to the first half of fiscal 1995, reflecting the impact of the planned
cannibalization of existing stores sales in Albuquerque, New Mexico and Denver,
Colorado and Kansas City, Missouri resulting from the Company's opening of
stores in those markets, as well as the effects of a store opening in Santa Fe,
New Mexico by Alfalfa's.

Gross profit consists primarily of sales less cost of goods sold and
occupancy costs. Gross profit in the first half of fiscal 1996 increased 57.2%
to $21.7 million from $13.8 million in the first half of fiscal 1995. As a
percentage of sales, gross profit declined to 31.8% in the first half of fiscal
1996 from 32.4% in the first half of fiscal 1995. Merchandise gross profit
(sales minus cost of sales) increased slightly, which was more than offset by
higher occupancy costs as a percentage of sales at the Company's new stores.

Direct store expenses in the first half of fiscal 1996 increased 68.7% to
$16.7 million from $9.9 million in the first half of fiscal 1995, primarily due
to the increased number of stores. As a percentage of sales, direct

27
<PAGE> 31

store expenses increased to 24.5% in the first half of fiscal 1996 from 23.2% in
the first half of fiscal 1995 primarily due to higher expenses as a percentage
of sales at the new stores.

Selling, general and administrative expenses increased to $2.8 million in
the first half of fiscal 1996 from $1.8 million in the first half of fiscal
1995. As a percentage of sales, general and administrative expenses decreased
slightly to 4.0% in the first half of fiscal 1996 from 4.3% in the first half of
fiscal 1995 due to increased leverage of the general and administrative expense
on a larger sales base.

Wild Oats incurred $786,000 in pre-opening expenses in the first half of
fiscal 1996 related to the opening of three stores, compared to $218,000 in the
first half of fiscal 1995 related to the opening of one store.

Net interest expense in the first half of fiscal 1996 increased to $578,000
from $87,000 in the first half of fiscal 1995 as a result of higher levels of
indebtedness incurred to fund store openings.

FISCAL 1995 COMPARED TO FISCAL 1994

Sales in fiscal 1995 increased 51.1% to $98.5 million from $65.2 million in
fiscal 1994. This increase was primarily due to the opening of five stores and
the acquisition of two additional stores in fiscal 1995, and reporting a full
year of operations for two stores which had been open for only part of fiscal
1994. Comparable store sales increased 7.4% in fiscal 1995 and accounted for
$5.3 million of the increase in sales. Wild Oats believes comparable store sales
results were negatively impacted in the second half of fiscal 1995 by a
competitive entrant into the Santa Fe, New Mexico market, as well as planned
cannibalization of existing store sales in Albuquerque, New Mexico and Denver,
Colorado and Kansas City, Missouri.

Gross profit in fiscal 1995 increased 52.5% to $31.1 million from $20.4
million in fiscal 1994. As a percentage of sales, gross profit increased
slightly to 31.5% in fiscal 1995 from 31.3% in fiscal 1994. Both merchandise
gross profit and occupancy costs remained relatively flat as a percentage of
sales in fiscal 1995, reflecting operating efficiencies at mature stores which
were offset by lower merchandise margins and higher occupancy costs as a
percentage of sales at the five stores opened in fiscal 1995 and the Company's
Santa Fe, New Mexico stores.

Direct store expenses in fiscal 1995 increased 60.0% to $24.8 million from
$15.5 million in fiscal 1994. This increase was primarily due to expenses of
five stores opened and two stores acquired in fiscal 1995 and reporting of a
full year of operations for two stores which had been open for only part of
fiscal 1994. As a percentage of sales, direct store expenses increased to 25.2%
in fiscal 1995 from 23.8% in fiscal 1994, primarily due to higher expenses as a
percentage of sales at the five stores opened in fiscal 1995.

Selling, general and administrative expenses increased to $4.5 million in
fiscal 1995 from $2.3 million in fiscal 1994. As a percentage of sales, selling,
general and administrative expenses increased to 4.5% in fiscal 1995 from 3.5%
in fiscal 1994 due to the addition of central and regional support staff to
support store growth and expansion into new geographic markets.

Wild Oats incurred $1.0 million in pre-opening expenses in fiscal 1995
related to the five stores that opened throughout the year. No pre-opening
expenses were incurred in fiscal 1994 as pre-opening expenses for the one store
opened in January 1994 were expensed in December 1993 since the store was ready
to open at that time.

Net interest expense in fiscal 1995 decreased to $363,000 from $373,000 in
fiscal 1994 as a result of lower average levels of indebtedness.

FISCAL 1994 COMPARED TO FISCAL 1993

Sales in fiscal 1994 increased 37.8% to $65.2 million from $47.3 million in
fiscal 1993. This increase was primarily due to the opening of one store and the
acquisition of two stores in fiscal 1994, and reporting a full year of
operations for two stores which had been open for only part of fiscal 1993.
Comparable store sales increased 13% in fiscal 1994 and accounted for $5.6
million of the increase in sales. Wild Oats attributes the increase in
comparable store sales to the relatively high comparable sales experienced by
two new stores operating in their second full year in fiscal 1994 and to a
continued increase in consumer interest in natural foods.

28
<PAGE> 32

Gross profit in fiscal 1994 increased 37.8% to $20.4 million from $14.8
million in fiscal 1993. As a percentage of sales, gross profit remained flat at
31.3% in fiscal 1994 and fiscal 1993. Merchandise gross profit increased in
fiscal 1994 due to increased purchase discounts, which were offset by higher
occupancy costs as a percentage of sales resulting primarily from the opening of
one store in January 1994.

Direct store expenses in fiscal 1994 increased 42.2% to $15.5 million from
$10.9 million in fiscal 1993. This increase was attributable primarily to
expenses of one store opened and two stores acquired in fiscal 1994 and
reporting of a full year of operations for two stores which had been open for
only part of fiscal 1993. As a percentage of sales, direct store expenses
increased to 23.8% in fiscal 1994 from 23.0% in fiscal 1993 primarily due to
higher expenses as a percentage of sales for the store opened in January 1994.

Selling, general and administrative expenses increased to $2.3 million in
fiscal 1994 from $1.8 million in fiscal 1993. As a percentage of sales, selling,
general and administrative expenses decreased to 3.5% in fiscal 1994 from 3.9%
in fiscal 1993 due to increased leverage of general and administrative expenses
on a larger sales base.

There were no pre-opening expenses in fiscal 1994 because pre-opening
expenses for the store opened in January 1994 were expensed in December 1993
when construction of that store was completed and the store was ready to open.
Wild Oats incurred $416,000 in pre-opening expenses in fiscal 1993 related to
stores opened in January 1993 and January 1994.

Net interest expense in fiscal 1994 increased to $373,000 from $350,000 in
fiscal 1993 as a result of higher average levels of indebtedness.

RESULTS OF OPERATIONS OF ALFALFA'S

The following table sets forth for the periods indicated certain selected
income statement data expressed as a percentage of sales:

<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Sales............................................................. 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs............................ 66.5 66.9 68.3
----- ----- -----
Gross profit...................................................... 33.5 33.1 31.7
Direct store expenses............................................. 24.9 24.9 25.9
----- ----- -----
Store contribution................................................ 8.6 8.2 5.8
Selling, general and administrative expenses...................... 3.8 5.0 5.1
Pre-opening expenses.............................................. 1.0 0.5 0.8
----- ----- -----
Income (loss) from operations..................................... 3.8 2.7 (0.1)
Interest expense, net............................................. 0.4 0.3 --
----- ----- -----
Income (loss) before income taxes................................. 3.4 2.4 (0.1)
Income tax expenses............................................... 1.3 0.9 --
----- ----- -----
Net income (loss)................................................. 2.1% 1.5% (0.1)%
===== ===== =====
</TABLE>

FISCAL 1996 COMPARED TO FISCAL 1995

Sales in fiscal 1996 increased 31.9% to $85.6 million from $64.9 million in
fiscal 1995. The increase was attributable primarily to the opening of two
stores early in fiscal 1996, and a full year of operation for a store opened
late in fiscal 1995. Comparable store sales increased 3.0% in fiscal 1996 and
accounted for $2.4 million of the increase in sales. Comparable store sales were
negatively impacted by the opening of Wild Oats stores in Denver, Colorado.

Gross profit in fiscal 1996 increased 26.0% to $27.1 million from $21.5
million in fiscal 1995. As a percentage of sales, gross profit decreased to
31.7% in fiscal 1996 from 33.1% in fiscal 1995, reflecting the effect of the
opening of stores by Wild Oats in certain of Alfalfa's existing markets and
lower merchandise margins and higher occupancy costs as a percentage of sales at
the new stores opened in fiscal 1996.

Direct store expenses in fiscal 1996 increased 37.0% to $22.2 million from
$16.2 million in fiscal 1995, primarily due to the opening of three stores. As a
percentage of sales, direct store expenses increased to 25.9%

29
<PAGE> 33

in fiscal 1996 from 24.9% in fiscal 1995. This increase is attributed to higher
expenses as a percentage of sales at the three new stores.

Selling, general and administrative expenses increased to $4.4 million in
fiscal 1996 from $3.3 million in fiscal 1995. As a percentage of sales, selling,
general and administrative expenses remained relatively flat at 5.1% in fiscal
1996 as compared to 5.0% in fiscal 1995.

Alfalfa's incurred $662,000 in pre-opening expenses in fiscal 1996
attributable to the opening of two stores, compared to $325,000 in pre-opening
expenses for one store in fiscal 1995.

Other income (expense) in fiscal 1996 decreased to $20,000 from $173,000 in
fiscal 1995 primarily due to the reduced interest expense on lower average
levels of indebtedness.

FISCAL 1995 COMPARED TO FISCAL 1994

Sales in fiscal 1995 increased 41.4% to $64.9 million from $45.9 million in
fiscal 1994. The increase was attributable primarily to the acquisition of two
stores in fiscal 1995, and reporting a full year of operations for one store
which had been open for only part of fiscal 1994. The Company's Seattle,
Washington store, which was opened near the end of fiscal 1995, did not
materially affect sales in fiscal 1995. Comparable store sales increased 8% in
fiscal 1995 and accounted for $3.3 million of the increase in sales.

Gross profit in fiscal 1995 increased 39.6% to $21.5 million from $15.4
million in fiscal 1994. As a percentage of sales, gross profit decreased
slightly to 33.1% in fiscal 1995 from 33.5% in fiscal 1994. Gross margins were
somewhat negatively impacted by the opening of a store by Wild Oats in Denver,
Colorado.

Direct store expenses in fiscal 1995 increased 42.1% to $16.2 million from
$11.4 million in fiscal 1994, due to the acquisition of two stores. As a
percentage of sales, direct store expenses remained constant at 24.9% in fiscal
1995 and fiscal 1994.

Selling, general and administrative expenses increased to $3.3 million in
fiscal 1995 from $1.8 million in fiscal 1994. As a percentage of sales, selling,
general and administrative expenses increased to 5.0% in fiscal 1995 from 3.8%
in fiscal 1994 due to the centralization of retail support operations, the
expansion of the commissary to support the growth of new stores and the
increased overhead from the expansion into a new geographic market through the
acquisition of Capers in Vancouver, British Columbia.

Pre-opening expenses in fiscal 1995 were $325,000 and were incurred in
connection with one store opening in the last month of the fiscal year, compared
with fiscal 1994 pre-opening expenses which were $460,000 and which were
incurred in connection with one store opening and the amortization of the
remaining capitalized pre-opening costs associated with two store openings which
occurred in fiscal 1993.

Other income (expense) increased to $173,000 in fiscal 1995 from $164,000
in fiscal 1994, primarily due to the prepayment of interest in connection with
the conversion of shareholder notes to equity in February 1995.

FLUCTUATIONS IN QUARTERLY RESULTS

30
<PAGE> 34

A variety of factors affect the Company's comparable store sales results,
including, among others, the relative proportion of new stores to mature stores,
the opening of stores by the Company or its competitors in markets where the
Company has existing stores, the timing of promotional events, the Company's
ability to execute its operating strategy effectively, changes in consumer
preferences for natural foods and general economic conditions. Past increases in
comparable store sales may not be indicative of future operating performance.
Comparable store sales results in the last half of 1995 and the first half of
1996 were negatively affected primarily by planned cannibalization resulting
from the implementation of the Company's store clustering strategy and a
competitive store opening by Alfalfa's in Santa Fe, New Mexico. The Company
experienced a comparable store sales decrease in the first quarter of 1996 and
there can be no assurance that comparable store sales for any particular period
will not decrease in the future. See "Risk Factors--Fluctuations in Financial
Results; Non-Recurring Charge."

During late August 1996, the Company made the following decisions relating
to its operations which will result in an approximate $5.5 million non-recurring
charge being recorded in the third quarter of 1996, of which $4.2 million is
expected to be non-cash write-downs. Specifically, as a direct result of the
July 1996 acquisition of Alfalfa's, the Company will incur $1.5 million of the
charge by: (i) closing one store and a regional bakery and kitchen; (ii) moving
out of its existing corporate headquarters and relocating to Alfalfa's former
corporate headquarters; and (iii) consolidating certain information systems and
thereby abandoning certain former Wild Oats hardware and software. In addition,
after operating the combined companies for over a month, management has decided
to close two Alfalfa's facilities (one store and one restaurant) which at the
time of the acquisition the Company had planned to retain, which will result in
the remaining $4.0 million of the charge, of which $3.0 million is expected to
be a non-cash write-down. See "Risk Factors--Fluctuations in Financial Results;
Non-Recurring Charge" and Note 11 of Notes to Consolidated Financial Statements
of Wild Oats Markets, Inc.

The following table sets forth statement of operations and selected
operating data for each of Wild Oats and Alfalfa's last six fiscal quarters and
the percentage of sales represented by the line items presented. The quarterly
statement of operations data and selected operating data set forth below were
derived from unaudited financial statements of Wild Oats and Alfalfa's, which in
the opinion of management of the Company contain all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation thereof.

WILD OATS MARKETS, INC.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
APRIL 1, JULY 1, SEPTEMBER 30, DECEMBER 30, MARCH 30, JUNE 29,
1995 1995 1995 1995 1996 1996
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales...................... $ 19,426 $ 23,359 $ 25,724 $ 30,008 $ 32,327 $ 35,775
Gross profit............... 6,298 7,546 8,119 9,104 10,003 11,675
Store contribution......... 1,989 2,071 1,120 1,101 2,226 2,731
Pre-opening expenses....... -- 218 403 416 254 532
Income (loss) from
operations............... 1,006 852 (380) (699) 677 711
Net income (loss).......... 599 469 (277) (414) 236 222
SELECTED OPERATING DATA:
Number of stores at end of
period................... 14 17 19 21 22 27
Comparable store sales
increase (decrease)
(1)...................... 13% 12% 7% 1% (3)% 2%
AS A PERCENTAGE OF SALES:
Sales...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............... 32.4 32.3 31.6 30.3 31.0 32.6
Store contribution......... 9.9 8.6 4.1 3.4 6.9 7.6
Pre-opening expenses....... -- 0.9 1.6 1.4 0.8 1.5
Income (loss) from
operations............... 5.2 3.6 (1.5) (2.3) 2.1 2.0
Net income (loss).......... 3.1% 2.0% (1.1)% (1.4)% 0.7% 0.6%
</TABLE>

31
<PAGE> 35

ALFALFA'S INC.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
APRIL 2, JUNE 25, SEPTEMBER 24, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales.................... $ 16,910 $ 16,328 $ 19,692 $ 20,840 $ 20,239 $ 24,852
Gross profit............. 5,721 5,429 6,124 6,305 6,287 8,415
Store contribution
(loss)................. 1,462 1,407 636 940 1,091 2,306
Pre-opening expenses..... -- 325 668 (6) -- --
Income (loss) from
operations............. 775 116 (1,103) (120) 29 1,143
Net income (loss)........ 483 97 (679) (94) 2 678
SELECTED OPERATING DATA:
Number of stores at end
of period.............. 8 9 11 11 11 11
Comparable store sales
increase
(decrease)(1).......... 8% (1)% (2)% (2)% (5)% 21%
AS A PERCENTAGE OF SALES:
Sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............. 33.8 32.5 31.1 30.3 31.1 33.9
Store contribution....... 8.7 8.6 3.2 4.5 5.4 9.3
Pre-opening expenses..... -- 2.0 3.4 -- -- --
Income (loss) from
operations............. 4.6 0.7 (5.6) (0.6) 0.1 4.6
Net income (loss)........ 2.9% 0.6% (3.5)% (0.5)% -- 2.7%
</TABLE>

- ---------------
(1) Sales of a store are deemed to be comparable commencing in the thirteenth
full month after the store was opened or acquired.

LIQUIDITY AND CAPITAL RESOURCES

Wild Oats' primary sources of capital have been cash flow from operations,
trade payables, bank indebtedness, and the sale of convertible debt and equity
securities. Primary uses of cash have been the financing of store openings and
acquisitions. The following table presents a summary of the Company's cash flows
for fiscal 1993, 1994 and 1995 and the first half of fiscal 1996:

<TABLE>
<CAPTION>
SIX
MONTHS
FISCAL YEAR ENDED
------------------------------- JUNE 29,
1993 1994 1995 1996
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating activities......... $ 2,051 $ 1,529 $ 4,626 $ 2,725
Net cash used in investing activities............. (1,444) (4,268) (17,042) (6,690)
Net cash provided by financing activities......... 642 7,559 7,153 5,631
------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents..................................... $ 1,249 $ 4,820 $(5,263) $ 1,666
======= ======= ======= =======
</TABLE>

Net cash provided by operating activities was $2.1 million, $1.5 million
and $4.6 million in fiscal 1993, 1994 and 1995, respectively, and $2.7 million
in the first half of fiscal 1996. Net income increased in fiscal 1994 but cash
provided by operating activities decreased primarily as a result of a decrease
in accounts payable. Net income decreased in fiscal 1995 but net cash provided
by operating activities increased as a result of increased depreciation and
amortization as well as increased accounts payable in connection with the
initial inventory acquired for the five stores opened in fiscal 1995. The
Company typically receives extended payment terms from vendors in connection
with store openings. Cash flow from operations decreased in the first half of
fiscal 1996 as a result of a decrease in net income related to the performance
of stores opened in the last half of fiscal 1995 and the first half of fiscal
1996. As demonstrated in fiscal 1995, the Company has not required

32
<PAGE> 36

significant external financing to support inventory requirements at its existing
and new stores because it has been able to rely on vendor financing for most of
the inventory costs.

Net cash used by investing activities was $1.4 million, $4.3 million and
$17.0 million in fiscal 1993, 1994 and 1995, respectively, and $6.7 million in
the first half of fiscal 1996. These expenditures related primarily to the
acquisition and opening of 12 stores. The Company opened or acquired two, three
and seven stores in fiscal 1993, 1994 and 1995, respectively, and six stores in
the first half of fiscal 1996.

Net cash provided by financing activities was $642,000, $7.6 million and
$7.2 million in fiscal 1993, 1994 and 1995, respectively, and $5.6 million in
the first half of fiscal 1996. In fiscal 1993, the Company received net proceeds
of $2.0 million from the sale of preferred stock and $1.3 million from increased
borrowings. In connection with the preferred stock financing, the Company used
$1.0 million to repurchase shares of Common Stock from one of the Company's
founders. In fiscal 1994, the Company received net proceeds of $12.5 million
from the sale of preferred stock and $125,000 from the sale of common stock. In
connection with the preferred stock financing, the Company used $4.3 million to
repurchase shares of common stock from two stockholders. In addition, the
Company reduced its borrowings by $1.5 million. Net cash provided by financing
activities in fiscal 1995 and the first half of fiscal 1996 consisted primarily
of increased borrowings.

The Company acquired Alfalfa's in July 1996 in a stock-for-stock
transaction. Immediately prior to the acquisition, the Company received net
proceeds of $16.5 million from the sale of preferred stock. The proceeds from
this financing were used to repurchase shares of capital stock from certain
stockholders of Alfalfa's and a stockholder of Wild Oats upon the closing of the
acquisition.

The Company currently has a $20.0 million revolving line of credit with
Bank One Indianapolis, National Association (the "Revolving Line"). The
Revolving Line bears interest at the lender's prime rate and has a final
maturity of February 2002. At June 29, 1996, the Company had borrowings
outstanding under the Revolving Line of approximately $17.0 million. The Company
intends to use a portion of the net proceeds from this offering to repay amounts
outstanding on the Revolving Line. Following this offering the Company will have
approximately $20.0 million of available borrowing capacity, subject to certain
covenants and other restrictions applicable to the Revolving Line. The Company
is currently in discussion with its lender to increase its borrowing capacity
under the Revolving Line. The Company's ability to borrow under the Revolving
Line is contingent upon its compliance with certain material covenants,
including covenants related to the Company's net worth, total funded debt to
total capitalization ratio, interest coverage ratio, tangible capital base and
fixed charge coverage.

The Company anticipates that it will spend approximately $4.5 million in
the second half of fiscal 1996 to open three stores. Historically, the Company's
cash requirements to open a store, including leasehold improvements, equipment
and fixtures, have ranged from $1.0 million to $2.0 million, excluding inventory
costs and initial operating losses. The cost of initial inventory for a new
store is approximately $500,000; however, the Company relies on vendor financing
for most of this cost. Pre-opening costs are approximately $250,000 per store
and are expensed when the new store opens. The amounts and timing of such
expenditures will depend upon the availability of new store sites and other
factors, including the location of the store and whether it is in a new or
existing market for the Company, the size of the store, and the required
build-out at the site. Costs to acquire future stores, if any, are impossible to
predict and could vary materially from the cost to open new stores. There can be
no assurance that actual capital expenditures will not exceed anticipated
levels.

The Company believes that the net proceeds of this offering, together with
cash generated from operations and funds available under the Revolving Line,
will be sufficient to satisfy its cash requirements through fiscal 1997.

33
<PAGE> 37

BUSINESS

INTRODUCTION

Wild Oats is the second largest natural foods supermarket chain in North
America with the largest natural foods store base in the western United States.
The Company currently operates 39 stores under the names Wild Oats and Alfalfa's
in eight states, including California, Colorado, Kansas, Missouri, Nevada, New
Mexico, Utah and Washington and under the name Capers in British Columbia,
Canada. The Company is dedicated to providing a broad selection of high quality
natural and gourmet foods and related products at "down to earth" competitive
prices in an inviting and educational store environment emphasizing customer
service. The Company's stores range in size from 5,000 to 35,000 square feet and
feature natural alternatives in virtually every product category found in
conventional supermarkets, providing consumers with a one-stop, full-service
shopping alternative to both conventional supermarkets and traditional health
food stores.

The Company has grown from six natural foods stores located primarily in
Colorado at the end of 1991, to 21 stores in six states at the end of 1995,
representing a compound annual growth rate of 36.8%. During this period, the
Company's sales increased from $25.2 million to $98.5 million, representing a
compound annual growth rate of 40.6%. This growth resulted from the acquisition
of independent and small chain natural foods store operators, the opening of new
stores and positive comparable store sales growth. In the first half of 1996,
the Company opened three new stores and acquired three additional stores and
sales increased 59.1% to $68.1 million from $42.8 million in the first half of
1995. In July 1996, Wild Oats completed the acquisition of Alfalfa's, a leading
natural foods supermarket chain operating 11 stores in three states and Canada.
From fiscal 1994 to fiscal 1996 Alfalfa's grew from six to 11 stores,
representing a compound annual growth rate of 35.4%. During this same period
sales increased from $45.9 million to $85.6 million, representing a compound
annual growth rate of 36.6%. Through the acquisition of Alfalfa's, the Company
combined two natural foods retailers with similar operating strategies and
complementary store bases, increased the Company's penetration of existing
markets, entered new geographic markets and created a stronger platform for
future growth. The Company has identified two stores for closure including the
Alfalfa's Seattle, Washington store. On a pro forma basis, after giving effect
to the Company's 1996 acquisitions, including the acquisition of Alfalfa's, the
Company had sales of $182.4 million in 1995 and $117.9 million in the first half
of 1996.

NATURAL FOODS INDUSTRY

Natural foods are defined as foods which are minimally processed, free of
artificial ingredients, preservatives and other non-naturally occurring
chemicals and, in general, are as near to their whole, natural state as
possible. Most natural products fall into the food category, but the natural
foods industry also encompasses a number of other categories such as
naturally-based cosmetics, toiletries and personal care items, vitamins and
herbal supplements, naturally-based cleaning agents, and natural and homeopathic
medicines. While sales growth in the traditional supermarket industry remained
relatively flat, the natural foods industry has grown at a 17% compound annual
growth rate since 1990. According to The Natural Foods Merchandiser, a leading
industry publication, growth in the natural foods industry has accelerated from
a 10% increase in sales in 1991 to a 22% increase in sales in each of 1994 and
1995, when the market reached $9.1 billion in sales. The Company believes that
this growth is being propelled by several factors, including healthier eating
patterns, increasing concern regarding food purity and safety, and greater
environmental awareness. While natural products generally have higher costs of
production and correspondingly higher retail prices, the Company believes that a
growing segment of the population now attributes added value to high quality
natural products and is willing to pay a premium for such products. Indeed,
while early growth in the industry was attributed to more educated, wealthier
consumers, there is increasing evidence that the mainstream consumer is driving
much of the recent growth. Further, according to industry data, the natural
foods industry comprises less than 3% of the total supermarket industry,
allowing for significant potential to continue to expand the customer base.

Traditional natural foods stores, offering only vitamins, dietary
supplements, herbs and a limited selection of natural foods product lines, first
emerged over 50 years ago. Over the years, as consumer demand for natural foods
has increased, the number of natural foods stores has grown and the product mix
has expanded. More distributors and vendors have entered the natural foods
industry and many more natural products have become available. In response to
increasing supply and demand, larger format natural foods stores have emerged,

34
<PAGE> 38

offering virtually every product category found in a conventional supermarket,
including grocery, produce, meat, poultry, seafood, dairy, frozen, deli, bakery,
health and body care and household items. Today, natural foods stores offer a
one-stop, full-service grocery shopping alternative to conventional supermarkets
and appeal to a broader, more mainstream customer base than the traditional
natural foods store.

The Company believes that the appeal of natural foods supermarkets is based
on the quality of the total shopping experience. Many natural foods stores
develop a personal relationship with their customers because there is typically
more interaction between the customer and the store staff than in a conventional
supermarket. The Company believes that conventional supermarkets historically
have had only limited success in competing in the natural foods segment because
they are largely dependent on national brands. As a result, while conventional
supermarkets may carry a limited selection of natural food products, it is
difficult for them to duplicate the inventory of natural foods stores which
carry a more comprehensive selection of natural products sourced from a large
number of independent vendors.

The natural foods industry is highly fragmented. According to The Natural
Foods Merchandiser, there were approximately 6,600 independent natural/health
foods stores in 1995, which generated approximately $6.1 billion of the total
$9.1 billion of natural food sales. Only 13% of these 6,600 stores were
full-service, natural foods stores (defined as stores having a minimum of 5,000
square feet and offering a full range of product categories, including fresh
meat and seafood). The Company believes that the two largest natural foods
retailers (Wild Oats and Whole Foods Markets, Inc.) represented approximately
6.9% of the total natural foods dollars spent by consumers in 1995. There has
been considerable consolidation in the industry as natural foods supermarket
chains have acquired smaller independent competitors. The Company believes
natural foods supermarkets, with their extensive product offerings and broad
customer appeal, will continue to lead the overall growth and consolidation in
the natural foods industry.

OPERATING STRATEGY

The Company's objective is to become the grocery store of choice both for
natural foods shoppers and quality-conscious consumers in each of its markets by
emphasizing the following key elements of its operating strategy:

Destination Format. The Company's stores are one-stop, full-service
supermarkets for customers seeking high quality natural and gourmet foods and
related products. In most of its stores, the Company offers between 10,000 and
25,000 SKUs of natural products in virtually every product category found in a
conventional supermarket. The Company's stores carry a much broader selection of
natural and gourmet foods and related products than those offered by typical
independent natural foods stores or conventional supermarkets.

High Quality, Unique Products. The Company seeks to offer the highest
quality products throughout its merchandise categories and emphasizes unique
products not typically found in conventional supermarkets. The Company's strict
quality standards require products to be minimally processed, free of
preservatives, artificial colors and chemical additives, and not tested on
animals. Each store tailors its product mix to meet the preferences of the local
market, in particular sourcing produce from local organic growers whenever
possible. The Company also operates regional kitchens and bakeries that provide
its stores with fresh bakery items and a unique assortment of prepared foods for
the quality and health-conscious consumer.

Educational and Entertaining Store Environment. At Wild Oats, shopping is
"theater." Each store strives to create a fun, friendly and educational
environment that makes grocery shopping enjoyable and encourages shoppers to
spend more time in the store and to purchase new products. In order to enhance
customers' understanding of natural foods and how to prepare them, the Company
trains its store staff to educate customers as to the benefits and quality of
its products and prominently features educational brochures and newsletters as
well as an in-store consumer information department. In addition, many stores
offer cafe seating areas, espresso and fresh juice bars, and in-store massage
therapists, all of which emphasize the comfortable, relaxed nature of the
shopping experience. The Company believes its knowledgeable store staff and high
ratio of store staff to customers results in significantly higher levels of
customer service than in a conventional supermarket.

35
<PAGE> 39

Extensive Community Involvement. The Company believes that one of the key
features which differentiates it from the competition is the degree of its
commitment to the local community. Each store makes significant monetary and
in-kind contributions to local not-for-profit organizations through programs
such as "5% Days," where each store donates 5% of its gross sales one day each
month to a local not-for-profit group, and "Charity Work Benefits" where the
Company pays employees for time spent working for local charities. The Company
believes that its support of the local community generates customer loyalty and
repeat business.

Flexible Store Format. The Company's flexible store format enables it to
customize its stores to specific site characteristics and to meet the unique
needs of a variety of markets. The Company's supermarket format stores are
adapted in size and product selection to suburban markets and its urban format
stores are designed to appeal in size and product selection to more densely
populated urban markets. The Company believes that this flexible store format
strategy allows it to operate successfully in a diverse set of markets, enabling
it to reach a broader customer base and increase market penetration.

Competitive Pricing. The Company seeks to offer products at prices which
are at or below those of other natural foods stores. The Company has implemented
a "down to earth" competitive price program designed to ensure that high
quality, all natural items in each product category are offered at prices that
are competitive with those offered on similar items in conventional
supermarkets. The Company believes these pricing programs broaden its consumer
appeal and encourage its customers to fill more of their shopping needs at the
Company's stores.

Motivated Staff. The Company has developed a unique culture by encouraging
active participation and communication among all staff members, advocating
store-level participation in a variety of marketing, merchandising and operating
decisions and rewarding staff based upon the achievement of targeted store-level
sales and other financial performance criteria. In addition, the Company
generally hires individuals dedicated to the concept of natural foods and a
healthy lifestyle. The Company believes that these practices translate into a
satisfied and motivated staff and a high level of customer service.

GROWTH STRATEGY

Wild Oats is the second largest natural foods supermarket chain in North
America. To date, the Company has focused its growth in the western half of the
U.S. and has built the largest store base in that region. The Company's growth
strategy is to increase sales and income through: (i) new store expansion; (ii)
increased sales at existing stores; and (iii) realization of operating
efficiencies from the acquisition of Alfalfa's.

New Store Expansion. The Company has grown from six stores at the end of
1991 to 39 stores currently, through a combination of both new store openings
and acquisitions. Since its inception, the Company has opened 16 stores and
acquired 23 stores (including 11 Alfalfa's stores). The Company has identified
two stores for closure, including the Alfalfa's Seattle, Washington store. Wild
Oats plans to open two additional stores in the remainder of 1996 and to open or
acquire seven stores in 1997. The Company intends to continue to strengthen its
position in the western United States and to expand into new regions, such as
Florida, which it believes offer significant opportunities for natural foods
retailers. While the Company believes that most of its new store expansion will
result from store openings, it continues to evaluate acquisition opportunities
in both existing and new markets. The Company has signed leases for two stores
in Southern California and Florida planned to open in 1996 and for two stores in
Northern and Southern California planned to open in 1997. There can be no
assurance that the Company will achieve its planned expansion in existing
markets or enter new markets. The Company intends to operate new stores
primarily under the Wild Oats name.

Historically, the Company has pursued a strategy of clustering stores
within each of its markets in order to more fully penetrate these markets,
achieve operating efficiencies and enhance name recognition. The Company
believes this strategy has resulted in increased overall sales in each of its
markets. In the past when the Company has opened a store in a market in which it
had an existing presence, the Company has experienced a decline in the revenue
and operating results at certain of its existing stores in that market. However,
over time the affected stores generally have achieved store contribution margins
comparable to prior

36
<PAGE> 40

levels on the lower base of sales. The Company intends to continue to pursue its
store clustering strategy and expects these trends to continue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company's expansion plans depend on a number of factors. See "Risk
Factors--Uncertain Ability to Execute Growth Strategy" for a discussion of
certain of the risks associated with the Company's ability to achieve its
planned expansion.

Increase Sales at Existing Stores. The Company believes that historical
growth in sales at the Company's existing stores reflects continued strong
growth in the natural foods industry as well as improved execution of the
Company's operating strategy. The Company continually seeks to increase sales at
its existing stores and has undertaken several initiatives designed to increase
comparable store sales. The Company is seeking to attract new customers,
generate repeat business and gradually increase the size of the average
transaction by introducing, expanding and improving key merchandise categories
such as perishables (produce, deli and prepared foods) and private label
products, as well as implementing standardized marketing programs and expanding
customer service. See "Risk Factors--Fluctuations in Financial Results;
Non-Recurring Charge," "Business--Products" and "--Marketing."

Realization of Operating Efficiencies from the Acquisition of
Alfalfa's. The Company believes the continuing integration of Alfalfa's will
result in future operating efficiencies created by warehousing, distribution and
administrative economies of scale, improved merchandise buying terms, and the
implementation of coordinated merchandising and marketing strategies. The
Company believes that the integration of the best operating, merchandising and
marketing practices of Wild Oats and Alfalfa's will create the potential for
increased productivity and profitability at the Company's stores. For example,
Wild Oats has a deep selection and expertise in natural living while Alfalfa's
is recognized for the variety and quality of its perishables, especially in its
deli, bakery, and meat departments. The Company has begun to improve and expand
the merchandise offerings in its stores and believes it can continue to enhance
the merchandising in both stores. There can be no assurance that the Company
will not encounter unanticipated problems or liabilities in connection with the
integration of Alfalfa's. See "Recent Acquisitions and New Store Openings,"
"Risk Factors--Integration of Alfalfa's," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Acquisition of Alfalfa's."

37
<PAGE> 41

STORE LOCATIONS

The following map and store list show the number of stores that the Company
operates in each state and the cities in which the Company's stores are located
as of September 1, 1996.

[MAP OF UNITED STATES]

<TABLE>
<CAPTION>
CALIFORNIA COLORADO KANSAS NEVADA
- ---------- -------- ------ ------
<S> <C> <C> <C>
Berkeley Aurora Lawrence Las Vegas (2)
Mission Viejo Boulder (3) Mission
Pasadena Colorado Springs
San Francisco Denver (4)
San Anselmo Fort Collins (2) MISSOURI NEW MEXICO
Santa Monica Greenwood Village -------- ----------
West Hollywood Littleton Kansas City Albuquerque (2)
Vail St. Louis Santa Fe (3)

UTAH WASHINGTON BRITISH COLUMBIA, CANADA
- ---- ---------- ------------------------
Salt Lake City (3) Seattle Vancouver (2)
West Vancouver
</TABLE>

SITE SELECTION AND STORE FORMAT

Prior to opening or acquiring a store, the Company analyzes the local
market, including: (i) certain demographic data, such as education level,
average income, population density and age distribution; (ii) certain lifestyle
data, such as the levels of cultural awareness, physical exercise, health
consciousness and environmental awareness in the community; and (iii) the
existing competition. In addition to performing internal market analysis, the
Company frequently engages an outside consultant to conduct additional market
studies and validate internal sales forecasts. The Company's flexible strategy
allows it to open stores in a variety of locations and adapt its store layout
and merchandise selection to accommodate specific site characteristics, regional
themes and local cultural traditions. The Company seeks locations of
approximately 15,000 to 25,000 square feet for its supermarket format stores and
generally seeks to be either an anchor tenant in a regional neighborhood
shopping center or a stand-alone store with high visibility, easy access and
plenty of parking. The Company seeks locations of approximately 5,000 to 15,000
square feet for urban format stores and generally seeks to be in the commercial
district of densely populated residential areas with convenient parking and a
high level of foot traffic.

38
<PAGE> 42

When the Company acquires a store it remodels the store in accordance with
the Company's specifications. These acquired stores remain in operation while
they are being remodeled and are not renamed "Wild Oats" until the remodeling is
completed. The timing and cost of the remodel of each store varies depending on
the location of the store and whether it is in a new or existing market for the
Company, the size of the store and the required build-out. The Company typically
requires eight to 16 weeks to remodel a store.

PRODUCTS

The Company offers its customers a broad selection of unique, high quality
products that are natural alternatives to those found in conventional
supermarkets. The Company typically does not offer well known national brands
and focuses instead on a comprehensive selection of natural products within each
category. Although the core merchandise assortment is similar at each of the
Company's stores, individual stores adapt the product mix to reflect local and
regional preferences. Stores source produce from local organic growers whenever
possible and typically offer a variety of local products unique to the region.
In addition, in certain markets, stores may offer more food service, gourmet and
ethnic items as well as feature more value-added services such as gift baskets,
catering and home delivery, and in other markets, a store may focus more on bulk
foods, produce and staple grocery items. The Company and its stores regularly
introduce new high quality and locally grown products in its merchandise
selection to minimize overlap with products carried by conventional
supermarkets.

Wild Oats has historically had a deep selection and expertise in natural
living, whereas Alfalfa's has been recognized for the variety and quality of its
deli, bakery and meat departments. As part of the integration, the Company is
currently improving and expanding the merchandise selection in each of these
categories to incorporate the best merchandising practices of both companies. In
addition, the Company intends to continue to expand and enhance its prepared
food and in-store cafe environment. The Company believes that consumers are
increasingly seeking convenient, healthy, "ready-to-eat" meals and that by
increasing its commitment to this category it can provide an added service to
its customers, broaden its customer base, and further differentiate itself from
conventional supermarkets and traditional natural food stores.

Quality Standards. The Company's objective is to offer products which meet
the following standards: free of preservatives, artificial colors, chemical
additives and added hormones; organically grown, whenever possible; minimally
processed; and not tested on animals. The Company continually evaluates new
products, quality issues and controversial ingredients and frequently counsels
store managers on compliance with the Company's strict product standards.

Product Categories. The Company's stores typically feature the following
product categories:

<TABLE>
<CAPTION>
PRODUCT CATEGORY DESCRIPTION
- ------------------------- -----------------------------------------------------------------
<S> <C>
Grocery.................. Pastas, canned goods, cereals, cooking oils, juices, salad
dressings, crackers, chips, pretzels, cookies, baking items,
sodas, bottled waters, and beer and wine in selected stores. Many
products are formulated for special diets and are identified as
fat-free, low-sodium, wheat-free or dairy-free;
Produce.................. Majority of produce is organically grown, although the
availability varies, and is sourced seasonally from local organic
farmers whenever possible. All produce is clearly labeled as to
whether it was grown organically or commercially;
Prepared Foods........... Hot entrees, salads, sushi, wraps, pizza and pasta which can be
taken out or, in the larger stores, eaten in the store's cafe
seating area. Most stores feature full- service delis as well as
espresso and fresh juice bars;
Baked Goods.............. Muffins, cakes, breads and pies, which are supplied by both the
Company's bakeries and outside vendors, and signature items
including a proprietary line of private label gourmet breads;
Meat/Poultry/Seafood..... Fresh beef, lamb, pork, seafood and free-range poultry, as well
as value-added meat products such as stuffed peppers, marinated
meats and home-made sausages;
</TABLE>

39
<PAGE> 43

<TABLE>
<CAPTION>
PRODUCT CATEGORY DESCRIPTION
- ------------------------- -----------------------------------------------------------------
<S> <C>
Dairy/Frozen............. Dairy products, both organic and commercial, such as yogurt,
milk, cheese, eggs, soy milk, soy foods, and fresh juices, and
frozen products such as ice cream, frozen yogurt, entrees,
vegetables, desserts, juices, meat and meat substitutes;
Bulk Products............ Generally between 200 and 500 SKUs of bulk products, including
beans, pastas, grains, rice, coffee, granolas, snacks, nuts,
flours, seeds, dried fruits, soaps, detergents, shampoos and
conditioners;
Natural Living........... Vitamins, supplements, herbs and body care items such as
shampoos, lotions, cosmetics, deodorants, dental care products,
nutritional supplements, herbal tinctures, bulk herbs and
homeopathic remedies as well as a selection of health-related
books and magazines; and
General Merchandise...... Environmentally-friendly cleaning compounds, housewares, kitchen
tools, recycled paper products and other natural household items,
as well as selected gift items, such as natural fiber clothing,
greeting cards and decorative glassware.
</TABLE>

Private Label. The natural foods industry is highly fragmented and
characterized by many small independent vendors. As a result, the Company
believes that its customers do not have strong loyalty to particular brands of
natural foods products. In contrast to conventional supermarkets whose private
label products are intended to be low cost alternatives to name-brand products,
the Company has developed a private label program in order to build brand
loyalty to specific products based on its relationship with its customers and
its reputation as a natural foods authority. Through this program, Wild Oats has
successfully introduced a number of high quality, unique private label products,
such as non-dairy rain forest chocolate bars, gourmet breads, salsa, salad
dressings, all-natural vitamins, chips, pretzels, tortillas, fresh juices,
pasta, pasta sauces, oils, and canned fruit. The Company intends to continue to
expand its private label product offerings on a selected basis.

Pricing. In general, natural and gourmet foods and related products have
higher costs of production and correspondingly higher retail prices than
conventional grocery items. The Company's pricing strategy has been to maintain
prices that are at or below those of its natural foods competitors while
educating its customers as to the higher quality and added value of its products
so as to differentiate them from conventional products. Like most conventional
supermarkets, the Company regularly features dozens of sale items that are
rotated periodically. In addition, the Company has an ongoing "down to earth"
competitive pricing program that consistently features a natural foods item in
each major product category at a price that is competitive with or lower than
its conventional equivalent. The Company regularly monitors the prices at its
natural foods and conventional supermarket competitors to ensure its prices
remain competitive.

STORE ENVIRONMENT

At Wild Oats, shopping is "theater." Each store strives to create a fun,
friendly and educational environment that makes grocery shopping enjoyable and
encourages shoppers to spend more time in the store and to purchase new
products. In order to enhance customers' understanding of natural foods and how
to prepare them, the Company trains its store staff to educate customers as to
the benefits and quality of its products and prominently features educational
brochures and newsletters as well as an in-store consumer information
department. Product brochures, recipe card areas, food sampling stations,
informational signage and, in certain stores, an educational computer kiosk, are
used extensively throughout the store. Most stores offer cafe seating areas,
espresso and fresh juice bars and in-store massage therapists, all of which
emphasize the comfortable, relaxed nature of the Wild Oats shopping experience.
In addition, each store features a monthly calendar of special events such as
educational presentations, children's events, cooking classes, live music, prize
drawings and dog washes. Certain departments are remerchandised several times a
year according to seasonal themes or different marketing campaigns, such as Rain
Forest Month or Organic Harvest Month. The stores also sponsor many
community-related activities such as presentations on health and safety as well

40
<PAGE> 44

as fund-raising drives for local organizations. The Company encourages and
receives feedback from its customers through its suggestion boxes and posts
responses on the store's community bulletin board.

COMPANY CULTURE AND STORE OPERATIONS

Company Culture. The Company's culture is embodied in its "Four Areas of
Responsibility": responsibility to its customers, its staff, its community and
its bottom line. In particular, Wild Oats believes that knowledgeable, satisfied
and motivated staff members have a direct impact on store performance and
overall profitability. Wild Oats encourages active participation and open
communication among all staff members and advocates store-level participation in
a variety of marketing, merchandising and operating decisions. The Company has
made a substantial commitment to staff education and has created an in-house
training program which consists of an intensive orientation for new hires and
mandatory monthly and quarterly education programs for the general staff. The
Company generally hires individuals dedicated to the concept of natural foods
and a healthy lifestyle and seeks to promote store-level employees to positions
of increasing responsibility.

Management and Employees. The Company's stores are organized into seven
geographic regions, each of which has a regional director who is responsible for
the store operations within his or her region and who reports to the Company's
senior management. The Company's regional directors are responsible for, and
frequently visit, their cluster of stores to monitor financial performance and
ensure adherence to the Company's operating standards. The typical staff of a
Wild Oats store consists of one store manager, ten department managers and
between 25 to 200 additional hourly staff members, most of whom work full time.
Store and department managers are responsible for the operations of individual
stores including recruiting and hiring store personnel, communicating financial
results nightly, coordinating merchandise ordering, distribution and receiving,
and to a limited extent, supplementing their stores merchandise mix with
regional and other products suited for their specific market. The accounting
department provides a detailed monthly financial analysis of every department in
each store which is reviewed by both the store and regional managers. The
Company maintains a staff of corporate level department specialists including
Natural Living, Prepared Foods, Produce, Meat/Poultry/Seafood and Grocery
coordinators who manage centralized buying programs and assist in store-level
merchandising, pricing and staff training to ensure Company-wide adherence to
product standards and store concept.

All regional directors and store managers and certain store-level staff
participate in an incentive plan that ties compensation awards to the
achievement of specified store-level sales, profitability and other financial
performance criteria. The Company also seeks to foster enthusiasm and dedication
in its staff members through comprehensive benefits packages including health
insurance and wellness programs as well as an employer matching 401(k) plan and
Equity Incentive Plans.

PURCHASING AND DISTRIBUTION

The Company has a centralized purchasing function which sets product
standards, approves products and negotiates volume purchase discount
arrangements with distributors and vendors. Individual store purchases are
handled through its department managers who make purchasing decisions within
these established parameters. This approach enables each store to customize its
product mix to meet the needs and preferences of its customers while adhering to
the Company's established product standards and allowing each store to benefit
from the Company's volume purchasing discounts.

The wholesale segment of the natural foods industry provides a large and
growing array of product choices across the full range of grocery product
categories. Although the Company purchases products from more than 1,000
suppliers, the Company purchases nearly half of its products from a single
wholesale distributor which operates warehouses in Colorado and California. The
Company believes that this distributor is able to service all of the Company's
existing stores as well as any future sites. As a result of the Alfalfa's
acquisition, the Company was able to negotiate greater volume discounts with
this distributor and certain other vendors. The Company has no supply contracts
with these parties and any vendor or distributor could discontinue selling to
the Company at any time. The Company believes that it could develop alternative
sources of supply; however, any such termination may create a short-term
disruption in store-level merchandise selection. See "Risk Factors--Product
Sourcing."

41
<PAGE> 45

Most products are delivered directly to the stores by vendors and
distributors. The Company currently operates a consolidated warehouse facility
in Denver which receives and distributes truck load purchases and distributes
products that cannot be delivered directly to the stores by outside vendors. The
Company maintains a small fleet of local delivery vans and over-the-road trucks.
As the Company enters new markets it will review the need for additional
warehouse and distribution facilities.

The Company operates four off-site kitchens in Santa Fe, New Mexico and
Denver, Colorado and Los Angeles and San Francisco, California as well as a
bakery in Denver, Colorado. The Company is in the process of closing one of its
off-site kitchens in Boulder which it expects to complete by the end of 1996.
These facilities produce deli food, take out food, bakery products and certain
private label items exclusively for sale in the Company's stores. Each kitchen
can make daily deliveries to stores within a hundred mile radius of the
facility. The Company intends to add new kitchens as it expands into new
markets.

MARKETING

The Company's marketing programs are primarily focused on in-store customer
education and information. The Company believes that its customers are more
responsive to the quality of the shopping experience, issue-based marketing and
word-of-mouth advertising than to price-based marketing and traditional media
advertising. As a result, the Company focuses on consumer education and
emphasizes the benefits and quality of its products such as the fact that an
item is organic or grown locally. The Company uses a variety of media, including
in-store flyers, newspaper inserts and promotional brochures in which it
promotes the depth of its merchandise selection, benefits of natural products,
and "down to earth" competitive prices. When the Company first enters a new
market, the Company executes an intense marketing campaign to build awareness of
its new store and its selection of natural products. After the initial campaign,
this advertising is replaced by the marketing strategies described above. The
Company's advertising costs historically have been less than 1.5% of sales.

MANAGEMENT INFORMATION SYSTEMS

The Company's management information systems have been designed to provide
detailed store-level profitability financial data, including sales, gross
margin, payroll and store contribution, to regional and store managers and to
the Company's headquarters on a timely basis. Currently, certain store-level
accounting and inventory management systems are processed manually. In addition,
the Company is in the process of transferring Alfalfa's accounting functions to
the Company's system. The Company intends to convert the currently different
Wild Oats and Alfalfa's point-of-sale and pricing systems to one system. Certain
of the Wild Oats stores do not have automated point-of-sale and pricing systems.
The Company is in the process of evaluating point-of-sale and pricing systems
and anticipates selecting and installing one system by the end of 1997 for use
at all stores. Although the Company believes that a combined system can be
implemented without significant disruptions in its operations or financial
reporting, there can be no assurance that such disruption will not occur. The
Company may need to upgrade its information systems to meet the demands of its
growing operations. See "Risk Factors--Management of Growth."

COMPETITION

The Company's competitors currently include other independent and
multi-unit natural foods supermarkets, smaller traditional natural foods stores,
and conventional supermarkets and specialty grocery stores. A number of other
natural foods supermarkets offer a range of natural foods products similar to
those offered in the Company's stores. The Company believes that the principal
competitive factors in the natural foods industry include customer service,
quality and variety of selection, store location and convenience, price and
store atmosphere. The Company believes that its primary competitor is Whole
Foods Market, Inc., a publicly-traded company based in Texas. The Company
competes with Whole Foods in California. While certain conventional
supermarkets, smaller traditional natural foods stores and small specialty
stores do not offer as full a range of products as the Company, they do compete
with Wild Oats in one or more product categories. Many of the Company's
competitors have been in business longer and have greater financial or marketing
resources than the Company and may be able to devote greater resources to
securing suitable locations and to the sourcing, promotion and sale of their
products. In addition, should any of the Company's competitors

42
<PAGE> 46

reduce prices, the Company may be required to implement price reductions in
order to remain competitive, which could have an adverse impact on its business,
financial condition and results of operations. As Wild Oats enters new
geographic markets, its success will depend in part on its ability to gain
market share from established competitors. In addition, traditional and
specialty grocery stores may expand more aggressively in marketing a broader
range of natural foods and related products and thereby compete directly with
the Company for products, customers and locations. The Company expects
competition from both new and existing competitors to increase in its markets
and there can be no assurance that the Company will be able to compete
effectively in the future. See "Risk Factors--Competition."

EMPLOYEES

As of July 27, 1996, the Company employed 1,963 full-time individuals and
933 part-time individuals. Approximately 2,896 of the Company's employees are
engaged at the store-level and 120 are devoted to regional administrative and
corporate activities. The Company believes that it maintains good relations with
its employees. The Company's success will depend in large part upon its ability
to attract and retain these and future employees. The Company's store in
Seattle, Washington was under an informational picket from time-to-time since
June 1995 by the local Food and Commercial Workers Union. The picketers were
hired by the union and had never worked for the Company. These unions did not
successfully organize the store's employees or call for a unionization vote.

PROPERTIES

The Company currently leases an aggregate of approximately 11,500 square
feet for its corporate offices in two locations in Boulder, Colorado. The
Company is currently consolidating its headquarters into one facility. The lease
for the corporate headquarters into which the Company is moving covers 6,500
square feet, expires in October 2006 and has a renewal option for an additional
six year term. The rental payment is a fixed base rate. The lease for the space
where the Company formerly operated covers 5,141 square feet and will terminate
in six months. The lease for Company's warehouse expires in August 1999 and is
subject to two renewal options of three years each. The rental payment is a
fixed base rate.

The Company leases all of its stores, except for the Lawrence, Kansas store
(which it owns). The Company's leases typically provide for a ten-year base term
and generally have several renewal periods. The rental payments are either fixed
base rates or percentages of sales with minimum rentals. All of the leases are
accounted for as operating leases. See Note 9 of Notes to Consolidated Financial
Statements of Wild Oats Markets, Inc.

The Company periodically evaluates the location and productivity of its
stores and may close, consolidate or relocate stores from time-to-time. The
following is a list of the Company's stores as of September 1, 1996.

<TABLE>
<CAPTION>
APPROXIMATE
GROSS
SQUARE
TERRITORY/STORE LOCATION DATE OPENED/ACQUIRED FOOTAGE
- ------------------------- ------------------------- ------------------------- ----------
<S> <C> <C> <C>
NORTHERN CALIFORNIA/
PACIFIC NORTHWEST
Wild Oats Berkeley Berkeley, CA Acquired April 1995 7,500
Wild Oats San Anselmo San Anselmo, CA Acquired April 1995 8,500
Wild Oats San Francisco San Francisco, CA Opened April 1996 9,000
Alfalfa's Seattle Seattle, WA Acquired July 1996 16,500
SOUTHERN
CALIFORNIA/NEVADA
Wild Oats Mission Viejo Mission Viejo, CA Opened May 1996 23,500
Wild Oats Pasadena Pasadena, CA Opened January 1994 15,000
Wild Oats Santa Monica Santa Monica, CA Opened September 1995 8,200
Wild Oats West Hollywood West Hollywood, CA Opened February 1996 14,000
Wild Oats Las Vegas East Las Vegas, NV Acquired July 1994 10,400
Wild Oats Las Vegas West Las Vegas, NV Acquired July 1994 16,400
</TABLE>

43
<PAGE> 47

<TABLE>
<CAPTION>
APPROXIMATE
GROSS
SQUARE
TERRITORY/STORE LOCATION DATE OPENED/ACQUIRED FOOTAGE
- ------------------------- ------------------------- ------------------------- ----------
<S> <C> <C> <C>
COLORADO
Wild Oats Aurora Aurora, CO Acquired February 1990 8,000
Wild Oats Vegetarian Boulder, CO Acquired October 1987 6,500
Wild Oats Boulder Boulder, CO Opened February 1988 11,500
Alfalfa's Boulder Boulder, CO Acquired July 1996 25,000
Wild Oats Colorado
Springs Colorado Springs, CO Opened November 1992 16,700
Alfalfa's Cherry Creek Denver, CO Acquired July 1996 17,000
Wild Oats Denver Denver, CO Acquired February 1990 6,300
Wild Oats Washington Park Denver, CO Opened May 1995 18,600
Alfalfa's Capitol Hill Denver, CO Acquired July 1996 22,000
Wild Oats Fort Collins Fort Collins, CO Acquired September 1988 5,000
Alfalfa's Fort Collins Fort Collins, CO Acquired July 1996 14,000
Wild Oats Orchard Greenwood Village, CO Opened August 1995 35,000
Alfalfa's Littleton Littleton, CO Acquired July 1996 22,500
Alfalfa's Vail Vail, CO Acquired July 1996 6,200
MIDWEST
Wild Oats Mission Mission, KS Opened October 1995 22,000
Wild Oats Lawrence Lawrence, KS Opened January 1993 11,900
Wild Oats Kansas City Kansas City, MO Acquired March 1993 5,000
Wild Oats St. Louis St. Louis, MO Opened August 1996 25,000
NEW MEXICO
Wild Oats Albuquerque Albuquerque, NM Opened May 1992 28,000
Wild Oats Juan Tabo Albuquerque, NM Opened November 1995 22,000
Wild Oats St. Francis Santa Fe, NM Opened January 1991 15,000
Wild Oats St. Michael Santa Fe, NM Opened January 1992 9,000
Alfalfa's Santa Fe Santa Fe, NM Acquired July 1996 20,000
UTAH
Wild Oats Salt Lake East Salt Lake City, UT Acquired June 1996 10,000
Wild Oats Salt Lake
Holladay Salt Lake City, UT Acquired June 1996 8,800
Wild Oats Salt Lake South Salt Lake City, UT Acquired June 1996 7,000
CANADA
Capers Vancouver, B.C. Acquired in July 1996 17,500
Capers Vancouver, B.C. Acquired in July 1996 8,100
Capers West Vancouver, B.C. Acquired in July 1996 11,800
</TABLE>

44
<PAGE> 48

LEGAL PROCEEDINGS

From time-to-time, the Company is involved in lawsuits that the Company
considers to be in the normal course of its business, none of which has resulted
in any material losses to date. The Company is also subject to an anti-trust
investigation with respect to its compliance with New Mexico anti-trust laws.
The focus of the investigation is on the effect, if any, of the acquisition on
competition in New Mexico. In May 1996, the Company received a letter from the
New Mexico Attorney General's office indicating that it would recommend that
Wild Oats divest one of its three stores in Santa Fe, New Mexico in connection
with the acquisition. The Company replied refuting the Attorney General's claim
but has not received a response from the Attorney General's office. The Attorney
General's office has not taken any legal action with respect to the acquisition.
The Company believes that the acquisition complies with federal and state
anti-trust law and will continue to vigorously defend its position in New
Mexico. However, there can be no assurance that the state of New Mexico will not
take legal action with respect to the acquisition, including, but not limited
to, demanding the divestiture of one or more stores in the Santa Fe market to a
competitor of the Company. If the Attorney General of New Mexico elects to take
legal action and is successful, such a result could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Risk Factors-- Anti-Trust Regulations."

GOVERNMENT REGULATION

The Company is subject to numerous federal, state and local laws,
regulations and ordinances regulating health and sanitation standards, food
labeling and handling, equal employment, minimum wages and licensing for the
sale of food and alcoholic beverages. Difficulties or failures in complying with
these regulations could adversely affect the operations of an existing store or
delay the opening of a new store.

In addition, from time-to-time, various federal, state and local
legislative and regulatory proposals are made to, among other things, increase
the minimum wage payable to employees, establish minimum store security
requirements and increase taxes on the retail sale of certain products. In
addition, regulations have been proposed regarding the distribution and labeling
of nutritional supplements. Changes to such laws, regulations or ordinances may
adversely affect the Company's performance by increasing the Company's costs or
affecting its sales of certain products. Recent federal legislation regarding
minimum wage may increase the Company's employee costs and adversely affect the
Company's profitability.

45
<PAGE> 49

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------
<S> <C> <C>
Michael C. Gilliland(1).......... 37 Chief Executive Officer and Director
S.M. Hassan...................... 48 President and Director
Elizabeth C. Cook(1)(2).......... 37 Vice President, General Counsel, Secretary and Director
Mary Beth Lewis.................. 38 Treasurer and Chief Financial Officer
Bennett L. Bertoli............... 43 Director of Real Estate
John A. Shields.................. 53 Chairman of the Board
David M. Chamberlain(3).......... 53 Vice Chairman of the Board
Peter D. Behrendt................ 57 Director
Barnet M. Feinblum(3)............ 48 Director
David L. Ferguson(2)(3).......... 41 Director
M. Laird Koldyke(3).............. 35 Director
James B. McElwee(2)(3)........... 44 Director
</TABLE>

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

(1) Michael C. Gilliland and Elizabeth C. Cook are husband and wife.

(2) Member of Audit Committee.

(3) Member of Compensation Committee.

Michael C. Gilliland co-founded the Company and has been the Chief Executive
Officer and Director of the Company since its inception in July 1987. Mr.
Gilliland also served as its President and Chairman of the Board from inception
until July 1996. Prior to forming the Company in 1987, Mr. Gilliland was
involved in several entrepreneurial ventures.

S.M. Hassan has been the President and Director of the Company since July 1996.
Mr. Hassan was a co-founder of Alfalfa's and served as its President and Chief
Executive Officer from November 1989 to July 1996. Mr. Hassan was Vice President
and Secretary of Alfalfa's from 1978 to 1989.

Elizabeth C. Cook co-founded the Company and has been Vice President, General
Counsel, Secretary and Director of the Company since its inception in July 1987.
Prior to that, from 1983 to 1987, Ms. Cook was tax counsel on staff with the
Atlantic Richfield Company.

Mary Beth Lewis has been Chief Financial Officer and Treasurer of the Company
since September 1992. From August 1986 until August 1992, Ms. Lewis was an audit
manager for Price Waterhouse LLP. Ms. Lewis is a Certified Public Accountant.

Bennett L. Bertoli has been Director of Real Estate of the Company since
February 1991. From February 1991 until July 1996, Mr. Bertoli was a Director of
the Company. From May 1984 until January 1991, Mr. Bertoli was an attorney in
private practice. From 1981 until 1984, Mr. Bertoli was in the land acquisition
department of the Atlantic Richfield Company.

John A. Shields has been Chairman of the Board of the Company since July 1996.
Mr. Shields was a member of the Board of Directors of Alfalfa's from June 1995
to July 1996. He has been Chairman of the Board and Chief Executive Officer of
Delray Farms Markets, a chain of produce, meat and deli markets, since January
1994. From 1983 until 1993, Mr. Shields was President and Chief Executive
Officer of First National Supermarkets. He is currently a director of DIY Home
Warehouse, Inc., Homeland Stores, Inc. and Shore Bank and Trust Company.

David M. Chamberlain has been the Vice Chairman of the Board of the Company
since July 1996 and a Director of the Company since July 1994. Since October
1994, Mr. Chamberlain has been President, Chairman and CEO of Genesco, Inc., a
men's shoe wholesaler/retailer company. From May 1994 to October 1994, Mr.
Chamberlain was a principal of Consumer Focus Partners, a private investment
firm. Prior to that, from October 1983 until May 1993, he was with Shaklee
Corp., a nutritional products company, serving as President and Chief Executive
Officer from December 1985 to May 1992 and as Chairman company, serving as
President and Chief Executive Officer from December 1985 to May 1992 and as
Chairman thereafter. From 1969 to 1983, Mr. Chamberlain held various general
management and marketing

46
<PAGE> 50

positions with Nabisco Brands, Inc. and the Quaker Oats Company. He is currently
a Director of Mrs. Fields, Inc.

Peter D. Behrendt has been a Director of the Company since July 1994. Mr.
Behrendt joined Exabyte Corporation, a tape storage company, in July 1987 as its
President, and additionally was named its Chief Executive Officer in July 1990
and Chairman of the Board in January 1992. Prior to joining Exabyte, Mr.
Behrendt spent 26 years with IBM Corporation, most recently as Director of
Quality and Product Assurance, Information Systems and Communications Products
Group. Mr. Behrendt serves on the Board of Directors of Western Digital
Corporation and InFocus Systems.

Barnet M. Feinblum has been a Director of the Company since July 1996. Mr.
Feinblum was a Director of Alfalfa's from June 1983 to July 1996. Since 1995,
Mr. Feinblum has been the President and Chief Executive Officer of Horizon
Organic Dairy, Inc., an organic dairy products company. From July 1993 to
January 1995, Mr. Feinblum was the President of Natural Venture Partners, Inc. a
corporation investing in natural foods companies. Mr. Feinblum was with
Celestial Seasonings, Inc., an herbal tea company, where he held several
positions from 1976 to 1993, including Chairman, President and CEO.

David L. Ferguson has been a Director of the Company since November 1994 and has
been a general partner of Chase Capital Partners (the general partner of Chase
Venture Capital Associates, L.P. -- "Chase") since 1989. Prior to joining Chase
Capital Partners, he was a member of the mergers and acquisitions groups of
Prudential Securities, Inc. from 1987 to 1989 and Bankers Trust New York
Corporation from 1985 to 1987. Mr. Ferguson currently serves as a director of
Thompson PBE, Inc.

M. Laird Koldyke has been a Director of the Company since July 1996. Mr. Koldyke
was a Director of Alfalfa's from January 1995 until July 1996. Mr. Koldyke has
been with Frontenac Company, the general partner of Frontenac VI Limited
Partnership ("Frontenac"), a private equity firm since 1988, serving as an
associate from July 1988 until December 1992 and a general partner since January
1993. He serves as a director of Einstein/Noah Bagel Corp.

James B. McElwee has been a Director of the Company since July 1993. Since
November 1992, Mr. McElwee has been a general partner of Weston Presidio Capital
(the general partner of Weston Presidio Offshore Capital C.V. -- "Weston"). From
July 1979 until November 1992, he was Senior Vice President and a Managing
Director of the Security Pacific Venture Capital Group.

BOARD OF DIRECTORS

The Company currently has eleven authorized directors. In August 1996, the
Company's Board of Directors approved, subject to stockholder approval, the
amendment of the Company's Amended and Restated Certificate of Incorporation to
provide for, among other things, a classified Board of Directors. In accordance
with the terms of such Amended and Restated Certificate of Incorporation the
terms of office of the Board of Directors will be divided into three classes:
Class I, whose term will expire at the annual meeting of stockholders to be held
in 1997 and who will initially be Peter D. Behrendt, Michael C. Gilliland, S.M.
Hassan and Barnet M. Feinblum; Class II, whose term will expire at the annual
meeting of stockholders to be held in 1998 and who will initially be M. Laird
Koldyke, John A. Shields and a director to be designated by Chase; and Class
III, whose term will expire at the annual meeting of stockholders to be held in
1999 and who will initially be David M. Chamberlain, Elizabeth C. Cook, David L.
Ferguson and James B. McElwee. At each annual meeting of stockholders beginning
with the 1997 annual meeting, the successors to directors whose terms will then
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election and until their successors
have been duly elected and qualified.

Pursuant to the Stockholders Agreement dated as of July 12, 1996 among the
Company and certain investors (the "Stockholders Agreement"), the Company's
Board of Directors consists of: (i) Mr. McElwee as the representative designated
by the holders of the Company's Series A Preferred Stock; (ii) Mr. Ferguson as
the representative designated by the holders of the Company's Series C Preferred
Stock; (iii) Mr. Koldyke as the representative designated by the holders of the
Company's Series D Preferred Stock; (iv) one representative to be designated by
the holders of the Company's Series E Preferred Stock; (v) Mr. Hassan; (vi) Ms.
Cook and Mr. Gilliland; (vi) Mr. Feinblum; (vii) Mr. Shields; and (viii) two
independent directors who are currently Messrs. Behrendt and Chamberlain.
Certain parties to the Stockholders Agreement, holding

47
<PAGE> 51

in the aggregate [ ] shares of Common Stock, have agreed that for four years
after this offering, they will vote their shares in favor of a nominee of Chase
to be elected to the Company's Board of Directors and to the Audit and
Compensation Committees and will vote to elect the nominee of Weston to the
Audit and Compensation Committees. See "Certain Transactions."

COMMITTEES

The Board of Directors currently has three standing committees, the Audit
Committee, the Compensation Committee and the Non-Officer Stock Option
Administration Committee (currently consisting of Elizabeth C. Cook) which
administers the Company's Incentive Plan for non-officer employees.

The Audit Committee consists of Elizabeth C. Cook, David L. Ferguson and
James B. McElwee. The Audit Committee makes recommendations to the Board
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by the Company's independent certified
public accountants and reviews the Company's balance sheet, statement of
operations and statement of cash flows for each interim period.

The Compensation Committee consists of David M. Chamberlain, Barnet M.
Feinblum, David L. Ferguson, M. Laird Koldyke and James B. McElwee. The
Compensation Committee administers the Company's compensation program and makes
recommendations to the Board concerning salaries and incentive compensation for
employees and consultants of the Company.

DIRECTORS' COMPENSATION

Each of the Company's non-employee directors is entitled to be reimbursed
for reasonable out-of-pocket expenses incurred in connection with attendance at
each regular or special meeting of the Board of Directors.

STOCK OPTION PLANS

1996 EQUITY INCENTIVE PLAN

The Company's 1996 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors in August 1996 as an amendment and restatement of the
Company's 1996 Stock Option Plan. There are currently [ ] shares of
Common Stock reserved for issuance under the Incentive Plan.

The Incentive Plan provides for the grant of incentive stock options to
employees (including officers and employee-directors) and nonstatutory stock
options, restricted stock purchase awards and stock bonuses to employees,
directors and consultants. The Incentive Plan is administered by the
Compensation Committee which has delegated to a Non-Officer Stock Option
Administration Committee (currently consisting of Elizabeth C. Cook) the
authority to determine with respect to employees (other than officers) the
recipients and types of awards to be granted, including the exercise price,
number of shares subject to the award and the exercisability thereof.

The terms of stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, provided that the exercise price
for an incentive stock option cannot be less than 100% of the fair market value
of the Common Stock on the date of the option grant and the exercise price for a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of option grant.

Upon certain changes in control of the Company, all outstanding awards
under the Incentive Plan shall be continued, assumed or substituted by the
surviving entity. If the surviving entity determines not to continue, assume or
substitute such awards, and with respect to persons then performing services as
employees, directors or consultants, the time during which such awards may be
exercised shall be accelerated and the awards terminated if not exercised prior
to such change of control.

The Board of Directors has the authority to amend or terminate the
Incentive Plan, subject to stockholder approval when necessary under the
requirements of the Internal Revenue Code of 1986, as amended (the "Code") or
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), provided
that no such actions shall impair rights under outstanding awards.

48
<PAGE> 52

As of July 31, 1996, [ ] shares of Common Stock had been issued
upon the exercise of options granted under the Incentive Plan, options to
purchase [ ] shares of Common Stock at a weighted average exercise
price of [$ ] were outstanding and [ ] shares remained
available for future grant. The Incentive Plan will terminate in June 2006
unless sooner terminated by the Board of Directors. As of July 31, 1996, no
stock bonuses or restricted stock purchase awards had been granted under the
Incentive Plan.

1993 STOCK OPTION PLAN

The Company's 1993 Stock Option Plan (the "1993 Plan") was adopted by the
Board of Directors in August 1993. [ ] shares of Common Stock have been
reserved for issuances under the 1993 Plan. In August 1996, the Board of
Directors designated all shares formerly available for issuance under the 1993
Plan to be available for issuance under the Incentive Plan and amended the 1993
Plan to provide that any shares of Common Stock that are subject to an option
which expires or otherwise terminates prior to exercise shall be transferred to
the Incentive Plan.

The terms of stock options granted under the 1993 Plan generally may not
exceed 10 years. The exercise price of options granted under the 1993 Plan is
determined by the Board of Directors, provided that the exercise price for an
incentive stock option cannot be less than 100% of the fair market value of the
Common Stock on the date of the option grant and the exercise price for a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of option grant.

Upon certain changes in control of the Company, all outstanding options
under the 1993 Plan shall be continued, assumed or substituted by the surviving
entity. If the surviving entity determines not to continue, assume or substitute
such options, the time during which such options may be exercised shall be
accelerated and the options terminated if not exercised prior to such change of
control.

1991 STOCK OPTION PLAN

The 1991 Option Plan (the "1991 Plan") was adopted in by the Board of
Directors of Alfalfa's in August 1991. In connection with the acquisition of
Alfalfa's, the vesting of all options granted under the 1991 Plan was
accelerated. There are currently [ ] shares subject to vested options.
In August 1996, the Board of Directors designated all shares formerly available
for issuance under the 1991 Plan to be available for issuance under the
Incentive Plan and amended the 1991 Plan to provide that any shares of Common
Stock that are subject to an option which expires or otherwise terminates prior
to exercise shall be transferred to the Incentive Plan. [ ] shares of
Common Stock have been reserved for issuance under the 1991 Plan.

The terms of stock options granted under the 1991 Plan generally may not
exceed 10 years. The exercise price of options granted under the 1991 Plan
cannot be less than 100% of the fair market value of the Common Stock on the
date of the option grant.

EMPLOYEE STOCK PURCHASE PLAN

In August 1996, the Company's Board of Directors approved the Employee
Stock Purchase Plan (the "Purchase Plan") covering an aggregate of [ ]
shares of Common Stock. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months. The Board has currently authorized an offering commencing on the
effectiveness of the initial public offering of the Company's Common Stock and
ending June 30, 1997, and sequential six-months offerings thereafter.

Employees are eligible to participate in the currently authorized offerings
if they have been employed by the Company or an affiliate of the Company
incorporated in the United States for at least six months preceding the
beginning of the offering. Employees can have up to 15% of their earnings
withheld pursuant to the Purchase Plan (10% under the currently authorized
offerings) and applied on specified purchase dates (currently the last day of
each authorized offering) to the purchase of shares of Common Stock. The price
of Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value

49
<PAGE> 53

of the Common Stock on the commencement date of each offering or the relevant
purchase date. Employees may end their participation in the offering at any time
during the offering, and participation ends automatically on termination of
employment.

In the event of certain changes of control, the Company and the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
or the Board may shorten an offering and provide for all sums collected by
payroll deductions to be applied to purchase stock immediately prior to the
change in control. The Purchase Plan will terminate at the Board's direction.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Chamberlain, Feinblum, Ferguson, Koldyke and McElwee currently
serve as members of the Compensation Committee. Mr. Ferguson is a general
partner of Chase Capital Partners. Mr. Koldyke is a general partner of Frontenac
Company, the general partner of Frontenac. Mr. McElwee is a general partner of
Weston Presidio Capital. See "Certain Transactions" for a description of certain
transactions involving these entities. Compensation of Messrs. Behrendt,
Chamberlain, Feinblum, Ferguson, Koldyke, McElwee and Shields, is determined by
the entire Board of Directors with a view to attracting and retaining talented
individuals to serve as directors.

EXECUTIVE COMPENSATION

The following table sets forth certain compensation of the Company's
President and Chief Executive Officer and the three next most highly compensated
executive officers (collectively, the "Named Executive Officers") for services
rendered in fiscal 1995:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
1995 ANNUAL
COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY($) BONUS($) COMPENSATION($)
- ------------------------------------------------------- --------- -------- ---------------
<S> <C> <C> <C>
Michael C. Gilliland................................... 148,936 -- 6,132(2)
President and Chief Executive
Officer
Elizabeth C. Cook...................................... 144,631 -- 7,343(3)
Vice President, General Counsel, and Secretary
Mary Beth Lewis........................................ 90,174 15,000 --
Treasurer and Chief Financial
Officer
</TABLE>

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

(1) Mr. Gilliland served as the Company's President until July 1996. In July
1996, S.M. Hassan was appointed as President of the Company. Mr. Hassan's
annual salary is $150,000; his bonus and long term compensation are to be
determined by the Compensation Committee.

(2) Other compensation for Mr. Gilliland included: $1,496 in the form of health
insurance premiums, $864 in the form of automobile insurance premiums, and
$3,772 in the form of a matching contribution to Mr. Gilliland's account
under the Company's 401(k) plan.

(3) Other compensation for Ms. Cook included: $1,496 in the form of health
insurance premiums, $2,231 in the form of automobile insurance premiums and
$3,616 in the form of a matching contribution to Ms. Cook's account under
the Company's 401(k) plan.

OPTION GRANTS

The Company did not grant options to purchase shares of the Company's
Common Stock to any of the Named Executive Officers in the fiscal year ended
December 30, 1995.

50
<PAGE> 54

The following table sets forth, as of December 30, 1995: (i) the number of
unexercised options; and (ii) the value of unexercised in-the-money options
(i.e., options for which the fair market value of the Common Stock exceeds the
exercise price) held by the Named Executive Officers.

YEAR END OPTION VALUE TABLE

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 30, 1995 (#) DECEMBER 30, 1995 ($)
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Michael C. Gilliland.......................... -- --
Elizabeth C. Cook............................. -- --
Mary Beth Lewis............................... [ ] -- [ ] [ ] -- [ ]
</TABLE>

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

(1) On August 1, 1996, the Company granted: (i) Mr. Gilliland an option to
purchase [ ] shares of Common Stock; (ii) Ms. Cook an option to
purchase [ ] shares of Common Stock; (iii) Ms. Lewis an option to
purchase [ ] shares of Common Stock; and (iv) Mr. Hassan an option to
purchase [ ] shares of Common Stock.

(2) Based on the deemed fair market value of the Company's Common Stock at
December 30, 1995, less the exercise price payable per share.

EMPLOYMENT AGREEMENTS

The Company entered into employment agreements with Messrs. Gilliland and
Hassan and Ms. Cook (each an "Executive") on July 12, 1996 (the "Employment
Agreements"). The Employment Agreements provide that each Executive will be
entitled to: (i) receive a base salary of $150,000, subject to increase as
determined by the Compensation Committee; (ii) participate in a cash bonus and
stock option program, with terms and related performance criteria to be
determined by the Compensation Committee; (iii) participate in any other
employee benefit programs for which the Company's senior executives are
eligible; and (iv) receive four weeks of paid vacation per year. The Employment
Agreements with Messrs. Gilliland and Hassan have two year terms, and the
Employment Agreement with Ms. Cook has a one year term, all subject to automatic
one year renewal periods, unless terminated: (i) by reason of the Executive's
death or disability; (ii) with or without cause, as defined in the Employment
Agreements and as determined by the Company's Board of Directors; or (iii) by
the Executive's written resignation. Upon termination of their respective
Employment Agreements, for any reason during the initial term, and by the
Company without cause or by the Executive for a material breach by the Company
during any subsequent renewal period, Messrs. Gilliland and Hassan will each be
entitled to receive three times his then effective annual base salary rate and
health insurance benefits for three years (two years in the case of Mr. Hassan
if the termination occurs after the initial two year term) and Ms. Cook will be
entitled to receive one and a half times her then effective annual base salary
rate and health insurance benefits for two years. Each Employment Agreement also
contains a non-compete provision which prohibits the Executive from rendering
services to any supermarket, food store or retailer of health and beauty aids
located within ten miles of a Company store or soliciting any of the Company's
employees to leave the Company during the term of the agreement or for three
years after the agreement is terminated (in the case of Ms. Cook, for two years
after the agreement is terminated).

401(K) PLAN

As of July 1, 1994, the Company adopted a tax-qualified employee savings
and retirement plan (the "401(k) Plan") covering the Company's employees.
Pursuant to the 401(k) Plan, eligible employees may elect to reduce their
current compensation by up to the lesser of 15% of their annual compensation or
the statutorily prescribed annual limit ($9,500 in 1996) and have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan provides for
additional matching contributions to the 401(k) Plan by the Company in an amount
determined by the Company prior to the end of each plan year. The trustees under
the 401(k) Plan, at the direction of each participant, invest the assets of the
401(k) Plan in designated investment options. The 401(k) Plan is intended to
qualify under Section 401 of the Code so that contributions to the 401(k) Plan,
and income earned on the 401(k) Plan contributions are not taxable until
withdrawn, and so that the contributions by the Company will be deductible when
made.

51
<PAGE> 55

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent not prohibited by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, the Company has
entered into indemnity agreements with each of its directors and executive
officers.

In addition, the Company's Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company or its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies, such as an injunction or other forms of
non-monetary relief, would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company or its stockholders, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
any transaction from which the director derived an improper personal benefit and
for improper distributions to stockholders. This provision also does not affect
a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.

There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.

52
<PAGE> 56

CERTAIN TRANSACTIONS

In July 1996, the Company sold [ ] shares of its Series E Preferred
Stock, par value $0.001 (the "Series E Financing") to a group of investors,
including [ ] shares to Chase and [ ] shares to Weston, at a price
per share of $[ ]. David L. Ferguson, a general partner of Chase and James
B. McElwee, a general partner of Weston are both directors of the Company.

In November 1994, the Company sold [ ] and [ ] shares of its
Series C Preferred Stock, par value $.001, to Chase and Weston respectively, at
a price per share of $[ ]. The Company also issued two warrants to
purchase [ ] and [ ] shares of Series B Preferred Stock,
respectively, to Weston. Additionally, in July 1993, the Company sold [ ]
shares of its Series A Preferred Stock, par value $.001, to Weston at a price
per share of $[ ].

In July 1996, in connection with the Acquisition, Frontenac received
[ ] shares of the Company's Common Stock and [ ] shares of the
Company's Series D Preferred Stock, par value $0.001 in exchange for certain
shares of Alfalfa's which Frontenac had previously purchased. M. Laird Koldyke,
a director of the Company, is also a general partner of Frontenac Company, which
is the general partner of Frontenac.

In connection with the Acquisition and the Series E Financing, the Company
entered into the Stockholders Agreement and a Registration Rights Agreement
dated as of July 12, 1996 by and among certain investors (the "Registration
Rights Agreement"). The Stockholders Agreement also provides that, until
consummation of this offering, the Company's Board of Directors shall consist of
eleven Directors as follows: (i) Mr. McElwee as the representative designated by
the holders of the Company's Series A Preferred Stock; (ii) Mr. Ferguson as the
representative designated by the holders of the Company's Series C Preferred
Stock; (iii) Mr. Koldyke as the representative designated by the holders of the
Company's Series D Preferred Stock; (iv) one representative to be designated by
the holders of the Company's Series E Preferred Stock; (v) Mr. Hassan; (vi) Mr.
Gilliland and Ms. Cook; (vi) Mr. Feinblum; (vii) Mr. Shields; and (viii) two
independent directors who are currently Messrs. Behrendt and Chamberlain.

Upon the consummation of this offering, the Stockholders Agreement will be
amended and restated (the "Restated Stockholders Agreement") to terminate the
provisions of the Stockholders Agreement which do not survive this offering by
their terms. The surviving provisions include, among other things, that for four
years after this offering, the holders of [ ] shares of Common Stock shall
be obligated to vote their shares in favor of a nominee of Chase to be elected
to the Company's Board of Directors, Audit and Compensation Committees and shall
vote to elect the nominee of Weston to the Audit and Compensation.

The Registration Rights Agreement provides that certain holders of the
Company's securities will have the right to request the Company to register
certain securities with the Securities and Exchange Commission. See "Description
of Capital Stock--Registration Rights."

In March 1995 the Company paid Messrs. Gilliland and Clapp and Ms. Cook
approximately $88,000, $88,000 and $98,000 respectively in satisfaction of
certain notes which the Company had issued between 1992 and 1995 in connection
with loans made to the Company for working capital. The notes had original
principal amounts of approximately $235,000, $276,000 and $235,000,
respectively, and had annual compound interest rates of 9% to 12%. See
"Principal and Selling Stockholders."

Messrs. Gilliland and Clapp and Ms. Cook own Pretty Good Groceries, Inc. a
Colorado company ("PGG") which operates two grocery stores in Boulder, Colorado.
The Company provides certain accounting, legal and administrative service to PGG
for a monthly fee of $1,000. PGG also purchases certain items through the
Company's volume discount programs with its distributors, for which PGG pays the
Company the cost of such items on a monthly basis. The Company does not receive
any profit from the purchase of such items by PGG. In July 1993, the Company
sold the assets of a certain convenience store to PGG for $214,000 in cash.

Messrs. Gilliland and Hassan and Ms. Cook have employment agreements with
the Company. See "Management--Employment Agreements."

53
<PAGE> 57

The Company purchases Horizon Organic Dairy, Inc. organic dairy products
from various distributors. Mr. Feinblum is the President and Chief Executive
Officer of Horizon Organic Dairy, Inc.

All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be on terms no less favorable to the
Company than may be obtained from unaffiliated third parties.

54
<PAGE> 58

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 31, 1996, and as
adjusted to reflect the sale of the Common Stock being offered hereby by: (i)
each Selling Stockholder; (ii) each person (or group of affiliated persons) who
is known by the Company to own beneficially more than 5% of the Common Stock;
(iii) each of the Company's directors; (iv) each of the Named Executive
Officers; and (v) all directors and executive officers of the Company as a
group.

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP
PRIOR TO AFTER
THE OFFERING(1)(2) NUMBER OF SHARES THE OFFERING(1)(2)
------------------- TO BE SOLD -------------------
NAME NUMBER PERCENT IN THE OFFERING NUMBER PERCENT
- --------------------------------------------- ------- ------- ---------------- ------- -------
<S> <C> <C> <C> <C> <C>
Chase Capital Partners(3).................... [ ] % -- [ ] %
380 Madison Avenue, 12th Floor
New York, NY 10017
Michael C. Gilliland(4)...................... [ ] % [ ] [ ] %
Wild Oats Markets, Inc.
1645 Broadway
Boulder, CO 80302
Elizabeth C. Cook(5)......................... [ ] % [ ] [ ] %
Wild Oats Markets, Inc.
1645 Broadway
Boulder, CO 80302
Mark R. Clapp................................ [ ] % [ ] [ ] %
2147 Kincaid
Boulder, CO 80304
Weston Presidio Offshore Capital C.V.(6)..... [ ] % -- [ ] %
343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Frontenac VI Limited Partnership(7).......... [ ] % -- [ ] %
135 South LaSalle
Suite 3800
Chicago, IL 60603
S.M. Hassan(8)............................... [ ] % [ ] [ ] %
John A. Shields(9)........................... [ ] % -- [ ] %
David M. Chamberlain(10)..................... [ ] % -- [ ] %
Peter D. Behrendt(11)........................ [ ] % -- [ ] %
Barnet M. Feinblum(12)....................... [ ] % -- [ ] %
David L. Ferguson(3)......................... [ ] % -- [ ] %
M. Laird Koldyke(7).......................... [ ] % -- [ ] %
James B. McElwee(6).......................... [ ] % -- [ ] %
Mary Beth Lewis(13).......................... [ ] % -- [ ] %
David Wilkinson.............................. [ ] % [ ] [ ] *
Bennett Bertoli.............................. [ ] % [ ] [ ] %
All directors and executive officers as a
group (11 persons)(14)..................... [ ] % [ ] [ ] %
</TABLE>

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

* Less than one percent.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options, warrants and convertible notes currently
exercisable or convertible, or exercisable or convertible as of October
15, 1996, are deemed outstanding for computing the percentage of the
person or entity holding such securities but are not outstanding for
computing the percentage of any other person or entity. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. The information set forth in the table has
been adjusted to reflect the effects of the automatic conversion, on
the closing date of this offering, of outstanding shares of all series
of preferred stock into shares of Common Stock. See "Description of
Capital Stock."

(2) Percentage of ownership is based on [ ] shares of Common Stock
outstanding before the offering and [ ] shares of Common Stock
outstanding after the offering.

55
<PAGE> 59

(3) Consists of [ ] shares held by Chase Venture Capital Associates,
L.P. and [ ] shares held by Wild Oats Investors Fund G.P. Mr.
Ferguson is a General Partner of Chase Capital Partners, the general
partner of the funds. Mr. Ferguson disclaims beneficial ownership of
the shares of the funds managed by Chase Capital Partners except to
the extent of his pecuniary interest therein arising from his general
partnership interest therein.

(4) Consists of [ ] shares held by Mr. Gilliland, [ ] shares
held by Elizabeth C. Cook, [ ] shares held by the Ian Patrick
Gilliland 1993 Trust and [ ] shares held by the Stella
Elizabeth Gilliland 1993 Trust. Mr. Gilliland disclaims beneficial
ownership to the [ ] shares held by the trusts.

(5) Consists of [ ] shares held by Ms. Cook, [ ] shares held
by Michael C. Gilliland, [ ] shares held by the Ian Patrick
Gilliland 1993 Trust and [ ] shares held by the Stella
Elizabeth Gilliland 1993 Trust. Ms. Cook disclaims beneficial
ownership of the [ ] shares held by the Trusts.

(6) Consists of [ ] shares and [ ] shares issuable upon the
exercise of warrants held by Weston. Mr. McElwee is a general partner
of Weston Presidio Capital, the general partner of Weston. Mr. McElwee
disclaims beneficial ownership of the shares held by Weston except to
the extent of his pecuniary interest therein arising from his general
partnership interest therein.

(7) Consists of [ ] shares held by Frontenac. Mr. Koldyke is a
general partner of Frontenac Company, the general partner of
Frontenac. Mr. Koldyke disclaims beneficial ownership of the shares
held by Frontenac except to the extent of his pecuniary interest
therein arising from his general partnership interest therein.

(8) Consists of [ ] shares and [ ] shares subject to stock
options that are exercisable within sixty (60) days of October 15,
1996 held by Mr. Hassan.

(9) Consists of [ ] shares and [ ] shares subject to stock
options that are exercisable within sixty (60) days of October 15,
1996 held by Mr. Shields.

(10) Consists of [ ] shares and [ ] shares subject to stock
options that are exercisable within sixty (60) days of October 15,
1996 held by Mr. Chamberlain.

(11) Consists of [ ] shares and [ ] shares subject to stock
options that are exercisable within sixty (60) days of October 15,
1996 held by Mr. Behrendt.

(12) Consists of [ ] shares and [ ] shares subject to stock
options that are exercisable within sixty (60) days of October 15,
1996 held by Mr. Feinblum.

(13) Consists of [ ] shares subject to stock options exercisable
within sixty (60) days of October 15, 1996 held by Ms. Lewis.

(14) Includes shares included pursuant to Notes 3, 4, 5, 6, 7, 8, 9, 10, 11,
12 and 13 and includes [ ] shares of Common Stock issuable upon
the exercise of warrants and [ ] shares subject to stock
options that are exercisable within sixty (60) days of October 15,
1996.

56
<PAGE> 60

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
and Bylaws is a summary and is qualified in its entirety by the provisions of
the Amended and Restated Certificate of Incorporation and Bylaws, which have
been filed as exhibits to the Company's Registration Statement, of which this
Prospectus is a part.

Upon the closing of this offering, the Company's authorized capital stock
will consist of [ ] shares of Common Stock, $.001 par value per share,
and [ ] shares of preferred stock, $.001 par value per share.

COMMON STOCK

As of July 31, 1996, there were [ ] shares of Common Stock
outstanding held by approximately 114 holders of record. The holder of each
share of Common Stock shall have the right to one vote on such matters and in
such manner as may be provided by law. The holders of Common Stock are not
entitled to cumulative voting rights with respect to the election of directors,
and as a consequence, minority stockholders will not be able to elect directors
on the basis of their votes alone. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of Common Stock are entitled to receive, when and as declared by the
Board of Directors, out of any assets of the Company legally available therefor,
such dividends as may be declared from time to time by the Board of Directors.
See "Dividend Policy." In the event of a liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, holders of the Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue up to [ ] shares of preferred stock in one or
more series and to determine or alter the designations, preferences, and
relative, participating, optional or other rights, and such qualifications,
limitations or restrictions thereof, as shall be stated in resolutions adopted
by the Board of Directors and as may be permitted by the General Corporation Law
of the State of Delaware. The issuance of preferred stock could adversely affect
the voting power of holders of Common Stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plan to issue any shares of preferred stock. See
"Risk Factors--Anti-Takeover Considerations."

WARRANTS

The Company has outstanding warrants to purchase an aggregate of
[ ] shares of Common Stock at weighted average exercise price of
$[ ] per share which expire November 14, 1999.

REGISTRATION RIGHTS

Upon the closing of this offering, the Company's Series A, B, C, D and E
Preferred Stock will be converted into an aggregate of [ ] shares of
the Company's Common Stock (the "Preferred Shares"). The Company has entered
into a registration rights agreement (the "Registration Rights Agreement") with:
(i) the holders of the Preferred Shares; (ii) Mark R. Clapp, Elizabeth C. Cook,
Michael C. Gilliland, S.M. Hassan and Barry Perzow (together, "the Additional
Holders"); and (iii) the holders of certain outstanding warrants, covering in
the aggregate [ ] outstanding shares of Common Stock (the "Warrant
Shares"). The Preferred Shares, the shares held by the Additional Holders and
the Warrant Shares are referred to collectively herein as the "Registrable
Securities." The Registration Rights Agreement provides that six months after
the effective date of the Company's first registration statement and upon the
request from a holder or holders owning more than 60% of the shares issued upon
conversion of any particular

57
<PAGE> 61

series of preferred stock, the Company shall: (i) give notice to the other
holders of Registrable Securities of the receipt of a request for registration
and such holders' right to participate in such registration: and (ii) effect a
registration under the Act of all Registrable Securities requested to be
included in such registration (a "Demand Registration"). The holders of shares
of Common Stock issued upon the conversion of each respective series of
preferred stock are limited to two Demand Registrations per series of preferred
stock and all such registrations are subject to underwriter cutback. Once during
any twelve month period the Company may defer its obligation to effect a Demand
Registration for up to 90 days if the Company's Board of Directors believes it
would be detrimental to the Company to file a registration statement at that
time.

In addition, after the Company becomes eligible to file a registration
statement on Form S-3, upon the request from an Additional Holder or a holder or
holders owning more than 60% of the shares issued upon conversion of any
particular series of preferred stock, the Company will be obligated to file a
registration statement on Form S-3 covering the shares held by the holders
requesting such registration and such other Registrable Securities as may be
requested to be included in such registration (a "Form S-3 Registration").

The Registration Rights Agreement also provides that the Company is
obligated to pay the expenses of (i) any Demand Registration, (ii) three Form
S-3 Registrations covering shares issued upon conversion of any particular
series of preferred stock, and (iii) three Form S-3 Registrations covering
shares held by the Additional Holders.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock. The Company's Certificate of
Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors.

Upon the closing of this offering, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") will provide that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by a consent in writing. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, the Chairman of the
Board or the Chief Executive Officer. The Company's Amended and Restated
Certificate of Incorporation will also provide that the authorized number of
directors may be changed only by resolution of the Board of Directors, and that
directors can only be removed for cause by a majority vote of the stockholders.
In addition, the Company's Amended and Restated Certificate of Incorporation
will provide for the classification of the Board of Directors into three
classes, only one of which shall be elected at any given annual meeting. These
provisions may have the effect of delaying, deterring or preventing a change in
control of the Company or depressing the market price of Common Stock or
discouraging hostile takeover bids in which stockholders of the Company could
receive a premium for their shares of Common Stock.

TRANSFER AGENT AND REGISTRAR

Norwest Bank Minneapolis, N.A. has been appointed as the transfer agent and
registrar for the Company's Common Stock.

58
<PAGE> 62

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding an
aggregate of [ ] shares of Common Stock assuming: (i) no exercise of
the Underwriters' over-allotment option; and (ii) no exercise of outstanding
options. Of these shares, approximately [ ] shares, plus the
[ ] shares of Common Stock sold in this offering, will be freely
tradable without restriction or further registration under the Securities Act,
unless such shares are held by "affiliates" of the Company, as that term is
defined under the Securities Act and the Regulations promulgated thereunder.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least two years is entitled to sell, within any
three-month period commencing 90 days after the effective date of this offering,
a number of shares that does not exceed the greater of: (i) 1% of the then
outstanding shares of Common Stock (approximately [ ] shares
immediately after this offering); or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale, subject to
the filing of a Form 144 with respect to such sale and certain other limitations
and restrictions. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, would be entitled to sell such shares under Rule 144(k) without regard to
the volume limitations described above.

Any employee, officer, director or consultant of the Company who purchased
his or her shares pursuant to a written compensatory plan or contract is
entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the Effective Date.

The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Company's
equity incentive plans and the Purchase Plan 90 days after the effective date of
this offering, thus permitting the resale of such shares by non-affiliates in
the public market without restriction under the Securities Act. Such
registration statements will become effective immediately upon filing. At July
31, 1996, options to purchase [ ] shares of Common Stock were
outstanding under the Company's equity incentive plans, and no shares of Common
Stock had been issued under the Purchase Plan.

Prior to this offering, there has been no public market for the Common
Stock of the Company, and any sale of substantial amounts in the open market may
adversely affect the market price of the Common Stock offered hereby.

59
<PAGE> 63

UNDERWRITING

The Underwriters named below, represented by Montgomery Securities and
Smith Barney Inc. (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement (the "Underwriting
Agreement") by and among the Company, the Selling Stockholders and the
Underwriters, to purchase from the Company and the Selling Stockholders the
number of shares of Common Stock indicated below opposite their respective
names, at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriting Agreement provides
that the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of the shares
if they purchase any.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
---------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities.................................................
Smith Barney Inc......................................................

---------
Total....................................................... [ ]
========
</TABLE>

The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the shares of Common Stock to
the public at the public offering price set forth in the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not more
than $ per share and the Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain dealers. After
the initial public offering, the public offering price and other selling terms
may be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.

The Company and certain Selling Stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of [ ] and [ ]
additional shares of Common Stock, respectively, to cover overallotment options,
if any, at the same price as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table.

The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
the Underwriters may be required to make in respect thereof.

The Company's executive officers, directors and certain other stockholders
of the Company holding an aggregate of [ ] shares of Common Stock,
[ ] warrants to purchase shares of Common Stock and options to purchase
[ ] shares of Common Stock, have agreed that they will not directly or
indirectly offer to sell, sell or otherwise dispose of any of such Common Stock
or any securities convertible into or exchangeable therefor for a period of 180
days after the date of this Prospectus without the prior written consent of
Montgomery Securities. The Company has agreed not to sell any shares of Common
Stock for a period of 180 days from the date of this Prospectus without the
prior written consent of Montgomery Securities, except pursuant to the Company's
equity incentive plans. See "Shares Eligible for Future Sale."

60
<PAGE> 64

The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary activity
in excess of 5% of the number of shares of Common Stock offered hereby.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations among the Representatives of the Underwriters, the Company and the
Selling Stockholders. Among the factors to be considered in such negotiation
will be the history of, and the prospects for, the Company and the industry in
which it competes, an assessment of the Company's management, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of securities markets at the time of this offering and the
market price of publicly traded stock of comparable companies in recent periods.

Montgomery Securities owns [ ] shares of Common Stock and warrants to
purchase [ ] shares of Common Stock at a price of $[ ] per share.
Montgomery Securities will not participate as selling stockholders in this
offering. In addition, Montgomery Securities performed investment banking and
financial advisory services on behalf of the Company in connection with certain
of the Company's private financings, for which such firm received customary
fees.

61
<PAGE> 65

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward Castro Huddleson & Tatum, LLP, Boulder, Colorado.
Certain legal matters relating to the offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.

EXPERTS

The consolidated financial statements of Wild Oats Markets, Inc. as of
December 30, 1995 and December 31, 1994 and for each of the three years in the
period ended December 30, 1995, the consolidated financial statements of
Alfalfa's, Inc. as of June 30, 1996 and for the year then ended, the combined
statements of earnings and cash flows for Kathy's Natural Foods Ranch Market for
the period from January 1, 1994 through July 13, 1994 and the year ended
December 31, 1993, and the combined financial statements of New Frontiers as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 included in this Prospectus have been so included in reliance
on the reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Alfalfa's, Inc. and its
subsidiaries as of June 25, 1995 and for the years ended June 25, 1995 and June
26, 1994 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement (the "Registration Statement")
under the Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and such Common Stock, reference is made to the Registration
Statement and the schedules and exhibits filed as a part thereof. Statements
contained in this Prospectus regarding the contents of any contract or any other
document are not necessarily complete and, in each instance, reference is hereby
made to the copy of such contract or document filed as an exhibit to the
Registration Statement. The Registration Statement, including exhibits thereto,
may be inspected without charge at the Securities and Exchange Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Public Reference Section, Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, on payment of the
prescribed fees. The Securities and Exchange Commission also maintains a site on
the World Wide Web that contains reports, proxy and information statements, and
other information regarding the Company. The address for such site is
http://www.sec.gov.

62
<PAGE> 66

WILD OATS MARKETS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WILD OATS MARKETS, INC.
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheet............................................................ F-3
Consolidated Statement of Operations.................................................. F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit)................... F-5
Consolidated Statement of Cash Flows.................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
ALFALFA'S, INC.
Report of Independent Accountants..................................................... F-17
Independent Auditor's Report.......................................................... F-18
Consolidated Balance Sheet............................................................ F-19
Consolidated Statement of Operations.................................................. F-21
Consolidated Statement of Changes in Stockholders' Equity............................. F-22
Consolidated Statement of Cash Flows.................................................. F-23
Notes to Consolidated Financial Statements............................................ F-24
KATHY'S NATURAL FOODS RANCH MARKET
Report of Independent Accountants..................................................... F-31
Combined Statement of Operations and Retained Earnings................................ F-32
Combined Statement of Cash Flows...................................................... F-33
Notes to Combined Financial Statements................................................ F-34
NEW FRONTIERS
Report of Independent Accountants..................................................... F-36
Combined Balance Sheet................................................................ F-37
Combined Statement of Operations...................................................... F-38
Combined Statement of Changes in Stockholders' Equity................................. F-39
Combined Statement of Cash Flows...................................................... F-40
Notes to Combined Financial Statements................................................ F-41
</TABLE>

F-1
<PAGE> 67

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Wild Oats Markets, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Wild Oats Markets, Inc. and its subsidiaries at December
31, 1994 and December 30, 1995 and the results of their operations and their
cash flows for each of the three years in the period ended December 30, 1995, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

Price Waterhouse LLP

Boulder, Colorado
February 9, 1996, except for Note 2,
as to which the date is July 14, 1996

F-2
<PAGE> 68

WILD OATS MARKETS, INC.

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 29,
1996
DECEMBER DECEMBER PRO FORMA
31, 30, JUNE 29, STOCKHOLDERS'
1994 1995 1996 EQUITY
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 6,413 $ 1,150 $ 2,816
Inventories, net.......................... 4,426 7,789 9,849
Accounts receivable (net of allowance for
doubtful accounts of $37, $47 and $48
(unaudited))........................... 90 378 673
Income tax receivable..................... 166 1,367 1,370
Prepaid expenses and other current
assets................................. 147 464 782
Deferred income taxes..................... 252 343 495
---------- ---------- ----------
Total current assets................... 11,494 11,491 15,985
Property and equipment, net................. 6,516 19,318 22,145
Intangible assets, net...................... 5,928 7,309 9,400
Deposits.................................... 115 258 277
---------- ---------- ----------
$ 24,053 $ 38,376 $ 47,807
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.......................... $ 3,370 $ 8,468 $ 9,723
Accrued wages and employee costs.......... 742 1,230 1,844
Accrued sales and property taxes.......... 416 793 894
Deferred charges and other accruals....... 538 444 1,350
Notes payable............................. 1,610
Current portion of long-term debt......... 2,998
Current portion of capitalized lease
obligations............................ 152 82 65
---------- ---------- ----------
Total current liabilities.............. 8,216 11,017 15,486
Long-term debt.............................. 2,940 13,236 17,282
Capitalized lease obligations............... 138 66 60
Deferred income taxes....................... 386 1,310 1,779
---------- ---------- ----------
11,680 25,629 34,607
---------- ---------- ----------
Commitments (Note 9)
Redeemable convertible preferred stock;
$.001 par value; 673,765 shares
authorized; 168,441 designated as Series
A, 168,441 issued and outstanding; 1,604
designated as Series B, none issued and
outstanding; 419,081 designated as Series
C, 417,100 issued and outstanding; none
pro forma (unaudited)..................... 15,018 16,956 18,009
Stockholders' equity (deficit):
Common stock (equivalent shares basis);
$.001 par value; 2,506,567 shares
authorized; 1,535,232, 1,535,555,
1,536,380 and 1,916,743 (unaudited)
issued; 1,309,115, 1,689,478, 1,309,115
(unaudited) and 1,689,478 pro forma
(unaudited) outstanding................ 1 1 1 $ 2
Additional paid-in capital................ 2,866 2,870 2,883 15,529
Retained earnings (deficit)............... (170) (1,731) (2,329) (2,329)
Treasury stock, at cost, 226,117, 226,440,
227,265 and none pro forma (unaudited)
shares................................. (5,342) (5,349) (5,364)
---------- ---------- ----------
Total stockholders' equity
(deficit)....................... (2,645) (4,209) (4,809) $ 13,202
------- ------- ------- ==========
$ 24,053 $ 38,376 $ 47,807
========== ========== ==========
</TABLE>

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

F-3
<PAGE> 69

WILD OATS MARKETS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------------------- ------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1994 1994 1995 1995 1996
---------- ------------ ------------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales...................................... $ 47,266 $ 65,219 $ 98,517 $42,785 $ 68,102
Cost of goods sold and occupancy costs..... 32,475 44,817 67,449 28,940 46,424
-------- -------- -------- ------- --------
Gross profit.......................... 14,791 20,402 31,068 13,845 21,678
Operating expenses:
Direct store expenses.................... 10,876 15,505 24,787 9,927 16,721
Selling, general and administrative
expenses.............................. 1,824 2,317 4,465 1,842 2,783
Pre-opening expenses..................... 416 1,037 218 786
-------- -------- -------- ------- --------
Income from operations................ 1,675 2,580 779 1,858 1,388
Interest expense......................... 350 373 363 87 578
-------- -------- -------- ------- --------
Income before income taxes............ 1,325 2,207 416 1,771 810
Income tax expense.................... 347 880 40 703 352
-------- -------- -------- ------- --------
Net income................................. 978 1,327 376 1,068 458
Accretion of redeemable preferred stock.... 134 484 1,937 948 1,056
-------- -------- -------- ------- --------
Net income (loss) allocable to common
stock.................................... $ 844 $ 843 $ (1,561) $ 120 $ (598)
======== ======== ======== ======= ========
Pro forma presentation -- unaudited (Note
8):
Income before tax -- historical.......... $ 1,325
Income tax expense -- pro forma.......... 521
--------
Net income -- pro forma.................. 804
Accretion of redeemable preferred stock.... 134
--------
Net income allocable to common stock --
pro forma (unaudited).................... $ 670
========
Unaudited pro-forma income per
common share (Note 1).................... $ .15 $ .18
======== ========
Unaudited pro-forma weighted average number
of common shares outstanding (Note 1).... 2,476 2,476
======== ========
</TABLE>

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

F-4
<PAGE> 70

WILD OATS MARKETS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK TREASURY STOCK ADDITIONAL RETAINED STOCKHOLDERS'
------------------ ----------------- PAID-IN EARNINGS (DEFICIT)
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
--------- ------ ------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1993.... 1,403,678 $ 1 $ 1,614 $ (314) $ 1,301
Repurchase of common stock.... 84,220 $(1,050) (1,050)
Stockholder draws............. (1,494) (1,494)
Payments on stock subscription
receivable.................. 42 42
Accretion of redeemable
preferred stock............. (134) (134)
Net income.................... 978 978
--------- ---- ------- ------- -------- -------- -------
Balance at January 1, 1994.... 1,403,678 1 84,220 (1,050) 1,656 (964) (357)
Issuance of common stock
($17.45 per share).......... 7,161 0 125 125
Issuance of common stock
($24.93 per share).......... 2,334 0 58 58
Issuance of warrants to
purchase preferred stock.... 27 27
Conversion of note payable
into shares of common
stock....................... 122,059 1,000 1,000
Repurchase of common stock.... 141,897 (4,292) (4,292)
Accretion of redeemable
preferred stock............. (484) (484)
Stockholder draws............. (49) (49)
Net income.................... 1,327 1,327
--------- ---- ------- ------- -------- -------- -------
Balance at December 31,
1994........................ 1,535,232 1 226,117 (5,342) 2,866 (170) (2,645)
Common stock options exercised
($12.50 to $30.33 per
share)...................... 323 0 4 4
Repurchase of common stock.... 323 (7) (7)
Accretion of redeemable
preferred stock............. (1,937) (1,937)
Net income.................... 376 376
--------- ---- ------- ------- -------- -------- -------
Balance at December 30,
1995........................ 1,535,555 1 226,440 (5,349) 2,870 (1,731) (4,209)
Common stock options exercised
($12.50-$30.33 per share)... 825 0 13 13
Repurchase of common stock.... 825 (15) (15)
Accretion of redeemable
preferred stock............. (1,056) (1,056)
Net income.................... 458 458
--------- ---- ------- ------- -------- -------- -------
Balance at June 29, 1996
(Unaudited)................. 1,536,380 $ 1 227,265 $(5,364) $ 2,883 $ (2,329) $(4,809)
========= ==== ======= ======= ======== ======== =======
</TABLE>

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

F-5
<PAGE> 71

WILD OATS MARKETS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------------------- --------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1994 1994 1995 1995 1996
---------- ------------ ------------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................... $ 978 $ 1,327 $ 376 $ 1,068 $ 458
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 1,019 1,301 2,078 764 1,718
Loss on disposal of equipment.............. 63 57 241 43 51
Deferred tax provision..................... 133 51 834 173 317
Change in assets and liabilities:
Inventories................................ (956) (570) (3,363) (1,095) (2,060)
Receivables and other assets............... (324) (224) (1,385) 100 (635)
Accounts payable........................... 1,045 (618) 5,098 2,893 1,255
Accrued liabilities........................ 93 205 747 582 1,621
------ ---------- ---------- ------- ------
Net cash provided by operating
activities............................ 2,051 1,529 4,626 4,528 2,725
------ ---------- ---------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures......................... (1,444) (1,907) (14,213) (3,663) (6,190)
Payment for purchase of acquired entities,
net of cash acquired....................... (2,361) (2,829) (2,829) (500)
------ ---------- ---------- ------- ------
Net cash used by investing activities... (1,444) (4,268) (17,042) (6,492) (6,690)
------ ---------- ---------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable.................. 1,610
Proceeds from long term debt................. 2,333 3,095 13,236 4,046
Payments on long term debt................... (1,046) (3,546) (5,938) (3,465)
Principal payments under capitalized lease
obligations................................ (172) (143) (142) (77) (23)
Proceeds from preferred stock issuance, net
of stock issuance costs.................... 2,029 12,369
Proceeds from issuance of common stock....... 125 4 2 13
Purchase of treasury stock................... (1,050) (4,292) (7) (3) (15)
Repayment of stock subscription receivable... 42
Stockholder draws............................ (1,494) (49)
------ ---------- ---------- ------- ------
Net cash provided by (used in) financing
activities............................ 642 7,559 7,153 (3,543) 5,631
------ ---------- ---------- ------- ------
Net increase (decrease) in cash and cash
equivalents................................ 1,249 4,820 (5,263) (5,507) 1,666
Cash and cash equivalents at beginning of
year....................................... 344 1,593 6,413 6,413 1,150
------ ---------- ---------- ------- ------
Cash and cash equivalents at end of year..... $1,593 $ 6,413 $ 1,150 $ 906 $2,816
====== ======== ======== ====== ======
</TABLE>

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

F-6
<PAGE> 72

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Wild Oats Markets, Inc. (the "Company"), headquartered in Boulder,
Colorado, owns and operates natural foods supermarkets in the western
United States. The Company also operates bakeries, kitchens, and a
warehouse that supply the retail stores. The Company's operations are
concentrated in one market segment, grocery stores; however, management
considers a downturn in this market segment to be unlikely.

Prior to 1995, the consolidated financial statements included the accounts
of Wild Oats Markets, Inc. and its wholly-owned subsidiaries, The Wild
Side, Inc., Kathy's Natural Foods Ranch Market, Inc., and Kathy's Natural
Foods Ranch Market-West, Inc. All significant intercompany accounts and
transactions were eliminated upon consolidation. In 1995, all three
subsidiaries were dissolved and all assets and liabilities were absorbed by
the Company.

FISCAL YEAR

The Company reports its financial results on a fifty-two or fifty-three
week fiscal year ending on the Saturday closest to December 31. Each fiscal
quarter consists of a thirteen week period, with one fourteen week period
in a fifty-three week year. All fiscal years presented were fifty-two week
periods.

STATEMENT OF CASH FLOWS

For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less
to be cash equivalents. For these investments, fair market value
approximates cost. The Company paid $350,000, $426,000 and $380,000 in
interest charges in 1993, 1994 and 1995, respectively. The Company paid
income taxes of $262,000, $991,000 and $668,000 in 1993, 1994 and 1995,
respectively.

In April 1995, the Company, in two separate transactions, acquired the
assets of two related but not commonly controlled California Limited
Partnerships. Consideration for these acquisitions was $2.8 million in cash
which was the net effect on cash and cash equivalents.

In July 1994, the Company acquired the outstanding stock of two commonly
controlled corporations. Consideration for this acquisition was in the form
of $2.8 million in cash, $3.6 million in notes payable, and $85,000 in
stock and warrants. The net effect on cash and cash equivalents at
acquisition date was a net use of $2.4 million after considering $396,000
of cash acquired in the transaction.

INVENTORIES

Inventories consisting of products held for sale are stated at the lower of
cost (first-in, first-out) or market, as determined by the retail inventory
method. Inventories are net of a reserve of approximately $146,000 and
$300,000 for 1994 and 1995, respectively.

DEPRECIATION AND AMORTIZATION

Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the respective
assets (three to seven years). Leasehold improvements are amortized on a
straight line basis over the shorter of the useful life of the asset or the
lease term. Maintenance and repairs are expensed as incurred and
improvements are capitalized.

F-7
<PAGE> 73

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill, which is amortized using
the straight-line method over 40 years, and are shown net of accumulated
amortization of $667,000 and $942,000 for 1994 and 1995, respectively. The
carrying value of goodwill is assessed for recoverability by management
based on an analysis of undiscounted expected future cash flows from the
related acquired entities. The Company believes that there has been no
impairment thereof as of December 30, 1995.

PRE-OPENING EXPENSES

Pre-opening expenses are included in other assets and consist primarily of
labor costs, rent, utilities, supplies, and other expenses incurred in
connection with the opening of a new store. Pre-opening costs are
capitalized and amortized in full as of the store opening date.

ADVERTISING

Advertising is expensed as incurred. Advertising expense was $521,000,
$568,000 and $1.3 million for 1993, 1994 and 1995, respectively.

USE OF ESTIMATES

The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

NEW ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of," which requires losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed. The Company adopted Statement No. 121 in the first quarter of
1996 and the effect of adoption was not material.

In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which requires that the Company's financial
statements include certain disclosures about stock-based employee
compensation arrangements. As allowed by Statement No. 123, the Company
will continue to apply the accounting provisions of Accounting Principles
Board Opinion No. 25; accordingly, the adoption of Statement No. 123 will
have no effect on future reported net income or earnings per share.

INTERIM FINANCIAL DATA

The interim financial data as of June 29, 1996 and for the six months ended
July 1, 1995 and June 29, 1996 is unaudited; however, in the opinion of
management of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods presented. All data
presented in these notes at such date and for such periods is unaudited.

UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY

The Board of Directors authorized management of the Company to file a
registration statement with the Securities and Exchange Commission ("SEC")
permitting the Company to sell shares of its common

F-8
<PAGE> 74

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

stock to the public. If the Company's initial public offering is
consummated under the terms presently anticipated, all of the redeemable
convertible preferred stock outstanding will automatically convert into
585,541 shares of common stock. In addition, in August 1996, the Company
retired its outstanding treasury stock. Unaudited pro forma shareholders'
equity as of June 29, 1996, as set forth on the accompanying balance sheet,
is adjusted for the anticipated conversion of preferred stock and
aforementioned retirement of treasury stock.

UNAUDITED PRO FORMA EARNINGS PER SHARE

Earnings per common share were computed based on the weighted average
number of the Company's common shares outstanding on an equivalent share
basis giving effect to the reverse merger with Alfalfa's Inc. (see Note 2).
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of convertible
preferred stock into common stock concurrent with the closing of the
Company's anticipated initial public offering. Accordingly, historical net
income (loss) per common share is not considered meaningful and has not
been presented herein.

Pro forma net income (loss) per common share is computed based on the
weighted average number of common shares outstanding and gives effect to
certain adjustments described below. Common equivalent shares are not
included in the per share calculation where the effect of their inclusion
would be antidilutive, except that, in conformity with SEC requirements,
common and common equivalent shares issued during the twelve-month period
prior to the filing of the Company's proposed initial public offering have
been included in the calculation as if they were outstanding for all
periods using the treasury stock method. Additionally, all outstanding
shares of convertible preferred stock are assumed to have been converted to
common stock at the time of their issuance.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including
cash, short-term trade receivables and payables and long-term debt,
approximate their fair values.

2. MERGER WITH ALFALFA'S INC.

On January 18, 1996, the Company signed a letter of intent to merge with
Alfalfa's, Inc., a natural foods supermarket chain located in Boulder,
Colorado. The merger closed on July 14, 1996. The total acquisition cost
was $47.6 million and was made up of $16.2 million of cash, issuance of
441,737 shares of common stock and options to acquire 69,975 shares of
common stock valued at $14.2 million, issuance of 230,243 shares of
redeemable convertible Series D Preferred Stock valued at $7.7 million,
assumption of $8.5 million in liabilities and $1.0 million of acquisition
related costs. The transaction was structured so that Alfalfa's issued
shares for the Company; however, as the Company's shareholders controlled a
majority of the voting stock of the combined companies following the
merger, the transaction was accounted for as a reverse acquisition with the
Company as the acquiror. Accordingly, all common shares and prices per
share disclosed in these financial statements have been adjusted on an
equivalent share basis.

F-9
<PAGE> 75

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. OTHER BUSINESS COMBINATIONS

On May 31, 1996, the Company acquired substantially all of the combined
assets of three related natural foods retail stores in Salt Lake City, Utah
in exchange for total consideration of $3.1 million consisting of cash,
promissory notes and assumption of debt and payables. The acquisition was
accounted for using the purchase method and the excess of cost over fair
value of the assets acquired of $1.8 million was allocated to goodwill,
which is being amortized on a straight-line basis over 40 years. The fair
value of the acquired assets and liabilities at the acquisition date are as
follows (in thousands):

<TABLE>
<S> <C>
Current assets.......................................................... $ 552
Equipment............................................................... 611
Other assets............................................................ 110
Goodwill................................................................ 1,803
------
$3,076
======
</TABLE>

On April 22, 1995, the Company acquired the assets of a California Limited
Partnership operating a natural foods supermarket in northern California,
in exchange for $2.1 million in cash. The acquisition was accounted for
using the purchase method and the excess of cost over fair value of the
assets acquired of $1.4 million was allocated to goodwill, which is being
amortized on a straight-line basis over 40 years. The fair values of the
acquired assets and liabilities at the date of acquisition are as follows
(in thousands):

<TABLE>
<S> <C>
Current assets.......................................................... $ 302
Equipment............................................................... 447
Current liabilities..................................................... (15)
Goodwill................................................................ 1,369
------
$2,103
======
</TABLE>

In addition, on April 22, 1995, the Company acquired the assets of a second
California Limited Partnership operating a natural foods supermarket in
northern California, in exchange for $726,000 in cash. The acquisition was
accounted for using the purchase method and the excess of cost over fair
value of the assets acquired of $313,000 was allocated to goodwill, which
is being amortized on a straight-line basis over 40 years. The fair values
of the assets and liabilities at the date of acquisition are as follows (in
thousands):

<TABLE>
<S> <C>
Current assets............................................................ $262
Equipment................................................................. 160
Current liabilities....................................................... (9)
Goodwill.................................................................. 313
----
$726
====
</TABLE>

F-10
<PAGE> 76

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 14, 1994, the Company acquired all of the outstanding stock of two
related corporations, located in Las Vegas, Nevada, each operating a
natural foods store under the name Kathy's Natural Foods Ranch Market, at a
total cost of $6.5 million. Consideration for the acquisition was in the
form of $2.8 million in cash, $3.6 million in notes payable, and $85,000 in
stock and warrants. The acquisition was accounted for using the purchase
method and resulted in goodwill of $5.8 million, which is being amortized
on a straight-line basis over 40 years. The fair values of the Kathy's
Natural Foods Ranch Markets assets and liabilities at the date of
acquisition are as follows (in thousands):

<TABLE>
<S> <C>
Current assets............................................... $ 1,423
Property and equipment....................................... 1,239
Other assets................................................. 80
Goodwill..................................................... 5,837
Current liabilities.......................................... (1,168)
Notes payable................................................ (855)
Other liabilities............................................ (90)
-------
$ 6,466
=======
</TABLE>

The following unaudited pro forma combined results of operations of the
Company and the acquired businesses discussed above have been prepared as
if the transactions occurred as of the beginning of the respective periods,
except that in accordance with generally accepted accounting principles the
operations of the business acquired on May 31, 1996 have been excluded from
the 1994 pro forma results (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------------------- -----------------------------
DECEMBER 31, 1994 DECEMBER 30, 1995 JULY 1, 1995 JUNE 29, 1996
----------------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales............................ $83,577 $111,304 $ 49,778 $75,449
Net income....................... 1,929 2,084 2,722 974
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Machinery and equipment.................................... $ 5,833 $ 14,634
Leasehold improvements..................................... 2,260 5,192
Land and building.......................................... 338 338
Construction in progress................................... 436 3,022
Less: accumulated depreciation and amortization............ (2,351) (3,868)
-------- --------
$ 6,516 $ 19,318
======== ========
</TABLE>

The amounts shown above include $618,338 and $338,016 of machinery and
equipment which are accounted for as capitalized leases and which have
accumulated amortization of $380,454 and $227,727 at fiscal year end 1994
and 1995, respectively.

F-11
<PAGE> 77

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. NOTES PAYABLE AND LONG-TERM DEBT

At June 29, 1996, the Company had a short-term note payable of $1.6 million
which bears interest at an annual rate of 7% and matures on August 31,
1996.

Long-term debt outstanding consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Notes payable to banks:
Due February 1, 2002, bearing interest, at the Company's
option, at the prime rate or LIBOR plus 1.75% ($5,236
at 8.25% and $8,000 at 7.625%, respectively, at
December 30, 1995), secured by inventory and fixed
assets................................................. $ 13,236
Due September 1995, bearing interest at prime plus 2.0%
(8.75% at December 31, 1994), secured by inventories
and equipment.......................................... $ 713
Due December 1998, bearing interest at prime plus 1.75%
(10.25% at December 31, 1994), secured by property and
equipment.............................................. 1,300
Due March 1996, bearing interest at 9%, secured by land
and building........................................... 400
Due March 1998, bearing interest at prime plus 1.5% (9.0%
at December 31, 1994), secured by property and
equipment.............................................. 253
Due April 1995, bearing interest at 9%, secured by
property and equipment................................. 69
Notes payable to corporations and individuals:
Due April 1995 to October 1995, non-interest bearing,
secured by shares of stock of an acquired entity....... 1,920
Due March 1997 to March 2004, bearing interest at 10%,
unsecured.............................................. 773
Due January 1996, bearing interest at 9%, secured by
property and equipment................................. 119
Due March 1996, bearing interest at 9%, secured by
property............................................... 14
Notes payable to stockholders:
Due May 1995-August 1997, bearing interest at 9%-10%,
unsecured.............................................. 172
Due February 1997, bearing interest at 9%, secured by
inventory, fixtures and equipment...................... 94
Other notes payable......................................... 111
---------- ----------
5,938 13,236
Less current portion........................................ (2,998)
---------- ----------
$ 2,940 $ 13,236
========== ==========
</TABLE>

At December 30, 1995, the Company has no debt maturing between the years
1996 and 2000. Fair market value of debt outstanding at December 30, 1995
approximates its carrying value.

In March 1995, the Company entered into a credit agreement for a $20.0
million revolving line of credit. The facility has a three year draw
period, after which the commitment will reduce over a four year period. The
line bears interest, at the Company's option, at the prime rate or LIBOR
plus 1.75%. As of December 30, 1995, the Company had $13.2 million
outstanding on this line of credit. The line of credit agreement includes
certain financial and other covenants, as well as restrictions of payments
of dividends.

6. REDEEMABLE CONVERTIBLE PREFERRED STOCK

On November 15, 1994, the Company issued 417,100 shares of Series C
Preferred Stock at $30.24 per share. On July 3, 1993, the Company issued
168,441 shares of Series A Preferred Stock at $12.47 per share. The
preferred stock has a liquidation preference of $12.47 per share plus
accrued dividends at 12%

F-12
<PAGE> 78

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

compounded annually for Series A and $30.24 per share plus accrued
dividends at 12% compounded annually for Series C, participates in
dividends declared on a pro rata basis with common stock, and converts, at
the option of the holder, into common stock at a ratio of one to one. The
preferred stock, by its terms, converts to common stock at the closing of
an initial public offering. If not converted prior to September 30, 1997
for Series A and December 31, 1999 for Series C, upon election by the
holders, the Company shall redeem all outstanding preferred stock. The
redemption price shall include the original stock issue price plus an
amount equal to a 12% return compounded annually and is then payable in
sixteen equal quarterly installments. Such amounts would be payable as
follows (in thousands):

During 1994, as consideration for providing certain bridge financing, the
Company issued two warrants to an existing stockholder to purchase an
aggregate of 1,510 shares of Series B Preferred Stock. The warrants have a
five year term and an exercise price of $17.45 to $18.78 per share,
respectively. The Series B Preferred Stock has all of the same rights,
terms and privileges as Series A Preferred Stock.

Also during 1994, as consideration for investment advisory services related
to the placement of Series C Preferred Stock, the Company issued a
five-year warrant to a Series C stockholder to purchase 1,981 shares of
Series C Preferred Stock at an exercise price of $37.81 per share.

The above warrants were valued at $27,000 which was recorded as additional
paid-in capital in 1994.

7. STOCK OPTIONS

The Company has an Incentive Stock Option Plan ("Plan") pursuant to which
incentive stock options to purchase up to 277,200 shares of the Company's
common stock may be issued to employees, officers and directors. Under the
Plan, stock options are granted at an exercise price not less than the fair
value of the stock on the date of grant, as determined by the Company's
board of directors. Outstanding options vest over a period of five years
and expire ten years from the date of grant. Options are only exercisable
during a thirty day period after termination. As of December 30, 1995, no
options were exercisable under the Plan.

F-13
<PAGE> 79

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Following is a summary of stock option transactions:

<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED EXERCISE PRICE
--------- ------------- --------------
<S> <C> <C> <C>
Outstanding as of January 2, 1993...................... --
Granted................................................ 104,225 $ 12.50
Forfeited.............................................. (1,900) $ 12.50
---------
Outstanding as of January 1, 1994...................... 102,325 $ 12.50
Granted................................................ 47,930 13,428 $ 12.50-30.33
Forfeited.............................................. (25,500) (1,000) $ 12.50-17.50
--------- ----------
Outstanding as of December 31, 1994.................... 124,755 12,428 $ 12.50-30.33
Granted................................................ 64,900 $ 30.33
Forfeited.............................................. (24,882) $ 12.50-30.33
Exercised.............................................. (323) $ 12.50-30.33
--------- ----------
Outstanding as of December 30, 1995.................... 164,450 12,428 $ 12.50-30.33
========= ==========
</TABLE>

8. INCOME TAXES

Effective July 3, 1993, the Company revoked its S corporation election. The
pro forma amounts below for the year ended January 1, 1994 are presented as
if the Company had been a taxable entity for the entire year.

Income tax expense consists of the following (in thousands):

<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED
JANUARY 1, 1994 ---------------------------
1994 PRO FORMA DECEMBER 31, DECEMBER 30,
HISTORICAL (UNAUDITED) 1994 1995
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Current: Federal.............................. $ 187 $ 522 $ 707 $ (791)
State................................ 27 76 122 (3)
------- ----- ------ ------
214 598 829 (794)
------- ----- ------ ------
Deferred: Federal............................. 116 (67) 40 825
State............................... 17 (10) 11 9
------- ----- ------ ------
133 (77) 51 834
------- ----- ------ ------
$ 347 $ 521 $ 880 $ 40
======= ====== ====== ======
</TABLE>

Income taxes as reflected in the Consolidated Statement of Operations
differ from the amounts computed by applying the statutory federal
corporate tax rate to income as follows:

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30,
1994 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Expected tax rate....................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit... 1.1 3.6 3.8
Tax effect of non-deductible goodwill................... 1.1 4.7
Non taxable S corporation income........................ (21.4)
Effect of conversion to C corporation................... 10.0
Disposal of assets...................................... (30.7)
Other, net.............................................. 2.5 1.2 (2.2)
------- --------- ---------
Effective tax rate...................................... 26.2% 39.9% 9.6%
======= ========= =========
</TABLE>

F-14
<PAGE> 80

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets
Inventory related............................................ $ 74 $ 165
Property related............................................. 32
Accruals..................................................... 196 168
Net operating loss carry forward............................. 102
--------- ----------
Total deferred tax assets................................. 302 435
--------- ----------
Deferred tax liabilities
Property related............................................. (418) (1,310)
Pre-opening costs............................................ (18) (92)
--------- ----------
Total deferred tax liabilities............................ (436) (1,402)
--------- ----------
Net deferred tax liability..................................... $ (134) $ (967)
========== ==========
</TABLE>

The tax years 1993 through 1995 are open for examination by the Internal
Revenue Service (IRS). The Company's federal income tax return for 1994 is
currently under examination by the IRS. No formal report has been issued to
date. It is management's belief that the outcome of the examination will
not have an adverse effect on the Company's consolidated financial
statements.

9. COMMITMENTS

The Company has several noncancelable operating leases related to
facilities occupied and store equipment. These leases generally contain
renewal provisions at the option of the Company. Total rental expense
(consisting of minimum rent and contingent rent) under these leases was
$1.2 million, $1.8 million and $2.6 million during 1993, 1994 and 1995,
respectively.

Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments as of December 30,
1995 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES TOTAL
-------------- ---------------- -------
<S> <C> <C> <C>
Fiscal year ending
1996............................................. $ 92 $ 3,549 $ 3,641
1997............................................. 59 3,957 4,016
1998............................................. 9 3,704 3,713
1999............................................. 3,419 3,419
2000............................................. 3,204 3,204
Thereafter....................................... 19,336 19,336
------ ------------ -------
Total minimum lease payments....................... 160 $ 37,169 $37,329
============ =======
Less amount representing interest.................. (13)
------
Present value of minimum capital lease payments.... 147
Less current portion............................... (81)
------
$ 66
======
</TABLE>

Minimum rentals for operating leases do not include contingent rentals
which may become due under certain lease terms which provide that rentals
may be increased based on a percentage of sales. During 1993, 1994 and
1995, the Company paid contingent rentals of $115,000, $165,000 and
$158,000, respectively.

F-15
<PAGE> 81

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. RELATED PARTY TRANSACTIONS

On July 4, 1993, the Company sold the assets of a small convenience store
to a company controlled by a related party for gross proceeds of $200,000
resulting in an after tax gain of $57,000.

11. SUBSEQUENT EVENTS (UNAUDITED)

In July 1996, in connection with the acquisition of Alfalfa's, the Company
amended and restated its Certificate of Incorporation to give effect to the
following: (i) the Series A Preferred Stock and Series C Preferred Stock
liquidation preferences were amended to reduce the dividend to 10%
compounded annually, respectively; and (ii) the Series A Preferred Stock
redemption election date was amended to be December 31, 1999.

Also, in July 1996, immediately prior to the acquisition of Alfalfa's, the
Company sold 486,453 shares of Series E Preferred Stock for $16.5 million.
The proceeds were used primarily to purchase shares of common and preferred
stock held by former Alfalfa's stockholders. In addition, as part of the
consideration in the acquisition of Alfalfa's, the Company issued Series D
Preferred Stock. Both the Series D and E have the same liquidation
preference of $33.36 per share plus all of the same rights, preferences and
privileges as the Series A and C Preferred Stock.

Further, in July 1996, the Company received a commitment from its lender to
raise its revolving line of credit to $40.0 million.

During late August 1996, the Company's Board of Directors made the
following decisions relating to the Company's operations, which are
expected to result in an approximate $5.5 million non-recurring charge
being recorded in the three months ending September 30, 1996. Specifically,
as a direct result of the July 1996 acquisition of Alfalfa's, the Company
expects to incur $1.5 million by: (1) closing one Wild Oats store and
certain Wild Oats regional facilities (a bakery and a kitchen); (2) moving
out of its existing corporate headquarters and relocating to Alfalfa's; and
(3) consolidating certain information systems, thereby abandoning certain
former Wild Oats hardware and software. In addition, after operating the
combined businesses for over a month, management has decided to close two
Alfalfa's facilities (one store and one restaurant) which at the time of
the acquisition it had planned to retain, which is expected to result in
the remaining $4.0 million. Components of this non-recurring charge are
expected to consist primarily of lease cancellation costs ($1.1 million),
employee severance and relocation costs ($200,000) and losses on disposal
or abandonment of certain assets ($4.2 million).

The Company is under investigation by the New Mexico Assistant Attorney
General alleging possible violations of anti-trust laws as a result of the
acquisition of Alfalfa's. The Company replied refuting the Attorney
General's claim. The Company believes that the acquisition complies with
federal and state anti-trust laws and will continue to vigorously defend
its position in New Mexico. The New Mexico Attorney General has taken no
legal action with respect to the acquisition and the outcome of this matter
cannot be determined.

F-16
<PAGE> 82

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Wild Oats Markets, Inc.

In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Alfalfa's, Inc. and its subsidiaries at June 30, 1996 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made be management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

Price Waterhouse LLP

Boulder, Colorado
August 15, 1996

F-17
<PAGE> 83

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Alfalfa's Inc. and Subsidiaries
Denver, Colorado

We have audited the accompanying consolidated balance sheet of Alfalfa's,
Inc. and subsidiaries, as of June 25, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended June 25, 1995 and June 26, 1994. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Alfalfa's Inc., and
subsidiaries as of June 25, 1995, and the results of their operations and their
cash flows for the years ended June 25, 1995 and June 26, 1994 in conformity
with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Denver, Colorado
September 6, 1995

F-18
<PAGE> 84

ALFALFA'S, INC.

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 25, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 1,875 $ 3,591
Certificate of deposit............................................. 1,500
Accounts receivable less allowance for doubtful accounts of $33 and
$57............................................................. 99 234
Due from Wild Oats Markets, Inc.................................... 316
Due from Stockholders.............................................. 35 21
Income tax receivable.............................................. 134
Inventories, net................................................... 3,065 3,273
Prepaid expenses and other current assets.......................... 101 70
Deferred income taxes.............................................. 220 419
------- -------
Total current assets............................................ 7,029 7,924
------- -------
Property and equipment, net.......................................... 12,152 11,845
Other assets:
Goodwill, net...................................................... 2,956 2,902
Deferred pre-opening cost.......................................... 494
Deposits and other................................................. 76 95
Note receivable from employee...................................... 48 48
Deferred income taxes.............................................. 36 260
------- -------
Total other assets.............................................. 3,610 3,305
------- -------
$22,791 $23,074
======= =======
</TABLE>

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

F-19
<PAGE> 85

ALFALFA'S, INC.

CONSOLIDATED BALANCE SHEET (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 25, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 4,712 $ 4,931
Accrued wages and employee costs................................... 1,554 1,743
Other accrued expenses............................................. 393 719
Income taxes payable............................................... 6 321
Current deferred income taxes...................................... 67
Current installments of long-term debt............................. 365 260
------- -------
Total current liabilities....................................... 7,097 7,974
Long-term debt....................................................... 626 130
Deferred rent........................................................ 408 316
Deferred income taxes................................................ 81 140
------- -------
8,212 8,560
Commitments (Note 7)
Redeemable convertible Series A Preferred Stock $1.00 par value;
authorized 5,000,000 shares for Series A and Series B combined;
1,200,000 shares designated, 179,249 shares issued and
outstanding........................................................ 8,216 9,011
Stockholders' equity:
Convertible Series B Preferred Stock; $1.00 par value; authorized
5,000,000 shares for Series A and Series B combined; 60,000
shares designated, 57,143 shares issued and outstanding at June
25, 1995 and none issued and outstanding at June 30, 1996....... 57
Common stock (equivalent share basis), $.005 par value; authorized
39,702,248 shares; 712,330 shares issued and outstanding at June
25, 1995; 826,261 shares issued and outstanding at June 30,
1996............................................................ 3 4
Additional paid-in capital......................................... 3,062 3,121
Retained earnings.................................................. 3,226 2,339
Foreign currency translation adjustment............................ 15 39
------- -------
Total stockholders' equity...................................... 6,363 5,503
------- -------
$22,791 $23,074
======= =======
</TABLE>

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

F-20
<PAGE> 86

ALFALFA'S, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------
JUNE 26, 1994 JUNE 25, 1995 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Sales................................................ $45,880 $64,852 $85,623
Cost of goods sold and occupancy costs............... 30,491 43,379 58,492
------- ------- -------
Gross profit....................................... 15,389 21,473 27,131
------- ------- -------
Operating expenses:
Direct store expenses.............................. 11,437 16,165 22,158
Selling, general and administrative expenses....... 1,754 3,266 4,362
Pre-opening expenses............................... 460 325 662
------- ------- -------
Total operating expenses........................ 13,651 19,756 27,182
------- ------- -------
Income (loss) from operations........................ 1,738 1,717 (51)
------- ------- -------
Other income (expense):
Interest income.................................... 45 140 56
Interest expense................................... (162) (313) (76)
Other expense, net................................. (47)
------- ------- -------
Total other income (expense).................... (164) (173) (20)
------- ------- -------
Income (loss) before income taxes.................... 1,574 1,544 (71)
Income tax expense................................... 595 611 22
------- ------- -------
Net income (loss).................................... 979 933 (93)
Accretion of redeemable preferred stock.............. 259 794
------- ------- -------
Net income (loss) allocable to common stock.......... $ 979 $ 674 $ (887)
======= ======= =======
</TABLE>

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

F-21
<PAGE> 87

ALFALFA'S, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
JUNE 26, 1994, JUNE 25, 1995 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
SERIES B
PREFERRED STOCK COMMON STOCK ADDITIONAL FOREIGN TOTAL
---------------- --------------- PAID-IN RETAINED CURRENCY STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TRANSLATION EQUITY
-------- ------ ------- ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 27, 1993............ 628,911 $3 $ 676 $1,573 $ 2,252
Shares contributed to ESOP........ 1,267 15 15
Net income........................ 979 979

------- -- ------ ------ -------
Balance, June 26, 1994............ 630,178 3 691 2,552 3,246
Shares contributed to ESOP........ 1,586 30 30
Exercise of common stock
options......................... 15,881 121 121
Issuance of common stock for
purchase of Canadian
subsidiary...................... 85,616 1,777 1,777
Issuance of Series B Preferred
Stock upon conversion of
stockholder notes............... 57,143 $ 57 943 1,000
Repurchase of common stock........ (20,931) (500) (500)
Accretion of redeemable preferred
stock........................... (259) (259)
Net income........................ 933 933
Foreign currency translation
adjustment...................... $15 15

-------- --- ------- -- ------ ------ --- -------
Balance, June 25, 1995............ 57,143 57 712,330 3 3,062 3,226 15 6,363
Exercise of common stock
options......................... 496 3 3
Conversion of Series B Preferred
Stock to common stock........... (57,143) (57) 113,435 1 56
Accretion of redeemable preferred
stock........................... (794) (794)
Net loss.......................... (93) (93)
Foreign currency translation
adjustment...................... 24 24

-------- --- ------- -- ------ ------ --- -------
Balance, June 30, 1996............ 826,261 $4 $3,121 $2,339 $39 $ 5,503
======== === ======= == ====== ====== === =======
</TABLE>

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

F-22
<PAGE> 88

ALFALFA'S, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------
JUNE 25,
JUNE 26, 1994 1995 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 979 $ 933 $ (93)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 1,367 1,245 2,251
Loss (gain) on disposal of equipment.................... 57 10 (2)
Deferred income taxes................................... (357) (32) (431)
Deferred rent........................................... (23) 195 (92)
Other................................................... 17 30
Change in assets and liabilities:
Accounts receivable................................... 30 (167) (303)
Inventories........................................... (81) (597) (208)
Prepaid expenses and other............................ (33) (13) 31
Accounts payable...................................... 890 724 219
Accrued expenses and income taxes payable............. 970 66 830
------- ------- -------
Net cash provided by operating activities........ 3,816 2,394 2,202
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash required........... (1,019)
Additions to property and equipment....................... (1,623) (6,442) (1,855)
Proceeds from disposal of equipment....................... 10 3 7
Deferred costs, deposits and other........................ (50) (532) 475
Investment in affiliate................................... (373)
(Purchase) sale of certificate of deposit................. (1,500) 1,500
------- ------- -------
Net cash provided by (used in) investing
activities..................................... (2,036) (9,490) 127
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of redeemable convertible Series A
Preferred Stock......................................... 7,958
Principal payments on long-term debt...................... (290) (901) (601)
Proceeds from exercise of stock options................... 121 3
Payment for repurchase of common stock.................... (500)
------- ------- -------
Net cash (used in) provided by financing
activities..................................... (290) 6,678 (598)
Effect of exchange rate changes on cash................... 4 (15)
------- ------- -------
Net increase (decrease) in cash and cash equivalents...... 1,490 (414) 1,716
Cash and cash equivalents, beginning of year.............. 799 2,289 1,875
------- ------- -------
Cash and cash equivalents, end of year.................... $ 2,289 $ 1,875 $ 3,591
======= ======= =======
NONCASH FINANCING ACTIVITIES
Issuance of $1,000 in Series B Preferred Stock upon
conversion of subordinated debt
Issuance of $1,777 of common stock to acquire subsidiary
</TABLE>

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

F-23
<PAGE> 89

ALFALFA'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

Alfalfa's, Inc. (the "Company") owns and operates natural foods
supermarkets in Colorado, New Mexico, Washington, and Canada. The Company
also operates a commissary that supplies the retail stores. The Company's
operations are concentrated in one market segment, grocery stores; however,
management considers a downturn in this market segment unlikely.

The consolidated financial statements include the financial statements of
Alfalfa's, Inc. and its wholly owned subsidiaries in the United States and
Canada. All significant intercompany balances and transactions have been
eliminated upon consolidation.

FISCAL YEAR

The Company reports its financial results on a fifty-two or fifty-three
week fiscal year, ending on the last Sunday in June. Each fiscal quarter
consists of a thirteen week period with one fourteen week period in a
fifty-three week year. Fiscal years 1994 and 1995 were fifty-two week
periods and fiscal year 1996 was a fifty-three week period.

STATEMENT OF CASH FLOWS

For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. For these investments, fair market
value approximates cost. Cash equivalents consist of a money market account
with a balance of approximately $1.7 million at June 25, 1995 and $2.7
million at June 30, 1996. The Company paid $160,000, $299,000 and $85,000
in interest charges in 1994, 1995 and 1996, respectively. The Company paid
income taxes of $702,000, $1.1 million and $6,000 in 1994, 1995 and 1996,
respectively.

INVENTORIES

Inventories, consisting of products held for sale, are stated at the lower
of cost (first-in, first-out) or market as determined by the retail
inventory method. Inventories are net of a reserve for spoilage of $0 for
1995 and $500,000 for 1996.

DEPRECIATION AND AMORTIZATION

Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are calculated on a straight-line basis over
the estimated useful lives of the respective assets, ranging from three to
ten years. Leasehold improvements are amortized on a straight-line basis
over the shorter of the estimated useful life of the asset, or the lease
term. Repairs and maintenance are charged to expense as incurred.

GOODWILL

Goodwill resulting from the excess of purchase price over allocated fair
values in the acquisition of the Canadian subsidiary (Note 3) is amortized
over a period of forty years using the straight-line method, and is shown
net of accumulated amortization of $71,000 and $147,000 for 1995 and 1996,
respectively. The carrying value of goodwill is assessed for recoverability
by management based on an analysis of undiscounted future expected cash
flows from the related acquired entities. The Company believes that there
has been no impairment thereof as of June 30, 1996.

F-24
<PAGE> 90

ALFALFA'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PRE-OPENING EXPENSES

Expenses associated with the development and opening of new stores are
deferred until the stores' opening date, at which time such costs are
expensed. These costs consist primarily of labor costs, supplies and other
expenses.

ADVERTISING

Advertising is expensed as incurred. Advertising expense was $221,000,
$396,000 and $571,000 for fiscal years ended 1994, 1995 and 1996
respectively.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's Canadian subsidiary is the
Canadian dollar. Translation into U.S. dollars is performed for balance
sheet accounts at year-end rates while income and expense accounts are
translated at average exchange rates. Adjustments resulting from the
translation are reflected as a separate component of stockholders' equity.

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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including
cash, accounts receivable, accounts payable, and long-term debt approximate
their fair values.

NEW ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of," which requires losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed. The Company will adopt Statement No. 121 in the first quarter of
fiscal 1997 and, based on current circumstances, does not believe the
effect of adoption will be material.

RECLASSIFICATIONS

Certain amounts in the June 26, 1994 and June 25, 1995 financial statements
have been reclassified to conform to June 30, 1996 presentation.

F-25
<PAGE> 91

ALFALFA'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. MERGER WITH WILD OATS MARKETS, INC.

On July 14, 1996, the Company was acquired by Wild Oats Markets, Inc.
("Wild Oats"), a natural foods supermarket chain located in Boulder,
Colorado. The stockholders of the Company received consideration of
approximately $38.1 million, which included $16.2 million in cash and
441,737 shares of common and 230,243 shares of redeemable convertible
preferred stock of the combined company, in exchange for 100% of the
outstanding common and preferred stock of the Company. The Company issued
shares for the outstanding shares of Wild Oats; however, as the Wild Oats'
stockholders controlled a majority of the voting stock of the combined
companies following the merger, the transaction was accounted for as a
reverse acquisition with Wild Oats as the acquiror. In connection with this
acquisition, Wild Oats agreed to reimburse the Company for the costs it
incurred related thereto. Accordingly, $316,000 is reflected as due from
Wild Oats on the Company's consolidated balance sheet.

3. ALFALFA'S CANADA, INC.

In fiscal 1994, the Company invested in the stock of Capers Management
Holdings, Inc. (Capers). The Company purchased 190,000 shares (19%) of
common stock and 259 shares of preferred stock for total costs and expenses
of C$509,000 (US$373,000). Capers owns and operates retail natural foods
stores which specialize in high quality natural foods in Vancouver, British
Columbia. The investment was accounted for at cost.

On July 23, 1994, Alfalfa's Canada, Inc., a wholly-owned subsidiary of the
Company, purchased the remaining outstanding common and preferred stock of
Capers for $1.1 million in cash plus 43,129 shares of the Company's common
stock. The total purchase price, including expenses, of approximately $3.1
million has been allocated to the assets and liabilities of Capers based on
fair values. The purchase price associated with the acquisition exceeded
the fair value of the net assets acquired and has been assigned to
goodwill. The net assets and results of operations are included in the
Company's consolidated financial statements from the date of acquisition.

4. GEOGRAPHICAL INFORMATION

Since the Company's fiscal 1995 acquisition of Capers, as discussed in Note
3, it operates in two geographical regions. A breakdown of the Company's
operations between these regions follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED JUNE 25, 1995
------------------------------------
US CANADA CONSOLIDATED
------- ------- ------------
<S> <C> <C> <C>
Sales................................................... $50,097 $14,755 $ 64,852
Income from operations.................................. 1,655 62 1,717
Other income (expense).................................. (173)
Income (loss) before income taxes....................... 1,553 (9) 1,544
Total assets at June 25, 1995........................... 16,879 5,912 22,791
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------------------
US CANADA CONSOLIDATED
------- ------- ------------
<S> <C> <C> <C>
Sales................................................... $64,433 $21,190 $ 85,623
Income (loss) from operations........................... (203) 152 (51)
Other expense........................................... (20)
Income (loss) before income taxes....................... (158) 87 (71)
Total assets at June 30, 1996........................... 16,088 6,986 23,074
</TABLE>

F-26
<PAGE> 92

ALFALFA'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 25, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Equipment........................................................ $ 8,729 $ 9,868
Leasehold improvements........................................... 8,864 9,568
Land............................................................. 44 44
Less: accumulated depreciation and amortization.................. (5,485) (7,635)
------- -------
$12,152 $11,845
======= =======
</TABLE>

6. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 25, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Notes to bank, interest at bank's prime rate plus 1%
cross-collateralized by accounts receivable, inventories,
equipment, and the assignment of officers' life insurance
policies. Principal payments of $21,667 plus interest are due
monthly through January 1998................................... $ 650 $ 390
Note payable to Canadian bank, interest at bank's cost of funds
rate plus 2.75%, collateralized by all real and immovable
property, all furniture, machinery, equipment and other
tangible personal property. Principal payments C$12,000 to
C$25,500 plus interest are payable monthly through March
1998........................................................... 341
Less current portion............................................. (365) (260)
---- ----
Long-term debt................................................... $ 626 $ 130
==== ====
</TABLE>

The Company has a $300,000 revolving line of credit at a bank, bearing
interest at the bank's prime rate (8.25% at June 30, 1996) plus 1%. No
amounts were outstanding at June 25, 1995 or June 30, 1996. The revolving
line of credit is cross-collateralized by accounts receivable, inventories,
equipment, and the assignment of officers' life insurance policies. The
revolving line of credit expires November 30, 1996.

The revolving line of credit and the notes to the bank contain covenants
which limit other borrowings, acquisitions of the Company's stock, capital
expenditures, expansion of operations to additional locations, selling any
substantial part of the Company's assets or operations, and require
maintenance of a cash flow coverage ratio, consolidated debt to worth
ratio, net income before taxes ratio, and other matters.

Maturities of long-term debt as of June 30, 1996 are summarized as follows
(in thousands):

<TABLE>
<S> <C>
FISCAL YEAR
1997.................................................................. $260
1998.................................................................. 130
----
Total................................................................. $390
====
</TABLE>

7. LEASES

The Company has entered into noncancelable operating leases primarily for
operating facilities and equipment. These leases generally contain renewal
provisions at the option of the Company, and some call for yearly increases
based on published indices and for additional contingent rentals based on
sales. Rental expense for leases which contain base rental abatement and
escalation clauses is recognized on a straight-line basis, resulting in
deferred rent. Total rental expense (consisting of minimum rent and
contingent rent) for operating leases during the fiscal years ended June
26, 1994, June 25, 1995 and June 30, 1996, was $1.4 million, $1.9 million
and $2.9 million, respectively.

F-27
<PAGE> 93

ALFALFA'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of June 30, 1996
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------
<S> <C>
1997............................. $ 2,111
1998............................. 1,930
1999............................. 1,850
2000............................. 1,691
2001............................. 1,175
Thereafter....................... 4,004
-------
Total minimum lease payments..... $12,761
=======
</TABLE>

Minimum rentals in the table above do not include contingent rentals, which
may become due under certain lease terms that provide that rentals may be
increased based on a percentage of sales. During fiscal years 1994, 1995
and 1996, the Company paid contingent rentals of $4,407, $28,742, and
$23,627, respectively.

8. INCOME TAXES

Income tax expense consists of the following (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
JUNE 26, 1994 JUNE 25, 1995 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Income taxes currently payable:
Federal........................................ $ 868 $ 500 $ 311
State.......................................... 84 77 48
Foreign........................................ 66 94
----- ----- -----
952 643 453
Deferred income taxes............................ (357) (32) (431)
----- ----- -----
Total............................................ $ 595 $ 611 $ 22
===== ===== =====
</TABLE>

Pre tax income (loss) for the U.S. and Canadian components was $1.6 million
and ($9,000), respectively, for fiscal year 1995 and ($158,000) and
$87,000, respectively, for fiscal year 1996.

Income taxes as reflected in the Consolidated Statement of Operations
differ from the amounts computed by applying the statutory federal
corporate tax rate to income as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
JUNE 26, 1994 JUNE 25, 1995 JUNE 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Expected tax rate................................ 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit........................................ 3.3 3.3 3.3
Tax effect of nondeductible goodwill............. .2 2.6 (52.3)
Foreign taxes and other.......................... .3 (.3) (16.0)
---- ---- ----
Effective tax rate............................... 37.8% 39.6% (31.0)%
==== ==== =====
</TABLE>

F-28
<PAGE> 94

ALFALFA'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows (in thousands):

<TABLE>
<CAPTION>
JUNE 25, JUNE 30,
-------- --------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory related................................................... $ 32 $224
Accruals............................................................ 68 32
Vacation liability.................................................... 145 175
Tenant inducement..................................................... 83 48
Property related...................................................... 257
Other................................................................. 12 10
----- -----
Total deferred tax assets............................................. $340 $746
===== =====
Deferred tax liabilities:
Prepaid expenses.................................................... $ 18 $ 5
Pre-opening costs................................................... 79
Deferred rent....................................................... 14
Property related.................................................... 135 184
Other............................................................... 4
----- -----
Total deferred tax liability.......................................... $ 232 $ 207
===== =====
</TABLE>

At the date of the Capers acquisition (Note 3), a subsidiary of Capers had
net operating loss carryforwards, and the Company provided a valuation
allowance against the related deferred tax asset. In the period subsequent
to the acquisition through June 25, 1995, the subsidiary used such
carryforwards to reduce its tax liability by $60,000. The valuation
allowance related to the carryforwards has been eliminated, and goodwill
has been reduced by $60,000 to reflect the utilization of the
pre-acquisition carryforwards.

9. REDEEMABLE PREFERRED STOCK

In 1995, the Company issued 179,249 shares of redeemable convertible Series
A Preferred Stock for proceeds (net of offering costs of $542,000) of $8.0
million. Each share of Series A Preferred Stock is convertible into one
share of common stock and has equivalent voting rights. The Series A
Preferred Stock carries a liquidation preference of $8.5 million which may
be increased to $12.8 million in certain circumstances if liquidation were
to occur prior to August 31, 1996. The Series A Preferred Stock is
redeemable at the option of the holder at a price of $47.42 per share plus
8% per annum from the date of issuance on or after August 31, 2000 at which
date the redemption value will be approximately $13.0 million. The
difference between the original proceeds and the carrying value represents
accretion.

10. STOCKHOLDERS' EQUITY

Under the original terms of the Stockholder Notes, the holders were allowed
to convert such notes into common stock at any time prior to November 4,
1995 at $8.82 per share. In 1995, the Company offered to pay all interest
which would be earned on the Stockholder Note through November 4, 1995 if
the holders exchanged the Stockholder Notes for convertible Series B
Preferred Stock in February 1995 at $8.82 per share. All Stockholder Notes
were exchanged for 57,143 shares of Series B Preferred Stock, and the
Company paid the holders a total of $76,000 (representing interest on the
Stockholder Notes through November 4, 1995), which is recorded as interest
expense. Each share of Series B Preferred Stock is convertible into one
share of common stock and has equivalent voting rights. All shares of
Series B Preferred Stock were converted into common stock on November 5,
1995.

F-29
<PAGE> 95

ALFALFA'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 1995, the Company purchased 20,931 shares of common stock from
the Chief Executive Officer at a price of $23.89 per share.

The Company has an incentive stock option plan (ISOP). The Company may
grant up to 109,181 shares of common stock at a price not less than fair
market value as of the grant date. Participants will vest 25% at the first
12-month anniversary date and 2.083% per month thereafter.

The ISOP activity is as follows:

<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------- ---------------
<S> <C> <C>
Outstanding as of June 27, 1993................................ 64,615 $ 7.05-$10.25
Granted........................................................ 16,873 $11.84-$15.24
Forfeited...................................................... (1,290) $7.05
-------
Outstanding as of June 26, 1994................................ 80,198 $ 7.05-$15.29
Granted........................................................ 15,881 $20.76
Forfeited...................................................... (993) $20.76
Exercised...................................................... (15,881) $ 7.05-$ 9.32
-------
Outstanding as of June 25, 1995................................ 79,205 $ 7.05-$20.76
Granted........................................................ 11,911 $23.89
Forfeited...................................................... (3,970) $ 7.05-$20.76
Exercised...................................................... (496) $ 7.05
-------
Options outstanding as of June 30, 1996........................ 86,650 $ 7.05-$23.89
=======
</TABLE>

The Company has an employee stock ownership plan (ESOP) which enables
eligible employees, as defined, to acquire shares of the Company's common
stock. The cost of the ESOP is borne by the Company through annual
contributions to its Employee Stock Ownership Trust (Trust) in amounts
determined by the Board of Directors. Shares of common stock acquired by
the ESOP are to be allocated among the employees and are held by the Trust
until distributed according to the terms of the ESOP. Shares held in trust
were 31,692 and 28,292 at June 25, 1995 and June 30, 1996, respectively. In
connection with the acquisition of the Company by Wild Oats, the Company's
ESOP plan will remain and all further contributions will be discontinued.

11. PROFIT SHARING PLAN

The Company has a 401(k) Profit Sharing Plan and Trust (the Plan).
Employees who have attained the age of 21 and have completed one year of
service are eligible to participate in the Plan. The Company may elect to
make matching contributions of 25% of participant contributions not to
exceed 4% of participant compensation. Matching contributions, if any, will
be made by the Company prior to the Plan's December 31 year end. Matching
contributions of $19,629, $23,130 and $34,159 were made in fiscal 1994,
1995 and 1996, respectively.

12. RELATED PARTIES

The Company has a note receivable dated March 20, 1995 in the amount of
C$67,000 (US $48,000) related to a loan made to an employee. The employee
secured the note by a pledge of 1,174 shares of the Company's common stock.
The unpaid principal bears interest at the rate of 7% per annum which is
due on March 22, 2005.

F-30
<PAGE> 96

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Wild Oats Markets, Inc.

In our opinion, the accompanying combined statements of operations and
retained earnings, and of cash flows present fairly, in all material respects,
the results of operations and cash flows of Kathy's Natural Foods Ranch Markets
(See Note 1) for the year ended December 31, 1993 and the period from January 1,
1994 through July 13, 1994, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

Price Waterhouse LLP
Boulder, Colorado
August 29, 1996

F-31
<PAGE> 97

KATHY'S NATURAL FOODS RANCH MARKETS

COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31, 1993 JULY 13, 1994
----------------- ---------------
<S> <C> <C>
Sales......................................................... $ 6,101 $ 6,351
Cost of goods sold and occupancy costs........................ 3,998 4,210
------- -------
Gross profit............................................. 2,103 2,141
Operating expenses:
Direct store expenses....................................... 1,446 1,609
Selling, general and administrative expenses................ 56 35
------- -------
Income from operations................................... 601 497
Interest expense.............................................. 57 92
------- -------
Income before income taxes............................... 544 405
Income tax expense............................................ 185 138
------- -------
Net income.................................................... 359 267
Retained earnings -- beginning of period...................... 464 818
Cash dividend declared........................................ (5)
------- -------
Retained earnings -- end of period............................ $ 818 $ 1,085
======= =======
</TABLE>

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

F-32
<PAGE> 98

KATHY'S NATURAL FOODS RANCH MARKETS

COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1,
DECEMBER 31, 1994 THROUGH
1993 JULY 13, 1994
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................... $ 359 $267
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 60 129
Deferred tax provision............................................ 34 3
Change in assets and liabilities:
Accounts and other receivables.................................... (50) (36)
Inventories....................................................... (11) (396)
Other assets...................................................... (6) (43)
Accounts payable.................................................. 122 31
Accrued liabilities............................................... 9 18
------ -----
Net cash provided by (used in) operating activities............ 517 (27)
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.............................................. (1,648) (450)
Additions to intangibles.......................................... (23)
------ -----
Net cash used by investing activities.......................... (1,648) (473)
------ -----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt........................................ 1,176 437
Cash dividend....................................................... (5)
------ -----
Net cash provided by financing activities...................... 1,171 437
------ -----
Net increase (decrease) in cash..................................... 40 (63)
Cash at beginning of year........................................... 118 158
------ -----
Cash at end of year................................................. $ 158 $ 95
====== =====
</TABLE>

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

F-33
<PAGE> 99

KATHY'S NATURAL FOODS RANCH MARKETS

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

These financial statements contain the combined accounts of Kathy's Natural
Foods Ranch Market-West, Inc. and Kathy's Natural Foods Ranch Market, Inc.
(referred to collectively as the "Company"). All significant intercompany
balances have been eliminated. The Company operates two natural foods
supermarkets in Las Vegas, Nevada. The Company's operations are
concentrated in one market segment, grocery stores; however, management
considers a downturn in this market segment to be unlikely.

ACQUISITION BY WILD OATS MARKETS, INC.

On July 14, 1994, the Company was acquired by Wild Oats Markets, Inc., a
natural foods supermarket company located in Boulder, Colorado, for a total
purchase price of $6.5 million.

STATEMENT OF CASH FLOWS

The Company paid $57,000 and $92,000 in interest charges for the year ended
December 31, 1993 and the period from January 1, 1994 though July 13, 1994,
respectively. The Company paid income taxes of $237,000 and $162,000 for
the year ended December 31, 1993 and the period from January 1, 1994
through July 13, 1994, respectively.

INVENTORIES

Inventories, consisting of products held for sale, are stated at the lower
of cost (first-in, first-out) or market, as determined by the retail
inventory method.

DEPRECIATION AND AMORTIZATION

Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the respective
assets (three to seven years). Leasehold improvements are amortized on a
straight line basis over the shorter of the useful life of the asset, or
the lease term. Maintenance and repairs are expensed as incurred and
improvements are capitalized.

INTANGIBLE ASSETS

Intangible assets consist of loan fees, which are amortized using the
straight-line method over the term of the loan, which is 20 years.

ADVERTISING

Advertising is expensed as incurred. Advertising expense was $66,000 and
$181,000 for the year ended December 31, 1993 and the period from January
1, 1994 through July 13, 1994, respectively.

USE OF ESTIMATES

2. LEASES

F-34
<PAGE> 100

KATHY'S NATURAL FOODS RANCH MARKETS

NOTES TO COMBINED FINANCIAL STATEMENTS

expense for leases that contain based rental abatement and escalation
clauses is recognized on a straight-line basis, resulting in deferred rent.
Total rental expense (consisting of minimum rent and contingent rent) for
operating leases for the year ended December 31, 1993 and the period from
January 1, 1994 through July 13, 1994 was $133,000, and $62,000,
respectively.

Total rent expenses include contingent rentals, which may become due under
certain lease terms that provide that rentals may be increased based on a
percentage of sales. For the year ended December 31, 1993 and the period
from January 1, 1994 to July 13, 1994, the Company paid contingent rentals
of $30,000 and $9,000, respectively.

3. INCOME TAXES

Income tax expense consists of the following (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31, 1993 JULY 13, 1994
----------------- -----------------
<S> <C> <C>
Current -- Federal............................. $ 220 $ 135
State............................... -- --
Deferred -- Federal............................ (35) 3
State.............................. -- --
----------------- -----------------
$ 185 $ 138
================= =================
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows (in thousands):

Total income tax does not differ from the amount computed by applying the
U.S. Federal income tax rate of 34% to pretax income.

4. RELATED PARTY TRANSACTIONS

Interest expense of $24,000 and $22,000 for the year ended 1993 and the
period from January 1, 1994 through July 13, 1994, respectively, relates to
outstanding loans payable to a certain affiliate of the Company at an
approximate annual interest rate of 10%.

F-35
<PAGE> 101

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Wild Oats Markets, Inc.

In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
New Frontiers (See Note 1) at December 31, 1994 and 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

Price Waterhouse LLP

Boulder, Colorado
August 27, 1996

F-36
<PAGE> 102

NEW FRONTIERS

COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1995 1996
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 253 $ 439 $ 451
Accounts receivable.................................. 11 9 4
Inventories, net..................................... 303 521 546
Other................................................ 11 5 28
Deferred income taxes................................ 13 22 25
------- ------- -------
Total current assets......................... 591 996 1,054
Property and equipment, net............................ 220 287 273
Intangible assets, net................................. 127 125
Deferred income taxes.................................. 27 43 47
Other noncurrent assets................................ 2 55 41
------- ------- -------
$ 840 $ 1,508 $ 1,540
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 389 $ 607 $ 580
Sales tax payable.................................... 45 87 88
Accrued bonuses...................................... 90 95 96
Other accrued liabilities............................ 44 88 98
Current portion of long-term debt.................... 31 29 67
------- ------- -------
Total current liabilities.................... 599 906 929
Long-term debt......................................... 81 534 480
------- ------- -------
680 1,440 1,409
------- ------- -------
Commitments (Note 6)
Stockholders' equity:
Common stock, no par value, 7,500 shares authorized,
3,000 shares issued and outstanding............... 3 3 3
Retained earnings.................................... 157 65 128
------- ------- -------
160 68 131
------- ------- -------
$ 840 $ 1,508 $ 1,540
======= ======= =======
</TABLE>

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

F-37
<PAGE> 103

NEW FRONTIERS

COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
------------------------- MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
------ ------ ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales......................................... $5,642 $7,748 $10,145 $ 2,175 $ 2,781
Cost of goods sold and occupancy costs........ 3,570 4,842 6,431 1,351 1,737
------ ------ ------ ------- -------
Gross profit............................. 2,072 2,906 3,714 824 1,044
Operating expenses:
Direct store expenses....................... 1,691 2,188 2,787 482 756
Selling, general and administrative
expenses................................. 73 120 215 50 64
------ ------ ------ ------- -------
Income from operations................... 308 598 712 292 224
Other expenses:
Interest expense............................ 8 11 17 2 2
------ ------ ------ ------- -------
Income before income taxes............... 300 587 695 290 222
Income tax expense............................ 111 218 261 113 89
------ ------ ------ ------- -------
Net income.................................... $ 189 $ 369 $ 434 $ 177 $ 133
====== ====== ====== ======= =======
</TABLE>

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

F-38
<PAGE> 104

NEW FRONTIERS

COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- -------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992............... 3,000 $ 3 $ 87 $ 90
Distribution to parent company............. (164) (164)
Net income................................. 189 189
----- ------ ------- -------
Balance at December 31, 1993............... 3,000 3 112 115
Distribution to parent company............. (324) (324)
Net income................................. 369 369
----- ------ ------- -------
Balance at December 31, 1994............... 3,000 3 157 160
Distribution to parent company............. (526) (526)
Net income................................. 434 434
----- ------ ------- -------
Balance at December 31, 1995............... 3,000 3 65 68
Distribution to parent company............. (70) (70)
Net income................................. 133 133
----- ------ ------- -------
Balance at March 31, 1996 (unaudited)...... 3,000 $ 3 $ 128 $ 131
===== ====== ======= =======
</TABLE>

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

F-39
<PAGE> 105

NEW FRONTIERS

COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 189 $ 369 $ 434 $ 177 $ 133
Adjustments to reconcile net income to net Cash
provided by operating activities:
Depreciation and amortization................... 69 69 91 20 16
Deferred tax provision.......................... (24) (17) (27) (6) (7)
Change in assets and liabilities:
Accounts receivable............................. 16 9 2 (43) 5
Inventories..................................... (108) (2) (217) (25) (25)
Other assets.................................... 4 (2) 8 (9)
Accounts payable................................ 144 109 218 60 (27)
Accrued liabilities............................. 96 29 89 (82) 12
----- ----- ----- ----- -----
Net cash provided by operating activities.... 386 564 598 101 98
----- ----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.............................. (295) (25) (144)
Payment for purchase of acquired entity, net of
cash acquired................................... (193)
----- ----- -----
Net cash used by investing
activities................................. (295) (25) (337)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt...................... 87 (47) 452 28 (16)
Distributions to parent company................... (164) (324) (526) (7) (70)
----- ----- ----- ----- -----
Net cash used in (provided by) financing
activities................................. (77) (371) (74) 21 (86)
----- ----- ----- ----- -----
Net increase in cash and cash equivalents......... 14 168 187 122 12
Cash and cash equivalents at beginning of year.... 71 85 252 252 439
----- ----- ----- ----- -----
Cash and cash equivalents at end
of year......................................... $ 85 $ 253 $ 439 $ 374 $ 451
===== ===== ===== ===== =====
</TABLE>

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

F-40
<PAGE> 106

NEW FRONTIERS

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

New Frontiers (the "Company") operates three natural foods supermarkets in
Salt Lake City, Utah. The Company's operations are concentrated in one
market segment, grocery stores; however, management considers a downturn in
this market segment to be unlikely.

Prior to 1995, the combined financial statements included the accounts of
two New Frontiers' stores. In May of 1995, a third store was acquired by
the Company from Kathy's Natural Foods Ranch Market, Inc. All significant
intercompany balances have been eliminated.

ACQUISITION BY WILD OATS MARKETS, INC.

On May 31, 1996, the Company was acquired by Wild Oats Markets, Inc. a
natural foods supermarket chain located in Boulder, Colorado. Total
consideration for the sale was $3.1 million which consisted of cash,
promissory notes and the assumption of certain debt and accounts payable.

STATEMENT OF CASH FLOWS

For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less
to be cash equivalents. For these investments, fair market value
approximates cost. The Company paid $8,000, $11,000 and $14,000 in interest
charges for the years ended December 31, 1993, 1994 and 1995, respectively.
The Company paid income taxes of $24,000, $16,000 and $26,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.

INVENTORIES

Inventories, consisting of products held for sale, are stated at the lower
of cost (first-in, first-out) or market, as determined by the retail
inventory method. Inventories are net of a reserve for spoilage of
approximately $18,000, $18,000 and $27,000 at December 31, 1993, 1994 and
1995, respectively.

DEPRECIATION AND AMORTIZATION

Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the respective
assets (three to seven years). Leasehold improvements are amortized on a
straight line basis over the shorter of the useful life of the asset, or
the lease term. Maintenance and repairs are expensed as incurred and
improvements are capitalized.

INTANGIBLE ASSETS

Intangible assets consist of goodwill and an agreement not to compete,
which are amortized using the straight-line method over 40 and 5 years,
respectively. Intangible assets are net of accumulated amortization of
$11,000 at December 31, 1995. The carrying value of goodwill is assessed
for recoverability by management based on an analysis of undiscounted
expected future cash flows from the related acquired entities. The Company
believes that there has been no impairment of goodwill as of December 31,
1995.

ADVERTISING

Advertising is expensed as incurred. Advertising expense was $146,000,
$197,000 and $260,000 for the years ended December 31, 1993, 1994 and 1995,
respectively.

F-41
<PAGE> 107

NEW FRONTIERS

NOTES TO COMBINED FINANCIAL STATEMENTS

USE OF ESTIMATES

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including
cash, short-term trade receivables and payables and long-term debt,
approximate their fair values.

NEW ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of", which requires losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed. The Company will adopt Statement No. 121 in the first quarter of
1996 and, based on current circumstances, does not believe the effect of
adoption will be material.

In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation", which requires that the Company's financial
statements include certain disclosures about stock-based employee
compensation arrangements. As allowed by Statement No. 123, the Company
will continue to apply the accounting provisions of Accounting Principles
Board Opinion No. 25; accordingly, the adoption of Statement No. 123 will
have no effect on future reported net income or earnings per share.

INTERIM FINANCIAL DATA

The interim financial data as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is unaudited; however, in the opinion of
management of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods presented. All data
presented in these notes at such date and for such periods is unaudited.

2. BUSINESS COMBINATIONS

On May 26, 1995, the Company acquired the assets of a natural foods grocery
store in Salt Lake City, Utah in exchange for total consideration of
$595,000 consisting of cash, a promissory note and assumption of certain
liabilities. The acquisition was accounted for using the purchase method
and the excess of cost over fair value of the assets acquired of $182,000
was allocated to goodwill, which is being amortized on a straight-line
basis over 40 years. The carrying value of the non-compete agreement is
being amortized over five years. The fair values of the Kathy's Natural
Foods Ranch Market, Inc. assets and liabilities at the date of acquisition
are as follows:

<TABLE>
<S> <C>
Current assets.............................................................. $ 254
Equipment................................................................... 159
Current liabilities......................................................... (44)
Goodwill.................................................................... 132
Non compete agreement....................................................... 50
--------
$ 551
========
</TABLE>

F-42
<PAGE> 108

NEW FRONTIERS

NOTES TO COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined results of operations of the
Company and the acquired store discussed above has been prepared as if the
transactions occurred as of the beginning of the respective periods (in
thousands):

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Sales.............................................. $10,298 $11,076
Net Income......................................... 676 614
</TABLE>

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------ ----
<S> <C> <C>
Leasehold improvements............................. $ 244 $245
Equipment.......................................... 239 414
Less: accumulated depreciation..................... (263) (372)
------ ----
$ 220 $287
====== ====
</TABLE>

4. LONG TERM DEBT

Long Term Debt is comprised of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
------ ------
<S> <C> <C>
Notes payable to banks:
Due March 5, 1995, bearing interest at 3.5% above lender's prime
rate (11.75% at December 31, 1995), secured by equipment....... $ 3
Due March 17, 1998, bearing interest at 2.25% above prime rate
(10.5% at December 31, 1995), secured by vehicles.............. 109 $ 80
Notes payable to corporations:
Due June 1, 2005, bearing interest at 10%, secured by inventory
and equipment.................................................. 438
Notes payable to individuals:
Due June 1, 2005, bearing interest at 10%, secured by inventory
and equipment.................................................. 45
------ ------
112 563
Less current portion............................................. 31 29
------ ------
Long-term debt................................................... $ 81 $ 534
====== ======
</TABLE>

Fair value of debt outstanding at December 30, 1995 approximates its
carrying value. Maturities of long-term debt as of December 31, 1995 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1996............................................................ $ 68
1997............................................................ 71
1998............................................................ 48
1999............................................................ 43
2000............................................................ 52
Thereafter...................................................... 252
</TABLE>

F-43
<PAGE> 109

NEW FRONTIERS

NOTES TO COMBINED FINANCIAL STATEMENTS

5. INCOME TAXES

Income tax expense consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Current.................................................
-- Federal $ 117 $ 203 $ 247
State...................................... 18 31 38
Deferred -- Federal..................................... (21) (14) (22)
State...................................... (3) (2) (3)
------- ------- -------
$ 111 $ 218 $ 260
======= ======= =======
</TABLE>

Income taxes as reflected in the Combined Statement of Operations differ
from amounts computed by applying the statutory federal corporate tax rate
to income as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Expected tax rate.................................................. 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.............. 3.3 3.3 3.3
Other.............................................................. (.3) (.1) .3
---- ---- ----
37.0% 37.2% 37.6%
==== ==== ====
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER
31,
-----------
1994 1995
--- ---
<S> <C> <C>
Deferred tax assets
Inventory related....................................................... $ 6 $11
Property related........................................................ 27 44
Vacation liability...................................................... 7 12
--- ---
Total deferred tax assets....................................... $40 $67
=== ===
</TABLE>

6. LEASES

The Company has entered noncancelable operating leases primarily for
operating facilities and equipment. These leases generally contain renewal
provisions at the option of the Company, and some call for yearly increases
based on published indices and for additional contingent rentals based on
sales. Rental expense for leases that contain base rental abatement and
escalation clauses is recognized on a straight-line basis. Total rental
expense (consisting of minimum rent and contingent rent) for operating
leases during the fiscal years ended December 31, 1993, 1994, and 1995 was
$123,000, $192,000, and $264,000, respectively.

F-44
<PAGE> 110

NEW FRONTIERS

NOTES TO COMBINED FINANCIAL STATEMENTS

Future minimum lease payments under noncancelable operating leases as of
December 31, 1995, are summarized as follows (in thousands):

<TABLE>
<S> <C>
FISCAL YEAR
1996........................................................ $192
1997........................................................ 191
1998........................................................ 141
1999........................................................ 129
2000........................................................ 70
Thereafter.................................................. 224
----
Total minimum lease payments................................ $947
====
</TABLE>

Minimum rentals in the table above do not include contingent rentals, which
may become due under certain lease terms that provide that rentals may be
increased based on a percentage of sales. During 1993, 1994, and 1995, the
Company paid contingent rentals of $21,000, $53,000, and $71,000,
respectively.

7. SUBSEQUENT EVENTS

On May 31, 1996, as a condition of the acquisition agreement between the
Company and Wild Oats Markets, Inc., the Company paid off a note due March
17, 1998. The final payment was $68,000 consisting of principal of $67,000
and interest of $1,000. The Company incurred no penalty for early repayment
of this debt.

F-45
<PAGE> 111

Eleven photographs, including three pictures of store interiors, four
pictures of store exteriors, two pictures of private label products and two
pictures of informational signage. The informational signage includes the
following text: (i) "Our Wild Oath. We promise to ... make you happy! If you're
less than satisfied with any product, return it for a full refund or credit.
sell foods without artificial colors, flavors, or additives. support organic
farms that keep our earth, air, and water pure. sell the finest, freshest,
organically grown fruits and vegetables. make shopping fun! Enjoy free classes,
food festivals, & more. - share at least 7.5% of our pre-tax profits with local
nonprofit groups. sell only earth-friendly cleansers; pure, natural
supplements; and gentle, cruelty-free body care products. give you the health
information you need to shop on the Wild Side!; and (ii)Botanical body care.
Skin your body's largest organ. Like a sponge, your skin absorbs everything put
on it. Treat yourself to the gentle essence of plant-based skin care. Nutrients
from nature, for your body. We will not sell products tested on animals" (also
contains photographs of plants).
<PAGE> 112

<TABLE>
<S> <C>
===================================== =====================================
No dealer, representative or any
other person has been authorized to
give information or to make any
representations other than those
contained in this Prospectus, and, SHARES
if given or made, such information
or representation must not be relied
upon as having been authorized by
the Company, the Selling Stockholders
or by the Underwriters. Neither the
delivery of this Prospectus nor any
sale made hereunder shall under any
circumstances create any implication
that there has been no change in the
affairs of the Company since the
date hereof. This Prospectus does
not constitute an offer to sell or a
solicitation of an offer to buy any
securities offered hereby by anyone
in any jurisdiction in which such
offer or solicitation is not authorized [WILD OATS LOGO]
or in the person LOGO making such offer
or solicitation is not qualified to do so
or to anyone to whom it is unlawful to
make such offer or solicitation.

-----------------
TABLE OF CONTENTS
-----------------

Page
----
Prospectus Summary.....................
Recent Acquisitions and Store
Openings.............................
Risk Factors...........................
Use of Proceeds........................
Dividend Policy........................ COMMON STOCK
Capitalization.........................
Dilution...............................
Selected Financial and Operating Data
of Wild Oats Markets, Inc............
Selected Financial and Operating Data
of Alfalfa's Inc..................... ----------------
Pro Forma Combined Condensed Financial PROSPECTUS
Statements........................... ----------------
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................
Business...............................
Management.............................
Certain Transactions...................

Principal and Selling Stockholders.....
Description of Capital Stock...........
Shares Eligible for Future Sale........ MONTGOMERY SECURITIES
Underwriting...........................
Legal Matters.......................... SMITH BARNEY, INC.
Experts................................
Additional Information.................
Index to Financial Statements..........

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

Until , 1996 (25 days
after the date of this Prospectus),
all dealers effecting transactions
in the Common Stock, whether or not
participating in this distribution,
may be required to deliver a
Prospectus. This is in addition to
the obligation of dealers to deliver , 1996
a Prospectus when acting as
underwriters and with respect to
their unsold allotments or
subscriptions.
===================================== =====================================

</TABLE>

<PAGE> 113

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the SEC registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC registration fee.................................................... $ 15,862
NASD filing fee......................................................... 5,100
Nasdaq application fee.................................................. 20,000
Blue sky qualification fee and expenses................................. 10,000
Printing and engraving expenses......................................... 150,000
Legal fees and expenses................................................. 225,000
Accounting fees and expenses............................................ 120,000
Transfer agent, custodian and registrar fees............................ 7,000
Miscellaneous........................................................... 97,038
--------
Total................................................................... $650,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and officers and may
indemnify its employees and other agents to the fullest extent not prohibited by
Delaware law, provided that such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful.

The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.

The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant, provided that such person's conduct was not knowingly fraudulent or
deliberately dishonest and did not constitute willful misconduct. The
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.

The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.

II-1
<PAGE> 114

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since August 27, 1993, the Registrant has issued and/or sold unregistered
securities as set forth below.

(1) During the period, the Registrant granted stock options to employees,
consultants, directors, officers and affiliates of the Registrant as
provided below. From August 27, 1993 to December 31, 1993, the Registrant
granted stock options under the 1993 Stock Option Plan covering an
aggregate of [ ] shares of Common Stock at an average exercise
price of $[ ] per share. In 1994, the Registrant granted stock
options under the 1993 Stock Option Plan covering and aggregate of
[ ] shares of Common Stock at an average exercise price of
$[ ] per share. In 1995, the Registrant granted stock options
under the 1993 Stock Option Plan covering an aggregate of [ ]
shares of Common Stock at an average exercise price of [ ] per
share. These options vest over a period of time following their respective
dates of grant. Since January 1, 1996, the Registrant has granted stock
options under the 1993 Stock Option Plan covering an aggregate of
[ ] shares of Common Stock at an average exercise price of
$[ ] per share. On August 1, 1996 the Registrant granted stock
options under the Incentive Plan covering an aggregate of [ ]
shares of Common Stock at an average exercise price of $[ ] per
share. Each of these options vests over a period of time following their
respective dates of grant. See "Equity Incentive Plans."

(2) During the period, the Registrant sold to employees, directors and
affiliates of the Registrant: (i)[ ] shares of Common Stock
pursuant to the exercise of stock options at an exercise price of
$[ ] per share for cash in the aggregate amount of $[ ];
(ii) an aggregate of [ ] shares of Common Stock pursuant to the
exercise of stock options at an exercise price of $[ ] per share
for cash in the aggregate amount of $[ ]; (iii) an aggregate of
[ ] shares of Common Stock pursuant to the exercise of stock
options at an exercise price of $[ ] per share for cash in the
aggregate amount of $[ ]; and (iv) an aggregate of [ ]
share of Common Stock pursuant to the exercise of stock options at an
exercise price of $[ ] per share for cash in the aggregate amount
of $[ ].

(3) In November 1994, the Registrant issued [ ] shares of Common Stock
pursuant to the conversion of the principal of a promissory note in the
amount of $1 million to one accredited investor. The Registrant immediately
repurchased the shares so issued at a price of $[ ] per share.

(4) In November, 1994, the Registrant issued two warrants to purchase
[ ] and [ ] shares, respectively of Series B Preferred
Stock at an exercise price of $[ ] and [ ] per share,
respectively to one accredited investor.

(5) In November 1994, the Registrant sold [ ] shares of Series C
Preferred Stock at a price of $[ ] per share to three accredited
investors, and issued a warrant for the purchase of [ ] shares of
Series C Preferred Stock to one accredited investor.

(6) In July 1996, the Registrant sold [ ] shares of Series E Preferred
Stock at a price of $[ ] per share to four accredited investors.

(7) In July 1996, in connection with the acquisition of Alfalfa's, the
Registrant's predecessor corporation, W. O. Holdings, Inc., issued
[ ] shares of Common Stock, [ ] shares of Series A
Preferred Stock, [ ] shares of Series C Preferred Stock, and
[ ] shares of Series E Preferred Stock in exchange for [ ]
shares of Common Stock, [ ]shares of Series A Preferred Stock, [ ]
shares of Series C Preferred Stock and [ ] shares of Series E Preferred
Stock of the Registrant, respectively; and issued [ ] shares of Series
D Preferred Stock and [ ] shares of Common Stock, in exchange for
[ ] shares of Series A Preferred Stock and [ ] shares of Common
Stock of Alfalfa's, respectively.

The sales and issuance of securities in the transactions described in
paragraph (1) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.

II-2
<PAGE> 115

The sales and issuances of securities in the transactions described in
paragraphs (2) through (7) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) thereof and/or Regulation D
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger between the Registrant, Alfalfa's, Inc. and WO
Holdings, Inc. dated June 4, 1996.
2.2 Purchase Agreement among the Registrant, Alfalfa's Canada, Inc., the
shareholders of Capers Management Holdings Inc. and Capers Management Holdings
Inc. dated June 30, 1994.
2.3 Share Purchase Agreement between the Registrant and certain holders of the
Common Stock of Kathy's Natural Food Ranch Market, Inc. and Kathy's Natural
Food Ranch Market-West, Inc. dated July 14, 1994.
3(i).1 Amended and Restated Certificate of Incorporation of the Registrant.
3(i).2* Form of Amended and Restated Certificate of Incorporation to be effective upon
the closing of the offering.
3(ii).1 By-Laws of the Registrant.
3(ii).2 Form of Amended and Restated By-Laws to be effective upon the closing of the
offering.
4.1 Reference is made to Exhibits 3(i).1 through 3(ii).2.
4.2* Specimen stock certificate.
5.1* Opinion of Cooley Godward Castro Huddleson & Tatum LLP.
10.1 Form of Indemnity Agreement between the Registrant and its directors and
executive officers, with related schedule.
10.2 Registrant's 1996 Equity Incentive Plan, including forms of Options granted to
employees and non-employee directors thereunder.
10.3 Registrant's 1996 Employee Stock Purchase Plan.
10.4 Registrant's 1993 Stock Option Plan.
10.5 Registrant's 1991 Stock Option Plan.
10.6 Employee Stock Ownership Plan.
10.7 Employment Agreement between Registrant and Michael L. Gilliland, dated July
12, 1996 as amended.
10.8 Employment Agreement between Registrant and S.M. Hassan, dated July 12, 1996.
10.9 Employment Agreement between Registrant and Elizabeth C. Cook, dated July 12,
1996 as amended.
10.10 Warrant to purchase Series C Preferred Stock issued to Montgomery Securities
dated November 14, 1994.
10.11 Warrant to purchase Series B Preferred Stock issued to Weston Presidio Offshore
Capital C.V. dated November 14, 1994.
</TABLE>

II-3
<PAGE> 116

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -------------------------------------------------------------------------------
<S> <C>
10.12 Warrant to purchase Series B Preferred Stock issued to Weston Presidio Offshore
Capital C.V. dated November 14, 1994.
10.13 Series E Preferred Stock Purchase Agreement between the Registrant and the
purchasers named therein dated July 12, 1996.
10.14 Stockholders Agreement among the Registrant and certain parties named therein
dated July 12, 1996.
10.15 Amended and Restated Stockholders Agreement among the Registrant and certain
parties named therein to become effective upon the closing of the offering.
10.16 Registration Rights Agreement between the Registrant and certain parties named
therein dated July 12, 1996.
10.17 Credit Agreement between the Registrant and Bank One, Indianapolis, National
Association dated March 15, 1995.
10.18 First Amendment to Credit Agreement between the Registrant and Bank One,
Indianapolis, National Association dated November 30, 1995.
10.19 Lease Agreement between Registrant and Bway Property Limited Partnership for
the property located at 1645 Broadway, Boulder, CO dated October 5, 1992.
10.20 Lease Agreement between Registrant and Bway Property Limited Partnership for
the property located at 1651 Broadway, Boulder, CO dated October 11, 1982.
10.21 Amendment to Lease Agreements between Registrant and Bway Property Limited
Partnership dated March 9, 1995 for the properties located at 1645 and 1651
Broadway, Boulder, CO.
10.22 Lease Agreement between Registrant and Overland Outfitters, Inc. for the
property located at 1655 Broadway, Boulder, CO dated April 10, 1989.
10.23 Lease Agreement between Registrant and Marianna Partners Limited for the
property located at the northwest corner of St. Francis Drive and Cordova Road,
Santa Fe, NM dated August 27, 1990.
10.24 First Amendment to Lease Agreement between Registrant and CAMPR Partners, Ltd.,
successor by merger to Marianna Partners Limited for the property located at
the northwest corner of St. Francis Drive and Cordova Road, Santa Fe, NM dated
August 1, 1992.
10.25 Second Amendment to Lease Agreement between Registrant and CAMPR Partners,
Ltd., for the property located at the northwest corner of St. Francis Drive and
Cordova Road, Santa Fe, NM dated February 2, 1995.
10.26 Lease Agreement between Registrant and First Interstate Bank of New Mexico,
N.A., as Trustee of the Joseph M. Montoya Trust, the Patrick J. Montoya Trust,
and the Lynda M. Haran Trust for the property located at the northwest corner
of Don Diego Avenue and Cordova Road, Santa Fe, NM dated June 29, 1994.
10.27 Lease between Registrant and Pacific Mutual Life Insurance Company for the
property located at 6300-A San Mateo, Albuquerque, NM dated May 27, 1994.
10.28 Shopping Center Lease between Registrant and Skunk Creek Investors dated August
8, 1995 for the store located at Baseline Road, Boulder, CO.
10.29 Lease between Registrant and AGF Property Management Corp. for the property
located at 1111-23 South Washington Street, Denver, CO dated October 12, 1994.
10.30 Lease between Registrant and 306283 British Columbia Ltd. for the property
located at 2211 West 4th Avenue, Vancouver, B.C. dated November 6, 1992.
10.31 Shopping Center Lease between Registrant and Country Club Plaza Associates
dated January 19, 1990 for the property located at University Blvd., Denver,
CO.
</TABLE>

II-4
<PAGE> 117

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -------------------------------------------------------------------------------
<S> <C>
10.32 Lease Agreement between Registrant and Fireside Liquors, Inc. for the property
located at 1425/1421/1411 Montana Avenue, Santa Monica, CA dated September 15,
1994.
10.33 Amended and Restated Shopping Center Lease between Registrant and the Trustees
of the Estate of James Campbell dated May 1, 1992 for the property located at
910 South University Blvd., Littleton, CO.
11.1 Statement regarding computation of pro forma net income (loss) per share.
21.1 List of subsidiaries.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3* Consent of Cooley Godward Castro Huddleson & Tatum, LLP. Reference is made to
Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

(b) Financial Statement Schedules.

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------------ ------------------------------------------------------------------------
<S> <C>
Schedule II Valuation and Qualifying Accounts and Reserves.
</TABLE>

All other schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 118

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boulder, County of
Boulder, State of Colorado, on the 30th day of August, 1996.

WILD OATS MARKETS, INC.

By /s/ Michael C. Gilliland
---------------------------
Michael C. Gilliland
Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Michael
C. Gilliland and Mary Beth Lewis his or her true and lawful attorneys-in-fact
and agents, each acting alone, with full power of substitution and
resubstitution, for him or her and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to the Registration Statement on Form S-1, any amendments thereto, filed
pursuant to Rule 462(b) increasing the amount of securities for which
registration is being sought, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Michael C. Gilliland Chief Executive Officer and Director August 30, 1996
- -------------------------------- (Principal Executive Officer)
Michael C. Gilliland

/s/ S. M. Hassan President and Director August 30, 1996
- --------------------------------
S. M. Hassan

/s/ Mary Beth Lewis Chief Financial Officer and Treasurer August 30, 1996
- -------------------------------- (Principal Financial and Accounting
Mary Beth Lewis Officer)

/s/ Elizabeth C. Cook Vice President, Secretary and August 30, 1996
- -------------------------------- Director
Elizabeth C. Cook

/s/ John Shields Chairman of the Board August 30, 1996
- --------------------------------
John Shields

/s/ David Chamberlain Vice Chairman of the Board August 30, 1996
- --------------------------------
David Chamberlain
</TABLE>

II-6
<PAGE> 119

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Peter D. Behrendt Director August 30, 1996
- -------------------------------------
Peter D. Behrendt

/s/ Barnet M. Feinblum Director August 30, 1996
- -------------------------------------
Barnet M. Feinblum

/s/ David L. Ferguson Director August 30, 1996
- -------------------------------------
David L. Ferguson

/s/ M. Laird Koldyke Director August 30, 1996
- -------------------------------------
M. Laird Koldyke

/s/ James B. McElwee Director August 30, 1996
- -------------------------------------
James B. McElwee
</TABLE>

II-7
<PAGE> 120

WILD OATS MARKETS, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
CHARGED CHARGED CHARGED
BALANCE TO COSTS TO COSTS TO COSTS
AT AND BALANCE AND BALANCE AND BALANCE
BEGINNING EXPENSES DEDUCTIONS AT END EXPENSES DEDUCTIONS AT END EXPENSES DEDUCTIONS AT END
DESCRIPTION OF 1993 1993 1993 OF 1993 1994 1994 OF 1994 1995 1995 OF 1995
- ------- --------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves
deducted
from
assets:
Current
receivables... $ 25 $ 12 $ -- $ 37 $ -- $ -- $ 37 $ 10 $ -- $ 47
Inventory... $ 0 $ 154 $ 28 $ 126 $ 114 $ 94 $ 146 $ 326 $ 172 $ 300
</TABLE>

S-1
<PAGE> 121

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement.

2.1 Agreement and Plan of Merger between the Registrant, Alfalfa's, Inc. and WO
Holdings, Inc. dated June 4, 1996.

2.2 Purchase Agreement among the Registrant, Alfalfa's Canada, Inc., the
shareholders of Capers Management Holdings Inc. and Capers Management Holdings
Inc. dated June 30, 1994.

2.3 Share Purchase Agreement between the Registrant and certain holders of the
Common Stock of Kathy's Natural Food Ranch Market, Inc. and Kathy's Natural
Food Ranch Market-West, Inc. dated July 14, 1994.

3(i).1 Amended and Restated Certificate of Incorporation of the Registrant.

3(i).2* Form of Amended and Restated Certificate of Incorporation to be effective upon
the closing of the offering.

3(ii).1 By-Laws of the Registrant.

3(ii).2 Form of Amended and Restated By-Laws to be effective upon the closing of the
offering.

4.1 Reference is made to Exhibits 3(i).1 through 3(ii).2.

4.2* Specimen stock certificate.

5.1* Opinion of Cooley Godward Castro Huddleson & Tatum LLP.

10.1 Form of Indemnity Agreement between the Registrant and its directors and
executive officers, with related schedule.

10.2 Registrant's 1996 Equity Incentive Plan, including forms of Options granted to
employees and non-employee directors thereunder.

10.3 Registrant's 1996 Employee Stock Purchase Plan.

10.4 Registrant's 1993 Stock Option Plan.

10.5 Registrant's 1991 Stock Option Plan.

10.6 Employee Stock Ownership Plan.

10.7 Employment Agreement between Registrant and Michael L. Gilliland, dated July
12, 1996 as amended.

10.8 Employment Agreement between Registrant and S.M. Hassan, dated July 12, 1996.

10.9 Employment Agreement between Registrant and Elizabeth C. Cook, dated July 12,
1996 as amended.

10.10 Warrant to purchase Series C Preferred Stock issued to Montgomery Securities
dated November 14, 1994.

10.11 Warrant to purchase Series B Preferred Stock issued to Weston Presidio Offshore
Capital C.V. dated November 14, 1994.

10.12 Warrant to purchase Series B Preferred Stock issued to Weston Presidio Offshore
Capital C.V. dated November 14, 1994.

10.13 Series E Preferred Stock Purchase Agreement between the Registrant and the
purchasers named therein dated July 12, 1996.

10.14 Stockholders Agreement among the Registrant and certain parties named therein
dated July 12, 1996.

10.15 Amended and Restated Stockholders Agreement among the Registrant and certain
parties named therein to become effective upon the closing of the offering.
</TABLE>
<PAGE> 122

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.16 Registration Rights Agreement between the Registrant and certain parties named
therein dated July 12, 1996.

10.17 Credit Agreement between the Registrant and Bank One, Indianapolis, National
Association dated March 15, 1995.

10.18 First Amendment to Credit Agreement between the Registrant and Bank One,
Indianapolis, National Association dated November 30, 1995.

10.19 Lease Agreement between Registrant and Bway Property Limited Partnership for
the property located at 1645 Broadway, Boulder, CO dated October 5, 1992.

10.20 Lease Agreement between Registrant and Bway Property Limited Partnership for
the property located at 1651 Broadway, Boulder, CO dated October 11, 1982.

10.21 Amendment to Lease Agreements between Registrant and Bway Property Limited
Partnership dated March 9, 1995 for the properties located at 1645 and 1651
Broadway, Boulder, CO.

10.22 Lease Agreement between Registrant and Overland Outfitters, Inc. for the
property located at 1655 Broadway, Boulder, CO dated April 10, 1989.

10.23 Lease Agreement between Registrant and Marianna Partners Limited for the
property located at the northwest corner of St. Francis Drive and Cordova Road,
Santa Fe, NM dated August 27, 1990.

10.24 First Amendment to Lease Agreement between Registrant and CAMPR Partners, Ltd.,
successor by merger to Marianna Partners Limited for the property located at
the northwest corner of St. Francis Drive and Cordova Road, Santa Fe, NM dated
August 1, 1992.

10.25 Second Amendment to Lease Agreement between Registrant and CAMPR Partners,
Ltd., for the property located at the northwest corner of St. Francis Drive and
Cordova Road, Santa Fe, NM dated February 2, 1995.

10.26 Lease Agreement between Registrant and First Interstate Bank of New Mexico,
N.A., as Trustee of the Joseph M. Montoya Trust, the Patrick J. Montoya Trust,
and the Lynda M. Haran Trust for the property located at the northwest corner
of Don Diego Avenue and Cordova Road, Santa Fe, NM dated June 29, 1994.

10.27 Lease between Registrant and Pacific Mutual Life Insurance Company for the
property located at 6300-A San Mateo, Albuquerque, NM dated May 27, 1994.

10.28 Shopping Center Lease between Registrant and Skunk Creek Investors dated August
8, 1995 for the store located at Baseline Road, Boulder, CO.

10.29 Lease between Registrant and AGF Property Management Corp. for the property
located at 1111-23 South Washington Street, Denver, CO dated October 12, 1994.

10.30 Lease between Registrant and 306283 British Columbia Ltd. for the property
located at 2211 West 4th Avenue, Vancouver, B.C. dated November 6, 1992.

10.31 Shopping Center Lease between Registrant and Country Club Plaza Associates
dated January 19, 1990 for the property located at University Blvd., Denver,
CO.

10.32 Lease Agreement between Registrant and Fireside Liquors, Inc. for the property
located at 1425/1421/1411 Montana Avenue, Santa Monica, CA dated September 15,
1994.

10.33 Amended and Restated Shopping Center Lease between Registrant and the Trustees
of the Estate of James Campbell dated May 1, 1992 for the property located at
910 South University Blvd., Littleton, CO.

11.1 Statement regarding computation of pro forma net income (loss) per share.

21.1 List of subsidiaries.

23.1 Consent of Price Waterhouse LLP.
</TABLE>
<PAGE> 123

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
23.2 Consent of Deloitte & Touche LLP.

23.3 Consent of Cooley Godward Castro Huddleson & Tatum, LLP. Reference is made to
Exhibit 5.1.

24.1 Power of Attorney. Reference is made to page II-6.

27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

<PAGE> 1
__________ Shares

WILD OATS MARKETS, INC.

Common Stock

UNDERWRITING AGREEMENT

October __, 1996

MONTGOMERY SECURITIES
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111

Ladies and Gentlemen:

SECTION 1. Introductory. Wild Oats Markets, Inc., a
Delaware corporation (the ``Company''), proposes to issue and sell __________
shares of its authorized but unissued Common Stock, par value $0.001 per share
(the ``Common Stock''), and certain stockholders of the Company named in
Schedule A annexed hereto (the ``Principal Selling Stockholders'') and certain
stockholders of the Company named in Schedule B annexed hereto (the ``Other
Selling Stockholders,'' and together with the Principal Selling Stockholders,
the ``Selling Stockholders'') propose to sell an aggregate of __________ shares
of the Company's issued and outstanding Common Stock to the several
underwriters named in Schedule C annexed hereto (the ``Underwriters''), for
whom you are acting as Representatives. Said aggregate of _________ shares are
herein called the ``Firm Common Shares.'' In addition, the Company and certain
Selling Stockholders propose to grant to the Underwriters an option to purchase
up to _______ additional shares of Common Stock (the ``Optional Common
Shares''), as provided in Section 5 hereof. The Firm Common Shares and, to the
extent such option is exercised, the Optional Common Shares are hereinafter
collectively referred to as the Common Shares.

You have advised the Company and the Selling Stockholders that
the Underwriters propose to make a public offering of their respective portions
of the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is
advisable.

The Company and each of the Selling Stockholders hereby
confirm their respective agreements with respect to the purchase of the Common
Shares by the Underwriters as follows:

SECTION 2. Representations and Warranties of the Company and
the ``Principal Selling Stockholders. The Company and each of the Principal
Selling Stockholders represents and warrants to the several Underwriters that:

(a) A registration statement on Form S-1 (File
No. 333-_______) with respect to the Common Shares has been prepared
by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the ``Act''), and the rules and regulations
(the ``Rules and

1.
<PAGE> 2
Regulations'') of the Securities and Exchange Commission (the
``Commission'') thereunder, and has been filed with the Commission.
The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been
delivered to you two signed copies of such registration statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the
form of final prospectus, (ii) a final prospectus in accordance with
Rules 430A and 424(b) of the Rules and Regulations, or (iii) a term
sheet (the ``Term Sheet'') as described in and in accordance with
Rules 434 and 424(b) of the Rules and Regulations. As filed, the
final prospectus, if one is used, or the Term Sheet and Preliminary
Prospectus (as hereinafter defined), if a final prospectus is not
used, shall include all Rule 430A Information (as hereinafter defined)
and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the date and time that this Agreement was
executed and delivered by the parties hereto, or, to the extent not
completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus (as hereinafter defined)) as the Company
shall have previously advised you in writing would be included or made
therein.

The term ``Registration Statement'' as used in this
Agreement shall mean such registration statement at the time such
registration statement becomes effective and, in the event any
post-effective amendment thereto becomes effective prior to the First
Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; provided, however, that such
term shall also include (i) all Rule 430A Information deemed to be
included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations and (ii) a registration statement, if any, filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common
Shares. The term ``Preliminary Prospectus'' shall mean any
preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the
time it becomes effective that omits Rule 430A Information. The term
``Prospectus'' as used in this Agreement shall mean either (i) the
prospectus relating to the Common Shares in the form in which it is
first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations, or (ii) if a Term Sheet is not used and no filing
pursuant to Rule 424(b) of the Rules and Regulations is required, the
form of final prospectus included in the Registration Statement at the
time such registration statement becomes effective, or (iii) if a Term
Sheet is used, the Term Sheet in the form in which it is first filed
with the Commission pursuant to Rule 424(b) of the Rules and
Regulations, together with the Preliminary Prospectus included in the
Registration Statement at the time it becomes effective. The term
``Rule 430A Information'' means information with respect to the Common
Shares and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A
of the Rules and Regulations.

(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus, and
each Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including
each Closing Date hereinafter mentioned, the Registration Statement
and the Prospectus, and any amendments or supplements thereto, will
contain all material statements and information required to be
included therein by the Act and the Rules and Regulations and will in
all material respects conform to

2.
<PAGE> 3
the requirements of the Act and the Rules and Regulations, and neither
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, no representation or warranty contained in this subsection
2(b) shall be applicable to information contained in or omitted from
any Preliminary Prospectus, the Registration Statement, the Prospectus
or any such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of
any Underwriter, directly or through the Representatives, specifically
for use in the preparation thereof.

(c) The Company does not own or control, directly
or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21.1 to the Registration Statement.
The Company and each of its subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, with full
power and authority (corporate and other) to own and lease their
properties and conduct their respective businesses as described in the
Prospectus; the Company owns all of the outstanding capital stock of
its subsidiaries free and clear of all claims, liens, charges and
encumbrances; the Company and each of its subsidiaries are in
possession of and operating in compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the
conduct of their respective businesses taken as a whole, all of which
are valid and in full force and effect; the Company and each of its
subsidiaries are duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which the ownership or
leasing of properties or the conduct of their respective businesses
requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect upon
the Company or the subsidiary; and, to the best of the Company's
knowledge, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.

(d) The Company has an authorized and outstanding
capital stock as set forth under the heading Capitalization in the
Prospectus; the issued and outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid and
nonassessable, to the best of the Company's knowledge have been issued
in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and conform to the
description thereof contained in the Prospectus. All issued and
outstanding shares of capital stock of each subsidiary of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the
related notes thereto, included in the Prospectus, neither the Company
nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights.

(e) The Common Shares to be sold by the Company
have been duly authorized and, when issued, delivered and paid for in
the manner set forth in this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable, and will conform to the
description thereof contained in the Prospectus. No preemptive rights
or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Common Shares by the Company pursuant to this
Agreement. No stockholder of the Company has any right which has not
been waived to require the

3.
<PAGE> 4
Company to register the sale of any shares owned by such stockholder
under the Act in the public offering contemplated by this Agreement.
No further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the transfer and sale of
the Common Shares to be sold by the Selling Stockholders or the
issuance and sale of the Common Shares to be sold by the Company as
contemplated herein.

(f) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and
binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the
consummation of the transactions herein contemplated will not violate
any provisions of the certificate of incorporation or bylaws, or other
organizational documents, of the Company or any of its subsidiaries,
and will not conflict with, result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of time or
both, a default under any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of its respective properties may be
bound or affected, any statute or any authorization, judgment, decree,
order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the
Company or any of its subsidiaries or any of their respective
properties. No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of this Agreement or
the consummation of the transactions contemplated by this Agreement,
except for compliance with the Act, the Blue Sky laws applicable to
the public offering of the Common Shares by the several Underwriters
and the clearance of such offering with the National Association of
Securities Dealers, Inc. (the ``NASD'').

(g) Price Waterhouse LLP, who have expressed
their opinion with respect to the financial statements and schedules
filed with the Commission as a part of the Registration Statement and
included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and
Regulations.

(h) The financial statements and schedules of the
Company and Alfalfa's, Inc., and the related notes thereto, included
in the Registration Statement and the Prospectus present fairly the
financial position of Wild Oats Markets, Inc. and Alfalfa's, Inc. as
of the respective dates of such financial statements and schedules,
and present fairly the results of operations and changes in financial
position of Wild Oats Markets, Inc. and Alfalfa's, Inc. for the
respective periods covered thereby. Such statements, schedules and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis as certified by
the independent accountants named in subsection 2(g) in the case of
the financial statements of Wild Oats Markets, Inc. and by Deloitte &
Touche LLP in the case of the financial. No other financial
statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the
Prospectus under the captions ``Capitalization'' and ``Selected
Financial and Operating Data'' fairly present the information set
forth therein on the basis stated in the Registration Statement. The
pro forma financial information included in the Registration Statement
and the Prospectus present fairly the information shown therein, have
been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements, have been properly
compiled on the pro forma bases described therein, and, in the opinion
of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give
effect to the transactions or circumstances referred to therein. No
other financial statements or schedules of the Company or any other
entity are required to be included in, or incorporated into, the
Registration Statement pursuant to any requirement of the Act or any
Rules and Regulations, including Rule 3-05 of Regulation S-X.

4.
<PAGE> 5
(i) Except as disclosed in the Prospectus, and
except as to violations, breaches and defaults which individually or
in the aggregate would not be material to the Company, neither the
Company nor any of its subsidiaries is in violation or default of any
provision of its certificate of incorporation or bylaws, or other
organizational documents, or is in breach of or default with respect
to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its
properties are bound; and there does not exist any state of facts
which constitutes an event of default on the part of the Company or
any such subsidiary as defined in such documents or which, with notice
or lapse of time or both, would constitute such an event of default.

(j) There are no contracts or other documents
required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement by the Act or by the Rules
and Regulations which have not been described or filed as required.
The contracts so described in the Prospectus are in full force and
effect on the date hereof; and neither the Company nor any of its
subsidiaries, nor to the best of the Company's knowledge, any other
party is in breach of or default under any of such contracts.

(k) Except as disclosed in the Prospectus, there
are no legal or governmental actions, suits or proceedings pending or,
to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its subsidiaries is
or may be the subject, or related to environmental or discrimination
matters, which actions, suits or proceedings might, individually or in
the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a material adverse change
in the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company and its
subsidiaries; and no labor disturbance by the employees of the Company
or any of its subsidiaries exists or is imminent which might be
expected to affect adversely such condition, properties, business,
results of operations or prospects. Neither the Company nor any of
its subsidiaries is a party or subject to the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.

(l) The Company or the applicable subsidiary has
good and marketable title to all the properties and assets reflected
as owned in the financial statements hereinabove described (or
elsewhere in the Prospectus), subject to no lien, mortgage, pledge,
charge or encumbrance of any kind except (i) those, if any, reflected
in such financial statements (or elsewhere in the Prospectus), or (ii)
those which are not material in amount and do not adversely affect the
use made and proposed to be made of such property by the Company and
its subsidiaries. The Company or the applicable subsidiary holds its
leased properties under valid and binding leases, with such exceptions
as are not materially significant in relation to the business of the
Company. Except as disclosed in the Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted.

(m) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as described in or specifically contemplated by the Prospectus:
(i) the Company and its subsidiaries have not incurred any material
liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction
which is not in the ordinary course of business or which could result
in a material reduction in the future earnings of the Company and its
subsidiaries; (ii) the Company and its subsidiaries have not sustained
any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity,
whether or not covered by insurance; (iii) the Company has not paid or
declared any dividends or other distributions with respect to its
capital stock and the Company and its subsidiaries are not in default
in the payment of principal or interest on any outstanding debt

5.
<PAGE> 6
obligations; (iv) there has not been any change in the capital stock
(other than upon the sale of the Common Shares hereunder and upon the
exercise of options or warrants described in the Registration
Statement) or indebtedness material to the Company and its
subsidiaries (other than in the ordinary course of business); and (v)
there has not been any material adverse change in the condition
(financial or otherwise), business, properties, results of operations
or prospects of the Company and its subsidiaries.

(n) Except as disclosed in or specifically
contemplated by the Prospectus, the Company and its subsidiaries have
sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to
conduct their businesses as now conducted; the expiration of any
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company or its
subsidiaries; and the Company has no knowledge of any material
infringement by it or its subsidiaries of trademark, trade name
rights, patent rights, mask works, copyrights, licenses, trade secret
or other similar rights of others, and there is no claim being made
against the Company or its subsidiaries regarding trademark, trade
name, patent, mask work, copyright, license, trade secret or other
infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries.

(o) The Company has not been advised, and has no
reason to believe, that either it or any of its subsidiaries is not
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition
(financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries.

(p) The Company and its subsidiaries have filed
all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes shown as due thereon; and the Company
has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company or its subsidiaries which
could materially and adversely affect the business, operations or
properties of the Company and its subsidiaries.

(q) The Company is not an ``investment company''
within the meaning of the Investment Company Act of 1940, as amended.

(r) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in
connection with the offering and sale of the Common Shares other than
the Prospectus, the Registration Statement and the other materials
permitted by the Act.

(s) Each of the Company and its subsidiaries
maintains insurance of the types and in the amounts generally deemed
adequate for its business, including, but not limited to, insurance
covering real and personal property owned or leased by the Company and
its subsidiaries against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which
insurance is in full force and effect.

(t) Neither the Company nor any of its
subsidiaries has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office, or failed
to disclose fully any contribution in violation of law, or (ii) made
any payment to any federal or state governmental officer or official,
or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United
States of any jurisdiction thereof.

6.
<PAGE> 7
(u) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale
or resale of the Common Shares.

(v) The Common Stock has been approved for
quotation as a national market system security on the Nasdaq National
Market upon notice of issuance.

(w) Neither the Company nor any of its affiliates
does business with the government of Cuba or with any person or
affiliate located in Cuba in violation of Section 517.075 of the
Florida Statutes.

SECTION 3. Representations, Warranties and Covenants of the
Selling Stockholders.

(a) Each of the Selling Stockholders represents
and warrants to, and agrees with, the several Underwriters that:

(i) Such Selling Stockholder has, and on
the First Closing Date and the Second Closing Date hereinafter
mentioned will have, good and marketable title to the Common
Shares proposed to be sold by such Selling Stockholder
hereunder on such Closing Date and full right, power and
authority to enter into this Agreement and to sell, assign,
transfer and deliver such Common Shares hereunder, free and
clear of all voting trust arrangements, liens, encumbrances,
equities, security interests, restrictions and claims
whatsoever; and upon delivery of and payment for such Common
Shares hereunder, the Underwriters will acquire good and
marketable title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security
interests, voting trusts or other defects of title whatsoever.

(ii) Such Selling Stockholder has
executed and delivered a Power of Attorney and caused to be
executed and delivered on his behalf a Custody Agreement
(hereinafter collectively referred to as the ``Stockholders
Agreement'') and in connection herewith such Selling
Stockholder further represents, warrants and agrees that such
Selling Stockholder has deposited in custody, under the
Stockholders Agreement, with the agent named therein (the
``Agent'') as custodian, certificates in negotiable form for
the Common Shares to be sold hereunder by such Selling
Stockholder, for the purpose of further delivery pursuant to
this Agreement. Such Selling Stockholder agrees that the
Common Shares to be sold by such Selling Stockholder on
deposit with the Agent are subject to the interests of the
Company and the Underwriters, that the arrangements made for
such custody are to that extent irrevocable, and that the
obligations of such Selling Stockholder hereunder shall not be
terminated, except as provided in this Agreement or in the
Stockholders Agreement, by any act of such Selling
Stockholder, by operation of law, by the death or incapacity
of such Selling Stockholder or by the occurrence of any other
event. If the Selling Stockholder should die or become
incapacitated, or if any other event should occur, before the
delivery of the Common Shares hereunder, the documents
evidencing Common Shares then on deposit with the Agent shall
be delivered by the Agent in accordance with the terms and
conditions of this Agreement as if such death, incapacity or
other event had not occurred, regardless of whether or not the
Agent shall have received notice thereof. This Agreement and
the Stockholders Agreement have been duly executed and
delivered by or on behalf of such Selling Stockholder and the
form of such Stockholders Agreement has been delivered to you.

(iii) The performance of this Agreement
and the Stockholders Agreement and the consummation of the
transactions contemplated hereby and by the Stockholders

7.
<PAGE> 8
Agreement will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or
constitute a default by such Selling Stockholder under, any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of its
properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental agency
or body applicable to such Selling Stockholder or any of its
properties.

(iv) Such Selling Stockholder has not
taken and will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably
be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Common Shares.

(v) Each Preliminary Prospectus and the
Prospectus, insofar as it has related to such Selling
Stockholder, has conformed in all material respects to the
requirements of the Act and the Rules and Regulations and has
not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the
statements therein not misleading in light of the
circumstances under which they were made; and neither the
Registration Statement nor the Prospectus, nor any amendment
or supplement thereto, as it relates to such Selling
Stockholder, will include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading.

(b) Each of the Selling Stockholders agrees with
the Company and the Underwriters not to offer to sell, sell or
contract to sell or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable for any shares of Common
Stock, for a period of 180 days after the first date that any of the
Common Shares are released by you for sale to the public, without the
prior written consent of Montgomery Securities, which consent may be
withheld at the sole discretion of Montgomery Securities.

(c) Each of the Other Selling Stockholders represents
and warrants to, and agrees with, the several Underwriters that it is
not aware that any of the representations and warranties set forth in
Section 2 above is untrue or inaccurate in any material respect.

SECTION 4. Representations and Warranties of the
Underwriters. The Representatives, on behalf of the several Underwriters,
represent and warrant to the Company and to the Selling Stockholders that the
information set forth (i) on the cover page of the Prospectus with respect to
price, underwriting discounts and commissions and terms of offering and (ii)
under ``Underwriting'' in the Prospectus was furnished to the Company by and on
behalf of the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.

SECTION 5. Purchase, Sale and Delivery of Common Shares. On
the basis of the representations, warranties and agreements herein contained,
but subject to the terms and conditions herein set forth, (i) the Company
agrees to issue and sell to the Underwriters __________ of the Firm Common
Shares, and (ii) the Selling Stockholders agree, severally and not jointly, to
sell to the Underwriters in the respective amounts set forth in Schedule B
hereto, an aggregate of ________ of the Firm Common Shares. The Underwriters
agree, severally and not jointly, to purchase from the Company and the Selling
Stockholders, respectively, the number of Firm Common Shares described below.
The purchase price per share to be paid by

8.
<PAGE> 9
the several Underwriters to the Company and to the Selling Stockholders,
respectively, shall be $_________ per share.

The obligation of each Underwriter to the Company shall be to
purchase from the Company that number of full shares which (as nearly as
practicable, as determined by you) bears to __________ the same proportion as
the number of shares set forth opposite the name of such Underwriter in
Schedule A hereto bears to the total number of Firm Common Shares. The
obligation of each Underwriter to the Selling Stockholders shall be to purchase
from the Selling Stockholders that number of full shares which (as nearly as
practicable, as determined by you) bears to __________ the same proportion as
the number of shares set forth opposite the name of such Underwriter in
Schedule A hereto bears to the total number of Firm Common Shares.

Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at the offices
of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed upon by the Company and the Representatives)
at such time and date, not later than the third (or, if the Firm Common Shares
are priced, as contemplated by Rule 15c6-1(c) of the Securities Exchange Act of
1934, as amended (the Exchange Act), after 4:30 P.M. Washington D.C. Time, the
fourth) full business day following the first date that any of the Common
Shares are released by you for sale to the public, as you shall designate by at
least 48 hours' prior notice to the Company (or at such other time and date,
not later than one week after such third or fourth, as the case may be, full
business day as may be agreed upon by the Company and the Representatives) (the
First Closing Date); provided, however, that if the Prospectus is at any time
prior to the First Closing Date recirculated to the public, the First Closing
Date shall occur upon the later of the third or fourth, as the case may be,
full business day following the first date that any of the Common Shares are
released by you for sale to the public (as set forth above) or the date that is
48 hours after the date that the Prospectus has been so recirculated.

Delivery of certificates for the Firm Common Shares shall be
made by or on behalf of the Company and the Selling Stockholders to you, for
the respective accounts of the Underwriters against payment by you, for the
accounts of the several Underwriters, of the purchase price therefor by
certified or official bank checks payable in next day funds or a wire transfer
to the order of the Company and of the Agent in proportion to the number of
Firm Common Shares to be sold by the Company and the Selling Stockholders,
respectively. The certificates for the Firm Common Shares shall be registered
in such names and denominations as you shall have requested at least two full
business days prior to the First Closing Date, and shall be made available for
checking and packaging on the business day preceding the First Closing Date at
a location in New York, New York, as may be designated by you. Time shall be
of the essence, and delivery at the time and place specified in this Agreement
is a further condition to the obligations of the Underwriters.

In addition, on the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company and certain Selling Stockholders hereby grants an option
to the several Underwriters to purchase, severally and not jointly, up to an
aggregate of __________ Optional Common Shares at the purchase price per share
to be paid for the Firm Common Shares, for use solely in covering any
over-allotments made by you for the account of the Underwriters in the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 30 days after the first
date that any of the Common Shares are released by you for sale to the public,
upon notice by you to the Company said Selling Stockholders setting forth the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates
for such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be
earlier than the First Closing Date), being herein referred to as the Second
Closing Date, shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of
Optional Common Shares to be purchased by each Underwriter shall be determined
by multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such

9.
<PAGE> 10
notice of exercise by a fraction, the numerator of which is the number of Firm
Common Shares to be purchased by such Underwriter as set forth opposite its
name in Schedule C and the denominator of which is _________ (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York, as may be designated by you.
The manner of payment for and delivery of the Optional Common Shares shall be
the same as for the Firm Common Shares purchased from the Company and the
Selling Stockholders as specified in the two preceding paragraphs. At any time
before lapse of the option, you may cancel such option by giving written notice
of such cancellation to the Company said Selling Stockholders. If the option
is cancelled or expires unexercised in whole or in part, the Company will
deregister under the Act the number of Option Shares as to which the option has
not been exercised.

You have advised the Company and the Selling Stockholders that
each Underwriter has authorized you to accept delivery of its Common Shares, to
make payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.

Subject to the terms and conditions hereof, the Underwriters
propose to make a public offering of their respective portions of the Common
Shares as soon after the effective date of the Registration Statement as in the
judgment of the Representatives is advisable and at the public offering price
set forth on the cover page of and on the terms set forth in the Prospectus, if
one is used, or on the first page of the Term Sheet, if one is used.

SECTION 6. Covenants of the Company. The Company covenants
and agrees that:

(a) The Company will use its best efforts to
cause the Registration Statement and any amendment thereof, if not
effective at the time and date that this Agreement is executed and
delivered by the parties hereto, to become effective. If the
Registration Statement has become or becomes effective pursuant to
Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide
evidence satisfactory to you of such timely filing. The Company will
promptly advise you in writing (i) of the receipt of any comments of
the Commission, (ii) of any request of the Commission for amendment of
or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus or
for additional information, (iii) when the Registration Statement
shall have become effective and (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of the institution of any proceedings for that purpose.
If the Commission shall enter any such stop order at any time, the
Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. The Company will not file any
amendment or supplement to the Registration Statement (either before
or after it becomes effective), any Preliminary Prospectus or the
Prospectus of which you have not been furnished with a copy a
reasonable time prior to such filing or to which you reasonably object
or which is not in compliance with the Act and the Rules and
Regulations.

(b) The Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements
to the Registration Statement or the Prospectus which in your judgment
may be necessary or advisable to enable the several Underwriters to
continue the

10.
<PAGE> 11
distribution of the Common Shares and will use its best efforts to
cause the same to become effective as promptly as possible. The
Company will fully and completely comply with the provisions of Rule
430A of the Rules and Regulations with respect to information omitted
from the Registration Statement in reliance upon such Rule.

(c) If at any time within the nine-month period
referred to in Section 10(a)(3) of the Act during which a prospectus
relating to the Common Shares is required to be delivered under the
Act any event occurs, as a result of which the Prospectus, including
any amendments or supplements, would include an untrue statement of a
material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, or if it is necessary at any time to amend the Prospectus,
including any amendments or supplements, to comply with the Act or the
Rules and Regulations, the Company will promptly advise you thereof
and will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement
or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become
effective as soon as possible; and, in case any Underwriter is
required to deliver a prospectus after such nine-month period, the
Company upon request, but at the expense of such Underwriter, will
promptly prepare such amendment or amendments to the Registration
Statement and such Prospectus or Prospectuses as may be necessary to
permit compliance with the requirements of Section 10(a)(3) of the
Act.

(d) As soon as practicable, but not later than 45
days after the end of the first quarter ending after one year
following the effective date of the Registration Statement (as defined
in Rule 158(c) of the Rules and Regulations, the ``Effective Date''),
the Company will make generally available to its security holders an
earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.

(e) During such period as a prospectus is
required by law to be delivered in connection with sales by an
Underwriter or dealer, the Company, at its expense, but only for the
nine-month period referred to in Section 10(a)(3) of the Act, will
furnish to you and the Selling Stockholders or mail to your order
copies of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents in
each case as soon as available and in such quantities as you and the
Selling Stockholders may request, for the purposes contemplated by the
Act.

(f) The Company shall cooperate with you and your
counsel in order to qualify or register the Common Shares for sale
under (or obtain exemptions from the application of) the Blue Sky laws
of such jurisdictions as you designate, will comply with such laws and
will continue such qualifications, registrations and exemptions in
effect so long as reasonably required for the distribution of the
Common Shares. The Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any such jurisdiction where it is not presently qualified or where
it would be subject to taxation as a foreign corporation. The Company
will advise you promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares
for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or
exemption, the Company, with your cooperation, will use its best
efforts to obtain the withdrawal thereof.

(g) During the period of five years hereafter,
the Company will furnish to the Representatives and, upon request of
any Representative, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing

11.
<PAGE> 12
the balance sheet of the Company as of the close of such fiscal year
and statements of income, stockholders' equity and cash flows for the
year then ended and the opinion thereon of the Company's independent
public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other
report filed by the Company with the Commission, the NASD or any
securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of
its Common Stock.

(h) During the period of 180 days after the first
date that any of the Common Shares are released by you for sale to the
public, without the prior written consent of Montgomery Securities
(which consent may be withheld at the sole discretion of Montgomery
Securities), the Company will not other than pursuant to outstanding
stock options disclosed in the Prospectus issue, offer, pledge, sell,
grant options to purchase or otherwise dispose of, directly or
indirectly, any of the Company's equity securities or any other
securities convertible into or exchangeable with its Common Stock or
other equity security, other than pursuant to its Stock Option Plan.
Notwithstanding the foregoing, the Company shall, at any time after
the period of 90 days after the first date that any of the Common
Shares are released by you for sale to the public, be permitted to
file a Registration Statement on Form S-8 registering stock options
pursuant to its Stock Option Plan.

(i) The Company will apply the net proceeds of
the sale of the Common Shares sold by it substantially in accordance
with its statements under the caption Use of Proceeds in the
Prospectus.

(j) The Company will use its best efforts to
qualify or register its Common Stock for sale in non-issuer
transactions under (or obtain exemptions from the application of) the
Blue Sky laws of the State of California (and thereby permit market
making transactions and secondary trading in the Company's Common
Stock in California), will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect
for a period of five years after the date hereof.

(k) The Company will use its best efforts to
maintain the Common Stock as a national market system security on the
Nasdaq National Market.

You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.

SECTION 7. Payment of Expenses. Whether or not the
transactions contemplated hereunder are consummated or this Agreement becomes
effective or is terminated, the Company and, unless otherwise paid by the
Company, the Selling Stockholders agree to pay in such proportions as they may
agree upon among themselves all costs, fees and expenses incurred in connection
with the performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses
of the Company's counsel and the Company's independent accountants, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement,
the Underwriters' Questionnaire, the Underwriters' Power of Attorney and the
Blue Sky memorandum, (vi) all filing fees,

12.
<PAGE> 13
attorneys' fees and expenses incurred by the Company or the Underwriters in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for
offer and sale under the Blue Sky laws, (vii) the filing fee of the NASD, and
(viii) all other fees, costs and expenses referred to in Item 13 of the
Registration Statement. The Underwriters may deem the Company to be the
primary obligor with respect to all costs, fees and expenses to be paid by the
Company and by the Selling Stockholders. Except as provided in this Section 7,
Section 9 and Section 11 hereof, the Underwriters shall pay all of their own
expenses, including the fees and disbursements of their counsel (excluding
those relating to qualification, registration or exemption under the Blue Sky
laws and the Blue Sky memorandum referred to above). This Section 7 shall not
affect any agreements relating to the payment of expenses between the Company
and the Selling Stockholders.

The Company will pay (directly or by reimbursement) all fees
and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Stockholders, (ii) any fees and expenses of the Agent, and (iii) all expenses
and taxes incident to the sale and delivery of the Common Shares to be sold by
such Selling Stockholders to the Underwriters hereunder.

SECTION 8. Conditions of the Obligations of the Underwriters.
The obligations of the several Underwriters to purchase and pay for the Firm
Common Shares on the First Closing Date and the Optional Common Shares on the
Second Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of
Company's officers and the Selling Stockholders made pursuant to the provisions
hereof, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder, and to the following additional conditions:

(a) The Registration Statement shall have become
effective not later than 5:00 P.M. (or, in the case of a registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations
relating to the Common Shares, not later than 10:00 P.M.), Washington,
D.C. Time, on the date of this Agreement, or at such later time as
shall have been consented to by you; if the filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b) of the
Rules and Regulations, the Prospectus shall have been filed in the
manner and within the time period required by Rule 424(b) of the Rules
and Regulations; and prior to such Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company,
the Selling Stockholders or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement, or otherwise,
shall have been complied with to your satisfaction.

(b) You shall be satisfied that since the
respective dates as of which information is given in the Registration
Statement and Prospectus, (i) there shall not have been any change in
the capital stock other than pursuant to the exercise of outstanding
options or warrants disclosed in the Prospectus of the Company or any
of its subsidiaries or any material change in the indebtedness (other
than in the ordinary course of business) of the Company or any of its
subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or
written agreement or other transaction shall have been entered into by
the Company or any of its subsidiaries, which is not in the ordinary
course of business or which could result in a material reduction in
the future earnings of the Company and its subsidiaries, (iii) no loss
or damage (whether or not insured) to the property of the Company or
any of its subsidiaries shall have been sustained which materially and
adversely affects the condition (financial or otherwise), business,
results of operations or prospects of the Company and its
subsidiaries, (iv) no legal or governmental action, suit or proceeding
affecting the

13.
<PAGE> 14
Company or any of its subsidiaries which is material to the Company or
any of its subsidiaries or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted
or threatened except as disclosed in the Prospectus and (v) there
shall not have been any material change in the condition (financial or
otherwise), business, management, results of operations or prospects
of the Company or any of its subsidiaries which makes it impractical
or inadvisable in the judgment of the Representatives to proceed with
the public offering or purchase the Common Shares as contemplated
hereby.

(c) There shall have been furnished to you, as
Representatives of the Underwriters, on each Closing Date, in form and
substance satisfactory to you, except as otherwise expressly provided
below:

(i) An opinion of Cooley Godward Castro
Huddleson & Tatum LLP counsel for the Company and the Selling
Stockholders, addressed to the Underwriters and dated the
First Closing Date, or the Second Closing Date, as the case
may be, to the effect that:

(1) Each of the Company and its
subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation,
is duly qualified to do business as a foreign
corporation and is in good standing in all other
jurisdictions where the ownership or leasing of
properties or the conduct of its business requires
such qualification, except for jurisdictions in which
the failure to so qualify would not have a material
adverse effect on the Company and its subsidiaries
taken as a whole, and has full corporate power and
authority to own its properties and conduct its
business as described in the Registration Statement;

(2) The authorized, issued and
outstanding capital stock of the Company is as set
forth under the caption ``Capitalization'' in the
Prospectus as of the date set forth therein and
conforms as to legal matters in all material respects
to the description thereof contained in the
Registration Statement and the Prospectus under the
caption ``Description of Capital Stock;'' all
necessary and proper corporate proceedings have been
taken in order to authorize validly such authorized
Common Stock; all outstanding shares of Capital Stock
(including the Firm Common Shares and any Optional
Common Shares) have been duly and validly issued, are
fully paid and nonassessable, were not issued in
violation of or to the best of such counsel's
knowledge, subject to any preemptive rights or other
rights to subscribe for or purchase any securities
and conform to the description thereof contained in
the Prospectus under the caption ``Description of
Capital Stock''; without limiting the foregoing,
there are no preemptive or to the best of such
counsel's knowledge, other rights to subscribe for or
purchase any of the Common Shares to be sold by the
Company hereunder;

(3) All shares of Common Stock
issued in connection with the merger of Wild Oats
Markets, Inc. and Alfalfa's, Inc. were issued in
compliance with federal securities laws.

(4) All of the issued and
outstanding shares of capital stock of the Company's
subsidiaries have been duly and validly authorized
and issued, are fully paid and nonassessable and are
owned beneficially by the Company free and

14.
<PAGE> 15
clear of all liens, encumbrances, equities, claims,
security interests, voting trusts or other defects of
title whatsoever;

(5) The certificate evidencing the
Common Shares of the Company incorporated by
reference as an exhibit to the Registration Statement
are in due and proper form under Delaware law, and
when duly countersigned by the Company's transfer
agent and registrar, and delivered to you or upon
your order against payment of the agreed
consideration therefor in accordance with the
provisions of this Agreement, the Common Shares
represented thereby will be duly authorized and
validly issued, fully paid and nonassessable, will
not have been issued in violation of or subject to
any preemptive rights or to the best of such
counsel's knowledge, other rights to subscribe for or
purchase securities and will conform in all respects
to the description thereof contained in the
Prospectus under the caption ``Description of Capital
Stock'';

(6) Except as disclosed in or
specifically contemplated by the Prospectus, to the
best of such counsel's knowledge, there are no
outstanding options, warrants or other rights calling
for the issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of
the Company or any security convertible into or
exchangeable for capital stock of the Company;

(7) (a) The Registration
Statement has become effective under the Act, and, to
the best of such counsel's knowledge, no stop order
proceeding suspending the effectiveness of the
Registration Statement or preventing the use of the
Prospectus has been issued and no proceedings for
that purpose have been instituted or are pending or
threatened by the Commission; any required filing of
the Prospectus and any supplement thereto pursuant to
Rule 424(b) of the Rules and Regulations has been
made in the manner and within the time period
required by such Rule 424(b);

(b) The Registration Statement,
the Prospectus and each amendment or supplement
thereto (except for the financial statements and
schedules and financial and statistical data included
therein as to which such counsel need express no
opinion) comply as to form in all material respects
with the requirements of the Act and the Rules and
Regulations;

(c) To the best of such
counsel's knowledge, there are no franchises, leases,
contracts, agreements or documents of a character
required to be disclosed in the Registration
Statement or Prospectus or to be filed as exhibits to
the Registration Statement which are not disclosed or
filed, as required by the Act and the Rules and
Regulations; and

(d) To the best of such
counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or
threatened against the Company which are required to
be described in the Prospectus which are not described
as required by the Act and the Rules and Regulations.

(8) The Company has full corporate
right, power and authority to enter into this
Agreement and to sell and deliver the Common Shares
to be sold by it to the several Underwriters; this
Agreement has been duly and validly authorized by all
necessary corporate action by the Company, has been
duly and validly executed and delivered by and on
behalf of the Company, and is a valid and binding
agreement

15.
<PAGE> 16
of the Company in accordance with its terms, except
as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally and except as to those provisions relating
to indemnity or contribution for liabilities arising
under the Act as to which no opinion need be
expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license
or permit of or with any court, regulatory,
administrative or other governmental body or agency
is required for the execution and delivery of this
Agreement by the Company or the consummation of the
transactions contemplated by this Agreement, except
such as have been obtained and are in full force and
effect under the Act and such as may be required
under applicable Blue Sky laws in connection with the
purchase and distribution of the Common Shares by the
Underwriters and the clearance of such offering with
the NASD;

(9) The execution and performance
of this Agreement and the consummation of the
transactions herein contemplated will not conflict
with, result in the breach of, or constitute, either
by such execution, performance or consummation or
upon notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other
instrument known to such counsel which is
incorporated by reference as an exhibit to the
Registration Statement and to which the Company or
any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of its or
their property may be bound or affected which is
material to the Company and its subsidiaries taken as
a whole, or violate any of the provisions of the
certificate of incorporation or bylaws, of the
Company or any of its subsidiaries or, to the best of
such counsel's knowledge, violate any statute,
judgment, decree, order, rule or regulation of any
court or governmental body having jurisdiction over
the Company or any of its subsidiaries or any of its
or their property;

(10) Neither the Company nor any
subsidiary is in violation of its certificate of
incorporation or bylaws, or to the best of such
counsel's knowledge, in breach of or default with
respect to any provision of any agreement, mortgage,
deed of trust, lease, franchise, license, indenture,
permit or other instrument known to such counsel to
which the Company or any such subsidiary is a party
or by which it or any of its properties may be bound
or affected, except where such default would not
materially adversely affect the Company and its
subsidiaries taken as a whole; and, to the best of
such counsel's knowledge, the Company and its
subsidiaries are in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes
of any court or jurisdiction to which they are
subject, except where noncompliance would not
materially adversely affect the Company and its
subsidiaries taken as a whole;

(11) To the best of such
counsel's knowledge, no holders of securities of the
Company have rights which have not been waived to the
registration of shares of Common Stock or other
securities, because of the filing of the Registration
Statement by the Company or the offering contemplated
hereby;

(12) To the best of such
counsel's knowledge, this Agreement and the
Stockholders Agreement have been duly authorized,
executed and delivered by or on behalf of each of the
Selling Stockholders; the Agent has been duly and
validly authorized to act as the custodian of the
Common Shares to be sold by each such Selling
Stockholder in accordance with the terms and
provisions of the Stockholders

16.
<PAGE> 17
Agreement; and the performance of this Agreement and
the Stockholders Agreement and the consummation of
the transactions herein contemplated by the Selling
Stockholders will not result in a breach of, or
constitute a default under, any indenture, mortgage,
deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other
agreement or instrument to which any of the Selling
Stockholders is a party or by which any of the
Selling Stockholders or any of their properties may
be bound, or violate any statute, judgment, decree,
order, rule or regulation known to such counsel of
any court or governmental body having jurisdiction
over any of the Selling Stockholders or any of their
properties; and to the best of such counsel's
knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative
agency or other governmental body is required for the
execution and delivery of this Agreement or the
Stockholders Agreement or the consummation by the
Selling Stockholders of the transactions contemplated
by this Agreement, except such as have been obtained
and are in full force and effect under the Act and
such as may be required under the rules of the NASD
and applicable Blue Sky laws;

(13) To the best of such
counsel's knowledge, each of the Selling Stockholders
has good and marketable title to such Common Shares
so sold, free and clear of all liens, encumbrances,
equities, claims, restrictions, security interests,
voting trusts, or other defects of title whatsoever,
has been transferred to the Underwriters (whom
counsel may assume to be bona fide purchasers)
(assuming payment in full therefor by such
Underwriters) who have purchased such Common Shares
hereunder; and

(14) To the best of such
counsel's knowledge, this Agreement and the
Stockholders Agreement are valid and binding
agreements of each of the Selling Stockholders in
accordance with their terms except as enforceability
may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and
except with respect to those provisions relating to
indemnities or contributions for liabilities under
the Act, as to which no opinion need be expressed.

(15) No transfer taxes are
required to be paid in connection with the sale and
delivery of the Common Shares to the Underwriters
hereunder.

In rendering such opinion, such counsel may rely (i)
as to the matters set forth in paragraphs (12), (13) and (14), on
opinions of other counsel retained by the Selling Stockholders, (ii)
as to matters of local law, on opinions of local counsel, and (iii) as
to matters of fact, on certificates of the Selling Stockholders and of
officers of the Company and of governmental officials, in which case
their opinion is to state that they are so doing and that the
Underwriters are justified in relying on such opinions or certificates
and copies of said opinions are to be attached to the opinion. Such
counsel shall also include a statement to the effect that nothing has
come to such counsel's attention that would lead such counsel to
believe that either at the effective date of the Registration
Statement or at the applicable Closing Date the Registration Statement
or the Prospectus, or any such amendment or supplement, contains any
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.

(ii) Such opinion or opinions of Brobeck,
Phleger & Harrison LLP, counsel for the Underwriters dated the
First Closing Date or the Second Closing Date, as the case may
be, with respect to the incorporation of the Company, the
sufficiency of all corporate

17.
<PAGE> 18
proceedings and other legal matters relating to this
Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you
may reasonably require, and the Company and the Selling
Stockholders shall have furnished to such counsel such
documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with
such opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental
officials.

(iii) A certificate of the Company
executed by the Chairman of the Board, the Chief Executive
Officer or President and the chief financial or accounting
officer of the Company, dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:

(1) The representations and
warranties of the Company set forth in Section 2 of
this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and
satisfied all the conditions on its part to be
performed or satisfied on or prior to such Closing
Date;

(2) The Commission has not issued
any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a
part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to
the best of the knowledge of the respective signers,
no proceedings for that purpose have been instituted
or are pending or contemplated under the Act;

(3) Each of the respective signers
of the certificate has carefully examined the
Registration Statement and the Prospectus; in his
opinion and to the best of his knowledge, the
Registration Statement and the Prospectus and any
amendments or supplements thereto contain all
statements required to be stated therein regarding
the Company and its subsidiaries; and neither the
Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading;

(4) Since the initial date on which
the Registration Statement was filed, no agreement,
written or oral, transaction or event has occurred
which should have been set forth in an amendment to
the Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;

(5) Since the respective dates as
of which information is given in the Registration
Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, there has not
been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations, management or prospects of the
Company and its subsidiaries; and, except as
disclosed in or contemplated by the Prospectus, no
legal or governmental action, suit or proceeding is
pending or threatened against the Company or any of
its subsidiaries which is material to the Company and
its subsidiaries, whether or not arising from
transactions in the ordinary course of business, or
which may adversely affect the transactions
contemplated by

18.
<PAGE> 19
this Agreement; since such dates and except as so
disclosed, neither the Company nor any of its
subsidiaries has entered into any verbal or written
agreement or other transaction which is not in the
ordinary course of business or which could result in
a material reduction in the future earnings of the
Company or incurred any material liability or
obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change
in its short-term debt or funded debt or repurchased
or otherwise acquired any of the Company's capital
stock; and the Company has not declared or paid any
dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of
record on a date prior to the First Closing Date or
Second Closing Date; and

(6) Since the respective dates as
of which information is given in the Registration
Statement and the Prospectus and except as disclosed
in or contemplated by the Prospectus, the Company and
its subsidiaries have not sustained a material loss
or damage by strike, fire, flood, windstorm, accident
or other calamity (whether or not insured).

(iv) On the First Closing Date or the
Second Closing Date, as the case may be, a certificate, dated
such Closing Date and addressed to you, signed by or on behalf
of each of the Selling Stockholders to the effect that the
representations and warranties of such Selling Stockholder in
this Agreement are true and correct, as if made at and as of
the First Closing Date or the Second Closing Date, as the case
may be, and such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on his or her part
to be performed or satisfied prior to the First Closing Date
or the Second Closing Date, as the case may be.

(v) On the date before this Agreement is
executed and also on the First Closing Date and the Second
Closing Date a letter addressed to you, as Representatives of
the Underwriters, from Price Waterhouse LLP, independent
accountants, the first one to be dated the day before the date
of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second
Closing) to be dated the Second Closing Date, in form and
substance satisfactory to you.

(vi) On the date before this Agreement is
executed and also on the First Closing Date and the Second
Closing Date a letter addressed to you, as the Representatives
of the Underwriters, from Deloitte & Touche LLP, independent
accountants, the first one to be dated the day before the date
of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second
Closing) to be dated the Second Closing Date, in form and
substance satisfactory to you.

(vii) On or before the First Closing Date,
letters from each of the Selling Stockholders, each holder of
one percent (1%) or more of the Company's Common Stock and
each director and officer of the Company, in form and
substance satisfactory to you, confirming that for a period of
180 days after the first date that any of the Common Shares
are released by you for sale to the public, such person will
not directly or indirectly offer to sell, pledge, sell or
contract to sell or otherwise dispose of any shares of Common
Stock or any right to acquire such shares or securities
convertible into or exchangeable for any shares of Common
Stock without the prior written consent of Montgomery
Securities, which consent may be withheld at the sole
discretion of Montgomery Securities.

19.
<PAGE> 20
(viii) The Common Stock shall have been
approved for quotation as a national market system security on
the Nasdaq National Market upon notice of issuance.

All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory to
you and to Brobeck, Phleger & Harrison LLP, counsel for the Underwriters. The
Company shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Representatives or to
counsel for the Underwriters shall be deemed to be a representation and
warranty by the Company to the Underwriters as to the statements made therein.

If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholders without liability
on the part of any Underwriter, the Company or the Selling Stockholders except
for the expenses to be paid or reimbursed by the Company and by the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.

SECTION 9. Reimbursement of Underwriters' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
Common Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, telegraph charges and telephone
charges relating directly to the offering contemplated by the Prospectus. Any
such termination shall be without liability of any party to any other party
except that the provisions of this Section, Section 7 and Section 11 shall at
all times be effective and shall apply.

SECTION 10. Effectiveness of Registration Statement. You,
the Company and the Selling Stockholders will use your, its and their best
efforts to cause the Registration Statement to become effective, to prevent the
issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.

SECTION 11. Indemnification.

(a)(1) The Company and each of the Principal Selling
Stockholders, jointly and severally, agree to indemnify and hold
harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act against any losses, claims,
damages, liabilities or expenses, joint or several, to which such
Underwriter or such controlling person may become subject, under the
Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state in any of them a material fact
required to be stated therein or necessary to make the statements in
any of them not misleading, or arise out of or are based in whole or
in part on any inaccuracy in the representations and warranties of the
Company or the Principal Selling Stockholders contained herein or any
failure of the Company or the Principal Selling Stockholders to
perform their respective obligations hereunder or under law; and will
reimburse each

20.
<PAGE> 21
Underwriter and each such controlling person for any legal and other
expenses as such expenses are reasonably incurred by such Underwriter
or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that neither
the Company nor the Principal Selling Stockholders will be liable in
any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with the information furnished to the Company pursuant
to Section 4 hereof. The indemnity agreement provided in this Section
11(a)(1) with respect to any Preliminary Prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses based upon any untrue
statement or alleged untrue statement of any material fact or any
omission or alleged omission to state therein a material fact
purchased Common Shares if a copy of the Prospectus in which such
untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been delivered to such person within
the time required by the Act and the Rules and Regulations thereunder,
unless such failure is the result of noncompliance by the Company with
Section 6(e) hereof. The Company and the Principal Selling
Stockholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to their
respective amounts of such liability for which they each shall be
responsible. In addition to its other obligations under this Section
11(a)(1), the Company and the Principal Selling Stockholders agree
that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based
upon any statement or omission, or any alleged statement or omission,
or any inaccuracy in the representations and warranties of the Company
or the Principal Selling Stockholders, as the case may be, herein or
failure to perform their respective obligations hereunder, all as
described in this Section 11(a)(1), they will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's or the Principal Selling
Stockholders' obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have
been improper, each Underwriter shall promptly return it to the
Company and the Principal Selling Stockholders together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Bank of America NT&SA, San Francisco,
California (the Prime Rate). Any such interim reimbursement payments
which are not made to an Underwriter within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of
such request. This indemnity agreement will be in addition to any
liability which the Company or the Principal Selling Stockholders may
otherwise have. In no event shall the liability of any Principal
Selling Stockholder for indemnification under this Section 11(a)(1) or
for breach of representations or warranties under this Agreement
exceed the proceeds received by such Principal Selling Stockholder
from the Underwriters in the offering.

(a)(2) Each of the Other Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning
of the Act against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act, the Exchange
Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of the Company),
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus,

21.
<PAGE> 22
or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state in any of them a
material fact required to be stated therein or necessary to make the
statements in any of them not misleading, or arise out of or are based
in whole or in part on any inaccuracy in the representations and
warranties of the Other Selling Stockholders contained herein or any
failure of the Other Selling Stockholders to perform their respective
obligations hereunder or under law; and will reimburse each
Underwriter and each such controlling person for any legal and other
expenses as such expenses are reasonably incurred by such Underwriter
or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the
Other Selling Stockholders will not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 4 hereof. The
indemnity agreement provided in this Section 11(a)(2) with respect to
any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses based upon any untrue statement or
alleged untrue statement of any material fact or any omission or
alleged omission to state therein a material fact purchased Common
Shares if a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected
had not been delivered to such person within the time required by the
Act and the Rules and Regulations thereunder, unless such failure is
the result of noncompliance by the Company with Section 6(e) hereof.
The Other Selling Stockholders may agree, as among themselves and
without limiting the rights of the Underwriters under this Agreement,
as to their respective amounts of such liability for which they each
shall be responsible. In addition to its other obligations under this
Section 11(a)(2), the Other Selling Stockholders agree that, as an
interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based
upon any statement or omission, or any alleged statement or omission,
or any inaccuracy in the representations and warranties of the Other
Selling Stockholders herein or failure to perform its obligations
hereunder, all as described in this Section 11(a)(2), they will
reimburse each Underwriter on a quarterly basis for all reasonable
legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Other Selling Stockholders'
obligation to reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper,
each Underwriter shall promptly return it to the Other Selling
Stockholders together with interest, compounded daily, determined on
the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the Prime Rate).
Any such interim reimbursement payments which are not made to an
Underwriter within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This
indemnity agreement will be in addition to any liability which the
Other Selling Stockholders may otherwise have. Notwithstanding
anything else herein, including but not limited to the provisions of
Section 11(d) below, each Other Selling Stockholder shall only be
liable under this Section 11(a)(2) with respect to (A) information
pertaining to such Other Selling Stockholder furnished by or on behalf
of such Other Selling Stockholder expressly for use in the
Registration Statement, any Prospectus or any amendment or supplement
thereto, or (B) facts that would constitute a breach of any
representation or warranty of such Other Selling Stockholder set forth
in Section 3 of this Agreement. In addition, in no event shall the
liability of any Other Selling Stockholder for indemnification under
this Section 11(a)(2) or for breach of representations or warranties
under this Agreement exceed the proceeds received by such Other
Selling Stockholder from the Underwriters in the offering.

22.
<PAGE> 23
(b) Each Underwriter will severally indemnify and
hold harmless the Company, each of its directors, each of its officers
who signed the Registration Statement, the Selling Stockholders and
each person, if any, who controls the Company or any Selling
Stockholder within the meaning of the Act, against any losses, claims,
damages, liabilities or expenses to which the Company, or any such
director, officer, Selling Stockholder or controlling person may
become subject, under the Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as
such losses, claims, damages, liabilities or expenses (or actions in
respect thereof as contemplated below) arise out of or are based upon
any untrue or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity
with the information furnished to the Company pursuant to Section 4
hereof; and will reimburse the Company, or any such director, officer,
Selling Stockholder or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. In addition to its
other obligations under this Section 11(b), each Underwriter severally
agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or
omission, described in this Section 11(b) which relates to information
furnished to the Company pursuant to Section 4 hereof, it will
reimburse the Company (and, to the extent applicable, each officer,
director, controlling person or Selling Stockholder) on a quarterly
basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the
Company (and, to the extent applicable, each officer, director,
controlling person or Selling Stockholder) for such expenses and the
possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper,
the Company (and, to the extent applicable, each officer, director,
controlling person or Selling Stockholder) shall promptly return it to
the Underwriters together with interest, compounded daily, determined
on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company within 30 days of a request
for reimbursement, shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.

(c) Promptly after receipt by an indemnified
party under this Section of notice of the commencement of any action,
such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party under this Section, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained
in this Section or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against
any indemnified party and such indemnified party seeks or intends to
seek indemnity from an indemnifying party, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any
such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that
there

23.
<PAGE> 24
may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election
so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party
shall have employed such counsel in connection with the assumption of
legal defenses in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate
counsel, approved by the Representatives in the case of paragraph (a),
representing the indemnified parties who are parties to such action)
or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.

(d) If the indemnification provided for in this
Section 11 is required by its terms but is for any reason held to be
unavailable to or otherwise insufficient to hold harmless an
indemnified party under paragraphs (a), (b) or (c) in respect of any
losses, claims, damages, liabilities or expenses referred to herein,
then each applicable indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company, the Selling Stockholders and the Underwriters
from the offering of the Common Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault
of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits
received by the Company, the Selling Stockholders and the Underwriters
shall be deemed to be in the same proportion, in the case of the
Company and the Selling Stockholders as the total price paid to the
Company and to the Selling Stockholders, respectively, for the Common
Shares sold by them to the Underwriters (net of underwriting
commissions but before deducting expenses), and in the case of the
Underwriters as the underwriting commissions received by them bears to
the total of such amounts paid to the Company and to the Selling
Stockholders and received by the Underwriters as underwriting
commissions. The relative fault of the Company, the Selling
Stockholders and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a
material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in subparagraph (c) of this
Section 11, any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or
claim. The provisions set forth in subparagraph (c) of this Section
11 with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this subparagraph (d);
provided, however, that no additional notice shall be required with
respect to any action for which notice has been given under
subparagraph (c) for purposes of indemnification. The Company, the
Selling Stockholders and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 11

24.
<PAGE> 25
were determined solely by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the
equitable considerations referred to in this subparagraph (d).
Notwithstanding the provisions of this Section 11, no Underwriter
shall be required to contribute any amount in excess of the amount of
the total underwriting commissions received by such Underwriter in
connection with the Common Shares underwritten by it and distributed
to the public. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 11 are several in proportion to their
respective underwriting commitments and not joint.

(e) It is agreed that any controversy arising out
of the operation of the interim reimbursement arrangements set forth
in Sections 11(a) and 11(b) hereof, including the amounts of any
requested reimbursement payments and the method of determining such
amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written
notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice,
then the party responding to said demand or notice is authorized to do
so. Such an arbitration would be limited to the operation of the
interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability
of the obligation to reimburse expenses which is created by the
provisions of such Sections 11(a) and 11(b) hereof.

SECTION 12. Default of Underwriters. It shall be a condition
to this Agreement and the obligation of the Company and the Selling
Stockholders to sell and deliver the Common Shares hereunder, and of each
Underwriter to purchase the Common Shares in the manner as described herein,
that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all the Common Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder
on either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which
such defaulting Underwriters agreed but failed to purchase on such Closing
Date. If any Underwriter or Underwriters so default and the aggregate number
of Common Shares with respect to which such default occurs is more than the
above percentage and arrangements satisfactory to the Representatives and the
Company for the purchase of such Common Shares by other persons are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Stockholders except for the expenses to be paid by the Company and the
Selling Stockholders pursuant to Section 7 hereof and except to the extent
provided in Section 11 hereof.

In the event that Common Shares to which a default relates are
to be purchased by the non-defaulting Underwriters or by another party or
parties, the Representatives or the Company shall have the right to postpone
the First or Second Closing Date, as the case may be, for not more than five
business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used in this Agreement, the term
``Underwriter'' includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability
for its default.

25.
<PAGE> 26
SECTION 13. Effective Date. This Agreement shall become
effective immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other
provisions, (i) if at the time of execution of this Agreement the Registration
Statement has not become effective, at 2:00 P.M., California Time, on the first
full business day following the effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, at 2:00 P.M., California Time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the
public. For the purposes of this Section 13, the Common Shares shall be deemed
to have been so released upon the release for publication of any newspaper
advertisement relating to the Common Shares or upon the release by you of
telegrams (i) advising Underwriters that the Common Shares are released for
public offering, or (ii) offering the Common Shares for sale to securities
dealers, whichever may occur first.

SECTION 14. Termination. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof:

(a) This Agreement may be terminated by the
Company by notice to you and the Selling Stockholders or by you by
notice to the Company and the Selling Stockholders at any time prior
to the time this Agreement shall become effective as to all its
provisions, and any such termination shall be without liability on the
part of the Company or the Selling Stockholders to any Underwriter
(except for the expenses to be paid or reimbursed by the Company and
the Selling Stockholders pursuant to Sections 7 and 9 hereof and
except to the extent provided in Section 11 hereof) or of any
Underwriter to the Company or the Selling Stockholders (except to the
extent provided in Section 11 hereof).

(b) This Agreement may also be terminated by you
prior to the First Closing Date by notice to the Company (i) if
additional material governmental restrictions, not in force and effect
on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock
Exchange or in the over the counter market by the NASD, or trading in
securities generally shall have been suspended on either such Exchange
or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or
California authorities, (ii) if an outbreak of major hostilities or
other national or international calamity or any substantial change in
political, financial or economic conditions shall have occurred or
shall have accelerated or escalated to such an extent, as, in the
judgment of the Representatives, to affect adversely the marketability
of the Common Shares, (iii) if any adverse event shall have occurred
or shall exist which makes untrue or incorrect in any material respect
any statement or information contained in the Registration Statement
or Prospectus or which is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the
statements or information contained therein not misleading in any
material respect, or (iv) if there shall be any action, suit or
proceeding pending or threatened, or there shall have been any
development or prospective development involving particularly the
business or properties or securities of the Company or any of its
subsidiaries or the transactions contemplated by this Agreement,
which, in the reasonable judgment of the Representatives, may
materially and adversely affect the Company's business or earnings and
makes it impracticable or inadvisable to offer or sell the Common
Shares. Any termination pursuant to this subsection (b) shall be
without liability on the part of any Underwriter to the Company or the
Selling Stockholders or on the part of the Company or the Selling
Stockholders to any Underwriter (except for expenses to be paid or
reimbursed by the Company and the Selling Stockholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section
11 hereof).

(c) This Agreement shall also terminate at 5:00 P.M.,
California Time, on the tenth full business day after the Registration
Statement shall have become effective if the initial public offering

26.
<PAGE> 27
price of the Common Shares shall not then as yet have been determined
as provided in Section 5 hereof. Any termination pursuant to this
subsection (c) shall without liability on the part of any Underwriter
to the Company or the Selling Stockholders or on the part of the
Company or the Selling Stockholders to any Underwriter (except for
expenses to be paid or reimbursed by the Company and the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the
extent provided in Section 11 hereof).

SECTION 15. Failure of the Selling Stockholders to Sell and
Deliver. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders at the First Closing Date under the terms of this
Agreement, then the Underwriters may at their option, by written notice from
you to the Company and the Selling Stockholders, either (i) terminate this
Agreement without any liability on the part of any Underwriter or, except as
provided in Sections 7, 9 and 11 hereof, the Company or the Selling
Stockholders, or (ii) purchase the shares which the Company and other Selling
Stockholders have agreed to sell and deliver in accordance with the terms
hereof. In the event of a failure by one or more of the Selling Stockholders
to sell and deliver as referred to in this Section, either you or the Company
shall have the right to postpone the Closing Date for a period not exceeding
seven business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected.

SECTION 16. Representations and Indemnities to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers, of the Selling
Stockholders and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Stockholders, as the case may be, and will survive delivery of and
payment for the Common Shares sold hereunder and any termination of this
Agreement.

SECTION 17. Notices. All communications hereunder shall be
in writing and, if sent to the Representatives shall be mailed, delivered or
telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 94111, Attention: Lynda Sullivan, with a copy to Brobeck, Phleger &
Harrison LLP, One Market, Spear Street Tower, San Francisco, California 94105:
Therese A. Mrozek, Esq.; and if sent to the Company or the Selling Stockholders
shall be mailed, delivered or telegraphed and confirmed to the Company at 1645
Broadway, Boulder, Colorado 80302, Attention: Michael C. Gilliland, Chief
Executive Officer with a copy to Cooley Godward Castro Huddleson & Tatum LLP,
2595 Canyon Boulevard, Suite 250, Boulder, Colorado 80302-6737, Attention:
James C.T. Linfield, Esq. The Company, the Selling Stockholders or you may
change the address for receipt of communications hereunder by giving notice to
the others.

SECTION 18. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 12 hereof, and to the benefit of the officers
and directors and controlling persons referred to in Section 11, and in each
case their respective successors, personal representatives and assigns, and no
other person will have any right or obligation hereunder. No such assignment
shall relieve any party of its obligations hereunder. The term ``successors''
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.

SECTION 19. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken jointly
or by Montgomery Securities, as Representatives, will be binding upon all the
Underwriters.

27.
<PAGE> 28
SECTION 20. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.

SECTION 21. Applicable Law. This Agreement shall be governed
by and construed in accordance with the internal laws (and not the laws
pertaining to conflicts of laws) of the State of California.

SECTION 22. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
several counterparts, each one of which shall be an original, and all of which
shall constitute one and the same document.

In this Agreement, the masculine, feminine and neuter genders
and the singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company, the Selling Stockholders and
you.

Any person executing and delivering this Agreement as
Attorney-in-fact for the Selling Stockholders represents by so doing that he
has been duly appointed as Attorney-in-fact by such Selling Stockholder
pursuant to a validly existing and binding Power of Attorney which authorizes
such Attorney-in-fact to take such action. Any action taken under this
Agreement by any of the Attorneys-in-fact will be binding on all the Selling
Stockholders.

If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed copies hereof,
whereupon it will become a binding agreement between among the Company, the
Selling Stockholders and the several Underwriters including you, all in
accordance with its terms.

Very truly yours,

WILD OATS MARKETS, INC.

By:
-------------------------------------
Michael C. Gilliland
Chief Executive Officer

SELLING STOCKHOLDERS

By:
-------------------------------------
(Attorney-in-fact)

28.
<PAGE> 29
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.

MONTGOMERY SECURITIES

SMITH BARNEY INC.

Acting as Representatives of the
several Underwriters named in
the attached Schedule A.

By MONTGOMERY SECURITIES

By:
--------------------------------
Managing Director

29.
<PAGE> 30
SCHEDULE A

<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Principal Selling Stockholder to be Sold
- ------------------------------------- --------------
<S> <C>

--------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . .
==============
</TABLE>

A-1
<PAGE> 31
SCHEDULE B

<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Other Selling Stockholder to be Sold
- --------------------------------- --------------
<S> <C>

--------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . .
==============
</TABLE>

B-1

<PAGE> 32
SCHEDULE C

<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

---------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . .
===============
</TABLE>

C-1

<PAGE> 1

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER dated June 4, 1996 (the "Agreement"), by
and among WILD OATS MARKETS, INC. ("Wild Oats"), a Delaware corporation,
ALFALFA'S, INC. ("Alfalfa's"), a Colorado corporation, and WO HOLDINGS, INC.
("Newco"), a Delaware corporation and wholly-owned subsidiary of Alfalfa's.

RECITALS

A. Wild Oats is a corporation duly organized and validly existing
under the corporate laws of Delaware, with its principal executive offices
located at 1668 Valtec Lane, Boulder, Colorado 90301.

B. The authorized capital stock of Wild Oats as of the date of
this Agreement consists of 2,500,000 shares of Common Stock ("Wild Oats Common
Stock"), par value $.001 per share, 1,305,684 shares of which are issued and
outstanding; and 672,000 shares of Preferred Stock, par value $.001 per share,
of which (i) 168,000 shares have been designated "Series A Preferred Stock"
(the "Wild Oats Series A Preferred Stock"), all of which are issued and
outstanding, (ii) 1,600 shares have been designated "Series B Preferred Stock"
(the "Wild Oats Series B Preferred Stock"), none of which are issued and
outstanding, and (iii) 417,983 shares of which have been designated "Series C
Preferred Stock" (the "Wild Oats Series C Preferred Stock" and, together with
the Wild Oats Series A Preferred Stock, the Wild Oats Series B Preferred Stock
and the Wild Oats Series E Preferred Stock (as defined in Section 11.1), the
"Wild Oats Preferred Stock"), 416,007 shares of which are issued and
outstanding.

C. Alfalfa's is a corporation duly organized and validly existing
under the corporate laws of Colorado with its principal executive offices
located at 1645 Broadway, Boulder, Colorado 80302.

D. The authorized capital stock of Alfalfa's as of the date of
this Agreement consists of 20,000,000 shares of Common Stock, par value $.01
per share ("Alfalfa's Common Stock"), 415,979 shares of which are issued and
outstanding; and 5,000,000 shares of Preferred Stock, par value $.01 per share,
of which (i) 200,000 shares have been designated as "Series A Participating
Convertible Preferred Stock" (the "Alfalfa's Old Series A Preferred Stock"),
179,249 shares of which are issued and outstanding, and (ii) 60,000 shares have
been designated as "Series B Convertible Preferred Stock," none of which are
issued and outstanding.

E. Newco is a corporation duly organized and validly existing
under the corporate laws of Delaware, with its principal executive offices
located at 1645 Broadway, Boulder, Colorado 80302.
<PAGE> 2
F. The authorized capital stock of Newco as of the date of this
Agreement consists of 100 shares of Common Stock, $.01 par value ("Holdings
Common Stock"), 10 shares of which are issued and outstanding and held by
Alfalfa's; prior to the Effective Time (as defined in Article II), the
authorized capital stock of Newco will consist of 4,700,476 shares of Common
Stock, 10 shares of which will be issued and outstanding and held by Alfalfa's,
and 1,799,168 shares of Preferred Stock, $.01 par value ("Holdings Preferred
Stock"), none of which will be outstanding, and of which (i) 168,598 will have
been designated as "Series A Preferred Stock" (the "Holdings Series A Preferred
Stock"), (ii) 1,608 will have been designated "Series B Preferred Stock" (the
"Holdings Series B Preferred Stock"), (iii) 419,471 will have been designated
"Series C Preferred Stock" (the "Holdings Series C Preferred Stock"), (iv)
355,829 will have been designated as "Series D Preferred Stock" (the "Holdings
Series D Preferred Stock") and (v) 853,664 will have been designated "Series E
Preferred Stock" (the "Holdings Series E Preferred Stock").

G. The respective Boards of Directors of Alfalfa's and Newco have
determined that a merger of Alfalfa's into Newco (the "Alfalfa's
Reincorporation Merger") whereby Alfalfa's will be merged with and into Newco,
with Newco surviving the merger and changing its corporate name to "Wild Oats
Markets, Inc." ("Holdings"), is desirable and in the best interests of the
stockholders of the respective companies and have, by resolutions duly adopted,
approved and adopted a merger agreement (the "Reincorporation Merger
Agreement") to effect the Alfalfa's Reincorporation Merger. The
Reincorporation Merger Agreement has been approved by Alfalfa's as the sole
stockholder of Newco by written consent pursuant to Section 228 of the General
Corporation Law of the State of Delaware (the "DGCL") and the Board of
Directors of Alfalfa's has directed that the Reincorporation Merger Agreement
and the Reincorporation Merger be submitted to a vote of the stockholders of
Alfalfa's.

H. The respective Boards of Directors of Wild Oats, Alfalfa's and
Newco have determined that a merger of Wild Oats into Holdings (the "Merger")
following completion of the Alfalfa's Reincorporation Merger is desirable and
in the best interests of the stockholders of the respective companies and have,
by resolutions duly adopted, approved and adopted this Agreement and directed
that the Agreement and the Merger be submitted to a vote of the stockholders of
Wild Oats and Alfalfa's, respectively. This Agreement and the Merger have been
approved by the sole stockholder of Newco by written consent pursuant to
Section 228 of the DGCL.

I. For the purpose of prescribing the terms and conditions of the
Merger, the mode of carrying the same into effect, the manner and basis of
exchanging or adjusting the shares of the constituent corporations, the method
of determining the effective date of the Merger, and such other details and
provisions as are deemed necessary or desirable, Wild Oats, Alfalfa's and Newco

-2-
<PAGE> 3
agree, on the terms and subject to the conditions set forth in this Agreement,
as follows:

ARTICLE I
The Merger

1.1 In accordance with the provisions of the DGCL, and as of the
Effective Time (as defined in Article II), Wild Oats shall be merged into
Holdings, and Holdings shall be, and is referred to in this Agreement as, the
Surviving Corporation, the name of which shall be "WO Holdings, Inc.," unless
and until changed in accordance with the DGCL. The corporate existence of
Holdings, with all its purposes, powers and objects, shall continue unaffected
and unimpaired by the Merger.

1.2 As of the Effective Time, the separate corporate existence of
Wild Oats shall cease, and Holdings, as the Surviving Corporation, shall
thereupon and thereafter possess all the rights, privileges, immunities and
franchises of a public, as well as a private, nature of both Wild Oats and
Holdings, and all property, whether real, personal or mixed, and all debts due
on whatever account, including subscriptions to shares, and all choses in
action, and each and every other interest of or belonging to or due Wild Oats
and Holdings shall be taken and deemed to be transferred to and vested in
Holdings as the Surviving Corporation, without further act or deed; and the
title to any real estate, or any interest therein, vested in Wild Oats and
Holdings shall not revert or be in any way impaired by reason of the Merger.
Holdings, as the Surviving Corporation, shall as of the Effective Time be
responsible and liable for all the obligations and liabilities of Wild Oats and
Holdings, and any claim existing or action or proceeding, whether civil or
criminal, pending by or against Wild Oats or Holdings may be prosecuted as if
the Merger had not taken place, or Holdings, as the Surviving Corporation, may
be substituted in its place. Neither the rights of creditors nor any liens
upon the property of Wild Oats or Holdings shall be impaired by the Merger.

ARTICLE II
Effective Time of Merger

Wild Oats and Holdings shall execute and file an appropriate
Certificate of Merger with the Secretary of State of Delaware pursuant to the
DGCL at the earliest practicable date following the satisfaction or waiver of
all conditions contained in Article XV. The Merger shall become effective at
the time and on the day as of which such Certificate of Merger shall have been
filed in accordance with the DGCL (the "Effective Time").

- 3 -
<PAGE> 4
ARTICLE III
Surviving Corporation

3.1 The Certificate of Incorporation of Holdings as attached
hereto as Exhibit 3.1(a) (the "Holdings Charter") shall be the Certificate of
Incorporation of the Surviving Corporation. The Bylaws of Holdings as attached
hereto as Exhibit 3.1(b) (the "Holdings Bylaws") shall continue as the Bylaws
of the Surviving Corporation. Holdings, as the Surviving Corporation, shall
continue as a business corporation governed by the laws of the State of
Delaware.

3.2 Subject to action by the Board of Directors and the
stockholders of the Surviving Corporation, (i) the directors and the members of
the compensation committee of the Board of Directors of the Surviving
Corporation shall be as set forth in Section 5.4(a), until their successors
shall have been duly elected and qualified, and the executive officers of the
Surviving Corporation shall be as set forth in Section 5.4(a), all of whom
shall serve in such positions in accordance with the Bylaws of the Surviving
Corporation.

ARTICLE IV
Conversion and Exchange of Wild Oats Shares

4.1 At the Effective Time:

(a) each issued and outstanding share of Wild Oats Common
Stock (other than those shares held by persons who have validly elected to
demand an appraisal of their shares pursuant to the DGCL) shall become and be
converted into, and shall thereafter represent only, the right to receive
1.0035584 shares of Holdings Common Stock in the manner set forth in Section
4.4;

(b) each issued and outstanding share of Wild Oats Series
A Preferred Stock shall become and be converted into, and shall thereafter
represent only, the right to receive 1.0035584 shares of Holdings Series A
Preferred Stock in the manner set forth in Section 4.4;

(c) each issued and outstanding share of Wild Oats Series
B Preferred Stock shall become and be converted into, and shall thereafter
represent only, the right to receive 1.0035584 shares of Holdings Series B
Preferred Stock in the manner set forth in Section 4.4;

(d) each issued and outstanding share of Wild Oats Series
C Preferred Stock shall become and be converted into, and shall thereafter
represent only, the right to receive 1.0035584 shares of Holdings Series C
Preferred Stock in the manner set forth in Section 4.4; and

- 4 -
<PAGE> 5
(e) each issued and outstanding share of Wild Oats Series E
Preferred Stock shall become and be converted into, and shall thereafter
represent only, the right to receive one share of Holdings' New Series E
Preferred Stock in the manner set forth in Section 4.4.

4.2 At the Effective Time:

(a) each option to purchase a share of Wild Oats Common Stock
outstanding under Wild Oats' 1993 Stock Option Plan (the "Wild Oats Plan")
shall become an option to purchase 1.0035584 shares of Holdings Common Stock.
The vesting schedule and exercise price per share of Holdings Common Stock
shall be equal to the vesting schedule and exercise price per share of Wild
Oats Common Stock under the particular stock option agreement pursuant to which
such stock option was granted as in effect immediately prior to the Effective
Time; and

(b) each outstanding warrant to purchase a share of Wild Oats
Series B Preferred Stock or Wild Oats Series C Preferred Stock shall become a
warrant to purchase 1.0035584 shares of Holdings' New Series B Preferred Stock
or Holdings' New Series C Preferred Stock, as the case may be, on the same
terms as set forth in such outstanding warrants, and each outstanding warrant
to purchase a share of Wild Oats Series E Preferred Stock shall become a
warrant to purchase one share of Holdings' New Series E Preferred Stock, on the
same terms as set forth in such outstanding warrants.

4.3 All certificates which, prior to the Effective Time,
represented issued and outstanding shares of Wild Oats Common Stock and Wild
Oats Preferred Stock shall be cancelled at the Effective Time, which time shall
be the record date for the determination of those stockholders of Wild Oats
entitled to receive Holdings Common Stock and Holdings Preferred Stock as
provided in Section 4.1.

4.4 As soon as practicable after the Effective Time, the Surviving
Corporation shall send a notice and transmittal form to each record holder of
certificates theretofore representing shares of Wild Oats Common Stock or Wild
Oats Preferred Stock advising such holder of the procedure for surrendering
such certificates for exchange pursuant to the terms of Section 4.1 hereof. If
Holdings Common Stock or Holdings Preferred Stock is to be issued pursuant to
Section 4.1 to a person other than a person in whose name the certificates for
shares of Wild Oats Common Stock or Wild Oats Preferred Stock surrendered for
exchange are registered, it shall be a condition to the exchange that the
person requesting such exchange shall pay to the Surviving Corporation any
transfer or other taxes required by reason of such delivery, or shall establish
to the satisfaction of the Surviving Corporation that such tax has been paid or
is not applicable. Notwithstanding the foregoing, no party hereto shall be
liable to a holder of certificates theretofore representing shares of Wild Oats
Common Stock or Wild

- 5 -
<PAGE> 6
Oats Preferred Stock for any amount paid to a public official pursuant to any
property, escheat or similar law.

4.5 Notwithstanding the foregoing, in the event that (i) fewer
than 229,552 shares of Alfalfa's Common Stock are validly tendered and not
withdrawn in the Tender Offer (as defined in Section 5.2), (ii) the amount of
Wild Oats Series E Preferred Stock sold as contemplated by Section 15.1(f) is
less than 843,125 shares or (iii) less than $8,130,000 of proceeds from the
sale of Wild Oats Series E Preferred Stock is used to repurchase share of Wild
Oats Common Stock, the number of shares (and options and warrants to purchase
shares) of Holdings capital stock into which shares of Wild Oats Common Stock
and Wild Oats Preferred Stock (other than Wild Oats Series E Preferred Stock)
are to be converted pursuant to Sections 4.1 and 4.2 hereof shall be adjusted
(and the corresponding adjustments shall be made to the Holdings Charter) to
reflect the previously agreed allocation of the dilutive effect of the
redemption of certain shares of Alfalfa's Old Series A Preferred Stock
consistent with Exhibit A to the Letter of Intent dated January 18, 1996
between Wild Oats and Alfalfa's, which Exhibit A is attached hereto as Exhibit
4.5; provided, however, that such reduction shall in no event cause the
conversion ratio to be less than 1.0018211 shares of Holdings capital stock for
each share of Wild Oats capital stock.

4.6 Notwithstanding anything in this Agreement to the contrary,
shares of Wild Oats Common Stock that are issued and outstanding immediately
prior to the Effective Time and that are held by stockholders who have not
voted such shares in favor of the Merger or consented thereto in writing and
who have delivered a written demand for payment for such shares in the manner
provided in Section 262 of the DGCL (the "Dissenting Shares") shall not be
converted into or represent a right to receive shares of Holdings Common Stock
pursuant to the Article IV, but the holder thereof shall be entitled only to
such rights as are granted by Section 262 of the DGCL. Each holder of
Dissenting Shares shall receive payment therefor from the Surviving Corporation
in accordance with the DGCL; provided, however, if any such holder of
Dissenting Shares shall have failed to establish his entitlement to receive
payment for such shares as provided in Section 262 of the DGCL, or if any such
holder of Dissenting Shares shall have effectively withdrawn his demand for
payment for such shares of Common Stock or lost his right to receive payment
for his shares of Common Stock under Section 262 of the DGCL, or if neither any
holder of Dissenting Shares nor the Surviving Corporation shall have filed a
petition demanding a determination of the value of all Dissenting Shares within
the time provided in Section 262 of the DGCL, such holder or holders (as the
case may be) shall forfeit the right to receive payment for such shares of Wild
Oats Common Stock pursuant to Section 262 of the DGCL and each such share of
Wild Oats Common Stock shall thereupon be deemed to have been converted, as of
the Effective Time, into the right to receive the number of shares of Holdings
Common Stock as determined pursuant to this Article IV.

- 6 -
<PAGE> 7

ARTICLE V
Actions to be Taken by Alfalfa's, Newco and Holdings

5.1 Prior to the Effective Time, Newco and Alfalfa's shall have
filed with the Secretary of State of Colorado Articles of Merger effecting the
Alfalfa's Reincorporation Merger which will effect a conversion of Alfalfa's
Common Stock and Alfalfa's Old Series A Preferred Stock into Holdings Common
Stock and Holdings Series D Preferred Stock, respectively, whereby each
outstanding share of Alfalfa's Common Stock (other than those shares held by
persons who have validly elected to demand an appraisal of their shares
pursuant to the Colorado Business Corporation Act (the "CBCA") or the DGCL)
prior to the Alfalfa's Reincorporation shall become 1.9851124 shares of
Holdings Common Stock, and each outstanding share of Alfalfa's Old Series A
Preferred Stock (other than those shares held by persons who have validly
elected to demand an appraisal of their shares pursuant to the CBCA or the
DGCL) shall become 1.9851124 shares of Holdings Series D Preferred Stock (the
"Conversion Adjustment"); provided, however that no fractional shares or scrip
will be issued in connection with the Conversion Adjustment, and in lieu of any
fractional interest resulting therefrom, a holder shall receive an amount in
cash determined by multiplying such fractional interest by $29.626.

5.2 Prior to the Effective Time, Alfalfa's shall commence a cash
tender offer for up to 229,552 shares (before giving effect to the Conversion
Adjustment) of Alfalfa's Common Stock at $58.81 per share in cash (the "Tender
Offer") payable at the Effective Time.

5.3 At the Effective Time the 63,264 shares of Alfalfa's Old
Series A Preferred Stock (before giving effect to the Conversion Adjustment)
held by Stolberg Partners, L.P. shall be redeemed for $71.13 per share in cash.

5.4 Newco's and Alfalfa's directors and stockholders shall take
all actions necessary so that, at the Effective Time:

(a) the Board of Directors of Holdings shall be comprised
of John Shields (Chairman), David Chamberlain (Vice Chairman), Michael C.
Gilliland, Elizabeth C. Cook, S.M. Hassan, Peter D. Behrendt, Barnett M.
Feinblum, David L. Ferguson, M. Laird Koldyke, James B. McElwee and one
designee of the holders of the Holdings New Series E Preferred Stock as
contemplated by Section 15.1(f), and the compensation committee of the Board of
Directors of Holdings shall be comprised of David Chamberlain, Barney Feinblum,
David L. Ferguson, M. Laird Koldyke and James B. McElwee, in each case until
their successors shall have been duly elected and qualified, and the executive
officers of Holdings shall be:

Chief Executive Officer - Michael C. Gilliland
President - S.M. Hassan
Vice President and Secretary - Elizabeth C. Cook

- 7 -
<PAGE> 8
Treasurer and Chief Financial Officer - Mary Beth Lewis

all of whom shall serve in such positions in accordance with the Holdings
Bylaws and the stockholders agreement referred to in Section 15.1(g). Each of
the persons named above as Chairman of the Board and Vice Chairman of the Board
shall be appointed for a minimum term of 24 months from the Effective Time,
subject to removal in the first such 12 months only by the vote of at least
eight of the directors of Holdings, and by the vote of a majority of the
directors of Holdings thereafter; and

(b) The 1996 Stock Option Plan in the form attached
hereto as Exhibit 5.4 shall have been adopted by the board of directors and
stockholders of Holdings.

ARTICLE VI

[Intentionally Omitted]

ARTICLE VII
Additional Documentation

From time to time, as and when requested by the Surviving Corporation,
or by its successors or assigns, Wild Oats shall execute and deliver or cause
to be executed and delivered all such deeds and other instruments, and shall
take or cause to be taken all such further or other action as the Surviving
Corporation, or its successors and assigns, may deem necessary or desirable in
order to vest in and confirm unto the Surviving Corporation, or its successors
or assigns, title to and possession of all the property, rights, privileges,
powers and franchises referred to in Article I hereof and otherwise to carry
out the intent and purpose of this Agreement. After the Effective Time, the
officers of the Surviving Corporation shall have the authority to execute such
documents and take such actions as may be necessary in the name of Wild Oats in
order to give effect to this Article VII.

ARTICLE VIII
Representations and Warranties of Wild Oats

8.1 Wild Oats and each of its subsidiaries are corporations duly
organized, validly existing, and in good standing under the corporate laws of
the jurisdiction of its formation, with full power and authority and all
material licenses, permits and authorizations necessary to own its property and
to carry on its business as presently conducted. Wild Oats and each of its
subsidiaries are duly qualified to do business in every jurisdiction wherein
the failure to so qualify would have a material adverse effect upon the
business, prospects or financial condition of Wild Oats and its subsidiaries,
taken as a whole.

- 8 -
<PAGE> 9
8.2 Wild Oats has complete and unrestricted power to enter into
and, upon the receipt of such approvals as may be required by law, to
consummate the transactions contemplated by this Agreement.

8.3 The execution, delivery and performance of this Agreement have
been duly and properly authorized and approved by the Board of Directors and
stockholders of Wild Oats. This Agreement constitutes a valid and binding
obligation of Wild Oats, enforceable in accordance with its terms. Except as
contemplated by Sections 8.9 and 15.1, the execution and delivery by Wild Oats
of this Agreement and the fulfillment of and compliance with the respective
terms hereof by Wild Oats do not and will not (a) conflict with or result in a
breach of the terms, conditions or provisions of, (b) constitute a default
under, (c) result in the creation of any lien, security interest, charge or
encumbrance upon Wild Oats' or any of its subsidiaries' capital stock or assets
pursuant to, (d) give any third party the right to accelerate, in whole or in
part, any obligation under, (e) result in a violation of, or (f) except as will
be obtained by the Effective Time, require any material authorization, consent,
approval, exemption or other action by or notice to any court or administrative
or governmental body or other third party pursuant to, the charter or bylaws of
Wild Oats or any of its subsidiaries, any agreement, indenture instrument,
order, judgment or decree to which Wild Oats or any of its subsidiaries is
subject, or any law, statute, rule or regulation to which Wild Oats or any of
its subsidiaries is subject.

8.4 The authorized, issued and outstanding capital stock of Wild
Oats is as set forth in Recital B of this Agreement, and all outstanding shares
of Wild Oats' capital stock have been validly issued and are fully paid and
non- assessable. Except for the conversion rights of the Wild Oats Preferred
Stock, outstanding options and warrants to purchase a total of 176,878 shares
of Wild Oats Common Stock, 1,506 shares of Wild Oats Series B Preferred Stock
and 1,976 shares of Wild Oats Series C Preferred Stock and warrants to purchase
10,539 shares of Wild Oats Series E Preferred Stock to be issued prior to the
Effective Time, Wild Oats does not have outstanding any stock or securities
convertible into or exchangeable for shares of its capital stock, or any rights
or options to subscribe for or to purchase any capital stock or any stock or
securities convertible into or exchangeable for any capital stock. Wild Oats
is not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock otherwise than
pursuant to the terms of the Wild Oats Preferred Stock.

8.5 Wild Oats' (a) unaudited consolidated balance sheet as of
April 27, 1996 (the "Latest Wild Oats Balance Sheet") and the related
consolidated statements of operations and cash flows for the periods then ended
attached hereto as Exhibit 8.5(a), and (b) audited consolidated balance sheet
as of December 30, 1995 and the related audited consolidated statements of
operations,

- 9 -
<PAGE> 10
stockholders' equity and cash flows for the fiscal year then ended (including
in all cases the notes thereto) attached hereto as Exhibit 8.5(b) are accurate
and complete in all material respects and have been prepared in accordance with
generally accepted accounting principles, consistently applied. Since the date
of the Latest Wild Oats Balance Sheet, except as set forth on Schedule 8.5, (i)
there has been no material adverse change in Wild Oats' consolidated financial
condition, operating results, business prospects, employee relations, customer
relations, or otherwise, other than changes occurring in the ordinary course of
business which in the aggregate have not been materially adverse to Wild Oats
or (ii) Wild Oats has not made any change in accounting principals or practices
from those utilized in the preparation of the balance sheets and related
statements referred to in this Section 8.5.

8.6 Except as set forth on the Latest Wild Oats Balance Sheet or
on Schedule 8.6, Wild Oats has no material obligation or liability (whether
accrued, absolute, contingent, unliquidated or otherwise) other than
liabilities which have arisen after the date of the Latest Wild Oats Balance
Sheet in the ordinary course of business and which do not involve breach of
contract, breach of warranty, torts, infringements, claims or lawsuits.

8.7 Except as set forth on Schedule 8.7 or as contemplated by
Section 15.1(f), Wild Oats has not, since the date of the Latest Wild Oats
Balance Sheet, (a) issued any capital stock, bonds or other securities other
than upon the exercise of existing stock options, (b) borrowed any amount or
incurred or become subject to any liabilities that aggregate in excess of
$100,000, (c) discharged or satisfied any lien or encumbrance or paid any
obligation or liability other than current liabilities paid in the ordinary
course of business, (d) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed any shares of its capital stock, (e) mortgaged or pledged any of its
property or assets, or subjected them to any lien, security interest, charge or
any other encumbrance, except in the ordinary course of business and except
liens for current property taxes not yet due and payable, (f) sold, assigned or
transferred any of its tangible assets, except in the ordinary course of
business, or cancelled any debts or claims, (g) sold, assigned or transferred
any patents, trademarks, trade names, copyrights, trade secrets or other
intangible assets, or disclosed any proprietary confidential information to any
person, (h) suffered any extraordinary losses or waived any rights of material
value, whether or not in the ordinary course of business or consistent with
past practice, (i) made capital expenditures or commitments therefor that
aggregate in excess of $100,000, (j) entered into any other transaction other
than in the ordinary course of business, or entered into any other material
transaction, whether or not in the ordinary course of business, (k) made
charitable contributions or pledges aggregating in excess of $25,000, (l)
suffered any material damage, destruction or casualty

- 10 -
<PAGE> 11
loss, whether or not covered by insurance, or (m) made any illegal political
contributions, or any bribes, kickback payments or other illegal payments.

8.8 Wild Oats' inventory consists of items of a quality and
quantity salable at Wild Oats' normal profit levels in the ordinary course of
business. The values at which such inventory is carried on the Latest Wild
Oats' Balance Sheet are in accordance with generally accepted accounting
principles. Schedule 8.8 contains a materially complete and accurate summary
of Wild Oats' inventory as of March 30, 1996.

8.9 Except for the investigation by the Attorney General of New
Mexico or as set forth on Schedule 8.9, (a) there are no material actions,
suits, proceedings, orders, investigations or claims pending against Wild Oats
or any of its subsidiaries, and to the best of Wild Oats' knowledge, there are
no such actions, suits, proceedings, orders, investigations or claims
threatened against or affecting Wild Oats or any of its subsidiaries at law or
in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality, (b) there are no material arbitration
proceedings pending under collective bargaining agreements or otherwise, and
(c) there are no material governmental inquiries (including inquiries as to the
qualification of Wild Oats or any of its subsidiaries to hold or receive any
license or permit) involving Wild Oats or any of its subsidiaries.

8.10 Except as set forth on Schedule 8.10, there are no labor
controversies pending or, to the best of Wild Oats' knowledge, threatened
against Wild Oats or any subsidiary of Wild Oats. There are no organizational
efforts in progress or, to the best of Wild Oats' knowledge, threatened
involving any employees of Wild Oats or any subsidiary of Wild Oats. To the
best of Wild Oats' knowledge, Wild Oats and each of its subsidiaries has
complied in all material respects with all laws relating to the employment of
labor.

8.11 (a) Except as set forth on Schedule 8.11, Wild Oats and
each of its subsidiaries have filed, or timely applied for extensions of time
in which to file, all returns, declarations, reports, estimates, information
returns, and statements ("Returns") required to be filed or sent by it in
respect of any Taxes (as defined in clause (n) below) or required to be filed
or sent by it by any taxing authority having jurisdiction; (ii) timely and
properly paid (or has had paid on its behalf) all Taxes shown to be due and
payable on such Returns; (iii) established on the Latest Wild Oats Balance
Sheet (and until the Effective Time will establish on its books and records),
in accordance with generally accepted accounting principles, reserves that are
adequate for the payment of any Taxes not yet due and payable; (iv) complied
with all applicable laws, rules, and regulations relating to the withholding of
Taxes and the payment thereof (including, without limitation, withholding of
Taxes under Sections 1441 and 1442 of the Internal Revenue Code (the "Code"),
or similar provisions under

- 11 -
<PAGE> 12
any foreign laws), and timely and properly withheld from individual employee
wages and paid over to the proper governmental authorities all amounts required
to be so withheld and paid over under all applicable laws;

(b) There are no liens for Taxes upon any assets of Wild
Oats or any of its subsidiaries, except for liens for Taxes not yet due;

(c) No deficiency for any Taxes has been proposed,
asserted or assessed against Wild Oats or any of its subsidiaries that has not
been resolved and paid in full. No waiver, extension or comparable consent
given by Wild Oats or any of its subsidiaries regarding the application of the
statute of limitations with respect to any Taxes or Returns is outstanding, nor
is any request for any such waiver or consent pending. There has been no Tax
audit or other administrative proceeding or court proceeding with regard to any
Taxes or Returns, nor is any such Tax audit or other proceeding pending, nor
has there been any notice to Wild Oats or any of its subsidiaries by Taxing
authority regarding any such Tax, audit or other proceeding, or, to the best
knowledge of Wild Oats, is any such Tax audit or other proceeding threatened
with regard to any Taxes or Returns. Wild Oats does not expect the assessment
of any additional Taxes and is not aware of any unresolved questions, claims or
disputes concerning the liability for Taxes of Wild Oats or its subsidiaries
which would exceed the estimated reserves established on their books and
records;

(d) Neither Wild Oats nor any of its subsidiaries is a
party to any agreement, contract or arrangement that would result, separately
or in the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code and the consummation of the
transactions contemplated by this Agreement will not be a factor causing
payments to be made by Wild Oats or any of its subsidiaries that is not
deductible (in whole or in part) under Section 280G of the Code;

(e) Neither Wild Oats nor any of its subsidiaries has
requested any extension of time within which to file any Return, which Return
has not since been filed;

(f) No property of Wild Oats or any of its subsidiaries
is property that such entity is or will be required to treat as being owned by
another person under the provisions of Section 168(f)(8) of the Code (as in
effect prior to amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Section 168 of the Code;

(g) Wild Oats is not required to include in income any
adjustment under Section 481(a) of the Code by reason of a voluntary change in
accounting method initiated by Wild Oats as a result of the Tax Reform Act of
1986 and Wild Oats has no knowledge

- 12 -
<PAGE> 13
that the Internal Revenue Service has proposed any such adjustment or change in
accounting method;

(h) All transactions that could give rise to an
understatement of federal income tax (within the meaning of Section 6661 of the
Code as it applied prior to repeal) or an underpayment of tax (within the
meaning of Section 6662 of the Code) were reported in a manner for which there
is substantial authority or were adequately disclosed (or, with respect to
Returns filed before the Effective Time, will be reported in such a manner or
adequately disclosed) on the Returns required in accordance with Sections
6661(b)(2)(B) and 6662(d)(2)(B) of the Code;

(i) Neither Wild Oats nor any of its subsidiaries has
engaged in any transaction that would result in a deemed election under Section
338(e) of the Code, and none of such entities will engage in any such
transaction within any applicable "consistency period" (as such term is defined
in Section 338 of the Code);

(j) Neither Wild Oats nor any of its subsidiaries has
filed any consent under Section 341(f) of the Code;

(k) Schedule 8.11 contains a description of all tax
sharing agreements in effect as of the date hereof all of which have previously
been delivered to Alfalfa's;

(l) Neither Wild Oats nor any of its subsidiaries is a
"United States real property holding corporation" (as such term is defined in
Section 897 of the Code);

(m) Wild Oats is not a "foreign person" (as such term is
defined in Section 1445(f)(3) of the Code); and

(n) For purposes of this Agreement, the term "Tax" or
"Taxes" means all taxes, charges, fees, levies, or other assessments,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, social security, unemployment, excise, estimated,
severance, stamp, occupation, property, or other taxes, customs duties, fees,
assessments, or charges of any kind whatsoever, including, without limitation,
all interest and penalties thereon, and additions to tax or additional amounts
imposed by any taxing authority, domestic or foreign, upon Wild Oats or any of
its subsidiaries.

8.12 (a) Except for the documentation relating to the sale of
the Wild Oats Series E Preferred Stock as contemplated by Sections 15.1(f) and
(g), Schedule 8.12 lists the following agreements, whether oral or written, to
which Wild Oats or any of its subsidiaries is a party, which is currently in
effect (such list to set forth the commencement date and termination or
expiration date of such agreement): (i) collective bargaining agreement or
contract with any labor union; (ii) bonus, pension, profit sharing,

- 13 -
<PAGE> 14
retirement or other form of deferred compensation plan; (iii) hospitalization
insurance or other welfare benefit plan or practice, whether formal or
informal; (iv) stock purchase or stock option plan; (v) contract for the
employment of any officer, individual employee or other person on a full-time,
part-time or consulting basis or relating to severance pay for any such person;
(vi) confidentiality agreement; (vii) contract, agreement or understanding
relating to the voting of common stock or the election of directors of Wild
Oats or any of its subsidiaries; (viii) agreement or indenture relating to the
borrowing of money or to mortgaging, pledging or otherwise placing a lien on
any of the assets of Wild Oats or any of its subsidiaries; (ix) guaranty of any
obligation for borrowed money or otherwise; (x) lease or agreement under which
Wild Oats or any of its subsidiaries is lessee of, or holds or operates any
property, real or personal, owned by any other party; (xi) lease or agreement
under which Wild Oats or any of its subsidiaries is lessor of, or permits any
third party to hold or operate, any property, real or personal; (xii) contract
or group of related contracts with the same party for the purchase of products
or services, other than in the ordinary course of business; (xiii) contract or
group of related contracts with the same party (other than any contract or
group of related contracts for the purchase or sale of products or services)
continuing over a period of more than six months from the date or dates
thereof, not terminable by it on 30 days or less notice without penalty; (xiv)
contract which prohibits Wild Oats or any of its subsidiaries from freely
engaging in business anywhere in the world; (xv) contract for the distribution
of any of Wild Oats' products (including any distributor or sales contract);
(xvi) any franchise agreements; (xvii) contract or commitment for capital
expenditures; (xviii) agreement for the sale of any capital asset; (xix)
contract with any affiliate which in any way relates to Wild Oats or any of its
subsidiaries; or (xx) other agreement which is either material to the business
of Wild Oats or was not entered into in the ordinary course of business;

(b) Wild Oats and its subsidiaries have performed all
obligations required to be performed by them in connection with the contracts
or commitments required to be disclosed in Schedule 8.12 and they are not in
receipt of any claim of default under any such contract or commitment; neither
Wild Oats nor any of its subsidiaries has any present expectation or intention
of not fully performing any material obligation pursuant to any such contract
or commitment; and neither Wild Oats nor any of its subsidiaries has knowledge
of any breach or anticipated breach by any other party to any such contract or
commitment; and

(c) Prior to the Effective Time, Alfalfa's or Holdings
shall be supplied with a true and correct copy of each written contract or
commitment disclosed in Schedule 8.12, and a written description of each oral
contract or commitment disclosed in Schedule 8.12, together with all
amendments, waivers or other changes thereto.

- 14 -
<PAGE> 15
8.13 Schedule 8.13 describes all registrations of, applications for
or rights in patents, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets, know-how or other intellectual property rights owned
by, licensed to or otherwise controlled by Wild Oats or used in, developed for
use in or necessary to the conduct of the business of Wild Oats as now
conducted or planned to be conducted. Wild Oats owns and possesses all right,
title and interest, or holds a valid license, in and to the rights set forth in
Schedule 8.13 and none of such rights has been licensed or assigned to any
third party. Wild Oats has taken all necessary action to protect the
intellectual property rights set forth in Schedule 8.13. Neither Wild Oats nor
any of its subsidiaries has received any notice of, nor are there any facts
known to Wild Oats or any of its subsidiaries which indicate a likelihood of,
any infringement or misappropriation by, or conflict from, any third party with
respect to the intellectual property rights which are listed; no claim by any
third party contesting the validity of any intellectual property rights listed
under such caption has been made, is currently outstanding or, to the best
knowledge of Wild Oats, is threatened; neither Wild Oats nor any of its
subsidiaries has received any notice of any infringement, misappropriation or
violation of any intellectual property rights of any third party and neither
Wild Oats nor any of its subsidiaries has infringed, misappropriated or
otherwise violated any such intellectual property rights; and no infringement,
illicit copying, misappropriation or violation has occurred or will occur with
respect to products currently being sold by Wild Oats or with respect to the
products currently under development (in their present state of development) or
with respect to the conduct of Wild Oats' business as now conducted.

8.14 Except as set forth on Schedule 8.14:

(a) Wild Oats and its subsidiaries have materially
complied with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes;

(b) neither Wild Oats nor any of its subsidiaries has any
material labor relations problem pending and labor relations are satisfactory;

(c) there are no material workers' compensation claims
pending against Wild Oats or any of its subsidiaries nor is Wild Oats or any of
its subsidiaries aware of any facts that would give rise to such a claim;

(d) no employee of Wild Oats or any of its subsidiaries
is subject to any confidentiality or noncompetition agreement or any other
agreement or restriction of any kind that would impede in any way the ability
of such employee to carry out fully all activities of such employee; and

- 15 -
<PAGE> 16
(e) no employee or former employee has any claim with
respect to any intellectual property rights of Wild Oats set forth in Schedule
8.13.

8.15 (a) Except as set forth on Schedule 8.15, with respect to
all employees and former employees of Wild Oats or any of its subsidiaries and
all dependents and beneficiaries of such employees and former employees,
neither Wild Oats nor any of its subsidiaries (i) maintains or contributes to
any nonqualified deferred compensation or retirement plans, contracts or
arrangements; (ii) maintains or contributes to any qualified defined
contribution plans (as defined in Section 3(34) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 414(i) of the
Code; (iii) maintains or contributes to any qualified defined benefit plans (as
defined in Section 3(35) of ERISA or Section 414(j) of the Code); and (iv)
maintains or contributes to any employee welfare benefit plans (as defined in
Section 3(1) of ERISA);

(b) To the extent required (either as a matter of law or
to obtain the intended tax treatment and tax benefits), all employee benefit
plans (as defined in Section 3(3) of ERISA) which Wild Oats or any of its
subsidiaries maintains or to which any of them contributes (collectively, the
"Plans") comply with the requirements of ERISA and the Code. With respect to
the Plans, (i) all required contributions which are due have been made and a
proper accrual has been made for all contributions due in the current fiscal
year; (ii) there are no actions, suits or claims pending, other than routine
uncontested claims for benefits; and (iii) there have been no prohibited
transactions (as defined in Section 406 of ERISA or Section 4975 of the Code);

(c) Schedule 8.15 contains true and complete copies of
(i) the most recent determination letter, if any, received by Wild Oats or any
of its subsidiaries from the Internal Revenue Service regarding the Plans and
any amendment to any Plan made subsequent to any Plan amendments covered by any
such determination letter; (ii) the most recent financial statements and annual
report or return for the Plans; and (iii) the most recently prepared actuarial
valuation reports;

(d) Neither Wild Oats nor any of its subsidiaries
contributes (and has not ever contributed) to any multi-employer plan, as
defined in Section 3(37) of ERISA. Neither Wild Oats nor any of its
subsidiaries has actual or potential liabilities under Section 4201 of ERISA
for any complete or partial withdrawal from a multi-employer plan. Neither
Wild Oats nor any of its subsidiaries has actual or potential liability for
death or medical benefits after separation from employment, other than (i)
death benefits under the employee benefit plans or programs (whether or not
subject to ERISA) set forth in Schedule 8.15 and (ii) health care continuation
benefits described in Section 4980B of the Code;

- 16 -
<PAGE> 17
(e) Neither Wild Oats nor any of their subsidiaries, nor
any of their directors, officers, employees or other "fiduciaries", as such
term is defined in Section 3(21) of ERISA, has committed any breach of
fiduciary responsibility imposed by ERISA or any other applicable law with
respect to the Plans which would subject Wild Oats, any of its subsidiaries or
Alfalfa's or any of their respective directors, officers or employees to any
liability under ERISA or any applicable law; and

(f) Neither Wild Oats nor any of its subsidiaries has
incurred any liability for any tax or civil penalty or any disqualification of
any employee benefit plan (as defined in Section 3(3) of ERISA) imposed by
Sections 4980B and 162(k) and 4975 of the Code and Part 6 of Title I and
Section 502(i) of ERISA.

8.16 Schedule 8.16 lists and briefly describes each insurance
policy maintained by Wild Oats and each of its subsidiaries as of the date of
the Latest Wild Oats Balance Sheet with respect to their properties, assets and
operations and sets forth the date of expiration of each such insurance policy.
All of such insurance policies are, as of the date hereof, and as of the
Effective Time will be, in full force and effect and issued by insurers of
recognized responsibility and are for amounts which have been sufficient to
cover claims that Wild Oats and its subsidiaries have settled within the last
five years. Neither Wild Oats nor any of its subsidiaries is in default with
respect to its obligations under any of such insurance policies.

8.17 Except as set forth on Schedule 8.17:

(a) To the best knowledge of Wild Oats, other than
pursuant to this Agreement, no officer or director, nor any of the employees
identified on Schedule 8.17 hereof who make or are expected to make significant
contributions to the business of Wild Oats (each a "Wild Oats Key Employee") of
Wild Oats or any of its subsidiaries or any member of the immediate family of
any such officer, director or Wild Oats Key Employee, or any entity in which
any of such persons owns any beneficial interest (other than any publicly-held
corporation whose stock is traded on a national securities exchange or in the
over-the counter market and less than one percent of the stock of which is
beneficially owned by any of such persons) (collectively "insiders"), has any
agreement with Wild Oats or any of its subsidiaries or any interest in any
property, real, personal or mixed, tangible or intangible, used in or
pertaining to Wild Oats' business. To the best knowledge of Wild Oats, none of
the insiders has any direct or indirect interest in any competitor, supplier or
customer of Wild Oats or any of its subsidiaries or in any person, firm or
entity from whom or to whom Wild Oats or any of its subsidiaries leases any
property, or in any other person, firm or entity with whom Wild Oats or any of
its subsidiaries transacts business of any nature. For purposes of this Section
8.17, the members of the immediate family of an officer, director or employee
shall consist of the spouse, parents,

- 17 -
<PAGE> 18
children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law,
and brothers- and sisters-in-law of such officer, director or employee; and

(b) Except for the payment of salaries, accrued paid time
off and other normal elements of compensation and reimbursement for
out-of-pocket expenses in the ordinary course of business, neither Wild Oats
nor any of its subsidiaries will immediately following the Effective Time be
indebted to any of their directors, officers or employees on any account
whatsoever.

8.18 Schedule 8.18 lists all officers and directors of the Wild
Oats and its subsidiaries and all bank accounts of Wild Oats and its
subsidiaries (designating each authorized signer).

8.19 (a) The real property demised by the leases described
(including the term thereof) in Schedule 8.19 constitutes all of the real
property used or occupied by Wild Oats or any of its subsidiaries (the "Real
Property"). The Real Property has access, sufficient for the conduct of Wild
Oats' business as now conducted or as presently proposed to be conducted, to
public roads and to all utilities, including electricity, sanitary and storm
sewer, potable water, natural gas and other utilities, used in the operation of
the Business at that location;

(b) The leases described in Schedule 8.19 are in full
force and effect, and Wild Oats or its subsidiary that is a party to each such
lease holds a valid and existing leasehold interest under each of such leases
for the term set forth in Schedule 8.19. Wild Oats has delivered to Alfalfa's
or Holdings complete and accurate copies of each of the leases described in
Schedule 8.19, and none of such leases shall have been modified in any respect,
prior to the Effective Time. None of Wild Oats or its subsidiaries is in
default, and no circumstances exist which, if unremedied, would, either with or
without notice or the passage of time or both, result in a default under any of
such leases; nor, to the best knowledge of Wild Oats and its subsidiaries, is
any other party to any of such leases in default;

(c) Schedule 8.19 discloses the aggregate value of the
tangible properties and tangible assets of Wild Oats and its subsidiaries as
reflected on the Latest Wild Oats Balance Sheet. Wild Oats and its
subsidiaries own good and marketable title to its tangible properties and
tangible assets as described in Schedule 8.19 and reflected on the Latest Wild
Oats Balance Sheet or acquired since the date thereof, free and clear of all
liens and encumbrances, except for (i) liens for current taxes not yet due and
payable, (ii) the properties subject to the leases listed in Schedule 8.19,
(iii) as otherwise disclosed in Schedule 8.19, (iv) inventory disposed of since
the date of the Latest Wild Oats Balance Sheet in the ordinary course of
business, and (v) liens in respect of pledges or deposits under workers'
compensation laws;

- 18 -
<PAGE> 19
(d) Wild Oats or its subsidiaries own, or lease under
valid leases, all buildings, machinery, equipment and other tangible assets
used in the conduct of their business;

(e) Neither Wild Oats nor any of its subsidiaries is in
violation of any applicable zoning ordinance or other law, regulation or
requirement relating to the operation of any properties used in the operation
of its business, and neither Wild Oats nor any of its subsidiaries has received
any notice of any such violation, or the existence of any condemnation
proceeding with respect to any of the Real Property; and

(f) Neither Wild Oats nor any of its subsidiaries has
knowledge of improvements made or contemplated to be made by any public or
private authority, the costs of which are to be assessed as special taxes or
charges against any of the Real Property, and there are no present assessments.

8.20 Except as set forth on Schedule 8.20, (a) each of Wild Oats
and its subsidiaries and their officers, directors, agents and employees have
complied in all material respects with all applicable laws, regulations and
other requirements, including, but not limited to, federal, state, local and
foreign laws, ordinances, rules, regulations and other requirements pertaining
to product labeling, consumer products safety, equal employment opportunity,
employee retirement, affirmative action and other hiring practices,
occupational safety and health, workers' compensation, unemployment,
environmental and building and zoning codes, which affect Wild Oats' business
or any real Property and to which any of them may be subject. No claims have
been filed against Wild Oats or any of its subsidiaries alleging a violation of
any such laws, regulations or other requirements. There is no action pending
or, to Wild Oats' knowledge threatened, to change the zoning or building
ordinances or any other laws, rules, regulations or ordinances affecting the
Real Property. Neither Wild Oats nor any of its subsidiaries is relying on any
exemption from or deferral of any such applicable law, regulation or other
requirement that would not be available to Alfalfa's after the Merger;

(b) Each of Wild Oats and its subsidiaries have in full
force and effect, all licenses, permits and certificates, from federal, state,
local and foreign authorities (including, without limitation, federal and state
agencies regulating occupational health and safety) necessary to conduct their
business and own and operate their properties (collectively, the "Permits").
Wild Oats and its subsidiaries have conducted their business in compliance with
all material terms and conditions of the Permits; and

(c) Neither Wild Oats nor any of its subsidiaries has
made or has agreed to make gifts of money, other property or similar benefits
(other than incidental gifts of articles of nominal value) to any actual or
potential customer, supplier, governmental employee or any other person in a
position to assist

- 19 -
<PAGE> 20
or hinder Wild Oats in connection with any actual or proposed transaction.

8.21 None of the information relating to Wild Oats or its
subsidiaries, this Agreement or the transactions contemplated by this Agreement
which has been supplied or is to be supplied by Wild Oats for inclusion in (a)
a Private Placement Memorandum relating to the offering of shares of Wild Oats
Series E Preferred Stock (the "Private Placement Memorandum"), (b) a proxy
statement/offer to purchase to be mailed to Alfalfa's stockholders in
connection with the Tender Offer and the meeting to be called pursuant to
Section 12.1 (the "Proxy Statement"), or (c) any other document to be filed
with any regulatory authority in connection with the transactions contemplated
by this Agreement will, at the respective times such documents are filed,
become effective or are mailed to stockholders, as the case may be, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein not misleading or, in
the case of the Proxy Statement or any amendment or supplement thereto, at the
time of the meetings of stockholders referred to in Section 12.1, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for the meeting in connection with
which the Proxy Statement shall be mailed. All documents which Wild Oats is
responsible for filing in connection with the Merger will comply as to form in
all material respects with the applicable requirements of the statutes, rules
and regulations pursuant to which they are filed.

ARTICLE IX
Representations and Warranties of Alfalfa's

Alfalfa's hereby represents, warrants and covenants to Wild Oats as
follows:

9.1 Alfalfa's and each of its subsidiaries are corporations duly
organized, validly existing, and in good standing under the corporate laws of
the jurisdiction of its formation, with full power and authority and all
material licenses, permits and authorizations necessary to own its property and
to carry on its business as presently conducted. Alfalfa's and each of its
subsidiaries are duly qualified to do business in every jurisdiction wherein
the failure to so qualify would have a material adverse effect upon the
business, prospects or financial condition of Alfalfa's and its subsidiaries,
taken as a whole.

9.2 Alfalfa's has complete and unrestricted power to enter into
and, upon the receipt of such approvals as may be required by law, to
consummate the transactions contemplated by this Agreement.

- 20 -
<PAGE> 21
9.3 The execution, delivery and performance of this Agreement have
been duly and properly authorized and approved by the Board of Directors of
Alfalfa's. Upon stockholder approval of this Agreement as provided in Section
15.1, this Agreement will constitute a valid and binding obligation of
Alfalfa's enforceable in accordance with its terms. Except as contemplated by
Sections 9.9 and 15.1, the execution and delivery by Alfalfa's of this
Agreement and the fulfillment of and compliance with the respective terms
hereof by Alfalfa's do not and will not (a) conflict with or result in a breach
of the terms, conditions or provisions of, (b) constitute a default under, (c)
result in the creation of any lien, security interest, charge or encumbrance
upon Alfalfa's or any of its subsidiaries' capital stock or assets pursuant to,
(d) give any third party the right to accelerate, in whole or in part, any
obligation under, (e) result in a violation of, or (f) except as will be
obtained by the Effective Time, require any material authorization, consent,
approval, exemption or other action by or notice to any court or administrative
or governmental body or other third party pursuant to, the charter or bylaws of
Alfalfa's or any of its subsidiaries, any agreement, indenture, instrument,
order, judgment or decree to which Alfalfa's or any of its subsidiaries is
subject, or any law, statute, rule or regulation to which Alfalfa's or any of
its subsidiaries is subject.

9.4 The authorized, issued and outstanding capital stock of
Alfalfa's is as set forth in Recital D of this Agreement, and all outstanding
shares of Alfalfa's capital stock have been validly issued and are fully paid
and non- assessable. Except for the conversion rights of the Alfalfa's Old
Series A Preferred Stock and outstanding options to purchase 43,900 shares of
Alfalfa's Common Stock, Alfalfa's does not have outstanding any stock or
securities convertible into or exchangeable for shares of its capital stock, or
any rights or options to subscribe for or to purchase any capital stock or any
stock or securities convertible into or exchangeable for any capital stock.
Alfalfa's is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock other
than pursuant to the terms of the Alfalfa's Old Series A Preferred Stock.

9.5 Alfalfa's (a) unaudited consolidated balance sheet as of April
28, 1996 (the "Latest Alfalfa's Balance Sheet") and the related consolidated
statements of income and cash flows for the periods then ended attached hereto
as Exhibit 9.5(a), and (b) audited consolidated balance sheet as of June 30,
1995 and the related audited consolidated statements of income, stockholders'
equity and cash flows for the fiscal year then ended (including in all cases
the notes thereto) attached hereto as Exhibit 9.5(b) are accurate and complete
in all material respects and have been prepared in accordance with generally
accepted accounting principles, consistently applied. Since the date of the
Latest Alfalfa's Balance Sheet, except as set forth on Schedule 9.5, (i) there
has been no material adverse change in Alfalfa's consolidated

- 21 -
<PAGE> 22
financial condition, operating results, business prospects, employee relations,
customer relations or otherwise, other than changes occurring in the ordinary
course of business which in the aggregate have not been materially adverse to
Alfalfa's or (ii) Alfalfa's has not made any change in accounting principals or
practices from those utilized in the preparation of the balance sheets and
related statements referred to in this Section 9.5.

9.6 Except as set forth on the Latest Alfalfa's Balance Sheet or
on Schedule 9.6, Alfalfa's has no material obligation or liability (whether
accrued, absolute, contingent, unliquidated or otherwise) other than
liabilities which have arisen after the date of the Latest Alfalfa's Balance
Sheet in the ordinary course of business and which do not involve breach of
contract, breach of warranty, torts, infringements, claims or lawsuits.

9.7 Except as set forth on Schedule 9.7, Alfalfa's has not, since
the date of the Latest Alfalfa's Balance Sheet, (a) issued any capital stock,
bonds or other securities other than upon the issuance of existing stock
options, (b) borrowed any amount or incurred or become subject to any
liabilities that aggregate in excess of $100,000, except current liabilities
incurred in the ordinary course of business and liabilities under contracts
entered into in the ordinary course of business, (c) discharged or satisfied
any lien or encumbrance or paid any obligation or liability other than current
liabilities paid in the ordinary course of business, (d) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its stock, or purchased or redeemed any shares of its capital stock, (e)
mortgaged or pledged any of its property or assets, or subjected them to any
lien, security interest, charge or any other encumbrance, except liens for
current property taxes not yet due and payable, (f) sold, assigned or
transferred any of its tangible assets, except in the ordinary course of
business, or cancelled any debts or claims, (g) sold, assigned or transferred
any patents, trademarks, trade names, copyrights, trade secrets or other
intangible assets, or disclosed any proprietary confidential information to any
person, (h) suffered any extraordinary losses or waived any rights of material
value, whether or not in the ordinary course of business or consistent with
past practice, (i) made capital expenditures or commitments therefor that
aggregate in excess of $100,000, (j) entered into any other transaction other
than in the ordinary course of business, or entered into any other material
transaction, whether or not in the ordinary course of business, (k) made
charitable contributions or pledges aggregating in excess of $25,000, (l)
suffered any material damage, destruction or casualty loss, whether or not
covered by insurance, or (m) made any illegal political contributions, or any
bribes, kickback payments or other illegal payments.

9.8 Alfalfa's inventory consists of items of a quality and
quantity salable at Alfalfa's normal profit levels in the ordinary course of
business. The values at which such inventory is carried

- 22 -
<PAGE> 23
on the Latest Alfalfa's Balance Sheet are in accordance with generally accepted
accounting principles. Schedule 9.8 contains a materially complete and
accurate summary of Alfalfa's inventory as of March 24, 1996.

9.9 Except for the investigation by the Attorney General of New
Mexico or as set forth on Schedule 9.9, (a) there are no material actions,
suits, proceedings, orders, investigations or claims pending against Alfalfa's
or any of its subsidiaries, and to the best of Alfalfa's knowledge, there are
no such actions, suits, proceedings, orders, investigations or claims
threatened against or affecting Alfalfa's or any of its subsidiaries at law or
in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality, (b) there are no material arbitration
proceedings pending under collective bargaining agreements or otherwise, and
(c) there are no material governmental inquiries (including inquiries as to the
qualification of Alfalfa's or any of its subsidiaries to hold or receive any
license or permit) involving Alfalfa's or any of its subsidiaries.

9.10 Except as set forth on Schedule 9.10, there are no labor
controversies pending or, to the best of Alfalfa's knowledge, threatened
against Alfalfa's or any subsidiary of Alfalfa's. There are no organizational
efforts in progress or, to the best of Alfalfa's knowledge, threatened
involving any employees of Alfalfa's or any subsidiary of Alfalfa's. To the
best of Alfalfa's knowledge, Alfalfa's and each of its subsidiaries has
complied in all material respects with all laws relating to the employment of
labor.

9.11 (a) Except as set forth on Schedule 9.11, Alfalfa's and
each of its subsidiaries have filed, or timely applied for extensions of time
in which to file, all returns, declarations, reports, estimates, information
returns, and statements ("Returns") required to be filed or sent by it in
respect of any Taxes (as defined in clause (n) below) or required to be filed
or sent by it by any taxing authority having jurisdiction; (ii) timely and
properly paid (or has had paid on its behalf) all Taxes shown to be due and
payable on such Returns; (iii) established on the Latest Alfalfa's Balance
Sheet (and until the Effective Time will establish on its books and records),
in accordance with generally accepted accounting principles, reserves that are
adequate for the payment of any Taxes not yet due and payable; (iv) complied
with all applicable laws, rules, and regulations relating to the withholding of
Taxes and the payment thereof (including, without limitation, withholding of
Taxes under Sections 1441 and 1442 of the Internal Revenue Code (the "Code"),
or similar provisions under any foreign laws), and timely and properly withheld
from individual employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under all
applicable laws;

- 23 -
<PAGE> 24
(b) There are no liens for Taxes upon any assets of
Alfalfa's or any of its subsidiaries, except for liens for Taxes not yet due;

(c) No deficiency for any Taxes has been proposed,
asserted or assessed against Alfalfa's or any of its subsidiaries that has not
been resolved and paid in full. No waiver, extension or comparable consent
given by Alfalfa's or any of its subsidiaries regarding the application of the
statute of limitations with respect to any Taxes or Returns is outstanding, nor
is any request for any such waiver or consent pending. There has been no Tax
audit or other administrative proceeding or court proceeding with regard to any
Taxes or Returns, nor is any such Tax audit or other proceeding pending, nor
has there been any notice to Alfalfa's or any of its subsidiaries by Taxing
authority regarding any such Tax, audit or other proceeding, or, to the best
knowledge of Alfalfa's, is any such Tax audit or other proceeding threatened
with regard to any Taxes or Returns. Alfalfa's does not expect the assessment
of any additional Taxes and is not aware of any unresolved questions, claims or
disputes concerning the liability for Taxes of Alfalfa's or its subsidiaries
which would exceed the estimated reserves established on their books and
records;

(d) Neither Alfalfa's nor any of its subsidiaries is a
party to any agreement, contract or arrangement that would result, separately
or in the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code and the consummation of the
transactions contemplated by this Agreement will not be a factor causing
payments to be made by Alfalfa's or any of its subsidiaries that is not
deductible (in whole or in part) under Section 280G of the Code;

(e) Neither Alfalfa's nor any of its subsidiaries has
requested any extension of time within which to file any Return, which Return
has not since been filed;

(f) No property of Alfalfa's or any of its subsidiaries
is property that such entity is or will be required to treat as being owned by
another person under the provisions of Section 168(f)(8) of the Code (as in
effect prior to amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Section 168 of the Code;

(g) Alfalfa's is not required to include in income any
adjustment under Section 481(a) of the Code by reason of a voluntary change in
accounting method initiated by Alfalfa's as a result of the Tax Reform Act of
1986 and Alfalfa's has no knowledge that the Internal Revenue Service has
proposed any such adjustment or change in accounting method;

(h) All transactions that could give rise to an
understatement of federal income tax (within the meaning of Section 6661 of the
Code as it applied prior to repeal) or an underpayment

- 24 -
<PAGE> 25
of tax (within the meaning of Section 6662 of the Code) were reported in a
manner for which there is substantial authority or were adequately disclosed
(or, with respect to Returns filed before the Effective Time, will be reported
in such a manner or adequately disclosed) on the Returns required in accordance
with Sections 6661(b)(2)(B) and 6662(d)(2)(B) of the Code;

(i) Neither Alfalfa's nor any of its subsidiaries has
engaged in any transaction that would result in a deemed election under Section
338(e) of the Code, and none of such entities will engage in any such
transaction within any applicable "consistency period" (as such term is defined
in Section 338 of the Code);

(j) Neither Alfalfa's nor any of its subsidiaries has
filed any consent under Section 341(f) of the Code;

(k) Schedule 9.11 contains a description of all tax
sharing agreements in effect as of the date hereof all of which have previously
been delivered to Wild Oats;

(l) Neither Alfalfa's nor any of its subsidiaries is a
"United States real property holding corporation" (as such term is defined in
Section 897 of the Code);

(m) Alfalfa's is not a "foreign person" (as such term is
defined in Section 1445(f)(3) of the Code); and

9.12 (a) Schedule 9.12 lists the following agreements, whether
oral or written, to which Alfalfa's or any of its subsidiaries is a party,
which is currently in effect (such list to set forth the commencement date and
termination or expiration date of such agreement): (i) collective bargaining
agreement or contract with any labor union; (ii) bonus, pension, profit
sharing, retirement or other form of deferred compensation plan; (iii)
hospitalization insurance or other welfare benefit plan or practice, whether
formal or informal; (iv) stock purchase or stock option plan; (v) contract for
the employment of any officer, individual employee or other person on a
full-time, part-time or consulting basis or relating to severance pay for any
such person; (vi) confidentiality agreement; (vii) contract, agreement or
understanding relating to the voting of common stock or the

- 25 -
<PAGE> 26
election of directors of Alfalfa's or any of its subsidiaries; (viii) agreement
or indenture relating to the borrowing of money or to mortgaging, pledging or
otherwise placing a lien on any of the assets of Alfalfa's or any of its
subsidiaries; (ix) guaranty of any obligation for borrowed money or otherwise;
(x) lease or agreement under which Alfalfa's or any of its subsidiaries is
lessee of, or holds or operates any property, real or personal, owned by any
other party; (xi) lease or agreement under which Alfalfa's or any of its
subsidiaries is lessor of, or permits any third party to hold or operate, any
property, real or personal; (xii) contract or group of related contracts with
the same party for the purchase of products or services, other than in the
ordinary course of business; (xiii) contract or group of related contracts with
the same party (other than any contract or group of related contracts for the
purchase or sale of products or services) continuing over a period of more than
six months from the date or dates thereof, not terminable by it on 30 days or
less notice without penalty; (xiv) contract which prohibits Alfalfa's or any of
its subsidiaries from freely engaging in business anywhere in the world; (xv)
contract for the distribution of any of Alfalfa's' products (including any
distributor or sales contract); (xvi) any franchise agreements; (xvii) contract
or commitment for capital expenditures; (xviii) agreement for the sale of any
capital asset; (xix) contract with any affiliate which in any way relates to
Alfalfa's or any of its subsidiaries; or (xx) other agreement which is either
material to the business of Alfalfa's or was not entered into in the ordinary
course of business;

(b) Alfalfa's and its subsidiaries have performed all
obligations required to be performed by them in connection with the contracts
or commitments required to be disclosed in Schedule 9.12 and they are not in
receipt of any claim of default under any such contract or commitment; neither
Alfalfa's nor any of its subsidiaries has any present expectation or intention
of not fully performing any material obligation pursuant to any such contract
or commitment; and neither Alfalfa's nor any of its subsidiaries has knowledge
of any breach or anticipated breach by any other party to any such contract or
commitment; and

(c) Prior to the Effective Time, Wild Oats shall be
supplied with a true and correct copy of each written contract or commitment
disclosed in Schedule 9.12, and a written description of each oral contract or
commitment disclosed in Schedule 9.12, together with all amendments, waivers or
other changes thereto.

9.13 Schedule 9.13 describes all registrations of, applications for
or rights in patents, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets, know-how or other intellectual property rights owned
by, licensed to or otherwise controlled by Alfalfa's or used in, developed for
use in or necessary to the conduct of the business of Alfalfa's as now
conducted or planned to be conducted. Alfalfa's owns and possesses all right,
title and interest, or holds a valid license, in and to

- 26 -
<PAGE> 27
the rights set forth in Schedule 9.13 and none of such rights has been licensed
or assigned to any third party. Alfalfa's has taken all necessary action to
protect the intellectual property rights set forth in Schedule 9.13. Neither
Alfalfa's nor any of its subsidiaries has received any notice of, nor are there
any facts known to Alfalfa's or any of its subsidiaries which indicate a
likelihood of, any infringement or misappropriation by, or conflict from, any
third party with respect to the intellectual property rights which are listed;
no claim by any third party contesting the validity of any intellectual
property rights listed under such caption has been made, is currently
outstanding or, to the best knowledge of Alfalfa's, is threatened; neither
Alfalfa's nor any of its subsidiaries has received any notice of any
infringement, misappropriation or violation of any intellectual property rights
of any third party and neither Alfalfa's nor any of its subsidiaries has
infringed, misappropriated or otherwise violated any such intellectual property
rights; and no infringement, illicit copying, misappropriation or violation has
occurred or will occur with respect to products currently being sold by
Alfalfa's or with respect to the products currently under development (in their
present state of development) or with respect to the conduct of Alfalfa's'
business as now conducted.

9.14 Except as set forth on Schedule 9.14:

(a) Alfalfa's and its subsidiaries have materially
complied with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes;

(b) neither Alfalfa's nor any of its subsidiaries has any
material labor relations problem pending and labor relations are satisfactory;

(c) there are no material workers' compensation claims
pending against Alfalfa's or any of its subsidiaries nor is Alfalfa's or any of
its subsidiaries aware of any facts that would give rise to such a claim;

(d) no employee of Alfalfa's or any of its subsidiaries
is subject to any confidentiality or noncompetition agreement or any other
agreement or restriction of any kind that would impede in any way the ability
of such employee to carry out fully all activities of such employee; and

(e) no employee or former employee has any claim with
respect to any intellectual property rights of Alfalfa's set forth in Schedule
9.13.

9.15 (a) Except as set forth on Schedule 9.15, with respect to
all employees and former employees of Alfalfa's or any of its subsidiaries and
all dependents and beneficiaries of such employees

- 27 -
<PAGE> 28
and former employees, neither Alfalfa's nor any of its subsidiaries (i)
maintains or contributes to any nonqualified deferred compensation or
retirement plans, contracts or arrangements; (ii) maintains or contributes to
any qualified defined contribution plans (as defined in Section 3(34) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 414(i) of the Code; (iii) maintains or contributes to any qualified
defined benefit plans (as defined in Section 3(35) of ERISA or Section 414(j)
of the Code); and (iv) maintains or contributes to any employee welfare benefit
plans (as defined in Section 3(1) of ERISA);

(b) To the extent required (either as a matter of law or
to obtain the intended tax treatment and tax benefits), all employee benefit
plans (as defined in Section 3(3) of ERISA) which Alfalfa's or any of its
subsidiaries maintains or to which any of them contributes (collectively, the
"Plans") comply with the requirements of ERISA and the Code. With respect to
the Plans, (i) all required contributions which are due have been made and a
proper accrual has been made for all contributions due in the current fiscal
year; (ii) there are no actions, suits or claims pending, other than routine
uncontested claims for benefits; and (iii) there have been no prohibited
transactions (as defined in Section 406 of ERISA or Section 4975 of the Code);

(c) Schedule 9.15 contains true and complete copies of
(i) the most recent determination letter, if any, received by Alfalfa's or any
of its subsidiaries from the Internal Revenue Service regarding the Plans and
any amendment to any Plan made subsequent to any Plan amendments covered by any
such determination letter; (ii) the most recent financial statements and annual
report or return for the Plans; and (iii) the most recently prepared actuarial
valuation reports;

(d) Neither Alfalfa's nor any of its subsidiaries
contributes (and has not ever contributed) to any multi-employer plan, as
defined in Section 3(37) of ERISA. Neither Alfalfa's nor any of its
subsidiaries has actual or potential liabilities under Section 4201 of ERISA
for any complete or partial withdrawal from a multi-employer plan. Neither
Alfalfa's nor any of its subsidiaries has actual or potential liability for
death or medical benefits after separation from employment, other than (i)
death benefits under the employee benefit plans or programs (whether or not
subject to ERISA) set forth in Schedule 9.15 and (ii) health care continuation
benefits described in Section 4980B of the Code;

(e) Neither Alfalfa's nor any of their subsidiaries, nor
any of their directors, officers, employees or other "fiduciaries", as such
term is defined in Section 3(21) of ERISA, has committed any breach of
fiduciary responsibility imposed by ERISA or any other applicable law with
respect to the Plans which would subject Alfalfa's, any of its subsidiaries or
Alfalfa's or any of their

- 28 -
<PAGE> 29
respective directors, officers or employees to any liability under ERISA or any
applicable law; and

(f) Neither Alfalfa's nor any of its subsidiaries has
incurred any liability for any tax or civil penalty or any disqualification of
any employee benefit plan (as defined in Section 3(3) of ERISA) imposed by
Sections 4980B and 162(k) and 4975 of the Code and Part 6 of Title I and
Section 502(i) of ERISA.

9.16 Schedule 9.16 lists and briefly describes each insurance
policy maintained by Alfalfa's and each of its subsidiaries as of the date of
the Latest Alfalfa's Balance Sheet with respect to their properties, assets and
operations and sets forth the date of expiration of each such insurance policy.
All of such insurance policies are, as of the date hereof, and as of the
Effective Time will be, in full force and effect and issued by insurers of
recognized responsibility and are for amounts which have been sufficient to
cover claims that Alfalfa's and its subsidiaries have settled within the last
five years. Neither Alfalfa's nor any of its subsidiaries is in default with
respect to its obligations under any of such insurance policies.

9.17 Except as set forth on Schedule 9.17:

(a) To the best knowledge of Alfalfa's, other than
pursuant to this Agreement, no officer or director, nor any of the employees
identified on Schedule 8.17 hereof who make or are expected to make significant
contributions to the business of Alfalfa's (each an "Alfalfa's Key Employee")
of Alfalfa's or any of its subsidiaries or any member of the immediate family
of any such officer, director or Alfalfa's Key Employee, or any entity in which
any of such persons owns any beneficial interest (other than any publicly-held
corporation whose stock is traded on a national securities exchange or in the
over-the counter market and less than one percent of the stock of which is
beneficially owned by any of such persons) (collectively "insiders"), has any
agreement with Alfalfa's or any of its subsidiaries or any interest in any
property, real, personal or mixed, tangible or intangible, used in or
pertaining to Alfalfa's' business. To the best knowledge of Alfalfa's, none of
the insiders has any direct or indirect interest in any competitor, supplier or
customer of Alfalfa's or any of its subsidiaries or in any person, firm or
entity from whom or to whom Alfalfa's or any of its subsidiaries leases any
property, or in any other person, firm or entity with whom Alfalfa's or any of
its subsidiaries transacts business of any nature. For purposes of this Section
9.17, the members of the immediate family of an officer, director or employee
shall consist of the spouse, parents, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of
such officer, director or employee; and

(b) Except for the payment of salaries, accrued paid time
off and other normal elements of compensation and

- 29 -
<PAGE> 30
reimbursement for out-of-pocket expenses in the ordinary course of business,
neither Alfalfa's nor any of its subsidiaries will immediately following the
Effective Time be indebted to any of their directors, officers or employees on
any account whatsoever.

9.18 Schedule 9.18 lists all officers and directors of Alfalfa's
and its subsidiaries and all bank accounts of Alfalfa's and its subsidiaries
(designating each authorized signer).

9.19 (a) The real property demised by the leases described
(including the term thereof) in Schedule 9.19 constitutes all of the real
property used or occupied by Alfalfa's or any of its subsidiaries (the "Real
Property"). The Real Property has access, sufficient for the conduct of
Alfalfa's' business as now conducted or as presently proposed to be conducted,
to public roads and to all utilities, including electricity, sanitary and storm
sewer, potable water, natural gas and other utilities, used in the operation of
the Business at that location;

(b) The leases described in Schedule 9.19 are in full
force and effect, and Alfalfa's or its subsidiary that is a party to each such
lease holds a valid and existing leasehold interest under each of such leases
for the term set forth in Schedule 9.19. Alfalfa's has delivered to Wild Oats
complete and accurate copies of each of the leases described in Schedule 9.19,
and none of such leases shall have been modified in any respect, prior to the
Effective Time. None of Alfalfa's or its subsidiaries is in default, and no
circumstances exist which, if unremedied, would, either with or without notice
or the passage of time or both, result in a default under any of such leases;
nor, to the best knowledge of Alfalfa's and its subsidiaries, is any other
party to any of such leases in default;

(c) Schedule 9.19 discloses the aggregate value of the
tangible properties and tangible assets of Alfalfa's and its subsidiaries as
reflected on the Latest Alfalfa's Balance Sheet. Alfalfa's and its
subsidiaries own good and marketable title to its tangible properties and
tangible assets as described in Schedule 9.19 and reflected on the Latest
Alfalfa's Balance Sheet or acquired since the date thereof, free and clear of
all liens and encumbrances, except for (i) liens for current taxes not yet due
and payable, (ii) the properties subject to the leases listed in Schedule 9.19,
(iii) as otherwise disclosed in Schedule 9.19, (iv) inventory disposed of since
the date of the Latest Alfalfa's Balance Sheet in the ordinary course of
business, and (v) liens in respect of pledges or deposits under workers'
compensation laws;

(d) Alfalfa's or its subsidiaries own, or lease under
valid leases, all buildings, machinery, equipment and other tangible assets
used in the conduct of their business;

(e) Neither Alfalfa's nor any of its subsidiaries is in
violation of any applicable zoning ordinance or other law,

- 30 -
<PAGE> 31
regulation or requirement relating to the operation of any properties used in
the operation of its business, and neither Alfalfa's nor any of its
subsidiaries has received any notice of any such violation, or the existence of
any condemnation proceeding with respect to any of the Real Property; and

(f) Neither Alfalfa's nor any of its subsidiaries has
knowledge of improvements made or contemplated to be made by any public or
private authority, the costs of which are to be assessed as special taxes or
charges against any of the Real Property, and there are no present assessments.

9.20 Except as set forth on Schedule 9.20, (a) each of Alfalfa's
and its subsidiaries and their officers, directors, agents and employees have
complied in all material respects with all applicable laws, regulations and
other requirements, including, but not limited to, federal, state, local and
foreign laws, ordinances, rules, regulations and other requirements pertaining
to product labeling, consumer products safety, equal employment opportunity,
employee retirement, affirmative action and other hiring practices,
occupational safety and health, workers' compensation, unemployment,
environmental and building and zoning codes, which affect Alfalfa's' business
or any real Property and to which any of them may be subject. No claims have
been filed against Alfalfa's or any of its subsidiaries alleging a violation of
any such laws, regulations or other requirements. There is no action pending
or, to Alfalfa's' knowledge threatened, to change the zoning or building
ordinances or any other laws, rules, regulations or ordinances affecting the
Real Property. Neither Alfalfa's nor any of its subsidiaries is relying on any
exemption from or deferral of any such applicable law, regulation or other
requirement that would not be available to Alfalfa's after the Merger;

(b) Each of Alfalfa's and its subsidiaries have in full
force and effect, all licenses, permits and certificates, from federal, state,
local and foreign authorities (including, without limitation, federal and state
agencies regulating occupational health and safety) necessary to conduct their
business and own and operate their properties (collectively, the "Permits").
Alfalfa's and its subsidiaries have conducted their business in compliance with
all material terms and conditions of the Permits; and

(c) Neither Alfalfa's nor any of its subsidiaries has
made or has agreed to make gifts of money, other property or similar benefits
(other than incidental gifts of articles of nominal value) to any actual or
potential customer, supplier, governmental employee or any other person in a
position to assist or hinder Alfalfa's in connection with any actual or
proposed transaction.

9.21 None of the information relating to Alfalfa's or its
subsidiaries, this Agreement or the transactions contemplated by

- 31 -
<PAGE> 32
this Agreement has been supplied or is to be supplied by Alfalfa's for
inclusion in (a) the Private Placement Memorandum, (b) the Proxy Statement, and
(c) any other documents to be filed with any regulatory authority in connection
with the transactions contemplated by this Agreement will, at the respective
times such documents are filed, become effective or are mailed to stockholders,
as the case may be, be false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
therein not misleading or, in the case of the Proxy Statement or any amendment
or supplement thereto, at the time of the meeting of stockholders referred to
in Section 12.1 hereof, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
meeting in connection with which the Proxy Statement shall be mailed. All
documents which Alfalfa's or Holdings is responsible for filing in connection
with the Merger will comply as to form in all material respects with the
applicable requirements of the statutes, rules and regulations pursuant to
which they are filed.

ARTICLE X
Representations and Warranties of Newco

10.1 Newco is a corporation duly organized, validly existing, and
in good standing under the corporate laws of Delaware, with full power and
authority and all material licenses, permits and authorizations necessary to
own its property and to carry on its business as presently conducted. Newco
was formed in April, 1996 and has conducted no business and has no
subsidiaries.

10.2 Newco has complete and unrestricted power to enter into and,
upon the receipt of such approvals as may be required by law, to consummate the
transactions contemplated by this Agreement.

10.3 The execution, delivery and performance of this Agreement have
been duly and properly authorized and approved by the Board of Directors of
Newco and its sole stockholder, Alfalfa's. This Agreement constitutes a valid
and binding obligation of Newco enforceable in accordance with its terms.
Except as contemplated by Sections 9.9 and 15.1, the execution and delivery by
Newco of this Agreement and the fulfillment of and compliance with the
respective terms hereof by Newco do not and will not (a) conflict with or
result in a breach of the terms, conditions or provisions of, (b) constitute a
default under, (c) result in the creation of any lien, security interest,
charge or encumbrance upon Newco's capital stock or assets pursuant to, (d)
give any third party the right to accelerate, in whole or in part, any
obligation under, (e) result in a violation of, or (f) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body or other third party pursuant to,
the charter or bylaws of Newco, any agreement,

- 32 -
<PAGE> 33
indenture, instrument, order, judgment or decree to which Newco is subject, or
any law, statute, rule or regulation to which Newco is subject.

10.4 The authorized, issued and outstanding capital stock of Newco
is as set forth in Recital F of this Agreement, and all outstanding shares of
Newco's capital stock have been validly issued and are fully paid and non-
assessable. Newco does not have outstanding any stock or securities
convertible into or exchangeable for shares of its capital stock, or any rights
or options to subscribe for or to purchase any capital stock or any stock or
securities convertible into or exchangeable for any capital stock. Newco is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock.

10.5 Newco has no material obligation or liability (whether
accrued, absolute, contingent, unliquidated or otherwise) other than
liabilities pursuant to this Agreement.

10.6 All documents which Newco or Holdings is responsible for
filing in connection with the Merger will comply as to form in all material
respects with the applicable requirements of the statutes, rules and
regulations pursuant to which they are filed.

ARTICLE XI
Covenants of Wild Oats

11.1 Prior to the Effective Time, Wild Oats shall file with the
Secretary of State of Delaware an Amended and Restated Certificate of
Incorporation (the "New Wild Oats Charter") substantially in the form of
Exhibit 11.1, which will contain the rights, preferences and privileges of the
Wild Oats Series E Preferred Stock.

11.2 During the period from the date of this Agreement to the
Effective Time, Wild Oats shall, and shall cause each of its subsidiaries to,
conduct its operations according to its ordinary and usual course of business
consistent with past practices and use all commercially reasonable efforts to
maintain and preserve its business organization, employees and relationships
with agents and others and to retain the services of its officers and Wild Oats
Key Employees.

11.3 During the period from the date of this Agreement to the
Effective Time, neither Wild Oats nor any subsidiary of Wild Oats shall,
without the prior written consent of Alfalfa's:

(a) Adjust, split, combine or reclassify its capital
stock; make, declare or pay any dividend (except for subsidiary dividends paid
to Wild Oats in the ordinary course of business); declare or make any other
distribution on, or directly or

- 33 -
<PAGE> 34
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for,
any shares of its capital stock other as contemplated by Section 15.1(f); grant
any options or stock appreciation rights or give any person any right to
acquire from Wild Oats or any subsidiary any shares of its capital stock; or
issue or agree to issue any additional shares of capital stock of Wild Oats;

(b) Sell, transfer, pledge, mortgage, encumber or
otherwise dispose of any material property or assets of Wild Oats or any of its
subsidiaries or the stock of any subsidiary;

(c) Adopt or amend to increase materially compensation or
benefits payable under any collective bargaining, bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
severance or termination, employment or other plan, agreement, trust, fund
arrangement for the benefit of employees; or grant any severance or termination
pay (otherwise than pursuant to policies or agreements of Wild Oats in effect
on the date hereof) to, or enter into any employment agreement with, any
executive officer or director of Wild Oats; or

(d) Make any material changes in the Restated Certificate
of Incorporation or Bylaws of Wild Oats or in the articles of incorporation or
bylaws of any subsidiary of Wild Oats except as contemplated by Section
15.1(f).

ARTICLE XII
Covenants of Alfalfa's

12.1 Alfalfa's, as soon as reasonably practicable, but no later
than July 11, 1996, shall call and hold one or more meetings of its
stockholders for the purposes of:

(a) considering and approving the Alfalfa's
Reincorporation Merger and the Reincorporation Merger Agreement; at such
meeting, Alfalfa's will submit and recommend approval of the Reincorporation
Merger Agreement to its stockholders and, if the requisite approval by such
stockholders is obtained, will undertake promptly to consummate the Alfalfa's
Reincorporation Merger, and will cause Newco to consummate the Alfalfa's
Reincorporation Merger; and

(b) considering and approving this Agreement and the
Merger; at such meeting, Alfalfa's will submit and recommend approval of this
Agreement to its shareholders and, if the requisite approval by such
shareholders is obtained, will undertake promptly to consummate the Merger.

12.2 Alfalfa's will cause Holdings to have available to it at the
Effective Time sufficient shares of duly authorized Holdings

- 34 -
<PAGE> 35
Common Stock and Holdings Preferred Stock to exchange for the outstanding Wild
Oats Common Stock and Wild Oats Preferred Stock to be surrendered pursuant to
Article IV hereof.

12.3 During the period from the date of this Agreement to the
Effective Time, Alfalfa's shall, and shall cause each of its subsidiaries and
Holdings to, conduct its operations according to its ordinary and usual course
of business consistent with past practices and use all commercially reasonable
efforts to maintain and preserve its business organization, employees and
relationships with agents and others and to retain the services of its officers
and Alfalfa's Key Employees.

12.4 During the period from the date of this Agreement to the
Effective Time, except as contemplated by Article V, none of Alfalfa's, any
subsidiary of Alfalfa's nor Holdings shall, without the prior written consent
of Wild Oats:

(a) Other than in connection with the Conversion
Adjustment, adjust, split, combine or reclassify its capital stock; make,
declare or pay any dividend (except for subsidiary dividends paid in the
ordinary course of business); declare or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for, any shares of its capital stock; grant any options or stock appreciation
rights or give any person any right to acquire from Alfalfa's or any subsidiary
any shares of its capital stock; or issue or agree to issue any additional
shares of capital stock of Alfalfa's (other than issuances of its Common Stock
pursuant to the options and warrants described in Section 9.4);

(b) Sell, transfer, pledge, mortgage, encumber or
otherwise dispose of any material property or assets of Alfalfa's or any of its
subsidiaries or the stock of any subsidiary;

(c) Adopt or amend to increase materially the
compensation or benefits payable under any collective bargaining, bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, severance or termination, employment or other plan, agreement,
trust, fund or arrangement for the benefit of employees; or grant any severance
or termination pay (otherwise than pursuant to policies or agreements of
Alfalfa's in effect on the date hereof) to, or enter into any employment
agreement with, any executive officer or director of Alfalfa's; or

(d) Other than as contemplated by this Agreement, make
any material change in the Amended and Restated Articles of Incorporation or
Bylaws of Alfalfa's or in the articles of incorporation or bylaws of any
subsidiary of Alfalfa's.

- 35 -
<PAGE> 36
ARTICLE XIII
Covenants of Newco

13.1 During the period from the date of this Agreement to the
Effective Time, Newco shall conduct no operations or activities other than in
furtherance of this Agreement.

13.2 During the period from the date of this Agreement to the
Effective Time Newco shall not, without the prior written consent of Wild Oats:

(a) Other than in connection with the Conversion
Adjustment or as contemplated by this Agreement, adjust, split, combine or
reclassify its capital stock; make, declare or pay any dividend (except for
subsidiary dividends paid in the ordinary course of business); declare or make
any other distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any securities or
obligations convertible into or exchangeable for, any shares of its capital
stock; grant any options or stock appreciation rights or give any person any
right to acquire from Newco or any subsidiary any shares of its capital stock;
or issue or agree to issue any additional shares of capital stock of Newco;

(b) Sell, transfer, pledge, mortgage, encumber or
otherwise dispose of any material property or assets of Newco;

(d) Except as contemplated by this Agreement, make any
material change in the Articles of Incorporation or Bylaws of Newco.

ARTICLE XIV
Additional Covenants

14.1 Wild Oats, Alfalfa's and Newco will cooperate in good faith
and use reasonable efforts to prepare all documentation, promptly to effect all
filings and to obtain all permits, consents, approvals and authorizations of
all third parties and governmental bodies necessary to consummate the
transactions contemplated by this Agreement. Wild Oats, Alfalfa's and Newco
shall, as soon as practicable, file, or use their respective best efforts to
cause any other party to file, all Notification and Report Forms under the
Hart-Scott-Rodino Act ("HSR") with the Federal Trade Commission ("FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division")
required by this Agreement or to permit the consummation of the share exchanges
contemplated by Article IV hereof or the offering of Wild Oats Series E
Preferred Stock contemplated by Section 15.1(f) hereof and shall use best
efforts to respond as promptly as practicable, and to cause such other

- 36 -
<PAGE> 37
parties to respond as promptly as practicable, to all inquiries or requests
received from the FTC or the Antitrust Division for additional information or
documentation, and shall take all reasonable actions necessary to cooperate
promptly with and furnish information to the other parties hereto in connection
with any such inquiries or requests directed at them in connection with the
Merger.

14.2 Wild Oats and Alfalfa's agree that following the Effective
Time (a) the organizational structure for Holdings will be as set forth in
Exhibit 14.2, and (b) a search committee comprised of Michael Gilliland, S.M.
Hassan, and the Chairman and Vice Chairman of the Board of Directors of
Holdings will conduct a search for a Chief Operating Officer under the guidance
of the Holdings Board of Directors.

14.3 Wild Oats and Alfalfa's agree that following the Effective
Time, Holdings will honor the existing contracts that Alfalfa's has entered
into with Barry Perzow, Russell Precious, Teresa Precious and Caryn Ellison
attached hereto as Exhibits 14.3(a), (b) and (c) and will pay the reasonable
fees and disbursements of Hopkins and Sutter, counsel to the holders of a
majority of the Alfalfa's Old Series A Preferred Stock, incurred in connection
with the Merger.

14.4 Prior to the Effective Time, Wild Oats and Alfalfa's will
agree upon the terms of severance agreements for officers and other employees
of Wild Oats and Alfalfa's whose positions are eliminated in connection with
the Merger.

14.5 Between the date hereof and the Effective Time,
representatives of each of Wild Oats and Alfalfa's and their respective
accountants and attorneys shall be given full access at reasonable times to all
books, accounting and financial records, corporate records, tax returns and
other business files of the other party (except for information which is not
material and which is restricted solely to protect the attorney-client
privilege), and each shall cooperate fully in making its officers and personnel
available to such representatives at reasonable times. Each of Wild Oats and
Alfalfa's agrees that it and its representatives will hold in strict confidence
and will not use for any purpose other than in connection with the
reorganization, any confidential or proprietary information obtained from the
other party or its stockholders with respect to the business or financial
condition of such party. If the Merger is not consummated, each party will
return to the other party (or certify that it has destroyed) all copies of
documents containing proprietary or confidential information furnished by the
other party or its stockholders. The obligations set forth in this Section
14.5 shall survive the termination of this Agreement.

14.6 Prior to the termination of this Agreement pursuant to Section
16.1, neither Wild Oats nor Alfalfa's, nor their respective

- 37 -
<PAGE> 38
stockholders nor any of their representatives, will directly or indirectly
solicit, encourage, assist, initiate discussions with, engage in negotiations
with, provide any information to, or enter into or perform any confidentiality
agreement or other agreement or transaction with any person other than the
other party relating to (a) any possible investment in such party, (b) the
purchase of any significant assets of such party, or (c) any form of merger,
acquisition, or other business combination transaction (other than acquisition
by a party of another entity that does not represent more than 10% of such
party's total assets).

14.7 No disclosure of the terms of this Agreement or the
transactions contemplated hereby shall be made by any party without the prior
consent of the other parties except as required by law, and each party shall
furnish to the others advance copies of any releases or statements which it
proposes to make concerning the transaction, which shall be subject to approval
by such parties (such approval not to be unreasonably withheld).

14.8 If the Merger shall not become effective or shall be
abandoned, then (a) Wild Oats on the one hand and Alfalfa's and Newco on the
other hand shall each bear their expenses separately incurred in connection
therewith, except that (i) Wild Oats shall pay all fees and expenses incurred
in marketing the Wild Oats Series E Preferred Stock, (ii) Wild Oats shall pay
all filing fees in connection with all HSR filings and (iii) Wild Oats shall
pay 50% and Alfalfa's shall pay 50% of any expenses directly relating to the
investigation by the Attorney General of New Mexico, including the fees of
economists, public relations specialists, local New Mexico counsel and legal
antitrust specialists engaged in connection with the investigation other than
Brownstein Hyatt Farber & Strickland, P.C., Cooley Godward Castro Huddleson &
Tatum or Latham & Watkins, and (b) Wild Oats and Alfalfa's shall each return to
the other all non-public documents and other materials obtained from the other,
without retaining any copies thereof, and shall hold confidential and not use
in any manner any non-public information so obtained.

14.9 Each of Wild Oats, Alfalfa's and Newco will use all
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. Wild Oats and Alfalfa's will, and
will cause each of their respective subsidiaries to, use their commercially
reasonable efforts to obtain consents of all third parties and governmental
bodies necessary or, in the opinion of Wild Oats or Alfalfa's, desirable for
the consummation of the transactions contemplated by this Agreement.

14.10 In connection with any proceedings under or relating to HSR or
any other federal or state antitrust or fair trade law, the parties will
consult and cooperate with one another and consider in

- 38 -
<PAGE> 39
good faith the views of one another in connection with any analysis,
presentation, memorandum, brief, argument, appearance, opinion or proposal made
or submitted by or on behalf of any party hereto; provided however that nothing
herein shall prevent any party hereto or their authorized representatives from
(i) making or submitting any such analysis, appearance, presentation,
memorandum, brief, argument, opinion or proposal in response to a subpoena or
other legal process or as otherwise required by law, or (ii) submitting factual
information to the Antitrust Division, the FTC, state attorney general, any
other governmental agency or any court or administrative law judge in response
to a request therefor or as otherwise required by law.

14.11 Any document attached hereto as an Exhibit may be revised prior
to the Effective Time, provided that any material revision shall have been
approved by each of Michael C. Gilliland and S.M. Hassan.

ARTICLE XV
Conditions Precedent to Consummation of the Merger

15.1 The obligations of each of Wild Oats, Alfalfa's and Newco to
consummate the Merger shall be subject to the fulfillment of the following
conditions precedent:

(a) The Alfalfa's Reincorporation Merger shall have
occurred and the New Wild Oats Charter shall have been filed with the Secretary
of State of Delaware;

(b) This Agreement shall have been duly and validly
approved and adopted (i) at a meeting of the stockholders of Alfalfa's by
two-thirds of the stockholders present in person or by proxy at such meeting
and (ii) by the holders of all outstanding Wild Oats Preferred Stock and by the
holders of 75% of all outstanding Wild Oats Common Stock;

(c) The applicable waiting period under the HSR relating
to all transactions contemplated by this Agreement, including without
limitation the consummation of the share exchanges contemplated by Article IV
hereof and the offering of Wild Oats Series E Preferred Stock contemplated by
Section 15.1(f) hereof shall have expired or been terminated;

(d) Each of Wild Oats and Alfalfa's shall be satisfied
with the status of the investigation by the Attorney General of New Mexico,
provided that this condition shall terminate on June 17, 1996 unless either of
Wild Oats or Alfalfa's shall notify the other in writing that it does not
consent to the termination of this condition;

- 39 -
<PAGE> 40
(e) Each of Wild Oats and Alfalfa's shall have received
all material consents or approvals necessary or advisable in connection with
the transactions contemplated by this Agreement;

(f) A minimum of 539,503 shares (the "Minimum Series E
Sale"), but no more than 843,125 shares, of Wild Oats Series E Preferred Stock
shall have been issued for $33.364 cash per share and a warrant to purchase no
more than 10,539 shares of Wild Oats Series E Preferred Stock shall have been
issued to the placement agent with respect to the issuance of the Wild Oats
Series E Preferred Stock; and the first $8,130,000 of the proceeds of such sale
in excess of the Minimum Series E Sale shall have been used to repurchase
shares of Wild Oats Common Stock from existing holders of such shares at
$29.626 per share pursuant to the Stock Redemption Agreement in the form set
forth in Exhibit 15.1(f), and those shares of Wild Oats Common Stock shall be
treated as treasury stock and shall not be exchanged for Holdings Common Stock
pursuant to Section 4.1;

(g) The stockholders agreement and registration rights
agreement, in the forms of Exhibit 15.1(g)(i) and 15.1(g)(ii), respectively,
shall have been entered into by the parties thereto;

(h) The employment agreements attached hereto as Exhibits
15.1(h)(i), (ii) and (iii) between Holdings and each of Michael C. Gilliland,
Elizabeth C. Cook and S.M. Hassan shall not have been amended and shall be in
full force and effect;

(i) The compensation agreements attached hereto Exhibits
15.1(i)(i) and (ii) between Holdings and each of John Shields and David
Chamberlain shall not have been amended and shall be in full force and effect;

(j) The actions required to be taken by Alfalfa's, Newco
and Holdings pursuant to Article V shall have been taken;

(k) The matters referred to in Section 14.4 shall have
been agreed upon by Wild Oats and Alfalfa's;

(l) There (i) shall not be in effect a temporary
restraining order or a preliminary injunction or other order, decree or ruling
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission which (A) restrains or prohibits the Merger
or the consummation of the transactions contemplated hereby, or (B) prohibits
or restricts the ownership or operation by Holdings of any portion of its (or
Wild Oats' or Alfalfa's) business or assets or compels Holdings, Wild Oats or
Alfalfa's to dispose of or hold separate any portion of its business or assets,
or (C) imposes any limitations on the ability of Holdings effectively to
control in any respect its business or operations or those of Wild Oats or
Alfalfa's; or (ii) shall not be pending before any court of competent
jurisdiction or before any administrative law judge or court or

- 40 -
<PAGE> 41
before any federal or state governmental, regulatory or administrative agency
or commission, any action or proceedings, whether in law or in equity or
otherwise, brought by any federal or state governmental, regulatory or
administrative agency, commission or authority, which seeks as relief a result
described in clause (i) above; provided however, that the parties shall use
their best efforts to litigate against the entry of, or to obtain the lifting
of, such temporary restraining order or preliminary or permanent injunction or
other governmental action. In no event shall a party be required to sell or
otherwise dispose of, hold separate or otherwise divest itself of, any shares
or any portion of the retail stores, business or assets of Holdings, Wild Oats
or Alfalfa's;

(m) Holders of no more than 10% of the outstanding
capital stock of either Wild Oats or Alfalfa's shall have validly elected to
demand an appraisal of their shares pursuant to the DGCL or the CBCA in
connection with the Merger.

15.2 The obligation of Wild Oats to consummate the Merger shall be
subject to the fulfillment of the following additional conditions precedent:

(a) Each of Alfalfa's, Newco and Holdings shall have
performed its obligations contained in this Agreement required to be performed
at or prior to the Effective Time in all material respects, and the
representations and warranties made by Alfalfa's in Article VIX and made by
Newco in Article X shall be true and correct in all material respects as though
such representations and warranties had been made or given on and as of the
Effective Time by Holdings; and

(b) Wild Oats shall have received an opinion letter from
Brownstein Hyatt Farber & Strickland, P.C., dated the Effective Time,
substantially in the form set forth in Exhibit 15.2.

15.3 The obligation of Holdings to consummate the Merger shall be
subject to the fulfillment of the following additional conditions precedent:

(a) Wild Oats shall have performed its obligations
contained in this Agreement required to be performed at or prior to the
Effective Time in all material respects, and the representations and warranties
made by Wild Oats in Article VIII shall be true and correct in all material
respects as though such representations and warranties had been made or given
on and as of the Effective Time;

(b) Wild Oats shall have negotiated a successor line of
credit to its existing credit facility with Bank One, Indianapolis, National
Association that is adequate to fund the proposed business plan of Holdings;

- 41 -
<PAGE> 42
(c) William Blair & Co. shall not have withdrawn its
opinion attached hereto as Exhibit 15.3(c) as of the Effective Time; and

(d) Holdings shall have received an opinion letter from
Elizabeth C. Cook, Esq., dated the Effective Time, substantially in the form
set forth in Exhibit 15.3.

ARTICLE XVI
Termination and Waiver

16.1 Anything contained in this Agreement to the contrary
notwithstanding, the Merger may be terminated and abandoned at or prior to the
Effective Time, notwithstanding approval of this Agreement by stockholders of
Alfalfa's:

(a) By mutual consent of the respective Boards of
Directors of Wild Oats and Alfalfa's (or Holdings);

(b) By either party if the Effective Time has not
occurred by July 12, 1996;

(c) By either party if any action, suit or proceeding
shall have been instituted before any court or other governmental body or by
any public authority to challenge, restrain, enjoin or prohibit the Merger, or
to restrict the operation of the business of Wild Oats or Alfalfa's (or
Holdings) following the Merger, or to subject any of the parties to this
Agreement or their directors or officers to any liability, fine, forfeiture or
penalty.

16.2 Any of the terms or conditions of this Agreement may be
waived in writing at any time by the party which is entitled to the benefit
thereof.

ARTICLE XVII
Termination of Representations and Warranties

The respective representations and warranties of the parties to this
Agreement shall expire with, and be terminated and extinguished by, the Merger
at the Effective Time. None of the parties shall be under any liability
whatsoever with respect to any such representation or warranty which does not
so survive, it being intended that the sole remedy of the parties for a breach
of any such representation or warranty shall be to elect not to proceed with
the Merger.

- 42 -
<PAGE> 43
ARTICLE XVIII
Miscellaneous

18.1 This Agreement (a) embodies the entire agreement among Wild
Oats, Alfalfa's and Newco with respect to the Merger, and supersedes all
previous written or oral proposals or communications concerning the
transactions contemplated herein, and there are no other binding agreements,
representations or warranties, written or oral, between the parties with
respect to the subject matter of this Agreement, (b) is not intended to confer
upon any person not a party to this Agreement any rights or remedies under this
Agreement, and (c) shall not be assigned by operation of law or otherwise.

18.2 This Agreement may be executed in two or more counterparts and
each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.

18.3 Wild Oats, Alfalfa's and Newco agree that if it becomes
necessary or desirable to execute further instruments or to make such other
assurances as are deemed necessary, the party requested to do so will use its
best efforts to provide such executed instruments or do all things necessary or
proper to carry out this Agreement.

18.4 Wild Oats, Alfalfa's and Newco, by mutual consent of their
respective Boards of Directors, may amend, modify, supplement and interpret
this Agreement in such manner as may be mutually agreed upon by them in writing
at any time.

- 43 -
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first written above.

WILD OATS MARKETS, INC.

By: /s/ Michael C. Gilliland
------------------------------------
Michael C. Gilliland
Chief Executive Officer

ALFALFA'S, INC.

By: /s/ S.M. Hassan
------------------------------------
S.M. Hassan
President and Chief Executive Officer

WO HOLDINGS, INC.

By: /s/ S.M. Hassan
------------------------------------
S.M. Hassan
President

- 44 -
<PAGE> 45

SCHEDULE 9.5

MATERIAL ADVERSE CHANGES

NONE.
<PAGE> 46
SCHEDULE 9.6

MATERIAL OBLIGATIONS OR LIABILITIES

NONE.
<PAGE> 47
SCHEDULE 9.7

STOCK OR DEBT ISSUANCES, PAYMENTS, ETC.

NONE.
<PAGE> 48
SCHEDULE 9.8

SUMMARY OF INVENTORY

Physical count of inventory as of April 28, 1996 - $3,573,840.
<PAGE> 49
SCHEDULE 9.9

MATERIAL LITIGATION, CLAIMS, ETC.

I. Investment Canada Review. The acquisition of Capers
Management Holdings Inc. in July, 1994 was subject to review by
Investment Canada, an agency of the Canadian government, a review
process customarily required in connection with the acquisition of
Canadian companies by foreign investors. The focus of the review has
been a commitment on behalf of the Company for the continued sale of
Canadian "cultured products", which primarily consist of books,
magazines, periodicals and similar publications. A copy of the Letter
of Undertaking regarding the continued sale of Canadian cultural
products is attached. Also attached is a letter dated February 20,
1995 from Canadian counsel describing the status and outstanding
issues in the review process. The Company has been informed by
Canadian counsel that while Investment Canada retains the theoretical
right to disapprove the acquisition of Capers, that such a result can
be avoided, in the worst case, by agreeing to the undertakings
proposed by Investment Canada with respect to Canadian cultural
products.

II. Liability Claims. The following claims exceed the $5,000
reserve and have been filed with the Company's insurance company.
These claims are not in litigation.

<TABLE>
<CAPTION>
Claimant DOL Reserve Description
-------- --- ------- -----------
<S> <C> <C> <C>
Erika Horing 3/4/96 $7,500 Claimant struck by cart pushed by employee
Ann Harvey 2/27/96 $5,000 Claimant fell in parking lot
Katherine Casades 1/5/96 $7,000 Claimant accidently hit with boxes from employee
Jane Montgomery 7/5/95 $7,500 Claimant fell from water in meat department
</TABLE>

III. Civil Investigative Demand with the New Mexico Attorney
General's Office. In February, 1996, Alfalfa's received a Civil
Investigative Demand and Request for Production of Documents from the
New Mexico Attorney General's Office alleging possible violations of
anti-trust laws as a result of the proposed Combination with
Alfalfa's. On Monday, March 4, 1996, Alfalfa's met with the New
Mexico Assistant Attorney General and determined the focus and scope
of the investigation. The focus of the investigation is on the
effect, if any, of the Combination on competition in Santa Fe,
<PAGE> 50
New Mexico. Alfalfa's responded in full to the New Mexico Attorney
General's document request on March 19, 1996. On May 13, 1996,
Alfalfa's received a letter from the New Mexico Attorney General's
office stating that they have concluded that the merger will
substantially lessen competition in Santa Fe and suggesting
divestiture of either the St. Francis or Cordova Road store. On May
15, 1996, Wild Oats responded with its economist's (David Scheffman)
white paper which analyzes the industry and Wild Oats counsel provided
a legal brief summarizing case law supporting our position. We expect
to schedule a meeting with the New Mexico Attorney General's office
within the next two weeks to formally present our position. After
this meeting, we will have a clearer picture of New Mexico's intent or
interest in settling, and the likelihood that we will prevail if we
end up in litigation over the divestiture of a larger store (which we
would vigorously oppose). The merger agreement as currently drafted
proposes that the merger will close with the New Mexico situation
unresolved, unless either party objects before June 15, 1996.
<PAGE> 51
SCHEDULE 9.10

LABOR CONTROVERSIES

NONE.
<PAGE> 52
SCHEDULE 9.11

TAX DISCLOSURES

NONE.
<PAGE> 53
SCHEDULE 9.12

MATERIAL AGREEMENTS

# Management and Cost Sharing Agreement dated March 12, 1993, by
and between Alfalfa's, Inc. and Alfalfa's Boulder, Inc.

# Management and Cost Sharing Agreement dated March 12, 1993, by
and between Alfalfa's, Inc. and Alfalfa's Littleton, Inc.

# Management and Cost Sharing Agreement dated March 12, 1993, by
and between Alfalfa's, Inc. and Alfalfa's Cherry Creek, Inc.

# Management and Cost Sharing Agreement dated March 12, 1993, by
and between Alfalfa's, Inc. and Alfalfa's FC, Inc.

# Management and Cost Sharing Agreement dated March 12, 1993, by
and between Alfalfa's, Inc. and Alfalfa's Capitol Hill, Inc.

# Letter Agreement dated July 23, 1994 by and between Alfalfa's,
Inc., Alfalfa's Canada, Inc., Capers Management Holdings Inc.,
Encore Resources Ltd. and Barry Perzow, as amended by that
certain Letter Agreement dated December 28, 1994.

# Letter Agreement dated July 23, 1994 by and between Alfalfa's,
Inc., Alfalfa's Canada, Inc., Capers Management Holdings Inc.,
Encore Resources Ltd. and Russell Precious, as amended by that
certain Letter Agreement dated January 6, 1995.

# Voting Agreement dated November 4, 1991, as amended February
28, 1995, by and between Shahid Hassan, Lyle Davis, William
Rothacker, Barney M. Feinblum, Denis Nock ("Shareholders") and
WPG Corporate Development Associates III, L.P., WPG Corporate
Development Associates III (Overseas), Ltd., WPG Enterprise
Fund, L.P., Weiss, Peck & Greer Venture Associates II, L.P.,
and Weiss, Peck & Greer Venture Associates II (Overseas), Ltd.
("Purchasers").

# Shareholders' Rights and Standstill Agreement dated November
4, 1991, as amended February 28, 1995, by and between
Alfalfa's, Inc. and WPG Corporate Development Associates III,
L.P., WPG Corporate Development Associates III (Overseas),
Ltd., WPG Enterprise Fund, L.P., Weiss, Peck & Greer Venture
<PAGE> 54
Associates II, L.P., and Weiss, Peck & Greer Venture
Associates II (Overseas), Ltd.

# Co-Sale Agreement dated November 4, 1991, as amended February
28, 1995, by and between Shahid Hassan and John Payne and WPG
Corporate Development Associates III, L.P., WPG Corporate
Development Associates III (Overseas), Ltd., WPG Enterprise
Fund, L.P., Weiss, Peck & Greer Venture Associates II, L.P.,
and Weiss, Peck & Greer Venture Associates II (Overseas), Ltd.

# A Shareholder's Agreement exists between Alfalfa's, Inc. and
each shareholder substantially in the form attached.

# Incentive Stock Option Agreements relating to 43,900
unexercised common shares between Alfalfa's Inc. and various
employees and directors.

# Asset Purchase Agreement dated December 8, 1992 by and between
Alfalfa's, Inc. and Fruit Basket Company, Emery Dorsey and
Vivian Dorsey.

# Management Agreement dated July 23, 1994, as amended, by and
between Capers Management Holdings Inc., Alfalfa's, Inc. and
Russell Precious.

# Management Agreement dated ____, 1995, by and between Capers
Management Holdings Inc., Alfalfa's, Inc. and Teresa
Precious.

# Severance Agreements dated March 15, 1996, by and between
Alfalfa's Canada, Inc., Alfalfa's, Inc. and each of Russell
Precious and Teresa Precious.

# Letter Agreement dated January 18, 1995 by and between
Alfalfa's, Inc. and Deloitte & Touche for consulting services.

# Agreement dated as of January 2, 1996 between Alfalfa's, Inc.
and Caryn D. Ellison.

# Amendment to Stock Option Agreements dated as of January 2,
1996 between Alfalfa's, Inc. and Caryn D. Ellison.

# Series A Preferred Stock Purchase Agreement dated as of
February 28, 1995 by and between Alfalfa's, Inc. and the
Purchasers named therein.

# Shareholders Agreement dated as of February 28, 1995 by and
between Alfalfa's, Inc. and the shareholders named therein.
<PAGE> 55
# Registration Agreement dated as of February 28, 1995
Alfalfa's, Inc. and the Investors named therein.

# Management Agreement dated July 23, 1994, as amended May ____,
1996, by and between Capers Management Holdings Inc.,
Alfalfa's, Inc. and Barry Perzow.
<PAGE> 56
SCHEDULE 9.13

INTELLECTUAL PROPERTY

Alfalfa's, Inc.:

# Alfalfa's, Inc. - Service Mark. The Alfalfa's name has not
been registered as a service mark with the U.S. Patent and
Trademark Office and may not be available in every
jurisdiction.

# Alfalfa's has certain rights to recipes developed by employees
as provided in the employee handbook.

Alfalfa's Canada, Inc.:

<TABLE>
<CAPTION>
Trademark Application/Registration No. Registration Date
--------- ---------------------------- -----------------
<S> <C> <C>
Capers Design* TMA 429,017 June 17, 1994

CAPERS TMA 429,970 July 1, 1994

Capers Design* Appn. No. 724,331 N/A (Notice of Allowance dated April 15,
1994)

</TABLE>

* See attached page for copies of design marks.
<PAGE> 57
SCHEDULE 9.14

EMPLOYMENT ISSUES

UFCW Local Number 110005 is attempting to unionize the workers at the Seattle
store, and have been picketing the store two to four days a week.
<PAGE> 58
SCHEDULE 9.15

ERISA DISCLOSURES

#Alfalfa's Inc. Employees' 401(K) Plan

#Health Insurance Plan (self-insured), including Manufacturers Life Insurance
Company Group Insurance Policy - Third Party Administrator for claims with
insured stop/loss aggregates

#Gainsharing Plan taken from Employee Handbook

#Amended and Restated Employee Stock Ownership Plan effective June 28, 1993,
executed July 15, 1993

# 1991 Stock Option Plan

# Incentive Stock Option Agreements exist between Alfalfa's,
Inc. and all employees participating in the 1991 Stock Option
Plan, substantially in the form attached.

# Flexible Spending Plan

# Store and Executive Management Bonus (Cash) Program (Sample
bonus computation attached)
<PAGE> 59
SCHEDULE 9.16

INSURANCE POLICIES

See attached schedules.
<PAGE> 60
SCHEDULE 9.17

INSIDER DISCLOSURES

<TABLE>
<S> <C>
John Shields - Chairman of the Board, Chief Executive Officer and lead
investor in Delray Farms Markets

Barnet M. Feinblum - President and Chief Executive Officer of Natural Horizons
Director of Allegro Coffee Company
Director of White Wave Vegetarian Foods
Director of Zand Pharmaceuticals
Owns a minority interest in each of these companies

S.M. Hassan - Director of Zand Pharmaceuticals
Owns 1,000 shares of Zand Pharmaceuticals

Caryn D. Ellison - Director of Rudy's Bakery

Frontenac VI Limited An affiliate owns Health Valley
Partnership - A Frontenac employee is a director of Health Valley
</TABLE>

The key employees of Alfalfa's, Inc. are S.M. Hassan, Barry Perzow and Caryn D.
Ellison.
<PAGE> 61
SCHEDULE 9.18

OFFICERS, DIRECTORS, BANK ACCOUNT INFORMATION

ALFALFA'S, INC.

Directors:
Barney Feinblum
S. M. Hassan
M. Laird Koldyke
Barry Perzow
John A. Shields
E. Theodore Stolberg

Officers:
S. M. Hassan - President
Caryn D. Ellison - Vice President, Secretary and Treasurer

ALFALFA'S ROCKY MOUNTAIN, INC.:

Directors:
S. M. Hassan
Caryn D. Ellison

Officers:
S. M. Hassan - President
Caryn D. Ellison - Vice President and Secretary
<PAGE> 62
ALFALFA'S SANTA FE, INC.:

Directors:
S. M. Hassan
M. Laird Koldyke
E. Theodore Stolberg

Officers:
S. M. Hassan - President
Caryn D. Ellison - Secretary and Treasurer

ALFALFA'S NORTHWEST, INC.:

Directors:
S. M. Hassan
M. Laird Koldyke
E. Theodore Stolberg

Officers:
S. M. Hassan - President
Caryn D. Ellison - Secretary and Treasurer

ALFALFA'S CANADA, INC.:

Directors:
S. M. Hassan
Barry Perzow
Russell Precious

Officers:
S. M. Hassan - President
Caryn D. Ellison - Secretary
<PAGE> 63
SCHEDULE 9.19

LEASES

Leased Property:

# Lease Agreement dated October 5, 1992 by and between
Alfalfa's, Inc. and BWay Property Limited Partnership for the
property located at 1645 Broadway, Boulder, Colorado, as
amended by that certain Amendment to Lease Agreements dated
March 9, 1995.

# Lease dated October 11, 1982 by and between Alfalfa's Boulder,
Inc. and Bway Property Limited Partnership for the property
located at 1651 Broadway, Boulder, CO, as amended by that
certain Amendment to Lease Agreement dated September 10, 1991,
and as amended by that certain Amendment to Lease Agreements
dated March 9, 1995.

# Lease Agreement dated May 16, 1984 by and between Overland
Sheepskin Co. and Colorado National Bank for the property
located at 1655 Broadway, Boulder, CO, as amended by that
certain Sublease Agreement dated August 7, 1984 by and between
Natural Horizons, Inc. and Overland Sheepskin, Inc., and that
certain Assignment Agreement dated April 10, 1989 by and
between Alfalfa's Boulder, Inc. and Overland Outfitters, Inc.,
and that certain Amendment to Lease dated September 10, 1991.

# Building Lease dated February 8, 1984 by and between Fruit
Basket Company and Midtown 900 Associates for the property
located at 900 E. 11th Ave., Denver, CO, as amended by that
certain Amendment to Building Lease dated October 9, 1991,
that certain Assignment and Second Amendment of Building Lease
dated January 13, 1993 by and between Alfalfa's Capitol Hill,
Inc., Fruit Basket Company and Midtown 900 Associates, and
that certain Third Amendment to Building Lease dated September
15, 1993. Guaranty dated January 13, 1993, executed by
Alfalfa's, Inc.

# Business Lease dated November 9, 1993 by and between
Alfalfa's, Inc. and McNeil-Meyer Investment Co. for the
property located at 9355 Elm Ct., Federal Heights, CO.

# Shopping Center Lease dated January 19, 1990 by and between
Alfalfa's Cherry Creek, Inc. and Country Club Plaza Associates
for the property located at 201 University Blvd., Denver, CO,
as amended by that certain First Amendment to
<PAGE> 64
Shopping Center Lease dated February 20, 1990, and that
certain Second Amendment to Shopping Center Lease dated March
20, 1991. Guaranty dated January 19, 1990 executed by
Alfalfa's, Inc.

# Shopping Center Lease dated May 1, 1992 by and between
Alfalfa's Littleton, Inc. and Trustees under the Will and of
the Estate of James Campbell, Deceased for the property
located at 5910 S. University Blvd., Littleton, CO., as
amended by that certain Lease Amendment dated September 6,
1995, Guaranty of Lease dated May 1, 1992 executed by
Alfalfa's, Inc., Ground Lease dated September 6, 1995 between
Alfalfa's Rocky Mountain, Inc. and Development Corp. of the
Rockies II, Inc., Guaranty of Ground Lease dated September 6,
1995, executed by Alfalfa's, Inc.

# Lease dated February 20, 1992 by and between Alfalfa's FC,
Inc. and Shirley DeSautels and Alfred DeSautels for the
property located at 216 W. Horsetooth Rd., Fort Collins, CO.
Limited Guaranty of Alfalfa's, Inc. executed by Alfalfa's FC,
Inc.

# Lease Agreement dated July 9, 1993 by and between Alfalfa's
Vail, Inc. and Trevina L.P. for the property located at 141 E.
Meadow Dr., F109 & F103, Vail, CO. Guaranty dated July 9,
1993 executed by Alfalfa's, Inc.

# Lease Agreement dated June 29, 1994 by and between Alfalfa's
Santa Fe, Inc. and First Interstate Bank of New Mexico, N.A.,
as Trustee of the Joseph M. Montoya Trust, the Patrick Montoya
Trust, and the Lynda M. Haran Trust for the property located
at 333 W. Cordova Rd., Santa Fe, NM. Lease Guaranty dated
June 29, 1994 executed by Alfalfa's, Inc.

# Lease Agreement dated January 12, 1984 by and between Pacific
Gamble Robinson Co. and Walter Griffin, Agnes Griffin, Robert
McAusland, Donald McAusland and Lucia Wood for the property
located at 5440 Sandpoint Way N.E., Seattle, WA, as amended by
that certain Amended and Restated Sublease Agreement dated
September 30, 1994 by and between Alfalfa's, Inc., Food
Services of America, Inc. and Cap Food Services Company.

# Lease Agreement dated November 6, 1992 by and between Encore
Resources Ltd. and 306283 British Columbia Ltd. for the
property located at 2211 W. 4th Ave., Vancouver, BC (office),
as amended by that certain Assignment of Lease dated November
1, 1993.

# Lease Agreement dated November 6, 1992 by and between Encore
Resources Ltd. and 306283 British Columbia Ltd. for the
property located at 2211 W. 4th
<PAGE> 65
Ave., Vancouver, BC (retail), as amended by that certain
Assignment of Lease dated November 1, 1993.

# Lease dated February 28, 1993 by and between Encore Resources
Ltd. and Camgornik Equities Ltd. and Hoopp Realty Inc. for the
property located at 2494-2496 Marine Dr., West Vancouver, B.C.

# Lease dated January 17, 1995 between Amon Investments Ltd. and
Encore Resources Ltd. for the property located at 1675 Robson
Street, Vancouver, B.C.

# Parking Agreement dated November 23, 1992 by and between
Alfalfa's Market, Inc. and Bank Western for the use of thirty
(30) parking spaces in the multi-story structure adjacent to
the store located at 210 University Boulevard, Denver, CO.

# Rental Agreement for Storage Space dated December 16, 1993 by
and between Alfalfa's Vail, Inc. and Trevina L.P. for storage
space located in the west building in the Crossroads of Vail
Shopping Center in Vail, CO.

# Lease Agreement dated March 23, 1993 by and between Alfalfa's,
Inc. ("Lessor") and Fred Miller, Shavano Valley Crop & Pork
Producers, and Cedaredge Meats ("Lessee"), as amended by that
certain Equipment Lease Addendum dated March 28, 1994, and
that certain Equipment Lease Addendum dated September 29,
1994, and that certain Equipment Lease Addendum dated March
20, 1995, and that certain Equipment Lease Addendum dated
October 31, 1995 until March 31, 1996.

Real Property Owned

# A part of Lot 23, South Mesa Subdivision, City of Fort
Collins, County of Larimer, State of Colorado, which begins at
the Southwest corner of said Lot 23, and run thence N 00
degrees 54'E 103.01 feet to the Northwest corner of said Lot
23, thence N 38 degrees 55'E 189.23 feet along the North line
of said Lot 23; thence S 00 degrees 05'E 103.00 feet to a
point on the South line of said Lot 23; thence S 89 degrees
55'W 191.00 feet to the point of beginning; which has a street
address of 3517 South Mason Street, Fort Collins, Colorado.
<PAGE> 66
SCHEDULE 9.20

PERMITS

None.
<PAGE> 67
SUPPLEMENT TO DISCLOSURE SCHEDULES
TO
AGREEMENT AND PLAN OF MERGER
DATED JUNE 4, 1996
AMONG WILD OATS MARKETS, INC.
ALFALFA'S, INC.
AND
WO HOLDINGS, INC.

The following updates Schedules 9.8, 9.12 and 9.19 of the above
captioned Merger Agreement:

Schedule 9.8 (Summary of Inventory)

Physical count of inventory as of May 26, 1996 - $3,602,515

Schedule 9.12 (Material Agreements)

Letter Agreement dated March 1, 1996 between Alfalfa's, Inc. and Ted Tannenbaum
& Associates

Schedule 9.19 (Leases)

Equipment Lease Addendum, dated April 22, 1996, to the Lease Agreement dated as
of March 23, 1996 by and between Alfalfa's, Inc., Fred Miller, Shavano Valley
Crop & Pork Products and Cedaredge Meats.

<PAGE> 1

EXECUTION COPY
================================================================================

PURCHASE AGREEMENT

by and among

ALFALFA'S, INC.,

ALFALFA'S CANADA, INC.,

THE SHAREHOLDERS OF
CAPERS MANAGEMENT HOLDINGS INC.

and

CAPERS MANAGEMENT HOLDINGS INC.

As of June 30, 1994

================================================================================
<PAGE> 2
PURCHASE AGREEMENT

PURCHASE AGREEMENT (this "Agreement") dated as of June 30,
1994, by and among Alfalfa's, Inc., a Colorado corporation ("Alfalfa's"),
Alfalfa's Canada, Inc., a British Columbia corporation ("NewCorp")
(collectively referred to herein with Alfalfa's as "Buyer"), the undersigned
shareholders of Capers Management Holdings Inc. ("Sellers") and Capers
Management Holdings Inc., a British Columbia corporation ("Capers").

RECITALS:

A. Sellers own shares of capital stock, consisting of
common stock (the "Common Stock") and preferred stock (the "Preferred Stock",
and together with the Common Stock, the "Shares") of Capers.

B. Capers owns all of the outstanding shares of capital
stock of Encore Resources Ltd., a British Columbia corporation ("Encore").
Capers and Encore are sometimes referred to herein as the "Companies".

C. Encore owns and operates two natural health food and
specialty gourmet food deli and supermarkets located in Greater Vancouver,
British Columbia, Canada (the "Business").

D. NewCorp is a wholly owned subsidiary of Alfalfa's
which owns and operates natural health food and specialty gourmet food
supermarkets.

E. Sellers desire to sell and transfer to Buyer and
Buyer desires to purchase from Sellers the Shares on the terms contained
herein.

NOW THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the parties agree as follows.

AGREEMENT
<PAGE> 3
II.

SALE OF SHARES

II. A. Sale of Shares.

1. On the terms and subject to the conditions of this
Agreement, on the Closing Date (as hereinafter defined), each Seller shall
sell, assign, convey, transfer and deliver to NewCorp, and NewCorp shall
purchase from each Seller, the number of shares of Common Stock owned by such
Seller as set forth on Exhibit A hereto. The obligations of each Seller to
sell its shares of Common Stock are several and not joint. The performance of
each Seller individually is not dependent upon the performance or failure to
perform of any other Seller.

2. On the terms and subject to the conditions of this
Agreement, on the Closing Date, each Seller owning shares of Preferred Stock
shall sell, assign, convey, transfer and deliver to NewCorp, and NewCorp shall
purchase from each Seller, the Preferred Stock owned by such Seller as set
forth on Exhibit A hereto. The obligations of each such Seller to sell its
shares of Preferred Stock, if any, are several and not joint. The performance
of each Seller individually is not dependent upon the performance or failure to
perform of any other Seller.

3. The purchase of Shares by NewCorp from the Sellers are
deemed by the parties hereto to be separate purchases and sales and this
Agreement is deemed by the parties hereto to be separate agreements between the
Buyer on the one hand and each Seller on the other. Unless waived by Newcorp,
it is a condition to the effectiveness of this Agreement that all shareholders
of Capers execute this Agreement.

II. A. Consideration.

1. The full amount of the consideration due to each
Seller to be paid at the Closing (as hereinafter defined) by NewCorp is set
forth opposite each Seller's name on Exhibit A hereto (the "Purchase Price").
The obligation of NewCorp to each Seller is individual to each Seller.

(b) The full consideration to be paid at the Closing by
NewCorp for each share of Preferred Stock (the "Preferred Purchase Price")
shall be $1.00 in cash plus accrued and unpaid dividends on the Preferred Stock
to the Closing Date. Each Seller of shares of Preferred Stock hereby
acknowledges that the Preferred Purchase Price is less than each of the
redemption price and liquidation value of the Preferred Stock. The aggregate
consideration to be paid to each Seller for the shares of Preferred Stock shall
be the Preferred Purchase Price multiplied by the number of shares of Preferred
Stock owned by such Seller as set forth on Exhibit A hereto.

2
<PAGE> 4
1.3 Purchase of Alfalfa's Common Stock. On the Closing Date and
following the purchase and sale of the Shares pursuant to Section 1.1 of this
Agreement, each Seller will purchase from Alfalfa's the number of shares of the
common stock of Alfalfa's (the "Alfalfa's Common Stock") set forth opposite
such Seller's name on Exhibit A hereto. The purchase price for each share of
Alfalfa's Common Stock is $41.96. The aggregate purchase price to be paid by a
Seller for such shares of Alfalfa's Common Stock shall be $41.96 multiplied by
the number of such shares to be purchased. Alfalfa's agrees to deliver to each
Seller desiring to purchase Alfalfa's Common Stock certificates representing
the number of shares paid for by such Seller, provided that immediately prior
to such delivery, each Seller purchasing such shares executes and delivers to
Alfalfa's a copy of the Shareholders' Agreement of Alfalfa's (the "Alfalfa's
Shareholders' Agreement") which is attached hereto as Exhibit B. Such share
certificates shall be in the respective name of each Seller purchasing shares
of Alfalfa's Common Stock.

1.4 The Closing.

(a) The closing of the transactions contemplated by this
Agreement, including the purchase of any shares of Alfalfa's Common Stock (the
"Closing") will take place at the offices of Brownstein Hyatt Farber &
Strickland, P.C., 410 17th Street, Twenty-Second Floor, Denver, Colorado
80202-4437, at 10:00 A.M. M.S.T. on July 23, 1994 (the "Closing Date"), or at
such other place and on such other date as is mutually agreeable to Buyer and
the Majority Sellers (as defined in Article 2 hereof). The Closing shall be
effective as of the close of business on the Closing Date.

(b) Subject to the conditions set forth in this
Agreement, the parties agree to consummate the following "Closing Transactions"
on the Closing Date:

a. Each Seller will assign and transfer to
NewCorp good and valid title in and to the shares of Common Stock
owned by such seller, free and clear of all Liens (as defined in
Section 2.5), by delivering to NewCorp a stock certificate or
certificates representing such Common Stock, duly endorsed for
transfer or accompanied by duly executed stock powers endorsed in
blank; and

b. Each Seller owning shares of Preferred Stock
will assign and transfer to NewCorp good and valid title in and to
such shares of Preferred Stock, free and clear of all Liens, by
delivering to NewCorp a stock certificate or certificates representing
such shares of Preferred Stock owned by such Seller duly endorsed for
transfer or accompanied by duly executed stock powers endorsed in
blank; and

c. NewCorp shall deliver to each Seller the
aggregate Purchase Price and, if applicable, the aggregate Preferred
Purchase Price, payable to such Seller pursuant to

3
<PAGE> 5
Section 1.2 (as applicable) in cash by wire transfer of immediately
available funds to the account designated by counsel to the Sellers,
McCarthy Tetrault, in trust for the Sellers, which account shall be
so designated at least two business days prior to Closing.

III.

REPRESENTATIONS AND WARRANTIES OF SELLERS AND CAPERS

Each of Capers and each of Russell Precious, Teresa Precious and Barry
Perzow (collectively, the "Majority Sellers") hereby, severally and not
jointly, represent and warrant to Buyer the following, except as set forth in
the Disclosure Schedule delivered to Buyer within seven days of the date hereof
(the "Disclosure Schedule") (which Disclosure Schedule shall set forth the
exceptions to the representations and warranties contained in this Article 2
under captions referencing the Sections to which such exceptions apply). In
addition, each Seller hereby, severally and not jointly , represent and warrant
to Buyer with respect to Sections 2.2, 2.3, 2.4, 2.5, 2.27 and 2.28 solely as
such Sections relate to such Seller.

III. A. Organization and Corporate Power. Capers and Encore
are duly organized corporations, validly existing and in good standing under
the laws of the Province of British Columbia in Canada with all requisite
corporate power and authority and all authorizations, licenses, permits and
certifications necessary to own and operate their properties and to carry on
the Business as now conducted and presently proposed to be conducted, except
such licenses, permits and certifications that are not material to the conduct
of the Business. The copies of Capers' and Encore's Memorandum and Articles
attached to Section 2.1 of the Disclosure Schedule reflect all amendments made
thereto and are correct and complete as of the date hereof. All material
financial transactions of the Companies have been accurately recorded in the
books and records of the Companies.

III. B. Execution, Delivery; Valid and Binding Agreements.
This Agreement has been duly executed and delivered by each Seller and Capers
and constitutes the valid and binding obligation of each Seller and Capers,
enforceable in accordance with its terms, except that the enforceability of
this Agreement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium and other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).

III. C. No Breach. The execution, delivery and performance
of this Agreement by each Seller and Capers and the consummation by each Seller
and Capers of the transactions contemplated hereby do not conflict with or
result in any breach of any of the provisions of, constitute a default under,
result in a violation of, result in the creation of a right of termination or

4
<PAGE> 6
acceleration or any lien, security interest, charge or encumbrance upon any
assets of Sellers or the Companies or require any authorization, consent,
approval, exemption or other action by or notice to any court or other
governmental body, under the Memorandum and Articles of the Companies, as
applicable, or any indenture, mortgage, lease, loan agreement or other
agreement or instrument by which any of the Companies or Sellers is bound or
affected, or any law, statute, rule or regulation or order, judgment or decree
to which any of the Companies, Sellers or the Business (including but not
limited to the properties related to the Business) is subject.

III. D. Governmental Authorities; Consents. Sellers and
Capers are not required to submit any notice, report or other filing with any
governmental authority in connection with the execution or delivery by them of
this Agreement or the consummation of the transactions contemplated hereby. No
consent, approval or authorization of any governmental or regulatory authority
or any other party or person is required to be obtained by Sellers or Capers in
connection with their execution, delivery and performance of this Agreement or
the transactions contemplated hereby. Each Seller waives any right of first
refusal he may have pursuant to the Shareholders' Agreement dated November 10,
1993 among Sellers, Alfalfa's, Capers and Encore (the "Capers Shareholders'
Agreement").

III. E. Ownership of Capital Stock. Each Seller owns all
right, title and interest in and to their Shares, beneficially and of record,
free and clear of any security interests, claims, liens, pledges, options
(including rights of first refusal, other than those set forth in the Capers
Shareholders' Agreement), encumbrances, charges, agreements, voting trusts,
proxies or other arrangements (collectively, the "Liens"), restrictions or
limitations of any kind and on the Closing Date, through the delivery of a
certificate or certificates in the manner set forth in Section 1.4(b) hereof,
will transfer, subject to approval by the Board of Directors of Capers, good
and valid title to the Shares to NewCorp, free and clear of any Liens of any
kind.

III. F. Subsidiaries. Except for the stock of Encore owned
by Capers, neither Capers nor Encore owns any stock, partnership interest,
joint venture interest or any other security or ownership interest issued by
any other corporation, organization or entity.

5
<PAGE> 7
III. G. Capital Stock.

1. Capers. The authorized capital stock of Capers
consists of 10,000,000 shares of common stock, of which, as of the date hereof,
1,000,000 shares are issued and outstanding, and 875 shares of Preferred Stock,
of which, as of the date hereof, all are issued and outstanding, all of which
Common stock and Preferred Stock are owned beneficially and of record by
Sellers (other than the shares of Common Stock and Preferred Stock owned by
Alfalfa's) free and clear of any Liens of any kind. All of the shares of
Common Stock and Preferred Stock have been duly authorized and are validly
issued, fully paid and nonassessable and free of preemptive rights, except as
required by law. Other than the above-described Common and Preferred Stock,
Capers has no other equity securities or securities containing any equity
features authorized, issued or outstanding. There are no agreements or other
rights or arrangements existing which provide for the sale or issuance of
capital stock by Capers and there are no rights, subscriptions, warrants,
options, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire from Capers any shares of capital stock or other securities
of Capers of any kind. There are no agreements or other obligations
(contingent or otherwise) which may require Capers to repurchase or otherwise
acquire any shares of its capital stock, other than as set forth in the
Articles of Capers.

2. Encore. Section 2.7 of the Disclosure Schedule will
set forth the authorized capital stock of Encore and the number of shares
issued and outstanding, all of which are owned beneficially and of record by
Capers, free and clear of any Liens of any kind. All of Encore's common stock
has been duly authorized and is validly issued, fully paid and nonassessable
and free of preemptive rights, except as required by law. Other than the
above-described common stock, Encore has no other equity securities or
securities containing any equity features authorized, issued or outstanding.
There are no agreements or other rights or arrangements existing which provide
for the sale or issuance of capital stock by Encore and there are no rights,
subscriptions, warrants, options, conversion rights or agreements of any kind
outstanding to purchase or otherwise acquire from Encore any shares of capital
stock or other securities of Encore of any kind. There are no agreements or
other obligations (contingent or otherwise) which may require Encore to
repurchase or otherwise acquire any shares of its capital stock.

III. H. Financial Statements. Section 2.8 of the Disclosure
Schedule will contain copies of the unaudited consolidated balance sheet of the
Companies, as of June 4, 1994 and the unaudited consolidated statements of
earnings and shareholders' equity and cash flows for the eleven periods ended
June 4, 1994 (the June 4, 1994 Financial Statements are referred to herein as
the "Latest Financial Statements"). The Latest Financial Statements are based
upon the information contained in the books and records of the Companies and
fairly present the financial condition of the Companies as of the date thereof
and results of operations for the periods referred to therein. The Latest
Financial Statements have been prepared in accordance with Canadian generally
accepted accounting principles, consistently applied throughout the periods
indicated.

6
<PAGE> 8
III. I. Absence of Undisclosed Liabilities. Neither of the
Companies has liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due, whether known or unknown, and
regardless of when asserted) arising out of transactions or events heretofore
entered into, or any action or inaction, or any state of facts existing, with
respect to or based upon transactions or events heretofore occurring, except
(i) as reflected in the Latest Financial Statements, and (ii) liabilities which
have arisen after the date of the Latest Financial Statements in the ordinary
course of business (none of which is a material uninsured liability for breach
of contract, breach of warranty, tort, infringement, claim or lawsuit).

III. J. No Material Adverse Changes. Since the date of the
Latest Financial Statements there has been no change materially adverse,
individually or in the aggregate, to the assets, financial condition, operating
results, customers, employees or supplier relations, business condition or
prospects of either of the Companies.

III. K. Absence of Certain Developments. Other than pursuant
to this Agreement, since the date of the Latest Financial Statements none of
the Companies has:

1. borrowed any amount or incurred or become subject to
any liability, except (i) current liabilities incurred in the ordinary course
of business and (ii) liabilities under contracts entered into in the ordinary
course of business;

2. mortgaged, pledged or subjected to any lien, charge
or any other encumbrance, any of their assets except (i) liens for current
property taxes not yet due and payable, (ii) liens imposed by law and incurred
in the ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers, materialmen and the like, and (iii) liens in respect of
pledges or deposits under workers' compensation laws.

3. discharged or satisfied any lien or encumbrance or
paid any liability, other than current liabilities paid in the ordinary course
of business or listed on the Latest Financial Statements;

4. sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders) any
tangible assets (other than inventory in the ordinary course of business) or
cancelled any debts or claims;

5. sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders) any
patents, trademarks, trade names, copyrights, trade secrets or other intangible
assets;

7
<PAGE> 9
6. waived any rights of value or suffered any losses or
adverse changes in collection loss experience, whether or not in the ordinary
course of business or consistent with past practice;

7. declared or paid any dividends or other distributions
with respect to any shares of the Companies' capital stock or redeemed or
purchased, directly or indirectly, any shares of the Companies' capital stock
or any options;

8. issued, sold or transferred any of the Companies'
equity securities, securities convertible into or exchangeable for any of the
Companies' equity securities or warrants, options or other rights to acquire
any of the Companies' equity securities, or any bonds or debt securities;

9. taken any other action or entered into any other
transaction other than in the ordinary course of business and in accordance
with past custom and practice, or entered into any transaction with any insider
(as defined in Section 2.22) other than the transactions contemplated by this
Agreement;

10. suffered any material theft, damage, destruction or
loss of or to any property or properties owned or used by the Companies,
whether or not covered by insurance;

11. made or granted any bonus or any wage, salary or
compensation increase to any director, officer, or consultant or made or
granted any increase in any employee benefit plan or arrangement, or amended or
terminated any existing employee benefit plan or arrangement, or adopted any
new employee benefit plan or arrangement or made any commitment or incurred any
liability to any labor organization;

12. made any single capital expenditure or commitment in
excess of Three Thousand and No/100 Dollars ($3,000) therefor;

13. made any loans or advances to, or guarantees or
financial assistance for the benefit of, any persons;

14. made charitable contributions or pledges in excess of
One Thousand and no/100 Dollars ($1,000.00) individually or Five Thousand and
no/100 Dollars ($5,000.00) in the aggregate; or

8
<PAGE> 10
15. made any change in accounting principles or practices
from those utilized in Canada and in the preparation of the Latest Financial
Statements.

III. L. Title to Properties.

1. The real property demised by the leases to be
described (including the term thereof) in Section 2.12 of the Disclosure
Schedule constitutes all of the real property used or occupied by the Companies
(the "Real Property"). The Real Property has access, sufficient for the
conduct of the Business as now conducted or as presently proposed to be
conducted, to public roads and to all utilities, including electricity,
sanitary and storm sewer, potable water, natural gas and other utilities, used
in the operation of the Business at that location.

2. The leases to be described in Section 2.12 of the
Disclosure Schedule are in full force and effect, and Capers and Encore that is
a party to each such lease holds a valid and existing leasehold interest under
each of such leases for the term set forth in Section 2.12 of the Disclosure
Schedule. Capers and Encore have delivered to Buyer complete and accurate
copies of each of the leases described in Section 2.12, and none of such leases
has been modified in any respect, except to the extent that such modifications
are disclosed by the copies delivered to Buyer. To the best knowledge of the
Majority Sellers, neither of the Companies is in default, and no circumstances
exist which, if unremedied, would, either with or without notice or the passage
of time or both, result in such default under any of such leases; nor, to the
best knowledge of Sellers and the Companies, is any other party to any of such
leases in default.

3. Section 2.12 of the Disclosure Schedule will disclose
the aggregate value of the tangible properties and tangible assets of Capers
and Encore as reflected on the Latest Financial Statements. Each of Capers and
Encore owns good and marketable title to its tangible properties and tangible
assets described in Section 2.12 of the Disclosure Schedule and as reflected on
the Latest Financial Statements or acquired since the date thereof, free and
clear of all liens and encumbrances, except for (i) liens for current taxes not
yet due and payable, (ii) the properties subject to the leases to be listed in
Section 2.12 of the Disclosure Schedule, (iii) as otherwise disclosed in
Section 2.12 of the Disclosure Schedule, and (iv) inventory disposed of since
the date of the Latest Financial Statements in the ordinary course of business.

4. The Companies own, or lease under valid leases, all
buildings, machinery, equipment and other tangible assets necessary or
desirable for the conduct of the Business.

5. To the best knowledge of the Majority Sellers,
neither Capers nor Encore is in violation of any applicable zoning ordinance or
other law, regulation or requirement that is material to the operation of any
properties used in the operation of the Business, and neither Sellers nor any
of the Companies has received any notice of any such violation, or the
existence of any condemnation proceeding with respect to any of the Real
Property.

9
<PAGE> 11
6. Neither the Majority Sellers nor either of the
Companies has knowledge of improvements made or contemplated to be made to the
Real Property by any public or private authority, the costs of which are to be
assessed as special levies, taxes or charges against any of the Real Property,
and there are no present assessments for which either of the Companies would be
responsible.

III. M. Accounts Receivable. The accounts receivable
reflected on the Latest Financial Statements are valid receivables, are not
subject to valid counterclaims or setoffs, and are collectible in accordance
with their terms, except to the extent of the bad debt reserve reflected on the
Latest Financial Statements.

III. N. Inventory. The inventory of Capers and Encore
consists of items of a quality and quantity salable at each of Capers' and
Encore's normal profit levels, in each case, in the ordinary course of the
Business. The values at which such inventory is carried on the Latest
Financial Statements are in accordance with Canadian generally accepted
accounting principles. Section 2.14 of the Disclosure Schedule will contain a
complete and accurate statement of the Capers' and Encore's inventory as of
June 4, 1994.

III. O. Tax Matters.

(a) Each of the Companies has duly filed in a timely
manner (i) all federal and provincial income tax returns and election forms and
the tax returns of any other jurisdiction required to be filed and all such
returns and forms have been completed accurately and correctly in all respects;
and (ii) all Workers' Compensation Board returns, corporation capital tax
returns, social services tax returns, goods and service tax returns and other
reports and information required to be filed with all applicable government
authorities, agencies or regulatory bodies. Each of the Companies (i) has paid
all taxes (including all federal, provincial and local taxes, custom or duty
taxes, assessments or other imposts in respect of its income, business, assets
or property) and all interest and penalties thereon, for all previous years and
all required quarterly or monthly installments, as applicable, due for the
current fiscal year has been paid; and (ii) has provided adequate reserves for
all taxes for the periods covered by, and such reserves are reflected in, the
Financial Statements. There is no agreement, waiver or other arrangement
providing for an extension of time with respect to the filing of any tax
return, or payment of any tax, governmental charge or deficiency by the
Companies nor is there any action, suit, proceeding, investigation or claim now
threatened or pending against the Companies in respect of, or discussions
underway with any governmental authority relating to, any such tax or
governmental charge or deficiency.

(b) Capers and Encore have not:

10
<PAGE> 12
(i) made any election under Section 85 of the Income
Tax Act of Canada in effect on the date of this Agreement (the "Income
Tax Act") with respect to the acquisition or disposition of any
property;

(ii) made any election under Section 83 of the
Income Tax Act with respect to the payment out of their capital
dividend account;

(iii) acquired or had the use of any material
property from a person with whom it was not dealing at arm's length
other than at fair market value;

(iv) disposed of any material property to a person
with whom it was not dealing at arm's length for proceeds less than
the fair market value thereof; or

(v) discontinued carrying on any business in respect
of which non-capital losses were incurred, and any non-capital losses
which the company has are not losses from property or business
investment losses.

(c) The Companies have made all elections required to be
made pursuant to Part III of the Income Tax Act in connection with any
distributions by them and all such elections were true and correct and in the
prescribed form and were made within the prescribed time periods.

(d) Capers and Encore are and have been since their
respective incorporation, a "Canadian-controlled private corporation" within
the meaning of such term under the Income Tax Act.

(e) Neither Capers nor Encore have filed with the
Minister of National Revenue any agreement or form pursuant to Section 125(3)
of the Income Tax Act for the current taxation year and Capers has never
carried on business as a member of a partnership.

(f) To the best knowledge of the Majority Sellers, there
are not any contingent tax liabilities nor any grounds which would prompt a
reassessment including aggressive treatment of income and expenses in filing
earlier tax returns.

(g) The financial statements and schedules attached to
the corporate income tax returns as filed by Capers and Encore for each of its
taxation years reflect and disclose all transactions to which Capers or Encore
was party as required by the Income Tax Act or other applicable revenue laws
and all of the transactions to which Capers or Encore was or is a party are
reflected or disclosed in such financial statements and schedules and the
corporate income tax returns and schedules have been duly and accurately
completed as required by such acts.

11
<PAGE> 13
(h) None of the Sellers (other than Mr. James Wilson,
Eleanor H. Wilson Trust No. 1 and Stuart Abelson) is a "non-resident" of Canada
within the meaning of Section 116 of the Income Tax Act.

III. P. Contracts and Commitments.

1. Section 2.16 of the Disclosure Schedule will list the
following agreements, whether oral or written, to which any of the Companies is
a party, which is currently in effect, and which relate to the operation of the
Business (such list to set forth the commencement date and termination or
expiration date of such agreement): (i) collective bargaining agreement or
contract with any labor union; (ii) bonus, pension, profit sharing, retirement
or other form of deferred compensation plan, other than as described in Section
2.20 hereof or Section 2.20 of the Disclosure Schedule; (iii) hospitalization
insurance or other welfare benefit plan or practice, whether formal or
informal, other than as described in Section 2.20 hereof or Section 2.20 of the
Disclosure Schedule; (iv) stock purchase or stock option plan; (v) contract for
the employment of any officer, individual employee or other person on a full-
time, part-time or consulting basis or relating to severance pay for any such
person, other than contracts with hourly employees; (vi) confidentiality
agreement; (vii) contract, agreement or understanding relating to the voting of
common stock or the election of directors of either of the Companies; (viii)
agreement or indenture relating to the borrowing of money or to mortgaging,
pledging or otherwise placing a lien on any of the assets of the Companies;
(ix) guaranty of any obligation for borrowed money or otherwise; (x) lease or
agreement under which either of the Companies is lessee of, or holds or
operates any property, real or personal, owned by any other party; (xi) lease
or agreement under which any of the Companies is lessor of, or permits any
third party to hold or operate, any property, real or personal; (xii) contract
or group of related contracts with the same party for the purchase of products
or services, other than in the ordinary course of business; (xiii) contract or
group of related contracts with the same party (other than any contract or
group of related contracts for the purchase or sale of products or services)
continuing over a period of more than six months from the date or dates
thereof, not terminable by it on 30 days or less notice without penalty; (xiv)
contract which prohibits either of the Companies from freely engaging in
business anywhere in the world; (xv) contract for the distribution of either of
the Companies' products (including any distributor or sales contract); (xvi)
any franchise agreements; (xvii) contracts or commitments for capital
expenditures; (xviii) agreements for the sale of any capital asset; (xix)
contracts with any affiliate which in any way relates to either of the
Companies; or (xx) other agreements which are either material to the Business
or were not entered into in the ordinary course of business.

2. The Companies have performed all material obligations
required to be performed by them in connection with the contracts or
commitments required to be disclosed in Section 2.16 of the Disclosure Schedule
and they are not in receipt of any claim of default under any such contract or
commitment; none of the Companies has any present expectation or intention of
not fully performing any material obligation pursuant to any such contract or
commitment; and

12
<PAGE> 14
neither Sellers nor either of the Companies has knowledge of any breach or
anticipated breach by any other party to any such contract or commitment.

3. Prior to the Closing Date, Buyer will have been
supplied with a true and correct copy of each written contract or commitment
disclosed in Section 2.16 of the Disclosure Schedule, and a written description
of each oral contract or commitment disclosed in Section 2.16 of the Disclosure
Schedule, together with all amendments, waivers or other changes thereto.

III. Q. Intellectual Property Rights. Section 2.17 of the
Disclosure Schedule will describe all registered rights in patents, trademarks,
trade names, and copyrights owned by, licensed to or otherwise controlled by
any of the Companies and used in, developed for use in or necessary to the
conduct of the Business as now conducted or planned to be conducted. The
Companies own and possess all right, title and interest, or hold a valid
license, in and to the registration to be set forth in Section 2.17 of the
Disclosure Schedule and none of such rights has been licensed or assigned to
any third party. The Companies have taken all necessary action to obtain the
registrations with respect to the intellectual property rights set forth under
such caption. None of the Companies has received any notice of, nor are there
any facts known to the Majority Sellers or any of the Companies which indicate
a likelihood of, any infringement or misappropriation by, or conflict from, any
third party with respect to the intellectual property rights which are listed;
no claim by any third party contesting the validity of any intellectual
property rights listed under such caption has been made, is currently
outstanding or, to the best knowledge of the Majority Sellers, is threatened;
none of the Companies has received any notice of any infringement,
misappropriation or violation by any of the intellectual property rights of any
third parties and, to the best knowledge of the Companies and the Majority
Sellers, neither of the Companies has infringed, misappropriated or otherwise
violated any such intellectual property rights; and no infringement, illicit
copying, misappropriation or violation has occurred with respect to products
currently being sold by the Companies or with respect to the products currently
under development (in their present state of development) or with respect to
the conduct of the Business as now conducted.

13
<PAGE> 15
III. R. Litigation. There are no actions, suits,
proceedings, orders or investigations pending or, to the best knowledge of
Sellers, threatened against either of the Companies, at law or in equity, or
before or by any federal (Canadian), provincial, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic (Canadian) or foreign.

III. S. Employees.

1. To the best knowledge of the Majority Sellers and the
Companies, no executive employee of either of the Companies and no group of
either of the Companies' employees has any plans to terminate his or its
employment; (b) the Companies have complied with all laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes and to the best knowledge of the Majority Sellers and the
Companies, there does not exist any union organization efforts being made or
contemplated; (c) all amounts required to be withheld and paid to any
governmental authority have been paid or are assumed to have been paid; (d)
none of the Companies has any material labor relations problem pending and
labor relations are satisfactory; (e) there are no workers' compensation claims
pending against any of the Companies nor are the Majority Sellers or either of
the Companies aware of any facts that would give rise to such a claim; (f) to
the best knowledge of the Majority Sellers, no employee of the Companies is
subject to any confidentiality or non-competition agreement or any other
agreement or restriction of any kind that would impede in any way the ability
of such employee to carry out fully all activities of such employee for the
benefit of the Companies, other than the letter of intent among Alfalfa's,
Capers and certain shareholders of Capers dated April 28, 1994; and (g) no
employee or former employee has any claim with respect to any intellectual
property rights of the Companies to be set forth in Section 2.17 of the
Disclosure Schedule.

III. T. Employee Benefit Plans.

1. Except for the Canada Pension Plan or other
statutorily mandated plan with respect to all employees and former employees of
the Companies and all dependents and beneficiaries of such employees and former
employees, none of the Companies maintains or contributes to any employee
benefit or pension plan.

(b). All such employee benefit and pension plans that will
be disclosed in the Disclosure Schedule are registered where required by and
are in good standing under all applicable legislation.

III. U. Insurance. Section 2.21 of the Disclosure Schedule
will list and briefly describes each insurance policy maintained by the
Companies as of the date of the Latest Financial Statements with respect to
their properties, assets and operations and sets forth the date of expiration
of each such insurance policy. All of such insurance policies are, as of the
date hereof,

14
<PAGE> 16
and, unless Capers or the Majority Sellers notify Buyer in writing otherwise,
as of the Closing Date will be, in full force and effect and issued by insurers
of recognized responsibility and are for amounts and cover risks customarily
insured against by prudent operators of enterprises engaged in similar
business. None of the Companies is in default with respect to its obligations
under any of such insurance policies.

III. V. Affiliate Transactions.

(a) To the best knowledge of the Companies and the
Majority Sellers, other than pursuant to this Agreement and the Capers
Shareholders' Agreement, no officer, director or employee of the Companies or
any member of the immediate family of any such officer, director or employee,
or any entity in which any of such persons owns any beneficial interest (other
than any publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the counter market and less than one percent
of the stock of which is beneficially owned by any of such persons)
(collectively "insiders"), has any agreement with any of the Companies or the
Majority Sellers or any interest in any property, real, personal or mixed,
tangible or intangible, used in or pertaining to the Business (other than
ownership of capital stock of Capers). To the best knowledge of the Companies
and the Majority Sellers, none of the insiders has any direct or indirect
interest in any competitor, supplier or customer of the Companies or in any
person, firm or entity from whom or to whom any of the Companies leases any
property, or in any other person, firm or entity with whom any of the Companies
transacts business of any nature. For purposes of this Section 2.22, the
members of the immediate family of an officer, director or employee shall
consist of the spouse, parents, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of
such officer, director or employee.

(b) Except for the payment of salaries and reimbursement
for out-of-pocket expenses in the ordinary course, neither Capers nor Encore
will immediately following the Closing be indebted to any of the Sellers or any
directors, officers or employees of Capers or Encore on any account whatsoever.

III. W. Customers and Suppliers. Section 2.23 of the
Disclosure Schedule will list the current 10 largest suppliers of inventory of
Encore and sets forth opposite the name of each such supplier the approximate
percentage of net sales or purchases by Encore attributable to such supplier
for each such period. Since the date of the Latest Financial Statements, no
supplier to be listed in Section 2.23 of the Disclosure Schedule has indicated
that it will stop or decrease the rate of business done with Encore except for
changes in the ordinary course of the Business.

III. X. Officers and Directors; Bank Accounts. Section 2.24
of the Disclosure Schedule will list all officers and directors of the
Companies and all of the Companies' bank accounts (designating each authorized
signer).

15
<PAGE> 17
III. Y. Compliance with Laws; Permits.

1. Each of the Companies and their officers, directors,
agents and employees have complied in all material respects with all applicable
laws, judgments, decrees, orders, injunctions, rules, statutes, and regulations
of all courts, arbitrators or governmental authorities including, but not
limited to, federal (Canadian), provincial, local and foreign laws, ordinances,
rules, regulations and other requirements pertaining to product labeling,
consumer products safety, equal employment opportunity, employee retirement,
affirmative action and other hiring practices, occupational safety and health,
workers' compensation, unemployment and building and zoning codes, which
materially affect the Business or the Real Property and to which either of the
Companies may be subject, and no claims have been filed against any of the
Companies alleging a violation of any such laws, regulations or other
requirements, in each case except as are not material to the conduct of the
Business. Each Majority Seller has no knowledge of any action, pending or
threatened, to change the zoning or building ordinances or any other laws,
rules, regulations or ordinances affecting the Real Property. None of the
Companies is relying on any exemption from or deferral of any such applicable
law, regulation or other requirement that would not be available to Buyer after
it acquires the Shares.

2. Each of the Companies has in full force and effect,
all licenses, permits and certificates, from federal (Canadian), provincial,
local and foreign authorities (including, without limitation, federal and state
agencies regulating the environment, occupational health and safety) material
to the conduct of the Business and own and operate its respective properties
(collectively, the "Permits"). A true, correct and complete list of all the
Permits will be set forth in Section 2.25 of the Disclosure Schedule. Capers
and Encore have conducted the Business in compliance with all material terms
and conditions of the Permits. None of the Permits will be effected by, and no
consent will be required as a prerequisite to, the purchase of the Shares.

3. Neither of the Companies has made or has agreed to
make gifts of money, other property or similar benefits (other than incidental
gifts of articles of nominal value) to any actual or potential customer,
supplier, governmental employee or any other person in a position to assist or
hinder the Companies in connection with any actual or proposed transaction.

4. In particular, but without limiting the generality of
the foregoing, none of the Companies has violated, has liability or has
received a notice or charge asserting any violation of or liability under
federal (Canadian) or provincial acts (including rules and regulations
thereunder) regulating or otherwise affecting employee health and safety.

16
<PAGE> 18
III. Z. Environmental Matters.

1. As used in this Section 2.26, "Hazardous Substances"
means any contaminants, pollutants, dangerous substances, liquid wastes,
individual wastes, hauled liquid wastes, toxic substances, hazardous wastes,
hazardous materials, or hazardous substances as defined in or pursuant to any
law, judgment, decree, order, injunction, rule, statute and regulation of any
court, arbitrator or governmental authority by which the Companies' businesses,
the Companies' assets or the Companies are bound or to which the Companies'
businesses, the Companies' assets or the Companies are subject;

(b) The Companies have not used any of their properties or
assets, or permitted them to be used, to generate, manufacture, refine, treat,
transport, store, handle, dispose of, transfer, produce or process Hazardous
Substances, except in compliance with applicable laws, judgments, decrees,
orders, injunctions, rules, statutes and regulations of all courts, arbitrators
or governmental authorities, including all environmental, health and safety
statutes and regulations, and to the best knowledge of the Majority Sellers,
neither has any lessee, prior owner or other person.

(c) The businesses of the Companies and their property and
assets comply in all material respects with all applicable laws, judgments,
decrees, orders, injunctions, rules, statutes and regulations of all courts,
arbitrators or governmental authorities, including all environmental, health
and safety statutes and regulations.

(d) None of the Companies' businesses, assets or properties
are subject to any pending judicial or administrative proceeding alleging the
violation of any applicable environmental, health or safety law, judgment,
decree, order, injunction, rule, statute or regulation.

(e) To the best knowledge of the Companies and the Majority
Sellers, none of the Companies' businesses, assets or properties are the
subject of investigation by any governmental authority evaluating whether any
remedial action is needed to respond to a release of any Hazardous Substance
into the environment.

(f) Neither the Majority Sellers nor the Companies has filed
any notice under any applicable environmental, health or safety law, judgment
decree, order, injunction, rule, statute or regulation indicating past or
present treatment, storage or disposal of a Hazardous Substance or constituent,
or other substance into the environment.

(g) Neither the Majority Sellers nor the Companies has any
contingent liability in connection with the release of any Hazardous Substance
or constituent, or other substance into the environment.

17
<PAGE> 19
(h) To the best knowledge of the Companies and the Majority
Sellers, no underground storage tanks or surface impoundments are located on
any of the Companies' assets or properties.

(i) To the best knowledge of the Companies and the Majority
Sellers, the Real Property and any improvements thereon, contain no asbestos,
urea, formaldehyde, radon, polychlorinated byphenyls (PCBs) or pesticides, at
levels above natural background levels.

2.27 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for fairness opinions or financial
advisory services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Sellers.

2.28 Investment Intent. Each Seller is purchasing the Alfalfa's
Common Stock for their own account with the present intention of holding the
Alfalfa's Common Stock for investment purposes and not with a view to or for
sale in connection with any distribution of the Alfalfa's Common Stock in
violation of any applicable securities law. Sellers will refrain from
transferring or otherwise disposing of any of the Alfalfa's Common Stock, or
any interest therein, in such manner as to cause Buyer to be in violation of
the registration requirements of the Securities Act of 1933, as amended, or
applicable state securities or blue sky laws or applicable Canadian securities
laws. Each Seller understands that the shares of Alfalfa's Common Stock which
may be sold to such Seller will bear a legend restricting transfers of such
shares, including, but not limited to, a right of first refusal for the benefit
of Alfalfa's, all as required by Canadian or United States securities laws or
set forth in the Alfalfa's Shareholders' Agreement.

IV.

REPRESENTATIONS AND WARRANTIES OF BUYER

Alfalfa's and NewCorp, jointly and severally, represent and warrant to
Sellers that, except as set forth in the disclosure schedule delivered to
Sellers on the date hereof (the "Buyer Disclosure Schedule") (which Buyer
Disclosure Schedule sets forth the exceptions to the representations and
warranties contained in this Article 3 under captions referencing the Sections
to which such exceptions apply):

3.1 Organization and Corporate Power. Each of Alfalfa's and
Alfalfa's Subsidiaries is a duly organized corporation, validly existing and in
good standing under the laws of the jurisdiction of organization in the United
States and the Province of British Columbia in Canada, as applicable, with all
requisite corporate power and authority and all authorizations, licenses,
permits and certifications necessary to own and operate their properties and to
carry on their respective business

18
<PAGE> 20
as now conducted and presently proposed to be conducted, except such licenses,
permits and certifications that are not material to the conduct of such
business. The copies of Alfalfa's Articles of Incorporation and Bylaws and
NewCorp's Memorandum and Articles attached to Section 3.1 of the Buyer
Disclosure Schedule reflect all amendments made thereto and are correct and
complete as of the date hereof. All material financial transactions of
Alfalfa's and Alfalfa's Subsidiaries (as defined in Section 3.6 below) have
been accurately recorded in the books and records of Alfalfa's.

3.2 Execution, Delivery; Valid and Binding Agreement. This
Agreement has been duly executed and delivered by Buyer and constitutes the
valid and binding obligation of Buyer, enforceable in accordance with its
terms, except that the enforceability of this Agreement may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium and other similar laws now
or hereafter in effect relating to creditors' rights generally, and (ii)
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

3.3 No Breach. Except as disclosed in Section 3.3 of the Buyer
Disclosure Schedule, the execution, delivery and performance of this Agreement
by Buyer and the consummation by Buyer of the transactions contemplated hereby
do not conflict with or result in any breach of any of the provisions of,
constitute a default under, result in a violation of, result in the creation of
a right of termination or acceleration or any lien, security interest, charge
or encumbrance upon any assets of Buyer or any Alfalfa's Subsidiary or require
any authorization, consent, approval, exemption or other action by or notice to
any court or other governmental body, under the Articles of Incorporation and
Bylaws of Alfalfa's or any Alfalfa's Subsidiary or the Memorandum and Articles
of NewCorp, as applicable, or any indenture, mortgage, lease, loan agreement or
other agreement or instrument by which Buyer or any Alfalfa's Subsidiary is
bound or affected, or any law, statute, rule or regulation or order, judgment
or decree to which Buyer or any Alfalfa's Subsidiary or the respective
businesses of Buyer or any Alfalfa's Subsidiary (including but not limited to
the properties related to the business of Alfalfa's and Alfalfa's Subsidiaries)
is subject. Alfalfa's waives any right of first refusal it may have pursuant
to the Capers Shareholders' Agreement.

3.4 Governmental Authorities; Consents. Neither Alfalfa's nor
NewCorp is required to submit any notice, report or other filing with any
governmental authority (other than informational filings required to be made
under the Investment Canada Act) in connection with the execution or delivery
by them of this Agreement or the consummation of the transactions contemplated
hereby. No consent, approval or authorization of any governmental or
regulatory authority or any other party or person is required to be obtained by
Alfalfa's or NewCorp in connection with their execution, delivery and
performance of this Agreement or the transactions contemplated hereby, other
than such consents which will be obtained on or prior to the Closing Date.

3.5 Alfalfa's Common Stock. Except as disclosed in Section 3.5 of
the Buyer Disclosure Schedule or as described in Section 2.28 hereof, the
Alfalfa's Common Stock to be purchased by Sellers will be free and clear of any
Liens, restrictions or limitations of any kind and,

19
<PAGE> 21
on the Closing Date, the delivery of a certificate or certificates representing
such common stock will transfer good and valid title to such common stock to
such Sellers free and clear of any Liens of any kind (except as disclosed in
Section 3.5 of the Buyer Disclosure Schedule) and any restrictions on transfer
pursuant to any applicable law.

3.6 Subsidiaries. Except as disclosed in Section 3.6 of the Buyer
Disclosure Schedule ("Alfalfa's Subsidiaries"), neither Alfalfa's nor any
Alfalfa's Subsidiary owns any stock, partnership interest, joint venture
interest or any other security or ownership interest issued by any other
corporation, organization or entity.

3.7 Capital Stock.

1. Alfalfa's. The authorized capital stock of Buyer
consists of 20,000,000 shares of common stock and 5,000,000 shares of preferred
stock, of which, as of the date hereof, 317,452 shares of common stock are
issued and outstanding and no shares of preferred stock are issued and
outstanding. All of the shares of Alfalfa's Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable and free of
preemptive rights, except as required by law. Alfalfa's has no other equity
securities or securities containing any equity features authorized, issued or
outstanding. Except as set forth in Section 3.7 of the Buyer Disclosure
Schedule, there are no agreements or other rights or arrangements existing
which provide for the sale or issuance of capital stock by Alfalfa's and there
are no rights, subscriptions, warrants, options, conversion rights or
agreements of any kind outstanding to purchase or otherwise acquire from
Alfalfa's any shares of capital stock or other securities of Alfalfa's of any
kind. Except as set forth in Section 3.7 of the Buyer Disclosure Schedule,
there are no agreements or other obligations (contingent or otherwise) which
may require Alfalfa's to repurchase or otherwise acquire any shares of its
capital stock, other than as set forth in the Alfalfa's Shareholders'
Agreement.

2. Subsidiaries. All of the issued and outstanding
shares of capital stock of Alfalfa's Subsidiaries are owned beneficially and of
record by Alfalfa's, free and clear of any Liens of any kind. All of the
shares of capital stock of Alfalfa's Subsidiaries have been duly authorized and
is validly issued, fully paid and nonassessable and free of preemptive rights,
except as required by law. Except as set forth in Section 3.7 of the Buyer
Disclosure Schedule, there are no agreements or other rights or arrangements
existing which provide for the sale or issuance of capital stock by Alfalfa's
Subsidiaries and there are no rights, subscriptions, warrants, options,
conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire from Alfalfa's Subsidiaries any shares of capital stock or
other securities of Alfalfa's Subsidiaries of any kind. Except as set forth in
Section 3.7 of the Buyer Disclosure Schedule, there are no agreements or other
obligations (contingent or otherwise) which may require Alfalfa's Subsidiaries
to repurchase or otherwise acquire any shares of their capital stock.

20
<PAGE> 22
3.8 Financial Statements. Section 3.8 of the Buyer Disclosure
Schedule contains copies of the unaudited consolidated balance sheet of
Alfalfa's as of May 29, 1994, and the unaudited consolidated statements of
earnings and shareholders' equity and cash flows for the eleven-month period
ended May 29, 1994 (the May 29, 1994 Financial Statements are referred to
herein as the "Buyer's Latest Financial Statements"). The Buyer's Latest
Financial Statements are based upon the information contained in the books and
records of Alfalfa's and fairly present the financial condition of Alfalfa's as
of the date thereof and results of operations for the period referred to
therein. The Buyer's Latest Financial Statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied throughout the period indicated.

3.9 Absence of Undisclosed Liabilities. Except as disclosed in
Section 3.9 of the Buyer Disclosure Schedule, neither Alfalfa's nor any of
Alfalfa's Subsidiaries has liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due, whether known or
unknown, and regardless of when asserted) arising out of transactions or events
heretofore entered into, or any action or inaction, or any state of facts
existing, with respect to or based upon transactions or events heretofore
occurring, except (i) as reflected in the Buyer's Latest Financial Statements,
and (ii) liabilities which have arisen after the date of the Buyer's Latest
Financial Statements in the ordinary course of business (none of which is a
material uninsured liability for breach of contract, breach of warranty, tort,
infringement, claim or lawsuit).

3.10 No Material Adverse Changes. Except as disclosed in Section
3.10 of the Buyer Disclosure Schedule, since the date of Buyer's Latest
Financial Statements there has been no change materially adverse, individually
or in the aggregate, to the assets, financial condition, operating results,
customers, employees or supplier relations, business condition or prospects of
Alfalfa's or Alfalfa's Subsidiaries taken as a whole.

3.11 Absence of Certain Developments. Other than pursuant to this
Agreement or disclosed in Section 3.11 of the Buyer Disclosure Schedule, since
the date of Buyer's Latest Financial Statements, neither Alfalfa's nor any
Alfalfa's Subsidiary has:

(a) borrowed any amount or incurred or become subject to
any liability, except (i) current liabilities incurred in the ordinary course
of business, (ii) liabilities under contracts entered into in the ordinary
course of business and (iii) borrowings under existing bank agreements;

(b) mortgaged, pledged or subjected to any lien, charge
or any other encumbrance, any of their assets except (i) liens for current
property taxes not yet due and payable, (ii) liens imposed by law and incurred
in the ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers, materialmen and the like, and (iii) liens in respect of
pledges or deposits under workers' compensation laws;

21
<PAGE> 23
3. discharged or satisfied any lien or encumbrance or
paid any liability, other than current liabilities paid in the ordinary course
of business or listed on the Buyer's Latest Financial Statements;

4. sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders) any
tangible assets (other than inventory and other tangible assets in the ordinary
course of business) or cancelled any debts or claims;

6. waived any rights of value or suffered any losses or
adverse changes in collection loss experience, whether or not in the ordinary
course of business or consistent with past practice;

7. declared or paid any dividends or other distributions
with respect to any shares of Alfalfa's capital stock or redeemed or purchased,
directly or indirectly, any shares of Alfalfa's capital stock or any options;

8. issued, sold or transferred any of Alfalfa's equity
securities, securities convertible into or exchangeable for any of Alfalfa's
equity securities or warrants, options or other rights to acquire any of
Alfalfa's equity securities, or any bonds or debt securities (other than as
otherwise permitted hereunder);

9. taken any other action or entered into any other
transaction other than in the ordinary course of business and in accordance
with past custom and practice, or entered into any transaction with any insider
(as defined in Section 3.22) other than the transactions contemplated by this
Agreement;

10. suffered any material theft, damage, destruction or
loss of or to any property or properties owned or used by Alfalfa's or any
Alfalfa's Subsidiary, whether or not covered by insurance;

11. other than pursuant to existing employee benefit
plans, made or granted any bonus or any wage, salary or compensation increase
to any director, officer, or consultant or made or granted any increase in any
employee benefit plan or arrangement, or amended or terminated any existing
employee benefit plan or arrangement, or adopted any new employee benefit plan
or arrangement or made any commitment or incurred any liability to any labor
organization;

22
<PAGE> 24
12. made any single capital expenditure in excess of Ten
Thousand and No/100 Dollars ($10,000) therefor;

13. other than in the ordinary course of business and as
contemplated by the Management Agreements with each of Mr. Barry Perzow and Mr.
Russell Precious (collectively, the "Management Agreements"), made any loans or
advances to, or guarantees or financial assistance for the benefit of, any
persons;

14. made charitable contributions or pledges in excess of
Ten Thousand and no/100 Dollars ($10,000.00) in the aggregate; or

15. made any change in accounting principles or practices
from those utilized in the United States and in the preparation of the Buyer's
Latest Financial Statements.

3.12 Title to Properties.

(a) The real property owned or demised by the leases
described (including the term thereof) in Section 3.12 of the Buyer Disclosure
Schedule constitutes all of the real property used or occupied by Alfalfa's or
Alfalfa's Subsidiaries (the "Alfalfa's Real Property"). The Alfalfa's Real
Property has access, sufficient for the conduct of the business of Alfalfa's or
Alfalfa's Subsidiaries as now conducted or as presently proposed to be
conducted, to public roads and to all utilities, including electricity,
sanitary and storm sewer, potable water, natural gas and other utilities, used
in the operation of the business of Alfalfa's or any Alfalfa's Subsidiary at
that location.

(b) The leases described in Section 3.12 of the Buyer
Disclosure Schedule are in full force and effect, and Alfalfa's or one of
Alfalfa's Subsidiaries that is a party to each such lease holds a valid and
existing leasehold interest under each of such leases for the term set forth in
Section 3.12 of the Buyer Disclosure Schedule. To the best knowledge of Buyer,
neither Alfalfa's nor any Alfalfa's Subsidiary is in default, and no
circumstances exist which, if unremedied, would, either with or without notice
or the passage of time or both, result in such default under any of such
leases; nor, to the best knowledge of Alfalfa's or any Alfalfa's Subsidiary, is
any other party to any of such leases in default.

(c) Section 3.12 of the Buyer Disclosure Schedule
discloses the aggregate value of the tangible properties and tangible assets of
Alfalfa's as reflected on the Buyer's Latest Financial Statements. Alfalfa's
and Alfalfa's Subsidiaries owns good and marketable title to its tangible
properties and tangible assets described in Section 3.12 of the Buyer
Disclosure Schedule and as reflected on the Buyer's Latest Financial Statements
or acquired since the date thereof, free and clear of all liens and
encumbrances, except for (i) liens for current taxes not yet due and payable,
(ii) the properties subject to the leases listed in Section 3.12 of the Buyer
Disclosure Schedule, (iii)

23
<PAGE> 25
as otherwise disclosed in Section 3.12 of the Buyer Disclosure Schedule, and
(iv) inventory disposed of since the date of Buyer's Latest Financial
Statements in the ordinary course of business.

(d) Either Alfalfa's or an Alfalfa's Subsidiary owns, or
leases under valid leases, all buildings, machinery, equipment and other
tangible assets necessary or desirable for the conduct of the business of
Alfalfa's or Alfalfa's Subsidiaries.

(e) To the best knowledge of Buyer, neither Alfalfa's nor
any Alfalfa's Subsidiary is in violation of any applicable zoning ordinance or
other law, regulation or requirement that is material to the operation of any
properties used in the operation of the business of Alfalfa's or an Alfalfa's
Subsidiary, and neither Alfalfa's nor an Alfalfa's Subsidiary has received any
notice of any such violation, or the existence of any condemnation proceeding
with respect to any of the Alfalfa's Real Property.

(f) Buyer has no knowledge of improvements made or
contemplated to be made to the Alfalfa's Real Property by any public or private
authority, the costs of which are to be assessed as special levies, taxes or
charges against any of the Alfalfa's Real Property, and there are no present
assessments for which Alfalfa's or any Alfalfa's Subsidiary would be
responsible.

3.13 Accounts Receivable. The accounts receivable reflected on
Buyer's Latest Financial Statements are valid receivables, are not subject to
valid counterclaims or setoffs, and are collectible in accordance with their
terms, except to the extent of the bad debt reserve reflected on the Buyer's
Latest Financial Statements.

3.14 Inventory. The inventory of Alfalfa's and Alfalfa's
Subsidiaries consists of items of a quality and quantity salable at Alfalfa's
normal profit levels, in each case, in the ordinary course of the business of
Alfalfa's and Alfalfa's Subsidiaries. The values at which such inventory is
carried on Buyer's Latest Financial Statements are in accordance with United
States generally accepted accounting principles. Section 3.14 of the Buyer
Disclosure Schedule discloses the value of Alfalfa's inventory as of May 1,
1994 obtained by the physical count of such inventory.

3.15 Tax Matters.

(a) Alfalfa's has: (i) timely filed all returns,
declarations, reports, estimates, information returns, and statements
("Returns") required to be filed or sent by it in respect of any Taxes (as
defined in subsection (e) below) or required to be filed or sent by it by any
taxing authority having jurisdiction; (ii) timely and properly paid (or has had
paid on its behalf) all Taxes shown to be due and payable on such Returns;
(iii) established on Buyer's Latest Financial Statements (and until the Closing
will establish on its books and record), in accordance with generally accepted
accounting principles, reserves that are adequate for the payment of any Taxes
not yet due and payable; (iv) complied with all applicable laws, rules, and
regulations relating to the

24
<PAGE> 26
withholding of Taxes and the payment thereof (including, without limitation,
withholding of Taxes under Sections 1441 and 1442 of the Internal Revenue Code
of 1986, as amended (the "Code"), and timely and properly withheld from
individual employee wages and paid over to the proper governmental authorities
all amounts required to be so withheld and paid over under all applicable laws.

(b) There are no liens for Taxes upon any assets of
Alfalfa's or any Alfalfa's Subsidiary, except for liens for Taxes not yet due.

(c) No deficiency for any Taxes has been proposed,
asserted or assessed against Alfalfa's that has not been resolved and paid in
full. No waiver, extension or comparable consent given by Alfalfa's regarding
the application of the statute of limitations with respect to any Taxes or
Returns is outstanding, nor is any request for any such waiver or consent
pending. There has been no Tax audit or other administrative proceeding or
court proceeding with regard to any Taxes or Returns, nor is any such Tax audit
or other proceeding pending, nor has there been any notice to Alfalfa's by any
Taxing authority regarding any such Tax, audit or other proceeding, or, to the
best knowledge of Buyer, is any such Tax audit or other proceeding threatened
with regard to any Taxes or Returns. Alfalfa's does not expect the assessment
of any additional Taxes and is not aware of any unresolved questions, claims or
disputes concerning the liability for Taxes of Alfalfa's which would exceed the
estimated reserves established on its books and records.

(d) All transactions that could give rise to an
understatement of federal income tax (within the meaning of Section 6661 of the
Code as it applied prior to repeal) or an underpayment of tax (within the
meaning of Section 6662 of the Code) were reported in a manner for which there
is substantial authority or were adequately disclosed (or, with respect to
Returns filed before the Closing Date, will be reported in such a manner or
adequately disclosed) on the Returns required in accordance with Sections
6661(b)(2)(B) and 6662(d)(2)(B) of the Code.

25
<PAGE> 27
(e) For purposes of this Section 3.15, the term "Tax" or
"Taxes" means all taxes, charges, fees, levies, or other assessments,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, social security, unemployment, excise, estimated,
severance, stamp, occupation, property, or other taxes, customs duties, fees,
assessments, or charges of any kind whatsoever, including, without limitation,
all interest and penalties thereon, and additions to tax or additional amounts
imposed by any taxing authority, domestic or foreign, upon Alfalfa's or any
Alfalfa's Subsidiary.

3.16 Contracts and Commitments.

26
<PAGE> 28
(a) Section 3.16 of the Buyer Disclosure Schedule lists
the following agreements, whether oral or written, to which Alfalfa's or any
Alfalfa's Subsidiary is a party, which is currently in effect, and which relate
to the operation of the business of Alfalfa's or any Alfalfa's Subsidiary (such
list to set forth the commencement date and termination or expiration date of
such agreement): (i) collective bargaining agreement or contract with any labor
union; (ii) bonus, pension, profit sharing, retirement or other form of
deferred compensation plan, other than as described in Section 3.20 hereof or
Section 3.20 of the Buyer Disclosure Schedule; (iii) hospitalization insurance
or other welfare benefit plan or practice, whether formal or informal, other
than as described in Section 3.20 hereof or Section 3.20 of the Buyer
Disclosure Schedule; (iv) stock purchase or stock option plan, other than as
described in Section 3.20 hereof or Section 3.20 of the Buyer Disclosure
Schedule; (v) contract for the employment of any officer, individual employee
or other person on a full-time, part-time or consulting basis or relating to
severance pay for any such person; (vi) confidentiality agreement other than in
the ordinary course of business; (vii) contract, agreement or understanding
relating to the voting of common stock or the election of directors of
Alfalfa's (other than the Management Agreements); (viii) agreement or indenture
relating to the borrowing of money or to mortgaging, pledging or otherwise
placing a lien on any of the assets Alfalfa's or any Alfalfa's Subsidiary; (ix)
guaranty of any obligation for borrowed money or otherwise; (x) lease or
agreement under which Alfalfa's or any Alfalfa's Subsidiary is lessee of, or
holds or operates any property, real or personal, owned by any other party;
(xi) lease or agreement under which Alfalfa's or any Alfalfa's Subsidiary is
lessor of, or permits any third party to hold or operate, any property, real or
personal; (xii) contract or group of related contracts with the same party for
the purchase of products or services other than in the ordinary course of
business; (xiii) contract or group of related contracts with the same party
(other than any contract or group of related contracts for the purchase or sale
of products or services) continuing over a period of more than six months from
the date or dates thereof, not terminable by it on 30 days or less notice
without penalty; (xiv) contract which prohibits Alfalfa's or any Alfalfa's
Subsidiary from freely engaging in business anywhere in the world; (xv)
contract for the distribution of Alfalfa's or any Alfalfa's Subsidiary's
products (including any distributor or sales contract); (xvi) any franchise
agreements; (xvii) contracts or commitments for capital expenditures which are
in excess of $10,000 individually; (xviii) agreements for the sale (other than
such sales in the ordinary course of business) of any capital asset in excess
of $10,000; provided, that such sales in the aggregate do not exceed
$200,000.00; (xix) contracts with any affiliate which in any way relates to
Alfalfa's or any Alfalfa's Subsidiary; or (xx) other agreements which are
either material to the business of Alfalfa's and Alfalfa's Subsidiaries taken
as a whole or were not entered into in the ordinary course of business.

(b) Alfalfa's and any Alfalfa's Subsidiary, as
applicable, have performed all obligations required to be performed by them in
connection with the contracts or commitments required to be disclosed in
Section 3.16 of the Buyer Disclosure Schedule and they are not in receipt of
any claim of default under any such contract or commitment; neither Alfalfa's
nor any Alfalfa's Subsidiary has any present expectation or intention of not
fully performing any material

27
<PAGE> 29
obligation pursuant to any such contract or commitment; and neither Alfalfa's
nor any Alfalfa's Subsidiary has knowledge of any breach or anticipated breach
by any other party to any such contract or commitment.

(c) Prior to the Closing Date of this Agreement,
Alfalfa's will make available to each Seller, at such Seller's request, a true
and correct copy of each written contract or commitment disclosed in Section
3.16 of the Buyer Disclosure Schedule, and a written description of each oral
contract or commitment disclosed in Section 3.16 of the Buyer Disclosure
Schedule, together with all amendments, waivers or other changes thereto.

3.17 Intellectual Property Rights. Section 3.17 of the Buyer
Disclosure Schedule describes all rights in patents, patent applications,
trademarks, service marks, trade names, corporate names, copyrights, trade
secrets, know-how or other intellectual property rights owned by, licensed to
or otherwise controlled by Alfalfa's or any Alfalfa's Subsidiary or used in,
developed for use in or necessary to the conduct of the business of Alfalfa's
or any Alfalfa's Subsidiary as now conducted, directly or indirectly, or
planned to be conducted. Alfalfa's or an Alfalfa's Subsidiary owns and
possesses all right, title and interest, or hold a valid license, in and to the
rights set forth in Section 3.17 of the Buyer Disclosure Schedule and none of
such rights has been licensed or assigned to any third party. Alfalfa's or an
Alfalfa's Subsidiary has taken all necessary action to protect the intellectual
property rights set forth under such caption. Neither Alfalfa's nor any
Alfalfa's Subsidiary has received any notice of, nor are there any facts known
to Alfalfa's or any Alfalfa's Subsidiary which indicate a likelihood of, any
infringement or misappropriation by, or conflict from, any third party with
respect to the intellectual property rights which are listed; no claim by any
third party contesting the validity of any intellectual property rights listed
under such caption has been made, is currently outstanding or, to the best
knowledge of Alfalfa's or any Alfalfa's Subsidiary, is threatened; neither
Alfalfa's nor any Alfalfa's Subsidiary has received any notice of any
infringement, misappropriation or violation by any of the intellectual property
rights of any third parties and, to the best knowledge of Alfalfa's or any
Alfalfa's Subsidiary, neither Alfalfa's nor any Alfalfa's Subsidiary has
infringed, misappropriated or otherwise violated any such intellectual property
rights; and no infringement, illicit copying, misappropriation or violation has
occurred with respect to products currently being sold by Alfalfa's or an
Alfalfa's Subsidiary with respect to the products currently under development
(in their present state of development) or with respect to the conduct of the
business of Alfalfa's or any Alfalfa's Subsidiary as now conducted.

28
<PAGE> 30
3.18 Litigation. Except as set forth in Section 3.18 of the Buyer
Disclosure Schedule, there are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of Alfalfa's, threatened
against Alfalfa's or any Alfalfa's Subsidiary, at law or in equity, or before
or by any federal, state, provincial, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.

3.19 Employees.

(a) To the best knowledge of Buyer, no executive employee
of Alfalfa's and no group of employees of Alfalfa's or any Alfalfa's
Subsidiaries has any plans to terminate his or its employment; (b) Alfalfa's
and each Alfalfa's Subsidiary has complied with all laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes; (c) all amounts required to be withheld and paid to any
governmental authority have been paid or are assumed to have been paid; (d)
neither Alfalfa's nor any Alfalfa's Subsidiary has a material labor relations
problem pending and labor relations are satisfactory; (e) there are no material
workers' compensation claims pending against Alfalfa's or any Alfalfa's
Subsidiary nor is Buyer aware of any facts that would give rise to such a
claim; (f) to the best knowledge of Buyer, no employee of Alfalfa's or any
Alfalfa's Subsidiary is subject to any confidentiality or non-competition
agreement or any other agreement or restriction of any kind that would impede
in any way the ability of such employee to carry out fully all activities of
such employee for the benefit of Alfalfa's or any Alfalfa's Subsidiary; and (g)
no employee or former employee has any claim with respect to any intellectual
property rights of Alfalfa's or any Alfalfa's Subsidiary set forth in Section
3.17 of the Buyer Disclosure Schedule.

3.20 Employee Benefit Plans. Except as disclosed in Section 3.20
of the Buyer Disclosure Schedule and except for any statutorily mandated plan
with respect to all employees and former employees of Alfalfa's and all
dependents and beneficiaries of such employees and former employees, neither
Alfalfa's nor any Alfalfa's Subsidiary maintains or contributes to any employee
benefit or pension plan. No such plans are required to be registered under any
state or federal (United States) law.

3.21 Insurance. Section 3.21 of the Buyer Disclosure Schedule
lists and briefly describes each insurance policy maintained by Alfalfa's as of
the date of Buyer's Latest Financial Statements with respect to its properties,
assets and operations and sets forth the date of expiration of each such
insurance policy. All of such insurance policies are, as of the date hereof,
and, unless Buyer notifies Sellers in writing otherwise, as of the Closing Date
will be, in full force and effect and issued by insurers of recognized
responsibility and are for amounts and cover risks customarily insured against
by prudent operators of enterprises engaged in similar business. Alfalfa's is
not in default with respect to its obligations under any of such insurance
policies.

29
<PAGE> 31
3.22 Affiliate Transactions.

To the best knowledge of Buyer, other than pursuant to this
Agreement, no officer, director or employee of Alfalfa's or any Alfalfa's
Subsidiary or any member of the immediate family of any such officer, director
or employee, or any entity in which any of such persons owns any beneficial
interest (other than any publicly-held corporation whose stock is traded on a
national securities exchange or in the over-the counter market and less than
one percent of the stock of which is beneficially owned by any of such persons)
(collectively "insiders"), has any agreement with Alfalfa's or any Alfalfa's
Subsidiary or any interest in any property, real, personal or mixed, tangible
or intangible, used in or pertaining to the business of Alfalfa's or any
Alfalfa's Subsidiary (other than ownership of capital stock of Alfalfa's). To
the best knowledge of Alfalfa's, none of the insiders has any direct or
indirect interest in any competitor, supplier or customer of Alfalfa's or any
Alfalfa's Subsidiary or in any person, firm or entity from whom or to whom
Alfalfa's or any Alfalfa's Subsidiary leases any property, or in any other
person, firm or entity with whom Alfalfa's or any Alfalfa's Subsidiary
transacts business of any nature. For purposes of this Section 3.22, the
members of the immediate family of an officer, director or employee shall
consist of the spouse, parents, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of
such officer, director or employee.

3.23 Customers and Suppliers. Since the date of Buyer's Latest
Financial Statements, no material supplier of Alfalfa's or any Alfalfa's
Subsidiary has indicated that it will stop or decrease the rate of business
done with Alfalfa's or such Alfalfa's Subsidiary except for changes in the
ordinary course of the business of Alfalfa's or Alfalfa's Subsidiary.

3.24 Officers and Directors. Section 3.24 of the Buyer Disclosure
Schedule lists all officers and directors of Alfalfa's.

30
<PAGE> 32
3.25 Compliance with Laws; Permits.

(a) Alfalfa's and, to the best knowledge of Alfalfa's,
its officers, directors, agents and employees have complied in all material
respects with all applicable laws, judgments, decrees, orders, injunctions,
rules, statutes, and regulations of all courts, arbitrators or governmental
authorities including, but not limited to, federal (United States), state,
local and foreign laws, ordinances, rules, regulations and other requirements
pertaining to product labeling, consumer products safety, equal employment
opportunity, employee retirement, affirmative action and other hiring
practices, occupational safety and health, workers' compensation, unemployment
and building and zoning codes, which materially affect the business of
Alfalfa's and Alfalfa's Subsidiaries or the Alfalfa's Real Property and to
which Alfalfa's or any Alfalfa's Subsidiary may be subject, and no claims have
been filed against Alfalfa's or an Alfalfa's Subsidiary alleging a violation of
any such laws, regulations or other requirements, in each case except as are
not material to the conduct of the business of Alfalfa's and Alfalfa's
Subsidiaries, taken as a whole. Alfalfa's has no knowledge of any action,
pending or threatened, to change the zoning or building ordinances or any other
laws, rules, regulations or ordinances affecting the Alfalfa's Real Property.

(b) Alfalfa's and Alfalfa's Subsidiaries have in full
force and effect, all licenses, permits and certificates, from federal (United
States), state, local and foreign authorities (including, without limitation,
federal and state agencies regulating the environment, occupational health and
safety) material to the conduct of the business of Alfalfa's and the Alfalfa's
Subsidiaries, respectively, and to own and operate their respective properties
(collectively, the "Permits"). Alfalfa's has conducted its business in
compliance with all material terms and conditions of the Permits. None of the
Permits will be effected by, and no consent will be required as a prerequisite
to, the purchase of the Shares.

(c) Neither Alfalfa's nor any Alfalfa's Subsidiary has
made or agreed to make gifts of money, other property or similar benefits
(other than incidental gifts of articles of nominal value) to any actual or
potential customer, supplier, governmental employee or any other person in a
position to assist or hinder Alfalfa's or an Alfalfa's Subsidiary in connection
with any actual or proposed transaction.

(d) In particular, but without limiting the generality of
the foregoing, neither Alfalfa's nor any Alfalfa's Subsidiary has violated, has
any liability or received a notice or charge asserting any violation of or
liability under federal (United States) or state acts (including rules and
regulations thereunder) regulating or otherwise affecting employee health and
safety.

31
<PAGE> 33
3.26 Environmental Matters.

(a) As used in this Section 3.26, "Hazardous Substances"
means any contaminants, pollutants, dangerous substances, liquid wastes,
individual wastes, hauled liquid wastes, toxic substances, hazardous wastes,
hazardous materials, or hazardous substances as defined in or pursuant to any
law, judgment, decree, order, injunction, rule, statute and regulation of any
court, arbitrator or governmental authority by which Alfalfa's business,
Alfalfa's or any Alfalfa's Subsidiary assets, Alfalfa's or any Alfalfa's
Subsidiary is bound or to which Alfalfa's or any Alfalfa's Subsidiary business,
Alfalfa's or any Alfalfa's Subsidiary assets, Alfalfa's or any Alfalfa's
Subsidiary is subject;

(b) Except as disclosed in Section 3.26 of the Buyer
Disclosure Schedule:

(i) neither Alfalfa's nor any Alfalfa's Subsidiary
has used any of their properties or assets, or permitted them to be
used, to generate, manufacture, refine, treat, transport, store,
handle, dispose of, transfer, produce or process Hazardous Substances,
except in compliance with applicable laws, judgments, decrees, orders,
injunctions, rules, statutes and regulations of all courts,
arbitrators or governmental authorities, including all environmental,
health and safety statutes and regulations, and to the best knowledge
of Alfalfa's, neither has any lessee, prior owner or other person;

(ii) the business of Alfalfa's or any Alfalfa's
Subsidiary and the property and assets of Alfalfa's and Alfalfa's
Subsidiaries comply in all material respects with all applicable laws,
judgments, decrees, orders, injunctions, rules, statutes and
regulations of all courts, arbitrators or governmental authorities,
including all environmental, health and safety statutes and
regulations;

(iii) to the best knowledge of Alfalfa's, none of
the businesses, assets or properties of Alfalfa's or Alfalfa's
Subsidiaries is subject to any pending judicial or administrative
proceeding alleging the violation of any applicable environmental,
health or safety law, judgment, decree, order, injunction, rule,
statute or regulation;

(iv) to the best knowledge of Alfalfa's, none of the
businesses, assets or properties of Alfalfa's and Alfalfa's
Subsidiaries is the subject of investigation by any governmental
authority evaluating whether any remedial action is needed to respond
to a release of any Hazardous Substance into the environment;

(v) neither Alfalfa's nor any Alfalfa's Subsidiary
has filed any notice under any applicable environmental, health or
safety law, judgment decree, order, injunction, rule, statute or
regulation indicating past or present treatment, storage or disposal
of a Hazardous Substance or constituent, or other substance into the
environment;

32
<PAGE> 34
(vi) neither Alfalfa's nor any Alfalfa's Subsidiary
has any contingent liability in connection with the release of any
Hazardous Substance or constituent, or other substance into the
environment;

(vii) to the best knowledge of Alfalfa's, no
underground storage tanks or surface impoundments are located on any
of the assets or properties of Alfalfa's and Alfalfa's Subsidiaries;
and

(viii) to the best knowledge of Alfalfa's, the
Alfalfa's Real Property and any improvements thereon, contain no
asbestos, urea, formaldehyde, radon, polychlorinated byphenyls (PCBs)
or pesticides, at levels above natural background levels.

3.27 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for fairness opinions or financial
advisory services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer.

COVENANTS OF CAPERS AND SELLERS

V. A. Conduct of the Business. As applicable, Sellers and
Capers agree to, and Capers shall cause Encore to, observe each term set forth
in this Section 4.1 and agree that, from the date hereof until the Closing
Date, unless otherwise consented to by Buyer in writing:

(a) The Business shall be conducted only in, and neither
Sellers nor the Companies shall take any action except in, the ordinary course,
on an arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and the Companies' past custom and
practice;

(b) Neither of the Companies shall, directly or indirectly,
do or permit to occur any of the following: (i) issue or sell any additional
shares of, or any options, warrants, conversion privileges or rights of any
kind to acquire any shares of, any of their capital stock, (ii) sell, pledge,
dispose of or encumber any of its assets, except in the ordinary course of
business; (iii) amend or propose to amend their Memorandum and Articles; (iv)
split, combine or reclassify any outstanding shares of their common stock, or
declare, set aside or pay any dividend or other distribution payable in cash,
stock, property or otherwise with respect to shares of their common stock; (v)
redeem, purchase or acquire or offer to acquire any shares of their common
stock or other of their securities; (vi) acquire (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise) any

33
<PAGE> 35
corporation, partnership, joint venture or other business organization or
division or material assets thereof; (vii) incur any indebtedness for borrowed
money or issue any debt securities except borrowings pursuant to existing bank
lines of credit identified on Section 2.9 or 2.16 of the Disclosure Schedule,
the proceeds of which are used in the ordinary course of business of the
Companies; (viii) permit any accounts payable owed to trade creditors to remain
outstanding more than 60 days; (ix) accelerate, beyond the normal collection
cycle, collection of accounts receivable; or (x) enter into or propose to enter
into, or modify or propose to modify, any agreement, arrangement or
understanding with respect to any of the matters set forth in this subparagraph
(b).

(c) Neither of the Companies shall, directly or indirectly,
(i) enter into or modify any employment, severance or similar agreements or
arrangements with, or grant any bonuses, salary increases, severance or
termination pay to, any officers or directors or consultants; or (ii) take any
action with respect to the grant of any bonuses, salary increases, severance or
termination pay or with respect to any increase of benefits payable in effect
on the date hereof other than in the ordinary course of business for a
non-manager employee consistent with past practices.

(d) Neither of the Companies shall adopt or amend any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, trust, fund or group
arrangement for the benefit or welfare of any employees or any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or arrangements for the benefit or welfare of any director.

(e) Neither of the Companies shall cancel or terminate
their current insurance policies or cause any of the coverage thereunder to
lapse, unless simultaneously with such termination, cancellation or lapse,
replacement policies providing coverage equal to or greater than the coverage
under the cancelled, terminated or lapsed policies for substantially similar
premiums are in full force and effect.

(f) Until the Closing Date, Capers shall, and shall cause
Encore to, (i) preserve intact the Business, organization and goodwill, and,
other than pursuant to the ordinary course of business consistent with past
practices, keep available the services of each of the Companies' officers and
employees as a group and maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with the
Companies; (ii) confer on a regular and frequent basis with representatives of
Buyer to report operational matters and the general status of ongoing
operations; (iii) not intentionally take any action which would render, or
which reasonably may be expected to render, any representation or warranty made
in this Agreement untrue at the Closing; (iv) notify Buyer of any emergency or
other material change in the normal course of the Business or in the operation
of any of the Companies' properties and of any governmental or third party
complaints, investigations or hearings; and (v) promptly notify

34
<PAGE> 36
Buyer in writing if either of the Companies discover that any representation or
warranty made in this Agreement was when made, or has subsequently become,
untrue in any respect.

(g) Until the Closing Date, the Companies shall (i) file any
returns, elections or information statements with respect to any liabilities
for taxes (including all federal (Canadian), provincial and local taxes) or
other matters relating to taxes which pursuant to applicable law must be filed
prior to the Closing Date; (ii) promptly upon filing, provide copies of any
such tax returns, elections or information statements to Buyer; (iii) make any
such tax elections or other discretionary positions with respect to taxes taken
by or affecting the Companies only upon prior consultation with and consent of
Buyer, such consent not to be unreasonably withheld; and (iv) not amend any
return.

(h) The Companies will cooperate fully with Buyer and will
use their best efforts to make available any necessary individuals with regard
to the filing of any future tax returns and any future audits which require
such cooperation or availability. The filing of any tax returns or responding
to any audit after the Closing Date shall be done at the Buyer's sole
discretion and direction.

(i) The Companies shall not perform any act referenced by (or
omit to perform any act which omission is referenced by) the terms of Section
2.11.

4.2 Access to Books and Records. Between the date hereof and the
Closing Date, the Companies shall afford to Buyer and its authorized
representatives (the "Buyer's Representatives") full access at all reasonable
times and upon reasonable notice to the offices, properties, books, records,
officers, employees and other items of the Companies and otherwise provide such
assistance as is reasonably requested by Buyer in order that Buyer may have a
full opportunity to make such investigation and evaluation as it shall
reasonably desire to make of the Business and affairs of the Companies.

4.3 Regulatory Filings. The Companies shall, as promptly as
practicable after the execution of this Agreement, make or cause to be made all
filings and submissions under any laws or regulations applicable to any of the
Companies for the consummation of the transactions contemplated herein. The
Companies will coordinate and cooperate with Buyer in exchanging such
information, will not make any such filing without providing to Buyer a final
copy thereof for its review and consent at least two full business days in
advance of the proposed filing and will provide such reasonable assistance as
Buyer may request in connection with all of the foregoing.

4.4 Conditions. The Companies and each of the Sellers shall take
all actions necessary or desirable to cause the conditions set forth in Section
6.1 to be satisfied (other than such conditions that are solely the obligation
of each individual Sellers) and to consummate the

35
<PAGE> 37
transactions contemplated herein as soon as reasonably possible after the
satisfaction thereof (but in any event within three business days of such
date).

4.5 No Negotiations of the Companies, etc. Until the earlier of 90
days from the date hereof, the Closing Date or the date on which this Agreement
is terminated pursuant to Section 7.1 hereof, the Companies shall not, directly
or indirectly, through any officer, director, agent or otherwise, solicit,
initiate or encourage submission of any proposal or offer from any person or
entity (including any of its or their officers or employees) relating to any
liquidation, dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the assets of, or any
equity interest in any of the Companies or other similar transaction or
business combination involving any of the Companies or furnish to any other
person any information with respect to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person or entity to do or seek any of the foregoing. The Companies
shall promptly notify Buyer if any such proposal or offer, or any inquiry from
or contact with any person with respect thereto, is made and shall promptly
provide Buyer with all information regarding such proposal, offer, inquiry or
contact.

4.6 No Negotiations of Sellers, etc. Until the earlier of 90 days
from the date hereof, the Closing Date or the date on which this Agreement is
terminated pursuant to Section 7.1 hereof, the no Seller shall, directly or
indirectly, through any officer, director, agent or otherwise, solicit,
initiate or encourage submission of any proposal or offer from any person or
entity (including any of its or their officers or employees) relating to any
liquidation, dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the assets of, or any
equity interest in any of the Companies or other similar transaction or
business combination involving either of the Companies or furnish to any other
person any information with respect to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person or entity to do or seek any of the foregoing. Each Seller
agrees to promptly notify Buyer if any such proposal or offer, or any inquiry
from or contact with any person with respect thereto, is made and shall
promptly provide Buyer with all information regarding such proposal, offer,
inquiry or contact.

4.7 Taxes. Each Seller agrees to be responsible for any and all
of their individual taxes (including all federal (United States or Canadian),
provincial, state and local taxes) resulting from their individual sale of the
Shares and the transactions contemplated by this Agreement.

4.8 Termination of Capers Shareholders' Agreement. Each Seller
and Alfalfa's hereby waives all rights of first refusal and any other
restrictions on transfer of the Shares by all of the Sellers hereunder and any
and all other rights such Seller or Alfalfa's may have, pursuant to the Caper's
Shareholders' Agreement which may be affected by this Agreement and the
transactions contemplated hereby. Each Seller further consents to the
termination of the Capers' Shareholders'

36
<PAGE> 38
Agreement which consent shall be automatically effective upon the Closing of
the sale of the Shares hereunder without further documentation.

VI.

COVENANTS OF BUYER

VI. A. Conduct of the Business. As applicable, Alfalfa's
agrees to, and shall cause the Alfalfa's Subsidiaries to, observe each term set
forth in this Section 5.1 and agrees that, from the date hereof until the
Closing Date, unless otherwise consented to by the Majority Sellers in writing
and after notice to all of the other Sellers:

(a) The business of Alfalfa's shall be conducted only in, and
Alfalfa's shall not take any action except in, the ordinary course, on an
arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and Alfalfa's past custom and practice;

(b) Neither Alfalfa's nor any Alfalfa's Subsidiary shall,
directly or indirectly, do or permit to occur any of the following: (i) issue
or sell any additional shares of, or any options, warrants, conversion
privileges or rights of any kind to acquire any shares of, any of their capital
stock, other than (x) pursuant to employee stock plans, (y) up to 5% of the
outstanding common stock of Alfalfa's (on a fully diluted basis) and (z)
pursuant to this Agreement; (ii) sell, pledge, dispose of or encumber any of
its assets, except in the ordinary course of business; (iii) amend or propose
to amend their Articles of Incorporation and Bylaws or Memorandum and Articles,
as applicable (other than amendments relating to the number of directors or as
a result of the effectiveness of the new corporation laws of the State of
Colorado); (iv) split, combine or reclassify any outstanding shares of their
common stock, or declare, set aside or pay any dividend or other distribution
payable in cash, stock, property or otherwise with respect to shares of their
common stock; (v) redeem, purchase or acquire or offer to acquire any shares of
their common stock or other of their securities, other than pursuant to the
Alfalfa's Shareholders' Agreement; (vi) incur any indebtedness for borrowed
money or issue any debt securities except borrowings pursuant to existing bank
agreements identified in Section 3.9 of the Buyer Disclosure Schedule, the
proceeds of which are used in the ordinary course of business of Alfalfa's or
Alfalfa's Subsidiaries (other than borrowings necessary to consummate the
transactions contemplated by this Agreement); (vii) permit any accounts payable
owed to trade creditors to remain outstanding more than 60 days; (viii)
accelerate, beyond the normal collection cycle, collection of accounts
receivable; or (ix) enter into or propose to enter into, or modify or propose
to modify, any agreement, arrangement or understanding with respect to any of
the matters set forth in this subparagraph (b).

(c) Neither Alfalfa's nor any Alfalfa's Subsidiary shall
cancel or terminate their current insurance policies or cause any of the
coverage thereunder to lapse, unless simultaneously

37
<PAGE> 39
with such termination, cancellation or lapse, replacement policies providing
coverage equal to or greater than the coverage under the cancelled, terminated
or lapsed policies for substantially similar premiums are in full force and
effect.

(d) Until the Closing Date, Alfalfa's shall (i) preserve
intact the business of Alfalfa's, organization and goodwill, keep available the
services of Alfalfa's and any Alfalfa's Subsidiary's officers and employees as
a group and maintain satisfactory relationships with suppliers, distributors,
customers and others having business relationships with Alfalfa's; (ii) not
intentionally take any action which would render, or which reasonably may be
expected to render, any representation or warranty made in this Agreement
untrue at the Closing; (iii) notify Sellers of any emergency or other material
change in the normal course of the business of Alfalfa's or in the operation of
Alfalfa's or any Alfalfa's Subsidiary's properties and of any governmental or
third party complaints, investigations or hearings; and (iv) promptly notify
each Seller in writing if either of Alfalfa's or Alfalfa's Subsidiaries
discover that any representation or warranty made in this Agreement was when
made, or has subsequently become, untrue in any respect.

(e) Until the Closing Date, Alfalfa's shall file any returns,
elections or information statements with respect to any liabilities for taxes
(including all federal (United States), state and local taxes) or other matters
relating to taxes which pursuant to applicable law must be filed prior to the
Closing Date.

(f) Neither Alfalfa's nor any Alfalfa's Subsidiary shall
perform any act referenced by (or omit to perform any act which omission is
referenced by) the terms of Section 3.11.

5.2 Access to Books and Records. Between the date hereof and the
Closing Date, Alfalfa's shall afford to each Seller and their authorized
representatives (the "Sellers' Representatives") full access at all reasonable
times and upon reasonable notice to the offices, properties, books, records,
officers, employees and other items of Alfalfa's and otherwise provide such
assistance as is reasonably requested by such Seller in order that such Seller
may have a full opportunity to make such investigation and evaluation as it
shall reasonably desire to make of the business and affairs of Alfalfa's and of
Alfalfa's Subsidiaries.

5.3 Regulatory Filings. Alfalfa's shall, as promptly as
practicable after the execution of this Agreement, make or cause to be made all
filings and submissions under any laws or regulations applicable to Alfalfa's
for the consummation of the transactions contemplated herein.

5.4 Conditions. Alfalfa's shall take all actions necessary or
desirable to cause the conditions set forth in Section 6.2 to be satisfied and
to consummate the transactions contemplated herein as soon as reasonably
possible after the satisfaction thereof (but in any event within three business
days of such date).

38
<PAGE> 40
5.5 Taxes. Buyer agrees to be responsible for any and all of its
separate taxes (including all federal (United States or Canadian), provincial,
state and local taxes) resulting from the purchase of the Shares and the
transactions contemplated by this Agreement.

5.6 Loans. On the Closing Date, NewCorp shall have caused the
principal amount of the loans from any Seller or Alfalfa's to Capers or Encore
to be paid in full in cash, plus any accrued and unpaid interest thereon to the
Closing Date.

5.7 Release of Personal Guarantees of Certain Sellers. Alfalfa's
agrees to cooperate with Capers in obtaining releases of any personal
guarantees of Mr. Russell Precious, Mrs. Teresa Precious, Mr. Barry Perzow and
Ms. Linda Link with respect to obligations of Capers or Encore and discharges
of security granted by a Seller in favor of a lender to Capers or Encore. In
the event such releases or discharges are unable to be obtained, Alfalfa's,
NewCorp, Capers and Encore will, jointly and severally, agree to indemnify the
Seller for any liability incurred under any such guaranty or security
agreement.

5.8 Guarantee. Alfalfa's consents and agrees to the terms,
covenants, provisions, stipulations and conditions contained in this Agreement
and is a party and joins in all covenants with NewCorp severally as well as
jointly in the same manner and to the same extent as NewCorp and, without
restricting the generality hereof, Alfalfa's covenants and agrees (without
prejudice to any rights of Alfalfa's against NewCorp) that it shall not be
discharged nor shall the liability of Alfalfa's be affected by any giving of
time for payment of monies hereby payable, nor any agreement not to call in the
monies hereby payable or any part thereof before a specified time or
substitution of any new covenant for payment or any variation expressed or
implied in any one of the terms or provisions of the Agreement, or any
omissions on the part of a Seller to enforce any covenant or stipulations
contained in the Agreement and on the part of NewCorp to be performed or
observed, or any arrangement created by the Agreement or the performance or
observance of any of NewCorp's covenants herein contained. Alfalfa's shall
have the ability to enforce any rights of NewCorp hereunder even if NewCorp
elects not to enforce such right.

VII.

CONDITIONS TO CLOSING

VII. A. Conditions to Buyer's Obligations. The obligation of
Buyer to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following conditions on or before the Closing Date
(unless waived by Buyer):

(a) The representations and warranties set forth in
Article 2 hereof shall be true and correct at and as of the date hereof and the
Closing Date, except that any such representation or

39
<PAGE> 41
warranty made as of a specified date (other than the date hereof) shall only
need to have been true on and as of such date;

(b) Each Seller shall have performed all of the covenants
and agreements required to be performed and complied with by such Seller under
this Agreement prior to the Closing;

(c) The Companies shall have obtained, or caused to be
obtained, each consent and approval necessary in order that the transactions
contemplated herein not constitute a breach or violation of, or result in a
right of termination or acceleration of, or creation of any encumbrance on any
of the Companies' assets pursuant to the provisions of, any agreement,
arrangement or undertaking of or affecting any of the Companies or any license,
franchise or permit of or affecting any of the Companies;

(d) All governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated hereby will have been duly made and obtained;

(e) Other than any threatened action by Harley Rothstein,
there shall not be threatened, instituted or pending any action or proceeding,
before any court or governmental authority or agency, domestic (Canadian) or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated hereby or seeking to obtain damages in connection
with such transactions, (ii) seeking to prohibit direct or indirect ownership
or operation by Buyer of all or a portion of the Business or assets of the
Companies or to compel Buyer or any of its affiliates or the Companies to
dispose of or to hold separately all or a portion of the business or assets of
Buyer and its affiliates or Business or assets of the Companies as a result of
the transactions contemplated hereby, (iii) seeking to require direct or
indirect transfer or sale by Buyer of any of the Common Stock, (iv) seeking to
invalidate or render unenforceable any provision of this Agreement or any of
the other agreements attached as exhibits hereto (collectively, the "Related
Agreements"), or (v) otherwise relating to and adversely affecting the
transactions contemplated hereby;

(f) There shall not be any action taken, or any statute,
rule, regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated
hereby by any federal (Canadian), provincial or foreign court, government or
governmental authority or agency, which would reasonably be expected to result,
directly or indirectly, in any of the consequences referred to in Section
6.1(e) hereof;

(g) Buyer shall not have discovered any fact or
circumstance existing as of the date of this Agreement which has not been
disclosed to Buyer as of the date of this Agreement regarding the Business,
assets, properties, condition (financial or otherwise), results of operations
or prospects of either of the Companies or Sellers which is, individually or in
the aggregate with other

40
<PAGE> 42
such facts and circumstances, materially adverse to either of the Companies,
the Business or to the value of the Common Stock;

(h) There shall have been no damage, destruction or loss of
or to any property or properties owned or used by either of the Companies,
whether or not covered by insurance, which, in the aggregate, has, or would be
reasonably likely to have, a material adverse effect on either of the Companies
or the Business;

(i) Buyer shall have received from counsel for the
Companies and Sellers a written opinion, dated as of the Closing Date,
addressed to Buyer and reasonably satisfactory in form and substance to Buyer's
counsel;

(j) Capers' Board of Directors shall have approved this
Agreement, the transfer of the Shares by Sellers and the transactions
contemplated hereby;

(k) On the Closing Date, Capers shall have delivered to
NewCorp all of the following:

a. certificates of the President of each of the
Companies dated the Closing Date, stating that the conditions
precedent set forth in subsections (a), (c), (d) and (h) above have
been satisfied;

b. copies of the third party and governmental
consents and approvals referred to in subsections (c) and (d) above;

c. the stock certificate or certificates issued
to Sellers representing the Common Stock, duly endorsed for transfer
or accompanied by a duly executed stock power;

d. each of the Companies' minute books, stock
transfer records, corporate seal and other materials related to the
Companies' corporate administration;

e. resignations (effective as of the Closing
Date) from such of the Companies' officers and members of the Boards
of Directors as Buyer shall have requested prior to the Closing Date;

f. a copy of the Memorandum and Articles of all
of the Companies, certified by the Registrar of Companies for British
Columbia and a certificate of Status from the Registrar of Companies
for British Columbia dated no less than 10 days prior to the Closing
Date;

g. executed copies of each of the Management
Agreements;

41
<PAGE> 43
h. resolutions of the Capers Board of Directors
approving this Agreement, the transfer of the Shares by Sellers and
the transactions contemplated hereby;

i. a stock certificate or certificates in the
name of NewCorp;

j. a certified copy of the Register of Members
of Capers showing NewCorp to be the sole shareholder of Capers;

k. releases, in form and substance satisfactory
to NewCorp, acting reasonably, executed by each Seller in favor of
Capers and Encore releasing Capers and Encore from any and all manner
of actions, causes of action, suits, proceedings, debts, dues,
projects, expenses, contracts, damages, claims demands, and
liabilities whatsoever (other than salaries, accrued vacation or
similar liabilities incurred by Capers or Encore in the ordinary
course of business consistent with past practices), in law or equity,
which such Seller ever had, now has, or may have against Capers and
Encore or by reason of any matter, cause or thing whatsoever done or
omitted to be done by Capers or Encore up to the Closing other than in
respect of obligations of Capers or Encore to such Seller agreed to in
writing by NewCorp; and

l. such other certificates, documents and
instruments as Buyer reasonably requested relating to the transactions
contemplated hereby;

(l) Messrs. Perzow and Precious shall have delivered
executed copies of their respective Management Agreement; and

(m) Immediately following the purchase of the Shares by
NewCorp and as a condition subsequent thereto, each Seller shall purchase
shares of Alfalfa's Common Stock and Alfalfa's shall deliver such shares in
accordance with Section 1.3 hereof and the other conditions of such Section 1.3
shall be satisfied; and

(n) Capers shall have delivered to Buyer a list of fixed
assets of Capers and Encore.

VII. B. Conditions to Sellers' Obligations. The obligations
of each Seller to consummate the transactions contemplated by this Agreement
are subject to the satisfaction of the following conditions on or before the
Closing Date (unless waived by such Seller):

(a) The representations and warranties set forth in
Article 3 hereof shall be true and correct at and as of the date hereof and the
Closing Date, except that any such representation or

42
<PAGE> 44
warranty made as of a specified date (other than the date hereof) shall only
need to have been true on and as of such date;

(b) Alfalfa's shall have performed all of the covenants
and agreements required to be performed and complied with by Alfalfa's under
this Agreement prior to the Closing;

(c) Alfalfa's shall have obtained, or caused to be
obtained, each consent and approval necessary in order that the transactions
contemplated herein not constitute a breach or violation of, or result in a
right of termination or acceleration of, or creation of any encumbrance on any
of Alfalfa's or Alfalfa's Subsidiaries assets pursuant to the provisions of,
any agreement, arrangement or undertaking of or affecting Alfalfa's or
Alfalfa's Subsidiaries or any license, franchise or permit of or affecting
Alfalfa's or Alfalfa's Subsidiaries;

(d) All governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated hereby will have been duly made and obtained;

(e) Other than any threatened action by Harley Rothstein,
there shall not be threatened, instituted or pending any action or proceeding,
before any court or governmental authority or agency, domestic (Canadian) or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated hereby or seeking to obtain damages in connection
with such transactions, (ii) seeking to prohibit direct or indirect ownership
or operation by Buyer of all or a portion of the Business or assets of the
Companies or to compel Buyer or any of its affiliates or the Companies to
dispose of or to hold separately all or a portion of the business or assets of
Buyer and its affiliates or Business or assets of the Companies as a result of
the transactions contemplated hereby, (iii) seeking to require direct or
indirect transfer or sale by Buyer of any of the Common Stock, (iv) seeking to
invalidate or render unenforceable any provision of the Related Agreements, or
(v) otherwise relating to and adversely affecting the transactions contemplated
hereby;

(g) Such Seller shall not have discovered any fact or
circumstance existing as of the date of this Agreement which has not been
disclosed to Buyer as of the date of this Agreement regarding the business,
assets, properties, condition (financial or otherwise), results of operations
or prospects of Alfalfa's and Alfalfa's Subsidiaries taken as a whole which is,
individually or in the aggregate with other such facts and circumstances,
materially adverse to Alfalfa's and Alfalfa's

43
<PAGE> 45
Subsidiaries taken as a whole, their businesses on a consolidated basis or to
the value of the Alfalfa's Common Stock;

(h) There shall have been no damage, destruction or loss of
or to any property or properties owned or used by Alfalfa's or any Alfalfa's
Subsidiary, whether or not covered by insurance, which, in the aggregate, has,
or would be reasonably likely to have, a material adverse effect on Alfalfa's
and any Alfalfa's Subsidiary taken as a whole or their businesses on a
consolidated basis;

(i) Such Seller shall have received from counsel for
Alfalfa's a written opinion, dated as of the Closing Date, addressed to such
Seller and reasonably satisfactory in form and substance to Sellers' counsel
relating to the due authorization and issuance of the Alfalfa's Common Stock;

(j) Alfalfa's Board of Directors shall have approved this
Agreement and the transactions contemplated hereby.

(k) On the Closing Date, Alfalfa's shall have delivered
to such Seller all of the following:

(i) certificate of the President of Alfalfa's
dated the Closing Date, stating that the conditions precedent set
forth in subsections (a), (c), (d) and (h) above have been satisfied;

(ii) copies of the third party and governmental
consents and approvals referred to in subsections (c) and (d) above;

(iii) a copy of the Articles of Incorporation of
Alfalfa's, certified by the Secretary of State of the State of
Colorado and a certificate of good standing from the Secretary of
State of the State of Colorado dated no less than 10 days prior to the
Closing Date;

(iv) resolutions of the Alfalfa's Board of Directors
approving this Agreement and the transactions contemplated hereby; and

(v) such other certificates, documents and
instruments as Sellers' Representatives have reasonably requested
relating to the transactions contemplated hereby.

(l) Immediately following the Closing of the purchase and
sale of the Shares hereunder and as a condition subsequent thereto, Alfalfa's
shall have delivered the shares of

44
<PAGE> 46
Alfalfa's Common Stock required to be delivered under Section 1.3 hereof, upon
payment therefor, and the other conditions set forth in Section 1.3 shall have
been satisfied;

(m) Any indemnity of Alfalfa's, NewCorp, Capers and
Encore which may be required under Section 5.7 hereof shall have been provided
by Alfalfa's in such form that is reasonably satisfactory to the persons to be
indemnified pursuant to Section 5.7; and

(n) Clearance certificates under Section 116 of the
Income Tax Act (Canada) shall have been issued for those Sellers, who are
"non-residents" of Canada, it being understood that this condition to Closing
is solely for the benefit of such Sellers and waivable solely by such Sellers
on their individual behalf.

VIII.

TERMINATION

VIII. A. Termination. This Agreement, as a separate
agreement with respect to Buyer and each Seller, may be terminated at any time
prior to the Closing:

1. by the mutual consent of Buyer and a Seller;

2. by either Buyer or a Seller if there has been a
misrepresentation, breach of warranty or breach of covenant on the part of the
other in the representations, warranties and covenants set forth in this
Agreement;

3. by either Buyer or a Seller if, due to the discovery
of material adverse information based upon documents or information regarding
Capers or Encore, in the case of Buyer, or Alfalfa's, in the case of a Seller,
received after the date hereof, such party determines, in its sole discretion,
not to pursue the consummation of the transactions contemplated hereby; or

4. by Buyer if, after the date hereof, there shall have
been a material adverse change in the financial condition or business of either
of the Companies or the Business or if an event shall have occurred which, so
far as reasonably can be foreseen, would result in any such change, except to
the extent such change is directly caused by Buyer; or

5. by a Seller if, after the date hereof, there shall
have been a material adverse change in the financial condition or business of
Alfalfa's and Alfalfa's Subsidiaries taken as a whole or if an event shall have
occurred which, so far as reasonably can be foreseen, would result in any

45
<PAGE> 47
such change, except to the extent such change is caused by either of the
Companies or one or more Sellers; or

(f) by Buyer, at its sole discretion, if any other Seller
or Sellers default in their obligations under their respective Agreement or
terminate their respective Agreement pursuant thereto, and all such Agreements
shall terminate without liability on the part of any non-defaulting Seller or
Buyer; or

(g) by Buyer, within seven days of receipt by Buyer of
the Disclosure Schedule, if the Disclosure Schedule discloses any fact that
Buyer determines, in its sole judgment, to be adverse or potentially adverse to
Buyer.

VIII. B. Effect of Termination. In the event of termination
of this Agreement by either Buyer or a Seller as provided in Section 7.1, this
Agreement shall become void and there shall be no liability on the part of
either Buyer or such Seller, or their respective stockholders, officers, or
directors, except that Sections 9.2 and 9.10 hereof shall survive indefinitely.
Without limiting the generality of the immediately preceding sentence, in the
event a Seller elects to terminate this Agreement pursuant to Section 7.1(c) or
(e), Buyer shall not be liable to such Seller for any amount whatsoever.
Nothing contained in this Section 7.2 shall relieve any party hereto from any
liability for any breach of this Agreement. The termination of this Agreement
by a Seller with respect to the purchase and sale of his Shares of Capers shall
in no way effect the obligations of any other Seller hereunder.

IX.

SURVIVAL; INDEMNIFICATION

IX. A. Survival of Representations and Warranties.
Notwithstanding any investigation made by or on behalf of any of the parties
hereto or the results of any such investigation and notwithstanding the
participation of such party in the Closing, the representations and warranties
contained in Article 2 and Article 3 hereof shall survive the Closing for three
years subsequent to the Closing Date.

IX. B. Indemnification by Sellers. Subject to Section 8.4,
each Seller, severally and not jointly, agree to indemnify Buyer and its
officers, directors, employees, agents and stockholders (collectively, the
"Buyer Indemnified Parties") and hold them harmless against any loss,
liability, deficiency, damage, expense or cost (including reasonable accounting
or legal expenses, or any tax liabilities, deficiencies or penalties due to any
governmental authority by a Seller), whether or not actually incurred or paid
(collectively, "Losses"), which Buyer Indemnified Parties may suffer, sustain
or become subject to, as a result of (i) any misrepresentation in any of the
representations

46
<PAGE> 48
and warranties of such Seller contained in this Agreement or in any exhibits,
schedules, certificates or other documents delivered or to be delivered by or
on behalf of such Seller pursuant to the terms of this Agreement or otherwise
referenced or incorporated in this Agreement (collectively, the "Related
Documents"), or (ii) any breach of, or failure to perform, any agreement of
such Seller contained in this Agreement or any of the Related Documents (other
than the Management Agreements and the Alfalfa's Shareholders' Agreement)
(collectively, "Buyer Losses"); provided that, such Seller will be so liable to
the Buyer Indemnified Parties for any such Buyer Losses:

1. only if the Buyer Indemnified Party delivers written
notice thereof setting forth in reasonable detail the identity, nature and
amount of Buyer Losses related to such claim or claims prior to the third
anniversary of the Closing Date. Buyer's failure to provide such detail shall
not constitute either a breach of this Agreement by Buyer or any basis for any
Seller to assert that Buyer did not comply with the terms of this Section 8.2
sufficient to cause Buyer to have waived its rights under this Section 8.2; and

2. only if, individually or in the aggregate, the amount
of Buyer Losses exceeds $5,000.00, in which case such Seller shall be obligated
to indemnify Buyer only for the excess of the amount of such Buyer Losses over
$5,000.00; provided that, it is understood that such amount need be satisfied
only once with respect to all Sellers collectively and not each Seller
individually;

3. only to the extent that Buyer actually incurs or pays
such Buyer Losses;

(d) only for the net amounts after any applicable
withholding of goods and service taxes; and

(e) the liability of each Seller to Buyer shall be
limited to the aggregate Purchase Price received by such Seller for his Shares.

47
<PAGE> 49
IX. C. Indemnification by Buyer. Subject to Section 8.4,
Buyer agrees to indemnify each Seller and hold him harmless against any Losses
which such Seller may suffer, sustain or become subject to as a result of (i)
any misrepresentation in any of the representations and warranties of Buyer
contained in this Agreement or in any exhibits, schedules, certificates or
other documents delivered or to be delivered by or on behalf of Buyer hereunder
or otherwise referenced or incorporated in this Agreement (collectively, the
"Buyer's Related Documents"), (ii) any breach of, or failure to perform, any
agreement of Buyer contained in this Agreement or any of the Buyer's Related
Documents, or (iii) any claims or threatened claims against such Seller arising
out of the actions or inactions of Buyer with respect to the Business or the
Real Property after the Closing Date (collectively, "Sellers Losses"); provided
that, Buyer will be so liable to the Sellers for any such Sellers Loss:

1. only if a Seller delivers to Buyer written notice
thereof, setting forth in reasonable detail the identity, nature and amount of
Sellers Losses related to such claim or claims prior to the third anniversary
of the Closing Date. A Seller's failure to provide such detail shall not
constitute either a breach of this Agreement by such Seller or any basis for
Buyer to assert that such Seller did not comply with the terms of this Section
8.3 sufficient to cause such Seller to have waived his rights under this
Section 8.3;

2. only if individually or in the aggregate, the amount
of Sellers Losses exceeds $5,000.00, in which case Buyer shall be obligated to
indemnify a Seller only for the excess of the amount of such Sellers Losses
over $5,000.00;

3. only to the extent that a Seller actually incur or
pay such Sellers Losses;

(d) only for the net amounts after any applicable
withholding of goods and services taxes; and

(e) the liability of Buyer to each Seller shall be
limited to the amount of the Purchase Price received by such Seller.

IX. D. Method of Asserting Claims. As used herein, an
"Indemnified Party" shall refer to a "Buyer Indemnified Party" or "Sellers," as
applicable. The "Indemnifying Party" shall refer to the party hereto obligated
to indemnify such Indemnified Party.

1. In the event that any of the Indemnified Parties is
made a defendant in or party to any action or proceeding, judicial or
administrative, instituted by any third party for the liability under which or
the costs or expenses of which are Losses (any such third party action or
proceeding being referred to as a "Claim"), the Indemnified Party shall give
the Indemnifying Party notice thereof. The failure to give such notice shall
not affect any Indemnified Party's ability to seek reimbursement under this
Article 8 unless such failure has materially and adversely affected the

48
<PAGE> 50
Indemnifying Party's ability to defend successfully a Claim. The Indemnifying
Party shall be entitled to contest and defend such Claim; provided that the
Indemnifying Party (i) has a reasonable basis for concluding that such defense
may be successful and (ii) diligently contests and defends such Claim. Notice
of the intention so to contest and defend shall be given by the Indemnifying
Party to the Indemnified Party within 20 business days after the Indemnified
Party's notice of such Claim (but, in all events, at least five business days
prior to the date that an answer to such Claim is due to be filed). Such
contest and defense shall be conducted by reputable attorneys employed by the
Indemnifying Party. The Indemnified Party shall be entitled at any time, at
its own cost and expense (which expense shall not constitute a Loss unless the
Indemnified Party reasonably determines that the Indemnifying Party is not
adequately representing or, because of a conflict of interest, may not
adequately represent, any interests of the Indemnified Parties, and only to the
extent that such expenses are reasonable), to participate in such contest and
defense and to be represented by attorneys of its or their own choosing. If the
Indemnified Party elects to participate in such defense, the Indemnified Party
will cooperate with the Indemnifying Party in the conduct of such defense.
Neither the Indemnified Party nor the Indemnifying Party may concede, settle or
compromise any Claim without the consent of the other party, which consents
will not be unreasonably withheld. Notwithstanding the foregoing, (i) if a
Claim seeks equitable relief or (ii) if the subject matter of a Claim relates
to the ongoing business of any of the Indemnified Parties, which Claim, if
decided against any of the Indemnified Parties, would materially adversely
affect the ongoing business or reputation of any of the Indemnified Parties,
then, in each such case, the Indemnified Parties alone shall be entitled to
contest, defend and settle such Claim in the first instance without any loss of
right to indemnification hereunder and, if the Indemnified Parties do not
contest, defend or settle such Claim, the Indemnifying Party shall then have
the right to contest and defend (but not settle) such Claim.

2. In the event any Indemnified Party should have a
claim against any Indemnifying Party that does not involve a Claim, the
Indemnified Party shall deliver a notice of such claim with reasonable
promptness to the Indemnifying Party. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such notice
or fails to notify the Indemnified Party within 30 days after delivery of such
notice by the Indemnified Party whether the Indemnifying Party disputes the
claim described in such notice, the Loss in the amount specified in the
Indemnified Party's notice will be conclusively deemed a Liability of the
Indemnifying Party and the Indemnifying Party shall pay the amount of such Loss
to the Indemnified Party on demand.

3. After the Closing, the rights set forth in this
Article 8 shall be each party's sole and exclusive remedies against the other
party hereto for misrepresentations or breaches of covenants contained in this
Agreement and the Related Documents. Notwithstanding the foregoing, nothing
herein shall prevent any of the Indemnified Parties from bringing an action
based upon allegations of fraud or other intentional breach of an obligation of
or with respect to either party in

49
<PAGE> 51
connection with this Agreement and the Related Documents. In the event such
action is brought, the prevailing party's attorneys' fees and costs shall be
paid by the non-prevailing party.

MISCELLANEOUS

X. A. Press Releases and Announcements. Prior to the
Closing Date, neither party hereto shall make a public announcement of the
transactions contemplated hereby except if (a) Buyer and Capers agree to
jointly make such an announcement, or (b) required by law, provided that
nothing herein shall prevent disclosure by Buyer or Sellers of the transactions
contemplated hereby to their respective agents, accountants, counsel, board of
directors, shareholders or employees. If any such public announcement is
required by law, the party making such disclosure shall consult with the other
party prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure which
is satisfactory to both parties.

X. B. Expenses. Except as otherwise expressly provided for
herein, Sellers and Buyer will pay all of their own expenses (including
attorneys' and accountants' fees (and, in the case of Sellers, the expenses of
the Companies)) in connection with the negotiation of this Agreement, the
performance of their respective obligations hereunder and the consummation of
the transactions contemplated by this Agreement (whether consummated or not).

X. C. Further Assurances. Sellers agree that, on and after
the Closing Date, they shall take all appropriate action and execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the provisions hereof, including,
without limitation, obtaining all necessary consents with respect to the
Permits as are necessary as a result of the transactions contemplated by this
Agreement.

X. D. Amendment and Waiver. This Agreement may not be
amended or waived except in a writing executed by the party against which such
amendment or waiver is sought to be enforced. No course of dealing between or
among any persons having any interest in this Agreement will be deemed
effective to modify or amend any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement.

50
<PAGE> 52
X. E. Notices. All notices, demands and other
communications to be given or delivered under or by reason of the provisions of
this Agreement will be in writing and will be deemed to have been given when
personally delivered or mailed by first class mail, return receipt requested,
or when receipt is acknowledged, if sent by facsimile, telecopy or other
electronic transmission device. Notices, demands and communications to Buyer
and Sellers will, unless another address is specified in writing, be sent to
the address indicated below:

<TABLE>
<S> <C>
Notices to Buyer: with a copy to:
- ----------------- ---------------

Alfalfa's, Inc. Brownstein Hyatt Farber &
1645 Broadway Strickland, P.C.
Boulder, Colorado 80302 410 17th Street, 22nd Floor
Attention: Caryn D. Ellison Denver, Colorado 80202-4437
Telecopy: (303) 440-5404 Attention: Nesa E. Hassanein
Telecopy: (303) 623-1956
Alfalfa's Canada, Inc.
c\o Alfalfa's, Inc.
1645 Broadway
Boulder, Colorado 80302
Attention: Caryn D. Ellison
Telecopy: (303) 440-5404

Notices to Companies: with a copy to:
- -------------------- --------------

Capers Management Holdings Inc. McCarthy Tetrault
224-2211 West 4th Avenue P. O. Box 10424
Vancouver, B.C. VGK 4S2 Pacific Center
Telecopy (604) 739-6649 1300-777 Dunsmuir Street
Vancouver, B.C. Canada V7Y 1K2
Attn: Mitchell Gropper, Q.C.
Telecopy: (604) 643-7900

Notices to Sellers: with a copy to:
- ------------------- --------------

At their respective McCarthy Tetrault
addresses set forth below P. O. Box 10424
their names on the signature Pacific Centre
pages hereto 1300-777 Dunsmuir Street
Vancouver, BC Canada V7Y 1K2
Attn: Mitchell Gropper, Q.C.
Telecopy: (604) 643-7900
</TABLE>

51
<PAGE> 53
X. F. Assignment. This Agreement and all of the provisions
hereof will be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, except that neither this
Agreement nor any of the rights, interests or obligations hereunder may be
assigned by either party hereto without the prior written consent of the other
party hereto.

X. G. Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.

X. H. Complete Agreement. This Agreement and the Related
Agreements and other exhibits hereto, the Disclosure Schedule and the Buyer
Disclosure Schedule and the other documents referred to herein contain the
complete agreement between the parties and supersede any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way.

X. I. Counterparts. This Agreement may be executed in one
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together will constitute one
and the same instrument.

X. J. GOVERNING LAW. THE INTERNAL LAW, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF COLORADO WILL GOVERN ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE PERFORMANCE
OF THE OBLIGATIONS IMPOSED BY THIS AGREEMENT. THE PARTIES HERETO SUBMIT AND
CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
COLORADO.

X. K. Time. Time shall be of the essence hereof.

9.12 Currency. All references to dollar amounts and "$" are
references to United States dollars.

52
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

BUYER:

ALFALFA'S CANADA, INC., a British
Columbia corporation

By: /s/ S. M. Hassan
-------------------------------------
S. M. HASSAN, PRESIDENT

ALFALFA'S, INC., a Colorado
corporation

By: /s/ S. M. Hassan
-------------------------------------
S. M. HASSAN, PRESIDENT

SELLERS:

/s/ Stuart Abelson
----------------------------------------
STUART ABELSON
Address: c/o Kipnis Kahn
30 North La Salle Street
Suite 2024
Chicago IL 60602-2504

/s/ Carol Journeay
----------------------------------------
CAROL JOURNEAY
Address: Great Pacific Ventures
c/o Bull Housser & Tupper
P. O. Box 11130
30th Floor
1055 West Georgia Street
Vancouver, B.C. V6E 3R3

/s/ Linda Link
----------------------------------------
LINDA LINK
Address: Cape Mudge Road
Quanthiaski Cove, B.C.
V0P 1N0

53
<PAGE> 55
/s/ Barry Perzow
----------------------------------------
BARRY PERZOW
Address: 1418 Haywood Avenue
W. Vancouver, B.C. V7T 1V6

/s/ Russell Precious
----------------------------------------
RUSSELL PRECIOUS
Address: Fire #2711
Upper 6 Mile Lake Road
Nelson. B.C. V1L 5P4

/s/ Teresa Precious
----------------------------------------
TERESA PRECIOUS
Address: Fire #2711
Upper 6 Mile Lake Road
Nelson. B.C. V1L 5P4

/s/ Lorne Rubinoff
----------------------------------------
LORNE RUBINOFF
Address: 5762 Larson Place
W. Vancouver, B.C. V7W 1S4

/s/ James Wilson
----------------------------------------
JAMES WILSON
Address: 07 Camino Alta
Santa Fe, NM 87505

ELEANOR H. WILSON TRUST NO.1

By: /s/ James Wilson
----------------------------------------
JAMES WILSON, TRUSTEE
Address: 07 Camino Alta
Santa Fe, NM 87505

54
<PAGE> 56
COMPANY:

CAPERS MANAGEMENT HOLDINGS INC.

By: /s/ Russell Precious
----------------------------------------
RUSSELL PRECIOUS, PRESIDENT

<PAGE> 1
SHARE PURCHASE AGREEMENT

This SHARE AND PURCHASE AGREEMENT (the "Agreement") is made as of
July 14, 1994, by and among WILD OATS MARKETS, Inc., a Delaware corporation
with its principal office at 1668 Valtec Lane, Boulder, Co. 80301 ("Buyer"), and
the holders of the Common Stock of KATHY'S NATURAL FOOD RANCH MARKET, INC. and
KATHY'S NATURAL FOOD RANCH MARKET-WEST, INC. (Nevada corporations referred to
collectively herein as the "Corporations"); (The holders of the Common Stock of
the Corporations are referred to collectively as the "Selling Stockholders");
KATHY MELBY, an individual; and RICH ARCARIS, an individual. Certain other
individual employees of the Corporations listed on Exhibit A attached hereto
(the "Key Employees"), and also listed on Exhibit A, holders of options on the
Selling Stockholder's stock ("Option-holders") are also signatories to this
agreement for the limited purpose of relinquishing their claim to stock, if any,
and receipt of consideration therefor.

RECITALS

A. Selling Stockholders own, in aggregate, all of the issued and
outstanding shares of capital stock of the Corporations (the "Shares"), and the
Selling Stockholders desire to sell all such Shares to Buyer for cash and other
consideration.

B. The parties previously entered into the Option Agreement dated July
14, 1994 (the "Option Agreement") in which the parties agreed to enter into
this Agreement upon the satisfaction of certain conditions, and a Management
Agreement dated July 14, 1994 (the "Management Agreement") pursuant to which
the Buyer is operating the Stores.

C. This Agreement has been approved by the Boards of Directors of the
Corporations and is hereby approved by the Selling Stockholders, who constitute
all the shareholders of Corporations.

AGREEMENT

NOW, THEREFORE, in consideration of their mutual covenants, promises, and
obligations set forth in this Agreement, the parties agree as follows:

1. DESCRIPTION OF TRANSACTION

1.1 Purchase Price. The Purchase Price of the Shares is as follows:

a) Two Million Four Hundred Thousand Dollars ($2,400,000) cash or
certified funds, paid upon execution of the Option Agreement and held in escrow
until the Closing, as defined below, plus One Hundred Thousand Dollars
($100,000) plus accumulated interest, which Buyers paid to Selling Stockholders
as earnest money; all to be distributed, one-half to the Option-holders and
one-half to the Selling Stockholders, at closing;

<PAGE> 2

b) Four Hundred Eighty Thousand Dollars ($480,000) in cash/common stock
of Buyer, to be paid or distributed to the Key Employees, in increments no less
favorable than to the Selling Stockholders, as specified on the attached
Exhibit 1.1(b)(i), and with respect to the sale of the Common Stock, pursuant
to the forms of the investment letter attached as Exhibit 1.1(b)(ii);

c) One Million Five Hundred Thousand Dollars ($1,500,000), one-half to be
paid to the Selling Stockholders and one-half to the Option-holders in cash or
certified funds on or before April 14, 1995. Such payment shall be secured by
a One Million Five Hundred Thousand Dollar ($1,500,000) stand-by irrevocable
letter of credit, which Selling Stockholders may draw down only in the event
that Buyer does not pay the $1,500,000 when due. Said letter of credit is to
be obtained from a federally insured bank;

d) One Million Six Hundred Thousand Dollars ($1,600,000), one-half to be
paid to the Selling Stockholders and one-half to the Option-holders in cash or
certified funds on or before October 14, 1995;

e) The amount, if any, in cash or certified funds to be paid on or before
April 14, 1995, by which the Wholesale Value (as defined herein) of the
Inventory (as defined herein) of the Corporations' retail stores exceed the sum
of Seven Hundred Thousand Dollars ($700,000), as determined in accordance with
Paragraph 1.4 of this Agreement. Said amount is to be paid one-half to Selling
Stockholders and one-half to Option-holders;

f) Assumption of certain long-term debts, the specifics of which are
detailed in the attached Exhibit 1.1(f). Subject to the terms of the
agreements with the third parties to whom the debts are owed, Buyer may prepay
such debts, without penalty. Such debts shall be paid in full on or before the
time for payment called for under the last paragraph of Section 1.1, pertaining
to Buyer's IPO. However, if Buyer has not raised capital through an IPO prior
to October 15, 1995, Buyer shall pay off such debts or direct that the Escrow
Shares, as defined in Section 2 of this Agreement, remain in Escrow until the
long term debts are paid off in full;

g) Cash or certified funds at Closing, to be paid one-half to Selling
Stockholders and one-half to Option-holders, in the amount of any lease
deposits for the Stores, utility deposits, sales tax deposits, pro-rated
insurance premiums and other deposits of like nature, as described in Exhibit
1.6(f).

In the event Buyer raises capital through an initial public offering ("IPO"),
all amounts of the Purchase Price then outstanding shall be paid in full within
seven days of Buyer's receipt of the proceeds.

1.2 Closing. The closing of the purchase and sale of the Stock hereunder
shall take place at a closing ("Closing"), which shall be held at the offices
of Thomas KLC, 4625 South 2300 East, Salt Lake City. The Closing shall take
place at 10:00 a.m. or such time and place as the Buyer and Seller may agree.

<PAGE> 3

1.3 Assets of the Corporations. The primary assets of the Corporations
include two retail natural foods stores in Las Vegas, Nevada, located at 3455
East Flamingo Road (the "East Store") and 6720 West Sahara Boulevard (the "West
Store") (The East Store and the West Store are referred to collectively as the
"Stores") and the fixtures, equipment, inventories and leases pertaining to the
Stores. An equipment list is attached as Exhibit 1.3

1.4 Inventory. On July 13th and 14th, 1994, representatives of Buyer and
the Corporations will be present at the West Store and East Store,
respectively, and shall simultaneously and together perform an Inventory (as
defined below) of the Stores for purposes of Section 1.1(e). The Wholesale
Value shall be determined as either (i) the Corporations' cost or (ii) a
percentage of suggested retail price (which may be different from the
Corporations' acquisition cost, which may be better than wholesale) for the
different departments of inventory as follows:

<TABLE>
<S> <C> <C>
Department Description Cost or %
1 Grocery 67.5%
2 Vitamins 55.0
3 Cosmetics 60.0
4 Books 65.0
5 Cafe & Deli Cost
6 Produce Cost
7 Meat Cost
8 Frozen & Dairy 70.0
9 Grocery Taxable 67.5
10 Bakery 67.5
</TABLE>

Inventory shall include (a) the product held in the Stores; (b) fresh dates
held at R.M.C. Foods; (c) less than a truckload of juice held at Nature's Best;
and (d) the product held in two trailers behind the West Store and one trailer
behind the East Store.

1.5 Action by Selling Stockholders at Closing. At Closing, subject to
the terms and conditions of this Agreement and pursuant to documents reasonably
satisfactory in form and substance to Buyer and its counsel, Selling
Stockholders shall deliver to Buyer:

(a) Certificates representing the Shares, duly endorsed or accompanied by
stock powers duly executed in blank and otherwise in form acceptable for
transfer on the books of the Corporations, with such stock certificates to be
delivered to the escrow agent;

(b) The stock books, stock ledgers, minute books, and corporate seal, if
any, of the Corporations and all other books and records of the Corporations
being located at the corporate premises of the Corporations;

<PAGE> 4

(d) Copies of any books and records pertaining to the Stores' operations.
Buyer recognizes that the original documents including cancelled checks, bank
statements, invoices, accounting records, along with the work papers are held
in control by Management Accounting in Salt Lake City, Utah. Said Management
Accounting shall either continue to hold all of such papers for the benefit of
the corporations, or at Wild Oats expense copies of the same may be provided.
It is necessary, since Management Accounting has previously prepared tax
returns and other documents for the corporations, that it retain such documents
as backup for the same. Nevertheless, full cooperation at the expense of Wild
Oats, will be freely given;

(e) Certified copies of all Board of Directors and Shareholders actions
and approvals required for Selling Stockholders to consummate the transactions
contemplated hereunder;

(f) A list setting forth the known accrued vacation and sick time of
employees of the Corporations as of the Closing;

(g) Buyer may obtain, if desired, letters from Nevada Sales Tax
authorities certifying that the Stores' sales tax accounts are current.

1.6 Action by Buyer at Closing. At Closing, subject to the terms and
conditions of the Agreement and pursuant to documents reasonably satisfactory
in form and substance to Selling Stockholders, Buyer shall:

(a) Pay the Two Million Five Hundred Thousand Dollars ($2,500,000) [with
interest accrued] pursuant to the Option Agreement, which amount shall be
deemed paid against the purchase price.

(b) Pay, in cash or certified funds, and distribute Buyer's common stock
to the Key Employees, pursuant to the attached Exhibit 1.1(b)(i), and provide
documentation (satisfactory to Key Employees) of future payments and
distributions, pursuant to said Exhibit 1.1(b)(i). The form of the Promissory
Notes are attached as Exhibit 1.6(b);

(c) Deliver to the Selling Stockholders and Option-holders Promissory
Notes in the total amount of One Million Five Hundred Thousand Dollars
($1,500,000), payable in full April 14, 1995, and secured by the letter of
credit, as set forth in Section 1.1(c). The form of said Note is attached as
Exhibit 1.6(c);

(d) Deliver to the Selling Stockholders and Option-holders Promissory
Notes in the total amount of One Million Six Hundred Thousand Dollars
($1,600,000), payable in full October 15, 1995. The form of said Notes is
attached as Exhibit 1.6(d);

(e) Deliver to the Selling Stockholders and Option-holders Promissory
Notes, pursuant to Section 1.1(e), in the amount, if any, of the excess
Wholesale Value of the Inventory calculated pursuant to Section 1.4, payable in
full April 15, 1995. The form of said Notes is attached as Exhibit 1.6(e).

<PAGE> 5

(f) Pay to the Selling Stockholders and Option-holders, in cash or
certified funds, the amount of any lease deposits for the Stores, utility
deposits, sales tax deposits, pro-rated insurance premiums and other deposits
of like nature, in the amounts described in Exhibit 1.6(f);

(g) Grant to Selling Stockholders a subordinated security interest (in
form satisfactory to Selling Stockholders) in all fixtures, equipment and
assets of the Corporations in existence immediately prior to Closing, as
additional security for Buyer's obligations under 1.6(d) and 1.6(e).

2. ESCROW OF SHARES

At Closing, Selling Stockholders and Buyer shall deliver to Zions First
National Bank, as Escrow Agent ("Escrow Agent") a certificate representing 100%
of the Shares (the "Escrow Shares") for the purpose of securing the payment of
the Purchase Price set forth in the Escrow Agreement attached as Exhibit 2.0
(the "Escrow Agreement"). The Escrow Shares shall be held by the Escrow Agent
under the Escrow Agreement pursuant to the terms thereof. The Escrow Shares
shall be held as a trust fund and shall not be subject to any lien, attachment,
trustee process or any other judicial process of any creditor of any party, and
shall be held and disbursed solely for the purposes in accordance with the
terms of the Escrow Agreement.

3. TRANSITION OF BUSINESS

3.1 Trade Names, Trademarks, and Service Marks. The parties understand
and agree that Buyer may use the name "Kathy's" (in any form or derivative) as
a tradename, trademark or servicemark but only in the city of Las Vegas and all
other rights to such name shall remain with some or all of the Selling
Stockholders/Corporations. The Selling Stockholders/Corporations agree that
upon request by Buyer, the Selling Stockholders/Corporations shall execute a
license agreement for use of the Kathy's name in accordance with this Section
3.1.

3.2 Store Operations. The parties entered into a Management Agreement
dated July ____, 1994, under which Buyer has operated the stores since
_______________, 1994. Until Closing, Buyer shall continue to operate the
Stores in the ordinary and usual course of business. After Closing, Buyer
shall be responsible for the operation of the Stores.

3.3 Employees. Selling Stockholders do not warrant or represent that any
of the employees will agree to continue to work at the Stores or otherwise work
for Buyer. Buyer agrees to pay sick and vacation pay, accrued as of Closing.
Prior to Closing, Selling Stockholders will make available to Buyer all records
concerning the Corporations' employee compensation and benefits.

3.4 Transition Assistance. From the execution of the Option Agreement,
Arcaris and Melby each hereby agree to assist Buyer in the transition of the
business to Buyer for which assistance Arcaris and Melby shall be paid
$78,003.00 and $43,002.00, respectively, Melby's assistance shall be limited
to organizing seminars and coordinating the quarterly "Kathy's" newsletter.
Arcaris' assistance shall consist of performance of functions as previously
performed

<PAGE> 6

and such assistance shall not require more than two days per week in Las Vegas
and one day per week in Salt Lake City. Arcaris' assistance shall not extend
beyond April 15, 1995, and Melby's shall not extend beyond January 15, 1995.
Melby's fees hereunder shall be paid in advance. Both shall be payable
regardless of whether Buyer makes any requests for transition assistance.
Arcaris' fees hereunder shall be aid in equal monthly payments of $8,667.00.

4. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS

Selling Stockholders, represent and warrant as follows:

4.1 Organization, Good Standing, Enforceability. To the best of their
knowledge, the Corporations are duly organized, validly existing, and in good
standing under the laws of the State of Nevada and have full corporate power
and authority to carry on business in the State of Nevada and to own or hold
under lease or similar agreement the properties and assets they now own or
hold; and have full corporate power and authority to carry out the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Selling Stockholders and is a valid, binding and legal obligation of Selling
Stockholders enforceable against Selling Stockholders in accordance with its
terms. Selling Stockholders have the power and authority to enter into and
perform their obligations under this Agreement.

4.2 Capitalization and Subsidiaries. As of the date of this Agreement,
the total authorized capital stock of Kathy's Natural Food Ranch Market, Inc.
consists of 25,000 shares of stock, no par value per share. As of July 14,
1994, 6667 and 2/3 shares were issued and outstanding and 333 and 1/3 shares
were held in the treasury.

As of the date of this Agreement, the authorized capital stock of Kathy's
Natural Ranch Market-West, Inc. consists of 25,000 shares of stock,
no par value per share. As of July 14, 1994, 100 shares were issued and
outstanding and no shares were held in the treasury.

All issued and outstanding shares and other securities of the Corporations
are duly authorized, validly issued, issued in compliance with federal and
state laws, fully paid, nonassessable and free of preemptive rights. Except as
set forth in this Agreement, there are no outstanding options, warrants,
conversion privileges, contracts or other rights to purchase or acquire any
shares of either Corporation.

Neither Corporation holds an interest in any subsidiary or affiliate
corporation.

4.3 No Approvals or Notices Required; No Conflicts with Other Agreements
or Orders. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, violate any
provision of the Articles of Incorporation or Bylaws of the Corporations.
Except with regard to the consent of the landlord of the East Store (referenced
in Section 11.3 of this Agreement) and the consent of the bank and the SBA in
connection with the real estate loan on the West Store (referenced in Section
11 of this Agreement), the execution, performance and delivery of this Agreement
do not and the consummation of the

<PAGE> 7

transactions contemplated hereby will not (a) require any consent, approval or
authorization of any person or governmental authority, the failure to obtain
which could have a material adverse effect upon the transactions contemplated
hereby; (b) constitute a material violation of any provision of law applicable
to Selling Stockholders; or (c) violate any provision of, or result in the
acceleration of any obligation under, any material mortgage, lien, lease,
agreement, instrument, order arbitration award, judgment or decree to which
Selling Stockholders or the Corporations are a party or by which Selling
Stockholders or the Corporations are bound.

4.4 Financial Statements. Selling Stockholders have delivered to Buyer
financial statement information dated (1) as of December 31, 1990, 1991, 1992,
and 1993 and (2) as of May 31, 1994 (collectively "Financial Statements"). The
information from which the financial statements have been prepared are true and
accurate. Such financials have not been prepared in accordance with generally
accepted accounting principles.

4.5 Undisclosed Liabilities. To the best of Selling Stockholders'
knowledge, except as disclosed to Buyer in writing, there are no undisclosed
liabilities or obligations arising from contracts or otherwise with respect to
the Selling Stockholders and the Corporations that are not covered by
insurance.

4.6 Leaseholds. The Lease for the East Store (the "Store Lease") and the
equipment lease rights and obligations (collectively the "Leaseholds")
pertaining to the Stores are as set forth in the Store Lease and the equipment
leases, true and complete copies of which are attached as Exhibit 4.6 and which
have previously been provided to Buyer.

4.7 Equipment. To the best of their knowledge, the Corporations have
good and marketable title to all equipment listed on attached Exhibit 1.3, free
and clear of any liens, mortgages, pledges, encumbrances, claims and charges of
any kind except those that have been disclosed to Buyer in writing.

5. REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants as follows:

5.1 Organization, Good Standing, Enforceability. Buyer is duly
organized, validly existing, and in good standing under the laws of the State
of Delaware and has, or will soon have, full corporate power and authority to
carry on business in the State of Nevada and to own or hold under lease or
similar agreement the properties and assets it will own or hold; and has full
corporate power and authority to carry out the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Buyer and is a
valid, binding and legal obligation of Buyer enforceable in accordance with its
terms. Buyer has the power and authority to enter into and perform its
obligations under this Agreement.

5.2 No Approvals or Notices Required; No Conflicts with Other Agreements
or Orders. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, violate any
provision of the Certificate of Incorporation or Bylaws

<PAGE> 8

of Buyer. The execution, performance and delivery of this Agreement do not and
the consummation of the transactions contemplated hereby will not (a) require
any consent, approval or authorization of any person or governmental authority,
the failure to obtain which could have a material adverse effect upon the
transactions contemplated hereby; (b) constitute a material violation of any
provision of law applicable to Buyer; or (c) violate any provision of, or result
in the acceleration of any obligation under, any material mortgage, lien, lease,
agreement, instrument, order, arbitration award, judgment or decree to which
Buyer is a party or by which Buyer is bound.

5.3 Brokers. Neither Buyer nor anyone acting on its behalf has retained
any broker, finder, or agent, or agreed to pay any brokerage fees, finder's
fees, or commissions with respect to the transactions contemplated by this
agreement.

5.4 Financial Statements. Buyer acknowledges that Selling Stockholders
are relying upon Buyer's financial statements provided to them as being a fair
and accurate representation of the financial condition of Buyer. Selling
Stockholders further rely on Buyer's business experience and expertise to
ensure that the Agreement and the transactions related thereto strictly comply
with any and all federal securities or state blue sky laws.

6. ACCESS AND INFORMATION

6.1 Access and Information. Selling Stockholders have provided and will
give Buyer and its counsel, accountants, and other representatives reasonable
access, during normal business hours throughout the period prior to Closing, to
all of the Assets, and all books, contracts, commitments, and records of the
Corporations and will furnish Buyer during such period with all information as
Buyer may reasonably request. Buyer shall advise Sellers in writing prior to
Closing of any information it has obtained as a result of its investigation
which it believes has or may result in a breach of any representation or
warranty of Sellers set forth in this Agreement or the Exhibits attached
hereto.

6.2 Confidentiality; Return of Documents. Buyer and Selling Stockholders
will hold in confidence all confidential information obtained by them from the
other party under this Agreement. If the transaction contemplated by this
Agreement is not consummated buyer and Selling Stockholders will continue to
hold such information in confidence and will return all documents and records
containing such information.

7. CONDUCT OF BUSINESS PRIOR TO CLOSING

7.1 Ordinary Course. Except with respect to the obligations which Buyer
has expressly assumed pursuant to the Management Agreement, following the
execution of this Agreement.

<PAGE> 9

consummation of the transactions contemplated hereby will not (a) require any
consent, approval or authorization of any person or governmental authority, the
failure to obtain which could have a material adverse effect upon the
transactions contemplated hereby; (b) constitute a material violation of any
provision of law applicable to Buyer; or (c) violate any provision of, or
result in the acceleration of any obligation under, any material mortgage,
lien, lease, agreement, instrument, order, arbitration award, judgment or
decree to which Buyer is a party or by which Buyer is bound.

6. ACCESS AND INFORMATION

6.2 Confidentiality; Return of Documents. Buyer and Selling Stockholders
will hold in confidence all confidential information obtained by them from the
other party under this Agreement. If the transaction contemplated by this
Agreement is not consummated Buyer and Selling Stockholders will continue to
hold such information in confidence and will return all documents and records
containing such information.

7. CONDUCT OF BUSINESS PRIOR TO CLOSING

7.1 Ordinary Course. Except with respect to the obligations which Buyer
has expressly assumed pursuant to the Management Agreement, following the
execution of this Agreement and prior to the Closing, Selling Stockholders
will:

(a) Not commit to any employment agreements or employee benefit plans, or
increase employee compensation;

(b) Not incur any indebtedness materially affecting the Corporations;

<PAGE> 10

(c) Not solicit any offers or engage in any discussions with any third
parties regarding any sale of any material portion of the assets of the
Corporations or the sale of any of the Shares.

8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS

The obligations of Buyer under this Agreement are subject to the satisfaction
(or waiver in writing by Buyer), prior to or at Closing, of each of the
following conditions:

8.1 Correctness of Representations and Warranties. Buyer shall not have
discovered any material error, misstatement, or omission in the representations
and warranties made by Selling Stockholders in this Agreement or in any
Schedules or Exhibits attached hereto. The representations and warranties of
Selling Stockholders contained in this Agreement shall be deemed to have been
made again at and as of the time of the Closing and shall be true and accurate
in all material respects at such time, except as to such normal adjustments
that may occur.

8.2 Compliance with Agreement. Selling Stockholders shall have performed
and complied with all obligations and requirements of this Agreement to be
performed or complied with by Selling Stockholders prior to or at Closing.

8.3 Authorization. Buyer shall have received copies of corporate
resolutions authorizing Selling Stockholders to enter into this Agreement and
perform the terms and conditions hereof.

9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLING STOCKHOLDERS

The obligations of Selling Stockholders under this Agreement are subject to the
satisfaction (or waiver in writing by Sellers), prior to or at Closing, of each
of the following conditions:

9.1 Correctness of Representations and Warranties. Selling Stockholders
shall not have discovered any material error, misstatement, or omission in the
representations and warranties made by Buyer in this Agreement. The
representations and warranties of Buyer in this Agreement shall be deemed to
have been made again at and as of the time of the Closing and shall be true and
accurate in all material respects at such time.

9.2 Compliance with Agreement. Buyer shall have performed and complied
with all obligations and requirements of this Agreement to be performed or
complied with by Buyer prior to or at Closing.

9.3 Authorization. Selling Stockholders shall have received copies of
corporate resolutions authorizing Buyer to enter into this Agreement and
perform the terms and conditions hereof.

10. CONDITION PRECEDENT TO OBLIGATION OF BUYER

<PAGE> 11

10.1 Discharge of Loans on West Store. The obligations of Buyer under
this Agreement is subject to the satisfaction prior to or at the Closing of the
condition that Selling Stockholders shall have good and marketable title to the
premises from which the West Store operates. Selling Stockholders shall have
discharged the Corporations from liability under the Loans (as defined in
Section 11.1 below) by either (i) obtaining from the lending bank (which holds
a Deed of Trust on the West Store) (the "Bank") and the S.B.A., their consent
to the transfer of the West Store to the Selling Stockholders and the
assumption of the obligations under the Loans by the Selling Stockholders; (ii)
obtaining a new loan on the West Store; or (iii) paying off all loans on the
West Store. Any assets of the Corporations which previously served as
collateral for the Loans (except the West Store premises) shall be released and
all appropriate lending banks shall provide a complete and unconditional
release of the Corporations from any liability under the Loans.

10.2 Buyer's Obligations Regarding Discharge of Loans on West Store.
Buyers shall be responsible for the following in connection with the discharge
of the Corporation from liability under the Loans:

(a) Buyer shall assist Selling Stockholders in obtaining the
consent of the Bank and the S.B.A. as described in Section 10.1(i) above; and

(b) Buyer shall pay all administrative costs incurred in
connection with either (i), (ii), or (iii) of paragraph 10.1 above, including,
but not limited to, paying any prepayment penalties, reasonable attorneys' and
accountants' fees, points, loan fees, and any additional amounts that Seller
may have to pay with regard to such property over and above the amount that
would have been paid if the original loans were kept in place (for example, a
differential in total payments arising from a change in interest rates.

10.3 Release of Escrow of Advance. Selling Stockholders and
Option-Holders shall be entitled to receive the Two Million Five-Hundred
Thousand Dollars ($2,500,000.00) deposited into escrow and given as earnest
money upon closing, if not sooner.

11. REAL ESTATE

11.1 Real Estate Not to be Included as Asset. Buyer will not acquire the
real property of the Corporations located at 6720 West Sahara Boulevard, which
was recently acquired and improvements constructed thereon and for which
Selling Stockholders will be obtaining permanent financing pursuant to Section
10 above. The existing financing for the West Store premises consists of a
$1,000,000 loan from the Bank and a $726,000 S.B.A. loan (collectively the
"Loans"). Buyer and Selling Stockholders, who are unrelated parties dealing at
arms-length, agree that the value of such property is equal to the book value
of the same.

11.2 Real Estate Lease for West Store Premises. On or before Closing, by
Lease Agreement satisfactory to both Buyer and Selling Stockholders (attached
as Exhibit 11.1), Buyer shall lease from Selling Stockholders the premises from
which the West Store conducts its operations. The Lease shall have a ten-year
primary term with minimum rent (triple net) of

<PAGE> 12

Seventeen Thousand Five Hundred dollars ($17,500) per month and Buyer shall be
responsible for taxes, insurance, maintenance and all other costs (normally
borne by tenant in a triple net lease) associated with increases in the
Consumer Price Index for the previous five years immediately prior to the
inception of each option period, respectively. It is the intent that the
rental amount shall be sufficient for Selling Stockholders to make the payments
under such loans. In the event Selling Stockholders default and are unable to
cure such loans, Buyers shall have first right to cure or otherwise acquire
such real estate.

11.3 Landlord Consent. Buyer shall use its best efforts to obtain any
necessary consents, including, but not limited to, the consent of the Landlord
of the East Store (if required) and non-disturbance agreements from the Lenders
who finance the west Store. If the consent and non-disturbance agreement of
the Landlord of the East Store is required and despite good faith effort of
Buyer to obtain same such is determined to be not reasonably obtainable, Buyer,
at its option, may terminate this Agreement. Buyer has communicated directly
with the Landlord of the East store regarding such Landlord's consent and has
received correspondence from such Landlord as to the requirements thereof.
Selling Stockholders, in any event, will retain the $100,000 earnest money
previously paid in full satisfaction of any claims arising directly or
indirectly out of this agreement.

12. DISCOUNTS FROM SUPPLIERS

12.1 Supplier Discounts. For a period of 5 years from the date of this
Agreement, Buyer shall make full effort to enable Selling Stockholders related
corporation, at their present Utah location, to receive the same product
discounts that Buyer receives from suppliers which discounts are generally at
least 15.5% off the book price. Such will be accomplished by Selling
Stockholders either coupling onto Buyer's buying power or by Selling
Stockholders' corporation buying through Buyer. The rights granted under this
Section are intended to extend only to Selling Stockholders' corporation and
their currently existing related parties and such rights shall immediately
expire in the event Selling Stockholders acquire, are acquired by, merge with
or into, any other entity whereby Selling Stockholders no longer have control.
Selling Stockholders rights hereunder are conditioned upon Selling
Stockholders' corporation's ability to pay for products on purchase terms
acceptable to suppliers or Buyer, as the case may be and Selling Stockholders'
corporations' timely payments of all invoices when due. Notwithstanding the
foregoing, Buyer will not be required to extend credit to Selling Stockholders'
corporation or to assume any obligations with respect to selling Stockholders'
corporations' purchases from vendors.

13. CLASSICS SOUTHWEST

13.1 Shelf Space. For a period of 5 years, Selling Stockholders' related
company, Classics Southwest, Inc. (or other such entity as Selling Stockholders
may designate) shall be given shelf space for the display and sale of its
products in Buyer's stores. For the two Las Vegas Stores, such shelf space
shall be a section of two and one-half linear feet, extending up and down (top
to bottom) from those two and one-half linear feet. For Buyer's other stores,
the shelf space shall be a section one and one-half linear feet, extending up
and down (top to bottom)

<PAGE> 13

from this one and one-half linear feet. The shelf space contemplated herein
shall be located in the stores in areas comparable to that which Classics
Southwest currently displays its products in the existing Las Vegas Stores.

<PAGE> 14

14. MISCELLANEOUS

14.1 Covenant Not to Compete. Each of the Selling Stockholders hereby
agree that it will not at any time within the five year period immediately
following Closing, directly or indirectly engage in, or have any interest in
any person, firm, corporation, or business (whether as an employee, officer,
director, agent, security holder, creditor, consultant, or otherwise) that
engages in any activity which is the same as or competitive with activity
engaged in by the Corporations within a twenty (20) mile radius of the Stores
in Las Vegas, Nevada.

14.2 Arbitration; Litigation. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in Las Vegas, Nevada, in accordance with the Rules of the American
Arbitration Association, and any judgment upon the arbitration award may be
entered in any court having jurisdiction thereof; provided, however, that
Selling Stockholders shall have no obligation to submit to arbitration any
claim based on Buyer's failure to pay the Purchase Price. In the event of any
litigation, the prevailing party shall be entitled to an award of reasonable
attorney fees and expenses.

14.3 Survival of Representations and Warranties. All representations,
covenants, and warranties set forth herein shall be deemed to be material and
to have been relied upon by the Parties hereto and shall survive Closing.

14.4 Payment of Fees and Expenses. The Corporations shall pay for the
reasonable legal, accounting and other expenses of Selling Stockholders related
to this transaction and accrued as of Closing. Otherwise, each party shall pay
and be responsible for all of the fees and expenses of its own counsel,
financial advisors, accountants, and other experts and all other expenses
incurred by it incident to the negotiation, preparation, and execution of this
Agreement and the consummation of the transactions contemplated herein.

14.5 Entire Agreement. This Agreement and all schedules referenced
herein and documents delivered pursuant hereto, and all schedules referenced
therein and documents delivered pursuant thereto, constitute the entire
agreement of the parties as to the subject matter hereof, and supersede all
prior discussions, negotiations, and agreements, whether written or oral,
between the parties with respect to the subject matter of this Agreement.

14.6 Modification. This Agreement may not be modified except by a
writing executed by duly authorized representatives of both parties.

14.7 Waiver. The failure of any party to exercise any of its rights
hereunder or to enforce any of the terms and conditions of this agreement on
any occasion shall not constitute or be deemed a waiver of that party's rights
thereafter to exercise any rights hereunder or to enforce each and every term
and condition of this Agreement.

14.8 Severability. A determination that any portion of this Agreement is
unenforceable shall not affect the enforceability or validity of any of the
remaining portions of the Agreement

<PAGE> 15

or of this Agreement as a whole. In the event that any portion of this
Agreement is determined to be unenforceable, the parties agree that a
reasonable provision shall be substituted in place of the unenforceable
provision and that, as so modified, this Agreement shall be enforceable.

14.9 Notices. All notices, consents, requests, demands, or other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon receipt, if hand delivered, or three (3) days after mailing, if
sent by certified mail, return receipt requested, addressed as follows:

(a) If to Selling Stockholders:

Thomas J. KLC
4625 South 2300 East, Suite 207
Salt Lake City, Utah 84117

(b) If to Buyer:

Wild Oats Markets, Inc.
1668 Valtec Lane
Boulder, CO 80301
Attn: Michael C. Gilliland

If a party changes its address, written notice shall be given promptly to the
other party under this Section.

14.6 Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their successors and
assigns; provided, however, that no party may, without the written consent of
the other, assign or transfer any interest under this Agreement.

14.7 Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Nevada.

14.8 Headings. The parties agree that the Article and Section headings
are inserted only for ease of reference, shall not be construed as part of this
Agreement, and shall have no effect upon the construction of interpretation of
any part hereof.

14.9 Representation by Counsel and Construction. The parties hereto
represent that in the negotiation and drafting of this Agreement they have been
represented by and relied upon the advice of counsel of their choice. The
parties affirm that their counsel have had a substantial role in the drafting
and negotiation of this Agreement and, therefore, the rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any schedule
hereto.

<PAGE> 16

14.10 Cooperation. Buyer and Selling Stockholders agree to actively
cooperate in consummation of this transaction and to comply with any reasonable
request for execution and delivery of any additional instruments or documents
that may be needed.

14.11 Time of Possession. Buyer shall be entitled to possession of the
Store premises and contracts at Closing; provided, however, that all sales and
expenses shall be deemed to accrue to Buyer from 00:01 a.m. on the date of
Closing.

14.12 Late Payments. Any payment required of Buyer under the terms of
this Agreement shall be timely made. If any payment is not timely made there
shall be a late payment penalty of the lesser of (i) 10% of such amount or (ii)
the maximum amount permissible under Nevada law. Interest will begin to accrue
upon default of any obligation at a 1.5% per month interest rate.

14.13 Personal Guarantees. Buyer's obligations under this Agreement
shall be jointly and severally personally guaranteed by Michael C. Gilliland,
Elizabeth C. Cook and Mark R. Clapp, the form of each such guarantee is
attached as Exhibit 14.13.

14.14 Counterpart Signatures. This Agreement may be executed in
counterpart.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

SELLING STOCKHOLDERS:

s/Kathy Melby by Thomas J. KLC A T T E S T :
- -------------------------------

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

s/Rich Arcaris by Thomas J. KLC A T T E S T :
- -------------------------------

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

OPTION-HOLDERS:

s/Kasey Enterprises, Inc. A T T E S T :
- -------------------------------

s/W. M. Jones
- -------------------------------

<PAGE> 17

s/Metro Management A T T E S T :
- --------------------------------

s/W. M. Jones
- --------------------------------

BUYER: WILD OATS MARKETS, INC.

s/Michael C. Gilliand A T T E S T :
- --------------------------------

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

KEY EMPLOYEES:

s/Mike Circuit
- -------------------------------
Mike Circuit

s/John Fisher
- -------------------------------
John Fisher

s/John Heavey
- -------------------------------
John Heavey

s/Robert M. Stone
- -------------------------------
Bob Stone

s/Harmony Sun ATTEST: s/Mj Hall
- ------------------------------- -------------------------
Harmony Sun

<PAGE> 1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WO HOLDINGS, INC.
A DELAWARE CORPORATION

The undersigned, S.M. Hassan, hereby certifies that:

ONE: He is the duly elected and acting President of WO Holdings, Inc.

TWO: The corporation's original Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on May 31, 1996.

THREE: This Amended and Restated Certificate of Incorporation
restates, integrates and amends the corporation's Certificate of Incorporation
filed on May 31, 1996 and has been duly adopted in accordance with Sections 242
and 245 of the General Corporation Law of the State of Delaware.

FOUR: The text of the Amended and Restated Certificate of
Incorporation of this corporation is hereby amended and restated to read in its
entirety as follows:

II.

The name of this corporation is WO HOLDINGS, INC.

III.

The address of the registered office of the corporation in the State
of Delaware is the Prentice Hall Corporation System, Inc., 1013 Centre Road,
Wilmington, Delaware 19805. The name of its registered agent at such address
is the Prentice Hall Corporation System, Inc.

IV.

The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.

A. CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to
issue is six million five hundred thousand (6,500,000), of which four million
seven hundred one thousand four hundred seventy six (4,700,476) shares shall be
Common Stock and one million seven hundred ninety-eight

1.
<PAGE> 2
thousand five hundred twenty-four (1,799,168) shares shall be Preferred Stock.
The Common Stock shall have a par value of $.001 per share and the Preferred
Stock shall have a par value of $.001 per share.

B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by this Certificate of Incorporation shall be
divided into series. The first series shall consist of 168,598 shares and is
designated "Series A Preferred Stock." The second series shall consist of
1,606 shares and is designated "Series B Preferred Stock." The third series
shall consist of 419,471 shares and is designated "Series C Preferred Stock."
The fourth series shall consist of 355,829 shares and is designated "Series D
Preferred Stock." The fifth series shall consist of 853,664 shares and is
designated "Series E Preferred Stock." The rights, preferences, privileges,
and restrictions granted to and imposed on the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, Series D Preferred
Stock and the Series E Preferred Stock are as set forth below in this Article
IV(B). Any shares of authorized and unissued shares of Preferred Stock which
have not been designated in a series may be issued from time to time in one or
more series. The Board of Directors of the corporation (the "Board of
Directors") is hereby authorized to provide for the issuance of all or any of
the authorized and unissued shares of the Preferred Stock (which have not been
designated in a series) in one or more series, and to fix the number of shares
and to determine or alter for each such series, such voting powers, full or
limited, or no voting powers, and such designations, preferences, and relative,
participating, optional or other rights, and such qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of
such shares (a "Preferred Stock Designation") and as may be permitted by the
General Corporation Law of the State of Delaware. Subject to compliance with
applicable protective voting rights which have been or may be granted to the
Preferred Stock or any series thereof in a Preferred Stock Designation or the
corporation's Certificate of Incorporation ("Protective Provisions"), the
rights, privileges, preferences and restrictions of any such additional series
may be subordinated to, pari passu with (including, without limitation,
inclusion of provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number of
shares of any series (other than the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and
the Series E Preferred Stock), prior or subsequent to the issuance of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.

1. DIVIDEND PROVISIONS. Subject to the rights of any
series of Preferred Stock which may from time to time come into existence, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and the Series E Preferred Stock
shall be entitled to receive dividends, out of any assets

2.
<PAGE> 3
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive,
directly or indirectly, additional shares of Common Stock of this corporation)
on the Common Stock of this corporation, in an amount equal to that declared on
a share of Common Stock into which each such share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock could then be converted. No dividends (other than
those payable in Common Stock or other securities and rights convertible into
or entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation) shall be paid on any Common Stock
of the corporation during any fiscal year of the corporation until dividends on
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock shall have been
paid or declared and set apart during that fiscal year. Dividends (other than
those payable in Common Stock or other securities and rights convertible into
or entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation) shall be paid contemporaneously
and, if payment is less than full, then ratably to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock.

2. LIQUIDATION PREFERENCES.

A. In the event of any liquidation, dissolution
or winding up of this corporation, either voluntary or involuntary, subject to
the rights of any series of Preferred Stock which may from time to time come
into existence, the holders of Series E Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
this corporation to the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Common Stock by
reason of their ownership thereof, an amount per share equal to the greater of
(A) the sum of (i) $33.364 for each outstanding share of Series E Preferred
Stock (the "Original Series E Issue Price") as adjusted to reflect any share
split, dividend, combination, reclassification or similar event involving the
Series E Preferred Stock and (ii) an amount equal to a 10% rate of return
compounded annually, from the date of issuance of such stock through the date
on which such payment is made, on the Original Series E Issue Price or (B) the
value such holder would receive if each outstanding share of the Series E
Preferred Stock had been converted into Common Stock pursuant to Section 3
hereof immediately prior to such liquidation, dissolution or winding up of this
corporation. If upon the occurrence of such event, the assets and funds to be
distributed among the holders of the Series E Preferred Stock are insufficient
to permit the payment to such holders of the full aforesaid preferential
amounts, then, subject to the rights of any series of Preferred Stock which may
from time to time come into existence, the entire assets and funds of the
corporation legally available for distribution shall be distributed ratably
among the holders of the Series E Preferred Stock in proportion to the amount
of such stock owned by each such holder.

Subject to the payment in full of the liquidation preferences of the
Series E Preferred Stock as provided above in this subparagraph (a) and to the
rights of any series of Preferred

3.
<PAGE> 4
Stock which may from time to time come into existence, upon any such
liquidation, dissolution or winding up of this corporation, either voluntary or
involuntary, the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
this corporation to the holders of Common Stock by reason of their ownership
thereof, an amount per share equal to the greater of (A) the sum of (i) the
"Original Series A Issue Price," "Original Series B Issue Price," "Original
Series C Issue Price" or "Original Series D Issue Price," as applicable for
each outstanding share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, as adjusted to reflect
any share split, dividend, combination, reclassification or similar event
involving the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock, and (ii)(w) in the case of the
Series A Preferred Stock an amount equal to a 10% rate of return compounded
annually from July 3, 1993 on the Original Series A Issue Price, (x) in the
case of the Series B Preferred Stock, an amount equal to a 10% rate of return
compounded annually from the date of issuance thereof on the Original Series B
Issue Price (y) in the case of the Series C Preferred Stock an amount equal to
a 10% rate of return compounded annually from November 14, 1994 on the Original
Series C Issue Price, or (z) in the case of the Series D Preferred Stock, an
amount equal to a 10% rate of return compounded annually from February 28, 1995
on the Original Series D Issue Price through the date on which such payment is
made, or (B) the value such holder would have received if each share of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series
D Preferred Stock, as applicable, had been converted into Common Stock pursuant
to Section 3 hereof immediately prior to such liquidation, dissolution or
winding up of this corporation. If upon the occurrence of such event, the
assets and funds to be distributed among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are insufficient to permit the payment to such holders of the
full aforesaid preferential amounts, then, subject to the payment in full of
the liquidation preferences of the Series E Preferred Stock as provided in this
subparagraph (a) and to the rights of any series of Preferred Stock which may
from time to time come into existence, the entire assets and funds of the
corporation legally available for distribution to the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock shall be distributed ratably among such holders in proportion
to the amount of: (i) with respect to the holders of Series A Preferred Stock,
the product of the Original Series A Issue Price plus the 10% rate of return on
the Series A Issue Price as set forth above, multiplied by the number of shares
of Series A Preferred Stock then held by such holder; (ii) with respect to the
holders of Series B Preferred Stock, the product of the Original Series B Issue
Price plus the 10% rate of return on the Series B Issue Price as set forth
above, multiplied by the number of shares of Series B Preferred Stock then held
by such holder; (iii) with respect to the Series C Preferred Stock, the product
of the Original Series C Issue Price plus the 10% rate of return on the Series
C Issue Price as set forth above, multiplied by the number of shares of Series
C Preferred Stock then held by such holder; and (iv) with respect to the Series
D Preferred Stock, the product of the Original Series D Issue Price plus the
10% rate of return on the Series D Issue Price as set forth above, multiplied
by the number of shares of Series D Preferred Stock then held by such holder.
The Original Series A Issue Price is $12.46, the

4.
<PAGE> 5
Original Series B Issue Price is $18.04, the Original Series C Issue Price is
$30.216 and the Original Series D Issue Price is $23.89.

B. After the completion of the distributions
required by subparagraph (a) of this Section 2 and any other distribution which
may be required with respect to any series of Preferred Stock which may from
time to time come into existence, the assets of this corporation available for
distribution to stockholders upon any liquidation, dissolution or winding up of
this corporation, whether voluntary or involuntary, shall be distributed among
the holders of Common Stock pro rata based on the number of shares of Common
Stock held by each.

C. Whenever any distribution provided for in
this Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors.

D. Any acquisition of the corporation by means
of merger or other form of corporate reorganization in which outstanding shares
of this corporation are exchanged for securities or other consideration issued
by the acquiring corporation or its subsidiary (other than a mere
reincorporation transaction), or a sale, conveyance or disposition of all or
substantially all of the assets of this corporation or the effectuation by this
corporation of a transaction or series of related transactions in which more
than 50% of the voting power of this corporation is disposed of (other than the
Public Offering (as defined herein) or any transfer of shares of the Company's
securities to any of the parties to, and pursuant to the terms of, that certain
Stockholders Agreement dated as of July 12, 1996 (the "Stockholders Agreement")
by and among this corporation and the stockholders named therein) shall be
deemed to be a liquidation, dissolution or winding up within the meaning of
this Section 2.

3. CONVERSION. The holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and the Series E Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):

A. RIGHT TO CONVERT.

(I) Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be convertible, without payment of any
additional consideration by the holder thereof, at the option of the holder
thereof, at any time after the date of issuance of such share and on or prior
to the fifth day prior to any Series A Redemption Date, Series B Redemption
Date, Series C Redemption Date, Series D Redemption Date or Series E Redemption
Date (as such terms are defined in Section 4 of this Article IV(B)), at the
office of this corporation or any transfer agent for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Issue Price for such share by the Conversion Price at the time in effect for
such share. The Original Issue Price and the initial Conversion Price per
share for shares of

5.
<PAGE> 6
Series A Preferred Stock shall be the Original Series A Issue Price, the
Original Issue Price and the initial Conversion Price per share for shares of
Series B Preferred Stock shall be the Original Series B Issue Price, the
Original Issue Price and the initial Conversion Price per share for shares of
Series C Preferred Stock shall be the Original Series C Issue Price (except
that the Original Issue Price and the initial Conversion Price per share for
shares of Series C Preferred Stock shall be the Original Series D Issue Price
solely for the purposes of determining the number of shares of Common Stock or
other securities or assets issuable upon conversion of shares of Series C
Preferred Stock and any adjustments to such Conversion Price pursuant to this
Section 3, provided, however, that the Original Series C Issue Price shall not
be affected for any other purpose), the Original Issue Price and the initial
Conversion Price per share for shares of Series D Preferred Stock shall be the
Original Series D Issue Price and the Original Issue Price and the initial
Conversion Price per share for the Series E Preferred Stock shall be the
Original Series E Issue Price; provided, however, that the Conversion Price for
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock shall be subject
to adjustment as set forth in subsection 3(c) after July 12, 1996.

(II) Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall automatically be converted into shares
of Common Stock at the applicable Conversion Price at the time in effect for
such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock immediately upon
the consummation of the corporation's sale of its Common Stock in a firm
commitment underwriting pursuant to a registration statement on Form S-1 or
similar form under the Securities Act of 1933, as amended, where (i) the gross
proceeds to this corporation are not less than $20,000,000, and (ii) the
product of the price per share to the public of the Common Stock times the
number of shares of Common Stock outstanding immediately prior to the
consummation of the underwritten sale (including any shares of Common Stock
then issued or issuable upon conversion of the Preferred Stock) shall be not
less than $140,000,000 (the "Public Offering").

B. MECHANICS OF CONVERSION. Before any holder
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock shall be entitled
to convert the same into shares of Common Stock, such holder shall surrender
the certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, and shall give written notice by messenger, courier or mail,
postage prepaid, to this corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued.
This corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to

6.
<PAGE> 7
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date.
If the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall not
be deemed to have converted such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock until immediately prior to the closing of such sale of securities.

C. CONVERSION PRICE ADJUSTMENTS OF PREFERRED
STOCK. The Conversion Price of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock shall be subject to adjustment from time to time as follows:

(I) (A) With respect to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, if at any time or from time to
time after July 12, 1996 (the "Series E Purchase Date") this corporation issues
or sells, or is deemed by the express provisions of this subsection 3(c)(i) to
have issued or sold, any Additional Stock (as defined below) for consideration
per share which is less than both the fair market value of such Additional
Stock as of the date of issuance and the Conversion Price for the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock, as applicable, in effect
immediately prior to such issuance, then in each such case, the then existing
Conversion Price for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as applicable, shall be forthwith reduced to the per share price received or
deemed received by this corporation upon such issuance or sale, or deemed
issuance or sale, of such Additional Stock. Any adjustment to the Conversion
Price for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock
pursuant to the preceding sentence shall be effective as of the opening of
business on the date of the issuance or sale, or deemed issuance or sale, of
such Additional Stock by this corporation. Whenever this corporation issues or
sells, or is deemed to issue or sell, any Additional Stock, the per share fair
market value of the Additional Stock as of the date of such issuance or sale,
or deemed issuance or sale, shall be determined in good faith by a majority of
the disinterested directors on this corporation's Board of Directors; provided,
however, that in the event any issuance or sale, or deemed issuance or sale, of
Additional Stock represents fifteen percent (15%) or more of the Common Stock
outstanding immediately following such

7.
<PAGE> 8
actual or deemed issuance or sale, then the per share fair market value of such
Additional Stock shall be determined by an independent third party appraiser to
be mutually selected by a majority of disinterested directors and the Investor
Representatives (as defined in the Stockholders Agreement).

(B) No adjustment of the Conversion
Price for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock pursuant
to this subsection 3(c)(i) shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to 3 years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of 3 years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 3(c)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such
adjustment.

(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.

(D) In the case of the issuance of
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.

(E) Solely for the purpose of
calculating the amount of any adjustment which is required, in the case of the
issuance of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities (which are not excluded from the definition of Additional Stock),
the following provisions shall apply for all purposes of this subsection
3(c)(i) and subsection 3(c)(ii):

(1) The aggregate maximum
number of shares of Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
3(c)(i)(C) and (c)(i)(D)), if any, received by the corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights for the Common Stock covered thereby.

(2) The aggregate maximum
number of shares of Common Stock deliverable upon conversion of or in exchange
for any such convertible or

8.
<PAGE> 9
exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be determined in the
manner provided in subsections 3(c)(i)(C) and (c)(i)(D)).

(3) In the event of any
change in the number of shares of Common Stock deliverable or in the
consideration payable to this corporation upon exercise of such options or
rights or upon conversion or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the applicable Conversion Price of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.

(4) Upon the expiration of
any such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the applicable Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.

(5) The number of shares
of Common Stock deemed issued and the consideration deemed paid therefor
pursuant to subsections 3(c)(i)(E)(1) and (2) shall be approximately adjusted
to reflect any change, termination or expiration of the type described in
either subsection 3(c)(i)(E)(3) or (4).

(II) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant to
subsection 3(c)(i)(E)) by this corporation after the Series E Purchase Date,
other than shares of Common Stock issued or issuable:

(A) upon conversion of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock;

9.
<PAGE> 10
(B) pursuant to a transaction
described in subsection 3(c)(iii) or (iv) hereof;

(C) to employees, consultants,
officers or directors of this corporation pursuant to a stock option plan,
restricted stock option plan or other stock or employee incentive plan approved
by a majority of the Investor Representatives (as defined below); provided that
the total number of shares of Common Stock so issuable or issued (and not
repurchased at cost by this corporation in connection with termination of
employment) does not exceed the number of Permitted Options (as defined in the
Stockholders Agreement) (as adjusted for any stock splits);

(D) pursuant to a merger or
acquisition approved by a majority of the Investor Representatives.

(III) In the event the corporation should
at any time or from time to time after the Series E Purchase Date fix a record
date for the effectuation of a split or subdivision of the outstanding shares
of Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and
the Series E Preferred Stock shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be increased in proportion to such increase of the aggregate of
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents with the number of shares issuable with respect to
Common Stock Equivalents determined from time to time in the manner provided
for deemed issuances in subsection 3(c)(i)(E).

(IV) If the number of shares of Common
Stock outstanding at any time after the Series E Purchase Date is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the applicable Conversion Price for the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be appropriately increased
so that the number of shares of Common Stock issuable on conversion of each
share of such series shall be decreased in proportion to such decrease in
outstanding shares.

D. OTHER DISTRIBUTIONS. In the event this
corporation shall declare a distribution payable in securities of other
persons, evidences of indebtedness issued by this corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to in
subsection 3(c)(iii), then, in each such case for the purpose of this
subsection

10.
<PAGE> 11
(3)(d), the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the
corporation into which their shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.

E. RECAPITALIZATIONS. If at any time or from
time to time there shall be a recapitalization of the Common Stock (other than
a subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 3) provision shall be made so that the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock the number of shares of stock or other securities or property
of the Company or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 3 with respect to the rights of the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock after the recapitalization to the
end that the provisions of this Section 3 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock) shall
be applicable after that event as nearly equivalent as may be practicable.

F. NO IMPAIRMENT. This corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 3 and in taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock against impairment.

G. NO FRACTIONAL SHARES AND CERTIFICATE AS TO
ADJUSTMENTS.

(I) No fractional shares shall be issued
upon conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
and the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D

11.
<PAGE> 12
Preferred Stock or Series E Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.

(II) Upon the occurrence of each
adjustment or readjustment of the Conversion Price of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock pursuant to this Section 3, this corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock, as applicable, a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock.

H. NOTICES OF RECORD DATE. In the event of any
taking by this corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, at least 20 days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character
of such dividend, distribution or right.

I. RESERVATION OF STOCK ISSUABLE UPON
CONVERSION. This corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock, in addition to
such other remedies as shall be available to the holders of such Preferred
Stock, this corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase

12.
<PAGE> 13
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.

J. NOTICES. Any notice required by the
provisions of this Section 3 to be given to the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock shall be deemed given if sent by
messenger or courier or deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
this corporation.

4. REDEMPTION.

A. (I) At any time beginning December 31,
1999, upon election (a "Series A Redemption Election") by the holders of at
least 90% of the then outstanding Series A Preferred Stock, voting together as
a single class, this corporation shall redeem all of the Series A Preferred
Stock by paying in cash therefor a per share sum equal to (A) the Original
Series A Issue Price for each share to be redeemed as adjusted to reflect any
stock split, combination, reclassification or similar event involving the
Series A Preferred Stock plus (B) an amount (the "Series A Premium") equal to a
10% rate of return compounded annually, from July 3, 1993 through the date on
which such payment is made, on the Original Series A Issue Price (such cash
amount payable under this Section 4(a)(i) shall hereinafter be referred to as
the "Series A Redemption Price"). The Series A Redemption Price shall be
payable within 6 months after the Series E Preferred Stockholders have received
the full Series E Redemption Price to the extent the Series E Preferred
Stockholders have requested such redemption pursuant to Section 4(a)(v) or
4(a)(viii) (the date on which such payment is made, "Series A Redemption
Date"). If the Series E Preferred Stockholders do not so elect to have their
Series E Preferred Stock redeemed pursuant to Section 4(a)(v) or 4(a)(viii)
then the Series A Preferred Stock shall be redeemed pursuant to Section 4(f)
below; provided, however, that no redemption of Series A Preferred Stock shall
be effected if, prior to such redemption, holders of shares of Series E
Preferred Stock shall elect redemption of such shares pursuant to Section
4(b)(v) upon the occurrence of a Triggering Event that the Series E
Stockholders are given notice of for the first time after the Series A
Preferred Stockholders have elected redemption pursuant to this Section, or
upon a liquidation, winding up or dissolution, unless and until such holders of
Series E Preferred Stock have received the full Series E Redemption Price for
such shares. On the Series A Redemption Date, each holder of shares of Series
A Preferred Stock shall surrender the certificate or certificates representing
the shares of Series A Preferred Stock to be redeemed on such Series A
Redemption Date (together with a proper assignment of such certificate(s)) to
the corporation in exchange for payment of the applicable Series A Redemption
Price for such shares. In the event that either the number of shares of Series
A Preferred Stock required to be redeemed by the corporation on such Series A
Redemption Date is less than the number of shares of Series A Preferred Stock
represented by such certificate(s), or the corporation fails to pay the Series
A Redemption Price for all of the shares of Series A Preferred Stock required
to be redeemed on such Series A Redemption Date, the corporation shall reissue
and deliver to such holder on such Series A Redemption Date a certificate
representing the number of shares of Series A Preferred Stock which are not

13.
<PAGE> 14
required to be redeemed or for which the Series A Redemption Price has not been
paid in full. Until the Series A Redemption Date, all unredeemed shares shall
be deemed to be outstanding, and the Series A Premium shall continue to accrue
until such shares are redeemed.

(II) At any time beginning December 31,
1999, upon election (a "Series B Redemption Election") by the holders of at
least 90% of the then outstanding Series B Preferred Stock, voting together as
a single class, this corporation shall redeem all of the Series B Preferred
Stock by paying in cash therefor a per share sum equal to (A) the Original
Series B Issue Price for each share to be redeemed as adjusted to reflect any
stock split, combination, reclassification or similar event involving the
Series B Preferred Stock plus (B) an amount (the "Series B Premium") equal to a
10% rate of return compounded annually, from the date of issuance of such stock
through the date on which such payment is made, on the Original Series B Issue
Price (such cash amount payable under this Section 4(a)(ii) shall hereinafter
be referred to as the "Series B Redemption Price"). The Series B Redemption
Price shall be payable within 6 months after the Series E Preferred
Stockholders have received the full Series E Redemption Price to the extent the
Series E Preferred Stockholders have requested such redemption pursuant to
Section 4(a)(v) or 4(a)(viii) (the date on which such payment is made, "Series
B Redemption Date"). If the Series E Preferred Stockholders do not so elect to
have their Series E Preferred Stock redeemed pursuant to Section 4(a)(v) or
4(a)(viii) then the Series B Preferred Stock shall be redeemed pursuant to
Section 4(f) below; provided, however, that no redemption of Series B Preferred
Stock shall be effected if, prior to such redemption, holders of shares of
Series E Preferred Stock shall elect redemption of such shares pursuant to
Section 4(b)(v) upon the occurrence of a Triggering Event that the Series E
Stockholders are given notice of for the first time after the Series B
Preferred Stockholders have elected redemption pursuant to this Section, or
upon liquidation, winding up or dissolution, unless and until such holders of
Series E Preferred Stock have received the full Series E Redemption Price for
such shares. On the Series B Redemption Date, each holder of shares of Series
B Preferred Stock shall surrender the certificate or certificates representing
the shares of Series B Preferred Stock to be redeemed on such Series B
Redemption Date (together with a proper assignment of such certificate(s)) to
the corporation in exchange for payment of the applicable Series B Redemption
Price for such shares. In the event that either the number of shares of Series
B Preferred Stock required to be redeemed by the corporation on such Series B
Redemption Date is less than the number of shares of Series B Preferred Stock
represented by such certificate(s), or the corporation fails to pay the Series
B Redemption Price for all of the shares of Series B Preferred Stock required
to be redeemed on such Series B Redemption Date, the corporation shall reissue
and deliver to such holder on such Series B Redemption Date a certificate
representing the number of shares of Series B Preferred Stock which are not
required to be redeemed or for which the Series B Redemption Price has not been
paid in full. Until the Series B Redemption Date, all unredeemed shares shall
be deemed to be outstanding, and the Series B Premium shall continue to accrue
until such shares are redeemed.

(III) At any time beginning December 31,
1999, upon election (a "Series C Redemption Election") by the holders of at
least two-thirds of the then outstanding Series C Preferred Stock, voting
together as a single class, this corporation shall

14.
<PAGE> 15

redeem all of the Series C Preferred Stock by paying in cash therefor a per
share sum equal to (A) the Original Series C Issue Price for each share of
Series C Preferred Stock to be redeemed, as adjusted to reflect any stock
split, combination, reclassification or similar event involving the Series C
Preferred Stock plus (B) an amount (the "Series C Premium") equal to a 10% rate
of return compounded annually, from November 14, 1994 through the date on which
such payment is made, on the Original Series C Issue Price (such cash amount
payable under this Section 4(a)(iii) shall hereinafter be referred to as the
"Series C Redemption Price"). The Series C Redemption Price shall be payable
within 6 months after the Series E Preferred Stockholders have received the
full Series E Redemption Price to the extent the Series E Preferred
Stockholders have requested such redemption pursuant to Section 4(a)(v) or
4(a)(viii) (the date on which such payment is made, the "Series C Redemption
Date"). If the Series E Preferred Stockholders do not so elect to have their
Series E Preferred Stock redeemed pursuant to Section 4(a)(v) or 4(a)(viii)
then the Series C Preferred Stock shall be redeemed pursuant to Section 4(f)
below; provided, however, that no redemption of Series C Preferred Stock shall
be effected if, prior to such redemption, holders of shares of Series E
Preferred Stock shall elect redemption of such shares pursuant to Section
4(b)(v) upon the occurrence of a Triggering Event that the Series E
Stockholders are given notice of for the first time after the Series C
Preferred Stockholders have elected redemption pursuant to this Section or to
Section 4(a)(vi), or upon liquidation winding up or dissolution, unless and
until such holders of Series E Preferred Stock have received the full Series E
Redemption Price for such shares. On the Series C Redemption Date, each holder
of shares of Series C Preferred Stock shall surrender the certificate or
certificates representing its shares of Series C Preferred Stock (together with
a proper assignment of such certificate(s)) to the corporation in exchange for
payment of the Series C Redemption Price for such shares. In the event that
the corporation fails to pay the Series C Redemption Price for all of the
shares of Series C Preferred Stock on the Series C Redemption Date, the
corporation shall reissue and deliver to such holder on such Series C
Redemption Date a certificate representing the number of shares of Series C
Preferred Stock for which the Series C Redemption Price has not been paid in
full. All unredeemed shares of Series C Preferred Stock shall be deemed to be
outstanding and the Series C Premium shall continue to accrue until such shares
are redeemed.

(IV) At any time beginning December 31,
1999, upon election (a "Series D Redemption Election") by the holders of at
least two-thirds of the then outstanding Series D Preferred Stock, voting
together as a single class, this corporation shall redeem all of the Series D
Preferred Stock by paying in cash therefor a per share sum equal to (A) the
Original Series D Issue Price for each share of Series D Preferred Stock to be
redeemed, as adjusted to reflect any stock split, combination, reclassification
or similar event involving the Series D Preferred Stock plus (B) an amount (the
Series D Premium") equal to an 10% rate of return compounded annually, from
February 28, 1995 through the date on which such payment is made, on the
Original Series D Issue Price (such cash amount payable under this Section
4(a)(iv) shall hereinafter be referred to as the "Series D Redemption Price").
The Series D Redemption Price shall be payable within 6 months after the Series
E Preferred Stockholders have received the full Series E Redemption Price to
the extent the Series E Preferred Stockholders have requested such redemption
pursuant to Section 4(a)(v) or 4(a)(viii) (the date on which such payment is
made, the "Series D Redemption Date"). If the

15.
<PAGE> 16

Series E Preferred Stockholders do not so elect to have their Series E
Preferred Stock redeemed pursuant to Section 4(a)(v) or 4(a)(viii) then the
Series D Preferred Stock shall be redeemed pursuant to Section 4(f) below;
provided, however, that no redemption of Series D Preferred Stock shall be
effected if, prior to such redemption, holders of shares of Series E Preferred
Stock shall elect redemption of such shares pursuant to Section 4(b)(v) upon
the occurrence of Triggering Event that the Series E Stockholders are given
notice of for the first time after the Series D Preferred Stockholder have
elected redemption pursuant this Section or Section 4(a)(vii), or upon winding
up or dissolution, liquidation unless and until such holders of Series E
Preferred Stock have received the full Series E Redemption Price for such
shares. On the Series D Redemption Date, each holder of shares of Series D
Preferred Stock shall surrender the certificate or certificates representing
its shares of Series D Preferred Stock (together with a proper assignment of
such certificate(s)) to the corporation in exchange for payment of the Series D
Redemption Price for such shares. In the event that the corporation fails to
pay the Series D Redemption Price for all of the shares of Series D Preferred
Stock on the Series D Redemption Date, the corporation shall reissue and
deliver to such holder on such Series D Redemption Date a certificate
representing the number of shares of Series D Preferred Stock for which the
Series D Redemption Price has not been paid in full. All unredeemed shares of
Series D Preferred Stock shall be deemed to be outstanding and the Series D
Premium shall continue to accrue until such shares are redeemed.

(V) At any time beginning July 12, 2001,
upon election (a "Series E Redemption Election") by the holders of at least a
majority of the then outstanding Series E Preferred Stock, voting together as a
single class, this corporation shall redeem all of the Series E Preferred Stock
by paying in cash therefor a per share sum equal to (A) the Original Series E
Issue Price for each share of Series E Preferred Stock to be redeemed, as
adjusted to reflect any stock split, combination, reclassification or similar
event involving the Series E Preferred Stock plus (B) an amount (the "Series E
Premium") equal to a 10% rate of return compounded annually, from the date of
issuance of such Series E Preferred Stock through the date on which such
payment is made, on the Original Series E Issue Price (such cash amount payable
under this Section 4(a)(v) shall hereinafter be referred to as the "Series E
Redemption Price"). The Series E Redemption Price shall be payable in twelve
(12) equal consecutive quarterly payments beginning on the 90th day after the
date the corporation receives the Series E Redemption Election (the "Series E
Redemption Date"). On the Series E Redemption Date, each holder of shares of
Series E Preferred Stock shall surrender the certificate or certificates
representing its shares of Series E Preferred Stock (together with a proper
assignment of such certificate(s)) to the corporation in exchange for payment
of the Series E Redemption Price for such shares. In the event that the
corporation fails to pay the Series E Redemption Price for all of the shares of
Series E Preferred Stock on the Series E Redemption Date, the corporation shall
reissue and deliver to such holder on such Series E Redemption Date a
certificate representing the number of shares of Series E Preferred Stock for
which the Series E Redemption Price has not been paid in full. All unredeemed
shares of Series E Preferred Stock shall be deemed to be outstanding and the
Series E Premium shall continue to accrue until such shares are redeemed.

16.
<PAGE> 17
(VI) In the event of a Series A
Redemption Election, Series B Redemption Election, Series D Redemption Election
or Series E Redemption Election or if any other redeemable security of the
corporation is elected to be redeemed either by the corporation or the
holder(s) thereof, the corporation shall give written notice of such event to
each holder of Series C Preferred Stock not later than 10 days after the
occurrence thereof. The holders of at least two-thirds of the then outstanding
Series C Preferred Stock, voting together as a single class, may require the
corporation to redeem all of the Series C Preferred Stock owned by such holder
or holders by paying in cash therefor a per share price equal to the Series C
Redemption Price as of the date on which such payment is made, by giving
written notice to the corporation of such election within 30 days after
receiving the notice referred to in the preceding sentence. Any election made
by such holder or holders of the Series C Preferred Stock pursuant to this
subsection 4(a)(vi) shall constitute a Series C Redemption Election and the
corporation shall redeem all shares of Series C Preferred Stock pursuant to the
procedures set forth in subsection 4(a)(iii) above, including the time and
manner of payment of the Series C Redemption Price, as though such redemption
was being effected pursuant to subsection 4(a)(iii).

(VII) In the event of a Series A
Redemption Election, Series B Redemption Election, Series C Redemption Election
or Series E Redemption Election or if any other redeemable security of the
corporation is elected to be redeemed either by the corporation or the
holder(s) thereof, the corporation shall give written notice of such event to
each holder of Series D Preferred Stock not later than 10 days after the
occurrence thereof. The holders of at least two-thirds of the then outstanding
Series D Preferred Stock, voting together as a single class, may require the
corporation to redeem all of the Series D Preferred Stock owned by such holder
or holders by paying in cash therefor a per share price equal to the Series D
Redemption Price as of the date on which such payment is made, by giving
written notice to the corporation of such election within 30 days after
receiving the notice referred to in the preceding sentence. Any election made
by such holder or holders of the Series D Preferred Stock pursuant to this
subsection 4(a)(vii) shall constitute a Series D Redemption Election and the
corporation shall redeem all shares of Series D Preferred Stock pursuant to the
procedures set forth in subsection (a)(iv) above, including the time and manner
of payment of the Series D Redemption Price, as though such redemption was
being effected pursuant to subsection 4(a)(iv).

(VIII) In the event of a Series A
Redemption Election, Series B Redemption Election, Series C Redemption Election
or Series D Redemption Election, or if any other redeemable security of the
corporation is elected to be redeemed either by the corporation or the
holder(s) thereof, the corporation shall give written notice of such event to
each holder of Series E Preferred Stock not later than 10 days after the
occurrence thereof. The holders of at least a majority of the then outstanding
Series E Preferred Stock, voting together as a single class, may require the
corporation to redeem all of the Series E Preferred Stock owned by such holder
or holders by paying in cash therefor a per share price equal to the Series E
Redemption Price as of the date on which such payment is made, by giving
written notice to the corporation of such election within 30 days after
receiving the notice referred to in the preceding sentence. Any election made
by such holder or holders of the

17.
<PAGE> 18
Series E Preferred Stock pursuant to this subsection 4(a)(viii) shall
constitute a Series E Redemption Election and the corporation shall redeem all
shares of Series E Preferred Stock pursuant to the procedures set forth in
subsection 4(a)(v) above, including the time and manner of payment of the
Series E Redemption Price, as though such redemption was being effected
pursuant to subsection 4(a)(v) and before any other redemption payments are
made after such election.

B. (I) Notwithstanding subsection 4(a)(i),
if at any time after a Triggering Event (as defined in the Stockholders
Agreement) has occurred and is continuing, the holders of at least 90% of the
then outstanding shares of Series A Preferred Stock, voting together as a
single class, elect to have the corporation redeem all of their shares of
Series A Preferred Stock by delivering a written notice of such election to the
corporation (a "Series A Trigger Redemption Election"), then the corporation
shall redeem all of the shares of Series A Preferred Stock by paying in cash
therefor a per share sum equal to the Original Series A Issue Price, as
adjusted to reflect any stock split, combination, reclassification or similar
event involving the Series A Preferred Stock, plus an amount equal to a 10%
rate of return compounded annually, from July 3, 1993 through the date on which
such payment is made, on the Original Series A Issue Price (such cash amount
being referred to herein as the "Series A Trigger Price"), in a single
installment on the 30th business day after the date on which the corporation
receives the Series A Trigger Redemption Election (the "Series A Trigger
Redemption Date"). On the Series A Trigger Redemption Date, each holder of
shares of Series A Preferred Stock shall surrender the certificate or
certificates representing its shares of Series A Preferred Stock (together with
a proper assignment of such certificate(s)) to the corporation in exchange for
payment of the Series A Trigger Price for such shares of Series A Preferred
Stock. In the event that the corporation is unable to pay (or is legally
prevented from the paying) the Series A Trigger Price for all of the shares of
Series A Preferred Stock represented by such certificate(s), the corporation
shall reissue and deliver to such holder a certificate representing the number
of shares of Series A Preferred Stock for which the Series A Trigger Price has
not been paid in full.

(II) Notwithstanding subsection 4(a)(ii),
if at any time after a Triggering Event has occurred and is continuing, the
holders of 90% of the then outstanding shares of Series B Preferred Stock,
voting together as a single class, elect to have the corporation redeem all of
their shares of Series B Preferred Stock by delivering a written notice of such
election to the corporation (a "Series B Redemption Election"), then the
corporation shall redeem all of the shares of Series B Preferred Stock by
paying in cash therefor a per share sum equal to the Original Series B Issue
Price, as adjusted to reflect any stock split, combination, reclassification or
similar event involving the Series B Preferred Stock, plus an amount equal to a
10% rate of return compounded annually, from the date of issuance of such stock
through the date on which such payment is made, on the Original Series B Issue
Price (such cash amount being referred to herein as the "Series B Trigger
Price"), in a single installment on the 30th business day after the date on
which the corporation receives the Series B Trigger Redemption Election (the
"Series B Trigger Redemption Date"). On the Series B Trigger Redemption Date,
each holder of shares of Series B Preferred Stock shall surrender the
certificate or certificates representing its shares of

18.
<PAGE> 19
Series B Preferred Stock (together with a proper assignment of such
certificate(s)) to the corporation in exchange for payment of the Series B
Trigger Price for such shares of Series B Preferred Stock. In the event that
the corporation is unable to pay (or is legally prevented from paying) the
Series B Trigger Price for all of the shares of Series B Preferred Stock
represented by such certificate(s), the corporation shall reissue and deliver
to such holder a certificate representing the number of shares of Series B
Preferred Stock for which the Series B Trigger Price has not been paid in full.

(III) Notwithstanding subsection
4(a)(iii), if at any time after a Triggering Event has occurred and is
continuing, the holders of at least two-thirds of the then outstanding shares
of Series C Preferred Stock, voting together as a single class, elect to have
the corporation redeem all of their shares of Series C Preferred Stock by
delivering a written notice of such election to the corporation (a "Series C
Trigger Redemption Election"), then the corporation shall redeem all of the
shares of Series C Preferred Stock by paying in cash therefor a per share sum
equal to the Original Series C Issue Price, as adjusted to reflect any stock
split, combination, reclassification or similar event involving the Series C
Preferred Stock, plus an amount equal to a 10% rate of return compounded
annually, from November 14, 1994 through the date on which such payment is
made, on the Original Series C Issue Price (such cash amount being referred to
herein as the "Series C Trigger Price"), in a single installment on the 30th
business day after the date on which the corporation receives a Series C
Trigger Redemption Election (the "Series C Trigger Redemption Date"). On the
Series C Trigger Redemption Date, each holder of shares of Series C Preferred
Stock shall surrender the certificate or certificates representing its shares
of Series C Preferred Stock (together with a proper assignment of such
certificate(s)) to the corporation in exchange for payment of the Series C
Trigger Price for such shares of Series C Preferred Stock. In the event that
the corporation is unable to pay (or is legally prevented from paying) the
Series C Trigger Price for all of the shares of Series C Preferred Stock
represented by such certificate(s), the corporation shall reissue and deliver
to such holder a certificate representing the number of shares of Series C
Preferred Stock for which the Series C Trigger Price has not been paid in full.

(IV) Notwithstanding subsection 4(a)(iv),
if at any time after a Triggering Event has occurred and is continuing, the
holders of at least two-thirds of the then outstanding shares of Series D
Preferred Stock, voting together as a single class, elect to have the
corporation redeem all of their shares of Series D Preferred Stock by
delivering a written notice of such election to the corporation (a "Series D
Trigger Redemption Election"), then the corporation shall redeem all of the
shares of Series D Preferred Stock by paying in cash therefor a per share sum
equal to the Original Series D Issue Price, as adjusted to reflect any stock
split, combination, reclassification or similar event involving the Series D
Preferred Stock, plus an amount equal to an 10% rate of return compounded
annually, from February 28, 1995 through the date on which such payment is
made, on the Original Series D Issue Price (such cash amount being referred to
herein as the "Series D Trigger Price"), in a single installment on the 30th
business day after the date on which the corporation receives a Series D
Trigger Redemption Election (the "Series D Trigger Redemption Date"). On the
Series D Trigger Redemption Date, each holder of shares of the Series D
Preferred Stock shall

19.
<PAGE> 20
surrender the certificate or certificates representing its shares of Series D
Preferred Stock (together with a proper assignment of such certificate(s)) to
the corporation in exchange for payment of the Series D Trigger Price for such
shares of Series D Preferred Stock. In the event that the corporation is
unable to pay (or is legally prevented from paying) the Series D Trigger Price
for all of the shares of Series D Preferred Stock represented by such
certificate(s), the corporation shall reissue and deliver to such holder a
certificate representing the number of shares of Series D Preferred Stock for
which the Series D Trigger Price has not been paid in full.

(V) Notwithstanding any other provisions
hereof, (including without limitation subsection 4(a)(v)), if at any time after
a Triggering Event (as defined in the Stockholders Agreement) has occurred and
is continuing, the holders of at least a majority of the then outstanding
shares of Series E Preferred Stock, voting together as a single class, elect to
have the corporation redeem all of their shares of Series E Preferred Stock by
delivering a written notice of such election to the corporation (a "Series E
Trigger Redemption Election"), then the corporation shall redeem all of the
shares of Series E Preferred Stock by paying in cash therefor a per share sum
equal to the Original Series E Issue Price, as adjusted to reflect any stock
split, combination, reclassification or similar event involving the Series E
Preferred Stock, plus an amount equal to a 10% rate of return compounded
annually, from the date of issuance of such Series E Preferred Stock through
the date on which such payment is made, on the Original Series E Issue Price
(such cash amount being referred to herein as the "Series E Trigger Price"), in
a single installment on the 30th business day after the date on which the
corporation receives the Series E Trigger Redemption Election (the "Series E
Trigger Redemption Date"). On the Series E Trigger Redemption Date, each
holder of shares of Series E Preferred Stock shall surrender the certificate or
certificates representing its shares of Series E Preferred Stock (together with
a proper assignment of such certificate(s)) to the corporation in exchange for
payment of the Series E Trigger Price for such shares of Series E Preferred
Stock. In the event that the corporation is unable to pay (or legally
prevented from paying) the Series E Trigger Price for all of the shares of
Series E Preferred Stock represented by such certificate(s), the corporation
shall reissue and deliver to such holder a certificate representing the number
of shares of Series E Preferred Stock for which the Series E Trigger Price has
not been paid in full. For purposes of this Article IV, the term "Redemption
Date" shall mean any Series A Redemption Date, Series B Redemption Date, Series
C Redemption Date, Series D Redemption Date, Series E Redemption Date, Series A
Trigger Redemption Date, Series B Trigger Redemption Date, Series C Trigger
Redemption Date, Series D Trigger Redemption Date or Series E Trigger
Redemption Date and the term "Redemption Price" shall mean any Series A
Redemption Price, Series B Redemption Price, Series C Redemption Price, Series
D Redemption Price, Series E Redemption Price, or Series A Trigger Price,
Series B Trigger Price, Series C Trigger Price, Series D Trigger Price or
Series E Trigger Price.

(VI) In the event of a Series A Trigger
Redemption Election, Series B Trigger Redemption Election, Series C Trigger
Redemption Election, Series D Trigger Redemption Election and/or Series E
Trigger Redemption Election, the Company shall give notice of such election to
all other holders of its Preferred Stock within five (5) days of the Company's
receipt of the first such Trigger Redemption Election.

20.
<PAGE> 21
C. At least thirty (30), but no more than sixty
(60) days, prior to any Series A Redemption Date, Series B Redemption Date,
Series C Redemption Date, Series D Redemption Date or Series E Redemption Date,
written notice shall be mailed, first class postage prepaid, to each holder of
record (at the close of business on the business day next preceding the day on
which notice is given) of the shares of Preferred Stock to be redeemed, at the
address last shown on the records of this corporation for such holder or given
by the holder to this corporation for the purpose of notice or if no such
address appears or is given at the place where the principal executive office
of this corporation is located, notifying such holder of the redemption to be
effected, specifying the applicable Redemption Date, the applicable Redemption
Price, the place at which payments may be obtained and the date on which such
holder's Conversion Rights as to such shares terminate and calling upon such
holder to surrender to this corporation, in the manner and at the place
designated, his certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). Each holder of shares of Preferred Stock
to be redeemed shall surrender to this corporation the certificate or
certificates representing such shares, in the manner and at the place
designated in the Redemption Notice, and thereupon the first installment or the
entire amount, as applicable, of the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled. From and after any Redemption Date, unless there shall have been a
default in payment of the applicable Redemption Price, all rights of the
holders of such shares of Preferred Stock that have been delivered for
redemption (except the right to receive the applicable Redemption Price) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be outstanding for
any purpose whatsoever.

D. (I) Notwithstanding any provision of
this Section 4 (other than Section 4(g)), the corporation shall not redeem any
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock unless and until all shares of
Series E Preferred Stock which the corporation is obligated to redeem on such
Redemption Date have been redeemed in full pursuant to this Section 4.

(II) Subject to the preceding priority
provision, if the funds of the corporation legally available for redemption of
shares of Series E Preferred Stock are insufficient to pay in full the cash
portion of the Series E Redemption Price for the total number of shares of
Series E Preferred Stock to be redeemed on the Series E Redemption Date or
Series E Trigger Redemption Date: (A) those funds which are legally available
will be used to redeem the maximum possible number of shares of Series E
Preferred Stock ratably among the holders of Series E Preferred Stock based on
the Series E Redemption Price and the number of shares of Series E Preferred
Stock then held by each such holder, and the shares of Series E Preferred Stock
not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein; and (B) at any time thereafter when additional
funds of the corporation are legally available for the redemption of shares of
Series E Preferred Stock, such funds will immediately be used to redeem, on the
same pro rata basis as described in clause (A) above, the balance of the shares
which the corporation has become obligated to redeem on the Series E Redemption
Date or the Series E Trigger Redemption Date but which has not

21.
<PAGE> 22
been redeemed. The Series E Redemption Price for the shares of Series E
Preferred Stock that are not redeemed by the corporation as required on the
Series E Redemption Date or the Series E Trigger Redemption Date shall be
adjusted so that from the date the corporation is required to redeem such
shares of Series E Preferred Stock until the Series E Redemption Price is paid
in full, the Series E Redemption Premium shall be 13% rather than 10% set forth
in subsections 4(a)(v) and 4(b)(v).

(III) Subject to the payment in full of
the Series E Redemption Price to the extent that the holders of the Series E
Preferred Stock have elected to have their shares of Series E Preferred Stock
redeemed as provided above (except to the extent that Section 4(g) is
applicable), the corporation shall redeem the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock for which a Redemption Election has been made (A) pursuant to
Sections 4(a)(i)-(iv), 4(a)(vi) or 4(a)(vii) on a pro rata basis within 6
months after the Series E Preferred Stockholders have received the full Series
E Redemption Price, and (B) pursuant to Section 4(b)(i)-(iv) on a pro rata
basis on the 30th business day after the receipt by the corporation of the
first Trigger Redemption Election pursuant to any such Section. If, at the
time of any redemption of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, the
funds of the corporation legally available for redemption of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock are insufficient to pay in full the Series A Redemption
Price, Series B Redemption Price, Series C Redemption Price and Series D
Redemption Price for the total number of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
to be redeemed on the applicable series Redemption Date, then those funds which
are legally available will be used to redeem the maximum possible number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock ratably among the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock based on the product of the respective Series A
Redemption Price, Series B Redemption Price, Series C Redemption Price and
Series D Redemption Price multiplied by the number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock then held by each such holder. The shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when additional
funds of the corporation are legally available for the redemption of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, such funds will immediately be used to redeem, on
the same pro rata basis as described above, the balance of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock which the corporation has become obligated to redeem on the
applicable series Redemption Date but which has not been redeemed. The Series
A Redemption Price, Series B Redemption Price, Series C Redemption Price and
Series D Redemption Price for the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock that are
not redeemed by the corporation as required on the applicable series Redemption
Date shall be adjusted so that from the date the corporation is required to
redeem such shares of Series A

22.
<PAGE> 23
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock and until the Series A Redemption Price, Series B Redemption
Price, Series C Redemption Price and Series D Redemption Price is paid in full,
the Series A Redemption Premium, Series B Redemption Premium, Series C
Redemption Premium and Series D Redemption Premium shall be 13% rather than 10%
set forth herein.

E. Three (3) days prior to any Redemption Date
this corporation shall deposit the cash Redemption Price of all outstanding
shares of Preferred Stock designated for redemption in the Redemption Notice,
and not yet redeemed or converted, with a bank or trust company having
aggregate capital and surplus in excess of $50,000,000 as a trust fund for the
benefit of the respective holders of the shares designated for redemption and
not yet redeemed. Simultaneously, this corporation shall deposit irrevocable
instruction and authority to such bank or trust company to publish the notice
of redemption thereof (or to complete such publication if theretofore
commenced) and, subject to the priority provisions set forth in subsections
4(d)(i), 4(d)(ii) and 4(d)(iii) to pay, on and after the date fixed for
redemption, the applicable Redemption Price of the Series A Preferred Stock
and/or the Series B Preferred Stock and/or the Series C Preferred Stock and/or
the Series D Preferred Stock and/or the Series E Preferred Stock, as
applicable, to the holders thereof upon surrender of their certificates.

F. Subject to Sections 4(d)(i) and 4(g), in the
event that the holders of Series E Preferred Stock who have the option to have
their shares of Series E Preferred Stock redeemed but elect not to have such
shares of Series E Preferred Stock redeemed, all as pursuant to Sections
4(a)(v), 4(a)(viii) or 4(b)(v), then the holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
who elect to have their shares redeemed pursuant to Sections 4(a)(i)-(iv),
4(a)(vi) or 4(a)(vii) shall have their shares redeemed in the manner and in the
amounts set forth in Section 4(d)(iii) hereof, payable in twelve (12) equal
consecutive quarterly payments beginning on the 90th day after the corporation
receives the first Redemption Election pursuant to this Section 4.

G. Section 4(d)(i) shall not apply in the event
that, but only in the event that, (i) any holders of Series E Preferred Stock
who have the option to have their shares of Series E Preferred Stock redeemed
as set forth in Sections 4(a)(v), 4(a)(viii) or 4(b)(v), initially elect not to
have such shares of Series E Preferred Stock redeemed, and (ii) the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and/or Series D Preferred Stock make a Redemption Election (the "Initial
Redemption Election"), and then (iii) the holders of Series E Preferred Stock
make a redemption election subsequent to the Initial Redemption Election, which
is not based on a subsequent independent Triggering Event that the Series E
Stockholders are given notice of for the first time after the Initial
Redemption Election (a "Subsequent Independent Triggering Event") or a
liquidation, dissolution or winding up the corporation, in which event the
corporation shall not redeem the shares of Series E Preferred Stock requested
to be redeemed by the holders referred to in this clause (iii) unless and until
(A) the holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock who made the Initial Redemption
Election have received the respective full applicable Redemption Price for all
the shares that

23.
<PAGE> 24
such holders elect to have redeemed pursuant to the applicable provisions of
this Section 4 or (B) the occurrence of such a Subsequent Independent
Triggering Event, liquidation, dissolution or winding up.

5. VOTING RIGHTS.

A. The holder of each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall have the right to one vote
for each share of Common Stock into which such Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled, notwithstanding any provision hereof, to
notice of any stockholders' meeting in accordance with the by-laws of this
corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote.

B. (I) Until the closing of Company's
Public Offering, the holders of the Series A Preferred Stock, voting together
as a single class, shall have the right to select one director (the "Series A
Investor Representative") and the holders of the Series C Preferred Stock,
voting together as a single class, shall have the right to select one director
(the "Series C Investor Representative") and the holders of the Series D
Preferred Stock, voting together as a single class, shall have the right to
select one director (the "Series D Investor Representative") and the holders of
the Series E Preferred Stock, voting together as a single class, shall have the
right to select one director (the "Series E Investor Representative"), and
together with the Series A Investor Representative, the Series C Investor
Representative and the Series D Investor Representative, the "Investor
Representatives") as specified in the Stockholders Agreement; provided that, if
any Series of Preferred Stock (or successor security pursuant to a merger,
recapitalization or similar event) is no longer outstanding, pursuant to
redemption, liquidation, conversion or to any other reason, such Series shall
not be entitled to an Investor Representative and any Investor Representative
then serving as a director of the Company shall resign immediately upon the
completion of such redemption, liquidation, conversion or other event.

Election of directors need not be by written
ballot, unless the bylaws of the corporation shall so provide.

(II) Notwithstanding the provisions of
subsection 5(b)(i), upon the occurrence of a Triggering Event, the holders of
any of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, each
voting separately as a class, may elect to declare their respective Preferred
Stock immediately redeemable, including a 10% premium in the manner provided in
Section 4(b) hereof. In addition, upon the occurrence of a Triggering Event, a
majority of the Investor Representatives of each Series of Preferred Stock
which has not been completely

24.
<PAGE> 25
redeemed shall thereafter be entitled to appoint one additional director or
such equal number of additional directors so that the Preferred Stock
representatives on the Board of Directors will comprise a majority of the Board
of Directors in the manner set forth in Section 5 of the Stockholders
Agreement. "Redeemable Preferred Stock" shall mean the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock. If necessary, a majority of the
Investor Representatives or the representatives of Redeemable Preferred Stock
on the Board of Directors, as applicable, shall have the right to remove
directors, as necessary, to create vacancies on the Board of Directors as
provided for and in accordance with the provisions of Section 5.d of the
Stockholders Agreement.

(III) If at any time, a vote of the
Investor Representatives is required and the Investor Representatives are not
able to reach a majority decision, such decision shall be made by a majority of
the entire Board of Directors.

6. PROTECTIVE PROVISIONS.

A. So long as shares of Series A Preferred Stock
are outstanding, this corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the then outstanding shares of Series A Preferred Stock, voting
together as a single class:

(I) authorize or issue, or obligate
itself to authorize or issue, additional shares of Common Stock, Preferred
Stock or any other capital stock except (A) the issuance of shares of Common
Stock pursuant to stock option plans or restricted stock plans approved by a
majority of the Investor Representatives, (B) the issuance of shares of Common
Stock upon the conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, (C) issuances of shares of Common Stock upon the conversion of any
convertible securities outstanding on or prior to the Series E Purchase Date,
(D) in connection with an acquisition or merger approved by a majority of the
Investor Representatives; or (E) in an offering described in Section 6(d) of
the Stockholders Agreement; or

(II) sell, convey, or otherwise dispose
of all or substantially all of its property or business or merge into or
consolidate with any other corporation or effect any transaction or series of
related transactions in which more than 50% of the voting power of the
corporation is disposed of, in each case, unless approved as described in the
Stockholders Agreement in Section 8(f); or

(III) alter or change the rights,
preferences or privileges of the shares of Series A Preferred Stock in a manner
that adversely affects the holders of the Series A Preferred Stock;

(IV) increase the authorized number of
shares of Series A Preferred Stock;

25.
<PAGE> 26
(V) create any new class or series of
stock or any other securities convertible into equity securities of the
corporation having a preference over, or being on a parity with, the Series A
Preferred Stock with respect to voting, dividends or upon liquidation; or

(VI) do any act or thing which would
result in taxation of the holders of shares of the Series A Preferred Stock
under Section 305 of the Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as hereafter from time to
time amended).

B. So long as shares of Series B Preferred Stock
are outstanding, this corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the then outstanding shares of Series B Preferred Stock, voting
together as a single class:

(I) alter or change the rights,
preferences or privileges of the shares of Series B Preferred Stock in a manner
that adversely affects the holders of the Series B Preferred Stock;

(II) increase the authorized number of
shares of Series B Preferred Stock; or

(III) do any act or thing which would
result in taxation of the holders of shares of the Series B Preferred Stock
under Section 305 of the Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as hereafter from time to
time amended).

C. So long as shares of Series C Preferred Stock
are outstanding, this corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Series C Preferred Stock,
take any action set forth below; provided, however, that the approval of
two-thirds of the then outstanding shares of Series C Preferred Stock, shall be
required with respect to the actions described in subclause (iii)(A) below:

(I) authorize or issue, or obligate
itself to authorize or issue, additional shares of Common Stock, Preferred
Stock or any other capital stock except (A) the issuance of shares of Common
Stock pursuant to stock option plans or restricted stock plans approved by a
majority of the Investor Representatives, (B) the issuance of shares of Common
Stock upon the conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, (C) issuances of shares of Common Stock upon the conversion of any
convertible securities outstanding on or prior to the Series E Purchase Date,
(D) in connection with an acquisition or merger approved by a majority of the
Investor Representatives; or (E) any offering described in Section 6(d) of the
Stockholders Agreement; or

26.
<PAGE> 27
(II) sell, convey, or otherwise dispose
of all or substantially all of its property or business or merge into or
consolidate with any other corporation or effect any transaction or series of
related transactions in which more than 50% of the voting power of the
corporation is disposed of, in each case, unless approved as described in the
Stockholders Agreement in Section 8(f); or

(III) (A) alter or change the rights,
preferences or privileges of the shares of Series C Preferred Stock in a manner
that adversely affects the holders of the Series C Preferred Stock; (B)
increase the authorized number of shares of Series C Preferred Stock, (C)
create any new class or series of stock or any other securities convertible
into equity securities of the corporation having a preference over, or being on
a parity with, the Series C Preferred Stock with respect to voting, dividends
or upon liquidation; or

(IV) do any act or thing which would
result in taxation of the holders of shares of the Series C Preferred Stock
under Section 305 of the Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as hereafter from time to
time amended).

D. So long as shares of Series D Preferred Stock
are outstanding, this corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Series D Preferred Stock,
take any action set forth below:

(I) authorize or issue, or obligate
itself to authorize or issue, additional shares of Common Stock, Preferred
Stock or any other capital stock except (A) the issuance of shares of Common
Stock pursuant to stock option plans or restricted stock plans approved by a
majority of the Investor Representatives, (B) the issuance of shares of Common
Stock upon the conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, (C) issuances of shares of Common Stock upon the conversion of any
convertible securities outstanding on or prior to the Series E Purchase Date,
(D) in connection with an acquisition or merger approved by a majority of the
Investor Representatives, or (E) any offering described in Section 6(d) of the
Stockholders Agreement; or

(II) sell, convey or otherwise dispose of
all or substantially all of its property or business or merge into or
consolidate with any other corporation or effect any transaction or series of
related transactions in which more than 50% of the voting power of the
corporation is disposed of, in each case, unless approved as described in the
Stockholders Agreement in Section 8(f); or

(III) (A) alter or change the rights,
preferences or privileges of the shares of Series D Preferred Stock in a manner
that adversely affects the holders of the Series D Preferred Stock; (B)
increase the authorized number of shares of Series D Preferred Stock, (C)
create any new class or series of stock or any other securities convertible
into

27.
<PAGE> 28
equity securities of the corporation having a preference over, or being on a
parity with the Series D Preferred Stock with respect to voting, dividends or
upon liquidation; or

(IV) do any act or thing which would
result in taxation of the holders of shares of the Series D Preferred Stock
under Section 305 of the Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as hereafter from time to
time amended).

E. So long as shares of Series E Preferred Stock
are outstanding, this corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least 51% of the then outstanding shares of Series E Preferred Stock, take any
action set forth below:

(I) authorize or issue, or obligate
itself to authorize or issue, additional shares of Common Stock, Preferred
Stock or any other capital stock except (A) the issuance of shares of Common
Stock pursuant to stock option plans or restricted stock plans approved by a
majority of the Investor Representatives, (B) the issuance of shares of Common
Stock upon the conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, (C) issuances of shares of Common Stock upon the conversion of any
convertible securities outstanding on or prior to the Series E Purchase Date;
(D) in connection with an acquisition or merger approved by a majority of the
Investor Representatives; or (E) any offering described in Section 6(d) of the
Stockholders Agreement; or

(III) (A) alter or change the rights,
preferences or privileges of the shares of Series E Preferred Stock in a manner
that adversely affects the holders of the Series E Preferred Stock; (B)
increase the authorized number of shares of Series E Preferred Stock or (C)
create any new class or series of stock or any other securities convertible
into equity securities of the corporation having a preference over, or being on
a parity with, the Series E Preferred Stock with respect to voting, dividends
or upon liquidation; or

(IV) do any act or thing which would
result in taxation of the holders of shares of the Series E Preferred Stock
under Section 305 of the Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as hereafter from time to
time amended).

C. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall be
converted pursuant to Section 3 hereof, the shares so converted shall be
canceled and shall not be issuable by the corporation. The Certificate of

28.
<PAGE> 29
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.

D. COMMON STOCK.

1. DIVIDEND RIGHTS. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of any assets of the
corporation legally available therefore, such dividends as may be declared from
time to time by the Board of Directors.

2. LIQUIDATION RIGHTS. Upon the liquidation,
dissolution or winding up of the corporation, the assets of the corporation
shall be distributed as provided in Section 2 of Division (B) of this Article
IV hereof.

3. REDEMPTION. The Common Stock is not redeemable.

4. VOTING RIGHTS. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of any
stockholders' meetings in accordance with the Bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
V.

A. To the fullest extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement
of expenses to) directors, officers, employees and agents (and any other
persons to which Delaware law permits this corporation to provide
indemnification) through bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in
excess of the indemnification and advancement otherwise permitted by Section
145 of the Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to the corporation, its stockholders, and others.

B. No director of the corporation shall be personally liable to
the corporation or any stockholder for monetary damages for breach of fiduciary
duty as a director, except for any matter in respect of which such director
shall be liable under Section 174 of the General Corporation Law of the State
of Delaware or any amendment thereto or shall be liable by reason that, in
addition to any and all other requirements for such liability, such director
(1) shall have breached the director's duty of loyalty to the corporation or
its stockholders, (2) shall not have acted in good faith, or, in failing to
act, shall not have acted in good faith, (3) shall have acted in manner
involving intentional misconduct or a knowing violation of law or, in failing
to act, shall have acted in a manner involving intentional misconduct or a
knowing violation of law, or (4) shall have derived an improper personal
benefit. If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a director,
the liability of a director of the corporation shall be

29.
<PAGE> 30
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.

C. Each person who was or is made a party or is threatened to be
made a party to or is in any way involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), including any appeal therefrom,
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer of the corporation or of
a direct or indirect subsidiary of the corporation, or is or was serving at the
request of the corporation as a director of officer of another entity or
enterprise, or was a director or officer of a foreign or domestic corporation
which was predecessor corporation of the corporation or of another entity or
enterprise at the request of such predecessor corporation, shall be indemnified
and held harmless by the corporation, and the corporation shall advance all
expenses incurred by any such person in defense of any such proceeding prior to
its final determination, to the fullest extent authorized by the General
Corporation Law of the State of Delaware. In any proceeding against the
corporation to enforce these rights, such person shall be presumed to be
entitled to indemnification and the corporation shall have the burden of
proving that such person has not met the standards of conduct for permissible
indemnification set forth in the General Corporation Law of the State of
Delaware. The rights to indemnification and advancement of expenses conferred
by this Article V shall be presumed to have been relied upon by the directors
and officers of the corporation in serving or continuing to serve the
corporation and shall be enforceable as contact rights. Said rights shall not
be exclusive of any other rights to which those seeking indemnification may
otherwise be entitled. The corporation may, upon written demand presented by a
director or officer of the corporation or of a direct or indirect subsidiary of
the corporation, or by a person serving at the request of the corporation as a
director or officer of another entity or enterprise, enter into contracts to
provide such persons with specified rights to indemnification, which contracts
may confer rights and protections to the maximum extent permitted by the
General Corporation Law of the State of Delaware, as amended and in effect from
time to time.

(1) If a claim under this Article
V is not paid in full by the corporation within sixty (60) days after a written
claim has been received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expenses of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce the right
to be advanced expenses incurred in defending any proceeding prior to its final
disposition where the required undertaking, if any, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the
corporation shall have the burden of proving that the claimant has not met the
standards of conduct for permissible indemnification set forth in the General
Corporation Law of the Sate of Delaware.

30.
<PAGE> 31
(2) If the General Corporation Law
of the State of Delaware is hereafter amended to permit the corporation to
provide broader indemnification rights than said Law permitted the corporation
to provide prior to such amendment, the indemnification rights conferred by
this Article V shall be broadened to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended.

D. Any repeal or modification of any of the foregoing provisions
of this Article V, including without limitation, any contractual rights arising
under or authorized by it, shall not adversely affect any right or protection
of a director, officer, agent or other person existing at the time of, or
increase the liability of any director of the corporation with respect to any
acts or omissions of such director, officer or agent occurring prior to such
repeal or modification.

31.
<PAGE> 32
IN WITNESS WHEREOF, the undersigned has executed this certificate on
July 12, 1996.

/s/ S.M. HASSAN
----------------------------
S.M. Hassan
President

32.

<PAGE> 1

BY-LAWS

WO HOLDINGS, INC.

(A DELAWARE CORPORATION)

AS ADOPTED BY THE BOARD OF DIRECTORS JUNE 3, 1996

1.
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
TABLE OF CONTENTS
- -----------------

ARTICLE I
OFFICES 2
SECTION 1. REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II
CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3. CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4. PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 5. ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 6. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. NOTICE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 8. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 10. VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 11. BENEFICIAL OWNERS OF STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 12. LIST OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 13. ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 14. ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE IV

DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 15. NUMBER AND TERM OF OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 16. POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 17. VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 18. RESIGNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 19. REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 20. MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>

i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
(e) Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(f) Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 21. QUORUM AND VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 22. ACTION WITHOUT MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 23. FEES AND COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 24. COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 25. ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE V

OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 26. OFFICERS DESIGNATED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 27. TENURE AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Duties of Chairman of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Duties of President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Duties of Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Duties of Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(f) Duties of Chief Financial Officer or Treasurer . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 28. DELEGATION OF AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 29. RESIGNATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 30. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION . . . . . . . . . . . . . . . . 16
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>

ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)

<TABLE>
<CAPTION>
PAGE
ARTICLE VII
<S> <C>
SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 34. LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 35. TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 36. FIXING RECORD DATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 37. REGISTERED STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 38. EXECUTION OF OTHER SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLES IX

DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 39. DECLARATION OF DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 40. DIVIDEND RESERVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ARTICLES X

FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 41. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ARTICLE XI

INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 42. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. . . . . . . . . . . . . . . 20
(a) Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Officers, Employees and Other Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(c) Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
(f) Non Exclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
(g) Survival of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
</TABLE>

iii.
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
(h) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(i) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(j) Saving Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(k) Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

ARTICLE XII

NOTICES 24
SECTION 43. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Notice to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Notice to Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) Address Unknown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Affidavit of Mailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Time Notices Deemed Given . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) Methods of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(g) Failure to Receive Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(h) Notice to Person with Whom Communication Is Unlawful . . . . . . . . . . . . . . . . . . . 25
(i) Notice to Person with Undeliverable Address . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE XIII

AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 44. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE XIV

LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 45. LOANS TO OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>

iv.
<PAGE> 6
BY-LAWS

WO HOLDINGS, INC.

(A DELAWARE CORPORATION)

ARTICLE I

OFFICES

1. REGISTERED OFFICE. The registered office of the corporation in the
State of Delaware shall be in the City of Dover, County of Kent.

2. OTHER OFFICES. The corporation shall also have and maintain an office
or principal place of business in Boulder, Colorado, at such place as may be
fixed by the Board of Directors, and may also have offices at such other
places, both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.

ARTICLE II

CORPORATE SEAL

3. CORPORATE SEAL. The corporate seal shall consist of a die bearing the
name of the corporation and the inscription, "Corporate Seal Delaware." Said
seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.

ARTICLE III

STOCKHOLDERS' MEETINGS

4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation
shall be held at such place, either within or without the State of Delaware, as
may be designated from time to time by the Board of Directors, or, if not so
designated, then at the office of the corporation required to be maintained
pursuant to Section 2 hereof.

5. ANNUAL MEETING.

(A) The annual meeting of the stockholders of the corporation, for
the purpose of election of Directors and for such other business as may
lawfully come before it, shall

2.
<PAGE> 7
be held on such date and at such time as may be designated from time to time by
the Board of Directors

(B) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than one hundred twenty (120) calendar days in advance of the date of the
corporation's proxy statement released to stockholders in connection with the
previous year's annual meeting of stockholders; provided, however, that in the
event that no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received a reasonable time before the
solicitation is made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the Securities and Exchange Act of 1934, as amended. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at
any annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph (b),
and, if he should so determine, he shall so declare at the meeting that any
such business not properly brought before the meeting shall not be transacted.

(C) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of

3.
<PAGE> 8
persons for election to the Board of Directors of the corporation may be made
at a meeting of stockholders by or at the direction of the Board of Directors
or by any stockholder of the corporation entitled to vote in the election of
Directors at the meeting who complies with the notice procedures set forth in
this paragraph (c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are
to be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a Director if elected); and
(ii) as to such stockholder giving notice, the information required to be
provided pursuant to paragraph (b) of this Section 5. At the request of the
Board of Directors, any person nominated by a stockholder for election as a
Director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
Director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (c). The chairman of the meeting shall, if the
facts warrant, determine and declare at the meeting that a nomination was not
made in accordance with the procedures prescribed by these By-laws, and if he
should so determine, he shall so declare at the meeting and the defective
nomination shall be disregarded.

6. SPECIAL MEETINGS.

(A) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board, (ii) the
President, (iii) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption)or (iv) by the holders of
shares entitled to cast not less than ten percent (10%) of the votes at the
meeting, and shall be held at such place, on such date, and at such time as
they or he shall fix; provided, however, that following registration of any of
the classes of equity securities of the corporation pursuant to the provisions
of the Securities Exchange Act of 1934, as amended, special meetings of the
stockholders may only be called by the Board

4.
<PAGE> 9
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized Directors.

(B) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Chairman of the Board, the
President, any Vice President, or the Secretary of the corporation. No
business may be transacted at such special meeting otherwise than specified in
such notice. The officer receiving the request shall cause notice to be
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these By-Laws, that a meeting will be held not less
than thirty five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after the receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.

7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.

8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these
By-Laws, the presence, in person or by proxy duly authorized, of the holders of
a majority of the outstanding shares of stock entitled to vote shall constitute
a quorum for the transaction of business. Any shares, the voting of which at
said meeting has been enjoined, or which for any reason cannot be lawfully
voted at such meeting, shall not be counted to determine a quorum at such
meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a
duly called or convened meeting, at which a quorum is present, may continue to
transact business until

5.
<PAGE> 10
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, all action taken by the holders of a majority
of the voting power represented at any meeting at which a quorum is present
shall be valid and binding upon the corporation; provided, however, that
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of Directors. Where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes,
present in person or represented by proxy, shall constitute a quorum entitled
to take action with respect to that vote on that matter and the affirmative
vote of the majority (plurality, in the case of the election of Directors) of
shares of such class or classes present in person or represented by proxy at
the meeting shall be the act of such class.

9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the
shares represented thereat. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

10. VOTING RIGHTS.

(A) For the purpose of determining those stockholders entitled to
vote at any meeting of the stockholders, except as otherwise provided by law,
only persons in whose names shares stand on the stock records of the
corporation on the record date, as provided in Section 12 of these By-Laws,
shall be entitled to vote at any meeting of stockholders. Except as may be
otherwise provided in the Certificate of Incorporation or these By-Laws, each
stockholder shall be entitled to one vote for each share of capital stock held
by such stockholder. Every person entitled to vote or execute consents shall
have the right to do so either in person or by an agent or agents authorized by
a written proxy executed by such person or his duly authorized agent, which
proxy shall be filed with the Secretary at or before the meeting at which it is
to be used. An agent so appointed need not be a stockholder. No proxy shall
be voted after three (3) years from its date of creation unless the proxy
provides for a longer period. All elections of Directors shall be by written
ballot, unless otherwise provided in the Certificate of Incorporation.

11. BENEFICIAL OWNERS OF STOCK.

6.
<PAGE> 11
(A) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of
a partnership, joint tenants, tenants in common, tenants by the entirety, or
otherwise, or if two (2) or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing
them or creating the relationship wherein it is so provided, their acts with
respect to voting shall have the following effect: (a) if only one (1) votes,
his act binds all; (b) if more than one (1) votes, the act of the majority so
voting binds all; (c) if more than one (1) votes, but the vote is evenly split
on any particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the General Corporation Law of Delaware, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even split for the purpose of this subsection
(c) shall be a majority or even split in interest.

(B) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.

12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not specified, at the
place where the meeting is to be held. The list shall be produced and kept at
the time and place of meeting during the whole time thereof, and may be
inspected by any stockholder who is present.

13. ACTION WITHOUT MEETING.

(A) Any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, are signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.

7.
<PAGE> 12
(B) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the Corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to
take action are delivered to the corporation by delivery to its registered
office in the State of Delaware, its principal place of business or an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.

(C) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.

14. ORGANIZATION.

(A) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, the most senior Vice President
present, or in the absence of any such officer, a chairman of the meeting
chosen by a majority in interest of the stockholders entitled to vote, present
in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act
as secretary of the meeting.

(B) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting
shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business for
the meeting, rules and procedures for maintaining order at the meeting and the
safety of those present, limitations on participation in such meeting to
stockholders of record of the corporation and their duly authorized and
constituted proxies, and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for

8.
<PAGE> 13
balloting on matters which are to be voted on by ballot. Unless, and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.

ARTICLE IV

DIRECTORS

15. NUMBER AND TERM OF OFFICE. The authorized number of directors of the
corporation shall be not less than a minimum of one (1) nor more than a maximum
of eleven (11). The number of authorized directors shall be set from time to
time within these limits by resolution of the Board of Directors. The number
of authorized Directors may be modified from time to time by amendment of this
Section 15 in accordance with the provisions of Section 44 hereof. Except as
provided in Section 17, the Directors shall be elected by the stockholders at
their annual meeting in each year and shall hold office until the next annual
meeting and until their successors shall be duly elected and qualified.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the Directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these By-Laws. No reduction of the authorized number of Directors
shall have the effect of removing any Director before the Director's term of
office expires, unless such removal is made pursuant to the provisions of
Section 19 hereof.

16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.

17. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining Director, and each Director so elected shall hold office for the
unexpired portion of the term of the Director whose place shall be vacant and
until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this Section 17 in the
case of the death, removal or resignation of any Director, or if the
stockholders fail at any meeting of stockholders at which Directors are to be
elected (including any meeting referred to in Section 19 below) to elect the
number of Directors then constituting the whole Board of Directors.

<PAGE> 14

18. RESIGNATION. Any Director may resign at any time by delivering his
written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or
more Directors shall resign from the Board of Directors, effective at a future
date, a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective,
and each Director so chosen shall hold office for the unexpired portion of the
term of the Director whose place shall be vacated and until his successor shall
have been duly elected and qualified.

19. REMOVAL. At a special meeting of stockholders called for the purpose
in the manner hereinabove provided, subject to any limitations imposed by law
or the Certificate of Incorporation, the Board of Directors, or any individual
Director, may be removed from office, with or without cause, and a new Director
or Directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of Directors.

20. MEETINGS.

(A) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board
of Directors shall be necessary and such meeting shall be held for the purpose
of electing officers and transacting such other business as may lawfully come
before it.

(B) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the
State of Delaware which has been determined by the Board of Directors.

(C) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the President or a majority of the Directors.

10.
<PAGE> 15
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.

(E) NOTICE OF MEETINGS. Written notice of the time and place of
all special meetings of the Board of Directors shall be given at least one (1)
day before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

(F) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the Directors not present shall sign a
written waiver of notice, or a consent to holding such meeting, or an approval
of the minutes thereof. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in any written waiver of notice or consent unless so required by the
Certificate of Incorporation or these By-Laws. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.

21. QUORUM AND VOTING.

(A) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 42 hereof, for which a quorum shall be one third of the exact number of
Directors fixed from time to time in accordance with Section 15 hereof, but not
less than one (1), a quorum of the Board of Directors shall consist of a
majority of the exact number of Directors fixed from time to time in accordance
with Section 15 of these By-Laws, but not less than one (1); provided, however,
at any meeting whether a quorum be present or otherwise, a majority of the
Directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.

(B) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by a vote of a majority
of the Directors present, unless a different vote be required by law, the
Certificate of Incorporation or these By-Laws.

22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any

11.
<PAGE> 16
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and such writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.

23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the
Board of Directors. Nothing herein contained shall be construed to preclude
any Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.

24. COMMITTEES.

(A) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors, shall have and may exercise when the Board of Directors
is not in session all powers of the Board of Directors in the management of the
business and affairs of the corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of
stock, except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend to the
stockholders of the corporation a dissolution of the corporation or a
revocation of a dissolution or to amend these By-Laws.

(B) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees,
but in no event shall such committee have the powers denied to the Executive
Committee in these By-Laws.

12.
<PAGE> 17
committee or from the Board of Directors. The Board of Directors may at any
time for any reason remove any individual committee member and the Board of
Directors may fill any committee vacancy created by death, resignation, removal
or increase in the number of members of the committee. The Board of Directors
may designate one or more Directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee,
and, in addition, in the absence or disqualification of any member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.

(D) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 24 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director who is a member of
such committee, upon written notice to the members of such committee of the
time and place of such special meeting given in the manner provided for the
giving of written notice to members of the Board of Directors of the time and
place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any Director by attendance thereat, except
when the Director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum
for the transaction of business, and the act of a majority of those present at
any meeting at which a quorum is present shall be the act of such committee.

25. ORGANIZATION. At every meeting of the Directors, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or if the President is absent, the most senior Vice President, or,
in the absence of any such officer, a chairman of the meeting chosen by a
majority of the Directors present, shall preside over the meeting. The
Secretary, or in his absence, an Assistant Secretary directed to do so by the
President, shall act as secretary of the meeting.

13.
<PAGE> 18
ARTICLE V

OFFICERS

26. OFFICERS DESIGNATED. The officers of the corporation shall be the
Chairman of the Board of Directors, the President, one or more Vice Presidents,
the Secretary and the Chief Financial Officer or Treasurer, all of whom shall
be elected at the annual organizational meeting of the Board of Directors. The
order of the seniority of the Vice Presidents shall be in the order of their
nomination, unless otherwise determined by the Board of Directors. The Board
of Directors may also appoint such other officers and agents with such powers
and duties as it shall deem necessary. The Board of Directors may assign such
additional titles to one or more of the officers as it shall deem appropriate.
Any one person may hold any number of offices of the corporation at any one
time unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors. The President may appoint one or
more Assistant Secretaries and Assistant Treasurers with such powers and duties
as he or she deems necessary.

27. TENURE AND DUTIES OF OFFICERS.

(A) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If
the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.

(B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. If there is no President, then
the Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 27.

(C) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. The President shall be the Chief Executive Officer of the corporation
and shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office

14.
<PAGE> 19
and shall also perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.

(D) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order
of their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.

(E) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors, and shall record all acts
and proceedings thereof in the minute book of the corporation. The Secretary
shall give notice in conformity with these By-Laws of all meetings of the
stockholders, and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given
him in these By-Laws and other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. The President may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform
such other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.

(F) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as
often as required by the Board of Directors or the President. The Chief
Financial Officer or Treasurer, subject to the order of the Board of Directors,
shall have the custody of all funds and securities of the corporation. The
Chief Financial Officer or Treasurer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct any Assistant Treasurer to assume and
perform the duties of the Chief Financial Officer or Treasurer in the absence
or disability of the Chief Financial Officer or Treasurer, and each Assistant
Treasurer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.

28. DELEGATION OF AUTHORITY. The Board of Directors may from time to time
delegate the powers or duties of any officer to any other officer or agent,
notwithstanding any provision hereof.

15.
<PAGE> 20
29. RESIGNATIONS. Any officer may resign at any time by giving written
notice to the Board of Directors or to the President or to the Secretary. Any
such resignation shall be effective when received by the person or persons to
whom such notice is given, unless a later time is specified therein, in which
event the resignation shall become effective at such later time. Unless
otherwise specified in such notice, the acceptance of any such resignation
shall not be necessary to make it effective. Any resignation shall be without
prejudice to the rights, if any, of the corporation under any contract with the
resigning officer.

30. REMOVAL. Any officer may be removed from office at any time, either
with or without cause, by the vote or written consent of a majority of the
Directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION

31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in
its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these By-Laws, and
such execution or signature shall be binding upon the corporation.

Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or endorsed
by the Chairman of the Board of Directors, or the President or any Vice
President, and by the Secretary or Chief Financial Officer or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and
documents requiring the corporate signature, but not requiring the corporate
seal, may be executed as aforesaid or in such other manner as may be directed
by the Board of Directors.

All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.

16.
<PAGE> 21
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.

32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other
securities of other corporations owned or held by the corporation for itself,
or for other parties in any capacity, shall be voted, and all proxies with
respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice
President.

ARTICLE VII

SHARES OF STOCK

33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of
stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be by
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall
state upon the face or back thereof, in full or in summary, all of the
designations, preferences, limitations, restrictions on transfer and relative
rights of the shares authorized to be issued.

34. LOST CERTIFICATES. A new certificate or certificates shall be issued
in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.

17.
<PAGE> 22
35. TRANSFERS.

(A) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.

(B) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.

36. FIXING RECORD DATES.

(A) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date
of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.

(B) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in the
State of Delaware, its principal place of business or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record

18.
<PAGE> 23
date has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be
at the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.

(C) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.

37. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 33), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary
or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signatures of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate
security may be the imprinted facsimile of the signatures of such persons.
Interest coupons appertaining to any such bond, debenture or other corporate
security, authenticated by a trustee as aforesaid, shall be signed by the
Treasurer or an Assistant Treasurer of the corporation or such other person as
may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile

19.
<PAGE> 24
signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have
ceased to be such officer before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose
facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.

ARTICLE IX

DIVIDENDS

39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares
of the capital stock, subject to the provisions of the Certificate of
Incorporation.

40. DIVIDEND RESERVE. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interests of the corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.

ARTICLE X

FISCAL YEAR

41. FISCAL YEAR. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.

ARTICLE XI

INDEMNIFICATION

42. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS.

20.
<PAGE> 25
(A) DIRECTORS. The corporation shall indemnify its Directors to
the fullest extent not prohibited by the Delaware General Corporation Law;
provided, however, that the corporation shall not be required to indemnify any
Director in connection with any proceeding (or part thereof) initiated by such
person or any proceeding by such person against the corporation or its
Directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation or (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.

(B) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have power to indemnify its officers, employees and other agents as set forth
in the Delaware General Corporation Law.

(I) For purposes of any determination under this Bylaw, a
Director or executive officer shall be deemed to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his conduct was
unlawful, if his action is based on information, opinions, reports and
statements, including financial statements and other financial data, in each
case prepared or presented by:

(1) one or more officers or employees of the
corporation whom the Director or executive officer believed to be reliable and
competent in the matters presented;

(2) counsel, independent accountants or other
persons as to matters which the Director or executive officer believed to be
within such person's professional competence; and

(3) with respect to a Director, a committee of
the Board upon which such Director does not serve, as to matters within such
Committee's designated authority, which committee the Director believes to
merit confidence; so long as, in each case, the Director or executive officer
acts without knowledge that would cause such reliance to be unwarranted.

(II) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect

21.
<PAGE> 26
to any criminal proceeding, that he had reasonable cause to believe that his
conduct was unlawful.

(III) The provisions of this paragraph (c) shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth
by the Delaware General Corporation Law.

(D) EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.

(E) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the Director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a Director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. The corporation shall be
entitled to raise as a defense to any such action that the claimant has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.

22.
<PAGE> 27
corporation is specifically authorized to enter into individual contracts with
any or all of its Directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.

(G) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

(H) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.

(I) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.

(J) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.

(K) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:

(I) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.

(II) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.

23.
<PAGE> 28
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Bylaw with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.

(IV) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.

(V) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.

ARTICLE XII

NOTICES

43. NOTICES.

(A) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these By-Laws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.

(B) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last
known post office address of such Director.

24.
<PAGE> 29
(C) ADDRESS UNKNOWN. If no address of a stockholder or Director
be known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.

(D) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given,
and the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.

(E) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.

(F) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or
others.

(G) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.

(H) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or By-Laws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.

25.
<PAGE> 30
(I) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or By-Laws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been
duly given. If any such person shall deliver to the corporation a written
notice setting forth his then current address, the requirement that notice be
given to such person shall be reinstated. In the event that the action taken
by the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to
be given pursuant to this paragraph.

ARTICLE XIII

AMENDMENTS

44. AMENDMENTS. Except as otherwise set forth in paragraph (i) of Section
42 of these By-Laws, these By-Laws may be amended or repealed and new By-Laws
adopted by a majority of the stockholders entitled to vote. The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, to adopt, amend or repeal
By-Laws (including, without limitation, the amendment of any Bylaw setting
forth the number of Directors who shall constitute the whole Board of
Directors).

ARTICLE XIV

LOANS TO OFFICERS

45. LOANS TO OFFICERS. The corporation may lend money to, or guarantee
any obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiaries, including any officer or employee who is a
Director of the corporation or its subsidiaries, whenever, in the judgment of
the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a
pledge of shares of stock of the corporation. Nothing in this Section 45 shall
be deemed to deny,

26.
<PAGE> 31
limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.

27.

<PAGE> 1

AMENDED AND RESTATED

BY-LAWS

WILD OATS MARKETS, INC.

(A DELAWARE CORPORATION)

AS ADOPTED BY THE BOARD OF DIRECTORS AUGUST 19, 1996
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE

<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1 REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3 CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . 1
SECTION 4 OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 5 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 6 SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 7 NOTICE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . 4
SECTION 8 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 9 ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. . . . . . . . 5
SECTION 10 VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 11 BENEFICIAL OWNERS OF STOCK. . . . . . . . . . . . . . . . . 6
SECTION 12 LIST OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . 6
SECTION 13 ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . . . 6
SECTION 14 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 15 NUMBER AND TERM OF OFFICE . . . . . . . . . . . . . . . . . 8
SECTION 16 POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 17 CLASSES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . 8
SECTION 18 VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 19 RESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 20 REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 21 MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . 9

(a) Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Telephone Meetings. . . . . . . . . . . . . . . . . . . . . . . 10
(e) Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . 10
(f) Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . . 10

SECTION 22 QUORUM AND VOTING . . . . . . . . . . . . . . . . . . . . . 10
SECTION 23 ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . . . 10
SECTION 24 FEES AND COMPENSATION . . . . . . . . . . . . . . . . . . . 11
SECTION 25 COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)

<TABLE>
<CAPTION>
PAGE

<S> <C>
(a) Executive Committee . . . . . . . . . . . . . . . . . . . . . . 11
(b) Other Committees. . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 26 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 27 OFFICERS DESIGNATED . . . . . . . . . . . . . . . . . . . . 12
SECTION 28 TENURE AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . 13

(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Duties of Chairman of the Board of Directors. . . . . . . . . . 13
(c) Duties of President . . . . . . . . . . . . . . . . . . . . . . 13
(d) Duties of Vice Presidents. . . . . . . . . . . . . . . . . . . 13
(e) Duties of Secretary . . . . . . . . . . . . . . . . . . . . . . 13
(f) Duties of Chief Financial Officer or Treasurer. . . . . . . . . 14

SECTION 29 DELEGATION OF AUTHORITY . . . . . . . . . . . . . . . . . . 14
SECTION 30 RESIGNATIONS. . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 31 REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION. . . . . . . . . . . . 14
SECTION 32 EXECUTION OF CORPORATE INSTRUMENTS. . . . . . . . . . . . . 14
SECTION 33 VOTING OF SECURITIES OWNED BY THE CORPORATION . . . . . . . 15
ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 34 FORM AND EXECUTION OF CERTIFICATES. . . . . . . . . . . . . 15
SECTION 35 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 16
SECTION 36 TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 37 FIXING RECORD DATES . . . . . . . . . . . . . . . . . . . . 16
SECTION 38 REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . 17
SECTION 39 EXECUTION OF OTHER SECURITIES . . . . . . . . . . . . . . . 17
ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 40 DECLARATION OF DIVIDENDS. . . . . . . . . . . . . . . . . . 18
SECTION 41 DIVIDEND RESERVE. . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 42 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>

ii.
<PAGE> 4
TABLE OF CONTENTS

(CONTINUED)

<TABLE>
<CAPTION>
PAGE

<S> <C>
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 43 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . 19

(a) Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Officers, Employees and Other Agents. . . . . . . . . . . . . . 19
(c) Good Faith. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(e) Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(f) Non Exclusivity of Rights . . . . . . . . . . . . . . . . . . . 20
(g) Survival of Rights. . . . . . . . . . . . . . . . . . . . . . . 21
(h) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(j) Saving Clause . . . . . . . . . . . . . . . . . . . . . . . . . 21
(k) Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 44 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 45 AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XIV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . 24
SECTION 46 LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>

iii.

<PAGE> 5

AMENDED AND RESTATED

BY-LAWS

WILD OATS MARKETS, INC.

(A DELAWARE CORPORATION)

ARTICLE I

OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Dover, County of
Kent.

SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business in Boulder, Colorado, at such
place as may be fixed by the Board of Directors, and may also have offices at
such other places, both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the corporation
may require.

ARTICLE II

CORPORATE SEAL

SECTION 3. CORPORATE SEAL. The corporate seal shall consist of
a die bearing the name of the corporation and the inscription, "Corporate Seal
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.

ARTICLE III

STOCKHOLDERS' MEETINGS

SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of
the corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of Directors,
or, if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.

1
<PAGE> 6

SECTION 5. ANNUAL MEETING.

(A) The annual meeting of the stockholders of the
corporation, for the purpose of election of Directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors

(B) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not less than one hundred twenty (120) calendar days in advance of the date of
the corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the sixtieth (60th) day prior to such annual
meeting or, in the event public announcement of the date of such annual meeting
is first made by the corporation fewer than seventy (70) days prior to the date
of such annual meeting, the close of business on the tenth (10th) day following
the day on which public announcement of the date of such meeting is first made
by the corporation. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the Securities and Exchange Act of 1934, as amended. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at
any annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph (b),
and, if he should so determine, he shall

2.
<PAGE> 7

so declare at the meeting that any such business not properly brought before
the meeting shall not be transacted.

(C) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) and the Stockholders Agreement
between the corporation and certain stockholders shall be eligible for election
as Directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 5. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re election as a Director: (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation which are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including without limitation such person's written consent to
being named in the proxy statement, if any, as a nominee and to serving as a
Director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section
5. At the request of the Board of Directors, any person nominated by a
stockholder for election as a Director shall furnish to the Secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible for election as a Director of the corporation unless nominated in
accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these By-laws, and if he should so determine, he shall so declare
at the meeting and the defective nomination shall be disregarded.

(D) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.

SECTION 6. SPECIAL MEETINGS.

(A) Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by (i) the Chairman of
the Board, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously

3.
<PAGE> 8

authorized directorships at the time any such resolution is presented to the
Board for adoption)or (iv) by the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting, and shall be held at such
place, on such date, and at such time as they or he shall fix; provided,
however, that following registration of any of the classes of equity securities
of the corporation pursuant to the provisions of the Securities Exchange Act of
1934, as amended, special meetings of the stockholders may only be called by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of authorized Directors.

(B) If a special meeting is called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the time of such meeting and the general nature of the business
proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board, the President, any Vice President, or the Secretary of
the corporation. No business may be transacted at such special meeting
otherwise than specified in such notice. The officer receiving the request
shall cause notice to be promptly given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these By-Laws, that a meeting
will be held not less than thirty five (35) nor more than one hundred twenty
(120) days after the receipt of the request. Upon determination of the time
and place of the meeting, the officer receiving the request shall cause notice
to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within
sixty (60) days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this
paragraph (b) shall be construed as limiting, fixing, or affecting the time
when a meeting of stockholders called by action of the Board of Directors may
be held.

SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by
law or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.

SECTION 8. QUORUM. At all meetings of stockholders, except
where otherwise provided by statute or by the Certificate of Incorporation, or
by these By-Laws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, either

4.
<PAGE> 9

by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these By-Laws, all action taken by the holders of a majority of the voting
power represented at any meeting at which a quorum is present shall be valid
and binding upon the corporation; provided, however, that Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
Directors. Where a separate vote by a class or classes or series is required,
a majority of the outstanding shares of such class or classes or series,
present in person or represented by proxy, shall constitute a quorum entitled
to take action with respect to that vote on that matter and the affirmative
vote of the majority (plurality, in the case of the election of Directors) of
shares of such class or classes or series present in person or represented by
proxy at the meeting shall be the act of such class or classes or series.

SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from time
to time either by the chairman of the meeting or by the vote of a majority of
the shares represented thereat. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

SECTION 10. VOTING RIGHTS.

(A) For the purpose of determining those stockholders
entitled to vote at any meeting of the stockholders, except as otherwise
provided by law, only persons in whose names shares stand on the stock records
of the corporation on the record date, as provided in Section 12 of these
By-Laws, shall be entitled to vote at any meeting of stockholders. Except as
may be otherwise provided in the Certificate of Incorporation or these By-Laws,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder. Every person entitled to vote shall have the right
to do so either in person or by an agent or agents authorized by a written
proxy executed by such person or his duly authorized agent, which proxy shall
be filed with the Secretary at or before the meeting at which it is to be used.
An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for a
longer period. All elections of Directors shall be by written ballot, unless
otherwise provided in the Certificate of Incorporation.

5.
<PAGE> 10

SECTION 11. BENEFICIAL OWNERS OF STOCK.

(A) If shares or other securities having voting power
stand of record in the names of two (2) or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by the
entirety, or otherwise, or if two (2) or more persons have the same fiduciary
relationship respecting the same shares, unless the Secretary is given written
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their
acts with respect to voting shall have the following effect: (a) if only one
(1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even split for the purpose of this
subsection (c) shall be a majority or even split in interest.

(B) Persons holding stock in a fiduciary capacity shall
be entitled to vote the shares so held. Persons whose stock is pledged shall
be entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.

SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

SECTION 13. ACTION WITHOUT MEETING.

(A) Any action required by statute to be taken at any
annual or special meeting of the stockholders, or any action which may be taken
at any annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, are signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.

(B) Every written consent shall bear the date of
signature of each stockholder who signs the consent, and no written consent
shall be effective to take the

6.
<PAGE> 11

corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered to the Corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to
take action are delivered to the corporation by delivery to its registered
office in the State of Delaware, its principal place of business or an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.

(C) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.

(D) Notwithstanding the foregoing, no such action by
written consent may be taken following the closing of the initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common
Stock of the corporation (the "Initial Public Offering").

SECTION 14. ORGANIZATION.

(A) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, the most senior Vice President
present, or in the absence of any such officer, a chairman of the meeting
chosen by a majority in interest of the stockholders entitled to vote, present
in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act
as secretary of the meeting.

(B) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of
the meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies, and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot.

7.
<PAGE> 12

Unless, and to the extent determined by the Board of Directors or the chairman
of the meeting, meetings of stockholders shall not be required to be held in
accordance with rules of parliamentary procedure.

ARTICLE IV

DIRECTORS

SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the Directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these By-Laws. No reduction of the authorized number of
Directors shall have the effect of removing any Director before the Director's
term of office expires, unless such removal is made pursuant to the provisions
of Section 20 hereof.

SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation.

SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the
holders of any series of Preferred Stock to elect additional directors under
specified circumstances, following the closing of the Initial Public Offering,
the directors shall be divided into three classes designated as Class I, Class
II and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose
terms expire at such annual meeting.

Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

SECTION 18. VACANCIES. Unless otherwise provided in the
Certificate of Incorporation, vacancies and newly created directorships
resulting from any increase in the authorized number of Directors may be filled
by a majority of the Directors then in office,

8.
<PAGE> 13

although less than a quorum, or by a sole remaining Director, and each Director
so elected shall hold office for the unexpired portion of the term of the
Director whose place shall be vacant and until his successor shall have been
duly elected and qualified. A vacancy in the Board of Directors shall be
deemed to exist under this Section 18 in the case of the death, removal or
resignation of any Director, or if the stockholders fail at any meeting of
stockholders at which Directors are to be elected (including any meeting
referred to in Section 20 below) to elect the number of Directors then
constituting the whole Board of Directors.

SECTION 19. RESIGNATION. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by the
Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more Directors shall resign from the Board of
Directors, effective at a future date, a majority of the Directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall
be vacated and until his successor shall have been duly elected and qualified.

SECTION 20. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock and the Stockholders Agreement, no director shall be
removed without cause. Subject to any limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time
with cause by the affirmative vote of the holders of a majority of the voting
power of all the then-outstanding shares of voting stock of the corporation,
entitled to vote at an election of directors (the "Voting Stock").

SECTION 21. MEETINGS.

(A) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately after the annual meeting of stockholders
and at the place where such meeting is held. No notice of an annual meeting of
the Board of Directors shall be necessary and such meeting shall be held for
the purpose of electing officers and transacting such other business as may
lawfully come before it.

(B) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the
office of the corporation required to be maintained pursuant to Section 2
hereof. Unless otherwise restricted by the Certificate of Incorporation,
regular meetings of the Board of Directors may also be held at any place within
or without the State of Delaware which has been determined by the Board of
Directors.

9.
<PAGE> 14

(D) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting by such means shall constitute presence in person at such meeting.

(E) NOTICE OF MEETINGS. Written notice of the time and
place of all special meetings of the Board of Directors shall be given at least
one (1) day before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived by
any Director by attendance thereat, except when the Director attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.

(F) WAIVER OF NOTICE. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the Directors not present shall sign a
written waiver of notice, or a consent to holding such meeting, or an approval
of the minutes thereof. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in any written waiver of notice or consent unless so required by the
Certificate of Incorporation or these By-Laws. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.

SECTION 22. QUORUM AND VOTING.

(A) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of Directors fixed from time to time in accordance with the Certificate
of Incorporation, a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time by the Board
of Directors in accordance with the Certificate of Incorporation; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for
the next regular meeting of the Board of Directors, without notice other than
by announcement at the meeting.

(B) At each meeting of the Board of Directors at which a
quorum is present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by law,
the Certificate of Incorporation or these By-Laws.

SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted
by the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent

10.
<PAGE> 15

thereto in writing, and such writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.

SECTION 24. FEES AND COMPENSATION. Directors shall be entitled
to such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors,
a fixed sum and expenses of attendance, if any, for attendance at each regular
or special meeting of the Board of Directors and at any meeting of a committee
of the Board of Directors. Nothing herein contained shall be construed to
preclude any Director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise and receiving compensation therefor.

SECTION 25. COMMITTEES.

(A) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors, appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
specifically granted by the Board of Directors, shall have and may exercise
when the Board of Directors is not in session all powers of the Board of
Directors in the management of the business and affairs of the corporation,
including, without limitation, the power and authority to declare a dividend or
to authorize the issuance of stock, except such committee shall not have the
power or authority to amend the Certificate of Incorporation, to adopt an
agreement of merger or consolidation, to recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, to recommend to the stockholders of the corporation a
dissolution of the corporation or a revocation of a dissolution or to amend
these By-Laws.

(B) OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors, and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these By-Laws.

(C) TERM. The members of all committees of the Board of
Directors shall serve a term coexistent with that of the Board of Directors
which shall have appointed such committee. The Board of Directors, subject to
the provisions of subsections (a) or (b) of this Section 25, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation from the committee or from
the Board of Directors. The Board of Directors may at any time for any reason
remove any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one
or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any

11.
<PAGE> 16

meeting of the committee, and, in addition, in the absence or disqualification
of any member of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.

(D) MEETINGS. Unless the Board of Directors shall
otherwise provide, regular meetings of the Executive Committee or any other
committee appointed pursuant to this Section 25 shall be held at such times and
places as are determined by the Board of Directors, or by any such committee,
and when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
Director who is a member of such committee, upon written notice to the members
of such committee of the time and place of such special meeting given in the
manner provided for the giving of written notice to members of the Board of
Directors of the time and place of special meetings of the Board of Directors.
Notice of any special meeting of any committee may be waived in writing at any
time before or after the meeting and will be waived by any Director by
attendance thereat, except when the Director attends such special meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A majority of the authorized number of members of any such committee
shall constitute a quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is present shall be
the act of such committee.

SECTION 26. ORGANIZATION. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.

ARTICLE V

OFFICERS

SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall be the Chairman of the Board of Directors, the President, one or more
Vice Presidents, the Secretary and the Chief Financial Officer or Treasurer,
all of whom shall be elected at the annual organizational meeting of the Board
of Directors. The order of the seniority of the Vice Presidents shall be in
the order of their nomination, unless otherwise determined by the Board of
Directors. The Board of Directors may also appoint such other officers and
agents with such powers and duties as it shall deem necessary. The Board of
Directors may assign such additional titles to one or more of the officers as
it shall deem appropriate. Any one person

12.
<PAGE> 17

may hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation
of the officers of the corporation shall be fixed by or in the manner
designated by the Board of Directors. The President may appoint one or more
Assistant Secretaries and Assistant Treasurers with such powers and duties as
he or she deems necessary.

SECTION 28. TENURE AND DUTIES OF OFFICERS.

(A) GENERAL. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.

(B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all meetings
of the stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. If there is no President, then
the Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 28.

(C) DUTIES OF PRESIDENT. The President shall preside at
all meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. The President shall be the Chief Executive Officer of the corporation
and shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.

(D) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in
the order of their seniority, may assume and perform the duties of the
President in the absence or disability of the President or whenever the office
of President is vacant. The Vice Presidents shall perform other duties
commonly incident to their office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.

13.
<PAGE> 18

such other duties and have such other powers as the Board of Directors shall
designate from time to time. The President may direct any Assistant Secretary
to assume and perform the duties of the Secretary in the absence or disability
of the Secretary, and each Assistant Secretary shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.

(F) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The
Chief Financial Officer or Treasurer shall keep or cause to be kept the books
of account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as
often as required by the Board of Directors or the President. The Chief
Financial Officer or Treasurer, subject to the order of the Board of Directors,
shall have the custody of all funds and securities of the corporation. The
Chief Financial Officer or Treasurer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct any Assistant Treasurer to assume and
perform the duties of the Chief Financial Officer or Treasurer in the absence
or disability of the Chief Financial Officer or Treasurer, and each Assistant
Treasurer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.

SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.

SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.

SECTION 31. REMOVAL. Any officer may be removed from office at
any time, either with or without cause, by the vote or written consent of a
majority of the Directors in office at the time, or by any committee or
superior officers upon whom such power of removal may have been conferred by
the Board of Directors.

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION

SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or

14.
<PAGE> 19

other person or persons, to execute on behalf of the corporation any corporate
instrument or document, or to sign on behalf of the corporation the corporate
name without limitation, or to enter into contracts on behalf of the
corporation, except where otherwise provided by law or these By-Laws, and such
execution or signature shall be binding upon the corporation.

Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.

SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All
stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the absence
of such authorization, by the Chairman of the Board of Directors, the
President, or any Vice President.

ARTICLE VII

SHARES OF STOCK

SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for
the shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant Treasurer
or the Secretary or Assistant Secretary, certifying the number of shares owned
by him in the corporation. Any or all of the signatures on the certificate may
be by facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar

15.
<PAGE> 20

before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the designations, preferences, limitations, restrictions on transfer and
relative rights of the shares authorized to be issued.

SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore issued
by the corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen, or
destroyed.

SECTION 36. TRANSFERS.

(A) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.

(B) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of shares of stock
of the corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.

SECTION 37. FIXING RECORD DATES.

(A) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.

(B) Prior to the Initial Public Offering, in order that
the Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix, in
advance, a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors,

16.
<PAGE> 21

and which date shall not be more than ten (10) days after the date upon which
the resolution fixing the record date is adopted by the Board of Directors. If
no record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required
by law, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to a Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required
by law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.

(C) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
fixed, the record date for determining stockholders for any such purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.

SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures
and other corporate securities of the corporation, other than stock
certificates (covered in Section 34), may be signed by the Chairman of the
Board of Directors, the President or any Vice President, or such other person
as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief
Financial Officer or Treasurer or an Assistant Treasurer; provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature of a trustee under an

17.
<PAGE> 22

indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be
authorized by the Board of Directors, or bear imprinted thereon the facsimile
signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have
ceased to be such officer before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose
facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.

ARTICLE IX

DIVIDENDS

SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.

SECTION 41. DIVIDEND RESERVE. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the Board of
Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.

ARTICLE X

FISCAL YEAR

SECTION 42. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.

18.
<PAGE> 23

ARTICLE XI

INDEMNIFICATION

SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS.

(A) DIRECTORS. The corporation shall indemnify its
Directors to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation shall not be required
to indemnify any Director in connection with any proceeding (or part thereof)
initiated by such person or any proceeding by such person against the
corporation or its Directors, officers, employees or other agents unless (i)
such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation or (iii)
such indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the Delaware General
Corporation Law.

(B) OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its officers, employees and other
agents as set forth in the Delaware General Corporation Law.

(I) For purposes of any determination under this
Bylaw, a Director or executive officer shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his conduct was
unlawful, if his action is based on information, opinions, reports and
statements, including financial statements and other financial data, in each
case prepared or presented by:

(1) one or more officers or employees of
the corporation whom the Director or executive officer believed to be reliable
and competent in the matters presented;

(2) counsel, independent accountants or
other persons as to matters which the Director or executive officer believed to
be within such person's professional competence; and

(3) with respect to a Director, a
committee of the Board upon which such Director does not serve, as to matters
within such Committee's designated authority, which committee the Director
believes to merit confidence; so long as, in each case, the Director or
executive officer acts without knowledge that would cause such reliance to be
unwarranted.

(II) The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself,

19.
<PAGE> 24

create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal proceeding, that he had
reasonable cause to believe that his conduct was unlawful.

(III) The provisions of this paragraph (c) shall
not be deemed to be exclusive or to limit in any way the circumstances in which
a person may be deemed to have met the applicable standard of conduct set forth
by the Delaware General Corporation Law.

(D) EXPENSES. The corporation shall advance, prior to
the final disposition of any proceeding, promptly following request therefor,
all expenses incurred by any Director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.

(E) ENFORCEMENT. Without the necessity of entering into
an express contract, all rights to indemnification and advances to Directors
and executive officers under this Bylaw shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a contract
between the corporation and the Director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a Director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. The corporation shall be
entitled to raise as a defense to any such action that the claimant has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.

(F) NON EXCLUSIVITY OF RIGHTS. The rights conferred on
any person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Laws, agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its Directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.

20.
<PAGE> 25

(G) SURVIVAL OF RIGHTS. The rights conferred on any
person by this Bylaw shall continue as to a person who has ceased to be a
Director, officer, employee or other agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.

(H) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation, upon approval by the Board
of Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Bylaw.

(I) AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.

(J) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each Director and executive
officer to the full extent not prohibited by any applicable portion of this
Bylaw that shall not have been invalidated, or by any other applicable law.

(K) CERTAIN DEFINITIONS. For the purposes of this Bylaw,
the following definitions shall apply:

(I) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement, arbitration and appeal of, and
the giving of testimony in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative.

(II) The term "expenses" shall be broadly
construed and shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any other costs
and expenses of any nature or kind incurred in connection with any proceeding.

(III) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Bylaw with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.

(IV) References to a "director," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the

21.
<PAGE> 26

request of the corporation as a director, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.

(V) References to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Bylaw.

ARTICLE XII

NOTICES

SECTION 44. NOTICES.

(A) NOTICE TO STOCKHOLDERS. Whenever, under any
provisions of these By-Laws, notice is required to be given to any stockholder,
it shall be given in writing, timely and duly deposited in the United States
mail, postage prepaid, and addressed to his last known post office address as
shown by the stock record of the corporation or its transfer agent.

(B) NOTICE TO DIRECTORS. Any notice required to be given
to any Director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such Director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such Director.

(C) ADDRESS UNKNOWN. If no address of a stockholder or
Director be known, notice may be sent to the office of the corporation required
to be maintained pursuant to Section 2 hereof.

(D) AFFIDAVIT OF MAILING. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or its
transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, or Director or Directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall be
conclusive evidence of the statements therein contained.

(E) TIME NOTICES DEEMED GIVEN. All notices given by
mail, as above provided, shall be deemed to have been given as at the time of
mailing and all notices given by

22.
<PAGE> 27

facsimile, telex or telegram shall be deemed to have been given as of the
sending time recorded at time of transmission.

(F) METHODS OF NOTICE. It shall not be necessary that
the same method of giving notice be employed in respect of all Directors, but
one permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other or
others.

(G) FAILURE TO RECEIVE NOTICE. The period or limitation
of time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any Director
may exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.

(I) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS.
Whenever notice is required to be given, under any provision of law or the
Certificate of Incorporation or By-Laws of the corporation, to any stockholder
to whom (i) notice of two consecutive annual meetings, and all notices of
meetings or of the taking of action by written consent without a meeting to
such person during the period between such two consecutive annual meetings, or
(ii) all, and at least two, payments (if sent by first class mail) of dividends
or interest on securities during a twelve month period, have been mailed
addressed to such person at his address as shown on the records of the
Corporation and have been returned undeliverable, the giving of such notice to
such person shall not be required. Any action or meeting which shall be taken
or held without notice to such person shall have the same force and effect as
if such notice had been duly given. If any such person shall deliver to the
corporation a written notice setting forth his then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph.

23.
<PAGE> 28

ARTICLE XIII

AMENDMENTS

SECTION 45. AMENDMENTS. Except as otherwise set forth in
paragraph (i) of Section 43 of these By-Laws, the Bylaws may be altered or
amended or new Bylaws adopted by the affirmative vote of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the Voting Stock. The Board of Directors shall also have the power
to adopt, amend or repeal Bylaws.

ARTICLE XIV

LOANS TO OFFICERS

SECTION 46. LOANS TO OFFICERS. The corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever, in
the judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
this Section 46 shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.

24.

<PAGE> 1
The following form of Indemnity Agreement has been entered into by the
Company and each of the following persons:

Michael C. Gilliland
S.M. Hassan
Elizabeth C. Cook
Mary Beth Lewis
John A. Shields
David M. Chamberlain
Peter D. Behrendt
Barnet M. Feinblum
David L. Ferguson
M. Laird Koldyke
James B. McElwee

<PAGE> 2

INDEMNITY AGREEMENT

THIS AGREEMENT is made and entered into this ____ day of August, 1996,
between WILD OATS MARKETS, INC., a Delaware corporation (the "Corporation"),
and ____________ ("Agent").

RECITALS

WHEREAS, Agent performs a valuable service to the Corporation in his
or her capacity as a director of the Corporation;

WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");

WHEREAS, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Corporation and its agents, officers, employees
and other agents with respect to indemnification of such persons; and

WHEREAS, in order to induce Agent to continue to serve as a director
of the Corporation, the Corporation has determined and agreed to enter into
this Agreement with Agent;

NOW, THEREFORE, in consideration of Agent's continued service as a
director after the date hereof, the parties hereto agree as follows:

AGREEMENT

I. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as a
director of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such
position or any other position (subject to any contractual obligation that
Agent may have assumed apart from this Agreement) and that the Corporation or
any affiliate shall have no obligation under this Agreement to continue Agent
in such position or any other position.

II. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
applicable law.

III. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:

A. against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent

1.
<PAGE> 3
becomes legally obligated to pay because of any claim or claims made against or
by him in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, arbitrational, administrative or
investigative (including an action by or in the right of the Corporation) to
which Agent is, was or at any time becomes a party, or is threatened to be made
a party, by reason of the fact that Agent is, was or at any time becomes a
director, officer, employee or other agent of Corporation, or is or was serving
or at any time serves at the written request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise; and

B. otherwise to the fullest extent as may be provided to Agent
by the Corporation under the non-exclusivity provisions of the Code and the
Bylaws.

IV. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:

A. on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;

B. on account of Agent's conduct that was knowingly fraudulent
or deliberately dishonest or that constituted willful misconduct;

C. on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit
or advantage to which Agent was not legally entitled;

D. for which payment is actually made to Agent under a valid
and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment
under such insurance, clause, bylaw or agreement;

E. if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or

F. in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the Corporation, (iii) such indemnification is
provided by the Corporation, in its sole discretion, pursuant to the powers
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.

2.
<PAGE> 4
V. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the written request of the Corporation as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter
so long as Agent shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Agent was serving in the capacity referred to herein.

VI. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and
amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 3 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Agent for the portion
thereof to which Agent is entitled.

VII. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit
or proceeding, Agent will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Agent notifies the Corporation of the commencement thereof:

A. The Corporation will be entitled to participate therein at
its own expense;

B. Except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent
of its election to assume the defense thereof, the Corporation will not be
liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except
for reasonable costs of investigation or otherwise as provided below. Agent
shall have the right to employ separate counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the
expense of Agent unless (i) the employment of counsel by Agent has been
authorized by the Corporation, (ii) Agent shall have reasonably concluded that
there may be a conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in
fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of Agent's separate counsel shall be at the
expense of the Corporation. The Corporation shall not be entitled to assume
the defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Agent shall have made the conclusion provided for in
clause (ii) above;

3.
<PAGE> 5
C. The Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall
not settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion;

D. If there is a Change in Control (defined below) of the
Company (other than a Change in Control that has been approved by a majority of
the Company's Board of Directors who were directors immediately prior to such
Change in Control), then with respect to all matters thereafter arising
concerning the rights of Agent to indemnity, expense payments and/or advances
under this Agreement or any other agreement or Company Bylaw now or hereafter
in effect, the Company shall seek legal advice only from Independent Legal
Counsel (defined below) selected by Agent and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and Agent as to whether
and to what extent Agent would be permitted to be indemnified under applicable
law. The Company shall pay the reasonable fees of such Independent Legal
Counsel and fully indemnify such counsel against any and all expenses
(including attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto;

E. For purposes of this Section, a "Change in Control" shall
be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their
ownership of the stock of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 20% or more of the total voting power represented by
the Company's then outstanding voting securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by
the Board of Directors or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation that would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80% of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the stockholders or the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series
of transactions) all or substantially all of the Company's assets; and

4.
<PAGE> 6
F. For purposes of this section, "Independent Legal Counsel"
shall be defined as an attorney or firm of attorneys, selected in accordance
with this Section, who have not otherwise performed services for the Company or
Agent within the last five years (other than with respect to matters concerning
the rights of Agent under this Agreement, or of other agents under similar
indemnity agreements).

VIII. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection with such proceeding upon receipt of
an undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.

IX. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Agent, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under Section 3 hereof
(other than an action brought to enforce a claim for expenses pursuant to
Section 8 hereof, provided that the required undertaking has been tendered to
the Corporation) that Agent is not entitled to indemnification because of the
limitations set forth in Section 4 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have made
a determination prior to the commencement of such enforcement action that
indemnification of Agent is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise.

X. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.

XI. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.

XII. SURVIVAL OF RIGHTS.

A. The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.

5.
<PAGE> 7
B. The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.

XIII. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.

XIV. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.

XV. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.

XVI. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the
existence of this Agreement.

XVII. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.

XVIII.NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date
on which such communication was mailed if mailed by certified or registered
mail with postage prepaid:

A. If to Agent, at the address indicated on the signature
page hereof.

B. If to the Corporation, to:

Wild Oats Markets, Inc.
1645 Broadway
Boulder, Colorado 80302

or to such other address as may have been furnished to
Agent by the Corporation.

6.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.

WILD OATS MARKETS, INC.

By:
------------------------------------
Name:
Title:

AGENT

---------------------------------------
Name

Print Agent's name and address:

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

<PAGE> 1

WILD OATS MARKETS, INC.

1996 EQUITY INCENTIVE PLAN

ADOPTED AUGUST 19, 1996

APPROVED BY STOCKHOLDERS ___________, 1996

INTRODUCTION.

In June, 1996, the Board of Directors adopted the Wild Oats Markets,
Inc. 1996 Stock Option Plan. In August, 1996, the Board of Directors amended
and restated the 1996 Stock Option Plan in the form of this 1996 Equity
Incentive Plan (the "Plan").

1. PURPOSES.

(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors and Consultants may be given an opportunity to
benefit from increases in value of the common stock of the Company ("Common
Stock") through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, and (iv) rights to purchase restricted
stock.

(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company and its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.

(c) The Company intends that the Stock Awards issued under the
Plan shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock
bonuses or rights to purchase restricted stock granted pursuant to Section 7
hereof. All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and in such form as issued
pursuant to Section 6, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.

2. DEFINITIONS.

(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.

1.
<PAGE> 2
(b) "BOARD" means the Board of Directors of the Company.

(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.

(e) "COMPANY" means Wild Oats Markets, Inc. a Delaware
corporation.

(f) "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.

(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"
means the employment or relationship as a Director or Consultant is not
interrupted or terminated. The Board, in its sole discretion, may determine
whether Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence approved by
the Board, including sick leave, military leave, or any other personal leave;
or (ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.

(h) "DIRECTOR" means a member of the Board.

(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(k) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock of the Company determined as follows:

(1) If the Common Stock is listed on any established
stock exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in Common Stock) on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;

(2) In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.

2.
<PAGE> 3
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

(m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not
a current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would not
be required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act of 1933 ("Regulation S-K"), does not possess an interest in any
other transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.

(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

(o) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

(p) "OPTION" means a stock option granted pursuant to the Plan.

(q) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.

(r) "OPTIONEE" means a person to whom an Option is granted
pursuant to the Plan.

(s) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.

(t) "PLAN" means this Wild Oats Markets, Inc. 1996 Equity
Incentive Plan.

(u) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

(v) "STOCK AWARD" means any right granted under the Plan,
including any Option, any stock bonus and any right to purchase restricted
stock.

3.
<PAGE> 4
(w) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.

3. ADMINISTRATION.

(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).

(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock
Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase
restricted stock or a combination of the foregoing; the provisions of each
Stock Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive stock pursuant to a Stock Award and
the number of shares with respect to which a Stock Award shall be granted to
each such person.

(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in
Section 13.

(4) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.

(c) The Board may delegate administration of the Plan to a
committee or committees ("Committee") of one or more members of the Board. In
the discretion of the Board, a Committee may consist solely of two or more
Outside Directors, in accordance with Code Section 162(m), or solely of two or
more Non-Employee Directors, in accordance with Rule 16(b)-3. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board (and references in this Plan to the Board shall
thereafter be to the Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest
in the Board the administration of the Plan.

4.
<PAGE> 5
4. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of Section 12 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate [FOUR HUNDRED AND SIXTY-EIGHT
THOUSAND, SIX HUNDRED SEVENTY (468,670)] shares of the Common Stock. If any
Stock Award shall for any reason expire or otherwise terminate, in whole or in
part, without having been exercised in full (or vested in the case of
Restricted Stock), the stock not acquired under such Stock Award shall revert
to and again become available for issuance under the Plan.

(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY.

(a) Incentive Stock Options may be granted only to Employees.
Stock Awards other than Incentive Stock Options may be granted only to
Employees, Directors or Consultants.

(b) No person shall be eligible for the grant of an Incentive
Stock Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Option is not exercisable after the expiration of
five (5) years from the date of grant.

(c) Subject to the provisions of Section 12 relating to
adjustments upon changes in stock, no person shall be eligible to be granted
Options covering more than one hundred thousand (100,000) shares of the Common
Stock in any calendar year. This subsection 5(c) shall not apply until (i) the
earliest of: (A) the first material modification of the Plan (including any
increase to the number of shares reserved for issuance under the Plan in
accordance with Section 4); (B) the issuance of all of the shares of Common
Stock reserved for issuance under the Plan; (C) the expiration of the Plan; or
(D) the first meeting of stockholders at which directors are to be elected that
occurs after the close of the third calendar year following the calendar year
in which occurred the first registration of an equity security under Section 12
of the Exchange Act; or (ii) such other date required by Section 162(m) of the
Code and the rules and regulations promulgated thereunder.

6. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but

5.
<PAGE> 6
each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:

(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.

(b) PRICE. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted and the
exercise price of each Nonstatutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.

(c) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company,
(B) according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other Common Stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.

In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions
of the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.

(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may
be transferred to the extent provided in the Option Agreement; provided that if
the Option Agreement does not expressly permit the transfer of a Nonstatutory
Stock Option, the Nonstatutory Stock Option shall not be transferable except by
will, by the laws of descent and distribution or pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3 and shall be
exercisable during the lifetime of the person to whom the Option is granted
only by such person or any transferee pursuant to a domestic relations order.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.

(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option

6.
<PAGE> 7
Agreement may provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with respect to some or all
of the shares allotted to that period, and may be exercised with respect to
some or all of the shares allotted to such period and/or any prior period as to
which the Option became vested but was not fully exercised. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board
may deem appropriate. The provisions of this subsection 6(e) are subject to
any Option provisions governing the minimum number of shares as to which an
Option may be exercised.

(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date thirty (30)
days after the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (or such longer or shorter period specified in the
Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionee does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.

An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the
term of the Option set forth in the Option Agreement, or (ii) the tenth (10th)
day after the last date on which such exercise would result in such liability
under Section 16(b) of the Exchange Act. Finally, an Optionee's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (other than upon the Optionee's death or disability) would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in the first
paragraph of this subsection 6(f), or (ii) the expiration of a period of thirty
(30) days after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant during which the exercise of the Option would
not be in violation of such registration requirements.

(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date six (6) months following such termination (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term
of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and

7.
<PAGE> 8
again become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.

(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise
the Option at the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date twelve (12) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.

(i) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to a repurchase right in favor of
the Company or to any other restriction the Board determines to be appropriate.

(j) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board or Committee to make or not to make grants of Options hereunder, the
Board or Committee shall have the authority (but not an obligation) to include
as part of any Option Agreement a provision entitling the Optionee to a further
Option (a "Re-Load Option") in the event the Optionee exercises the Option
evidenced by the Option agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a
number of shares equal to the number of shares surrendered as part or all of
the exercise price of such Option; (ii) shall have an expiration date which is
the same as the expiration date of the Option the exercise of which gave rise
to such Re-Load Option; and (iii) shall have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock
Option and which is granted to a 10% stockholder (as described in subsection
5(c)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.

Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option;

8.
<PAGE> 9
provided, however, that the designation of any Re-Load Option as an Incentive
Stock Option shall be subject to the one hundred thousand dollars ($100,000)
annual limitation on exercisability of Incentive Stock Options described in
subsection 11(d) of the Plan and in Section 422(d) of the Code. There shall be
no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be
subject to the availability of sufficient shares under subsection 4(a) and
shall be subject to such other terms and conditions as the Board or Committee
may determine which are not inconsistent with the express provisions of the
Plan regarding the terms of Options.

7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.

Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:

(A) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value
on the date such award is made. Notwithstanding the foregoing, the Board or
the Committee may determine that eligible participants in the Plan may be
awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company for its benefit.

(B) TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution or, if the agreement so provides, pursuant to a
domestic relations order satisfying the requirements of Rule 16b-3 so long as
stock awarded under such agreement remains subject to the terms of the
agreement.

(C) CONSIDERATION. The purchase price of stock acquired pursuant
to a stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Board or the Committee in its discretion. Notwithstanding the
foregoing, the Board or the Committee to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.

(D) VESTING. Shares of stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.

9.
<PAGE> 10
(E) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.

8. CANCELLATION AND RE-GRANT OF OPTIONS.

(a) The Board or the Committee shall have the authority to effect,
at any time and from time to time, (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of any adversely affected holders
of Options, the cancellation of any outstanding Options under the Plan and the
grant in substitution therefor of new Options under the Plan covering the same
or different numbers of shares of stock, but having an exercise price per share
not less than eighty-five percent (85%) of the Fair Market Value for a
Nonstatutory Stock Option, one hundred percent (100%) of the Fair Market Value
for an Incentive Stock Option or, in the case of an Incentive Stock Option held
by a 10% stockholder (as described in subsection 5(c)), not less than one
hundred ten percent (110%) of the Fair Market Value per share of stock on the
new grant date. Notwithstanding the foregoing, the Board or the Committee may
grant an Option with an exercise price lower than that set forth above if such
Option is granted as part of a transaction to which section 424(a) of the Code
applies.

(b) Shares subject to an Option canceled under this Section 8
shall continue to be counted against the maximum award of Options permitted to
be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 8, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a
substitute Option; in the event of such repricing, both the original and the
substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c) of the Plan. The
provisions of this subsection 8(b) shall be applicable only to the extent
required by Section 162(m) of the Code.

9. COVENANTS OF THE COMPANY.

(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.

(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares under Stock Awards; provided, however, that
this undertaking shall not require the Company to register under the Securities
Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award
or any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of stock under the Plan, the Company
shall be relieved from any liability for failure to

10.
<PAGE> 11
issue and sell stock upon exercise of such Stock Awards unless and until such
authority is obtained.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.

11. MISCELLANEOUS.

(a) The Board shall have the power to accelerate the time at which
a Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding
the provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.

(b) Neither an Employee, Director nor a Consultant nor any person
to whom a Stock Award is transferred in accordance with the Plan shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or
any Affiliate or to continue serving as a Consultant and Director, or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's By-laws.

(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.

(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred in accordance with
the Plan, as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company

11.
<PAGE> 12
stating that such person is acquiring the stock subject to the Stock Award for
such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise or acquisition of stock under the
Stock Award has been registered under a then currently effective registration
statement under the Securities Act, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.

(f) To the extent provided by the terms of a Stock Award
Agreement, the person to whom a Stock Award is granted may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under a Stock Award by any of the following means or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Stock Award; or (3) delivering to the Company owned and unencumbered
shares of the Common Stock of the Company.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the maximum number of shares subject to award to any person
during any calendar year pursuant to subsection 5(d), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to such outstanding Stock Awards. Such
adjustments shall be made by the Board or the Committee, the determination of
which shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a "transaction
not involving the receipt of consideration by the Company".)

(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse merger
in which the Company is the surviving corporation but the shares of the
Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then to the extent permitted by applicable law:
(i) any surviving corporation or an Affiliate of such surviving corporation
shall assume any Stock Awards outstanding under the Plan or shall substitute
similar Stock Awards for those outstanding under the Plan, or (ii) such

12.
<PAGE> 13
Stock Awards shall continue in full force and effect. In the event any
surviving corporation and its Affiliates refuse to assume or continue such
Stock Awards, or to substitute similar options for those outstanding under the
Plan, then, with respect to Stock Awards held by persons then performing
services as Employees, Directors or Consultants, the time during which such
Stock Awards may be exercised shall be accelerated and the Stock Awards
terminated if not exercised prior to such event.

13. AMENDMENT OF THE PLAN AND STOCK AWARDS.

(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or
any Nasdaq or securities exchange listing requirements.

(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.

(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.

(e) The Board at any time, and from time to time, may amend the
terms of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.

14. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate ten (10) years from the date
the Plan is adopted by the Board or approved by the stockholders of the
Company, whichever is earlier. No Stock Awards may be granted under the Plan
while the Plan is suspended or after it is terminated.

13.
<PAGE> 14
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was
granted.

15. EFFECTIVE DATE OF PLAN.

This amendment and restatement of the Plan shall become effective on
the date of closing of the initial public offering pursuant to an effective
registration statement covering the offer and sale of Common Stock to the
public, but no Stock Awards granted under the Plan shall be exercised unless
and until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan
is adopted by the Board.

14.
<PAGE> 15

WILD OATS MARKETS, INC.
INCENTIVE STOCK OPTION

___________________________________, Optionee:

Wild Oats Markets, Inc. (the "Company"), pursuant to its 1996 Equity
Incentive Plan (the "Plan"), has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").

The details of your option are as follows:

1. (a) THE TOTAL NUMBER OF SHARES OF COMMON STOCK SUBJECT TO
THIS OPTION IS __________________________.

(a) Subject to the conditions stated herein, this option
shall be exercisable with respect to each installment shown below on or after
the date of vesting applicable to such installment; provided, however, that
should Optionee's employment terminate for "cause" this option shall be
terminated and canceled immediately and shall not be exercisable for any number
of shares. For purposes of this option, "cause" shall mean misconduct
including, but not limited to, criminal acts involving moral turpitude or
dishonesty.

NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING)

2. (a) The exercise price of this option is $_____________
per share, being not less than one hundred percent (100%) of the fair market
value of the Common Stock on the date of grant of this option.

(a) Payment of the exercise price per share is due in
full in cash (including check) upon exercise of all or any part of each
installment which has become exercisable by you.

(b) Notwithstanding the foregoing, this option may be
exercised pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board which results in the receipt of cash (or check) by
the Company prior to the issuance of Common Stock.

3. This option may not be exercised for any number of shares
which would require the issuance of anything other than whole shares.

4. Notwithstanding anything to the contrary contained herein,
this option may not be exercised unless the shares issuable upon exercise of
this option are then registered under the
<PAGE> 16
Act or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Act.

5. The term of this option commences on the date hereof and,
unless sooner terminated as set forth below or in the Plan, terminates ten
(10) years from the date of grant. In no event may this option be exercised on
or after the date on which it terminates. This option shall terminate prior to
the expiration of its term as follows: Thirty (30) days after the termination
of your employment with the Company or an affiliate of the Company (as defined
in the Plan) for any reason or for no reason unless;

(a) such termination of employment is due to your
permanent and total disability (within the meaning of Section 422(c)(6) of the
Code), in which event the option shall terminate on the earlier of the
termination date set forth above or six (6) months following such termination
of employment; or

(b) such termination of employment is due to your death,
in which event the option shall terminate on the earlier of the termination
date set forth above or twelve (12) months after your death; or

(c) during any part of such thirty (30) days period the
option is not exercisable solely because of the condition set forth in
paragraph 4 above, in which event the option shall not terminate until the
earlier of the termination date set forth above or until it shall have been
exercisable for an aggregate period of thirty (30) days after the termination
of employment.

However, this option may be exercised on or after the
termination of employment only as to that number of vested shares as to which
it was exercisable on the date of termination of employment under the
provisions of paragraphs 1 and 3 of this option; provided however, that if your
employment is terminated prior to the First Exercise Date (as defined in
subparagraph 3(a) hereof), subject to paragraph 1 hereof, the date of your
termination of employment shall be deemed the First Exercise Date.

6. (a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to the Plan.

(b) By exercising this option you agree that:

(i) the Company may require you to enter an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
this option; (2) the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise; or (3) the disposition of shares
acquired upon such exercise; and

(ii) you will notify the Company in writing within
fifteen (15) days after the date of any disposition of any of the shares of the
Common Stock issued upon exercise of this option that occurs within two (2)
years after the date of this option grant or
<PAGE> 17
within one (1) year after such shares of Common Stock are transferred upon
exercise of this option.

7. This option is not transferable, except by will or by the laws
of descent and distribution, and is exercisable during your life only by you.

8. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.

9. This option is subject to all the provisions of the Plan, a
copy of which is attached hereto and its provisions are hereby made a part of
this option, including without limitation the provisions of the Plan relating
to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated
and adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.

Dated the _________ day of ____________, 199__.

Very truly yours,

WILD OATS MARKETS, INC.

By______________________________________
Duly authorized on behalf of the Board
of Directors
<PAGE> 18
The undersigned:

(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its affiliates regarding the acquisition of stock in the Company
and supersedes all prior oral and written agreements on that subject with the
exception of the following agreements only:

NONE __________________________
(Initial)

OTHER ______________________________________________________________

______________________________________________________________

____________________________________
Optionee

Address: ____________________________________

___________________________________________

ATTACHMENTS:
1996 Stock Option Plan
Notice of Exercise
<PAGE> 19
WILD OATS MARKETS, INC.
NON-QUALIFIED STOCK OPTION

___________________________________,Optionee:

Wild Oats Markets, Inc. (the "Company"), pursuant to its 1996 Equity
Incentive Plan (the "Plan"), has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").

The details of your option are as follows:

1. (a) The total number of shares of Common Stock
subject to this option is ____________________________

(a) Subject to the conditions stated herein, this
option shall be exercisable with respect to each installment shown below on or
after the date of vesting applicable to such installment; provided, however,
that should Optionee's employment terminate for "cause" this option shall be
terminated and canceled immediately and shall not be exercisable for any number
of shares. For purposes of this option, "cause" shall mean misconduct
including, but not limited to, criminal acts involving moral turpitude or
dishonesty.

NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING)

2. (a) The exercise price of this option is
___________________ ($_______) per share, being not less than eighty five
percent (85%) of the fair market value of the Common Stock on the date of grant
of this option.

(a) Payment of the exercise price per share is
due in full in cash (including check) upon exercise of all or any part of each
installment which has become exercisable by you.

(b) Notwithstanding the foregoing, this option
may be exercised pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company prior to the issuance of Common Stock.

3. This option may not be exercised for any number of shares
which would require the issuance of anything other than whole shares.

4. Notwithstanding anything to the contrary contained herein,
this option may not be exercised unless the shares issuable upon exercise of
this option are then registered under the
<PAGE> 20
Act or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Act.

5. The term of this option commences on the date hereof and,
unless sooner terminated as set forth below or in the Plan, terminates ten (10)
years from the date of grant. In no event may this option be exercised on or
after the date on which it terminates. This option shall terminate prior to
the expiration of its term as follows: Thirty (30) days after the termination
of your employment with the Company for any reason or for no reason unless;

(b) such termination of employment is due to your death,
in which event the option shall terminate on the earlier of the termination
date set forth above or twelve (12) months after your death; or

(i) By exercising this option you agree that the
Company may require you to enter an arrangement providing for the payment by
you to the Company of any tax withholding obligation of the Company arising by
reason of (1) the exercise of this option; (2) the lapse of any substantial
risk of forfeiture to which the shares are subject at the time of exercise; or
(3) the disposition of shares acquired upon such exercise.

7. This option is not transferable, except by will or by the laws
of descent and distribution, and is exercisable during your life only by you.
<PAGE> 21
8. Any notices provided for in this option shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.

9. If the partners hereto shall have any conflict regarding the
terms of this option, the interpretation of the Company's Compensation
Committee shall prevail.

Dated the ______ day of _________________, 199___.

Very truly yours,

WILD OATS MARKETS, INC.

By ___________________________________
Duly authorized on behalf of the Board
of Directors
<PAGE> 22
The undersigned:

NONE _____________________
(Initial)

OTHER __________________________________________________________

__________________________________________________________

______________________________________________

Optionee

Address:

___________________________________________

ATTACHMENTS:
1996 Stock Option Plan
Notice of Exercise
<PAGE> 23

NOTICE OF EXERCISE

Wild Oats Markets, inc.
1645 Broadway,
Boulder, CO 80302 Date of Exercise:

Ladies and Gentlemen:

This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.

<TABLE>
<CAPTION>
Type of option (check one) Incentive Nonstatutory
<S> <C>

Stock option dated:

Number of shares as to which
option is exercised:
Certificates to be issued in
name of: _____________________

Total exercise price:
$

Cash payment delivered
herewith: $
</TABLE>

By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 1996 Equity Incentive Plan, (ii)
to provide for the payment by me to you (in the manner designated by you) of
your withholding obligation, if any, relating to the exercise of this option,
and (iii) if this exercise related to an incentive stock option, to notify you
in writing within fifteen (15) days after the date of any disposition of any of
the shares of Common Stock issued upon exercise of this option that occurs
within two (2) years after the date of grant of this option or within one (1)
year after such shares of Common Stock are issued upon exercise of this option.

I hereby make the following certifications and representations with
respect to the number of shares of Common Stock of the Company listed above
(the "Shares"), which are being acquired by me for my own account upon exercise
of the Option as set forth above:
<PAGE> 24
I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), and are deemed to constitute
"restricted securities" under Rule 701 and "control securities" under Rule 144
promulgated under the Act. I warrant and represent to the Company that I have
no present intention of distributing or selling said Shares, except as
permitted under the Act and any applicable state securities laws.

I further acknowledge that I will not be able to resell the Shares for
at least ninety days after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.

I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any
legends reflecting restrictions pursuant to the Company's Articles of
Incorporation, Bylaws and/or applicable securities laws.

I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Act, I will not sell or
otherwise transfer or dispose of my shares of Common Stock or other securities
of the Company during such period (not to exceed two hundred seventy (270)
days) following the effective date of the registration statement of the Company
filed under the Act (the "Effective Date") as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction I
will be deemed to own securities that (i) are owned directly or indirectly by
me, including securities held for my benefit by nominees, custodians, brokers
or pledges; (ii) may be acquired by me within sixty (60) days of the Effective
Date; (iii) are owned directly or indirectly, by or for my brothers or sisters
(whether by whole or half blood), spouse, ancestors and lineal descendants; or
(iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which I am a shareholder, partner or beneficiary, but only
to the extent of my proportionate interest therein as a shareholder, partner or
beneficiary thereof. I further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.

Very truly yours,

_________________________________

<PAGE> 1

WILD OATS MARKETS, INC.

EMPLOYEE STOCK PURCHASE PLAN

ADOPTED AUGUST 19, 1996

APPROVED BY THE STOCKHOLDERS ON _____________, 19__

1. PURPOSE.

(a) The purpose of the Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of Wild Oats Markets, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.

(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are
defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code
of 1986, as amended (the "Code").

(c) The Company, by means of the Plan, seeks to retain the
services of its employees, to secure and retain the services of new employees,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.

(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.

2. ADMINISTRATION.

(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to
a Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.

(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

(i) To determine when and how rights to purchase stock of
the Company shall be granted and the provisions of each offering of such rights
(which need not be identical).

1.
<PAGE> 2
(ii) To designate from time to time which Affiliates of
the Company shall be eligible to participate in the Plan.

(iii) To construe and interpret the Plan and rights
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.

(iv) To amend the Plan as provided in paragraph 13.

(v) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that
the Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.

(c) The Board may delegate administration of the Plan to a
Committee composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest
in the Board the administration of the Plan.

3. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of paragraph 12 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
rights granted under the Plan shall not exceed in the aggregate
________________________ ( ) shares of the Company's common
stock (the "Common Stock"). If any right granted under the Plan shall for any
reason terminate without having been exercised, the Common Stock not purchased
under such right shall again become available for the Plan.

(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.

4. GRANT OF RIGHTS; OFFERING.

(A) The Board or the Committee may from time to time grant or
provide for the grant of rights to purchase Common Stock of the Company under
the Plan to eligible employees (an "Offering") on a date or dates (the
"Offering Date(s)") selected by the Board or the Committee. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
or the Committee shall deem appropriate, which shall comply with the
requirements of Section 423(b)(5) of the Code that all employees granted rights
to purchase stock under the Plan shall have the same rights and privileges.
The terms and conditions of an Offering shall be

2.
<PAGE> 3
incorporated by reference into the Plan and treated as part of the Plan. The
provisions of separate Offerings need not be identical, but each Offering shall
include (through incorporation of the provisions of this Plan by reference in
the document comprising the Offering or otherwise) the period during which the
Offering shall be effective, which period shall not exceed twenty-seven (27)
months beginning with the Offering Date, and the substance of the provisions
contained in paragraphs 5 through 8, inclusive.

(b) If an employee has more than one right outstanding under the
Plan, unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right
with a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.

5. ELIGIBILITY.

(a) Rights may be granted only to employees of the Company or, as
the Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.

(b) The Board or the Committee may provide that each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall
have the same characteristics as any rights originally granted under that
Offering, as described herein, except that:

(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;

(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and

3.
<PAGE> 4
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.

(c) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such employee
owns stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any employee, and stock which
such employee may purchase under all outstanding rights and options shall be
treated as stock owned by such employee.

(d) An eligible employee may be granted rights under the Plan only
if such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock
of the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at
the time such rights are granted) for each calendar year in which such rights
are outstanding at any time.

(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that
the Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.

6. RIGHTS; PURCHASE PRICE.

(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering
(the "Purchase Date(s)") on which rights granted under the Plan shall be
exercised and purchases of Common Stock carried out in accordance with such
Offering.

(b) In connection with each Offering made under the Plan, the
Board or the Committee may specify a maximum number of shares that may be
purchased by any employee as well as a maximum aggregate number of shares that
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering that contains more than one Purchase
Date, the Board or the Committee may specify a maximum aggregate number of
shares which may be purchased by all eligible employees on any given Purchase
Date under the Offering. If the aggregate purchase of shares upon exercise of
rights granted under

4.
<PAGE> 5
the Offering would exceed any such maximum aggregate number, the Board or the
Committee shall make a pro rata allocation of the shares available in as nearly
a uniform manner as shall be practicable and as it shall deem to be equitable.

(i) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Offering Date; or

(ii) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Purchase Date.

7. PARTICIPATION; WITHDRAWAL; TERMINATION.

(a) An eligible employee may become a participant in the Plan
pursuant to an Offering by delivering a participation agreement to the Company
within the time specified in the Offering, in such form as the Company
provides. Each such agreement shall authorize payroll deductions of up to the
maximum percentage specified by the Board or the Committee of such employee's
Earnings (as defined by the Board for each Offering) during the Offering. The
payroll deductions made for each participant shall be credited to an account
for such participant under the Plan and shall be deposited with the general
funds of the Company. A participant may reduce (including to zero) or increase
such payroll deductions, and an eligible employee may begin such payroll
deductions, after the beginning of any Offering only as provided for in the
Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Offering.

(b) At any time during an Offering, a participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering.
Upon such withdrawal from the Offering by a participant, the Company shall
distribute to such participant all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the participant) under the Offering, without interest, and such
participant's interest in that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.

(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated

5.
<PAGE> 6
employee all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
terminated employee), under the Offering, without interest.

(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such
rights are granted.

8. EXERCISE.

(a) On each Purchase Date specified therefor in the relevant
Offering, each participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of whole shares of stock
of the Company, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of stock on the
final Purchase Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted rights under the
Plan, as provided in paragraph 5, in which case such amount shall be
distributed to the participant after such final Purchase Date, without
interest. The amount, if any, of accumulated payroll deductions remaining in
any participant's account after the purchase of shares which is equal to the
amount required to purchase whole shares of stock on the final Purchase Date of
an Offering shall be distributed in full to the participant after such Purchase
Date, without interest.

(b) No rights granted under the Plan may be exercised to any
extent unless the shares to be issued upon such exercise under the Plan
(including rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act of 1933, as amended (the "Securities
Act") and the Plan is in material compliance with all applicable state, foreign
and other securities and other laws applicable to the Plan. If on a Purchase
Date in any Offering hereunder the Plan is not so registered or in such
compliance, no rights granted under the Plan or any Offering shall be exercised
on such Purchase Date, and the Purchase Date shall be delayed until the Plan is
subject to such an effective registration statement and such compliance, except
that the Purchase Date shall not be delayed more than twelve (12) months and
the Purchase Date shall in no event be more than twenty-seven (27) months from
the Offering Date. If on the Purchase Date of any Offering hereunder, as
delayed to the maximum extent permissible, the Plan is not registered and in
such compliance, no rights granted under the Plan or any Offering shall be
exercised and all payroll deductions accumulated during the Offering (reduced
to the extent, if any, such deductions have been used to acquire stock) shall
be distributed to the participants, without interest.

6.
<PAGE> 7
9. COVENANTS OF THE COMPANY.

(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such rights.

(b) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell shares of stock upon
exercise of the rights granted under the Plan. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such rights
unless and until such authority is obtained.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.

11. RIGHTS AS A STOCKHOLDER.

A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights hereunder are recorded in the books of the Company.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) If any change is made in the stock subject to the Plan, or
subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")

(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
the acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Securities Exchange

7.
<PAGE> 8
Act of 1934, as amended (the "Exchange Act") or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or any Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at
least fifty percent (50%) of the combined voting power entitled to vote in the
election of directors, then, as determined by the Board in its sole discretion
(i) any surviving or acquiring corporation may assume outstanding rights or
substitute similar rights for those under the Plan, (ii) such rights may
continue in full force and effect, or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminated.

13. AMENDMENT OF THE PLAN.

(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:

(i) Increase the number of shares reserved for rights
under the Plan;

(ii) Modify the provisions as to eligibility for
participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply
with the requirements of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3")); or

(iii) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to
obtain employee stock purchase plan treatment under Section 423 of the
Code or to comply with the requirements of Rule 16b-3.

It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to employee stock purchase
plans and/or to bring the Plan and/or rights granted under it into compliance
therewith.

(b) Rights and obligations under any rights granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan, except with the consent of the person to whom such rights were granted,
or except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under the
Plan comply with the requirements of Section 423 of the Code.

8.
<PAGE> 9
14. DESIGNATION OF BENEFICIARY.

(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end
of an Offering but prior to delivery to the participant of such shares and
cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death during an Offering.

(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its sole discretion, may
deliver such shares and/or cash to the spouse or to any one or more dependents
or relatives of the participant, or if no spouse, dependent or relative is
known to the Company, then to such other person as the Company may designate.

15. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board in its discretion, may suspend or terminate the Plan
at any time. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.

(b) Rights and obligations under any rights granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except as expressly provided in the Plan or with the consent of the
person to whom such rights were granted, or except as necessary to comply with
any laws or governmental regulation, or except as necessary to ensure that the
Plan and/or rights granted under the Plan comply with the requirements of
Section 423 of the Code.

16. EFFECTIVE DATE OF PLAN.

The Plan shall become effective on the same day that the Company's
initial public offering of shares of common stock becomes effective (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.

9.
<PAGE> 10

WILD OATS MARKETS, INC.

EMPLOYEE STOCK PURCHASE PLAN OFFERING

1. GRANT; OFFERING DATE.

(a) The Board of Directors of Wild Oats Markets, Inc. (the
"Company"), pursuant to the Company's Employee Stock Purchase Plan (the
"Plan"), hereby authorizes the grant of rights to purchase shares of the common
stock of the Company ("Common Stock") to all Eligible Employees (an
"Offering"). The first Offering shall begin simultaneously with the
effectiveness of the Company's registration statement under the Securities Act
of 1933, as amended, with respect to the initial public offering of the
Company's Common Stock (the "Effective Date") and end on June 30, 1997 (the
"Initial Offering"). Thereafter, an Offering shall begin on the date
immediately following the ending date of the preceding Offering and end six
months from the Offering Date. The first day of an Offering is that Offering's
"Offering Date."

(b) Prior to the commencement of any Offering, the Board of
Directors (or the Committee described in subparagraph 2(c) of the Plan, if any)
may change any or all terms of such Offering and any subsequent Offerings. The
granting of rights pursuant to each Offering hereunder shall occur on each
respective Offering Date unless, prior to such date (a) the Board of Directors
(or such Committee) determines that such Offering shall not occur, or (b) no
shares remain available for issuance under the Plan in connection with the
Offering.

2. ELIGIBLE EMPLOYEES.

(a) All employees of the Company and each of its Affiliates (as
defined in the Plan) incorporated in the United States, shall be granted rights
to purchase Common Stock under each Offering on the Offering Date of such
Offering, provided that each such employee otherwise meets the employment
requirements of subparagraph 5(a) of the Plan (an "Eligible Employee") and has
been employed by the Company or its Affiliates for at least six months prior to
the Offering Date. Notwithstanding the foregoing, five percent (5%)
stockholders (including ownership through unexercised options) described in
subparagraph 5(c) of the Plan shall not be Eligible Employees or be granted
rights under an Offering.

3. RIGHTS.

(a) Subject to the limitations contained herein and in the Plan,
on each Offering Date each Eligible Employee shall be granted the right to
purchase the number of shares of Common Stock purchasable with up to ten
(10%) of such employee's Earnings) paid during the period of such Offering
beginning after such Eligible Employee first commences participation; provided,
however, that no employee may purchase Common Stock on a particular Purchase

1.
<PAGE> 11
Date that would result in more than ten percent (10%) of such employee's
Earnings in the period from the Offering Date to such Purchase Date having been
applied to purchase shares under all ongoing Offerings under the Plan and all
other Company plans intended to qualify as "employee stock purchase plans"
under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). "Earnings" for this purpose means an Employee's regular salary or
wages (including amounts thereof elected to be deferred by the employee, that
would otherwise have been paid, under any arrangement established by the
Company intended to comply with Section 401(k), Section 402(e)(3), Section 125,
Section 402(h), or Section 403(b) of the Code, and also including any deferrals
under a non-qualified deferred compensation plan or arrangement established by
the Company), including any overtime, commissions, and bonuses, but excludes
the cost of employee benefits paid for by the Company or an Affiliate,
education or tuition reimbursements, imputed income arising under any group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company or an Affiliate under any employee benefit plan, and
similar items of compensation.

(b) Notwithstanding the foregoing, the maximum number of shares of
Common Stock an Eligible Employee may purchase on any Purchase Date in an
Offering shall be such number of shares as has a fair market value (determined
as of the Offering Date for such Offering) equal to (x) $25,000 multiplied by
the number of calendar years in which the right under such Offering has been
outstanding at any time, minus (y) the fair market value of any other shares of
Common Stock (determined as of the relevant Offering Date with respect to such
shares) which, for purposes of the limitation of Section 423(b)(8) of the Code,
are attributed to any of such calendar years in which the right is outstanding.
The amount in clause (y) of the previous sentence shall be determined in
accordance with regulations applicable under Section 423(b)(8) of the Code
based on (i) the number of shares previously purchased with respect to such
calendar years pursuant to such Offering or any other Offering under the Plan,
or pursuant to any other Company plans intended to qualify as "employee stock
purchase plans" under Section 423 of the Code, and (ii) the number of shares
subject to other rights outstanding on the Offering Date for such Offering
pursuant to the Plan or any other such Company plan.

(c) The maximum aggregate number of shares available to be
purchased by all Eligible Employees under an Offering shall be the number of
shares remaining available under the Plan on the Offering Date. If the
aggregate purchase of shares of Common Stock upon exercise of rights granted
under the Offering would exceed the maximum aggregate number of shares
available, the Board shall make a pro rata allocation of the shares available
in a uniform and equitable manner.

4. PURCHASE PRICE.

The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common
Stock on the Offering Date (eighty-five percent (85%) of the fair market value
of the Common Stock on the first day on which the Company's Common Stock is
actively traded that immediately follows the Offering Date if an

2.
<PAGE> 12
Offering Date does not fall on a day during which the Company's Common Stock is
actively traded) or eighty-five percent (85%) of the fair market value of the
Common Stock on the Purchase Date (eighty-five percent (85%) of the fair market
value of the Common Stock on the first day on which the Company's Common Stock
is actively traded that immediately precedes the Purchase Date if a Purchase
Date does not fall on a day during which the Company's Common Stock is actively
traded), in each case rounded up to the nearest whole cent per share. For the
Initial Offering, the fair market value of the Common Stock at the time when
the Offering commences shall be the price per share at which shares of Common
Stock are first sold to the public in the Company's initial public offering as
specified in the final prospectus with respect to that initial public offering.

5. PARTICIPATION.

(a) Except as otherwise provided in this paragraph 5, an Eligible
Employee may elect to participate in an Offering only at the beginning of the
Offering. An Eligible Employee shall become a participant in an Offering by
delivering an agreement authorizing payroll deductions. Such deductions must
be in whole percentages, with a minimum percentage of one percent (1%) and a
maximum percentage of ten percent (10%). A participant may not make
additional payments into his or her account. The agreement shall be made on
such enrollment form as the Company provides, and must be delivered to the
Company at a time specified by the Company before the Offering Date to be
effective for that Offering, unless a later time for filing the enrollment form
is set by the Board for all Eligible Employees with respect to a given Offering
Date. As to the Initial Offering, the time for filing an enrollment form and
commencing participation for individuals who are Eligible Employees on the
Offering Date for the Initial Offering shall be determined by the Company and
communicated to such Eligible Employees.

(b) A participant may not increase or reduce his or her
participation level during the course of an Offering, except that a participant
may reduce his or her participation level to zero percent (0%) once during any
Offering (except not during the period preceding a Purchase Date specified by
the Company), by delivering a notice to the Company in such form and at such
time as the Company prescribes. Notwithstanding the foregoing, a participant may
withdraw from an Offering and receive his or her accumulated payroll deductions
from the Offering (reduced to the extent, if any, such deductions have been used
to acquire Common Stock for the participant on any prior Purchase Dates),
without interest, or reduce his or her participation percentage to zero (0), at
any time prior to the end of the Offering, excluding only each period
immediately preceding a Purchase Date specified by the Company, by delivering a
withdrawal notice to the Company in such form as the Company prescribes.

6. PURCHASES.

Subject to the limitations contained herein, on each Purchase Date,
each participant's accumulated payroll deductions (without any increase for
interest) shall be applied to the purchase of whole shares of Common Stock, up
to the maximum number of shares permitted

3.
<PAGE> 13
under the Plan and the Offering. "Purchase Date" shall be defined as the last
day of each Offering.

7. NOTICES AND AGREEMENTS.

Any notices or agreements provided for in an Offering or the Plan
shall be given in writing, in a form provided by the Company, and unless
specifically provided for in the Plan or this Offering shall be deemed
effectively given upon receipt or, in the case of notices and agreements
delivered by the Company, five (5) days after deposit in the United States
mail, postage prepaid.

8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.

The rights granted under an Offering are subject to the approval of
the Plan by the shareholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code and to
comply with the requirements of exemption from potential liability under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") set forth in Rule 16b-3 promulgated under the Exchange Act.

9. OFFERING SUBJECT TO PLAN.

Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.

<PAGE> 1

WILD OATS MARKETS, INC.
(a Delaware corporation)

1993 STOCK OPTION PLAN

Adopted by the Board of Directors on August 5, 1993
Amended October 28, 1993

1. PURPOSES.

(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to purchase stock of the Company.

(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either Incentive Stock Options or Nonstatutory Stock Options. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.

2. DEFINITIONS.

(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(c) "CODE" means the Internal Revenue Code of 1986, as amended.
<PAGE> 2
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.

(e) "COMPANY" means WILD OATS MARKETS, INC., a Delaware
corporation.

(f) "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.

(h) "DIRECTOR" means a member of the Board.

(i) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.

(j) "DISINTERESTED PERSON" means a Director: (i) who was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any of its affiliates entitling the participants therein to acquire equity
securities of the Company or any of its affiliates except as permitted by Rule
16b-3(c)(2)(i); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.

(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

2
<PAGE> 3
(m) "FAIR MARKET VALUE" means the value of the common stock as
determined in good faith by the Board and in a manner consistent with Section
260.140.50 of Title 10 of the California Code of Regulations.

(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

(p) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

(q) "OPTION" means a stock option granted pursuant to the Plan.

(r) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.

(s) "OPTIONED STOCK" means the common stock of the Company subject
to an Option.

(t) "OPTIONEE" means an Employee, Director or Consultant who
holds an outstanding Option.

(u) "PLAN" means this 1993 Stock Option Plan.

(v) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

3. ADMINISTRATION.

(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).

(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option
shall be granted; whether an Option

3.
<PAGE> 4
will be an Incentive Stock Option or a Nonstatutory Stock Option; the
provisions of each Option granted (which need not be identical), including the
time or times such Option may be exercised in whole or in part; and the number
of shares for which an Option shall be granted to each such person.

(2) To construe and interpret the Plan and Options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.

(3) To amend the Plan as provided in Section 11.

(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be Disinterested Persons, if required
under subsection 3(d). If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this Plan to the
Board shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Additionally,
prior to the date of the first registration of an equity security of the
Company under Section 12 of the Exchange Act, and notwithstanding anything to
the contrary contained herein, the Board may delegate administration of the
Plan to any person or persons and the term "Committee" shall apply to any
person or persons to whom such authority has been delegated.

(d) Notwithstanding anything in this paragraph 3 to the contrary,
the Board may delegate to a Committee of one or more members of the Board the
authority to grant options to eligible persons who are not officers of the
Company or members of the Board.

(e) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that

4.
<PAGE> 5
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.

4. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
Options shall not exceed in the aggregate two hundred seventy-seven thousand
two hundred (277,200) shares of the Company's common stock. If any Option
shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such Option shall revert to
and again become available for issuance under the Plan.

(b) The aggregate number of shares of stock issuable upon the
exercise of all Options granted to any single eligible employee shall not
exceed one hundred thousand (100,000).

5. ELIGIBILITY.

(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.

(b) A Director shall in no event be eligible for the benefits of
the Plan unless at the time discretion is exercised in the selection of the
Director as a person to whom Options may be granted, or in the determination of
the number of shares which may be covered by Options granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b)
shall not apply (i) prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, or (ii) if the
Board or Committee expressly declares that it shall not apply.

(c) No person shall be eligible for the grant of an Option if, at
the time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more

5.
<PAGE> 6
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of any of its Affiliates unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of such stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

6. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.

(c) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant
or exercise of the Option, (A) by delivery to the Company of other common stock
of the Company, (B) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to subsection 6(d), or (C) in any
other form of legal consideration that may be acceptable to the Board.

In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as

6.
<PAGE> 7
interest, under any applicable provisions of the Code, of any amounts other
than amounts stated to be interest under the deferred payment arrangement.

(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The vesting provisions of individual Options may vary but in
each case will provide for vesting of at least twenty percent (20%) of the
total number of shares subject to the Option per year. During the remainder of
the term of the Option (if its term extends beyond the end of the installment
periods), the Option may be exercised from time to time with respect to any
shares then remaining subject to the Option. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.

(f) SECURITIES LAW COMPLIANCE. The Company may require any
Optionee, or any person to whom an Option is transferred under subsection 6(d),
as a condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with

7.
<PAGE> 8
the purchaser representative, the merits and risks of exercising the Option;
and (2) to give written assurances satisfactory to the Company stating that
such person is acquiring the stock subject to the Option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the Option has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to
comply with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.

(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date thirty (30)
days after the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (or such longer or shorter period, which in no event
shall be less than thirty (30) days, as specified in the Option Agreement), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan. Notwithstanding the foregoing,
in the event an Optionee's Continuous Status as an Employee, Director or
Consultant is terminated for "cause," his or her Option (even to the extent
that the Optionee was entitled to exercise it at the date of termination) shall
immediately be terminated and canceled. For purposes of the Plan, "cause"
shall mean misconduct including but not limited to criminal acts involving
moral turpitude or dishonesty.

8.
<PAGE> 9
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date six (6) months following such termination (or such longer or shorter
period, which in no event shall be less than six (6) months, as specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.

(i) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within thirty (30) days of the termination of, the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option may be
exercised (to the extent the Optionee was entitled to exercise the Option at
the date of death) by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only within the
period ending on the earlier of (i) the date twelve (12) months following the
date of death (or such longer or shorter period, which in no event shall be
less then six (6) months, as specified in the Option Agreement), or (ii) the
expiration of the term of such Option as set forth in the Option Agreement.
If, at the time of death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.

(j) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option.

9.
<PAGE> 10
Any unvested shares so purchased may be subject to a repurchase right in favor
of the Company or to any other restriction the Board determines to be
appropriate.

(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following
means or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the common stock
otherwise issuable to the participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered shares of the
common stock of the Company.

7. COVENANTS OF THE COMPANY.

(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.

(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Options;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Option or any stock
issued or issuable pursuant to any such Option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such Options
unless and until such authority is obtained.

8. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.

1. MISCELLANEOUS.

10.
<PAGE> 11
(a) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.

(b) Throughout the term of any Option, the Company shall deliver
to the holder of such Option, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the Option term, a
balance sheet and an income statement. This section shall not apply when
issuance is limited to key employees whose duties in connection with the
company assure them access to equivalent information.

(c) Nothing in the Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or Optionee any right to continue in the employ of the Company or any Affiliate
(or to continue acting as a Director or Consultant) or shall affect the right
of the Company or any Affiliate to terminate the employment or relationship as
a Director or Consultant of any Employee, Director, Consultant or Optionee with
or without cause.

(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionee during
any calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.

1. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and outstanding Options will be
appropriately adjusted in the class(es) and maximum number of shares subject to
the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding Options.

11.
<PAGE> 12
(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise then to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options for those outstanding under the Plan or, (ii) such
Options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to substitute
similar options for those outstanding under the Plan, then such Options shall
be terminated if not exercised prior to such event. In the event of a
dissolution or liquidation of the Company, any Options outstanding under the
Plan shall terminate if not exercised prior to such event.

2. AMENDMENT OF THE PLAN.

(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:

(1) Increase the number of shares reserved for Options
under the Plan;

(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of
the Code); or

(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.

(b) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Optionees with
the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under
it into compliance therewith.

12.
<PAGE> 13
(c) Rights and obligations under any Option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
Option was granted and (ii) such person consents in writing.

3. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on August 4, 2003. No
Options may be granted under the Plan while the Plan is suspended or after it
is terminated.

(b) Rights and obligations under any Option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the Option was granted.

4. EFFECTIVE DATE OF PLAN.

The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company.

13.

<PAGE> 1

================================================================================

ALFALFA'S INC.

1991 STOCK OPTION PLAN
(as amended effective December 8, 1995)

================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 - Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 2 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SECTION 3 - Plan Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Eligible Employees, Consultants and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SECTION 4 - Stock Subject to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Unused and Forfeited Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3 Adjustments for Stock Split, Stock Dividend, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Dividend Payable in Stock of Another Corporation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.5 Other Changes in Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.6 Rights to Subscribe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.7 General Adjustment Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.8 Determination by the Committee, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 5 - Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Eligible Employees, Consultants and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 6 - Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1 Grant of Options to Eligible Employees, Consultants and Directors . . . . . . . . . . . . . . . . . . . 5
6.2 Option Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Restrictions on Incentive Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Shareholder Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

SECTION 7 - Reorganization or Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

SECTION 8 - Rights of Option Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1 Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Nontransferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

SECTION 9 - General Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
9.1 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
9.2 Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 10 - Other Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

SECTION 11 - Plan Amendment, Modification and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

SECTION 12 - Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.1 Withholding Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.2 Withholding With Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

SECTION 13 - Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13.1 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 14 - Duration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

</TABLE>

ii
<PAGE> 4
ALFALFA'S INC.

1991 STOCK OPTION PLAN

SECTION 1
INTRODUCTION

1.1 Establishment. Alfalfa's Inc., a Colorado corporation
(hereinafter referred to, together with its Affiliated Corporations (as defined
in subsection 2.1(a)) as the "Company" except where the context otherwise
requires), previously established the Alfalfa's Inc. 1991 Stock Option Plan
(the "Plan") for certain employees of the Company. The Plan is hereby amended
and restated in its entirety, effective as of December 8, 1995.

1.2 Purposes. The purposes of the Plan are to provide those who
are selected for participation in the Plan with added incentives to continue in
the long-term service of the Company and to create in such persons a more
direct interest in the future success of the operations of the Company by
relating incentive compensation to increases in shareholder value, so that the
income of the those participating in the Plan is more closely aligned with the
income of the Company's shareholders. The Plan is also designed to provide a
financial incentive that will help the Company attract, retain and motivate the
most qualified employees, consultants and directors.

1.3 Effective Date. The effective date of the Plan shall be
August 13, 1991 (the "Effective Date"). This Plan and each option granted
hereunder is conditioned on and shall be of no force or effect until approval
of the Plan by the holders of a majority of the shares of voting stock of the
Company.

SECTION 2
DEFINITIONS

2.1 Definitions. The following terms shall have the meanings set
forth below:

(a) "Affiliated Corporation" means any corporation or
other entity (including but not limited to a partnership) which is affiliated
with Alfalfa's, Inc. through stock ownership or otherwise and is treated as a
common employer under the provisions of Sections 414(b) and (c) of the Internal
Revenue Code, and, for purposes of Incentive Stock Options granted pursuant to
the Plan, means any parent or subsidiary of the Company as defined in Section
424 of the Internal Revenue Code.

(b) "Board" means the Board of Directors of the Company.

(c) "Committee" means a committee consisting of members
of the Board who are empowered hereunder to take actions in the administration
of the Plan. Members of the

1
<PAGE> 5
Committee shall be appointed from time to time by the Board, shall serve at the
pleasure of the Board and may resign at any time upon written notice to the
Board.

(d) "Eligible Employees" means those full-time employees
(including, without limitation, officers and directors who are also employees)
of the Company, whose judgment, initiative and efforts are important to the
Company for the management and growth of its business. For purposes of the
Plan, an employee is an individual whose wages are subject to the withholding
of federal income tax under Section 3401 of the Internal Revenue Code.

(e) "Eligible Consultants" means those consultants to the
Company who are determined, by the Committee, to be individuals whose services
are important to the Company and who should be eligible to receive Non-
Qualified Options under the Plan.

(f) "Eligible Directors" means those outside directors of
the Company who are determined, by the Committee, to be individuals whose
services are important to the Company and who should be eligible to receive
Non-Qualified Options under the Plan.

(g) "Fair Market Value" shall be determined in good faith
by the Committee using all relevant data and information reasonably available
to the Committee.

(h) "Incentive Stock Option" means any Option designated
as such and granted in accordance with the requirements of Section 422 of the
Internal Revenue Code.

(i) "Internal Revenue Code" means the Internal Revenue
Code of 1986, as it may be amended from time to time.

(j) "Non-Qualified Option" means any Option other than an
Incentive Stock Option.

(k) "Option" means a right to purchase Stock at a stated
price for a specified period of time.

(l) "Option Holder" means an Eligible Employee, an
Eligible Consultant or an Eligible Director designated by the Committee or in
the Plan from time to time during the term of the Plan to receive one or more
Options under the Plan.

(m) "Option Price" means the price at which shares of
Stock subject to an Option may be purchased, determined in accordance with
subsection 6.2(b).

(n) "Share" means a share of Stock.

(o) "Stock" means the common stock, $0.01 par value, of
the Company.

2
<PAGE> 6
2.2 Gender and Number. Except when otherwise indicated by the
context, the masculine gender shall include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.

SECTION 3
PLAN ADMINISTRATION

3.1 In General. The Committee shall be responsible for the
administration of the Plan. The Committee shall determine the form or forms of
the agreements with Option Holders which shall evidence the particular
provisions, terms, conditions, rights and duties of the Company and the Option
Holders with respect to Options granted pursuant to the Plan, which provisions
need not be identical except as may be provided herein. The Committee may from
time to time adopt such rules and regulations for carrying out the purposes of
the Plan as it may deem proper and in the best interests of the Company. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any agreement entered into hereunder in the
manner and to the extent it shall deem expedient and it shall be the sole and
final judge of such expediency. No member of the Committee shall be liable for
any action or determination made in good faith. The determinations,
interpretations and other actions of the Committee pursuant to the provisions
of the Plan shall be binding and conclusive for all purposes and on all
persons.

3.2 Eligible Employees, Consultants and Directors. Subject to
Section 3.3 below and in accordance with the provisions of the Plan, the
Committee shall, in its sole discretion, select Option Holders from among
Eligible Employees, Eligible Consultants and Eligible Directors to whom Options
will be granted, the number of Shares subject to each Option and any other
terms and conditions of each Option as the Committee may deem necessary or
desirable and consistent with the terms of the Plan, provided, however, that
only Non-Qualified Options may be granted to Eligible Consultants and Eligible
Directors and provided further that no member of the Committee shall
participate in any decision with respect to the grant of an Option to such
member of the Committee.

SECTION 4
STOCK SUBJECT TO THE PLAN

4.1 Number of Shares. A total of 50,000 Shares are authorized for
issuance under the Plan in accordance with the provisions of the Plan and
subject to such restrictions or other provisions as the Committee may from time
to time deem necessary. This authorization may be increased from time to time
by approval of the Board and by the shareholders of the Company if, in the
opinion of counsel for the Company, such shareholder approval is required.
Shares that may be issued upon the exercise of Options shall be applied to
reduce the maximum number of Shares remaining available for use under the Plan.
The Company shall at all times during the term of the Plan and while any
Options are outstanding retain as authorized and unissued Stock, or as treasury
Stock, at least the number of Shares from time to time required under the

3
<PAGE> 7
provisions of the Plan, or otherwise assure itself of its ability to perform
its obligations hereunder.

4.2 Unused and Forfeited Stock. Any Shares that are subject to an
Option under this Plan that are not used because the terms and conditions of
the Option are not met, including any Shares that are subject to an Option that
expires or is terminated for any reason shall automatically become available
for use under the Plan.

4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the
Company shall at any time increase or decrease the number of its outstanding
Shares or change in any way the rights and privileges of such Shares by means
of the payment of a stock dividend or any other distribution upon such Shares
payable in stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then in
relation to the Stock that is affected by one or more of the above events, the
numbers, rights and privileges of the following shall be increased, decreased
or changed in like manner as if they had been issued and outstanding, fully
paid and nonassessable at the time of such occurrence: (i) the shares of Stock
as to which Options may be granted under the Plan; and (ii) the Shares then
subject to each outstanding Option.

4.4 Dividend Payable in Stock of Another Corporation, Etc. If the
Company shall at any time pay or make any dividend or other distribution to the
holders of Stock payable in securities of another corporation or other property
(except money or Stock), a proportionate part of such securities or other
property shall be set aside and delivered to any Option Holder then holding an
Option for the particular type of Stock for which the dividend or other
distribution was made, upon exercise thereof. Prior to the time that any such
securities or other property are delivered to an Option Holder in accordance
with the foregoing, the Company shall be the owner of such securities or other
property and shall have the right to vote the securities, receive any dividends
payable on such securities, and in all other respects shall be treated as the
owner. If securities or other property that have been set aside by the Company
in accordance with this Section are not delivered to an Option Holder because
an Option is not exercised, then such securities or other property shall remain
the property of the Company and shall be dealt with by the Company as it shall
determine in its sole discretion.

4.5 Other Changes in Stock. If there shall be any change, other
than as specified in Sections 4.3 and 4.4, in the number or kind of outstanding
Shares of Stock or of any stock or other securities into which the Stock shall
be changed or for which it shall have been exchanged, and if the Committee
shall in its discretion determine that such change equitably requires an
adjustment in the number or kind of Shares subject to outstanding Options or
which have been reserved for issuance pursuant to the Plan but are not then
subject to an Option, then such adjustments shall be made by the Committee and
shall be effective for all purposes of the Plan and on each outstanding Option
that involves the particular type of stock for which a change was effected.

4.6 Rights to Subscribe. If the Company shall at any time grant
to the holders of its Stock rights to subscribe pro rata for additional shares
thereof or for any other securities of the Company or of any other corporation,
there shall be reserved with respect to the Shares then

4
<PAGE> 8
subject to an Option held by any Option Holder of the particular class of Stock
involved, the Stock or other securities which the Option Holder would have been
entitled to subscribe for if immediately prior to such grant the Option Holder
had exercised his entire Option. If, upon exercise of any such Option, the
Option Holder subscribes for the additional Stock or other securities, the
Option Holder shall pay to the Company the price that is payable by the Option
Holder for such Stock or other securities.

4.7 General Adjustment Rules. No adjustment or substitution
provided for in this Section 4 shall require the Company to issue a fractional
share under any Option agreement and the total substitution or adjustment with
respect to each Option agreement shall be limited by deleting any fractional
share. In the case of any such substitution or adjustment, the Option Price
per Share in each such Option agreement shall be equitably adjusted by the
Committee to reflect the greater or lesser number of shares of Stock or other
securities into which the Stock subject to the Option may have been changed.

4.8 Determination by the Committee, Etc. Adjustments under this
Section 4 shall be made by the Committee, whose determinations with regard
thereto shall be final and binding.

SECTION 5
PARTICIPATION

5.1 Eligible Employees, Consultants and Directors. The Committee,
in its sole and absolute discretion, shall select those Eligible Employees,
Consultants and Directors to be Option Holders in the Plan. Eligible Employees
shall be selected from the employees of the Company who are performing services
in the management, operation and growth of the Company, and contribute, or are
expected to contribute, to the achievement of long-term corporate objectives.
Eligible Consultants shall be selected from those non-employee consultants to
the Company who are performing services important to the operation and growth
of the Company. Eligible Directors shall be selected from those non-employee
directors of the Company whose services are determined to be important to the
operation and growth of the Company. Eligible Employees, Consultants and
Directors may be granted from time-to-time one or more Options; provided,
however, that the grant of each such Option shall be separately approved by the
Committee, and receipt of one such Option shall not result in automatic receipt
of any other Option. Upon determination by the Committee that an Option is to
be granted to an Eligible Employee, Consultant or Director, written notice
shall be given to such person, specifying the terms, conditions, rights and
duties related thereto.

SECTION 6
STOCK OPTIONS

6.1 Grant of Options to Eligible Employees, Consultants and
Directors. Coincident with or following designation for participation in the
Plan, an Eligible Employee, Consultant or Director may be granted one or more
Options. The Committee in its sole discretion shall designate whether an
Option is to be considered an Incentive Stock Option or a Non-Qualified

5
<PAGE> 9
Option, provided, however, that only Non-Qualified Options may be granted to
Eligible Consultants and Directors. The Committee may grant both an Incentive
Stock Option and a Non-Qualified Option to the same Eligible Employee at the
same time or at different times. Incentive Stock Options and Non-Qualified
Options, whether granted at the same or different times, shall be deemed to
have been awarded in separate grants and shall be clearly identified, and in no
event shall the exercise of one Option affect the right to exercise any other
Option or affect the number of Shares for which any other Option may be
exercised.

6.2 Option Agreements. Each Option granted under the Plan shall
be evidenced by a written Option agreement which shall be entered into by the
Company and the Option Holder to whom the Option is granted, and which shall
contain the following terms and conditions, as well as such other terms and
conditions, not inconsistent herewith, as the Committee may consider
appropriate in each case.

(a) Number of Shares. Each Option agreement shall state
that it covers a specified number of Shares, as determined by the Committee.

(b) Price. Each Option granted pursuant to the Plan
shall have an Option Price that is equal to or greater than the Fair Market
Value of the Stock on the date the Option is granted.

(c) Duration and Exercise of Options. Each Option
agreement shall state the period of time, as determined by the Committee within
which the Option may be exercised by the Option Holder (the "Option Period").
The Option Period must end, in all cases, not more than ten years from the date
an Option is granted. Each Option agreement shall also state the periods of
time, if any, as determined by the Committee, when incremental portions of each
Option may be exercised.

(d) Termination of Service, Death, Disability, Etc. Each
Option agreement shall provide as follows with respect to the exercise of the
Option:

(i) If the service of the Option Holder with the
Company is terminated within the Option Period for cause, as
determined by the Company, the Option shall thereafter be void for all
purposes. As used in this subsection 6.2(d), "cause" shall mean a
gross violation, as determined by the Company of the Company's
established policies and procedures, provided that the effect of this
subsection 6.2(d) shall be limited to determining the consequences of
a termination and that nothing in this subsection 2.2(d) shall
restrict or otherwise interfere with the Company's discretion with
respect to the termination of any employee, consultant or director.

(ii) If the Option Holder shall become disabled
within the meaning of Section 22(e)(3) of the Internal Revenue Code
within the Option Period, the Option may be exercised by the Option
Holder (or, in the case of his death, by those entitled to do so under
his will or by the laws of descent and distribution) within one year
following his termination of service because of such disability (if
otherwise within the Option Period), but not thereafter. In any such
case, the Option may be exercised as to all shares then

6
<PAGE> 10
subject to the Option regardless of whether all conditions of exercise
relating to continuation of service for specified periods of time have
been satisfied.

(iii) If the Option Holder dies within the Option
Period, while employed by or in the service of the Company, the
Option may be exercised by those entitled to do so under his will or
by the laws of descent and distribution within one year following his
death (if otherwise within the Option Period), but not thereafter. In
any such case the Option may be exercised as to all shares then
subject to the Option, regardless of whether all conditions of
exercise relating to continuation of service for specified periods of
time have been satisfied.

(iv) If the service of the Option Holder with the
Company is terminated (which for this purpose means that the Option
Holder is no longer employed by or retained as a director or
consultant by the Company or by an Affiliated Corporation), within the
Option Period for any reason other than for cause, disability or
death, the Option may be exercised by the Option Holder within three
months following the date of such termination (if otherwise within the
Option Period), but not thereafter. In any such case, the Option may
be exercised only as to the Shares as to which the Option had become
exercisable on or before the date of termination of service.

(e) Transferability. Each Option agreement shall provide
that the Option granted therein is not transferable by the Option Holder except
by will or pursuant to the laws of descent and distribution, and that such
Option is exercisable during the Option Holder's lifetime only by him or her,
or in the event of disability or incapacity, by his or her guardian or legal
representative.

(f) Agreement to Continue in Service. Each Option
agreement held by an Option Holder shall contain the Option Holder's agreement
to remain in the employment of the Company, or in service with the Company, at
the pleasure of the Company, for a continuous period of at least one year after
the date of such Option agreement, at the salary rate or other compensation in
effect on the date of such agreement or at such changed rate as may be fixed,
from time to time, by the Company. Nothing in this paragraph shall offset or
impair the Company's right to terminate the services of any employee,
consultant or director.

(g) Exercise, Payments, Etc. Each Option agreement shall
provide that the method for exercising the Option granted therein shall be by
delivery to the Corporate Secretary of the Company of written notice specifying
the number of Shares with respect to which such Option is exercised and payment
of the Option Price. Such notice shall be in a form satisfactory to the
Committee and shall specify the particular Option (or portion thereof) that is
being exercised and the number of Shares with respect to which the Option is
being exercised. The exercise of the Option shall be deemed effective upon
receipt of such notice by the Corporate Secretary and payment to the Company.
The purchase of such Stock shall take place at the principal offices of the
Company upon delivery of such notice, at which time the Option Price of the
Stock shall be paid in full in cash or by certified or cashier's check payable
to the order of the Company. A properly executed certificate or certificates
representing the Stock shall be issued by the Company and delivered to the
Option Holder.

7
<PAGE> 11
(h) Date of Grant. An Option shall be considered as
having been granted on the date specified in the grant resolution of the
Committee.

(i) Withholding.

(i) Non-Qualified Options. Each Option agreement
covering Non-Qualified Options shall provide that, upon exercise of
the Option, the Option Holder shall make appropriate arrangements with
the Company to provide for the amount of additional withholding
required by Sections 3102 and 3402 of the Internal Revenue Code and
applicable state income tax laws, if any, including payment of such
taxes through delivery of shares of Stock or by withholding Stock to
be issued under the Option, as provided in Section 12.

(ii) Incentive Options. If an Option Holder makes
a disposition (as defined in Section 424(c) of the Internal Revenue
Code) of any Stock acquired pursuant to the exercise of an Incentive
Stock Option prior to the expiration of two years from the date on
which the Incentive Stock Option was granted or prior to the
expiration of one year from the date on which the Option was
exercised, the Option Holder shall send written notice to the Company
at its principal office in Denver, Colorado (Attention: Corporate
Secretary) of the date of such disposition, the number of shares
disposed of, the amount of proceeds received from such disposition and
any other information relating to such disposition as the Company may
reasonably request. The Option Holder shall, in the event of such a
disposition, make appropriate arrangements with the Company to provide
for the amount of additional withholding, if any, required by Sections
3102 and 3402 of the Internal Revenue Code and applicable state income
tax laws.

6.3 Restrictions on Incentive Stock Options.

(a) Initial Exercise. Notwithstanding any other
provision of the Plan, the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
an Option Holder in any calendar year, under the Plan or otherwise, shall not
exceed $100,000. For this purpose, the Fair Market Value of the Shares shall
be determined as of the date of grant of the Option.

(b) Ten Percent Shareholders. Incentive Stock Options
granted to an Option Holder who is the holder of record of 10% or more of the
outstanding Stock of the Company shall have an Option Price equal to 110% of
the Fair Market Value of the Shares on the date of grant of the Option. The
Option Period for any such Option shall not exceed five years.

6.4 Shareholder Privileges. No Option Holder shall have any
rights as a shareholder with respect to any Shares covered by an Option until
the Option Holder becomes the holder of record of such Stock, and no
adjustments shall be made for dividends or other distributions or other rights
as to which there is a record date preceding the date such Option Holder
becomes the holder of record of such Stock, except as provided in Section 4.

8
<PAGE> 12
SECTION 7
REORGANIZATION OR CHANGE OF CONTROL

7.1 Reorganization. If the Company is merged or consolidated with
another corporation or the Company is a party to a reorganization (other than a
merger, consolidation or reorganization in which the Company is the continuing
corporation and which does not result in any reclassification or change of
outstanding Shares), or if all or substantially all of the assets or more than
50% of the outstanding voting stock of the Company is acquired by any other
corporation, business entity or person (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company), or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, the Committee shall, as to the
Plan and outstanding Options, either (i) make appropriate provision for the
adoption and continuation of the Plan by the acquiring or successor corporation
and for the protection of any such outstanding Options by the substitution on
an equitable basis of appropriate stock of the Company or of the merged,
consolidated or otherwise reorganized corporation which will be issuable with
respect to the Stock, provided that no additional benefits shall be conferred
upon the Option Holders holding such Options as a result of such substitution,
and the excess of the aggregate Fair Market Value of the Shares subject to
Options immediately after such substitution over the Option Price thereof is
not more than the excess of the aggregate Fair Market Value of the Shares
subject to such Options immediately before such substitution over the Option
Price thereof, and provided further that any such substitution made with
respect to Incentive Stock Options shall comply with Section 424(a) of the
Internal Revenue Code, or (ii) upon written notice to the Option Holders,
provide that all unexercised Options must be exercised within thirty (30) days
of the date of such notice or they will be terminated. If alternative (i) is
implemented, the Committee may, at its sole discretion, provide that Options
may be exercisable in full without regard to the applicable exercise periods
set forth in the Option agreements and if alternative (ii) is implemented,
Options shall be exercisable in full without regard to the applicable exercise
periods set forth in the Option agreements.

7.2 Change of Control. In the event of a change in control of the
Company, as defined below, all Options shall become exercisable in full,
without regard to applicable exercise periods set forth in the Option
agreements. For purposes of the Plan, a "change in control" shall be deemed to
have occurred if during any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board (and any new director whose election by the Board
or whose nomination for election by the Company's shareholders was approved by
a vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority thereof.

SECTION 8
RIGHTS OF OPTION HOLDERS

8.1 Service. Nothing contained in the Plan or in any Option
granted under the Plan shall confer upon any Option Holder any right with
respect to the continuation of his or her

9
<PAGE> 13
employment by, or consulting or director's relationship with, the Company, or
interfere in any way with the right of the Company, subject to the terms of any
separate employment agreement or other contract to the contrary, at any time to
terminate the service of such Option Holder or to increase or decrease the
compensation of the Option Holder from the rate in existence at the time of the
grant of an Option. Whether an authorized leave of absence, or absence in
military or government service, shall constitute a termination of service shall
be determined by the Committee at the time.

8.2 Nontransferability. No right or interest of any Option Holder
in an Option granted pursuant to the Plan shall be assignable or transferable
during the lifetime of the Option Holder, either voluntarily or involuntarily,
or be subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of an Option Holder's death, an Option Holder's
rights and interests in Options shall, to the extent provided in Section 6, be
transferable by testamentary will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and exercise of any
Options may be made by, the Option Holder's legal representatives, heirs or
legatees. If in the opinion of the Committee a person entitled to exercise
rights with respect to the Plan is disabled from caring for his affairs because
of mental condition, physical condition or age, such rights shall be exercised
by such person's guardian, conservator or other legal personal representative
upon furnishing the Committee with evidence satisfactory to the Committee of
such status.

SECTION 9
GENERAL RESTRICTIONS

9.1 Investment Representations. The Company may require any
person to whom an Option is granted, as a condition of exercising such Option,
to give written assurances in substance and form satisfactory to the Company
and its counsel to the effect that such person is acquiring the Stock subject
to the Option for his own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
Federal and applicable state securities laws. Legends evidencing such
restrictions may be placed on the certificates evidencing the Stock.

9.2 Compliance with Securities Laws. Each Option shall be subject
to the requirement that if at any time counsel to the Company shall determine
that the listing, registration or qualification of the Shares subject to such
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of Shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Committee. Nothing herein
shall be deemed to require the Company to apply for or obtain such listing,
registration or qualification.

10
<PAGE> 14
SECTION 10
OTHER EMPLOYEE BENEFITS

The amount of any compensation deemed to be received by an Option
Holder as a result of the exercise of an Option shall not constitute "earnings"
with respect to which any other employee benefits of such person are
determined, including without limitation benefits under any pension, profit
sharing, life insurance or salary continuation plan.

SECTION 11
PLAN AMENDMENT, MODIFICATION AND TERMINATION

The Board may at any time terminate, and from time-to-time may amend
or modify, the Plan provided, however, that no amendment or modification may
become effective without approval of the amendment or modification by the
shareholders if shareholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that shareholder approval is otherwise necessary
or desirable.

No amendment, modification or termination of the Plan shall in any
manner adversely affect any Options theretofore granted under the Plan, without
the consent of the Option Holder holding such Options.

SECTION 12
WITHHOLDING

12.1 Withholding Requirement. The Company's obligations to deliver
Shares upon the exercise of an Option shall be subject to the Option Holder's
satisfaction of all applicable federal, state and local income and other tax
withholding requirements.

12.2 Withholding With Stock. At the time the Committee grants an
Option, it may, in its sole discretion, grant the Option Holder an election to
pay all such amounts of tax withholding, or any part thereof, by electing to
transfer to the Company, or to have the Company withhold from Shares otherwise
issuable to the Option Holder, Shares having a value equal to the amount
required to be withheld or such lesser amount as may be elected by the Option
Holder. All elections shall be subject to the approval or disapproval of the
Committee. The value of Shares to be withheld shall be based on the Fair
Market Value of the Stock on the date that the amount of tax to be withheld is
to be determined (the "Tax Date"). Any such elections by Option Holders to
have Shares withheld for this purpose will be subject to the following
restrictions:

(a) All elections must be made prior to the Tax Date.

(b) All elections shall be irrevocable.

11
<PAGE> 15
(c) If the Option Holder is an officer or director of the
Company within the meaning of Section 16 of the 1934 Act ("Section 16") and is
subject to the provisions of Section 16, the Option Holder must satisfy the
requirements of such Section 16 and any applicable rules thereunder with
respect to the use of Stock to satisfy such tax withholding obligation.

SECTION 13
REQUIREMENTS OF LAW

13.1 Requirements of Law. The issuance of Stock and the payment of
cash pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.

13.2 Governing Law. The Plan and all Option agreements hereunder
shall be construed in accordance with and governed by the laws of the State of
Colorado.

SECTION 14
DURATION OF THE PLAN

The Plan shall terminate at such time as may be determined by the
Board of Directors, and no Option shall be granted after such termination. If
not sooner terminated under the preceding sentence, the Plan shall fully cease
and expire at the close of business on August 12, 2001. Options outstanding at
the time of the Plan termination may continue to be exercised or earned in
accordance with their terms.

<PAGE> 1

EMPLOYEE STOCK OWNERSHIP PLAN

ALFALFA'S, INC.
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE I - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Affiliated Entity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 "Alternate Payee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 "Annual Addition" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 "Break in Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 "Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 "Company Contributions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 "Compensation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 "Covered Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.11 "Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.12 "Determination Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.13 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.14 "Dollar Limitation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.15 "Domestic Relations Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.16 "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.17 "Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.18 "Employer Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.19 "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.20 "Family Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.21 "Family Member" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.22 "Five-Percent Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.23 "Highly Compensated Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.24 "Hour of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.25 "Key Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.26 "Limitation Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.27 "Look-Back Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.28 "Non-Highly Compensated Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.29 "Non-Key Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.30 "Normal Retirement Age" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.31 "Participant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.32 "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.33 "Qualified Domestic Relations Order ("QDRO")" . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.34 "Qualified Election Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.35 "Qualified Participant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.36 "Required Beginning Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C>
1.37 "Spouse" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.38 "Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.39 "Taxable Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.40 "Top-Paid Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.41 "Total Distribution" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.42 "Valuation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.43 "Year of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE II - Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Participation - Required Service - Minimum Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Break in Covered Employee Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3 Enrollment - Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Voluntary Non-Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Absences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE III - Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Company Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Return of Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Limitation on Annual Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE IV - Interests in the Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Participants' Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Valuation of Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Allocation of Increase or Decrease in Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Allocation of Company Contributions and Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE V - Amount of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 Vesting Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.3 Restoration of Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Method of Forfeiture Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.5 Allocation of Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6 Credits for Pre-Break Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.7 Transfers - Portability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.8 Reemployment - Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

ARTICLE VI - Distribution of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.1 Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3 Distributable Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.4 Manner of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5 Time of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C>
6.6 Separate Accounting for Distributable Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE VII - Withdrawals and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Hardship Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE VIII - Allocation of Responsibilities - Named Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 No Joint Fiduciary Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 The Committee - Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Committee to Construe Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Organization of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.7 Agent for Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8 Indemnification of Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

ARTICLE IX - Trust Agreement - Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.1 Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2 Expenses of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

ARTICLE X - Termination and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1 Termination of Plan or Discontinuance of Contributions . . . . . . . . . . . . . . . . . . . . . . . . 29
10.2 Allocations upon Termination or Discontinuance of Company Contributions . . . . . . . . . . . . . . . 29
10.3 Procedure Upon Termination of Plan or Discontinuance of Contributions . . . . . . . . . . . . . . . . 29
10.4 Amendment by Alfalfa's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.5 Amendment to Vesting Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE XI - Special Provisions Regarding Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1 Special Distribution and Payment Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2 Put Option Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.3 Diversification of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.4 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.5 Investment of Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.6 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.7 Voting of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.8 Company Stock to Be Subject to Certain Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.9 Valuation of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.10 Distribution of Cash or Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.11 Buy Sell Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

</TABLE>

iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE XII - Company Stock Purchased With Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.1 Prohibition Against Non-Exempt Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.2 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.3 Allocation to Accounts of Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.4 Non-Terminable Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.1 Adoption of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.2 Agent of Affiliated Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.3 Disaffiliation and Withdrawal from Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.4 Effect of Disaffiliation or Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.5 Distribution Upon Disaffiliation or Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

ARTICLE XIV - Top-Heavy Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.1 Application of Top-Heavy Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.2 Determination of Top-Heavy Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.3 Special Vesting Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.4 Special Minimum Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.5 Change in Top-Heavy Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

ARTICLE XV - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.1 Right to Dismiss Employees - No Employment Contract . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.2 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.3 Source of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
15.4 Exclusive Benefit of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
15.5 Forms of Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
15.6 Failure of Any Other Entity to Qualify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
15.7 Notice of Adoption of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
15.8 Plan Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15.9 Inalienability of Benefits - Domestic Relations Orders . . . . . . . . . . . . . . . . . . . . . . . . 46
15.10 Payments Due Minors or Incapacitated Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15.11 Uniformity of Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15.12 Disposition of Unclaimed Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15.13 Pronouns: Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15.14 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>

iv
<PAGE> 6
EMPLOYEE STOCK OWNERSHIP PLAN
OF
ALFALFA'S, INC.

PREAMBLE

Natural Horizons, Inc., a Colorado corporation ("NHI"), established an
Employee Stock Ownership Plan (the "Plan") effective July 1, 1985. NHI
concurrently established a trust (the "Trust") as part of the Plan. Subsequent
to the adoption of the Plan by NHI, Alfalfa's, Inc., a Colorado corporation
("Alfalfa's"), the parent of NHI and Alfalfa's Boulder, Inc., a Colorado
corporation, adopted the Plan to cover the eligible Employees of Alfalfa's and
its Affiliated Entities (as defined herein) which have adopted or will adopt
the Plan and Trust. Alfalfa's reserved the right and power to amend the Plan,
which it has done from time to time. In the exercise of that right and power,
the Plan is hereby further amended and restated in its entirety, generally
effective June 28, 1993, unless provided otherwise. Any Participant (as
defined herein) in the Plan who is credited with at least one Hour of Service
(as defined herein) after the effective date of this amendment and restatement
shall be subject to the provisions of this Plan as so amended and restated.
Any Participant in the Plan prior to the effective date of this amendment and
restatement who is not credited with an Hour of Service after the effective
date of this amendment and restatement shall continue to be governed by the
provisions of the Plan as in effect immediately prior to the effective date of
this amendment and restatement. The Plan and Trust are intended to comply with
the provisions of the Code (as defined herein) and ERISA (as defined herein)
and to qualify both as a stock bonus plan for all purposes of the Code, and an
employee stock ownership plan under Code section 4975(e)(7).

ARTICLE I
DEFINITIONS

The following words and phrases shall have the meaning set forth
below:

1.1 "Affiliated Entity" means:

(a) for all Sections of the Plan except those listed in
Subsection (b), any corporation or other entity, now or hereafter formed, that
is or shall become affiliated with the Company, either directly or indirectly,
through stock ownership or control, and which is (i) included in the controlled
group of corporations (within the meaning of Code section 1563(a) without
regard to Code section 1563(a)(4) and Code section 1563(e)(3)(C)) in which the
Company is also included; (ii) included in the group of entities (whether or
not incorporated) under common control (within the meaning of Code section
414(c)) in which the Company is also included; (iii) included in an affiliated
service group (within the meaning of Code section 414(m)) in which the Company
is also included; (iv) required to be aggregated with the Company by Code
section 414(o); or (v) affiliated with the Company through stock ownership or
as otherwise determined by the Company.

1
<PAGE> 7
(b) for purposes of determining Annual Additions under
Section 1.3, limiting Annual Additions to a Participant's account(s) under
Section 3.3, and construing the defined terms as they are used in Sections 1.3
and 3.3 (such as "Compensation" and "Employee"), the term "Affiliated Entity"
means any Affiliated Entity as determined in Paragraphs (a)(iii) and (a)(iv),
and any entity that would be an Affiliated Entity under Paragraphs (a)(i) and
(a)(ii) if the phrase "more than 50%" were substituted for the phrase "at least
80%" each place it occurs in Code section 1563(a)(1).

1.2 "Alternate Payee" means a Participant's Spouse, former spouse,
child, or other dependent who is recognized by a QDRO as having a right to
receive all, or a portion of, the benefits payable under this Plan with respect
to such Participant.

1.3 "Annual Addition" means the allocations to a Participant's
account(s) for any Limitation Year, as described in detail below.

(a) Annual Additions shall include: (i) Company
Contributions to this Plan and any other defined contribution plan maintained
by the Company or any Affiliated Entity; (ii) after-tax contributions to any
other defined contribution plan maintained by the Company or any Affiliated
Entity; (iii) forfeitures allocated to a Participant's account(s) in this Plan
and any other defined contribution plan maintained by the Company or any
Affiliated Entity (except as provided in Paragraphs (b)(iii) and (b)(vi)
below); (iv) all amounts paid or accrued after December 31, 1985 in Taxable
Years ending after December 31, 1985, to a welfare benefit fund as defined in
Code section 419(e) and allocated to the separate account (under such welfare
benefit fund) of a Key Employee to provide post-retirement medical benefits;
and (v) contributions allocated on the Participant's behalf to any individual
medical account as defined in Code section 415(l)(2).

(b) Annual Additions shall not include: (i) rollover
contributions, made pursuant to Code section 402(a)(5), 403(a)(4), 403(b)(8),
405(d)(3), 408(d)(3), or 409(b)(3)(C) to any other defined contribution plan
maintained by the Company or an Affiliated Entity; (ii) repayments of loans
made to a Participant from a qualified plan maintained by the Company or any
Affiliated Entity; (iii) repayments of forfeitures for rehired Participants, as
described in Code sections 411(a)(7)(B) and 411(a)(3)(D); (iv) direct transfer
of employee contributions from one qualified plan to any other qualified
defined contribution plan maintained by the Company or any Affiliated Entity;
(v) deductible employee contributions within the meaning of Code section
72(o)(5); or (vi) repayments of forfeitures of missing individuals pursuant to
Section 15.12.

1.4 "Break in Service" means a Plan Year in which a Participant
fails to receive credit for more than 500 Hours of Service. A five-year Break
in Service means five consecutive one-year Breaks in Service. A leave of
absence in a non-paid status that is approved in writing by the Company or an
Affiliated Entity shall not constitute a Break in Service for eligibility or
vesting purposes. A leave of absence in a non-paid status that is approved in
writing by the Company shall not constitute a Break in Service for
participation purposes.

1.5 "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations and rulings in effect thereunder from
time to time.

2
<PAGE> 8
1.6 "Committee" means the administrative committee provided for in
Section 8.4.

1.7 "Company" means Alfalfa's, any successor thereto, and any
Affiliated Entity that adopts the Plan pursuant to Article XIII.

1.8 "Company Contributions" means all contributions to the Plan
made by the Company pursuant to Section 3.1 for the Plan Year.

1.9 "Compensation" means:

(a) Prior Years' Code Section 415 Compensation,
Inclusions. Effective for Limitation Years ending before June 25, 1990, for
purposes of determining the limitation on Annual Additions under Section 3.3
and the minimum contribution under Section 14.4 when the Plan is top-heavy,
Compensation shall include the following amounts:

(i) the Employee's wages, salaries, fees for
professional services and other amounts received for personal
services actually rendered in the course of employment with the
Company or an Affiliated Entity to the extent that the amounts are
includable in gross income, including overtime, commissions,
compensation based on profits, tips, bonuses, fringe benefits,
reimbursements and expense allowances under a non-accountable plan as
described in Treasury Regulation section 1.62-2(c), all foreign earned
income as defined in Code section 911(b) (whether or not excludable
from gross income under Code section 911), and any amounts that are
excluded from income under Code sections 931 or 933;

(ii) health benefits described in Code sections
104(a)(3), 105(a) and 105(h) to the extent that such amounts are
includable in the Employee's gross income;

(iii) amounts paid or reimbursed by the Company or
an Affiliated Entity for moving expenses incurred by the Employee, to
the extent that, at the time of payment, it is reasonable to believe
that such amounts are not deductible by the Employee under Code
section 217;

(iv) the value of a non-qualified stock option
granted to the Employee by the Company or an Affiliated Entity, to
the extent that the value of the option is includable in the
Employee's gross income for the taxable year in which the option is
granted;

(v) the amount includable in the Employee's gross
income upon making the election described in Code section 83(b); and

(vi) any amounts received by the Employee,
pursuant to an unfunded non-qualified plan, in the year such amounts
are includable in the Employee's gross income.

(b) Prior Years' Code Section 415 Compensation,
Exclusions. Effective for Limitation Years ending before June 25, 1990, for
purposes of determining the limitations on Annual

3
<PAGE> 9
Additions under Section 3.3 and the minimum contribution under Section 14.4
when the Plan is top-heavy, Compensation shall not include the following items:

(i) contributions made by the Company or an
Affiliated Entity to a plan of deferred compensation, to the extent
that, before the application of the limitations of Code section 415 to
such plan, such contributions are not includable in the gross income
of the Employee for the taxable year in which such contributions were
contributed;

(ii) contributions made by the Company or an
Affiliated Entity on behalf of an Employee to a simplified employee
pension plan described in Code section 408(k), to the extent that such
contributions are not includable in the Employee's gross income;

(iii) any distributions from a plan of deferred
compensation, regardless of whether such amounts are includable in the
gross income of the Employee;

(iv) amounts realized from the exercise of a
non-qualified stock option;

(v) amounts realized when restricted stock or
property held by the Employee becomes freely transferable or is no
longer subject to a substantial risk of forfeiture, as described in
Code section 83;

(vi) amounts realized from the sale, exchange, or
other disposition of stock acquired under an incentive stock option;

(vii) other amounts that receive special tax
benefits, including premiums for group term life insurance, to the
extent that the premiums are not includable in the Employee's gross
income; and

(viii) contributions made by the Company or an
Affiliated Entity (whether or not pursuant to a salary reduction
agreement) towards the purchase of an annuity described in Code
section 403(b) (whether or not such contributions are excludable from
the gross income of the Employee).

(c) Subsequent Years' Code Section 415 Compensation.
Effective for Limitation Years beginning on or after June 25, 1990, for
purposes of determining the limitation on Annual Additions under Section 3.3
and the minimum contribution under Section 14.4 when the Plan is top-heavy,
Compensation shall mean those amounts reported as "wages, tips, other
compensation" on Form W-2 by the Company or an Affiliated Entity, excluding
amounts paid or reimbursed by the Company or an Affiliated Entity for moving
expenses incurred by an Employee to the extent that it is reasonable to believe
at the time of payment that such amounts are deductible by the Employee under
Code section 217.

(d) Code Section 415 Compensation, Other Rules. For
purposes of Section 3.3, Compensation shall be measured over a Limitation Year.
For purposes of Section 14.4, Compensation shall be measured over that portion
of a Plan Year (i) after the Employee has satisfied

4
<PAGE> 10
any eligibility requirement of Section 2.1 and (ii) while the Employee is a
Covered Employee. For Plan Years or Limitation Years beginning before June 24,
1991, Compensation shall include amounts paid to or accrued by the Employee.
For Plan Years or Limitation Years beginning on or after June 24, 1991,
Compensation shall include amounts paid to the Employee, but shall not include
any additional amounts accrued by the Employee (except for de minimis amounts
earned but not paid because of the timing of pay periods, as provided in the
regulations under Code section 415).

(e) Code Section 414(q) Compensation. For purposes of
identifying Highly Compensated Employees and Key Employees under Sections 1.23,
1.25, and 1.40, Compensation shall mean those amounts reported as "wages, tips,
other compensation" on Form W-2 by the Company or an Affiliated Entity, and
elective contributions that are not includable in the Employee's income
pursuant to Code sections 125, 402(a)(8), 402(h), or 403(b). Nevertheless,
Compensation shall exclude amounts paid or reimbursed by the Company or an
Affiliated Entity for moving expenses incurred by an Employee to the extent
that it is reasonable to believe at the time of payment that such amounts are
deductible by the Employee under Code section 217. For purposes of identifying
Key Employees, Compensation shall be measured over a Plan Year; for purposes of
identifying Highly Compensated Employees, Compensation shall be measured over a
Determination Year or Look-Back Year, whichever is applicable.

(f) Benefit Compensation. For purposes of determining
and allocating Company Contributions under Subsection 3.1(a) and Section 4.4,
Compensation shall mean:

(i) Effective from June 25, 1990 through June 23,
1991, an Employee's base weekly cash compensation paid to an Employee
by the Company for services rendered to the Company, together with
overtime, but excluding expense allowances or reimbursements,
management bonuses, Contributions under this Plan or any other
retirement or life insurance program, or under any health or welfare
plan, maintained by the Company to the extent that such Contributions
are not included in the Employee's gross income for federal income tax
purposes.

(ii) Effective June 24, 1991, the amounts reported
as "wages, tips, other compensation" on Form W-2 by the Company, plus
elective contributions that are not includable in the Employee's
income pursuant to Code sections 125, 402(a)(8), 402(h), 403(b),
414(h)(2), or 457(b). Notwithstanding the foregoing, Compensation
shall exclude reimbursements and other expense allowances, fringe
benefits, moving expenses, deferred compensation, and welfare
benefits. In addition, Compensation shall exclude management bonuses
paid only to Highly Compensated Employees. Compensation shall be
measured over that portion of a Plan Year after the Employee has
satisfied the eligibility requirements of Subsection 2.1(a) and while
the Employee is a Covered Employee.

(g) Limit on Compensation. For purposes of calculating
the minimum contribution required in top-heavy years under Subsections (a),
(b), (c), and (d), and for purposes of calculating the maximum allocation of
Company Contributions under Subsection (f), the Compensation taken into account
for the appropriate time period shall not exceed the compensation

5
<PAGE> 11
limit in effect for the calendar year in which the time period begins. The
compensation limit is $200,000 (as adjusted by the Secretary of Treasury).

1.10 "Covered Employee" means any Employee of the Company except
for:

(a) A leased employee within the meaning of Code section
414(n)(2);

(b) A non-resident alien who either (i) receives no
earned income (within the meaning of Code section 911(d)(2)) from the Company
or any Affiliated Entity that constitutes income from sources within the United
States (within the meaning of Code section 861(a)(3)) or (ii) receives earned
income from the Company or an Affiliated Entity that constitutes income from
sources within the United States, but such income is exempt from United States
income tax by an income tax treaty or convention; and

(c) An Employee included in a unit of Employees covered
by a collective bargaining agreement that does not provide for such Employee's
participation in the Plan, provided that retirement benefits were the subject
of good faith bargaining during the negotiation of such collective bargaining
agreement.

1.11 "Determination Date" means, with respect to each Plan Year,
the last day of the preceding Plan Year; provided however, that, in the case of
the first Plan Year of the Plan, the Determination Date shall be the last day
of such Plan Year.

1.12 "Determination Year" means the Plan Year.

1.13 "Disability" means a physical or mental condition of an
Employee of the Company or an Affiliated Entity that, in the judgment of the
Committee based upon medical reports and other evidence satisfactory to the
Committee, presumably permanently prevents him from satisfactorily performing
his usual duties for the Company or the Affiliated Entity or the duties of such
other position or job that the Company or any Affiliated Entity makes available
to him and for which such Employee is qualified by reason of his training,
education, or experience.

1.14 "Dollar Limitation" means $30,000 or, if greater, one-fourth
of the defined benefit dollar limitation set forth in Code section
415(b)(1)(A), as adjusted by the Secretary of the Treasury.

1.15 "Domestic Relations Order" means any judgment, decree or order
(including approval of a property settlement agreement) issued by a court of
competent jurisdiction that relates to the provision of child support, alimony
payments, or marital property rights to a Spouse, former spouse, child, or
other dependent of the Participant and is made pursuant to a state domestic
relations law (including a community property law).

1.16 "Effective Date" means the original effective date of this
Plan, July 1, 1985.

1.17 "Employee" means each individual who performs services for the
Company or an Affiliated Entity and whose wages are subject to withholding by
the Company or an Affiliated

6
<PAGE> 12
Entity. The term "Employee" shall also include leased employees within the
meaning of Code section 414(n)(2); however, if leased employees constitute 20%
or less of the Non-Highly Compensated Employees of the Company and any
Affiliated Entities, the term "Employee" shall not include any leased employee
covered by a qualified plan described in Code section 414(n)(5)(B) that is
maintained by the leased employee's employer.

1.18 "Employer Securities" means stock described in Code section
4975(e)(8) and in Treasury Regulation section 54.4975-12.

1.19 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations and rulings in effect thereunder from
time to time.

1.20 "Family Group" means:

(a) for purposes of Subsections 1.21(a) and 1.21(e), a
Five-Percent Owner or one of the ten most highly paid Highly Compensated
Employees of the Company or an Affiliated Entity, such Employee's Spouse, and
such Employee's descendants under the age of 19; and

(b) for purposes of Subsections 1.21(b), 1.21(c), and
1.21(d), a Five-Percent Owner or one of the ten most highly paid Highly
Compensated Employees of the Company or an Affiliated Entity, and such
Employee's Spouse, lineal ascendants, descendants, and the spouses of any such
lineal ascendants or descendants.

1.21 "Family Member" means an Employee who is a member of a Family
Group. An Employee who is a member of a Family Group described in Subsection
1.20(a) during any day of a Plan Year shall be considered a Family Member for
the entire Plan Year. An Employee who is a member of a Family Group described
in Subsection 1.20(b) during any day of a Determination Year or Look-Back Year
shall be considered a Family Member for the entire Determination Year or
Look-Back Year. The special rules relating to Family Members are described
below.

(a) The Compensation of the Family Members in one Family
Group is aggregated, and the combined Compensation of such Family Members is
limited to $200,000 (as adjusted by the Secretary of the Treasury) for the
purposes described in Subsection 1.9(g).

(b) The term "Highly Compensated Employee" shall include
the Highly Compensated Employee (as determined in Section 1.23) and, if the
Highly Compensated Employee is a Five-Percent Owner or one of the ten most
highly paid Highly Compensated Employees of the Company or any Affiliated
Entity, the term shall also include any Family Member within the same Family
Group. The Employees who are among the ten most highly paid Highly Compensated
Employees, the Employees who are among the 100 most highly paid Employees, and
the Employees who are members of the Top-Paid Group, shall be determined before
the aggregation rule of the preceding sentence is applied.

7
<PAGE> 13
(d) If two or more Family Members of one Family Group are
entitled to an allocation of Company Contributions under Section 4.4, the
Compensation of the Family Members is aggregated and limited to $200,000 (as
adjusted by the Secretary of the Treasury), and the allocation of the Family
Group is based on aggregated Compensation. Each Family Member shall receive a
share of the Family Group's allocation in proportion to his Compensation.

1.22 "Five-Percent Owner" means:

(a) With respect to a corporation, any individual who
owns (either directly or indirectly according to the rules of Code section 318)
more than 5% of the value of the outstanding stock of the corporation or stock
possessing more than 5% of the total combined voting power of all stock of the
corporation.

(b) With respect to a non-corporate entity, any
individual who owns (either directly or indirectly according to rules similar
to those of Code section 318) more than 5% of the capital or profits interest
in the entity.

An individual shall be a Five-Percent Owner for a particular year if such
individual is a Five-Percent Owner at any time during such year.

1.23 "Highly Compensated Employee" means:

(a) Any Employee who performs service for the Company or
an Affiliated Entity during the Determination Year and who, during the
Look-Back Year: (i) received Compensation from the Company and Affiliated
Entities in excess of $75,000 (as adjusted by the Secretary of the Treasury);
(ii) received Compensation from the Company and Affiliated Entities in excess
of $50,000 (as adjusted by the Secretary of the Treasury) and was a member of
the Top-Paid Group; or (iii) was an officer of the Company or an Affiliated
Entity and received Compensation greater than 50% of the dollar limitation in
effect under Code section 415(b)(1)(A).

(b) Employees who are both (i) described in Paragraph
(a)(i), (a)(ii), or (a)(iii) above when the words "Determination Year" are
substituted for the words "Look-Back Year" and (ii) one of the 100 most highly
paid Employees during the Determination Year.

(d) If no officer has Compensation in excess of 50% of
the limit described in Paragraph (a)(iii) above, the highest paid officer for
such year shall be treated as a Highly Compensated Employee.

(e) For purposes of determining Highly Compensated
Employees under Paragraph (a)(iii), the number of officers shall be limited to
50 (or, if lesser, the greater of three or 10% of all Employees, excluding
those Employees who may be excluded in determining the Top-Paid Group).

8
<PAGE> 14
(f) Notwithstanding the above, if the Company and
Affiliated Entities maintained significant business activities in at least two
significantly separate geographic areas during the Look-Back Year or the
Determination Year, Alfalfa's may elect, in its sole discretion, to identify
Highly Compensated Employees using the simplified method described in Code
section 414(q)(12). Under this method, Highly Compensated Employees are
identified using the method described in Subsections (a) through (e) above,
with the following modifications: (i) the amount "$75,000" in Paragraph (a)(i)
is replaced by the amount "$50,000"; (ii) Paragraph (a)(ii) is deleted; and
(iii) the reference in Subsection (b) to Paragraph (a)(ii) is ignored.

1.24 "Hour of Service" means:

(a) Each hour for which an Employee is paid or entitled
to payment by the Company or an Affiliated Entity for the performance of duties
for the Company or an Affiliated Entity during the applicable computation
period. Hours of Service under this Subsection shall be credited to the
Employee for the computation period or periods in which the duties are
performed, regardless of when the Employee is paid for such duties.

(b) Each hour for which an Employee is paid or entitled
to payment by the Company or an Affiliated Entity on account of a period of
time during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including Disability), layoff, jury duty, military duty or leave of
absence. Hours of Service under this Subsection shall be credited to the
Employee for the computation period or periods in which the period during which
no duties are performed occurs, beginning with the first unit of time to which
the payment relates. Notwithstanding the preceding sentence:

(i) No more than 501 Hours of Service shall be
credited under this Subsection to an Employee on account of any
single continuous period during which the Employee performs no duties
(whether or not such period occurs in a single computation period);

(ii) An hour for which an Employee is directly or
indirectly paid, or entitled to payment, on account of a period during
which no duties are performed shall not be credited to the Employee if
such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation,
unemployment compensation, or disability insurance laws; and

(iii) Hours of Service shall not be credited for a
payment that solely reimburses an Employee for medical or medically
related expenses incurred by the Employee. For purposes of this
Subsection a payment shall be deemed to be made by or due from the
Company or an Affiliated Entity regardless of whether such payment is
made by or due from the Company or Affiliated Entity directly, or
indirectly through, among others, a Trust Fund, or insurer, to which
the Company or Affiliated Entity contributes or pays premiums and
regardless of whether contributions made or due to the Trust Fund,
insurer or other entity are for the benefit of particular Employees or
are on behalf of a group of Employees in the aggregate.

9
<PAGE> 15
(c) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the Company or an
Affiliated Entity. Hours of Service under this Subsection shall be credited to
the Employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the award,
agreement or payment is made. The same Hours of Service shall not be credited
both under this Subsection and either Subsection (a) or Subsection (b).

(d) In the case of each Employee who is absent from work
for any period by reason of the pregnancy of the Employee, by reason of the
birth of a child of the Employee, by reason of the placement of a child with
the Employee in connection with the adoption of such child by such Employee, or
for purposes of caring for such child for a period beginning immediately
following such birth or placement, the Plan shall treat as Hours of Service,
solely for purposes of determining whether a one-year Break in Service has
occurred for purposes of vesting and participation (but not for purposes of
benefit accrual), the following hours: (i) the Hours of Service that otherwise
would normally have been credited to such Employee but for such absence, or
(ii) in any case in which the Plan is unable to determine the hours described
in Paragraph (d)(i), eight Hours of Service per day of such absence, provided,
however, that the total number of hours treated as Hours of Service under this
Subsection shall not exceed 501 Hours of Service. The hours described in this
Subsection shall be treated as Hours of Service only in the year in which the
absence from work begins, if an Employee would be prevented from incurring a
one-year Break in Service in such year solely because the period of absence is
treated as Hours of Service as provided in this Subsection, or in any other
case, in the immediately following year. For purposes of this Subsection, the
term "year" means the period used in computing a Break in Service.
Notwithstanding the foregoing, the Committee may determine that no credit will
be given pursuant to this Subsection unless the Employee furnishes to the
Committee such timely information as the Committee may reasonably require to
establish that the absence from work is for reasons referred to in the first
sentence of this Subsection and the number of days for which there was such an
absence.

(e) For purposes of calculating the Hours of Service to
be credited to periods during which no duties are performed and determining the
computation periods to which hours shall be credited, the rules set forth in
Subsections (b) and (c) of Department of Labor Regulation section 2530.200b-2
are hereby incorporated by reference as though such provisions were fully set
forth at this point.

(f) In the case of an Employee for whom no time records
are kept by the Company, credit for service shall be given at the rate of ten
Hours of Service for each day during which the Employee is employed by the
Company.

1.25 "Key Employee" means an individual described in Code section
416(i) and the regulations promulgated thereunder.

1.26 "Limitation Year" means, for purposes of Plan Years ending on
or before June 27, 1993, the Plan Year for purposes of Code section 415.
Effective June 28, 1993, the Limitation Year

10
<PAGE> 16
means the calendar year for purposes of Code Section 415. Notwithstanding the
foregoing, the period commencing June 28, 1993 and ending on December 31, 1993
shall be a Limitation Year and the limitations provided by Code section 415
shall be prorated for such short Limitation Year in accordance with the
regulations promulgated under Code section 415.

1.27 "Look-Back Year" means the twelve months immediately preceding
the Determination Year.

1.28 "Non-Highly Compensated Employee" means an Employee of the
Company or an Affiliated Entity who is neither a Highly Compensated Employee
nor a Family Member.

1.29 "Non-Key Employee" means any Employee who is not a Key
Employee.

1.30 "Normal Retirement Age" means age 65.

1.31 "Participant" means any individual with an account balance
under the Plan except beneficiaries and Alternate Payees. The term
"Participant" shall also include any Covered Employee who has satisfied the
eligibility requirements of Section 2.1, but who does not yet have an account
balance.

1.32 "Plan Year" means the 12-month period on which the records of
the Plan are kept, which shall be the Taxable Year of Alfalfa's which is the
52/53 week period ending on the last Sunday in June of each year.

1.33 "Qualified Domestic Relations Order ("QDRO")" means a Domestic
Relations Order that creates or recognizes the existence of an Alternate
Payee's right to, or assigns to an Alternate Payee the right to, receive all or
a portion of the benefits payable with respect to a Participant under the Plan
and with respect to which the requirements of Subsection 15.9(c) are met.

1.34 "Qualified Election Period" means the five Plan Year period
beginning with the later of (a) the Plan Year after the Plan Year in which the
Participant attains age 55; or, (b) the Plan Year after the Plan Year in which
the Participant first becomes a Qualified Participant.

1.35 "Qualified Participant" means a Participant who has attained
age 55 and who has completed at least 10 years of participation.

1.36 "Required Beginning Date" means:

(a) for a Participant who attains age 70-1/2 after
December 31, 1987, April 1 of the calendar year following the calendar year in
which the Participant attains age 70-1/2;

(b) for a Participant who attains age 70-1/2 before
January 1, 1988, and is not a "five-percent owner" (as defined below), April 1
of the calendar year following the later of (i) the

11
<PAGE> 17
calendar year in which the Participant attains age 70-1/2, or (ii) the calendar
year in which the Participant retires;

(c) for a Participant who attains age 70-1/2 during
calendar year 1988 and is not a "five-percent owner" (as defined below), April
1, 1990; and

(d) for a Participant who attains age 70-1/2 before
January 1, 1988, and is a "five-percent owner" (as defined below), April 1 of
the calendar year following the later of (i) the calendar year in which the
Participant attains age 70-1/2, or (ii) the earlier of (A) the calendar year
with or within which ends the Plan Year in which the Participant becomes a
"five-percent owner," or (B) the calendar year in which the Participant
retires.

For purposes of this Section only, a "five-percent owner" means any individual
who is a Five-Percent Owner at any time subsequent to the Plan Year ending
within the calendar year in which such individual attains age 65-1/2.

1.37 "Spouse" means the individual to whom a Participant is
lawfully married according to the law of the state of the Participant's
domicile on any of the following dates, as applicable: the date of the
Participant's death, the date any election is filed pursuant to Article VI, or
the date the Participant's benefits commence. A former Spouse of a Participant
shall have no interest in this Plan, except as provided in a QDRO or in a
beneficiary designation form executed by the Participant after the Spouse had
become a former Spouse.

1.38 "Stock" means the Company's $.01 par value Class A Common
Stock or Class B Common Stock, which Stock shall have a combination of voting
power and dividend rights equal to or in excess of (a) that class of common
stock of the Company having the greatest voting power, and (b) that class of
common stock of the Company having the greatest dividend rights.

1.39 "Taxable Year" means the accounting period of the Company for
federal income tax purposes.

1.40 "Top-Paid Group" means the top 20% of Employees ranked on the
basis of Compensation received during a Determination Year or Look-Back Year.
For purposes of determining the number of Employees in the Top-Paid Group, the
following Employees may be excluded:

(a) any Employee who has not completed six months of
service before the end of the applicable year;

(b) any Employee who normally works less than 17-1/2
hours per week, as defined in the regulations under Code section 414(q);

(c) any Employee who normally works less than six months
during the applicable year, as defined in the regulations under Code section
414(q);

12
<PAGE> 18
(d) any Employee who has not attained age 21 before the
end of the applicable year; and

(e) any Employee who is a non-resident alien and who
receives no earned income (within the meaning of Code section 911(d)(2)) from
the Company or any Affiliated Entity that constitutes income from sources
within the United States (within the meaning of Code section 861(a)(3)) during
the applicable year.

Notwithstanding the foregoing, Alfalfa's may elect, on a consistent and uniform
basis, to modify the permissible exclusions set forth above by substituting any
shorter period of service or lower age. Alfalfa's may elect to include all
Employees in determining the Top-Paid Group.

1.41 "Total Distribution" means a distribution to a Participant or
a Participant's beneficiary, within one taxable year of such recipient, of the
entire balance to the credit of the Participant.

1.42 "Valuation Date" means the last day of each Plan Year and any
other dates as specified in Section 4.2 as of which the assets of the Trust
Fund are valued at fair market value and as of which the increase or decrease
in the net worth of the Trust Fund is allocated among the Participants'
accounts.

1.43 "Year of Service" means a Plan Year in which an Employee has
at least 1,000 Hours of Service. For purposes of eligibility under Section 2.1
and vesting under Section 5.1, Years of Service prior to the Effective Date
shall be included. Years of Service shall accrue while an Employee is on an
approved leave of absence; however, unless the Employee is absent because of
military service or jury duty, the Employee shall not be credited with more
than six months of service (or such longer period of service as satisfies the
safe-harbor rule in the regulations under Code section 401(a)(4)) towards his
Years of Service while he is absent. In computing service for vesting purposes
for years prior to this Amendment and Restatement, if an Employee would receive
greater credit under the terms of the Plan as in effect on the day prior to
this amendment and restatement than under the current provisions of this Plan,
his vesting service prior to the date of this Amendment and Restatement shall
be determined under the terms of the Plan as in effect on the day prior to this
amendment and restatement. For rehired Employees, Years of Service for vesting
purposes shall be calculated according to the rules in Section 5.6.

ARTICLE II
PARTICIPATION

2.1 Participation - Required Service - Minimum Age.

Each Covered Employee who has fulfilled the requirements of this
Section as of June 25, 1990, shall be eligible to participate in the Plan as of
June 25, 1990. Each other Covered Employee shall be eligible to participate in
the Plan as of the the first day of the first Plan Year during which the
Employee has attained age 18 and receives credit for 1,000 or more Hours of
Service. If earlier,

13
<PAGE> 19
each Covered Employee shall be eligible to participate in the Plan upon the
earlier of the first day of the Plan Year or first day of the seventh month of
the Plan Year coincident with or next following the date he first satisfies the
following conditions:

(a) he attains age 18; and

(b) he completes either (i) a 12-consecutive-month period
of employment with the Company or an Affiliated Entity beginning with the date
he first performed an Hour of Service during which he is credited with 1,000 or
more Hours of Service, or (ii) one Year of Service.

2.2 Break in Covered Employee Status.

A Covered Employee who had satisfied the age and service requirements
of Section 2.1 before ceasing to be a Covered Employee, and who later becomes a
Covered Employee again, shall immediately be eligible to participate in the
Plan.

2.3 Enrollment - Procedure.

Each Covered Employee who has satisfied the eligibility requirements
of Section 2.1 shall fill out and sign an enrollment form supplied by the
Committee (and any other forms the Committee may require) and return such
form(s) to the Committee. The form(s) shall include, among other information,
the address and date of birth of the Covered Employee, and the name, address,
and date of birth of each beneficiary of the Covered Employee.

2.4 Voluntary Non-Participation.

A Covered Employee may elect to not participate in the Plan for any
Plan Year by filing with the Committee a written notice of non-participation.
A new election shall be required for each year of non-participation. Such
election may be made retroactively, but not for any period during which a
benefit has accrued to the Covered Employee. Upon the expiration of his period
of non-participation, the Covered Employee, if he has satisfied the
requirements of Subsection 2.1, shall immediately be eligible to participate in
the Plan. A Covered Employee who has elected to not participate in the Plan
for a Plan Year shall not thereafter, by revocation of election or otherwise,
be entitled to receive an allocation of Company Contributions for such year.
The operation of this Section may be suspended in whole or in part by the
Committee if it determines, upon advice of counsel, that voluntary
non-participation may endanger the tax-qualified status of the Plan.

2.5 Absences.

A leave of absence in a non-paid status approved in writing by the
Company or an Affiliated Entity shall not constitute a termination of
employment for eligibility or vesting purposes. A leave of absence in a
non-paid status approved in writing by the Company shall not constitute a
termination of employment for participation purposes.

14
<PAGE> 20
ARTICLE III
CONTRIBUTIONS

3.1 Company Contributions.

(a) Type of Contribution. For each Plan Year, the
Company shall contribute to the Trust Fund such amount of Company
Contributions, if any, as may be authorized by the Company. Such contributions
shall either be contributions made to pay interest and/or principal on an
exempt loan pursuant to Article XII hereof ("ESOP Contributions") or regular
stock bonus contributions ("Stock Bonus Contributions"). Company Contributions
shall be allocated to Company Contributions accounts.

(b) Form of Contribution. Company Contributions may be
made in cash or in Stock, as determined by the Company.

(i) The Company may make additional contributions
to the Plan to restore amounts forfeited from the Company
Contributions accounts of certain rehired Participants, pursuant to
Section 5.4. This additional contribution shall be required only when
the forfeitures occurring during the Plan Year are insufficient to
restore such forfeited amounts, as described in Section 5.5. This
contribution shall be allocated to the Participant's Company
Contributions account.

(ii) The Company may make additional contributions
to the Plan to satisfy the minimum contribution required by Section
14.4. The Company may elect to use any portion of forfeitures
occurring during the Plan Year for this purpose, pursuant to Section
5.5. This contribution shall be allocated to Company Contributions
accounts.

(iii) The Company may make additional contributions
to the Plan to restore the forfeited benefit of any missing
individual, pursuant to Section 15.12. This additional contribution
shall be required only when the forfeitures occurring during the Plan
Year are insufficient to restore such forfeited amounts, as described
in Section 5.5.

(d) Limitations. Company Contributions for a Plan Year
(excluding forfeitures) shall not exceed the amount allowable as a deduction
for the Taxable Year ending with or within the Plan Year pursuant to Code
section 404, including carry forwards of unused deductions for prior Taxable
Years. Company Contributions shall be paid to the Trustee no later than the
due date (including any extensions) for filing the Company's federal income tax
return for such year. Company Contributions may be made without regard to
current or accumulated earnings and profits.

3.2 Return of Contributions.

Upon request of the Company, the Trustee shall return:

15
<PAGE> 21
(a) To the Company, any Company Contribution made under a
mistake of fact. The amount that shall be returned shall not exceed the excess
of the amount contributed (reduced to reflect any decrease in the net worth of
the Trust Fund attributable thereto) over the amount that would have been
contributed without the mistake of fact. Appropriate reductions shall be made
in the accounts of Participants to reflect the return of any contributions
previously credited to such accounts. However, no contribution shall be
returned to the extent that such reduction would reduce the account of a
Participant to an amount less than the balance that would have been credited to
his account had the contribution not been made. Any contribution made under a
mistake of fact shall be returned within one year after the date of payment.

(b) To the Company, any Company Contribution that is not
deductible under Code section 404. All contributions under the Plan are
expressly conditioned upon their deductibility for federal income tax purposes.
The amount that shall be returned shall be the excess of the amount contributed
(reduced to reflect any decrease in the net worth of the Trust Fund
attributable thereto) over the amount that would have been contributed if there
had not been a mistake in determining the deduction. Appropriate reductions
shall be made in the accounts of Participants to reflect the return of any
contributions previously credited to such accounts. However, no contribution
shall be returned to the extent that such reduction would reduce the account(s)
of a Participant to an amount less than the balance that would have been
credited to his account(s) had the contribution not been made. Any
contribution conditioned on its deductibility shall be returned within one year
after it is disallowed as a deduction.

3.3 Limitation on Annual Additions.

(a) The Annual Additions to a Participant's account(s) in
this Plan and any other defined contribution plan maintained by the Company or
an Affiliated Entity for any Limitation Year shall not exceed in the aggregate
the lesser of (i) 25% of such Employee's Compensation or (ii) the applicable
Dollar Limitation.

(b) Special Limitations--Notwithstanding the foregoing
limitations on Annual Additions, in any Plan Year in which not more than
one-third of the ESOP Contribution is allocated to Highly Compensated
Employees, the limitations on Annual Additions shall not apply to (i)
forfeitures of shares of Stock that were acquired with the proceeds of an
exempt loan as described in Code section 404(a)(9)(A), or (ii) Company
Contributions to the Plan that are deductible under Code section 404(a)(9)(B)
and allocated to Participant accounts.

(c) If, as a result of a reasonable error in estimating
Compensation, or as a result of the allocation of forfeitures, or as a result
of other facts and circumstances as provided in the regulations under Code
section 415, the Annual Additions to a Participant's account(s) would, but for
this Subsection, exceed the foregoing limits, his Company Contributions under
any other qualified plan maintained by the Company for the Plan Year shall be
reduced to the extent necessary. If further reduction is required, the
Participant's share of the Company Contribution to this Plan allocated to the
Participant shall be reduced to the extent necessary. The amount of any
reduction of Company Contributions shall be placed in a suspense account in the
Trust Fund and used to reduce Company Contributions to the Plan. The following
rules shall apply to such suspense

16
<PAGE> 22
account: (i) no further Company Contributions may be made if the allocation
thereof would be precluded by Code section 415; (ii) any increase or decrease
in the net value of the Trust Fund attributable to the suspense account shall
not be allocated to the suspense account, but shall be allocated to the
remainder of the Trust Fund; and (iii) all amounts held in the suspense account
shall be allocated as of each succeeding allocation date on which forfeitures
may be allocated pursuant to Section 5.5 (and may be allocated more frequently
if the Committee so directs), until the suspense account is exhausted.

ARTICLE IV
INTERESTS IN THE TRUST FUND

4.1 Participants' Accounts.

The Committee shall establish and maintain separate accounts in the
name of each Participant, but the maintenance of such accounts shall not
require any segregation of assets of the Trust Fund. Each Participant's share
of the Company Contributions under Section 3.1(a) and forfeitures, together
with any increase or decrease in the net worth of the Trust fund attributable
to such Contributions and forfeitures, shall be credited to his or her "Company
Contributions account." A separate account shall be maintained for each
Participant who participated in the Plan when tax credit contributions were
permitted under the Plan and such account shall be referred to as a
Participant's "Tax Credit Contributions account." Shares of Stock contributed
to or purchased by the Trust fund shall be allocated directly to the
appropriate Participant account.

4.2 Valuation of Trust Fund.

(a) General. Subject to the provisions of Section 11.9,
the Trustee shall value the assets of the Trust Fund at least annually as of
the last day of the Plan Year, and as of any other dates determined by the
Committee, at their current fair market value and determine the net worth of
the Trust Fund. In addition, the Committee may direct the Trustee to have a
special valuation of the assets of the Trust Fund when the Committee
determines, in its sole discretion, that such valuation is necessary or
appropriate or in the event of unusual market fluctuations of such assets.
Such special valuation shall not include any Company Contributions for the
current Plan Year, or any unallocated forfeitures, provided that any forfeited
Stock shall be valued at fair market value for purposes of allocations and the
limitations of Section 3.3. The Trustee shall allocate the expenses of the
Trust Fund occurring since the preceding Valuation Date, pursuant to Section
9.2, and then determine the increase or decrease in the net worth of the Trust
Fund that has occurred since the preceding Valuation Date. The Trustee shall
determine the share of the increase of decrease that is attributable to the
non-separately accounted for portion of the Trust Fund and to any amount
separately accounted for, as described in Subsections (b) and (c).

(b) Mandatory Separate Accounting. The Trustee shall
separately account for amounts subject to a Domestic Relations Order, to
provide a more equitable allocation of any increase or decrease in the net
worth of the Trust Fund.

17
<PAGE> 23
(c) Permissible Separate Accounting. The Trustee may
separately account for the following amounts to provide a more equitable
allocation of any increase or decrease in the net worth of the Trust Fund:

(i) the distributable amount of a Participant,
pursuant to Section 6.6, including any amount distributable to an
Alternate Payee or to a beneficiary of a deceased Participant; and

(ii) Any other amounts for which separate
accounting will provide a more equitable allocation of the increase or
decrease in the net worth of the Trust Fund.

(d) Stock Not Traded on Established Market. Should the
Committee determine that the fair market value as of the next preceding
Valuation Date of any class of Stock not traded on an established market shall
not substantially reflect the fair market value thereof at any time when shares
of such class are to be purchased from the Company or any other person, or at
the time of any Company Contribution of shares of such class, a special
valuation of such shares shall be conducted pursuant to Section 11.9 as of the
close of the calendar month immediately preceding any such purchase or
contribution. Subject to Section 11.9, any determination made by the Committee
in good faith hereunder with respect to the value of the Trust fund, or shares
of such class of Stock, or the appropriate time for valuation hereunder, shall
be final and conclusive on all parties hereto.

4.3 Allocation of Increase or Decrease in Net Worth.

(a) The Trustee shall, as of each Valuation Date,
allocate the increase or decrease in the net worth of the Trust Fund that has
occurred since the preceding Valuation Date between the non-separately
accounted for portion of the Trust Fund and the amounts separately accounted
for that are identified in Subsections 4.2(b) and 4.2(c).

(b) The increase or decrease attributable to the
non-separately accounted for portion of the Trust Fund shall be allocated among
the appropriate accounts in the ratio that the dollar value of each such
account bore to the aggregate dollar value of all such accounts on the
preceding Valuation Date after all allocations and credits made as of such date
had been completed.

(c) After the allocation in Subsection (b) is completed,
the Trustee shall allocate any amounts separately accounted for (including the
increase or decrease in the net worth of the Trust Fund attributable to such
amounts) to the appropriate account(s) if such separate accounting is no longer
necessary.

4.4 Allocation of Company Contributions and Forfeitures.

(a) As of the last day of the Plan Year, the Trustee
shall allocate the Company Contributions for such Plan Year (including such
forfeitures occurring during such Plan Year that are treated as Company
Contributions pursuant to Section 5.5). These amounts shall be allocated among
the Company Contributions accounts of Participants who received credit for one
Hour of

18
<PAGE> 24
Service as a Covered Employee during the Plan Year after satisfying the
requirements of Section 2.1 and who received credit for a Year of Service
during such Plan Year and who were employed on the last day of the Plan Year or
who died, retired or terminated employment because of a Disability during such
year (whether or not credited with a Year of Service during such Plan Year).

(b) The Committee shall, as of the last day of each Plan
Year, allocate the Company Contribution to the account of each eligible
Participant in the same proportion that each such Participant's total points
with respect to such Plan Year, as computed below, bears to the total points
awarded to all such Participants with respect to such Plan Year. A
Participant's points with respect to any Plan Year shall be computed as
follows: (i) one point shall be credited to each Participant for each three
months of service with the Company credited to such Participant as of the end
of such Plan Year; and (ii) one point shall be credited to each Participant for
each $500 (or fraction thereof in excess of $250) of Compensation received by
such Participant during such Plan Year. For purposes of the foregoing, a
Participant shall receive credit for one full month of service for each month,
or portion thereof, during which the Participant is employed by the Company.
Months of service shall be credited to Participants on a cumulative basis,
starting with each Participant's original date of employment by the Company.

ARTICLE V
AMOUNT OF BENEFITS

5.1 Vesting Schedule.

A Participant shall have a fully vested and nonforfeitable interest in
all his account(s) upon his 65th birthday if he is an Employee on such date,
his death while an Employee or while on an approved leave of absence from the
Company or an Affiliated Entity, or his termination of employment with the
Company or an Affiliated Entity because of a Disability. In all other
instances his vested interest shall be calculated according to the following
rules.

(a) Tax Credit Contributions Account. A Participant
shall be fully vested at all times in his Tax Credit Contributions account.

(b) Company Contributions Account. A Participant shall
become vested in his Company Contributions account in accordance with the
following schedule:

<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
fewer than 3 0
3 30
4 40
5 60
6 80
7 or more 100
</TABLE>

19
<PAGE> 25
5.2 Forfeitures.

(a) Notwithstanding the vesting rules of Section 5.1,
Annual Additions to a Participant's accounts and any increase or decrease in
the net worth of the Trust Fund attributable to such Annual Additions may be
reduced to satisfy the limits described in Section 3.3. Any such reduction
shall be allocated as specified in Section 3.3.

(b) Notwithstanding the vesting rules of Section 5.1, a
missing individual's vested accounts may be forfeited as of the last day of any
Plan Year, as provided in Section 15.12. Any such forfeiture shall be
allocated as specified in Section 5.5.

(c) A Participant's non-vested interest in his Company
Contributions account shall be forfeited at the end of the earliest of the
following Plan Years:

(i) the Plan Year in which the Participant
receives a distribution of his entire vested interest in his Company
Contributions account;

(ii) the Plan Year in which the Participant
terminates employment, if the Participant terminates employment with
the Company and all Affiliated Entities while he is 0% vested (in such
case the Participant shall be deemed to have received a distribution
of his entire vested interest in such account on the day he terminated
employment); or

(iii) the Plan Year in which the Participant
incurs a one-year Break in Service.

5.3 Restoration of Forfeitures.

The forfeiture of a missing individual's account(s), as described in
Section 15.12, shall be restored to such individual if he makes a claim for
such amount. Forfeitures of a Participant's non-vested interest in his Company
Contributions account shall be restored under the following conditions; no
other forfeitures shall be restored.

(a) If a Participant is rehired before he incurs a
five-year Break in Service, and the Participant has received a distribution of
his entire vested interest in his Company Contributions account (with the
result that the Participant forfeited his non-vested interest in such account),
then the Participant may repay to the Plan the entire distribution, without
interest, within five years of his date of reemployment. If timely repayment
is made, the exact amount of the forfeiture shall be restored to the
Participant's account. If timely repayment is not made, no forfeiture shall be
restored.

(b) If a Participant was 0% vested at the time he
terminated employment with the Company and Affiliated Entities, and he is
rehired before he incurs a five-year Break in Service, then the Company shall
restore the exact amount forfeited from his Company Contributions account.

(c) If a Participant is rehired before he incurs a
five-year Break in Service, and the Participant has not received a distribution
of his entire vested interest in his Company

20
<PAGE> 26
Contributions account (but the Participant has forfeited his non-vested
interest in such account), then the Company shall restore the exact amount
forfeited from such account.

(d) If a Participant is rehired after he incurs a
five-year Break in Service, then no amount forfeited from his Company
Contributions account shall be restored to such account.

(e) A Participant may repay the amount of a prior
distribution by either (i) transferring to the Trustee a number of shares of
Stock equal in value (based on the value of the Stock as of the last day of the
month immediately preceding the date of repayment) to the value of Stock
received at the time of the prior distribution, or (ii) paying to the Trustee
in cash an amount equal to the value of Stock (or cash) received as of the time
of the prior distribution.

All the rights, benefits, and features available to the Participant when the
forfeiture occurred shall be available with respect to the restored forfeiture.

5.4 Method of Forfeiture Restoration.

Forfeitures that are restored pursuant to Section 5.3 shall be
accomplished by an allocation of the forfeitures occurring during the Plan
Year, pursuant to Section 5.5, or if such forfeitures are insufficient, by a
special Company Contribution, pursuant to Paragraph 3.1(c)(i).

5.5 Allocation of Forfeitures.

As of the last day of each Plan Year, the forfeitures that occurred
during the Plan Year shall be allocated as follows. If more than one employer
has adopted this Plan pursuant to Article XIII, forfeitures arising in accounts
of Employees of each participating employer shall be aggregated and then
allocated as follows. The forfeitures shall first be used to restore
forfeitures pursuant to Section 5.4. Any remaining forfeitures shall be
allocated as though it were an additional Company Contribution to the Plan.

5.6 Credits for Pre-Break Service.

(a) Company Contributions Made After Reemployment.

(i) A Participant who is vested in any portion of
his Company Contributions account, who incurs a Break in Service, and
who is thereafter reemployed, shall receive credit for vesting
purposes for Years of Service prior to his Break in Service upon
completing a Year of Service after such Break in Service.

(ii) A Participant who is not vested in any
portion of his Company Contributions account, who incurs a Break in
Service, and who is thereafter reemployed, shall receive credit for
vesting purposes for Years of Service prior to his Break in Service
only if (A) he completes a Year of Service after such Break in
Service, and (B) the number of consecutive one-year Breaks in Service
is less than the greater of five or the aggregate number of Years of
Service before such break.

21
<PAGE> 27
(b) Company Contributions Made Prior to Termination.
Years of Service after a Participant has incurred a five-year Break in Service
shall be disregarded in determining the vested percentage in a Participant's
Company Contributions account at the time of the break.

5.7 Transfers - Portability.

If any other employer adopts this or a similar plan and enters into a
reciprocal agreement with the Company that provides that (a) the transfer of a
Participant from such employer to the Company (or vice versa) shall not be
deemed a termination of employment for purposes of the plans, and (b) service
with either or both employers shall be credited for purposes of vesting under
both plans, then the transferred Participant's account shall be unaffected by
the transfer, except, if deemed advisable by the Committee, it may be
transferred to the trustee of the other plan.

5.8 Reemployment - Separate Account.

If a Participant returns to employment with the Company or an
Affiliated Entity before receiving the entire vested portion of his Company
Contributions account, the vested portion that has not been distributed shall
be held in a separate Company Contributions account for such Participant. The
Participant shall be fully vested in such account and no further Company
Contributions shall be allocated to that account. In all other respects, such
account shall be treated as a Company Contributions account. A new Company
Contributions account shall be established to which all appropriate Company
Contributions made after the date of reemployment shall be allocated. If a
Participant becomes fully vested in two or more Company Contributions accounts,
all such accounts shall be merged into one account.

ARTICLE VI
DISTRIBUTION OF BENEFITS

6.1 Beneficiaries.

Each Participant (or, if the Participant has died, his beneficiary)
shall file with the Committee a designation of the beneficiaries and contingent
beneficiaries to whom the distributable amount (determined in Section 6.3)
shall be paid in the event of his death. A beneficiary designation may be
changed by the Participant or beneficiary at any time and without the consent
of any previously designated beneficiary; however, if the Participant is
married, his Spouse shall be the beneficiary designated to receive the benefits
payable under this Article VI unless his Spouse has consented to the
designation of a different beneficiary. To be effective, the Spouse's consent
must be in writing, witnessed by a notary public, and filed with the Committee.
Any such election shall be effective only as to the Spouse who signed the
election. If a Participant has designated his Spouse as his beneficiary, and
the Participant and this Spouse subsequently divorce, then the beneficiary
designation shall be void and of no effect on the day such divorce is final.
In the absence of an effective beneficiary designation as to any portion of the
distributable amount of the deceased Participant's account(s), such amount
shall be paid to the Participant's surviving Spouse; or if none,

22
<PAGE> 28
in equal shares to his surviving children and issue of deceased children by
right of representation; or if none, in equal shares to each surviving parent;
or if none, to his estate.

6.2 Consent.

(a) If a Participant's account(s) are immediately
distributable under Section 6.5, and if the nonforfeitable portion of the
Participant's account(s) has an aggregate value of $3,500 or less (calculated
in accordance with applicable Treasury regulations), and if distributions
pursuant to Section 6.5 have not begun, then the Committee shall distribute the
distributable amount (determined in Section 6.3) of the Participant's
account(s) without the Participant's (or his Spouse's) consent. Any such
distribution shall be in the form of a lump sum. Any such distribution shall
be made to the Participant, or, if deceased, to his beneficiary determined in
Section 6.1.

(b) If a Participant's account(s) are immediately
distributable under Section 6.5, and if the nonforfeitable portion of a
Participant's account(s) has an aggregate value greater than $3,500 (calculated
in accordance with applicable Treasury regulations), then, except as provided
in Subsection 6.5(c) or 6.5(d), any distribution of such account(s) shall only
be made with the consent of the Participant (or, if the Participant is
deceased, the beneficiary determined under Section 6.1). To be effective, the
consent to the form of distribution and the time of distribution must be in
writing, signed by the Participant (or beneficiary), and filed with the
Committee within the 90-day period prior to the date the distribution is to
commence. A consent once given shall be irrevocable once distribution has
begun.

6.3 Distributable Amount.

The distributable amount of a Participant's account(s) is the vested
portion of his account(s) (as determined by Article V) as of the Valuation Date
coincident with or next preceding the date distribution is made to the
Participant or beneficiary, reduced by (a) any amount that is payable to an
Alternate Payee pursuant to Section 15.9, and (b) any amount withdrawn pursuant
to Section 7.1 since such Valuation Date.

6.4 Manner of Distribution.

The distributable amount shall be paid in a lump sum distribution
(other than an annuity). The lump sum distribution shall consist of whole
shares of Stock, provided that a fractional share allocated to a Participant's
account shall be converted to and paid in cash.

6.5 Time of Distribution.

Except as provided in Sections 6.2 and 7.1, distributions shall be
subject to the following rules.

(a) Earliest Date of Distribution. Unless an earlier
distribution is permitted by Subsection (b) or required by Subsection (c), the
earliest date that a Participant may elect to receive a distribution is as
follows.

23
<PAGE> 29
(i) Retirement. Upon termination of employment
on or after his Normal Retirement Age, a Participant may elect to
receive a distribution after the date on which all allocations
required by Article IV for the Plan Year in which he retires are
completed. Such distribution shall be made as soon as practicable
after the close of such Plan Year, and in no event later than 60 days
after the close of such Plan Year.

(ii) Disability. If an Employee terminates
employment with the Company or an Affiliated Entity because of a
Disability, he may elect to receive a distribution after the date on
which all allocations required by Article IV for the Plan Year in
which he incurs the Disability are completed.

(iii) Death. After the death of a Participant, his
beneficiary may elect to receive a distribution after the date on
which all allocations required by Article IV for the Plan Year in
which the Participant died are completed.

(iv) Termination of Employment. Effective for
Plan Years ending before June 24, 1991, if a Participant terminates
employment other than by dying, retiring, or incurring a Disability,
he may elect to receive a distribution after the date on which all
allocations required by Article IV for the Plan Year during which he
incurs a one-year Break in Service are completed. Effective for Plan
Years beginning on or after June 24, 1991, if a Participant terminates
employment other than by dying, retiring or incurring a Disability, he
may elect to receive a distribution after the date on which all
allocations required by Article IV for the Plan Year during which he
terminates employment are completed. Such date shall be as soon as
practicable after the close of such year. If the Participant does not
elect to receive a distribution as soon as practicable after the close
of the Plan Year in which he incurs a Break in Service or his
employment was terminated, as the case may be, then he may not elect
to receive a distribution until after he has attained the later of
Normal Retirement Age or age 62.

(v) During Employment. A Participant may not
obtain a distribution while employed by the Company or an Affiliated
Entity, except as provided in Subsection (c) (relating to the required
minimum distribution at a Participant's Required Beginning Date) or
Section 7.1 (relating to in-service withdrawals).

(b) Alternate Earliest Date of Distribution.
Notwithstanding Subsection (a), unless a Participant elects otherwise, his
distribution shall commence no later than 60 days after the close of the latest
of: (i) the Plan Year in which the Participant attains Normal Retirement Age;
(ii) the Plan Year in which occurs the tenth anniversary of the year in which
the Participant commenced participation in the Plan; and (iii) the Plan Year in
which the Participant terminates employment with the Company and Affiliated
Entities.

24
<PAGE> 30
(d) Distribution Upon Participant's Death. Distribution
shall be made in a lump sum to the Participant's beneficiary by the end of the
calendar year containing the fifth anniversary of the Participant's death.
However, if the beneficiary is the Participant's surviving Spouse, the
beneficiary may elect to defer distribution until the end of the calendar year
in which the Participant would have attained age 70-1/2, or, if later, the end
of the calendar year containing the first anniversary of the Participant's
death. If the surviving Spouse makes such an election but dies before
receiving the lump sum distribution, then such Spouse's beneficiary must
receive a lump sum distribution by the end of the calendar year containing the
fifth anniversary of such Spouse's death.

(e) Alternate Payee. The earliest date that an Alternate
Payee may receive a distribution shall be determined pursuant to Section 15.9.

6.6 Separate Accounting for Distributable Amounts.

When a Participant's account(s) have become distributable, in whole or
in part, the Committee may direct the Trustee to separately account for and
separately invest the account(s), or the distributable portion thereof. All
distributions shall be paid solely from the separate account. Amounts thus
separately accounted for shall not share in the increase or decrease in the net
worth of the remainder of the Trust Fund.

ARTICLE VII
WITHDRAWALS AND LOANS

7.1 Hardship Distributions.

(a) In the event of hardship endured by a Participant and
recognized as such by the Committee, and upon receipt by the Committee of an
application in writing for benefits hereunder, the Committee shall direct the
Trustee to make one or more distributions from the Company Contribution account
of such Participant to, or for the benefit of, the Participant or any member of
the Participant's family who is dependent upon the Participant for support.
Such distributions shall be made in such manner and amount as the Committee
deems appropriate to meet extraordinary and necessary expenses incurred by such
Participant or the family of the Participant during such hardship, but the
total amount of such distributions shall not exceed the vested portion of the
Participant's account as of the date of the last preceding valuation of the
Trust fund.

(b) "Hardship," as used herein, shall mean a state of
financial stringency arising from extraordinary circumstances, such as, for
example, extraordinary medical expenses, significant education expenses or the
purchase of a principal residence for the Participant or a member of his
family.

(c) If a hardship distribution is made at a time when a
Participant is less than 100 percent vested and there is no Break in Service
prior to the relevant time:

25
<PAGE> 31
(i) A separate account shall be established for
the Participant's interest in the Plan as of the time of the
distribution; and

(ii) At any relevant time the Participant's
nonforfeitable portion of the separate account shall be equal to an
amount ("X") determined by the formula:

X = P(AB + (R x D)) - (R x D)

For purposes of applying the formula: P is the nonforfeitable percentage at
the relevant time; AB is the account balance at the relevant time; D is the
amount of the distribution; and R is the ratio of the account balance at the
relevant time to the account balance after distribution.

(d) All costs associated with any such withdrawal shall
be subtracted from the amount withdrawn.

ARTICLE VIII
ALLOCATION OF RESPONSIBILITIES - NAMED FIDUCIARIES

8.1 No Joint Fiduciary Responsibilities.

Alfalfa's, the Trustee(s), and the Committee shall be the named
fiduciaries under the Plan and Trust agreement and shall be the only named
fiduciaries thereunder. The fiduciaries shall have only the responsibilities
specifically allocated to them herein or in the Trust agreement. Such
allocations are intended to be mutually exclusive and there shall be no sharing
of fiduciary responsibilities. Whenever one named fiduciary is required by the
Plan or Trust agreement to follow the directions of another named fiduciary,
the two named fiduciaries shall not be deemed to have been assigned a shared
responsibility, but the responsibility of the named fiduciary giving the
directions shall be deemed his sole responsibility, and the responsibility of
the named fiduciary receiving those directions shall be to follow them insofar
as such instructions are on their face proper under applicable law.

8.2 The Company.

The Company shall be responsible for: (a) making Company
Contributions; (b) certifying to the Trustee the names and specimen signatures
of the members of the Committee acting from time to time; (c) keeping accurate
books and records with respect to its Employees and the appropriate components
of each Employee's Compensation and furnishing such data to the Committee; (d)
selecting agents and fiduciaries to operate and administer the Plan and Trust;
(e) directing the Trustee concerning the investment of the assets in the Trust
fund, other than Stock; (f) directing the Trustee with respect to the purchase
of Stock; (f) in the absence of investment direction from the Company, the
investment of the Trust fund and the voting of Stock or tendering Stock in
response to a tender offer for Stock to the extent and in the manner provided
in the trust agreement;

26
<PAGE> 32
(g) appointing an investment manager if it determines that one should be
appointed; and (h) reviewing periodically the performance of such agents,
managers, and fiduciaries.

8.3 The Trustee.

The Trustee shall be responsible for: (a) in the absence of
investment direction from the Company, the investment of the Trust fund and the
voting of Stock or tendering Stock in response to a tender offer for Stock to
the extent and in the manner provided in the trust agreement; (b) the custody
and preservation of Trust assets delivered to it; and (c) the payment of such
amounts from the Trust Fund as the Committee shall direct.

8.4 The Committee - Plan Administrator.

Alfalfa's shall appoint an administrative Committee consisting of one
or more individuals who may be, but need not be, Participants, officers,
directors, or Employees of Alfalfa's. If Alfalfa's does not appoint a
Committee, Alfalfa's shall act as the Committee under the Plan. The members of
the Committee shall hold office at the pleasure of Alfalfa's and shall serve
without compensation. The Committee shall be the "Plan administrator" as
defined in section 3(16)(A) of ERISA. It shall be responsible for establishing
and implementing a funding policy consistent with the objectives of the Plan
and with the requirements of ERISA. This responsibility shall include
establishing (and revising as necessary) short-term and long-term goals and
requirements pertaining to the financial condition of the Plan, communicating
such goals and requirements to the persons responsible for the various aspects
of Plan operations and monitoring periodically the implementation of such goals
and requirements.

8.5 Committee to Construe Plan.

(a) The Committee shall administer the Plan and shall
have all power and authority necessary for that purpose, including, but not by
way of limitation, the discretion and power to interpret the Plan, to determine
the eligibility, status, and rights of all individuals under the Plan, and in
general to decide any dispute and all questions arising in connection with the
Plan. The Committee shall direct the Trustee concerning all distributions from
the Trust Fund, in accordance with the provisions of the Plan, and shall have
such other powers in the administration of the Trust Fund as may be conferred
upon it by the Trust agreement. The Committee shall maintain all Plan records
except records of the Trust Fund.

(b) The Committee may adjust the account(s) of any
Participant, in order to correct errors and rectify omissions, in such manner
as the Committee believes will best result in the equitable and
nondiscriminatory administration of the Plan.

8.6 Organization of Committee.

The Committee shall elect a chairman and shall adopt such rules as it
deems desirable for the conduct of its affairs and for the administration of
the Plan. It may appoint agents (who need not be members of the Committee) to
whom it may delegate such powers as it deems appropriate, except

27
<PAGE> 33
that any dispute shall be determined by the Committee. The Committee may make
its determinations with or without meetings. It may authorize one or more of
its members or agents to sign instructions, notices and determinations on its
behalf. The action of a majority of the Committee shall constitute the action
of the Committee.

8.7 Agent for Process.

The chairman of the Committee shall be agent of the Plan for service of
all process.

8.8 Indemnification of Committee Members.

The Company shall indemnify each member of the Committee against any
and all claims, loss, damages, expense and liability arising from any action or
failure to act, except when the same is judicially determined to be due to the
gross negligence or willful misconduct of such member.

ARTICLE IX
TRUST AGREEMENT - INVESTMENTS

9.1 Trust Agreement.

The Company has entered into a Trust agreement to provide for the
holding, investment and administration of the funds of the Plan. The Trust
agreement shall be part of the Plan, and the rights and duties of any
individual under the Plan shall be subject to all terms and provisions of the
Trust agreement.

9.2 Expenses of Trust.

All taxes upon or in respect of the Trust shall be paid by the Trustee
out of the Trust assets. All expenses of administering the Trust shall be paid
by the Trustee out of the Trust assets to the extent they are not paid by the
Company. No fiduciary shall receive any compensation for services rendered to
the Plan if the fiduciary is being compensated on a full time basis by the
Company.

9.3 Investments.

Funds of the Plan shall be invested as provided in the Trust agreement
as well as Articles XI and XII.

28
<PAGE> 34

ARTICLE X
TERMINATION AND AMENDMENT

10.1 Termination of Plan or Discontinuance of Contributions.

Alfalfa's expects to continue the Plan indefinitely, but the
continuance of the Plan and the payment of contributions are not assumed as
contractual obligations. Alfalfa's may terminate the Plan or discontinue
contributions at any time. Upon the termination (or partial termination) of
the Plan or the complete discontinuance of contributions, the interests of all
affected Participants in the Trust Fund shall become fully vested,
notwithstanding any other provision hereof.

10.2 Allocations upon Termination or Discontinuance of Company Contributions.

Upon the termination or partial termination of the Plan or upon the
complete discontinuance of contributions, the Committee shall promptly notify
the Trustee of such termination or discontinuance. The Trustee shall then
determine, in the manner prescribed in Section 4.2, the net worth of the Trust
Fund as of the close of the last business day of the calendar month in which
such notice was received by the Trustee. The Trustee shall advise the
Committee of any increase or decrease in such net worth that has occurred since
the preceding Valuation Date. The Committee shall thereupon allocate, in the
manner described in Section 4.3, among the remaining Plan accounts, any such
increase or decrease in the net worth of the Trust Fund. Immediately after the
allocation of such increase or decrease in net worth, the Committee shall
allocate among the remaining Plan accounts, in the manner described in Articles
III, IV, and V, any Company Contributions or forfeitures occurring since the
preceding Valuation Date.

10.3 Procedure Upon Termination of Plan or Discontinuance of Contributions.

If the Plan has been terminated or partially terminated, or if a
complete discontinuance of contributions to the Plan has occurred, then after
the allocations required under Section 10.2 have been completed, the Trustee
shall distribute or transfer the account(s) of affected Employees as follows.

(a) If the affected Employee's account(s) have an
aggregate value of $3,500 or less (calculated in accordance with applicable
Treasury regulations), then the Trustee shall distribute the Employee's
account(s) to the Employee in a lump sum (other than an annuity).

(b) If the affected Employee's account(s) have an
aggregate value of more than $3,500 (calculated in accordance with applicable
Treasury regulations), and if the Company or an Affiliated Entity does not
maintain another defined contribution plan (other than an employee stock
ownership plan within the meaning of Code section 4975(e)(7)), then the Trustee
shall distribute the Employee's account(s) to the Employee in a lump sum (other
than an annuity).

(c) If the affected Employee's account(s) have an
aggregate value of more than $3,500 (calculated in accordance with applicable
Treasury regulations), and if the Company or an

29
<PAGE> 35
Affiliated Entity maintains another defined contribution plan (other than an
employee stock ownership plan within the meaning of Code section 4975(e)(7)),
then the Trustee shall transfer the Employee's account(s) to the other plan
unless the Employee consents to an immediate distribution of such account(s) in
a lump sum (other than an annuity).

Subject to the provisions of Article XI, any distribution or transfer made
pursuant to this Section may be in cash, in kind, or partly in cash and partly
in kind. After all such distributions or transfers have been made, the Trustee
shall be discharged from all obligation under the Trust; no Participant or
beneficiary who has received any such distribution, or for whom any such
transfer has been made, shall have any further right or claim under the Plan or
Trust.

10.4 Amendment by Alfalfa's.

Alfalfa's may at any time amend the Plan in any respect, subject to
Section 10.5, but no amendment shall be made that would have the effect of
vesting in the Company any part of the Trust Fund or of diverting any part of
the Trust Fund to purposes other than for the exclusive benefit of
Participants, Alternate Payees, or their beneficiaries, and the rights of any
Participant, Alternate Payee, or beneficiary with respect to contributions
previously made shall not be adversely affected by any amendment.
Notwithstanding the foregoing, if the Company is subject to Section 16(b) of
the Securities Exchange Act of 1934, no amendment may be made unless in
compliance with the Rules thereunder.

10.5 Amendment to Vesting Schedule.

If the vesting schedule is amended, each Participant with at least
three Years of Service may elect, within the period specified in the following
sentence after the adoption of the amendment, to have his nonforfeitable
percentage computed under the Plan without regard to such amendment. The
period during which the election may be made shall commence with the date the
amendment is adopted and shall end on the latest of:

(a) 60 days after the amendment is adopted;

(b) 60 days after the amendment becomes effective; or

ARTICLE XI
SPECIAL PROVISIONS REGARDING COMPANY STOCK

11.1 Special Distribution and Payment Requirements.

(a) Duration and Time of Distribution. Notwithstanding
any other provision of the Plan, a Participant, with the consent of his or her
spouse if applicable, may elect to have the

30
<PAGE> 36
portion of his or her account attributable to Employer Securities acquired by
the Plan after December 31, 1986, distributed in a series of substantially
equal annual payments over a period of five years (or such shorter period as
may be required to comply with Code section 401(a)(9)) commencing:

(i) Not later than one year after the close of
the Plan Year in which such Participant separates from service by
reason of the attainment of Normal Retirement Age under the Plan,
death, or Disability; or

(ii) Not later than one year after the close of
the fifth Plan Year following the Plan Year in which the Participant
separated from service, if the Participant separated from service for
any reason other than those enumerated in paragraph (i) above, and is
not reemployed by the Company at the end of the fifth Plan Year
following the Plan Year of such separation from service.

If the Participant separates from service for a reason other than those
described in paragraph (i) above, and is employed by the Company as of the last
day of the fifth Plan Year following the Plan Year of such separation from
service, distribution to the Participant, prior to any subsequent separation
from service, shall be in accordance with terms of the Plan other than this
Section 11.1. For purposes of this Section 11.1, Employer Securities shall not
include any Employer Securities acquired with the proceeds of a loan described
in Code section 404(a)(9) until the close of the Plan Year in which such loan
is repaid in full.

(b) Determination of Amount Subject to Special
Distribution and Payment Requirements. The portion of a Participant's account
attributable to Employer Securities which were acquired by the Plan after
December 31, 1986, shall be determined by multiplying the number of shares of
such securities held in the account by a fraction, the numerator of which is
the number of shares acquired by the Plan after December 31, 1986, and
allocated to Participants' account (not to exceed the number of shares held by
the Plan on the date of distribution) and the denominator of which is the total
number of such shares held by the Plan at the date of the distribution.

(c) Certain Exceptions. Notwithstanding subsection
11.1(a) above, if the fair market value of a Participant's account attributable
to Employer Securities acquired by the Plan after December 31, 1986 is in
excess of $500,000 (as adjusted in the same manner as under Code section
415(d)) as of the date distribution is to begin under subsection 11.1(a) above,
such distribution shall be made in substantially equal annual payments over a
period not longer than five years plus an additional one year (up to an
additional five years) for each $100,000 increment, or fraction of such
increment, by which the value of the Participant's account attributable to
Employer Securities acquired after December 31, 1986 exceeds $500,000, unless
the Participant otherwise elects under the provisions of the Plan other than
this subsection 11.1(c). In no event shall such distribution period exceed the
period permitted under Code section 401(a)(9).

31
<PAGE> 37
11.2 Put Option Requirements.

(a) Put Option Payment. Notwithstanding any other
provisions of the Plan, in the case of a distribution of Employer Securities
which are not readily tradeable on an established securities market, the
Participant receiving such distribution shall have the right to exercise a put
option that complies with the requirements of Code section 409(h). Such put
option shall provide that if the Participant exercises the put option, the
Company, or the Plan if the Plan so elects, shall repurchase all or any portion
of the Employer Securities. The put option may be exercised during the
six-month period beginning on the day after the date of the Participant's
receipt of such distribution. If the Participant does not exercise the option
to sell such Stock, the option shall lapse temporarily.

(b) After the end of the Plan Year in which the option
described in subsection 11.2(a) above lapsed and following the valuation of the
Stock, the Committee shall notify each Participant who was eligible to, but did
not, exercise the option described in subsection 11.2(a) of the updated
valuation and the opportunity to once again exercise the put option during the
three-month period beginning on the date the notice is received. If the
Participant does not exercise his or her put option within such three-month
period, such option shall lapse permanently.

(c) Any sale pursuant to a put option shall be effected
by the delivery by the Participant to the Company of written notice of the
Participant's election to sell such Stock or a specified portion thereof,
together with the certificates representing the shares sold duly endorsed for
transfer with applicable transfer tax stamps attached thereto. Upon such
delivery, the Participant will have sold, and the Company will have purchased,
the number of shares specified in such notice.

(d) The purchase price per share payable for such shares
of Stock so sold to the Company shall be the fair market value per share as of
the Valuation Date immediately preceding the date of sale.

(e) Stock purchased pursuant to a put option shall be
paid for as follows:

(i) If the distribution constitutes a Total
Distribution, payment of the fair market value of a Participant's
account shall be made in up to five substantially equal annual
payments, as determined by the Committee. The first installment shall
be paid not later than 30 days after the Participant exercises the put
option. The Plan will pay a reasonable rate of interest and provide
adequate security on amounts not paid after 30 days.

(ii) If the distribution does not constitute a
Total Distribution, the Plan shall pay the Participant an amount equal
to the fair market value of the Employer Securities repurchased no
later than 30 days after the Participant exercises the put option.

(f) Except as hereinafter provided, the Company shall pay
for the shares of Stock so sold to it by check within thirty days following the
date of sale.

32
<PAGE> 38
(g) At the option of the Trustee, pursuant to written
directions from the Committee, the Plan may assume the rights and obligations
of the Company under the above subsections as to all or any part of the shares
of Stock tendered to the Company.

(h) If the Participant has contributed the Stock to an
individual retirement account or annuity ("IRA"), the IRA trustee shall have
the option to sell described in this Section 11.2.

11.3 Diversification of Investments.

(a) Election By Qualified Participant. Each Qualified
Participant shall be permitted, within 90 days after the last day of each Plan
Year during his or her Qualified Election Period, to elect to have a portion of
the value of the Participant's account balance attributable to Employer
Securities which were acquired by the Plan after December 31, 1986 with ESOP
Contributions or earnings on ESOP Contributions distributed to him or her in
accordance with subsection 11.3(b) below. The portion which a Participant may
elect during the 90-day periods following the close of the first five Plan
Years in the Qualified Election Period to have distributed is 25 percent of the
value of the eligible Employer Securities. Within 90 days after the close of
the last Plan Year in the Participant's Qualified Election Period, a Qualified
Participant may direct the investment of 50 percent of the value of such
account balance.

(b) Early Distribution Election to Diversify Investment.
The Participant shall be permitted to elect to receive a distribution from the
Plan (notwithstanding Code section 409(d)) of the portion of the Participant's
account that is covered by the foregoing election within 90 days after the last
day of the period during which the election can be made. Such distribution
shall be subject to such requirements of the Plan concerning put options as
would otherwise apply to a distribution of Employer Securities from the Plan.
This provision shall apply notwithstanding any other provision of the Plan
other than such provisions as require the consent of the Participant and the
Participant's spouse to a distribution. If the Participant and the
Participant's spouse do not consent to a distribution, such amount shall be
retained in this Plan, and the requirement that such portion of the
Participant's account be subject to diversification shall be deemed to have
been satisfied.

(c) Determination of Amount Subject to Diversification
Requirements. The portion of a Participant's account attributable to Employer
Securities which were acquired by the Plan after December 31, 1986, shall be
determined by multiplying the number of shares of such securities held in the
account by a fraction, the numerator of which is the number of shares acquired
by the Plan after December 31, 1986, and allocated to Participants' account
(not to exceed the number of shares held by the Plan on the date the individual
becomes a Qualified Participant) and the denominator of which is the total
number of shares held by the Plan at the date the individual becomes a
Qualified Participant.

11.4 Registration.

Notwithstanding any other provision hereof, no Stock shall be
distributed to any person unless such distribution is at that time effectively
registered or exempt from registration under the Securities Act of 1933, as
amended. If the distribution of Stock to a Participant or beneficiary is

33
<PAGE> 39
prohibited by the foregoing limitation, the Company shall take such steps as
are necessary to permit the distribution of such Participant's interest in the
Trust Fund.

11.5 Investment of Trust Fund.

The investment policy of the Plan is to invest primarily in Stock.
All cash received by the Trustee shall, at the written direction of the
Company, be used to purchase Stock at the fair market value of the Stock, as
determined under Section 11.9. At the written direction of the Company, the
Trustee shall temporarily invest Trust assets, pending the purchase of Stock,
as provided in the Trust agreement. In the absence of written direction from
the Company, the Trustee may temporarily invest Trust assets, pending the
purchase of Stock, in savings accounts, certificates of deposit and high-grade
short-term securities, or such funds may be held in cash or cash equivalents.

11.6 Dividends.

The Company may from time to time declare and pay dividends, either in
cash or in shares of Stock, with respect to shares of Stock in the Trust Fund.
Cash dividends paid with respect to Stock shall be allocated to the accounts of
the respective Participants on the basis of the number of shares of Stock
allocated to their accounts at the time such dividend is declared and dividends
of Stock shall be allocated to Participants' accounts on the same basis.

11.7 Voting of Company Stock.

If the Company has a "registration-type class of securities," as
defined in Code section 409(e), each Participant or beneficiary shall be
entitled to vote the shares of Stock, including fractional shares, allocated to
his or her account and shall be entitled to receive all proxy materials and
other information distributed to shareholders in the same manner as the other
shareholders of the Company. Notwithstanding any other provision of the Plan,
if the Plan has any class of securities that is not a registration-type class
of securities (as defined in Code section 409(e)(4)), a Participant or
beneficiary shall be entitled to direct the Trustee, in accordance with the
provisions of the trust agreement, as to the manner in which voting rights will
be exercised with respect to any corporate matter which involves the voting of
such shares allocated to the Participant's account with respect to the approval
or disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all assets of
a trade or business, or such similar transaction as may be prescribed in
Treasury Regulations. For purposes of the foregoing sentence, each Participant
will be entitled to one vote with respect to such issue and the Trustee shall
vote the unallocated stock held by the Plan. In any case in which the voting
rights with respect to Stock are not required to be passed through to a
Participant or beneficiary in accordance with the foregoing, such Stock shall
be voted by the Trustee pursuant to the written directions of the Committee, as
provided in the trust agreement.

11.8 Company Stock to Be Subject to Certain Conditions.

All shares of Stock held in the Trust Fund and all shares of Stock
distributed to Participants (or beneficiaries) shall be subject to the
provisions of certain Shareholder Agreements, between the

34
<PAGE> 40
Company and its shareholders, the form of which is attached hereto as Appendix
A. All shares of Stock distributed to a Participant or his or her beneficiary
shall bear such legends and statements as the Company may deem advisable to
assure compliance with applicable federal and state securities laws and
regulations. If requested by the Company, a recipient of shares of Stock
shall, prior to receipt of such shares, deliver to the Company such written
statements as the Company or its counsel may reasonably require to indicate
that the recipient is acquiring such shares for his or her own account, for
investment and not with the view to a distribution thereof and that the
recipient of such shares understands that such shares have not been registered
under the Securities Act of 1933 (the "Act") and that neither the shares nor
any interest therein may be transferred, sold, assigned or conveyed except in
accordance with the Act and applicable state securities laws and must therefore
be held indefinitely unless they are subsequently registered under the Act or
an exemption from such registration is available. Such written statements may
also require the recipient's acknowledgment that he or she understands that if,
after the Stock has been held for a period of at least two years and if the
provisions of Rule 144 of the General Rules and Regulations adopted under the
Act are otherwise available (there being no representations by the Company that
the provisions of Rule 144 will be applicable), then the recipient may make
routine sales of such shares in limited amounts, in a specified manner, in
accordance with other terms and conditions of Rule 144. In the case of Stock
to which Rule 144 is not applicable, any sales by a recipient would have to be
made in compliance with Regulation A or some other exception from the
registration requirements of the Act.

11.9 Valuation of Company Stock.

All valuations of Employer Securities which are not readily tradeable
on an established securities market with respect to activities carried on by
the Plan shall be made by an independent appraiser meeting requirements similar
to those contained in Treasury Regulations under Code section 170(a)(1). The
fees of such appraisers shall be paid by the Company or the Trust, or may be
shared by each, as determined by the Company. Shares of Stock held in the
Trust Fund shall be valued annually by the Company, for all purposes of the
Plan, at their fair market value as of the last day of each Plan Year. In the
case of purchases of Stock from Disqualified Persons, the value must be
determined as of the date of the transaction.

11.10 Distribution of Cash or Company Stock.

A Participant shall have the right to require that any distribution
under this Plan be made in shares of Stock (with the value of fractional shares
payable in cash). Subject to that right, the fair market value of shares of
Stock may be distributed, at the election of the Participant in cash. The
Committee shall advise each Participant in writing of his or her right to
receive a distribution of benefits in shares of Stock before a cash
distribution may be elected by the Participant.

11.11 Buy Sell Arrangements.

(a) The Trustee, acting in accordance with the written
directions of the Committee, shall have a right of first refusal to purchase
any Stock distributed to Participants or their beneficiaries which is not
"publicly traded" at the time the right may be exercised. For this purpose,
publicly traded refers to a security that is listed on a national securities
exchange registered under

35
<PAGE> 41
section 6 of the Securities Exchange Act of 1934 (15 U.S.C. Section 78f) or
that is quoted on a system sponsored by a national securities association
registered under section 15A(b) of the Securities Exchange Act of 1934 (15
U.S.C. Section 78o). If a Participant or his or her beneficiary proposes to
sell, transfer or otherwise dispose (whether by gift or otherwise) of any Stock
received as a distribution from the Plan, the Participant or beneficiary, as
the case may be, shall first make an offer to the Trustee to sell such Stock to
the Trust and Plan. The selling price for the Stock shall be equal to the
greater of (i) the appraised value of the Stock as of the date of the
transaction, if the seller is a Disqualified Person, or as of the most recent
Valuation Date in all other cases, determined in good faith by an independent
appraiser as described in Section 11.9, or (ii) the purchase price and other
terms offered by a third party buyer making a good faith offer to purchase the
Stock. The Trustee shall have a 14-day period after receipt of the offer from
the Participant or beneficiary to elect to purchase all, but not less than all,
of the shares of Stock so offered. The Trustee shall give written notice to
the offering Participant or beneficiary within the required 14-day period of
its election to purchase the Stock so offered and the closing of the purchase
of the Stock shall occur within 20 business days after the date of the written
acceptance of the offer by the Trustee. At that time, the Participant or the
beneficiary shall transfer and assign the Stock so sold to the Trustee, free of
all liens or other interests by any other party with respect to the shares and
the Trustee shall deliver its check for the purchase price to the selling
Participant or beneficiary.

(b) In order to fully implement the purposes of the Plan,
the Trustee, acting in accordance with the written directions of the Committee,
shall enter into such agreements or other arrangements pursuant to which the
Trust will have the option to acquire by purchase the Stock of a deceased
stockholder party to such agreement under such circumstances and upon such
terms as the Committee shall deem in the best interests of the Plan. Any such
agreement shall provide that the price to be paid by the Trustee for such Stock
shall be no more than the fair market value of the Stock as of the last
valuation date immediately preceding such deceased stockholder's death and the
price shall not exceed the fair market value of such Stock as of the date of
purchase, as determined by the Committee under Section 11.9. In order to fund,
whether in whole or in part, the purchase of Stock pursuant to any such
agreement, the Trustee, acting pursuant to the written directions of the
Committee, may invest in such life insurance contract or contracts on the life
of any stockholder who is a party to any such agreement as may be required by
any such agreement, or which may be payable on death to the Trust as
beneficiary, and any such contracts shall be vested exclusively in the Trustee
for the benefit of the Trust as a whole.

ARTICLE XII
COMPANY STOCK PURCHASED WITH LOANS

12.1 Prohibition Against Non-Exempt Loans.

In general, the term "loan" refers to a loan made to the Plan by a
Disqualified Person or a loan to the Plan that is guaranteed by a Disqualified
Person. It includes a direct loan of cash, a purchase-money transaction, and
an assumption of the obligation of the Plan. "Guarantee" includes an unsecured
guarantee and the use of assets of a Disqualified Person as collateral for a
loan, even

36
<PAGE> 42
though the use of assets may not be a guarantee under applicable state law. An
amendment of a loan in order to qualify as an "Exempt Loan" (as defined herein)
is not a refinancing of the loan or the making of another loan.
Notwithstanding anything to the contrary contained in the Plan or Trust
agreement, no loan shall be made to the Plan unless such loan is a loan which
satisfies all of the following requirements (an "Exempt Loan"):

(a) Primary Benefit Requirement. The loan must be
primarily for the benefit of the Plan Participants and their beneficiaries. In
addition, at the time the loan is made, the interest rate for the loan and the
price of the Stock to be acquired with the loan proceeds should not be such
that Plan assets might be drained off and the terms of the loan, whether or not
between independent parties, must be at least as favorable to the Plan as the
terms of a comparable loan resulting from arm's-length negotiations between
independent parties.

(b) Use of Loan Proceeds. The proceeds of the loan must
be used within a reasonable time after their receipt by the Plan only for any
or all of the following purposes:

(i) To acquire Stock.

(ii) To repay such loan.

(iii) To repay a prior Exempt Loan. A new loan,
the proceeds of which are so used, must satisfy all of the provisions
of this subsection 12.1. Except as provided in subsection 12.1(g)
below, or as otherwise required by applicable law, no Stock acquired
with the proceeds of the loan may be subject to a put, call, or other
option, or buy-sell or similar arrangement while held by and when
distributed from the Plan, whether or not the Plan is still an ESOP at
such time.

(c) Liability and Collateral of Plan for Loan. The loan
must be without recourse against the Plan and the only assets of the Plan that
may be given as collateral on the loan are assets acquired with the proceeds of
the loan and assets that were used as collateral on a prior Exempt Loan repaid
with the proceeds of the current loan. No person entitled to payment under the
loan shall have any right to assets of the Plan other than:

(i) collateral given for the loan,

(ii) contributions (other than contributions of
employer securities) that are made under the Plan to meet its
obligations under the loan, and

(iii) earnings attributable to such collateral and
the investment of such contributions.

The payments made by the Plan with respect to the loan during a Plan Year must
not exceed an amount equal to the sum of such contributions and earnings
received during or prior to the year less such payments in prior years. Such
contributions and earnings must be accounted for separately in the books of
account of the Plan until the loan is repaid. Notwithstanding the foregoing,
shares of

37
<PAGE> 43
Stock attributable to tax credit contributions shall not be used as collateral
for a loan to the Plan or to satisfy a loan made to the Plan.

(d) Default. In the event of default upon the loan, the
value of Plan assets transferred in satisfaction of the loan must not exceed
the amount of default. If the lender is a Disqualified Person, the loan must
provide for a transfer of Plan assets upon default only upon and to the extent
of the failure of the Plan to meet the payment schedule of the loan. For the
purposes of this Subsection 12.1(d), the making of a guarantee does not make a
person a lender.

(e) Reasonable Rate of Interest. The interest rate of
the loan must not be in excess of a reasonable rate of interest. All relevant
factors will be considered in determining a reasonable rate of interest,
including the amount and duration of the loan, the security and guarantee (if
any) involved, the credit standing of the Plan and the guarantor (if any), and
the interest rate prevailing for comparable loans. When these factors are
considered, a variable interest rate may be reasonable.

(f) Release From Encumbrance. Shares of Stock purchased
with the loan shall be allocated to a special suspense account and released
from the suspense account (and the encumbrance) in accordance with this
subsection 12.1(f). Shares of Stock released from the suspense account shall
be allocated to the Participants' Company Contributions accounts. In general,
the loan must provide for the release from encumbrance under this subsection of
Plan assets used as collateral for the loan. For each Plan Year during the
duration of the loan, the number of shares of Stock released must equal the
number of encumbered shares of Stock held immediately before release for the
current Plan Year multiplied by a fraction. The numerator of the fraction is
the amount of principal and interest paid for the year. The denominator of the
fraction is the sum of the numerator plus the principal and interest to be paid
for all future years. The number of future years under the loan must be
definitely ascertainable and must be determined without taking into account any
possible extensions or renewal periods. If the interest rate under the loan is
variable, the interest to be paid in future years must be computed by using the
interest rate applicable as of the end of the Plan Year. If collateral
includes more than one class of Stock, the number of shares of Stock of each
class to be released for a Plan Year must be determined by applying the same
fraction to each class. Notwithstanding the foregoing, a loan will not fail to
satisfy this Subsection 12.1(f) merely because the number of shares of Stock to
be released from encumbrance is determined solely with reference to principal
payments. However, if release is determined with reference to principal
payments only, the following three additional rules apply:

(i) the loan shall provide for annual payments of
principal and interest at a cumulative rate that is not less rapid at
any time than level annual payments of such amounts for 10 years;

(ii) the interest included in any payment with
respect to the loan shall be disregarded only to the extent that it
would be determined to be interest under standard loan amortization
tables; and

38
<PAGE> 44
(iii) these additional rules shall not apply from
the time that, by reason of a renewal, extension, or refinancing, the
sum of the expired duration of the loan, the renewal period, the
extension period, and the duration of a new loan exceeds 10 years.

(g) Put Option. Stock acquired by the Plan with the
proceeds of the loan shall be subject to a put option if it is not tradeable on
an established market or if it is subject to restriction under any federal or
state securities law, any regulation thereunder, or an agreement, not
prohibited by this Article XII, which would make the security not as freely
tradeable as one not subject to such restriction. The put option shall be
exercisable only by a Participant, by a Participant's donees, or by a person
(including an estate or its distributee) to whom the security passes by reason
of a Participant's death. For purposes of this subsection 12.1(g),
"Participant" means a Participant and beneficiaries of the Participant under
the Plan. The put option shall permit a Participant to put the security to the
Company as described in Section 11.2. At the option of the Trustee, the Plan
may assume the rights and obligations of the Company as to all or any part of
the shares tendered to the Company. If it is known at the time the loan is
made that federal or state law will be violated by the Company's honoring such
put option, the put option must permit the security to be put, in a manner
consistent with such law, to a third party (e.g., an affiliate of the Company
or a shareholder other than the Plan) that has substantial net worth at the
time the loan is made and whose net worth is reasonably expected to remain
substantial.

12.2 Voting Rights.

Stock acquired with the proceeds of an Exempt Loan that is allocated
to Participants' accounts shall be subject to the voting rights described in
Section 11.8. Stock acquired with the proceeds of an Exempt Loan that has not
been allocated to the accounts Participant shall be voted by the Trustee in
accordance with the written direction of the Committee.

12.3 Allocation to Accounts of Participants.

(a) Except as provided in this Section 12.3, amounts
contributed to the Plan must be allocated as provided under Treasury
Regulations sections 1.401-1(b)(ii) and (iii), and securities acquired by the
Plan must be accounted for as provided under Treasury Regulations section
1.402(a)-1(b)(2)(ii).

(b) As of the end of each Plan Year, the Plan must
consistently allocate to the Participants' accounts nonmonetary units
representing Participants' interests in assets withdrawn from the suspense
account.

(c) Income with respect to securities acquired with the
proceeds of an Exempt Loan must be allocated as income of the Plan except to
the extent that the Plan provides for the use of income from such securities to
repay the Loan.

(d) If a portion of a Participant's Company Contributions
account is forfeited, Stock allocated under Subsection 12.2(b) above must be
forfeited only after other assets. If interests in more than one class of
Employer Securities have been allocated to the Participant's Company

39
<PAGE> 45
Contributions account, the Participant must be treated as forfeiting the same
proportion of each such class.

12.4 Non-Terminable Provisions.

Notwithstanding the fact that the Plan may cease to be an Employee
Stock Ownership Plan, Stock acquired with proceeds of an Exempt Loan shall
continue to be subject to the provisions of this Article XII.

ARTICLE XIII
PLAN ADOPTION BY AFFILIATED ENTITIES

13.1 Adoption of Plan.

Alfalfa's may permit any Affiliated Entity to adopt the Plan and Trust
for its Employees. Thereafter, such Affiliated Entity shall deliver to the
Trustee a certified copy of the resolutions or other documents evidencing its
adoption of the Plan and Trust. Such Affiliated Entity shall also execute a
copy of the Trust. The Employees of the Affiliated Entity adopting the Plan
shall not be eligible to invest their Accounts in Stock until the applicable
reporting and registration requirements of the securities laws are complied
with.

13.2 Agent of Affiliated Entity.

By becoming a party to the Plan, each Affiliated Entity appoints
Alfalfa's as its agent with authority to act for the Affiliated Entity in all
transactions in which Alfalfa's believes such agency will facilitate the
administration of the Plan. Alfalfa's shall have the sole authority to amend
and terminate the Plan.

13.3 Disaffiliation and Withdrawal from Plan.

(a) Disaffiliation. Any Affiliated Entity that has
adopted the Plan and thereafter ceases for any reason to be an Affiliated
Entity shall forthwith cease to be a party to the Plan.

(b) Withdrawal. Any Affiliated Entity may, by
appropriate action and written notice thereof to Alfalfa's, provide for the
discontinuance of its participation in the Plan. Such withdrawal from the Plan
shall not be effective until the end of the Plan Year.

13.4 Effect of Disaffiliation or Withdrawal.

If at the time of disaffiliation or withdrawal, the disaffiliating or
withdrawing entity, by appropriate action, adopts a substantially identical
plan that provides for direct transfers from this Plan, then, as to employees
of such entity, no plan termination shall have occurred; the new plan shall be
deemed a continuation of this Plan for such employees. In such case, the
Trustee shall transfer to the trustee of the new plan all of the assets held
for the benefit of employees of the

40
<PAGE> 46
disaffiliating or withdrawing entity, and no forfeitures or acceleration of
vesting shall occur solely by reason of such action. Such payment shall
operate as a complete discharge of the Trustee, and of all organizations except
the disaffiliating or withdrawing entity, of all obligations under this Plan to
employees of the disaffiliating or withdrawing entity and to their
beneficiaries. A new plan shall not be deemed substantially identical to this
Plan if it provides slower vesting than this Plan. Nothing in this Section
shall authorize the divesting of any vested portion of a Participant's
account(s).

13.5 Distribution Upon Disaffiliation or Withdrawal.

(a) Disaffiliation. If an entity disaffiliates from the
Company and the provisions of Section 13.4 are not followed, then the following
rules apply to the account(s) of employees of the disaffiliating entity.

(i) If the disaffiliating entity maintains a
defined contribution plan (other than an employee stock ownership
plan within the meaning of Code section 4975(e)(7)), then, if the
other plan will accept such a transfer, the Trustee shall transfer the
employee's account(s) to the other plan unless the employee consents
to an immediate distribution in a lump sum (other than an annuity) of
the vested portion of his account(s); if the other plan will not
accept such a transfer, the account(s) shall remain in this Plan until
the employee elects to make a distribution pursuant to Article VI.

(ii) If the disaffiliating entity does not
maintain a defined contribution plan (other than an employee stock
ownership plan within the meaning of Code section 4975(e)(7)), then
the Trustee shall distribute the vested portion of the employee's
account(s) to the employee in a lump sum (other than an annuity), upon
the consent of the employee. If the employee does not consent to an
immediate distribution, then distribution may only be made according
to Article VI.

(b) Withdrawal. If an Affiliated Entity withdraws from
the Plan and the provisions of Section 13.4 are not followed, then the
following rules apply to the account(s) of Employees of the withdrawing entity.

(i) If the withdrawing entity maintains a defined
contribution plan that accepts transfers from this Plan, then the
Employee may transfer his account(s) from this Plan to such plan. No
forfeitures or acceleration of vesting shall occur solely by reason of
such transfer.

(ii) If the withdrawing entity does not maintain a
defined contribution plan that accepts transfers from this Plan, then
the Employee's account(s) shall remain in this Plan.

(c) Distributions. Any distribution or transfer made
pursuant to this Section may be in cash, in kind, or partly in cash and partly
in kind. After such distribution or transfer has been

41
<PAGE> 47
made, no Participant or beneficiary who has received any such distribution, or
for whom any such transfer has been made, shall have any further right or claim
under the Plan or Trust.

ARTICLE XIV
TOP-HEAVY PROVISIONS

14.1 Application of Top-Heavy Provisions.

The provisions of this Article XIV shall be applicable only if the
Plan becomes "top-heavy" as defined below for any Plan Year beginning after
December 31, 1983. If the Plan becomes "top-heavy" as of the Determination
Date for a Plan Year, the provisions of this Article XIV shall apply to the
Plan effective as of the first day of such Plan Year and shall continue to
apply to the Plan (whether or not the Plan ceases to be "top-heavy") until the
Plan is terminated or otherwise amended.

14.2 Determination of Top-Heavy Status.

The Plan shall be considered "top-heavy" for a Plan Year if, as of the
Determination Date for that Plan Year, the aggregate of the account balances
(as calculated according to the regulations under Code section 416) of Key
Employees under this Plan (and under all other plans required or permitted to
be aggregated with this Plan) exceeds 60% of the aggregate of the account
balances (as calculated according to the regulations under Code section 416) in
this Plan (and under all other plans required or permitted to be aggregated
with this Plan) of all current Employees and all former Employees who
terminated employment within five years of the Determination Date. This ratio
shall be referred to as the "top-heavy ratio". For purposes of determining the
account balance of any Participant, distributions made with respect to such
individual within a five-year period ending on the Determination Date shall be
included. This shall also apply to distributions under a terminated plan that,
if it had not been terminated, would have been required to be included in an
aggregation group. The account balances of a Participant who had once been a
Key Employee, but who is not a Key Employee during the Plan Year, shall not be
taken into account. The following plans must be aggregated with this Plan for
the top-heavy test: (a) a qualified plan maintained by the Company or an
Affiliated Entity in which a Key Employee participated during this Plan Year or
during the previous four Plan Years and (b) any other qualified plan maintained
by the Company or an Affiliated Entity that enables this Plan or any plan
described in clause (a) to meet the requirements of Code sections 401(a) and
410. The following plans may be aggregated with this Plan for the top-heavy
test: any qualified plan maintained by the Company or an Affiliated Entity
that, in combination with the Plan or any plan required to be aggregated with
this Plan when testing this Plan for top-heaviness, would satisfy the
requirements of Code sections 401(a) and 410. If one or more of the plans
required or permitted to be aggregated with this Plan is a defined benefit
plan, a Participant's "account balance" shall equal the present value of his
accrued benefit, including any distributions within five years of the
Determination Date. If the aggregation group includes more than one defined
benefit plan, the same actuarial assumptions shall be used with respect to each
such defined benefit plan. The foregoing top-heavy ratio shall be computed in
accordance with the provisions of Code section 416(g), together with the
regulations and rulings thereunder.

42
<PAGE> 48
14.3 Special Vesting Rule.

Notwithstanding the provisions of Section 5.1 hereof to the contrary,
the amount credited to the Participant's Company Contributions account shall
vest in accordance with the following schedule during any top-heavy Plan Year:

<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
fewer than 2 0
2 20
3 40
4 60
5 80
6 or more 100
</TABLE>

14.4 Special Minimum Contribution.

(a) Notwithstanding the provisions of Section 3.1 and Article IV
to the contrary, and subject to subsection (b), in every top-heavy Plan Year, a
minimum allocation is required for each Non-Key Employee who both (i) performed
one or more Hours of Service during the Plan Year as a Covered Employee after
satisfying any eligibility requirement of Section 2.1, and (ii) was an Employee
on the last day of the Plan Year. This minimum allocation is required
regardless of whether such Non-Key Employee received credit for 1,000 or more
Hours of Service or made any required contributions to the Plan for such Plan
Year. The minimum allocation shall be a percentage of such Non-Key Employee's
Compensation. The percentage shall be the lesser of 3% or the largest
percentage of any Key Employee's Compensation. For all Key and Non-Key
Employees, this percentage takes into account all Company Contributions and
forfeitures, except for amounts used to restore the accounts of a rehired or
missing Participant, allocated for the Plan Year. If this minimum allocation
is not satisfied for any Non-Key Employee, the Company shall contribute the
additional amount needed to satisfy this requirement to such Non-Key Employee's
Company Contributions account.

(b) The Company or an Affiliated Entity also maintains a Code
section 401(k) plan. Notwithstanding subsection (a), the minimum contribution
required by this section for Non-Key Employees who participate in both plans
shall be provided in the 401(k) plan. The minimum contribution required by
this section for Non-Key Employees who participate in this Plan only shall be
provided in this Plan, as specified in subsection (a).

14.5 Change in Top-Heavy Status.

If the Plan ceases to be a "top-heavy" plan as defined in this Article
XIV, and if any change in the benefit structure, vesting schedule or other
component of a Participant's accrued benefit shall occur as a result of such
change in top-heavy status, the nonforfeitable portion of each Participant's
benefit attributable to Company Contributions shall not be decreased as a
result of such change. In addition, each Participant with at least three Years
of Service with the Company and Affiliated

43
<PAGE> 49
Entities on the date of such change, may elect to have his nonforfeitable
percentage computed under the Plan without regard to such change in status.
The period during which the election may be made shall commence on the date the
Plan ceases to be a top-heavy plan and shall end on the later of (a) 60 days
after the change in status occurs, (b) 60 days after the change in status
becomes effective, or (c) 60 days after the Participant is issued written
notice of the change by the Company or the Committee.

ARTICLE XV
MISCELLANEOUS

15.1 Right to Dismiss Employees - No Employment Contract.

The Company and Affiliated Entities may terminate the employment of
any Employee as freely and with the same effect as if this Plan were not in
existence. Participation in this Plan by an Employee shall not constitute an
express or implied contract of employment between the Company or an Affiliated
Entity and the Employee.

15.2 Claims Procedure.

(a) All claims shall be filed in writing by the
Participant, his beneficiary, or the authorized representative of the claimant,
by completing the procedures that the Committee requires. The procedures shall
be reasonable and may include the completion of forms and the submission of
documents and additional information. For purposes of this Section, a request
for an in-service withdrawal shall be considered a claim.

(b) The Committee shall review all materials and shall
decide whether to approve or deny the claim. If a claim is denied in whole or
in part, written notice of denial shall be furnished by the Committee to the
claimant within 90 days after the receipt of the claim by the Committee, unless
special circumstances require an extension of time for processing the claim, in
which event notification of the extension shall be provided to the claimant and
the extension shall not exceed 90 days. The written notice shall set forth the
specific reasons for such denial, specific reference to pertinent Plan
provisions, a description of any additional material or information necessary
for the claimant to perfect his claim and an explanation of why such material
or information is necessary, all written in a manner calculated to be
understood by the claimant. The notice shall include appropriate information
as to the steps to be taken if the claimant wishes to submit his denied claim
for review. The claimant may request a review upon written application, may
review pertinent documents, and may submit issues or comments in writing. The
claimant must request a review within the reasonable period of time prescribed
by the Committee. In no event shall such a period of time be less than 60
days. The Committee shall decide all reviews of denied claims. A decision on
review shall be rendered within 60 days of the receipt of request for review by
the Committee. If special circumstances require a further extension of time
for processing, a decision shall be rendered not later than 120 days following
the Committee's receipt of the request for review. If such an extension of
time for review is required, written notice of the extension shall

44
<PAGE> 50
be furnished to the claimant prior to the commencement of the extension. The
Committee's decision on review shall be furnished to the claimant. Such
decision shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant, as
well as specific references to the pertinent Plan provisions on which the
decision is based.

(c) The Committee shall have total discretionary
authority to determine eligibility, status, and the rights of all individuals
under the Plan and to construe any and all terms of the Plan.

15.3 Source of Benefits.

All benefits payable under the Plan shall be paid solely from the
Trust Fund, and the Company and Affiliated Entities assume no liability or
responsibility therefor.

15.4 Exclusive Benefit of Employees.

It is the intention of the Company that no part of the Trust, other
than as provided in Sections 3.3, 9.2, and 15.9 hereof and Section 7.3 of the
Trust agreement, ever to be used for or diverted to purposes other than for the
exclusive benefit of Participants, Alternate Payees, and their beneficiaries,
and that this Plan shall be construed to follow the spirit and intent of the
Code and ERISA.

15.5 Forms of Notices.

Wherever provision is made in the Plan for the filing of any notice,
election, or designation by a Participant, Spouse, Alternate Payee, or
beneficiary, the action of such individual shall be evidenced by the execution
of such form as the Committee may prescribe for the purpose.

15.6 Failure of Any Other Entity to Qualify.

If any entity adopts this Plan but fails to obtain or retain the
qualification of the Plan under the applicable provisions of the Code, such
entity shall withdraw from this Plan upon a determination by the Internal
Revenue Service that it has failed to obtain or retain such qualification.
Within 30 days after the date of such determination, the assets of the Trust
Fund held for the benefit of the Employees of such entity shall be separately
accounted for and disposed of in accordance with the Plan and Trust.

15.7 Notice of Adoption of the Plan.

The Company shall provide each of its Employees with notice of the
adoption of this Plan, notice of any amendments to the Plan, and notice of the
salient provisions of the Plan prior to the end of the first Plan Year. A
complete copy of the Plan shall also be made available for inspection by
Employees or any other individual with an account balance under the Plan.

45
<PAGE> 51
15.8 Plan Merger.

If this Plan is merged or consolidated with, or its assets or
liabilities are transferred to, any other qualified plan of deferred
compensation, each Participant shall be entitled to receive a benefit
immediately after the merger, consolidation, or transfer that is equal to or
greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation, or transfer if this Plan had then been
terminated.

15.9 Inalienability of Benefits - Domestic Relations Orders.

(a) Except as provided in Subsection (b) below, no
Participant or beneficiary shall have any right to assign, alienate, transfer,
hypothecate, encumber or anticipate his interest in any benefits under this
Plan, nor shall such benefits be subject to any legal process to levy upon or
attach the same for payment of any claim against any such Participant or
beneficiary.

(b) Subsection (a) shall apply to the creation,
assignment, or recognition of a right to any benefit payable with respect to a
Participant pursuant to a Domestic Relations Order unless such Domestic
Relations Order is a QDRO in which case the Plan shall make payment of benefits
in accordance with the applicable requirements of any such QDRO.

(c) In order to be a QDRO, the Domestic Relations Order:
(i) must clearly specify the name and the last known mailing address of the
Participant; (ii) must specify the name and mailing address of each Alternate
Payee covered by the order; (iii) must specify either the amount or percentage
of the Participant's benefits to be paid by the Plan to each such Alternate
Payee, or the manner in which such amount or percentage is to be determined;
(iv) must specify the number of payments or period to which such order applies;
(v) must specify each plan to which such order applies; (vi) may not require
the Plan to provide any type or form of benefit, or any option, not otherwise
provided under the Plan, subject to the provisions of Paragraph (f)(ii); (vii)
may not require the Plan to provide increased benefits (determined on the basis
of actuarial value); (viii) may not require the payment of benefits to an
Alternate Payee if such benefits have already been designated to be paid to
another Alternate Payee under another order previously determined to be a QDRO.

(d) In the case of any payment before an Employee has
separated from service, a Domestic Relations Order shall not be treated as
failing to meet the requirements of Subsection (c) solely because such order
requires that payment of benefits be made to an Alternate Payee (i) on or after
the date on which the Employee attains (or would have attained) his earliest
retirement age, (ii) as if the Employee had retired on the date on which such
payment is to begin under such order (but taking into account only the account
balance on such date), and (iii) in any form in which such benefits may be paid
under the Plan to the Employee. The earliest retirement age is the earlier of
(i) the date on which the Employee is entitled to a distribution under the
Plan, or (ii) the later of (A) the date the Employee attains age 50, or (B) the
earliest date on which the Employee could begin receiving benefits under the
Plan if the Employee separated from service. For purposes of this Subsection,
the account balance as of the date specified in the QDRO shall be the vested
portion of the Employee's account(s) on such date.

46
<PAGE> 52
(e) The Committee shall establish reasonable procedures
to determine the qualified status of Domestic Relations Orders and to
administer distributions under QDRO's. Such procedures shall be in writing and
shall permit an Alternate Payee to designate a representative to receive copies
of notices. When the Committee receives a Domestic Relations Order, it shall
promptly notify the Participant and each Alternate Payee of such receipt and
provide them with copies of the Plan's procedures for determining the qualified
status of the order. Within a reasonable period after receipt of a Domestic
Relations Order, the Committee shall determine whether such order is a QDRO and
notify the Participant and each Alternate Payee of such determination. During
any period in which the issue of whether a Domestic Relations Order is a QDRO
is being determined (by the Committee, by a court of competent jurisdiction, or
otherwise), the Committee shall separately account for the amounts payable to
the Alternate Payee if the order is determined to be a QDRO. If the order (or
modification thereof) is determined to be a QDRO within 18 months after the
date the first payment would have been required by such order, the Committee
shall pay the amounts separately accounted for (plus any interest thereon) to
the individual(s) entitled thereto. However, if the Committee determines that
the order is not a QDRO, or if the issue as to whether such order is a QDRO has
not been resolved within 18 months after the date the first payment would have
been required by such order, then the Committee shall pay the amounts
separately accounted for (plus any interest thereon) to the individual(s) who
would have been entitled to such amounts if there had been no order. Any
determination that an order is a QDRO that is made after the close of the
18-month period shall be applied prospectively only. If the Plan's fiduciaries
act in accordance with fiduciary provisions of ERISA in treating a Domestic
Relations Order as being (or not being) a QDRO or in taking action in
accordance with this Subsection, then the Plan's obligation to the Participant
and each Alternate Payee shall be discharged to the extent of any payment made
pursuant to the acts of such fiduciaries.

(f) The Alternate Payee shall have the following rights
under the Plan:

(i) The Alternate Payee may designate
beneficiaries in the same manner as a Participant, pursuant to
Section 6.1. However, any such beneficiary designation shall be
effective without the consent of the spouse of the Alternate Payee.
In the absence of an effective beneficiary designation, the
distributable amount of the Alternate Payee's account(s) shall be paid
to his surviving spouse; or if none, in equal shares to his surviving
children and issue of deceased children by right of representation; or
if none, in equal shares to each surviving parent; or if none, to his
estate.

(ii) Distribution to an Alternate Payee must occur
on or before the Participant's Required Beginning Date. An Alternate
Payee may only receive a distribution in the form of a lump sum of his
entire interest in the Plan. The minimum distribution required by
Code section 401(a)(9) shall be determined according to the
regulations issued under Code section 401(a)(9).

(iii) Upon the death of an Alternate Payee, the
Alternate Payee's entire interest in the Plan shall be distributed in
a lump sum by the end of the calendar year containing the fifth
anniversary of the Alternate Payee's death.

47
<PAGE> 53
(iv) The Alternate Payee (or his beneficiary) may
bring claims against the Plan in the same manner as a Participant
pursuant to Section 15.2.

15.10 Payments Due Minors or Incapacitated Individuals.

If any individual entitled to a payment under the Plan is a minor, or
if the Committee determines that any such individual is incapacitated by reason
of physical or mental disability, whether or not legally adjudicated as such,
the Committee shall have the power to cause the payments becoming due to such
individual to be made to his personal representative or to another for his
benefit, without responsibility of the Committee or the Trustee to see to the
application of such payments. Payments made pursuant to such power shall
operate as a complete discharge of the Trust Fund, the Trustee and the
Committee.

15.11 Uniformity of Application.

The provisions of this Plan shall be applied in a uniform and
non-discriminatory manner in accordance with rules adopted by the Committee
which rules shall be systematically followed and consistently applied so that
all individuals similarly situated shall be treated alike.

15.12 Disposition of Unclaimed Payments.

Each Participant, Alternate Payee, or beneficiary with an account
balance in this Plan must file with the Committee from time to time in writing
his address, the address of each of his beneficiaries (if applicable), and each
change of address. Any communication, statement or notice addressed to such
individual at his last address filed with the Committee (or if no address is
filed with the Committee then at his last address as shown on the Company's
records) will be binding on such individual for all purposes of the Plan.
Neither the Committee nor the Trustee shall be required to search for or locate
any missing individual. If the Committee notifies an individual that he is
entitled to a distribution and also notifies him of the provisions of this
Section, and the individual fails to claim his benefits under the Plan or make
his address known to the Committee within five calendar years after the
notification, the benefits under the Plan of such individual either (a) shall
be forfeited as of the end of the Plan Year coincident with or following the
five-year waiting period, or (b) shall continue to be held in the Trust Fund
for the benefit of the individual, as the Committee in its discretion
determines. Any amount forfeited pursuant to this Section shall be allocated
pursuant to Section 5.5. If the individual should later make a claim for his
forfeited benefit, the Company shall make a special contribution to the Plan
equal to the forfeiture, and such amount shall be distributed to the
individual.

15.13 Pronouns: Gender and Number.

Unless the context clearly indicates otherwise, words in either gender
shall include the other gender and the singular shall include the plural and
vice versa.

48
<PAGE> 54
15.14 Applicable Law.

This Plan shall be construed and regulated by ERISA, the Code, and, to
the extent applicable, the laws of the State of Colorado.

<PAGE> 1

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT dated as of July 12, 1996 between WO Holdings,
Inc., a Delaware corporation (the "Company") and Michael C. Gilliland
("Executive").

This Agreement provides for the employment of Executive as CEO of the
Company, upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, the parties agree as follows:

ARTICLE 1. EMPLOYMENT

1.1 Employment. The Company agrees to employ
Executive, and Executive hereby accepts employment with the Company, upon the
terms and conditions set forth in this Agreement for the period beginning on
the date hereof and terminating as provided in Section 1.4 (the "Employment
Period").

1.2 Positions and Duties.

(a) During the Employment Period, Executive shall serve
as CEO of the Company at its Headquarters in Boulder, Colorado, under the
supervision and direction of the Company's Board of Directors (the "Board").

(b) Executive shall carry out the customary functions of
a CEO, and perform such tasks and responsibilities as requested by the Board.

(c) Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and periods
of illness or other incapacity as provided for herein) to the business and
affairs of the Company and its subsidiaries. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.

(d) During the term of this Agreement, the Board shall
nominate Executive to serve as a member of the Company's Board of Directors
pursuant to the terms of the Stockholders Agreement dated even herewith and the
Company shall use its best efforts to enforce the voting agreements contained
therein relating to such election of Executive.

1.3 Salary, Bonus, Options and Benefits.

(a) During the Employment Period, Executive's base salary
(the "Base Salary") shall initially be $150,000.00 per annum which salary shall
be payable in regular installments in accordance with the Company's general
payroll
<PAGE> 2
practices as in place from time to time. Executive shall be entitled to an
annual review of the amount of Base Salary payable hereunder and performance
review after the initial six (6) months of employment, such review to be
conducted within seven (7) months of the date hereof. Any adjustment in
Executive's compensation shall be determined by the Compensation Committee of
the Board (the "Compensation Committee") in its sole discretion; provided,
however, that the Base Salary may not be reduced below the amount provided for
in the first sentence of this Section 1.3(a).

(b) Within sixty (60) days following the date of this
Agreement, the Compensation Committee shall establish a cash bonus and stock
option program for Executive, in addition to the Base Salary, with the amount
thereof and the related performance criteria to be established by the
Compensation Committee in its sole discretion.

(c) During the Employment Period, Executive shall be
entitled to participate in all of the Company's employee benefit programs for
which senior executive employees of the Company are generally eligible as in
effect from time to time; provided that the employee benefit programs made
available to Executive shall not be materially diminished from those in effect
on the date of this Agreement, except with Executive's prior written consent.
Executive shall be entitled to four (4) weeks of paid vacation per year. Any
payments of benefits payable to Executive hereunder in respect of any calendar
year during which Executive is employed by the Company for less than the entire
such year shall, unless otherwise provided in the applicable plan or
arrangement or required by applicable law, be prorated in accordance with the
number of days in such calendar year during which Executive is employed.

(d) The Company shall reimburse (or cause to be
reimbursed) Executive for reasonable out-of-pocket expenses incurred by him in
the course of performing his duties under this Agreement upon completion of an
expense report in accordance with the Company's and its subsidiaries'
reimbursement, reporting and documentation policies in effect from time to time
with respect to travel, entertainment and other business expenses.

(e) All payments of compensation hereunder shall be
subject to federal, state and other withholding taxes as required by applicable
law and the Company's general payroll policies as in effect from time to time.

1.4 Term. (a) The Employment Period shall commence
on the date hereof and end on the second (2nd) anniversary hereof (the "Initial
Employment Period"), subject to earlier termination (1) by reason of
Executive's death or disability, (2) by written resolution of the Board for
Cause (as defined herein), (3) by written resolution of the Board without
Cause, or (4) by written resignation of the Executive.

2
<PAGE> 3
(b) If the Employment Period is terminated by reason of
Executive's death or disability, Executive's resignation or his termination by
the Board with or without Cause (except felony conviction of any crime
involving theft or fraud), Executive shall be entitled to receive his then
effective Base Salary for a period of one (1) year, regardless of the remaining
term of the Initial Employment Period. In addition, Executive shall be paid,
under any of the foregoing circumstances, a severance payment in an amount
equal to two (2) times Executive's then effective Base Salary, in addition to
the amount paid pursuant to the previous sentence. Such amounts shall be
payable in equal biweekly installments over a period of three (3) years from
the date of termination of employment.

(c) Company shall pay Executive's health insurance
benefits for a period of three (3) years after termination of Executive's
employment for any reason other than (i) Executive's death, or (ii) termination
of Executive's employment for a felony conviction of any crime involving theft
or fraud.

(d) Except as expressly set forth in this Section 1.4,
all compensation and other benefits shall cease to accrue upon termination of
employment.

1.5 Renewal Options. The Employment Period shall
automatically renew for successive one (1) year terms unless terminated by
Company or Executive upon ninety (90) days written notice prior to such renewal
period; provided, however, that upon any such renewal, the first sentence of
Section 1.4(b) shall be reformed to read as follows:

"If the Employment Period is terminated by reason of Executive's
termination by the Board without Cause or by Executive upon a material
breach by the Company's obligations hereunder which is not cured
within ten (10) business days of its receipt of written notice from
Executive, Executive shall be entitled . . . (continue without
amendment)."

1.6 Confidential Information; Company Property. Executive
acknowledges that the information, observations and data obtained by him while
employed by the Company and its subsidiaries concerning the business or affairs
of the Company, its subsidiaries and any predecessor to the business of the
Company that are not generally available to the public other than as a result
of breach of this Agreement by Executive ("Confidential Information") are the
property of the Company and its subsidiaries. Executive agrees that he shall
not disclose to any unauthorized person or use for his own account any
Confidential Information without the prior written consent of the Company
unless, and in such case only to the extent that, such matters become generally
known to and available for use by the public other than as a result of
Executive's acts or omissions to act. Notwithstanding the foregoing, in the
event Executive becomes legally compelled to disclose Confidential

3
<PAGE> 4
Information pursuant to judicial or administrative subpoena or process or other
legal obligation, Executive may make such disclosure only to the extent
required, in the opinion of counsel for Executive, to comply with such
subpoena, process or other obligation. Executive shall, as promptly as
possible and in any event prior to the making of such disclosure, notify the
Company of any such subpoena, process or obligation and shall cooperate with
the Company in seeking a protective order or other means of protecting the
confidentiality of the Company Information. Executive shall deliver to the
Company at the termination of the Employment Period, or at any time the Company
may reasonably request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof)
containing, relating to, or derived from the Confidential Information or the
business of the Company or its subsidiaries which he may then possess or have
under his control. Executive agrees that he will not retain after the
termination of the Employment Period any copies of any Confidential Information
including, without limitation, any software, documents or other materials
originating with and/or belonging to the Company or any Subsidiary of the
Company.

1.7 Non-Compete; Non-Solicitation.

(a) Executive acknowledges that in the course of his
employment with the Company he will become familiar with the Company's trade
secrets and with other confidential information concerning the Company and its
predecessors and that his services have been and will be of special, unique and
extraordinary value to the Company. The parties also acknowledge that the
availability of the services of the Executive and the related covenant not to
compete provided for herein were material inducements to it in agreeing to
enter into the business combination of Wild Oats Markets, Inc. and Alfalfa's,
Inc. being consummated at the same time that this Agreement is being entered
into. Accordingly, Executive agrees that, during the period in which Executive
is receiving compensation hereunder and for a period of three (3) years
following termination of Executive's employment with the Company for any reason
(the "Non-Compete Period"), he shall not directly or indirectly own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any supermarket, food store or retailer of health and beauty aids
located within a ten (10) mile radius of any store operated (defined herein as
current stores or stores for which leases have been signed as of the date of
termination) by the Company or its subsidiaries as of the date of termination
of Executive's employment with the Company. Nothing herein shall prohibit
Executive from being a passive owner of not more than 1% of the outstanding
stock of another corporation, so long as Executive has no active participation
in the management or the business of such corporation.

4
<PAGE> 5
Subsidiary and any employee thereof; (2) induce or attempt to induce any
customer, supplier, licensee or other business relationship of the Company or
any Subsidiary of the Company to cease doing business with the Company or such
Subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company or any such
Subsidiary; or (3) make an oral or written disparaging statement, comment or
remark about the Company or any of its Subsidiaries to any employee, customer,
supplier, licensee or other business relationship of the Company or any of its
Subsidiaries or to or for the intended use of any member of the press.

(c) Such Non-Compete Period shall terminate immediately
at such time as the Company and its Subsidiaries no longer operate supermarkets
or food stores.

1.8 Employment-At-Will. It is understood and agreed that
this Agreement constitutes employment-at-will and that notwithstanding (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of its employees, (ii) any statements made to
Executive, whether made orally or contained in any document, pertaining to
Employee's relationship with the Company, or (iii) assignment of Cause by the
Company, the Company reserves the right to terminate the employment of
Executive by the Company in which event Executive's sole remedy shall be to
receive certain payments and other benefits upon the terms and subject to the
conditions provided for herein.

1.9 Resignations upon Termination. Upon termination of the
Executive, Executive shall be deemed to have resigned from all offices and
directorships, if any, then held with the Company or any of its Subsidiaries or
other affiliates.

ARTICLE 2. REPRESENTATIONS
AND WARRANTIES

2.1 Representations and Warranties of Executive.
Executive represents and warrants to the Company that:

(a) this Agreement constitutes the legal, valid and
binding obligation of Executive, enforceable in accordance with the terms, and
the execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of or default under any
agreement, contract or instrument, order, judgment or decree to which Executive
is a party or by which he is bound, and

(b) Executive is not a party to or bound by any
employment agreement or non-compete agreement with any other person or entity.

5
<PAGE> 6
2.2 Representations and Warranties of the Company. The Company
hereby represents and warrants to Executive that:

(a) the execution, delivery and performance of this
Agreement by the Company does not and will not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment
or decree to which Company is a party or by which it is bound, and

(b) upon the execution and delivery of this Agreement by
Executive, this Agreement shall be the valid and binding obligation of the
Company enforceable in accordance with its terms.

ARTICLE 3. DEFINITIONS

As used in this Agreement, the following terms shall have the
definitions set forth below:

(a) "Cause" shall mean (1) a material breach of this Agreement by
Executive which is not cured within thirty (30) days after written notice to
Executive from the Compensation Committee; (2) Executive's willful and repeated
failure to comply with the lawful directives of the Board or the Company's
Articles of Incorporation or Bylaws; (3) gross negligence or willful misconduct
by Executive in the performance of his duties hereunder; (4) the commission by
Executive of an act (including, but not limited to, a felony or a crime
involving moral turpitude) causing material harm to the standing and reputation
of the Company or its subsidiaries, as determined in good faith by the Board;
(5) misappropriation, breach of trust or fraudulent conduct by Executive with
respect to the assets or operations of the Company or any of its subsidiaries;
(6) the continued use by Executive of alcohol or drugs to an extent that, in
the good faith determination of the Board, materially interferes with the
performance by Executive of his employment responsibilities under this
Agreement; (7) the repeated threat of Executive to cause, or the actual
occurrence of, damage to the relations of the Company or any of its
subsidiaries with customers, suppliers, lenders, advisors or employees which
damage is materially adverse to the business or operations of the Company or
any of its subsidiaries, and which threat is not terminated or which damage is
not cured following thirty (30) days written notice from the Board; or (8)
continued unauthorized absence from work (other than any such continued
unauthorized absence resulting from Executive's disability).

(b) "Disability" shall mean Executive's inability to substantially
perform his normal duties hereunder for six (6) months or more during any
twelve (12) month period determined in good faith by the Board.

(c) "Subsidiary" of an entity shall mean any corporation or other
business organization of which the securities have a majority of the normal
voting power in

6
<PAGE> 7
electing the board of directors or similar governing body of such entity are,
at the time of determination, owned by such entity directly or indirectly
through one or more subsidiaries.

ARTICLE 4. GENERAL PROVISIONS

4.1 Enforcement. It is the express intention of the
parties that this Agreement be enforced to the fullest extent permitted by
applicable law in order to give full effect to the agreements reached herein.
Accordingly, if at the time of enforcement of Sections 1.6 or 1.7 a court holds
that the restrictions stated herein are unreasonable under the circumstances
then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area. Because Executive's services are unique and
because Executive has access to Confidential Information, the parties hereto
agree that money damages would be an inadequate remedy for any breach of this
Agreement. In the event of a breach or threatened breach of this Agreement,
the Company, its subsidiaries and their respective successors or assigns may,
in addition to other rights and remedies existing in their favor, apply to any
court of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce, or prevent any violation of, the provisions
hereof (without posting a bond or other security).

4.2 Survival. Sections 1.6 and 1.7 and this Article 4 shall
survive and continue in full force and effect in accordance with their terms
notwithstanding any termination of the Employment Period.

4.3 Notices. All notices or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
one (1) business day following when sent via a nationally recognized overnight
courier, or when sent via facsimile confirmed in writing to the recipient.
Such notices and other communications will be sent to the addresses indicated
below:

To the Company:

WO Holdings, Inc.
1645 Broadway
Boulder, CO 80302
Attention:

7
<PAGE> 8

With Copy to:

WO Holdings, Inc.
1645 Broadway
Boulder, CO 80302
Attention: Elizabeth C. Cook, General Counsel

To Executive:

Michael C. Gilliland
1654 Broadway
Boulder, CO 80302

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.

4.4 Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.

4.5 Entire Agreement. This Agreement and those
documents expressly referred to herein embody the complete agreement and
understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.

4.6 Amendments and Waivers. Any provision of this Agreement may
be amended or waived only with the prior written consent of the Company and
Executive.

4.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado without
giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Colorado.

4.8 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.

8
<PAGE> 9
4.9 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or of any term or provision hereof.

4.10 Conflict. In the event of any conflict between the
provisions of this Agreement and the policies and practices of the Company, the
provisions of this Agreement shall govern.

4.11 Negotiation of Agreement. Each of the parties
acknowledge that it has been represented by independent counsel of its choice
throughout all negotiations that have preceded the execution of this Agreement
and that it has executed the same with consent and upon the advice of said
independent counsel. Each party of its counsel cooperated in the drafting and
preparation of this Agreement and the documents referred to herein, and any and
all drafts relating thereto shall be deemed the work product of the parties and
may not be construed against any party by reason of its preparation.
Accordingly, any rule of law, or any legal decision that would require
interpretation of any ambiguities in this Agreement against the party that
drafted it, is of no application and is hereby expressly waived.

4.12 Parties in Interest;Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
permitted successors, assigns, heirs, and/or personal representatives, except
that neither this Agreement nor any interest herein shall be assigned or
assignable by operation of law or otherwise, by Executive without the prior
written consent of the Company, which such consent the Company may grant or
withhold in its sole discretion. The Company may, without the consent of
Executive, assign this Agreement or any interest herein, by operation of law or
otherwise, to (i) any successor to all or substantially all of its stock,
assets or business by dissolution, merger, consolidation, transfer or assets,
or otherwise, or (ii) any direct or indirect Subsidiary, affiliate or division
of the Company or of any such successor referred in (a) hereof. Nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties and their respective successors and permitted assigns any
rights or remedies under or by reason of this Agreement.

4.13 Dispute Resolution Process. The parties hereby agree
that, in order to obtain prompt and expeditious resolution of any disputes
under this Agreement, each claim, dispute or controversy of whatever nature,
arising out of, in connection with, or in relation to the interpretation,
performance or breach of this Agreement (or any other agreement contemplated by
or related to this Agreement or any other agreement between the Company and
Executive), including without limitation, any claim based on contract, tort or
statute, or the arbitrability of any claim hereunder (a "Claim"), shall be
settled, at the request of any part of this Agreement, by final and binding
arbitration conducted in Denver, Colorado. All such Claims shall be settled by
one arbitrator in accordance with the Commercial Arbitration

9
<PAGE> 10
Rules then in effect of the American Arbitration Association. Such arbitrator
shall be provided through the CFR Institute for Dispute Resolution ("CFR") by
mutual agreement of the parties, provided that, absent such agreement, the
arbitrator shall be appointed by CFR. In either event, such arbitrator may not
have any pre-existing, direct or indirect relationship with any party to the
dispute. Each party hereto expressly consents to, and waives any future
objection to, such forumand arbitration rules. Judgment upon any award may be
entered by any state or federal court having jurisdiction thereof. Except as
required by law (including, without limitation, the rules and regulations of
the Securities and Exchange Commission and the Nasdaq Stock Market, if
applicable), neither party nor the arbitrator shall disclose the existence,
content, or results of any arbitration hereunder without the prior written
consent of all parties. Except as provided herein, the Federal Arbitration Act
shall govern the interpretation, enforcement and all proceedings pursuant to
this Section.

Adherence to this dispute resolution process shall not limit the right
of the Company or Executive to obtain any provisional remedy, including without
limitation, injunctive or similar relief set forth in Section 4.1 from any
court of competent jurisdiction as may be necessary to protect their respective
rights and interests pending arbitration. Notwithstanding the foregoing
sentence, this dispute resolution procedure is intended to be the exclusive
method of resolving any Claims arising out of or relating to this Agreement.

The arbitration procedures shall follow the substantive law of the
State of Colorado, including the provisions of statutory law dealing with
arbitration, as it may exist at the time of the demand for arbitration, insofar
as said provisions are not in conflict with this Agreement and specifically
excepting therefrom sections of any such statute dealing with discovery and
sections requiring notice of the hearing date by registered or certified mail.

4.14 Full Understanding. Executive represents and
agrees that he fully understands his right to discuss all aspects of this
Agreement with his private attorney, and that to the extent, if any, that he
desired, he availed himself of such right. Executive further represents that
he has carefully read and fully understands all of the provisions of this
Agreement (including the non-compete provisions of Section 1.7), that he is
competent to execute this Agreement, that his agreement to execute this
Agreement has not been obtatined by any duress and that he freely and
voluntarily enteres into it, and that he has read this document in its entirety
and fully understands the meaning, intent and consequences of this document.

10
<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been signed and sealed the day first
above written.

COMPANY:

WO HOLDINGS, INC.

By /s/ S. M. HASSAN
-----------------------------------------

EXECUTIVE:

By /s/ MICHAEL C. GILLILAND
-----------------------------------------
Michael C. Gilliland

11
<PAGE> 12
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
DATED JULY 14, 1996 BY AND BETWEEN
WO HOLDINGS, INC. AND MICHAEL C. GILLILAND

This First Amendment to Employment Agreement (the "Agreement") is made as of
the 13th day of August, 1996, by and between WO Holdings, Inc. and Michael C.
Gilliland ("Executive").

THE PARTIES HEREBY AGREE AS FOLLOWS:

1. Section 1.7(a) is amended as follows:

1.7 Non-Compete; Non-Solicitation.

(a) Executive acknowledges that in the course of her employment
with the Company she will become familiar with the Company's trade secrets and
with other confidential information concerning the Company and its predecessors
and that her services have been and will be of special, unique and
extraordinary value to the Company. The parties also acknowledge that the
availability of the services of the Executive and the related covenant not to
compete provided for herein were material inducements to it in agreeing to
enter into the business combination of Wild Oats Markets, Inc. and Alfalfa's,
Inc. being consummated at the same time that this Agreement is being entered
into. Accordingly, Executive agrees that, during the period in which Executive
is receiving compensation hereunder and for a period of two (2) years following
termination of Executive's employment with the Company for any reason (the
"Non-Compete Period"), she shall not directly or indirectly own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any supermarket, food store or retailer of health and beauty aids
located within a ten (10) mile radius of any store operated (defined herein as
current stores or stores for which leases have been signed as of the date of
termination) by the Company or its subsidiaries as of the date of termination
of Executive's employment with the Company. Notwithstanding the foregoing,
this non-compete shall not apply to Executive's stock ownership in Pretty Good
Groceries, Inc. which owns and operates Lolita's Market and Dillala's Pretty
Good Grocery. Nothing herein shall prohibit Executive from being a passive
owner of not more than 1% of the outstanding stock of another corporation, so
long as Executive has no active participation in the management or the business
of such corporation.

<PAGE> 1

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT dated as of July 12, 1996 between WO Holdings,
Inc., a Delaware corporation (the "Company") and S.M. Hassan ("Executive").

This Agreement provides for the employment of Executive as President
of the Company, upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, the parties agree as follows:

ARTICLE 1. EMPLOYMENT

1.1 Employment. The Company agrees to employ Executive, and
Executive hereby accepts employment with the Company, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and terminating as provided in Section 1.4 (the "Employment Period").

1.2 Positions and Duties.

(a) During the Employment Period, Executive shall serve
as President of the Company at its Headquarters in Boulder, Colorado, under the
supervision and direction of the Company's CEO and Board of Directors (the
"Board").

(b) Executive shall carry out the customary functions of
a President, and perform such tasks and responsibilities as requested by the
CEO.

(c) Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and periods
of illness or other incapacity as provided for herein) to the business and
affairs of the Company and its Subsidiaries. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.

1.3 Salary, Bonus, Options and Benefits.

(a) During the Employment Period, Executive's base salary
(the "Base Salary") shall initially be $150,000.00 per annum which salary shall
be
<PAGE> 2
payable in regular installments in accordance with the Company's general
payroll practices as in place from time to time. Executive shall be entitled
to an annual review of the amount of Base Salary payable hereunder and
performance review after the initial six (6) months of employment, such review
to be conducted within seven (7) months of the date hereof. Any adjustment in
Executive's compensation shall be determined by the Compensation Committee of
the Board (the "Compensation Committee") in its sole discretion; provided,
however, that the Base Salary may not be reduced below the amount provided for
in the first sentence of this Section 1.3(a).

(d) The Company shall reimburse (or cause to be
reimbursed) Executive for reasonable out-of-pocket expenses incurred by him in
the course of performing his duties under this Agreement upon completion of an
expense report in accordance with the Company's and its Subsidiaries'
reimbursement, reporting and documentation policies in effect from time to time
with respect to travel, entertainment and other business expenses.

1.4 Term. (a) The Employment Period shall commence on the date
hereof and end on the second (2nd) anniversary hereof (the "Initial Employment
Period"), subject to earlier termination (1) by reason of Executive's death or
disability, (2) by written resolution of the Board for Cause (as defined

2
<PAGE> 3
herein), (3) by written resolution of the Board without Cause, or (4) by
written resignation of the Executive.

(b) If the Employment Period is terminated by reason of
Executive's death or disability, Executive's resignation or his termination by
the Board with or without Cause (except felony conviction of any crime
involving theft or fraud), Executive shall be entitled to receive his then
effective Base Salary for a period of one (1) year, regardless of the remaining
term of the Initial Employment Period. In addition, Executive shall be paid,
under any of the foregoing circumstances, a severance payment in an amount
equal to two (2) times Executive's then effective Base Salary, in addition to
the amount paid pursuant to the previous sentence. Such amounts shall be
payable in equal biweekly installments over a period of three (3) years from
the date of termination of employment.

(d) Except as expressly set forth in this Section 1.4,
all compensation and other benefits shall cease to accrue upon termination of
employment.

1.5 Renewal Options. The Employment Period shall automatically
renew for successive one (1) year terms unless terminated by Company or
Executive upon ninety (90) days written notice prior to such renewal period;
provided, however, that upon any such renewal, the first sentence of Section
1.4(b) shall be reformed to read as follows:

In addition, upon any such renewal, Executive's health insurance
benefits shall be amended to read: "Company shall pay Executive's health
insurance benefits for a period of two years . . ."

1.6 Confidential Information; Company Property. Executive
acknowledges that the information, observations and data obtained by him while
employed by the Company and its Subsidiaries concerning the business or affairs
of the Company, its Subsidiaries and any predecessor to the business of the
Company that are not generally available to the public other than as a result
of breach of this Agreement by Executive ("Confidential Information") are the
property of the

3
<PAGE> 4
Company and its Subsidiaries. Executive agrees that he shall not disclose to
any unauthorized person or use for his own account any Confidential Information
without the prior written consent of the Company unless, and in such case only
to the extent that, such matters become generally known to and available for
use by the public other than as a result of Executive's acts or omissions to
act. Notwithstanding the foregoing, in the event Executive becomes legally
compelled to disclose Confidential Information pursuant to judicial or
administrative subpoena or process or other legal obligation, Executive may
make such disclosure only to the extent required, in the opinion of counsel for
Executive, to comply with such subpoena, process or other obligation.
Executive shall, as promptly as possible and in any event prior to the making
of such disclosure, notify the Company of any such subpoena, process or
obligation and shall cooperate with the Company in seeking a protective order
or other means of protecting the confidentiality of the Company Information.
Executive shall deliver to the Company at the termination of the Employment
Period, or at any time the Company may reasonably request, all memoranda,
notes, plans, records, reports, computer tapes and software and other documents
and data (and copies thereof) containing, relating to, or derived from the
Confidential Information or the business of the Company or its Subsidiaries
which he may then possess or have under his control. Executive agrees that he
will not retain after the termination of the Employment Period any copies of
any Confidential Information including, without limitation, any software,
documents or other materials originating with and/or belonging to the Company
or any Subsidiary of the Company.

1.7 Non-Compete; Non-Solicitation.

(a) Executive acknowledges that in the course of his
employment with the Company he will become familiar with the Company's trade
secrets and with other confidential information concerning the Company and its
predecessors and that his services have been and will be of special, unique and
extraordinary value to the Company. The parties also acknowledge that the
availability of the services of the Executive and the related covenant not to
compete provided for herein were material inducements to it in agreeing to
enter into the business combination of Wild Oats Markets, Inc. and Alfalfa's,
Inc. being consummated at the same time that this Agreement is being entered
into. Accordingly, Executive agrees that, during the period in which Executive
is receiving compensation hereunder and for a period of three (3) years
following termination of Executive's employment with the Company for any reason
(the "Non-Compete Period"), he shall not directly or indirectly own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any supermarket, food store or retailer of health and beauty aids
located within a ten (10) mile radius of any store operated (defined herein as
current stores or stores for which leases have been signed as of the date of
termination) by the Company or its Subsidiaries as of the date of termination
of Executive's employment with the Company. Nothing herein shall prohibit
Executive from being a passive owner of not more than 1% of the outstanding
stock of another

4
<PAGE> 5
corporation, so long as Executive has no active participation in the management
or the business of such corporation.

(b) During the Non-Compete Period, Executive shall not
directly or indirectly (1) induce or attempt to induce any employee of the
Company or any Subsidiary of the Company to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any such Subsidiary and any employee thereof; (2) induce or attempt
to induce any customer, supplier, licensee or other business relationship of
the Company or any Subsidiary of the Company to cease doing business with the
Company or such Subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company or any such Subsidiary; or (3) make an oral or written disparaging
statement, comment or remark about the Company or any of its Subsidiaries to
any employee, customer, supplier, licensee or other business relationship of
the Company or any of its Subsidiaries or to or for the intended use of any
member of the press.

(c) Such Non-Compete Period shall terminate immediately
at such time as the Company and its Subsidiaries no longer operate supermarkets
or food stores.

1.8 Employment-At-Will. It is understood and agreed that this
Agreement constitutes employment-at-will and that notwithstanding (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of its employees, (ii) any statements made to
Executive, whether made orally or contained in any document, pertaining to
Employee's relationship with the Company, or (iii) assignment of Cause by the
Company, the Company reserves the right to terminate the employment of
Executive by the Company in which event Executive's sole remedy shall be to
receive certain payments and other benefits upon the terms and subject to the
conditions provided for herein.

ARTICLE 2. REPRESENTATIONS
AND WARRANTIES

2.1 Representations and Warranties of Executive. Executive
represents and warrants to the Company that:

5
<PAGE> 6
will not conflict with, violate or cause a breach of or default under any
agreement, contract or instrument, order, judgment or decree to which Executive
is a party or by which he is bound, and

(b) Executive is not a party to or bound by any
employment agreement or non-compete agreement with any other person or entity.

2.2 Representations and Warranties of the Company. The Company
hereby represents and warrants to Executive that:

(b) upon the execution and delivery of this Agreement by
Executive, this Agreement shall be the valid and binding obligation of the
Company enforceable in accordance with its terms.

ARTICLE 3. DEFINITIONS

As used in this Agreement, the following terms shall have the
definitions set forth below:

(a) "Cause" shall mean (1) a material breach of this Agreement by
Executive which is not cured within thirty (30) days after written notice to
Executive from the Compensation Committee; (2) Executive's willful and repeated
failure to comply with the lawful directives of the Board or the Company's
Articles of Incorporation or Bylaws; (3) gross negligence or willful misconduct
by Executive in the performance of his duties hereunder; (4) the commission by
Executive of an act (including, but not limited to, a felony or a crime
involving moral turpitude) causing material harm to the standing and reputation
of the Company or its Subsidiaries, as determined in good faith by the Board;
(5) misappropriation, breach of trust or fraudulent conduct by Executive with
respect to the assets or operations of the Company or any of its Subsidiaries;
(6) the continued use by Executive of alcohol or drugs to an extent that, in
the good faith determination of the Board, materially interferes with the
performance by Executive of his employment responsibilities under this
Agreement; (7) the repeated threat of Executive to cause, or the actual
occurrence of, damage to the relations of the Company or any of its
Subsidiaries with customers, suppliers, lenders, advisors or employees which
damage is materially adverse to the business or operations of the Company or
any of its Subsidiaries, and which threat is not terminated or which damage is
not cured following thirty (30) days written notice from the Board; or (8)
continued unauthorized absence from work (other than any such continued
unauthorized absence resulting from Executive's disability).

6
<PAGE> 7
(b) "Disability" shall mean Executive's inability to substantially
perform his normal duties hereunder for six (6) months or more during any
twelve (12) month period determined in good faith by the Board.

(c) "Subsidiary" of an entity shall mean any corporation or other
business organization of which the securities have a majority of the normal
voting power in electing the board of directors or similar governing body of
such entity are, at the time of determination, owned by such entity directly or
indirectly through one or more subsidiaries.

ARTICLE 4. GENERAL PROVISIONS

4.1 Enforcement. It is the express intention of the parties that
this Agreement be enforced to the fullest extent permitted by applicable law in
order to give full effect to the agreements reached herein. Accordingly, if at
the time of enforcement of Sections 1.6 or 1.7 a court holds that the
restrictions stated herein are unreasonable under the circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area. Because Executive's services are unique and
because Executive has access to Confidential Information, the parties hereto
agree that money damages would be an inadequate remedy for any breach of this
Agreement. In the event of a breach or threatened breach of this Agreement,
the Company, its Subsidiaries and their respective successors or assigns may,
in addition to other rights and remedies existing in their favor, apply to any
court of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce, or prevent any violation of, the provisions
hereof (without posting a bond or other security).

4.2 Survival. Sections 1.6 and 1.7 and this Article 4 shall
survive and continue in full force and effect in accordance with their terms
notwithstanding any termination of the Employment Period.

4.3 Notices. All notices or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, one
(1) business day following when sent via a nationally recognized overnight
courier, or when sent via facsimile confirmed in writing to the recipient.
Such notices and other communications will be sent to the addresses indicated
below:

7
<PAGE> 8
To the Company:

WO Holdings, Inc.
1645 Broadway
Boulder, CO 80302
Attention: Michael C. Gilliland, Chief Executive Officer

With Copy to:

WO Holdings, Inc.
1645 Broadway
Boulder, CO 80302
Attention: Elizabeth C. Cook, General Counsel

To Executive:

S.M. Hassan
1645 Broadway
Boulder, CO 80302

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.

4.4 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.

4.5 Entire Agreement. This Agreement and those documents expressly
referred to herein embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.

4.6 Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive.

8
<PAGE> 9
State of Colorado or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Colorado.

4.9 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or of any term or provision hereof.

4.10 Conflict. In the event of any conflict between the provisions
of this Agreement and the policies and practices of the Company, the provisions
of this Agreement shall govern.

4.11 Negotiation of Agreement. Each of the parties acknowledge that
it has been represented by independent counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement and that it has
executed the same with consent and upon the advice of said independent counsel.
Each party of its counsel cooperated in the drafting and preparation of this
Agreement and the documents referred to herein, and any and all drafts relating
thereto shall be deemed the work product of the parties and may not be
construed against any party by reason of its preparation. Accordingly, any
rule of law, or any legal decision that would require interpretation of any
ambiguities in this Agreement against the party that drafted it, is of no
application and is hereby expressly waived.

4.12 Parties in Interest;Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
permitted successors, assigns, heirs, and/or personal representatives, except
that neither this Agreement nor any interest herein shall be assigned or
assignable, by operation of law or otherwise, by Executive without the prior
written consent of the Company, which such consent the Company may grant or
withhold in its sole discretion. The Company may, without the consent of
Executive, assign this Agreement or any interest herein, by operation of law or
otherwise, to (i) any successor to all or substantially all of its stock,
assets or business by dissolution, merger, consolidation, transfer or assets,
or otherwise, or (ii) any direct or indirect Subsidiary, affiliate or division
of the Company or of any such successor referred in (a) hereof. Nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties and their respective successors and permitted assigns any
rights or remedies under or by reason of this Agreement.

9
<PAGE> 10
connection with, or in relation to the interpretation, performance or breach of
this Agreement (or any other agreement contemplated by or related to this
Agreement or any other agreement between the Company and Executive), including
without limitation, any claim based on contract, tort or statute, or the
arbitrability of any claim hereunder (a "Claim"), shall be settled, at the
request of any party to this Agreement, by final and binding arbitration
conducted in Denver, Colorado. All such Claims shall be settled by one
arbitrator in accordance with the Commercial Arbitration Rules then in effect
of the American Arbitration Association. Such arbitrator shall be provided
through the CFR Institute for Dispute Resolution ("CFR") by mutual agreement of
the parties, provided that, absent such agreement, the arbitrator shall be
appointed by CFR. In either event, such arbitrator may not have any
pre-existing, direct or indirect relationship with any party to the dispute.
Each party hereto expressly consents to, and waives any future objection to,
such forum and arbitration rules. Judgment upon any award may be entered by
any state or federal court having jurisdiction thereof. Except as required by
law (including, without limitation, the rules and regulations of the Securities
and Exchange Commission and the Nasdaq Stock Market, if applicable), neither
party nor the arbitrator shall disclose the existence, content, or results of
any arbitration hereunder without the prior written consent of all parties.
Except as provided herein, the Federal Arbitration Act shall govern the
interpretation, enforcement and all proceedings pursuant to this Section.

4.14 Full Understanding. Executive represents and agrees that he
fully understands his right to discuss all aspects of this Agreement with his
private attorney, and that to the extent, if any, that he desired, he availed
himself of such right. Executive further represents that he has carefully read
and fully understands all of the provisions of this Agreement (including the
non-compete provisions of Section 1.7), that he is competent to execute this
Agreement, that his agreement to execute this Agreement has not been obtatined
by any duress and that he freely

10
<PAGE> 11
and voluntarily enteres into it, and that he has read this document in its
entirety and fully understands the meaning, intent and consequences of this
document.

IN WITNESS WHEREOF, this Agreement has been signed and sealed the day
first above written.

COMPANY:

WO HOLDINGS, INC.

By /s/ MICHAEL C. GILLILAND
-----------------------------------------
Michael C. Gilliland
Chief Executive Officer

EXECUTIVE:

By /s/ S.M. HASSAN
-----------------------------------------
S.M. Hassan

<PAGE> 1

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT dated as of July 12, 1996 between WO Holdings,
Inc., a Delaware corporation (the "Company") and Elizabeth C. Cook
("Executive").

This Agreement provides for the employment of Executive as Vice
President and General Counsel of the Company, upon the terms and subject to the
conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, the parties agree as follows:

ARTICLE 1. EMPLOYMENT

1.2 Positions and Duties.

(a) During the Employment Period, Executive shall serve
as Vice President and General Counsel of the Company at its Headquarters in
Boulder, Colorado, under the supervision and direction of the Company's CEO and
Board of Directors (the "Board").

(b) Executive shall carry out the customary functions of
Vice President and General Counsel, and perform such tasks and responsibilities
as requested by the CEO and Board.

(c) Executive shall devote her best efforts and her full
business time and attention (except for permitted vacation periods and periods
of illness or other incapacity as provided for herein) to the business and
affairs of the Company and its subsidiaries. Executive shall perform her
duties and responsibilities to the best of her abilities in a diligent,
trustworthy, businesslike and efficient manner.

(a) During the Employment Period, Executive's base salary
(the "Base Salary") shall initially be $150,000.00 per annum which salary shall
be payable in regular installments in accordance with the Company's general
payroll practices as in place from time to time. Executive shall be entitled
to an annual review of the amount of Base Salary payable hereunder and
performance review after the initial six (6) months of employment, such review
to be conducted within seven (7) months of the date hereof. Any adjustment in
Executive's compensation shall be determined by the Compensation Committee of
the Board (the "Compensation Committee") in its sole discretion; provided,
however, that the Base Salary may not be reduced below the amount provided for
in the first sentence of this Section 1.3(a).

(d) The Company shall reimburse (or cause to be
reimbursed) Executive for reasonable out-of-pocket expenses incurred by him in
the course of performing her duties under this Agreement upon completion of an
expense report in accordance with the Company's and its subsidiaries'
reimbursement, reporting and documentation policies in effect from time to time
with respect to travel, entertainment and other business expenses.

2
<PAGE> 3
1.4 Term. (a) The Employment Period shall commence
on the date hereof and end on the first (1st) anniversary hereof (the "Initial
Employment Period"), subject to earlier termination (1) by reason of
Executive's death or disability, (2) by written resolution of the Board for
Cause (as defined herein), (3) by written resolution of the Board without
Cause, or (4) by written resignation of the Executive.

(b) If the Employment Period is terminated by reason of
Executive's death or disability, Executive's resignation or her termination by
the Board with or without Cause (except felony conviction of any crime
involving theft or fraud), Executive shall be entitled to a severance payment
in an amount equal to one and one-half (1- 1/2) times Executive's then
effective Base Salary. Such amounts shall be payable in equal biweekly
installments over a period of two (2) years from the date of termination of
employment.

(c) Company shall pay Executive's health insurance
benefits for a period of two (2) years after termination of Executive's
employment for any reason other than (i) Executive's death, or (ii) termination
of Executive's employment for a felony conviction of any crime involving theft
or fraud.

(d) Except as expressly set forth in this Section 1.4,
all compensation and other benefits shall cease to accrue upon termination of
employment.

1.6 Confidential Information; Company Property. Executive
acknowledges that the information, observations and data obtained by him while
employed by the Company and its subsidiaries concerning the business or affairs
of the Company, its subsidiaries and any predecessor to the business of the
Company that are not generally available to the public other than as a result
of breach of this Agreement by Executive ("Confidential Information") are the
property of the Company and its subsidiaries. Executive agrees that she shall
not disclose to any unauthorized person or use for her own account any
Confidential Information without the prior written consent of the Company
unless, and in such case only to

3
<PAGE> 4
the extent that, such matters become generally known to and available for use
by the public other than as a result of Executive's acts or omissions to act.
Notwithstanding the foregoing, in the event Executive becomes legally compelled
to disclose Confidential Information pursuant to judicial or administrative
subpoena or process or other legal obligation, Executive may make such
disclosure only to the extent required, in the opinion of counsel for
Executive, to comply with such subpoena, process or other obligation.
Executive shall, as promptly as possible and in any event prior to the making
of such disclosure, notify the Company of any such subpoena, process or
obligation and shall cooperate with the Company in seeking a protective order
or other means of protecting the confidentiality of the Company Information.
Executive shall deliver to the Company at the termination of the Employment
Period, or at any time the Company may reasonably request, all memoranda,
notes, plans, records, reports, computer tapes and software and other documents
and data (and copies thereof) containing, relating to, or derived from the
Confidential Information or the business of the Company or its subsidiaries
which she may then possess or have under her control. Executive agrees that
she will not retain after the termination of the Employment Period any copies
of any Confidential Information including, without limitation, any software,
documents or other materials originating with and/or belonging to the Company
or any Subsidiary of the Company.

1.7 Non-Compete; Non-Solicitation.

(a) Executive acknowledges that in the course of her
employment with the Company she will become familiar with the Company's trade
secrets and with other confidential information concerning the Company and its
predecessors and that her services have been and will be of special, unique and
extraordinary value to the Company. The parties also acknowledge that the
availability of the services of the Executive and the related covenant not to
compete provided for herein were material inducements to it in agreeing to
enter into the business combination of Wild Oats Markets, Inc. and Alfalfa's,
Inc. being consummated at the same time that this Agreement is being entered
into. Accordingly, Executive agrees that, during the period in which Executive
is receiving compensation hereunder and for a period of two (2) years following
termination of Executive's employment with the Company for any reason (the
"Non-Compete Period"), she shall not directly or indirectly own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any supermarket, food store or retailer of health and beauty aids
located within a ten (10) mile radius of any store operated (defined herein as
current stores or stores for which leases have been signed as of the date of
termination) by the Company or its subsidiaries as of the date of termination
of Executive's employment with the Company. Nothing herein shall prohibit
Executive from being a passive owner of not more than 1% of the outstanding
stock of another corporation, so long as Executive has no active participation
in the management or the business of such corporation.

4
<PAGE> 5
(b) During the Non-Compete Period, Executive shall not
directly or indirectly (1) induce or attempt to induce any employee of the
Company or any Subsidiary of the Company to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any such Subsidiary and any employee thereof; (2) induce or attempt
to induce any customer, supplier, licensee or other business relationship of
the Company or any Subsidiary of the Company to cease doing business with the
Company or such Subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company or any such Subsidiary; or (3) make an oral or written disparaging
statement, comment or remark about the Company or any of its Subsidiaries to
any employee, customer, supplier, licensee or other business relationship of
the Company or any of its Subsidiaries or to or for the intended use of any
member of the press.

(c) Such Non-Compete Period shall terminate immediately
at such time as the Company and its Subsidiaries no longer operate supermarkets
or food stores.

ARTICLE 2. REPRESENTATIONS
AND WARRANTIES

2.1 Representations and Warranties of Executive.
Executive represents and warrants to the Company that:

5
<PAGE> 6
(b) Executive is not a party to or bound by any
employment agreement or non-compete agreement with any other person or entity.

2.2 Representations and Warranties of the Company. The Company
hereby represents and warrants to Executive that:

(b) upon the execution and delivery of this Agreement by
Executive, this Agreement shall be the valid and binding obligation of the
Company enforceable in accordance with its terms.

ARTICLE 3. DEFINITIONS

As used in this Agreement, the following terms shall have the
definitions set forth below:

(a) "Cause" shall mean (1) a material breach of this Agreement by
Executive which is not cured within thirty (30) days after written notice to
Executive from the Compensation Committee; (2) Executive's willful and repeated
failure to comply with the lawful directives of the Board or the Company's
Articles of Incorporation or Bylaws; (3) gross negligence or willful misconduct
by Executive in the performance of her duties hereunder; (4) the commission by
Executive of an act (including, but not limited to, a felony or a crime
involving moral turpitude) causing material harm to the standing and reputation
of the Company or its subsidiaries, as determined in good faith by the Board;
(5) misappropriation, breach of trust or fraudulent conduct by Executive with
respect to the assets or operations of the Company or any of its subsidiaries;
(6) the continued use by Executive of alcohol or drugs to an extent that, in
the good faith determination of the Board, materially interferes with the
performance by Executive of her employment responsibilities under this
Agreement; (7) the repeated threat of Executive to cause, or the actual
occurrence of, damage to the relations of the Company or any of its
subsidiaries with customers, suppliers, lenders, advisors or employees which
damage is materially adverse to the business or operations of the Company or
any of its subsidiaries, and which threat is not terminated or which damage is
not cured following thirty (30) days written notice from the Board; or (8)
continued unauthorized absence from work (other than any such continued
unauthorized absence resulting from Executive's disability).

6
<PAGE> 7
(b) "Disability" shall mean Executive's inability to substantially
perform her normal duties hereunder for six (6) months or more during any
twelve (12) month period determined in good faith by the Board.

ARTICLE 4. GENERAL PROVISIONS

4.2 Survival. Sections 1.6 and 1.7 and this Article 4 shall
survive and continue in full force and effect in accordance with their terms
notwithstanding any termination of the Employment Period.

7
<PAGE> 8

To the Company:

WO Holdings, Inc.
1645 Broadway
Boulder, CO 80302
Attention: Michael C. Gilliland, CEO

With Copy to:

WO Holdings, Inc.
1645 Broadway
Boulder, CO 80302
Attention: Elizabeth C. Cook, General Counsel

To Executive:

Elizabeth C. Cook
1645 Broadway
Boulder, CO 80302

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.

4.6 Amendments and Waivers. Any provision of this Agreement may
be amended or waived only with the prior written consent of the Company and
Executive.

8
<PAGE> 9
State of Colorado or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Colorado.

4.9 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or of any term or provision hereof.

4.10 Conflict. In the event of any conflict between the
provisions of this Agreement and the policies and practices of the Company, the
provisions of this Agreement shall govern.

9
<PAGE> 10
connection with, or in relation to the interpretation, performance or breach of
this Agreement (or any other agreement contemplated by or related to this
Agreement or any other agreement between the Company and Executive), including
without limitation, any claim based on contract, tort or statute, or the
arbitrability of any claim hereunder (a "Claim"), shall be settled, at the
request of any part of this Agreement, by final and binding arbitration
conducted in Denver, Colorado. All such Claims shall be settled by one
arbitrator in accordance with the Commercial Arbitration Rules then in effect
of the American Arbitration Association. Such arbitrator shall be provided
through the CFR Institute for Dispute Resolution ("CFR") by mutual agreement of
the parties, provided that, absent such agreement, the arbitrator shall be
appointed by CFR. In either event, such arbitrator may not have any
pre-existing, direct or indirect relationship with any party to the dispute.
Each party hereto expressly consents to, and waives any future objection to,
such forumand arbitration rules. Judgment upon any award may be entered by any
state or federal court having jurisdiction thereof. Except as required by law
(including, without limitation, the rules and regulations of the Securities and
Exchange Commission and the Nasdaq Stock Market, if applicable), neither party
nor the arbitrator shall disclose the existence, content, or results of any
arbitration hereunder without the prior written consent of all parties. Except
as provided herein, the Federal Arbitration Act shall govern the
interpretation, enforcement and all proceedings pursuant to this Section.

4.14 Full Understanding. Executive represents and
agrees that she fully understands her right to discuss all aspects of this
Agreement with her private attorney, and that to the extent, if any, that she
desired, she availed himself of such right. Executive further represents that
she has carefully read and fully understands all of the provisions of this
Agreement (including the non-compete provisions of Section 1.7), that she is
competent to execute this Agreement, that her agreement to execute this
Agreement has not been obtatined by any duress and that she freely and
voluntarily enteres into it, and that she has read this document in

10
<PAGE> 11
its entirety and fully understands the meaning, intent and consequences of this
document.

IN WITNESS WHEREOF, this Agreement has been signed and sealed the day
first above written.

COMPANY:

WO HOLDINGS, INC.

By /s/ MICHAEL C. GILLILAND
-----------------------------------------

EXECUTIVE:

By /s/ ELIZABETH C. COOK
-----------------------------------------
Elizabeth C. Cook

11
<PAGE> 12
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
DATED JULY 14, 1996 BY AND BETWEEN
WO HOLDINGS, INC. AND ELIZABETH COOK

This First Amendment to Employment Agreement (the "Agreement") is made as of
the 13th day of August, 1996, by and between WO Holdings, Inc. and Elizabeth
Cook ("Executive").

THE PARTIES HEREBY AGREE AS FOLLOWS:

1. Section 1.7(a) is amended as follows:

1.7 Non-Compete; Non-Solicitation.

<PAGE> 1
WARRANT

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS
AMENDED AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A)
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, (B) IN
COMPLIANCE WITH RULE 144 UNDER SUCH ACT, OR (C) THE COMPANY HAS BEEN FURNISHED
WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT NO
REGISTRATION IS REQUIRED BY SUCH TRANSFER.

1,976 Shares of Series C Preferred Stock

Warrant

This Warrant certifies that for value received MONTGOMERY SECURITIES,
or registered assigns (the "Holder"), is entitled at any time before 5:00 p.m.,
California time, on November 14, 1999 to purchase from WILD OATS MARKETS, INC.,
a Delaware corporation (the "Company"), one thousand nine hundred seventy six
(1,976) shares of the fully paid and non-assessable series C Preferred Stock
of the Company ("Preferred Stock") as constituted on the date hereof (the
"Issuance Date"), at price of $37.905 per share (the "Exercise Price"), subject
to the conditions set forth herein.

The Holder may exercise the Warrant, in whole or in part, at any time
or from time to time, prior to its expiration, on any business day, by
delivering a written notice to the Company at the offices of the Company,
exercising the Warrant and specifying (i) the total number of shares of
Preferred Stock the Holder will purchase pursuant to such exercise and (ii) a
place and date not less than one nor more than twenty business days from the
date of the notice for the closing of such purchase. At any closing, the
Holder will surrender the Warrant and make payment to the Company of the
aggregate Exercise Price for the shares of Preferred Stock so purchased, by
bank, cashier's or certified check and the Company will deliver to the Holder a
certificate or certificates for the number of shares of Preferred Stock
issuable upon such exercise, together with cash, in lieu of any fraction of a
number of shares of Preferred Stock issuable upon such exercise shall be issued
by the Company to the Holder thereof.

The Holder shall have the right to require the Company to convert this
Warrant (in whole but not in part), at any time prior to its expiration, into
shares of Preferred Stock as provided for in this paragraph. Upon exercise of
this conversion right, the Company shall deliver to the Holder (without payment
by the Holder of any exercise price) that number of shares of Preferred Stock
equal to the quotient obtained by dividing (x) the value of the Warrant at the
time the right is exercised (determined by subtracting the aggregate Exercise
Price for the shares of Preferred Stock in effect immediately prior to the
exercise of the right from the aggregate Fair Market Value for such shares
immediately prior to the exercise of the right) by (y) the Fair Market Value of
one share of Preferred Stock immediately prior to the exercise of the
conversion right. The conversion right may be exercised, by the Holder, at
<PAGE> 2
any time or from time to time, prior to its expiration, on any business day by
delivering a written notice to the Company at the offices of the Company,
exercising the right and specifying the total number of shares of Preferred
Stock the Holder will purchase pursuant to such conversion and a place and date
not less than one nor more than twenty business days from the date of the
notice of the closing of such purchase. At any closing under this paragraph,
the Holder will surrender the Warrant and the Company will deliver to the
Holder a certificate or certificates for the number of shares of Preferred
Stock issuable upon such conversion, together with cash in lieu of any fraction
of a share. Fair Market Value of a share of Preferred Stock as of any date
shall mean the Fair Market Value of a share of the Company's Common Stock as of
such date multiplied by the number of shares of Common Stock into which a share
of Preferred Stock is convertible. The Fair market Value of a share of Common
Stock shall be the public offering price of the Common Stock, or if not
publicly traded, then as determined in good faith by the Company's Board of
Directors upon review of relevant factors; provided, however, that if the
determination date is the date on which the Company's Common Stock is first
sold to the public by the Company in a firm commitment public offering under
the Securities Act of 1933, as amended, then the initial public offering price
at which the Common Stock is sold shall be deemed to be the Fair Market Value
of the Common Stock on such date.

In the event that pursuant to the Company's Certificate of
Incorporation, an event causing automatic conversion or redemption of the
Preferred Stock shall have occurred prior to the exercise of this Warrant, in
whole or in part, then this Warrant shall be exercisable for the number of
shares of Common Stock of the Company which would have been received if this
Warrant had been exercised in full and the Preferred Stock received thereupon
had been simultaneously converted into Common Stock immediately prior to such
event. In this regard, references to "Preferred Stock" shall include such
"Common Stock" unless the context otherwise requires.

The Holder of this Warrant shall be entitled to the same registration
rights set forth in the Series C Preferred Stock Purchase Agreement dated as of
November 14, 1994 between the Holder and the Company with respect to the Common
Stock issuable upon conversion of the Preferred Stock.

Upon due presentation for the registration of transfer of this
Warrant, Warrants of like tenor and evidencing in the aggregate a right to
purchase a like number of shares of Preferred Stock shall be issued to the
transferee(s) in exchange for this Warrant.

The Company may deem and treat the registered Holder(s) hereof as the
absolute owner(s) of this Warrant (notwithstanding any notation of ownership or
other writing hereon made by anyone), for the purpose of any exercise or
conversion hereof, of any distribution to the Holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary. The Warrant does not entitle any Holder hereof to any rights of a
stockholder of the Company.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed by its President and by its Secretary and has caused its corporate seal
to be affixed hereunto or imprinted hereon.

Dated: November 14, 1994 Wild Oats Markets, Inc.
1668 Valtec Lane
Boulder, CO 80304

(Document shows signatures for Wild Oats Markets, Inc. of Michael C. Gilliland,
President and Elizabeth C. Cook, Secretary)

<PAGE> 1
WARRANT

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS
AMENDED AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A)
COVEREDY BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, (B) IN
COMPLIANCE WITH RULE 144 UNDER SUCH ACT, OF (C) THE COMPANY HAS BEEN FURNISHED
WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT NO
REGISTRATION IS REQUIRED BY SUCH TRANSFER.

783 Shares of Series B Preferred Stock

Warrant

This Warrant certifies that for value received WESTON PRESIDIO
OFFSHORE CAPITAL C.V., a Netherlands Antilles Limited Partnership, or
registered assigns (the "Holder"), is entitled at any time before 5:00 p.m.,
California time, on November 14, 1999 to purchase from WILD OATS MARKETS, INC.,
a Delaware corporation (the "Company"), seven hundred eighty-three (783) shares
of the fully paid and non-assessable series B Preferred Stock of the Company
("Preferred Stock") as constituted on the date hereof (the "Issuance Date"), at
price of $17.50 per share (the "Exercise Price"), subject to the conditions set
forth herein.

The Holder may exercise the Warrant, in whole or in part, at any time
or from time to time, prior to its expiration, on any business day, by
delivering a written notice to the Company at the offices of the Company,
exercising the Warrant and specifying (i) the total number of shares of
Preferred Stock the Holder will purchase pursuant to such exercise and (ii) a
place and date not less than one nor more than twenty business days from the
date of the notice for the closing of such purchase. At any closing, the
Holder will surrender the Warrant and make payment to the Company of the
aggregate Exercise Price for the shares of Preferred Stock so purchased by
bank, cashier's or certified check and the Company will deliver to the Holder a
certificate or certificates for the number of shares of Preferred Stock
issuable upon such exercise, together with cash, in lieu of any fraction of a
share. Upon partial exercise, a new warrant or warrants of the same tenor and
expiration date for the purchase of the number of such shares not purchased
upon such exercise shall be issued by the Company to the Holder thereof.

The Holder shall have the right to require the Company to convert this
Warrant (in whole but not in part), at any time prior to its expiration, into
shares of Preferred Stock as provided for in this paragraph. Upon exercise of
this conversion right, the Compnay shall deliver to the Holder (without payment
by the Holder of any exercise price) that number of shares of Preferred Stock
equal to the quotient obtained by dividing (x) the value of the Warrant at the
time the right is exercised (determined by subtracting the aggregate Exercise
Price for the shares of Preferred Stock in effect immediately prior to the
exercise of the conversion right. The conversion right may be exercised, by
the Holder, at any time or from
<PAGE> 2
time to time, prior to its expiration, on any business day by delivering a
written notice to the Company at the offices of the Company, exercising the
right and specifying the total number of shares of Preferred Stock the Holder
will purchase pursuant to such conversion and a place and date not less than
one nor more than twenty business days from the date of the notice of the
closing of such purchase. At any closing under this paragraph, the Holder will
surrender the Warrant and the Company will deliver to the Holder a certificate
or certificates for the number of shares of Preferred Stock issuable upon such
conversion, together with cash in lieu of any fraction of a share. Fair Market
Value of a share of Preferred Stock as of any date shall mean the Fair Market
Value of a share of the Company's Common Stock as of such date multiplied by
the number of shares of Common Stock into which a share of Preferred Stock is
convertible. The Fair Market Value of a share of Common Stock shall be the
public offering price of the Common Stock, or if not publicly traded, then as
determined in good faith by the Company's Board of Directors upon review of
relevant factors; provided, however, that if the determination date is the date
on which the Company's Common Stock is first sold to the public by the Company
in a firm commitment public offering under the Securities Act of 1933, as
amended, then the initial public offering price at which the Common Stock is
sold shall be deemed to be the Fair Market Value of the Common Stock on such
date.

The Holder of this Warrant shall be entitled to the same registration
rights set forth in the Series A Preferred Stock Purchase Agreement dated as of
July 3, 1993 between the Holder and the Company with respect to the Common
Stock issuable upon conversion of the Preferred Stock.

Dated: November 14, 1994 Wild Oats Markets, Inc.
1668 Valtec Lane
Boulder, CO 80304

(Document shows signatures for Wild Oats Markets, Inc. of Michael C. Gilliland,
President and Elizabeth C. Cook, Secretary)

<PAGE> 1
WARRANT

723 Shares of Series B Preferred Stock

Warrant

This Warrant certifies that for value received WESTON PRESIDIO
OFFSHORE CAPITAL C.V., a Netherlands Antilles Limited Partnership, or
registered assigns (the "Holder"), is entitled at any time before 5:00 p.m.,
California time, on November 14, 1999 to purchase from WILD OATS MARKETS, INC.,
a Delaware corporation (the "Company"), seven hundred twenty-three (723) shares
of the fully paid and non-assessable series B Preferred Stock of the Company
("Preferred Stock") as constituted on the date hereof (the "Issuance Date"), at
price of $18.75 per share (the "Exercise Price"), subject to the conditions set
forth herein.

The Holder may exercise the Warrant, in whole or in part, at any time
or from time to time, prior to its expiration, on any business day, by
delivering a written notice to the Company at the offices of the Company,
exercising the Warrant and specifying (i) the total number of shares of
Preferred Stock the Holder will purchase pursuant to such exercise and (ii) a
place and date not less than one nor more than twenty business days from the
date of the notice for the closing of such purchase. At any closing, the
Holder will surrender the Warrant and make payment to the Company of the
aggregate Exercise Price for the shares of Preferred Stock so purchased by
bank, cashier's or certified check and the Company will deliver to the Holder a
certificate or certificates for the number of shares of Preferred Stock
issuable upon such exercise, together with cash, in lieu of any fraction of a
share. Upon partial exercise, a new warrant or warrants of the same tenor and
expiration date for the purchase of the number of such shares not purchased
upon such exercise shall be issued by the Company to the Holder thereof.

The Holder shall have the right to require the Company to convert this
Warrant (in whole but not in part), at any time prior to its expiration, into
shares of Preferred Stock as provided for in this paragraph. Upon exercise of
this conversion right, the Compnay shall deliver to the Holder (without payment
by the Holder of any exercise price) that number of shares of Preferred Stock
equal to the quotient obtained by dividing (x) the value of the Warrant at the
time the right is exercised (determined by subtracting the aggregate Exercise
Price for the shares of Preferred Stock in effect immediately prior to the
exercise of the conversion right. The conversion right may be exercised, by
the Holder, at any time or from
<PAGE> 2
time to time, prior to its expiration, on any business day by delivering a
written notice to the Company at the offices of the Company, exercising the
right and specifying the total number of shares of Preferred Stock the Holder
will purchase pursuant to such conversion and a place and date not less than
one nor more than twenty business days from the date of the notice of the
closing of such purchase. At any closing under this paragraph, the Holder will
surrender the Warrant and the Company will deliver to the Holder a certificate
or certificates for the number of shares of Preferred Stock issuable upon such
conversion, together with cash in lieu of any fraction of a share. Fair Market
Value of a share of Preferred Stock as of any date shall mean the Fair Market
Value of a share of the Company's Common Stock as of such date multiplied by
the number of shares of Common Stock into which a share of Preferred Stock is
convertible. The Fair Market Value of a share of Common Stock shall be the
public offering price of the Common Stock, or if not publicly traded, then as
determined in good faith by the Company's Board of Directors upon review of
relevant factors; provided, however, that if the determination date is the date
on which the Company's Common Stock is first sold to the public by the Company
in a firm commitment public offering under the Securities Act of 1933, as
amended, then the initial public offering price at which the Common Stock is
sold shall be deemed to be the Fair Market Value of the Common Stock on such
date.

Dated: November 14, 1994 Wild Oats Markets, Inc.
1668 Valtec Lane
Boulder, CO 80304

(Document shows signatures for Wild Oats Markets, Inc. of Michael C. Gilliland,
President and Elizabeth C. Cook, Secretary)

<PAGE> 1

WILD OATS MARKETS, INC.

SERIES E PREFERRED STOCK
PURCHASE AGREEMENT

JULY 12, 1996

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
1. PURCHASE AND SALE OF STOCK . . . . . . . . . . . . . . . . . . . . 1

1.1 Sale and Issuance of Series E Preferred Stock . . . . . . 1
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . 1

2.1 Organization, Good Standing and Qualification . . . . . . 1
2.2 Capitalization and Voting Rights . . . . . . . . . . . . 2
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Authorization . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Valid Issuance of Series E Preferred and Common Stock . . 3
2.6 Governmental Consents . . . . . . . . . . . . . . . . . . 3
2.7 Compliance with Law . . . . . . . . . . . . . . . . . . . 3
2.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Proprietary Rights . . . . . . . . . . . . . . . . . . . 4
2.10 Compliance with Other Instruments . . . . . . . . . . . 5
2.11 Agreements; Action . . . . . . . . . . . . . . . . . . . 5
2.12 Disclosure . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Registration Rights . . . . . . . . . . . . . . . . . . 7
2.14 Corporate Documents . . . . . . . . . . . . . . . . . . 7
2.15 Title to and Sufficiency of Property and Assets . . . . 7
2.16 Financial Statements . . . . . . . . . . . . . . . . . . 8
2.17 Changes . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Employee Benefit Plans . . . . . . . . . . . . . . . . . 9
2.19 Tax Returns, Payments and Elections . . . . . . . . . . 9
2.20 Business . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Environmental Compliance . . . . . . . . . . . . . . . . 9
2.22 Absence of Certain Commercial Practices. . . . . . . . . 10
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . 11
2.24 Minute Books . . . . . . . . . . . . . . . . . . . . . . 11
2.25 Labor Agreements and Actions . . . . . . . . . . . . . . 11
2.26 Material Liabilities . . . . . . . . . . . . . . . . . . 11
2.27 Small Business Matters . . . . . . . . . . . . . . . . . 12

3. REPRESENTATIONS AND WARRANTIES OF THE SERIES E INVESTORS . . . . . 12

3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Purchase Entirely for Own Account . . . . . . . . . . . . 12
3.3 Disclosure of Information . . . . . . . . . . . . . . . . 13
3.4 Investment Experience . . . . . . . . . . . . . . . . . . 13
</TABLE>

i
<PAGE> 3
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
3.5 Accredited Series E Investor. . . . . . . . . . . . . . 13
3.6 Restricted Securities. . . . . . . . . . . . . . . . . . 13
3.7 Further Limitations on Disposition. . . . . . . . . . . 13
3.8 Legends. . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 Consents. . . . . . . . . . . . . . . . . . . . . . . . 14

4. STATE COMMISSIONER OF CORPORATIONS. . . . . . . . . . . . . . . . 14
5. CONDITIONS OF SERIES E INVESTOR'S OBLIGATIONS AT THE CLOSING. . . 14

5.1 Representations and Warranties. . . . . . . . . . . . . 14
5.2 Performance. . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Qualifications. . . . . . . . . . . . . . . . . . . . . 15
5.4 Proceedings and Documents. . . . . . . . . . . . . . . . 15
5.5 Compliance Certificate. . . . . . . . . . . . . . . . . 15
5.6 Certificate of Incorporation. . . . . . . . . . . . . . 15
5.7 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Board of Directors. . . . . . . . . . . . . . . . . . . 15
5.9 Stockholders Agreement. . . . . . . . . . . . . . . . . 15
5.10 Committees. . . . . . . . . . . . . . . . . . . . . . . 16
5.11 Registration Rights Agreement. . . . . . . . . . . . . 16
5.12 Legal Opinions. . . . . . . . . . . . . . . . . . . . . 16

6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. . . . . . 16

6.1 Representations and Warranties. . . . . . . . . . . . . 16
6.2 Payment of Purchase Price. . . . . . . . . . . . . . . . 16
6.3 Performance. . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Certificate of Incorporation. . . . . . . . . . . . . . 16
6.5 Qualifications. . . . . . . . . . . . . . . . . . . . . 16

7. REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . 16
8. COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . 17

8.1 SBIC Regulatory Compliance Cooperation. . . . . . . . . 17
8.2 Information Rights and Related Covenants . . . . . . . . 18
8.3 Assignment. . . . . . . . . . . . . . . . . . . . . . . 19
9. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 19

9.1 Survival of Warranties. . . . . . . . . . . . . . . . . 19
9.2 Benefit of Agreement; Successors and Assigns. . . . . . 20
9.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>

ii
<PAGE> 4
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
9.4 Counterparts. . . . . . . . . . . . . . . . . . . . . 20
9.5 Titles and Subtitles. . . . . . . . . . . . . . . . . 20
9.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . 20
9.7 Finder's Fee. . . . . . . . . . . . . . . . . . . . . 20
9.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . 21
9.9 Amendments and Waivers. . . . . . . . . . . . . . . . 21
9.10 Severability. . . . . . . . . . . . . . . . . . . . . 21
9.11 Aggregation of Stock. . . . . . . . . . . . . . . . . 21
9.12 Integration. . . . . . . . . . . . . . . . . . . . . 21
9.13 Special Triggering Event. . . . . . . . . . . . . . . 21

10. MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>

iii
<PAGE> 5
WILD OATS MARKETS, INC.
SERIES E PREFERRED STOCK
PURCHASE AGREEMENT

THIS SERIES E PREFERRED STOCK PURCHASE AGREEMENT is dated as of July
12, 1996, by and between WILD OATS MARKETS, INC., a Delaware corporation (the
"Company"), and the investors identified on the counterpart signature pages and
Schedule A hereto, each of which is herein referred to as a "Series E
Investor."

THE PARTIES HEREBY AGREE AS FOLLOWS:

1. PURCHASE AND SALE OF STOCK.

1.1 SALE AND ISSUANCE OF SERIES E PREFERRED STOCK. The Company shall
adopt and file with the Secretary of State of Delaware on or before the Closing
(as defined below) the Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") in the form attached hereto as Exhibit A.

1.2 CLOSING. Subject to the terms and conditions of this Agreement, the
Series E Investors each agree severally, and not jointly, to purchase at the
Closing and the Company agrees to sell and issue to each Series E Investor at
the Closing, that number of shares of the Company's Series E Preferred Stock,
par value $.001 per share (the "Series E Preferred Stock"), as is set forth next
to each such Series E Investor's name on the signature pages hereto and, in the
aggregate, 493,947 shares of Series E Preferred Stock for the purchase price
of $33.364 per share. The purchase and sale of the 493,947 shares of the
Series E Preferred Stock shall be deemed to take place at the offices of Cooley,
Godward, Castro, Huddleson & Tatum, 2595 Canyon Boulevard, Suite 250, Boulder,
Colorado 80301, at 2:00 p.m., M.T., on July 12, 1996, or at such other time and
place as the Company and the Series E Investors mutually agree upon orally or in
writing (which time and place are designated as the "Closing"). At the Closing,
the Company shall deliver to the Series E Investors certificates representing
the Series E Preferred Stock which each such Series E Investor is purchasing
against delivery to the Company by the Series E Investors of a check or wire
transfer in the amount of the purchase price therefor payable to the Company's
order.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Series E Investor that, except as set forth on
a Schedule of Exceptions specifically identifying the relevant paragraph
hereto, which exceptions shall be deemed to be representations and warranties
as if made hereunder:

2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact

1.
<PAGE> 6
business and is in good standing in each jurisdiction in which the failure so
to qualify would have a material adverse effect on its business, properties,
results of operations, prospects or condition (financial or otherwise) (a
"Material Adverse Effect").

2.2 CAPITALIZATION AND VOTING RIGHTS.

(a) The authorized capital of the Company, after the filing of the
Certificate of Incorporation, consists of (i) 6,500,000 shares of common stock,
par value $.001 per share (the "Common Stock"), of which 1,447,209 shares are
issued and outstanding and are owned by the persons in the numbers specified in
Schedule B hereto, (ii) 1,796,982 shares of Preferred Stock, par value $.001 per
share (the "Preferred Stock"), of which 168,000 shares have been designated
Series A Preferred Stock all of which are issued and outstanding, 1,600 shares
have been designated Series B Preferred Stock none of which are issued and
outstanding, 417,983 shares have been designated Series C Preferred Stock, of
which 416,007 are issued and outstanding and 853,664 shares have been designated
Series E Preferred Stock, none of which are issued and outstanding.

(b) Except for (i) the conversion privileges of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series E Preferred Stock, (ii) any rights provided for in this Agreement,
the Stockholders Agreement dated even herewith (the "Stockholders Agreement"),
(iii) those certain Warrants by and between the Company and Weston Presidio
dated August 8, 1994 and that certain Warrant between the Company and Montgomery
Securities, L.P. dated as of November 14, 1994 (collectively, the "Warrants")
and (iv) the Certificate of Incorporation, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. The Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, except for the Stockholders
Agreement, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Company. Neither the
execution of this Agreement, the consummation of the transactions contemplated
hereby nor the exercise of any rights granted to the Series E Investors
hereunder or under the Certificate of Incorporation will result in any change in
the conversion provisions of any other outstanding securities of the Company,
whether through an adjustment required under any "antidilution" or similar
provision, or otherwise.

2.3 SUBSIDIARIES. Except as set forth at Section 2.3 of the Schedule
of Exceptions, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity.

2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery by the Company of this Agreement, the Stockholders
Agreement and the Registration Rights Agreement attached hereto as Exhibit C
(the "Registration Rights Agreement"), the performance of all obligations of
the Company hereunder and thereunder and the

2.
<PAGE> 7
authorization, issuance (or reservation for issuance) and delivery of the
Series E Preferred Stock and the Common Stock issuable upon conversion of the
Series E Preferred Stock has been taken or will be duly taken prior to the
Closing, and each of this Agreement, the Stockholders Agreement and the
Registration Rights Agreement constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject to
bankruptcy and other laws of general application affecting the rights of
creditors, and except to the extent that the availability of any equitable
remedy is subject to the discretion of a court.

2.5 VALID ISSUANCE OF SERIES E PREFERRED AND COMMON STOCK.

(a) The Series E Preferred Stock which is being purchased by
the Series E Investors hereunder, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and, based in part upon the
representations of the Series E Investors in this Agreement, will be issued in
compliance with all applicable securities laws, as presently in effect, of the
United States and each of the states whose securities laws govern the issuance
of any of the Series E Preferred Stock hereunder. The Common Stock issuable
upon conversion of the Series E Preferred Stock has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Certificate of Incorporation, will be duly and validly issued, fully paid and
nonassessable, and based in part upon the representations of the Series E
Investors in this Agreement, issued in compliance with all applicable
securities laws, as presently in effect, of the United States and each of the
states whose securities laws govern the issuance of any of the Series E
Preferred Stock hereunder. The Company has reserved a sufficient authorized
but unissued number of shares of Common Stock for issuance upon conversion of
the Series E Preferred Stock as well as in respect of all other outstanding
securities of the Company that are convertible into, or exercisable or
exchangeable for, Common Stock.

(b) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
compliance with all applicable securities laws of the United States and each of
the states whose securities laws govern the issuance of any of the Common
Stock.

2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, the Stockholders Agreement and the Registration
Rights Agreement, except for (i) the filing of applicable blue sky forms in the
appropriate states, and (ii) the filing of a Form D pursuant to the provisions
of Regulation D promulgated under the Securities Act of 1933, as amended (the
"1933 Act"), which filings will be effected within the required periods but, in
no event, later than 15 days after the Closing.

2.7 COMPLIANCE WITH LAW. The Company is in compliance with all
applicable federal, state and local laws, statutes, licensing requirements,
rules and regulations, and

3.
<PAGE> 8
judicial or administrative decisions applicable to the conduct of its business,
except where the failure to so comply would not have a Material Adverse Effect
on the Company. The Company has been granted any and all licenses, permits
(temporary or otherwise), authorizations and approvals from federal, state,
local and foreign government regulatory bodies necessary to carry on its
business and operations as currently conducted, all of which are in full force
and effect, except for such licenses, permits, authorizations and approvals the
failure to have obtained would not have a material adverse effect on the
Company. Consummation of the transactions contemplated by that certain
Agreement and Plan of Merger, dated June 4, 1996, by and between the Company,
WO Holdings, Inc. and Alfalfa's Markets, Inc. (the "Merger Agreement") will not
result in the violation by the Company or any other constituent to such
transaction of any federal or state anti-trust, unfair competition or similar
law, statute, rule or regulation nor require that any of such entities divest
itself of any of its present operations.

2.8 LITIGATION. A description of each of the pending or, to the best
knowledge of the Company, threatened actions, suits or proceedings related to
the Company or in which the Company is involved, is set forth at Section 2.8 of
the Schedule of Exceptions. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of the Company, currently
threatened against the Company which questions the validity of this Agreement,
the Stockholders Agreement or the Registration Rights Agreement, or the right
of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or which might result, either individually or
in the aggregate, in any Material Adverse Effect on the Company, or any change
in the current equity ownership of the Company, nor is the Company aware of any
facts which in the reasonable judgment of the Company would serve as the basis
for any litigation which, if resolved adversely to the Company, is likely to
result in a judgment against the Company which would have a Material Adverse
Effect on the Company. The foregoing includes, without limitation, actions
pending or, to the best knowledge of the Company, threatened (or any fact which
in the reasonable judgment of the Company would serve as the basis for any such
action which is likely to result in such a judgment against the Company)
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.

2.9 PROPRIETARY RIGHTS. The Company has sufficient title and
ownership (or can obtain such title and ownership without a Material Adverse
Effect on the Company) of all material trademarks, service marks, trade names,
copyrights, trade secrets, information and proprietary rights necessary for its
business as now conducted and as proposed to

4.
<PAGE> 9
be conducted, and to the best of the Company's knowledge, without any conflict
with or infringement of the rights of others. The Company is not aware of any
trademarks, service marks, trade names, copyrights, trade secrets, information
or proprietary rights for which it would need to obtain title and ownership for
its business as now conducted and as proposed to be conducted, and which, if
not obtained, would have a Material Adverse Effect on the Company. There are
no outstanding material options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any material
options, licenses, concurrent use agreements or other agreements of any kind
with respect to the trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and proprietary rights of any other person or
entity. The Company has not received any communication alleging that the
Company has violated or, by conducting its business as proposed, would violate,
any of the trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity. The Company is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or is
subject to any judgment, decree or order of any court or administrative agency,
that would materially interfere with the use of his or her best efforts to
promote the interests of the Company or that would conflict with the Company's
business as proposed to be conducted. Neither the execution nor delivery of
this Agreement, the Stockholders Agreement or the Registration Rights
Agreement, nor the carrying on of the Company's business by the employees of
the Company, nor the conduct of the Company's business as proposed, will, to
the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any material
contract, covenant or instrument known to the Company under which any of such
employees is now obligated.

2.10 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provision of its corporate charter (as in place on
the date hereof or as to be amended by the Certificate of Incorporation) or
bylaws or, except as set forth at Section 2.10 of the Schedule of Exceptions,
of any material instrument or material contract to which it is a party or by
which it or any of its properties is bound, which material contracts are set
forth on Schedule C hereto, or, to its knowledge, of any provision of federal
or state statute, rule or regulation applicable to the Company. Set forth on
Schedule C is each contract which the Company would be obligated to file with
the Securities and Exchange Commission (the "SEC") as an exhibit to a
Registration Statement under the 1933 Act pursuant to Item 4 or 10 of Item 601
to Regulation S-K. The execution, delivery and performance of this Agreement,
the Stockholders Agreement and the Registration Rights Agreement, and the
consummation of the transactions contemplated hereby and thereby, will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, or contract or an event which results in the
creation of any material lien, charge or encumbrance upon any assets of the
Company.

2.11 AGREEMENTS; ACTION.

(a) Except for agreements explicitly contemplated hereby, as set
forth at Section 2.11(a) of the Schedule of Exceptions or by the Stockholders
Agreement, the Tax Indemnification Agreement dated July 3, 1993 (the "Tax
Indemnification Agreement"), between Wild Oats and certain stockholders, the
Warrants, or the Registration Rights Agreement, there are no written or oral
agreements, understandings or proposed transactions

5.
<PAGE> 10
between the Company and any of its officers, directors, stockholders,
employees, consultants or affiliates, or any affiliate thereof.

(b) Except as set forth on Schedule C hereto, there are no
agreements, understandings, instruments, contracts or proposed transactions, to
which the Company is a party or by which it is bound which may involve (i)
obligations (contingent or otherwise) of, or payments to the Company in excess
of, $50,000, except for obligations incurred in the ordinary course of
business, or (ii) provisions restricting (geographically or otherwise) the
delivery of the Company's services and products or (iii) indemnification or
guaranty by the Company.

(c) Except as set forth at Section 2.11(c) of the Schedule
of Exceptions, the Company has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.

(d) Each contract listed or described on Schedule C is a
valid and binding obligation of the Company and is in full force and effect,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights or remedies in general from time to time in effect and the
exercise by courts of equity powers. The Company has performed all of its
material obligations required to be performed through the date hereof under the
contracts so listed or described and the Company is not in breach or default in
any respect thereunder nor has any event or circumstance occurred which, with
notice or lapse of time or both, would constitute any such breach or default,
except in any such case for such breaches or defaults which, individually or in
the aggregate, do not, and, insofar as reasonably can be foreseen, in the
future will not, have a Material Adverse Effect on the Company. To the best of
the Company's knowledge, none of the other parties to such contracts is in
breach or default in any respect thereunder nor has any event or circumstance
occurred which, with notice or lapse of time or both, would constitute any such
breach or default, except in any such case for such breaches or default which,
individually or in the aggregate, do not, and, insofar as reasonably can be
foreseen, in the future will not, have a Material Adverse Effect on the
Company.

(e) Except for the WO Holdings, Inc. Certificate of Incorporation
and Bylaws, the Stockholders Agreement and the Registration Rights Agreement and
as set forth in that Section 2.11(e) of the Schedule of Exceptions, there are no
other agreements which will be in effect after the Merger with regard to (i)
registration of the Company's or WO Holdings' capital stock pursuant to the
Securities Act of 1933, as amended, (ii) voting of the Company's or WO Holdings'
capital stock by the holders thereof or (iii) governing the rights of the
holders of the Company's or WO Holdings' capital stock.

6.
<PAGE> 11
2.12 DISCLOSURE.

Neither this Agreement, nor any of the other agreements or
documents contemplated hereby or furnished by or on behalf of the Company to
the Series E Investors in connection with the negotiation and the sale of the
Series E Preferred Stock, nor the financial statements referred to in Section
2.16 hereof, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. There
is no fact known to the Company which the Company has not disclosed to the
Series E Investors which materially adversely affects, or insofar as the
Company can reasonably foresee will materially adversely affect, the
properties, business, prospects, operations, earnings, assets, liabilities or
condition (financial or otherwise) of the Company or the ability of the Company
to perform its obligations under this Agreement, the Series E Preferred Stock,
the other agreements and documents referred to herein or any document
contemplated hereby or thereby.

The projections provided to the Series E Investors are based
on the good faith estimates and assumptions of the management of the Company,
which has no reason to believe that such projections are not reasonable. As a
result of unanticipated events and circumstances, such assumptions may be
incomplete or incorrect. For these reasons, actual results achieved during the
period covered by the projects may vary from those forecast in the projections,
and the variations may be material and adverse. In addition, the Company has
had a limited operating history on which to base its net sales and expense
assumptions, particularly for its supermarket format stores. As a result, the
projections are in large part based on assumptions derived from management's
experience at the six supermarket format stores opened by the Company to date.

2.13 REGISTRATION RIGHTS. Except as provided in the Registration
Rights Agreement and the Warrants, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.

2.14 CORPORATE DOCUMENTS. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Series E Investors), the
Certificate of Incorporation and Bylaws of the Company are in the form
previously provided to counsel for the Series E Investors.

2.15 TITLE TO AND SUFFICIENCY OF PROPERTY AND ASSETS. The Company
has good and marketable title to all of its properties and assets (including,
without limitation, the properties and assets reflected on the Company's
balance sheet as of April 27, 1996), which properties and assets are in good
operating condition and repair (subject to normal wear and tear consistent with
the age of the properties or assets) and are sufficient for all operations of
the Company which are material to the business of the Company as currently
conducted. The Company owns or leases its property and assets free and clear
of all mortgages, liens, loans and encumbrances, except such encumbrances and
liens which arise in the ordinary course of business and do not materially
impair the Company's ownership or use of such property or assets. With respect
to the property and assets it leases, the Company is in compliance with

7.
<PAGE> 12
such leases and, to the best of its knowledge, holds a valid leasehold interest
free of any liens, claims or encumbrances which would materially impair the
Company's use of such leasehold.

2.16 FINANCIAL STATEMENTS. The Company has delivered to each Series
E Investor its audited financial statements (balance sheet and profit and loss
statement, statement of stockholders' equity and statement of cash flows) at
and for the two-year period ended December 30, 1995 and its unaudited financial
statements (balance sheet and profit and loss statement, statement of
stockholders' equity and statement of cash flows) at and for March 30, 1996 and
for the three-month period then ended (the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and with each other, except that the interim Financial Statements do
not contain all footnotes required by generally accepted accounting principles
and are subject to normal year-end adjustments. The Financial Statements
fairly present the financial condition and operating results of the Company as
of the dates, and for the periods, indicated therein, subject, in the case of
the interim Financial Statements, to normal year-end audit adjustments, which
will not be material individually or in the aggregate. The Company maintains
and will continue to maintain a system of accounting established and
administered in accordance with generally accepted accounting principles.

2.17 CHANGES. Except as set forth at Section 2.17 of the Schedule
of Exceptions, since March 30, 1996, the Company has not (i) incurred any
indebtedness for money borrowed, or any other liabilities of any sort
whatsoever, individually in excess of $75,000 or, in the case of indebtedness
and/or liabilities individually less than $75,000, in excess of $200,000 in the
aggregate, (ii) made any loans or advances to any person, other than ordinary
advances for travel or business expenses, (iii) sold, exchanged or otherwise
disposed of any of its assets or rights in excess of $75,000, or (iv) declared
or paid any dividends or distributions upon or with respect to any class or
series of its capital stock. In addition, since April 27, 1996, there has not
been:

(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business which have not
had, in the aggregate, a Material Adverse Effect on the Company;

(b) any damage, destruction or loss of physical property,
whether or not covered by insurance, materially and adversely affecting the
business, properties or condition (financial or otherwise), of the Company (as
such business is presently conducted and as it is proposed to be conducted);

(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and

8.
<PAGE> 13
which does not have a Material Adverse Effect, on the Company (as such business
is presently conducted and as it is proposed to be conducted);

(e) any change or amendment to a contract or arrangement by
which the Company or any of its assets or properties is bound or subject which
has a Material Adverse Effect on the Company (as presently conducted and as it
is proposed to be conducted);

(f) any change in any compensation arrangement or agreement
with any officer, director or consultant;

(g) any material transaction entered into by the Company not
in the ordinary course of its business; or

(h) to the Company's knowledge, any other event or condition
which has had, or could reasonably be expected to have, a Material Adverse
Effect on the Company.

2.18 EMPLOYEE BENEFIT PLANS. Except as set forth at Section 2.18 of
the Schedule of Exceptions, the Company does not have any Employee Benefit Plan
as defined in the Employee Retirement Income Security Act of 1974.

2.19 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith which are listed in
the Schedule of Exceptions. The Company has not elected pursuant to the
Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a
collapsible corporation pursuant to Section 1362(a) of the Code, nor has it
made any other elections pursuant to the Code (other than elections which
relate solely to methods of accounting, depreciation or amortization) which
would have a Material Adverse Effect on the Company. The Tax Indemnity
Agreement is in full force and effect and there are no unpaid claims for
indemnification or other payments thereunder.

2.20 BUSINESS. The Company is not engaged in any business other
than as described in the draft February 12, 1996 private placement memorandum
(the "Private Placement Memorandum"), a copy of which has been provided to the
Series E Investors.

2.21 ENVIRONMENTAL COMPLIANCE.

(a) To the best of the Company's knowledge, the Company is
in compliance with all applicable federal, state and local environmental laws,
regulations and ordinances governing its business, properties or assets. To
the best of the Company's knowledge, all material licenses, permits or
registrations required for the business of the Company as presently conducted
and proposed to be conducted, under federal, state and local environmental
laws, regulations or ordinances have been secured.

(b) As used herein, "Hazardous Material" means any hazardous
or toxic substance, pollutant or waste which is regulated by any federal, state
or local governmental

9.
<PAGE> 14
authority; including, but not limited to, hazardous substances as defined under
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, hazardous waste as defined under the Resource Conservation and
Recovery Act, as amended, air pollutants regulated under the Clean Air Act, as
amended, pollutants as defined under the Clean Water Act, as amended, any
pesticide as defined by the Federal Insecticide, Fungicide, and Rodenticide
Act, any hazardous chemical substance or mixture or imminently hazardous
substance or mixture regulated by the Toxic Substances Control Act.

(c) To the best of the Company's knowledge, no release,
emission or discharge of any reportable quantities (as set forth in Title 40,
Code of Federal Regulations Section 302) of Hazardous Material into the
environment (including the soil, groundwater, surface water or waterways, and
air) is presently occurring on or from any property owned, leased or operated
by the Company except pursuant to and in compliance with a federal, state or
local permit.

(d) To the best of the Company's knowledge, no reportable
quantities (as set forth in Title 40, Code of Federal Regulations Section 302)
of Hazardous Material are located in the soil, groundwater, surface water, or
waterways at or under any property owned, leased or operated by the Company in
quantities or concentrations sufficient to require removal or remediation under
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended.
(e) The Company has never (i) been held legally responsible for
any release of any Hazardous Material; (ii) received notification from any
federal, state or other governmental authority of potential liability for any
release of Hazardous Material; or (iii) been required to pay the costs or
expenses incurred for the release of any Hazardous Material.

(f) To the best of the Company's knowledge, no Hazardous
Materials, including but not limited to, asbestos, are present in buildings
presently leased, owned, or otherwise occupied by the Company in amounts or
concentrations that could have a material adverse affect upon the Company's
financial position if such Hazardous Materials were required to be removed.

(g) All environmental reports or similar documents prepared
on behalf of, or in the possession of, the Company regarding property owned,
leased or otherwise occupied by the Company have been provided to counsel for
the Series E Investors.

2.22 ABSENCE OF CERTAIN COMMERCIAL PRACTICES. To the best of the
Company's knowledge, neither the Company nor any officer, director, employee or
agent of the Company (or any person acting on behalf of the foregoing), has (i)
given or agreed to give any gift or similar benefit of more than nominal value
on behalf of the Company to any official or any governmental authority
(domestic or foreign), to induce the recipient or his employer to do business,
grant favorable treatment or compromise or forego any claim, (ii) made any
payment which is illegal under prevailing law (regardless of the jurisdiction
in which such payment was

10.
<PAGE> 15
made) to promote or retain sales or to help, procure or maintain good relations
with suppliers, (iii) engaged in any activity which constitutes a violation of
the Foreign Corrupt Practices Act of 1977, as amended, and the rules and
regulations promulgated thereunder, (iv) engaged in any practice violating any
United States federal law prohibiting compliance with an unsanctioned foreign
boycott or (v) failed to perform its obligations in any respect under any
material contract with, or violated in any material respect any federal law
known to the company in its dealings with, the federal government or any agency
or department thereof, including, but not limited to, any law with respect to
conspiracy to defraud, false claims, conspiracy to defraud the United States,
embezzlement or theft of public money, fraud and false statement, false demands
against the United States, mail fraud, wire fraud, RICO, and truth in
negotiations. To the best of the Company's knowledge, no such gift or benefit
is required in connection with the operations of the Company or its business to
avoid any fine, penalty, cost, expense or adverse change in the business,
properties, condition (financial or otherwise), of the Company.

2.23 INSURANCE. The Company has in full force and effect insurance
of the type and in amounts which it reasonably deems adequate for its business
as then conducted and as proposed to be conducted, including, without
limitation, general liability insurance and insurance covering all rights
customarily insured against by businesses that are similarly situated.

2.24 MINUTE BOOKS. The minute books of the Company and its
subsidiaries provided to counsel for the Series E Investors contain a summary
of all meetings of directors and stockholders since the time of incorporation
and reflect all transactions referred to in such minutes accurately in all
material respects.

2.25 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or the knowledge of the Company threatened, which could have a
Material Adverse Effect on the Company, nor is the Company aware of any labor
organization activity involving any of its employees. The Company is not aware
that any officer or employee, or that any group of employees, intends to
terminate their employment with the Company, nor does the Company have a
present intention to terminate the employment of any officers or key employees
of the foregoing. The employment of each officer and employee of the Company
is terminable at the will of the Company.

2.26 MATERIAL LIABILITIES. The Company has no material liabilities
or obligations, absolute or contingent (individually or in the aggregate),
except liabilities (i) listed on the Financial Statements, (ii) on the schedule
of debt obligations furnished the Series E Investors, or (iii) other
liabilities and obligations either (a) incurred in the ordinary course of
business since April 27, 1996 or (b) which individually do not exceed $75,000
and which in the aggregate do not exceed $200,000.

11.
<PAGE> 16
2.27 SMALL BUSINESS MATTERS.

(a) The Company, together with its "affiliates" (as that
term is defined in Tittle 13, Code of Federal Regulations, Section 121.401),
is a "small business concern" within the meaning of the Small Business
Investment Act of 1958, as amended (the "SBA") and the regulations thereunder,
including Title 13, Code of Federal Regulations, Section 121.802. The
information set forth in the Small Business Administration Forms 480, 652 and
Section A of Form 1031 regarding the Company is accurate and complete. Copies
of such forms shall have been completed and executed by the Company and
delivered to the Regulated Investors (as defined below) at or prior to the
Closing.

(b) The proceeds from the sale of the Series E Preferred
Stock will be used by the Company as set forth on Schedule D hereto. No
portion of such proceeds (i) will be used to provide capital to a corporation
licensed under the SBIA, (ii) will be used outside the United States (except
(x) to acquire abroad materials and industrial property rights for a domestic
operation or (y) for transfer to a controlled foreign subsidiary, so long as at
least 51% of the Company's assets and activities will remain within the United
States), or (iii) will be used for any purpose contrary to the public interest
(including, but not limited to, activities which are in violation of law) or
inconsistent with free competitive enterprise, in each case, within the meaning
of 13 C.F.R., Section 107.901.

(c) Neither the Company's nor any of its Subsidiaries'
primary business activity involves, directly or indirectly, providing funds to
others, the purchase of discounting of debt obligations, factoring or long-term
leasing of equipment with no provision for maintenance or repair, and neither
the Company nor any of its subsidiaries is classified under Major Group 65
(Real Estate) of the SIC Manual.

3. REPRESENTATIONS AND WARRANTIES OF THE SERIES E INVESTORS. Each Series E
Investor hereby represents and warrants as to itself that:

3.1 AUTHORIZATION. Such Series E Investor has all necessary
corporate or partnership power and authority to enter into this Agreement.
This Agreement has been duly authorized, executed and delivered by such Series
E Investor and constitutes its valid and legally binding obligation,
enforceable in accordance with its terms.

3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
such Series E Investor in reliance upon such Series E Investor's representation
to the Company, which by such Series E Investor's execution of this Agreement
such Series E Investor hereby confirms, that the Series E Preferred Stock and
the Common Stock issuable upon conversion of the Series E Preferred Stock
(collectively, the "Securities") will be acquired for investment for such
Series E Investor's own account and accounts under such Series E Investor's
common control and ownership, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof in contravention of any federal
or state securities laws, and that such Series E Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same in contravention of any federal or state securities law.

12.
<PAGE> 17
3.3 DISCLOSURE OF INFORMATION. Such Series E Investor represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Series E
Preferred Stock. The foregoing, however, does not in any manner limit or
modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of the Series E Investors to rely thereon, regardless of
any investigation undertaken by or on behalf of the Series E Investors.

3.4 INVESTMENT EXPERIENCE. Such Series E Investor is an
institutional or individual investor in securities of companies in the
development or growth stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Series E Preferred Stock. If
other than an individual, each Series E Investor also represents it has not
been organized for the purpose of acquiring the Securities.

3.5 ACCREDITED SERIES E INVESTOR. Such Series E Investor is and at
the Closing will be an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated by the SEC under the 1933 Act, as presently in effect.

3.6 RESTRICTED SECURITIES. Such Series E Investor understands that
the Securities it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the 1933 Act, only in certain limited circumstances. In
this connection, such Series E Investor represents that it is familiar with
Rule 144 promulgated by the SEC, as presently in effect, and understands the
resale limitations imposed thereby and by the 1933 Act.

3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, each Series E Investor further agrees not
to make any disposition of all or any portion of the Securities unless and
until the transferee has agreed in writing for the benefit of the Company to be
bound by the terms of this Agreement (provided, and only to the extent that,
such provisions are then applicable, and provided that any Series E Investor is
making such disposition in a transaction other than pursuant to Rule 144 or
Rule 144A or under an effective registration statement under the 1933 Act), and

(a) such Series E Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
reasonably detailed statement of the circumstances surrounding the proposed
disposition, and

(b) if reasonably requested by the Company, such Series E
Investor shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration of such shares under the 1933 Act.

13.
<PAGE> 18
3.8 LEGENDS. It is understood that the certificates evidencing the
Securities may bear the following legend to the extent reasonably required by
applicable law:

"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE
SECURITIES UNDER SUCH 1933 ACT, IN COMPLIANCE WITH RULE 144 UNDER THE 1933
ACT, OR THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR EXCEPT AS OTHERWISE PROVIDED IN THE SERIES E PREFERRED STOCK
PURCHASE AGREEMENT DATED JULY 12, 1996."

3.9 CONSENTS. Except for termination of the relevant waiting period
under the Hart-Scott Rodino Act Anti-Trust Improvements Act of 1976, as amended
(the "HSR Act"), as required by Section 5.3, no consent, approval or
authorization of or designation, declaration or filing with any state, federal
or foreign governmental authority on the part of such Series E Investor is
required in connection with the valid execution and delivery of this Agreement,
the Stockholders Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby.

4. STATE COMMISSIONER OF CORPORATIONS.

THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS
NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF ANY STATE AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY THE APPLICABLE
STATE CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE
IS SO EXEMPT.

5. CONDITIONS OF SERIES E INVESTOR'S OBLIGATIONS AT THE CLOSING. The
obligations of each Series E Investor under Section 1 of this Agreement are
subject to the fulfillment, on or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against any Series E
Investor who does not consent in writing thereto:

5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 shall be true and correct on and as of the
Closing with the same force and effect as though such representations and
warranties had been made on and as of the date of the Closing.

14.
<PAGE> 19
5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.

5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance or sale
of the Series E Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of the Closing. Without limiting the generality of
the foregoing, Chase (as defined below) shall have received all requisite
approvals under the HSR Act to permit it to acquire all of the securities to be
issued to it in connection with the consummation of the transactions
contemplated by the Merger Agreement.

5.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Series E Investors' counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they
shall have reasonably requested.

5.5 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to each Series E Investor at the Closing a certificate certifying that
(i) the conditions specified in Sections 5.1, 5.2, 5.3 and 5.6 have been
fulfilled and stating that there has been no material adverse change in the
business, affairs, operations, properties, assets or condition of the Company
since March 30, 1996, and (ii) all conditions precedent to the consummation of
the transactions contemplated by the Merger Agreement (except those related to
the completion of this financing) have been satisfied or duly waived and such
officer knows of no reason why such transactions will not be consummated
promptly after the Closing.

5.6 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
in substantially the form attached hereto as Exhibit A shall have been approved
by all necessary corporate and stockholder action and duly accepted for filing
by the Delaware Secretary of State.

5.7 BYLAWS. The Bylaws of the Company shall provide that the Board
of Directors of the Company shall consist of not more than eleven directors,
with the exact number of directors to be specified by resolutions duly adopted
from time to time by the Board of Directors.

5.8 BOARD OF DIRECTORS. Immediately following the Closing and the
closing of the Merger, the directors of the Company shall be Michael C.
Gilliland, Elizabeth C. Cook, James B. McElwee, Peter D. Behrendt, David M.
Chamberlain, David L. Ferguson, M. Laird Koldyke, Barnet M. Feinblum, S.M.
Hassan, John Shields and one director to be named by a majority of the Series E
Investors.

5.9 STOCKHOLDERS AGREEMENT. The Stockholders Agreement and
Stockholders Agreement Joinder in substantially the forms attached hereto as
Exhibits B-1 and B-2 shall have been entered into by the parties named therein.

15.
<PAGE> 20
5.10 COMMITTEES. The Committees of the Board of Directors shall be
as set forth in Schedule E attached hereto.

5.11 REGISTRATION RIGHTS AGREEMENT. The parties hereto, as well as
the parties to the Registration Rights Agreement dated November 14, 1994 (the
"Prior Registration Rights Agreement"), shall have entered into the
Registration Rights Agreement and Registration Rights Agreement Joinder in the
forms attached hereto as Exhibits C-1 and C-2 and the Prior Registration Rights
Agreement shall have been terminated without liability to any party thereto.

5.12 LEGAL OPINIONS. Each Series E Investor shall have received
from Cooley, Godward, Castro, Huddleson & Tatum, counsel for the Company, an
opinion, dated as of such Closing, in the form attached hereto as Exhibit D.

6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations
of the Company to each Series E Investor under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions
by that Series E Investor:

6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Series E Investors contained in Section 3 shall be true and
correct on and as of the Closing with the same force and effect as though such
representations and warranties had been made on and as of the date of the
Closing.

6.2 PAYMENT OF PURCHASE PRICE. The Series E Investors shall have
delivered the aggregate purchase price specified in Section 1.

6.3 PERFORMANCE. The Series E Investors shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by them on or
before the Closing.

6.4 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
substantially in the form attached hereto as Exhibit A shall have been approved
by all necessary corporate and stockholder action and duly accepted for filing
by the Delaware Secretary of State.

6.5 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance or sale
of the Series E Preferred Stock pursuant to this Agreement shall have been duly
obtained and effective as of the Closing.

7. REGISTRATION RIGHTS. Contemporaneous with the execution of this
Agreement, (a) each of the parties hereto as well as each of the parties to the
Prior Registration Rights Agreement shall enter into the Registration Rights
Agreement in the form attached hereto as Exhibit C and (b) the Prior
Registration Rights Agreement shall be terminated without any liability to any
party thereto.

16.
<PAGE> 21

8. COVENANTS OF THE COMPANY.

8.1 SBIC Regulatory Compliance Cooperation.

(a) In the event that Chase Venture Capital Associates, L.P.
("Chase" or the "Regulated Investor") determines that it has a Regulatory
Problem (as defined below), the Company and each Stockholder agrees to use
commercially reasonable efforts to take all such actions as are reasonably
requested by such Regulated Investor in order (i) to effectuate and facilitate
any transfer by such Regulated Investor of any Securities (as defined below) of
the Company then held by such Regulated Investor to any person designated by
such Regulated Investor, (ii) to permit such Regulated Investor (or any
Affiliate of such Regulated Investor) to exchange all or any portion of the
voting Securities then held by such person on a share-for-share basis for
shares of a class of non-voting Securities of the Company, which non-voting
Securities shall be identical in all respects to such voting Securities, except
that such new Securities shall be non-voting and shall be convertible into
voting Securities on such terms as are requested by such Regulated Investor in
light of regulatory considerations then prevailing, and (iii) to continue and
preserve the respective allocation of the voting interests with respect to the
Company provided for in the Stockholders Agreement and with respect to such
Regulated Investor's ownership of the Company's voting Securities. Such
actions may include, but shall not necessarily be limited to:

(i) entering into such additional agreements as are
requested by such Regulated Investor to permit any person(s) designated by such
Regulated Investor to exercise any voting power which is relinquished by such
Regulated Investor upon any exchange of voting Securities for non-voting
Securities of the Company; and

(ii) entering into such additional agreements,
adopting such amendments to the Certificate of Incorporation and Bylaws of the
Company and taking such additional actions as are reasonably requested by such
Regulated Investor in order to effectuate the intent of the foregoing.

If the Regulated Investor elects to transfer Securities of the Company to
a Regulated Holder (as defined below) in order to avoid a Regulatory Problem,
the Company shall enter into such agreements with such Regulated Holder as it
may reasonably request in order to assist such Regulated Holder in complying
with applicable laws, rules and regulations to which it is subject. Such
agreements may include restrictions on the redemption, repurchase or retirement
of Securities of the Company that would result or be reasonably expected to
result in such Regulated Holder holding more voting securities or total
securities (equity or debt) than it is permitted to hold under such regulations.

(b) In the event a Regulated Investor has the right to acquire any
of the Company's Securities (as the result of a preemptive offer, pro rata offer
or otherwise), at the Regulated Investor's request the Company will offer to
sell to such Regulated Investor's non-voting Securities on the same terms as
would have existed had such Regulated Investor

17.
<PAGE> 22
acquired the Securities so offered and immediately requested their exchange for
non-voting Securities pursuant to paragraph (a) above.

(c) In the event that any Subsidiary of the Company ever offers
to sell any of its Securities to a Regulated Investor, then the Company will
cause such Subsidiary to enter into agreements with such Regulated Investor
substantially similar to this Section 8.1 and 8.2 below.

(d) The Company shall grant to any subsequent holder of Securities
originally acquired by a Regulated Investor ("Subsequent Purchasers"), upon such
person's request, the same rights granted to a Regulated Investor pursuant to
this Section 8.1 and Section 8.2 below.

(e) For purposes of this Agreement:

(i) "REGULATED HOLDER" means any holder of the
Company's Securities that is (or that is a subsidiary of a bank holding company
that is) subject to the various provisions of Regulation Y of the Board of
Governors of the Federal Reserve Systems, 12 C.F.R., Part 225 (or any successor
to Regulation Y);

(ii) "Regulatory Problem" means (A) any set of facts
or circumstances wherein it has been asserted by any governmental regulatory
agency (or a Regulated Investor or any Subsequent Purchaser believes that there
is a significant risk of such assertion) that such person (or any bank holding
company that controls such person) is not entitled to hold, or exercise any
material right with respect to, all or any portion of the Securities of the
Company which such person holds or (B) which such person and its Affiliates
would own, control or have power (including voting rights) over a greater
quantity of Securities of the Company than is permitted under any law or
regulation or any requirement of any governmental authority applicable to such
person or to which such person is subject; and

(iii) "Securities" means, for purposes of this
Section 8.1, with respect to any person, such person's capital stock or any
options, warrants other Securities which are directly or indirectly convertible
into, or exercisable or exchangeable for, such person's capital stock (whether
or not such derivative Securities are issued by the Company). Whenever a
reference herein to Securities refers to any derivative Securities, the rights
of a Regulated Investor shall apply to such derivative Securities and all
underlying Securities directly or indirectly issuable upon conversion, exchange
or exercise of such derivative Securities.

(f) For purposes of this Article 8, the "Company" shall include
any successor in interest thereto upon any merger, consolidation, sale of
substantially all of the assets of the Company or any similar transaction.

8.2 INFORMATION RIGHTS AND RELATED COVENANTS.

(a) Upon the request of a Regulated Investor, any Affiliate of a
Regulated Investor or any Subsequent Purchaser, the Company will:

18.
<PAGE> 23
(i) provide to such person and the U.S. Small
Business Administration (the "SBA") access to its books and records for the
purpose of confirming the use of the proceeds of such person's financing and
for all other purposes required by the SBA;

(ii) provide to such person and the SBA a certificate
of its chief financial officer (A) verifying the use of such proceeds and (B)
certifying compliance by the Company with the provisions of this Agreement;

(iii) provide to such person an assessment, in form
and substance satisfactory to such person, of the economic impact of such
person's financing, specifying the full-time equivalent jobs created or
retained, the impact of the financing on the Company's business in terms of
expanded revenue and taxes and other appropriate economic benefits, including,
but not limited to, technology development or commercialization, minority
business development, urban or rural business development, expansion of exports
and assistance to manufacturing firms;

(iv) provide to such person such financial statements
and other information as such person may from time to time request for the
purpose of assessing the Company's financial condition; and

(v) furnish to such person all information
requested by it in order for it to prepare and file SBA Form 468 or to prepare
an assessment of the economic impact of such person's financing, and any other
information requested or required by any governmental agency asserting
jurisdiction over such person.

(b) The Company will at all times comply with the
non-discrimination requirements of 13 C.F.R., Parts 112, 113 and 117.

(c) The Company acknowledges that the Regulated Investor intends
to file the certificate contemplated by 13 CFR Section 107.865(e) and
will cooperate in the preparation thereof.

8.3 ASSIGNMENT. The covenants set forth in this Section 8 shall be
assignable to a purchaser, assignee or transferee who purchases shares of
Series E Preferred Stock from a Series E Investor; provided, however, that if
any Series E Investor shall distribute any shares of Series E Preferred Stock
to its limited partners, such partners shall appoint a single agent for
purposes of receiving notices and giving consents hereunder and in that
connection, shall execute and deliver an irrevocable proxy to such agent.

9. MISCELLANEOUS.

9.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Series E Investors contained in or made pursuant
to this Agreement shall survive the execution and delivery of this Agreement
and the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Series E Investors of the
Company.

19.
<PAGE> 24
9.2 BENEFIT OF AGREEMENT; SUCCESSORS AND ASSIGNS. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of the Series E Preferred Stock
or the Common Stock issuable upon conversion thereof). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement. It
is acknowledged and agreed that the Series E Investors may grant participations
in the securities acquired hereby so long as any such participations are
granted in compliance with any applicable securities laws, including a transfer
by Chase substantially as effected with respect to the Series C Preferred Stock

9.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.

9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

9.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

9.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or telecopy (receipt confirmed, with a
copy to be sent by reputable overnight courier as set forth herein) to the
party to be notified, or one business day after delivery to a reputable
overnight courier, postage prepaid, and addressed to the party to be notified
at the address indicated for such party on the signature pages hereof, or at
such other address as such party may designate by ten (10) days' advance
written notice to the other parties.

9.7 FINDER'S FEE. Each Series E Investor represents that it neither
is nor will be obligated for any finders' fee or commission in connection with
this transaction. Each Series E Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Series E Investor or any of
its officers, partners, employees, or representatives is responsible.

The Company represents that it neither is nor will be obligated for any
finders' fee or commission in connection with this transaction, except for the
fee to be paid to Montgomery Securities at the Closing in the amount of
$300,000 (net of a credit of $50,000). The Company agrees to indemnify and
hold harmless each Series E Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company
or any of its officers, employees or representatives is responsible.

20.
<PAGE> 25
9.8 EXPENSES. If the Closing is effected, the Company shall pay all
costs and expenses that it incurs with respect to the negotiation, execution,
delivery and performance of this Agreement and shall pay the reasonable fees
and out-of-pocket expenses (not to exceed $50,000 (not including legal fees
paid with regard to compliance with the HSR Act) without written consent from
the Company) of counsel and accountants for the Series E Investors. In the
event that the Closing is not effected, the Series E Investors shall bear sole
responsibility for all of their expenses, including legal fees.

9.9 AMENDMENTS AND WAIVERS. Except as otherwise specified in this
Agreement, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Common Stock issued
or issuable upon conversion of the Series E Preferred Stock. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities, each party hereto and the Company.

9.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.

9.11 AGGREGATION OF STOCK. All shares of Series E Preferred Stock
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.

9.12 INTEGRATION. This Agreement (including all exhibits and
schedules hereto and certificates or other documents delivered in connection
with the Closing hereunder), together with the Stockholders Agreement,
Certificate of Incorporation and Registration Rights Agreement, embodies the
entire agreement and understanding of the parties hereto in respect of the
actions and transactions contemplated by this Agreement. There are no
restrictions, promises, inducements, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein and in
the Stockholders Agreement, Certificate of Incorporation and the Registration
Rights Agreement.

9.13 SPECIAL TRIGGERING EVENT. In order to ensure that the proceeds
from the sale of the Series E Preferred Stock are used as contemplated herein,
in the event that the Merger has not been completed within fifteen days of the
Closing (a "Special Triggering Event"), the Company shall immediately redeem
all shares of Series E Preferred Stock as provided in the Company's Amended and
Restated Certificate of Incorporation.

21.
<PAGE> 26

10. MERGER. Each Series E Investor hereby consents to the transactions
described in the Merger Agreement and hereby waives all right to notices,
consents or other actions it would otherwise be entitled arising from the
transactions associated with the Merger Agreement.

(Signature Pages Follow)

22.
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

WILD OATS MARKETS, INC.

<TABLE>
<S> <C>
/s/ MICHAEL C. GILLILAND
-----------------------------------------------
By: Michael C. Gilliland
Its: Chief Executive Officer

Address: 1668 Valtec Lane
Boulder, CO 80301
Attention: Michael C. Gilliland

Telecopy: (303) 938-1350
</TABLE>

23.
<PAGE> 28
The foregoing Agreement is hereby accepted as of the date first above written.

<TABLE>
<S> <C>
NAME OF SERIES E INVESTOR:

CHASE VENTURE CAPITAL ASSOCIATES, L.P.,
a California Limited Partnership

By: Chase Capital Partners, a New York general
partnership

By:/s/ DAVID L. FERGUSON
-------------------------------------------------
David L. Ferguson,
General Partner

Address: 380 Madison Avenue, 12th Floor
New York, NY 10017
Attention: Chief Administrative Officer
Telecopy: (212) 622-3101

Copy to: CVP Management Corporation
840 Apollo Street, Suite 223
El Segundo, CA 90245
Telecopy: (310) 335-1965

WESTON PRESIDIO OFFSHORE CAPITAL C.V.,
a Netherlands Antilles limited partnership

By: Weston Presidio Capital Management L.P.
a Delaware Limited Partnership

By: /s/ JAMES P. McELWEE
-------------------------------------------------
James P. McElwee,
General Partner

Address: 343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Telecopy: (415) 398-0990
</TABLE>

24.
<PAGE> 29
MONTGOMERY ASSOCIATES, 1992 L.P.

By:/s/ JACK G. LEVIN
-------------------------------------------------
Jack G. Levin, Managing Partner

Address: 600 Montgomery Street
Newport Beach, CA 92660

NATIONAL CITY CAPITAL CORPORATION

By:/s/ CARL E. BALDASSARRE
-------------------------------------------------
Carl E. Baldassarre, Managing Director

25.
<PAGE> 30
EXHIBIT A
CERTIFICATE OF INCORPORATION

Intentionally Omitted. See 3(i).1.

<PAGE> 31

EXHIBIT B-1
STOCKHOLDERS AGREEMENT

Intentionally Omitted. See 10.14.
<PAGE> 32

EXHIBIT B-2
STOCKHOLDERS AGREEMENT JOINDER

Intentionally Omitted
<PAGE> 33

EXHIBIT C-1
REGISTRATION RIGHTS AGREEMENT

Intentionally Omitted. See 10.16.
<PAGE> 34

EXHIBIT C-2
REGISTRATION RIGHTS AGREEMENT JOINDER

Intentionally Omitted
<PAGE> 35

EXHIBIT D
LEGAL OPINIONS

Intentionally Omitted
<PAGE> 36

SCHEDULE A
SCHEDULE OF PURCHASERS

<TABLE>
<CAPTION>
INVESTOR NO. OF SHARES PRICE
- -------------------------------------------------- --------------- ---------------
<S> <C> <C>
Chase Venture Capital Associates, L.P. 449,587 $15,000,020.67
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10017
Attn: Chief Administrative Officer

Copy to:
CVP Management Corporation
840 Apollo Street, Suite 223
El Segundo, CA 90245
Attn: David L. Ferguson

Weston Presidio Offshore Capital C.V. 33,868 $ 1,129,971.95
c/o Weston Presidio Capital Management L.P.
343 Sansome Street, Suite 1210
San Francisco, CA 94101

Montgomery Securities, L.P. 2,998 $ 100,025.27

National City 7,494 $ 250,025.27
</TABLE>

A-1
<PAGE> 37

SCHEDULE B
COMMON STOCKHOLDERS
<TABLE>
<CAPTION>
Holder Number of Shares
--------------------------------- ----------------
<S> <C>
Michael C. Gilliland 452,662
Elizabeth C. Cook 452,662
Mark R. Clapp 340,676
Bennett L. Bertoli 42,000
David M. Wilkinson 28,000
David Chamberlain 4,285
Peter Behrendt 2,857
Bob Stone 1,328
John Heavey 800
John Fisher 200
Empire National Corporation 121,739
-----------
Total Shares Outstanding 1,447,209
===========
</TABLE>

CONVERTIBLE SECURITIES

Weston Presidio has certain conversion privileges contained in
the WP Warrants (as defined in Section 2.2(b) of the Series C
Preferred Stock Purchase Agreement) and has certain conversion
privileges pursuant to that certain convertible note issued by
the Company to Weston Presidio dated October 11, 1994.

B-1
<PAGE> 38
SCHEDULE C
MATERIAL AGREEMENTS

2.11 (b) Amendment to Purchase Assets dated February 21, 1990, amended
November 5, 1990, amended February 27, 1992 and the Agreement
to Purchase Assets dated March 1, 1993 (Rainbow purchase
contract).

Debt obligations as described in the schedule furnished the
Series E Investors.

Facilities leases of all stores:

<TABLE>
<CAPTION>
Store Lessor
----- ------
<S> <C>
Wild Oats Vegetarian Transecon
Wild Oats Denver S & G Realty
Wild Oats Denver Parking 1441 York St. Operating Account
Wild Oats Aurora London Square
Wild Oats St. Francis, Santa Fe CAMPR Partners
Wild Oats - Ft. Collins Johnson Investments
Santa Fe Warehouse Dumas & Sovola Slade
Santa Fe Kitchen Ricarda & Morris Montoya
Wild Oats St. Michael's, Santa Fe Thomas Properties Ltd.
Wild Oats - Kansas City Krugh Commercial
Wild Oats Colorado Springs Union Square Plaza
Wild Oats Albuquerque Pacific Mutual Life Insurance Co.
Wild Oats Boulder Rose Realty
Wild Oats Home Office Valtec Associates
Wild Oats Albuquerque - Juan Tebot Foothills Shopping Center Assoc.
Wild Oats - Santa Monica Fireside Liquors, Inc.
Wild Oats - Pasadena Jurgensen's Market
Wild Oats - Los Angeles Kitchen
Wild Oats Warehouse - Commerce City UVAG Realty
Wild Oats Denver storage space 5000 Clarkson Street LLC

Leases under Negotiation
------------------------

Store Lessor
----- ------
Greenwood Village SuperValu
Kansas City Scimaca and Sons
</TABLE>

Service Contract between Wild Oats Markets, Inc. and Pretty
Good Groceries, Inc. dated July 4, 1993.

Service contract with AFC ("Sushi company").

Currently accepting bids to purchase inventory pricing and
scanning equipment.

C-1
<PAGE> 39

Contemplated $1.3 million equipment lease with Heller
Financial on or about November 14, 1994.

Contemplated $1.0 million lease line for inventory pricing and
scanning equipment.

C-2
<PAGE> 40
SCHEDULE D
USE OF PROCEEDS

<TABLE>
<S> <C>
$ 4,500,000 Repurchase of 63,264 shares of Preferred Stock owned by Stolberg Partners, L.P.

$11,730,000 Repurchase of 202,104 shares of Common Stock owned by certain former
stockholders of Alfalfa's, Inc.

$ 8,000 Repurchase of 278 shares of Common Stock owned by Bob Stone, a former
stockholder of Wild Oats Markets, Inc.
</TABLE>

D-1
<PAGE> 41
SCHEDULE E

COMMITTEES OF THE BOARD OF DIRECTORS
OF WOA HOLDINGS, INC.

Audit Committee

David L. Ferguson
James B. McElwee
Elizabeth C. Cook

Compensation Committee

David L. Ferguson
James B. McElwee
Barnet M. Feinblum
M. Laird Koldyke
David Chamberlain

E-1

<PAGE> 1

STOCKHOLDERS AGREEMENT

THIS STOCKHOLDERS AGREEMENT, dated as of July 12, 1996 (the
"AGREEMENT"), is made by and among WILD OATS MARKETS, INC., a Delaware
corporation (the "COMPANY"), the stockholders of the Company listed on Exhibit
A attached hereto, the Series E Investors (as defined herein), WO HOLDINGS,
INC., a Delaware corporation, formerly known as Alfalfa's, Inc. ("HOLDINGS"),
and the stockholders of HOLDINGS listed on Exhibit B attached hereto.

RECITALS:

A. Each of the Stockholders (as defined below) owns that
number of shares of the capital stock of the Company set forth opposite his or
her name on Exhibit A hereto.

B. The Series E Investors have purchased an aggregate of
up to 843,125 shares of the Company's Series E Preferred Stock, par value $.001
per share (the "SERIES E PREFERRED STOCK"), pursuant to the terms of the Series
E Preferred Stock Purchase Agreement, dated even herewith, between the Series E
Investors and the Company (the "SERIES E STOCK PURCHASE AGREEMENT").

C. Immediately after the closing of the sale of Series E
Preferred Stock, the Company will merge into Holdings pursuant to the terms of
the Agreement and Plan of Merger dated June 4, 1996 (the "MERGER AGREEMENT").
Pursuant to the terms of the Merger Agreement all of the shares of outstanding
capital stock of the Company will be exchanged for shares of the capital stock
of Holdings (the "MERGER").

D. Each of the parties hereto desires to enter into
certain understandings regarding the transfer of Common Stock and Preferred
Stock, the management of the Company (and of Holdings effective upon the
closing of the Merger) and other matters, as herein set forth.

AGREEMENT:

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

1. CERTAIN DEFINITIONS. As used in this Agreement the following
terms shall have the meanings set forth below:

"AFFILIATE" of a Person, shall mean any Person which, directly
or indirectly, controls, is controlled by, or is under common control with,
such Person. The term "control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used with respect
to any Person, 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 voting securities or by contract or otherwise.

1.
<PAGE> 2
"FOUNDERS" shall mean the WO Founders and the Holdings
Founder.

"COMMON STOCK" shall mean the 6,500,000 shares of Common Stock
of the Company, par value $.001 per share, of which 1,447,209 shares will be
held by the Stockholders.

"EQUITY SECURITIES" shall mean shares of, or securities
convertible into or exercisable or exchangeable for, any shares of, any class
of the Company's capital stock, including without limitation, its Common Stock
and Preferred Stock.

"HOLDINGS FOUNDER" shall mean S.M. Hassan.

"INVESTOR REPRESENTATIVES" shall mean the representatives
designated pursuant to Sections 5(a)(i)(1),(2),(3) and (4) hereof.

"INVESTORS" shall mean, collectively, the Series A Investors,
the Series B Investors, the Series C Investors, the Series D Investors and the
Series E Investors.

"INVESTOR'S PERCENTAGE SHARE" shall mean the percentage that
the number of shares of Common Stock (including shares of Common Stock issuable
on conversion of any Preferred Stock or upon conversion of any other
convertible security of the Company) held by such Investor is of the total
number of shares of Common Stock (including shares of Common Stock issuable
upon conversion of any Preferred Stock and upon conversion of any other
convertible security of the Company) held by all Investors.

"MERGER" shall have the meaning set forth in the recitals.

"PERSON" shall mean an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, a government
or any department or agency thereof, or any other entity.

"PREFERRED STOCk" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock.

"PREFERRED STOCKHOLDERS" shall mean the holders of Preferred
Stock.

"PUBLIC OFFERING" shall mean the Company's sale of its Common
Stock in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended, where (i)
gross proceeds to the Company are not less than $20,000,000, and (ii) the
product of the price per share to the public of the Common Stock times the
number of shares of Common Stock outstanding immediately prior to the
consummation of the underwritten sale (including any shares of Common Stock
then issued or issuable upon conversion of the Preferred Stock) shall be not
less than $140,000,000.

2.
<PAGE> 3

"SELLING STOCKHOLDERS" shall mean the Stockholders listed on
Exhibit C attached hereto who may sell up to 10% of their Common Stock in a
Public Offering subject to the terms and conditions set forth in the
Registration Rights Agreement, dated of even date herewith, by and between the
Company and certain investors.

"SERIES A INVESTORS" shall mean the holders of the Series A
Preferred Stock who may execute this Agreement from time to time, whose names
are thereupon listed on Exhibit A hereto.

"SERIES A PREFERRED STOCK" shall mean the Company's Series A
Preferred Stock, par value $.001 per share, of which 168,000 shares are
outstanding. The Series A Preferred Stock will be exchanged for the Series A
Preferred Stock of Holdings in the Merger.

"SERIES A STOCK PURCHASE AGREEMENT" shall mean the Preferred
Stock Purchase Agreement, dated as of July 3, 1993 and as amended November 14,
1994, pursuant to which the Series A Preferred Stock of the Company was issued
to the Series A Investors.

"SERIES B INVESTORS" shall mean the holders of the Series B
Preferred Stock who may execute this Agreement from time to time, whose names
are thereupon listed on Exhibit A hereto.

"SERIES B PREFERRED STOCK" shall mean the Company's Series B
Preferred Stock, par value $.001 per share, of which no shares are outstanding.
The right to receive shares of the Company's Series B Preferred Stock will
become the right to receive Series B Preferred Stock of Holdings in the Merger.

"SERIES C INVESTORS" shall mean the holders of the Series C
Preferred Stock who may execute this Agreement from time to time, whose names
are thereupon listed on Exhibit A hereto.

"SERIES C PREFERRED STOCK" shall mean the Company's Series C
Preferred Stock, par value $.001 per share, of which 416,007 shares are
outstanding. The Series C Preferred Stock will be exchanged for the Series C
Preferred Stock of Holdings in connection with the Merger.

"SERIES C STOCK PURCHASE AGREEMENT" shall mean the Preferred
Stock Purchase Agreement, dated as of November 14, 1994 pursuant to which the
Series C Preferred Stock of the Company was issued to the Series C Investors.

"SERIES D INVESTORS" shall mean the holders of the Series D
Preferred Stock who may execute this Agreement from time to time, whose names
are thereupon listed on Exhibit A hereto.

"SERIES D PREFERRED STOCK" shall mean Holdings' Series D
Preferred Stock, par value $.001 per share, of which 355,829 shares are
outstanding. The Series D Preferred Stock of Holdings was issued in exchange
for shares of the Series A Preferred Stock of

3.
<PAGE> 4
Alfalfa's, Inc. in connection with the Alfalfa's Reincorporation Merger (as
defined in the Merger Agreement).

"SERIES E INVESTORS" shall mean the holders of the Series E
Preferred Stock who may execute this Agreement from time to time, whose names
are thereupon listed on Exhibit A hereto.

"SERIES E PREFERRED STOCK" shall have the meaning set forth in
Recital B.

"STOCKHOLDERS" shall mean any of the Investors, the WO
Founders and the Holdings Founder, and their respective assignees and
successors.

"VOTING STOCK" shall mean any class or classes of the capital
stock of the Company the holders of which are entitled to participate generally
in the election of directors of the Company, including, but not limited to, the
Common Stock and the Preferred Stock.

"WO FOUNDERS" shall mean Michael Gilliland, Elizabeth C. Cook
and Mark R. Clapp.

"WO SELLERS" shall mean David Wilkinson and Mark R. Clapp.

2. EFFECTIVENESS OF AGREEMENT; SUPERSEDES PRIOR STOCKHOLDERS
AGREEMENT; EFFECT OF MERGER. This Agreement shall be effective from and after
the date hereof and shall supersede (i) that certain Amended and Restated
Stockholders Agreement, dated as of November 14, 1994, among Wild Oats, the WO
Founders, the Series A Investors, the Series B Investors, and the Series C
Investors and (ii) the Alfalfa's Stockholders' Agreement by and among Holdings
and certain shareholders of Holdings dated February 28, 1995 which agreements
are hereby terminated without any liability to any party thereto and shall be
of no further force or effect. By executing this Agreement, each signatory
consents to the termination of all such prior agreements, without liability to
any party thereto, as provided by this Section 2.

Upon the execution of signature pages to this Agreement by Holdings and by
certain Holdings Stockholders listed on Exhibit B attached hereto, this
Agreement shall be the Agreement of Holdings and certain stockholders of
Holdings executing such signature pages. In that regard, all references to the
Company shall refer to Holdings and all references to Common Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall refer to the corresponding
series or class of the capital stock of Holdings.

4.
<PAGE> 5
shall be for a period of 90 days after Mr. Gilliland and Ms. Cook receive
notice of the occurrence of such event. The purchase price shall be payable in
the form of a check or note payable to the order of Mr. Clapp or his estate or
heirs in the event of his death. In the event that Mr. Gilliland and Ms. Cook
fail to exercise their rights under this Section 2A or fail to exercise such
rights with respect to all of the Clapp Shares, any subsequent proposed
transfer of any of the Clapp shares by Mr. Clapp or his heirs, successors or
assigns shall be subject to Sections 3 and 4 of this Agreement. For purposes
of this Section 2A, "DISABILITY" shall have the meaning set forth in Section
22(e)(4) of the Internal Revenue Code, as amended, and "FAIR MARKET VALUE"
shall mean, if the shares are listed on a national securities exchange or
designated for trading on the Nasdaq National Market, the closing sales price
of the Common Stock on the date of such event or, if the shares are traded on
any over-the-counter market, the average of the bid and asked prices of the
Common Stock on the date of such event, or if the Company's Common Stock is not
publicly traded, the fair market value of the Clapp Shares as determined by the
Company's Board of Directors (excluding Mr. Gilliland and Ms. Cook if such
persons are members of the Board of Directors at the time of determination) in
good faith, taking into account all factors which they deem relevant.

3. RIGHT OF FIRST OFFER.

(a) Prior to the closing of the Public Offering and
subject to Section 2A if then applicable and Section 3(c) hereof, each time a
Founder (an "OFFERING STOCKHOLDER") proposes to offer for sale any Equity
Securities of the Company owned by such Founder at the date of this Agreement
(including, in the case of Michael C. Gilliland and Elizabeth C. Cook, any
Equity Securities previously owned by Mark R. Clapp and acquired pursuant to
Section 2A hereof, and including with respect to any Founder, any Equity
Securities previously owned by any other Founder and acquired pursuant to
Section 3(c) hereof), such Offering Stockholder shall first make an offering of
such Equity Securities (referred to collectively herein as the "OFFERED
SECURITIES"), to the Company in accordance with the following provisions:

(i) The Offering Stockholder shall deliver a
notice (the "OFFERING NOTICE") to the Company and each of the Investors stating
(i) the Offering Stockholder's bona fide intention to offer such Offered
Securities, (ii) the number of shares of such Offered Securities to be offered
for sale, and (iii) the price and terms, if any, upon which the Offering
Stockholder proposes to offer such Offered Securities.

(ii) Within 30 days after the Offering Notice is
given, the Company may elect to purchase from the Offering Stockholder, at the
price and on the terms specified in the Offering Notice, any or all of the
shares of Offered Securities offered in the Offering Notice. Such right shall
be exercised by written notice delivered to the Offering Stockholder by the
Company prior to the expiration of the 30-day exercise period.

(iii) The closing of the purchase of any shares of
Offered Securities by the Company shall take place at the principal offices of
the Company (or such other location as the parties may agree on) on the fifth
business day after the expiration of the 30-day period following the giving of
the Offering Notice. At such closing, the Company shall

5.
<PAGE> 6
make payment in the appropriate amount by means of a check or by a wire
transfer to the Offering Stockholder against delivery of stock certificates
representing the share so purchased, duly endorsed in blank by the Person or
Persons in whose name such certificate is registered or accompanied by a duly
executed stock or security assignment separate from the certificate.

(iv) In the event the Company does not elect to
purchase any or all of the shares of Offered Securities offered in the Offering
Notice, the Company shall give written notice to each of the Investors (the
"Reoffer Notice") of its decision not to exercise its rights or of the number
of shares of Offered Securities available for purchase (the "REOFFERED SHARES")
on or before the final day of such 30-day period and the right to purchase such
Reoffer Shares shall pass automatically to each of the Investors. Each
Investor shall initially be entitled to purchase such Investor's Percentage
Share. In the event that any Reoffered Shares remain after such allocation and
Investors remain who desire to purchase additional Reoffered Shares in excess
of their Investor's Percentage Share, all of the remaining Reoffered Shares
which such Investors have elected to purchase shall be allocated to them pro
rata based on the number of shares of Offered Securities held by them (treating
the Offered Securities as having been converted into, exchanged for or
exercised for Common Stock), or as otherwise agreed to among such remaining
Investors. Each Investor will have 10 days from receipt of such notice from
the Company to exercise its repurchase rights under this Section 3 by written
notice to the Offering Stockholder. The closing of any purchase and sale under
this subsection (iv) shall be held on the 5th business day following the
exercise by such Investor of the repurchase rights hereunder in accordance with
the provisions of subsection (iii) above.

(b) In the event that all of the shares being offered are
not purchased at the closings referred to in subsections (a)(iii) or (a)(iv),
the Offering Stockholder shall, for a period of 90 days thereafter, have the
right to sell or otherwise dispose of the number of shares of Offered
Securities offered in the Offering Notice upon terms and conditions (including
the price per share) no more favorable to the third party purchaser than those
specified in the Offering Notice; provided, however, that such sale or
disposition shall be subject to, and be made in full compliance with, the
co-sale rights set forth in Section 4. In the event that the Offering
Stockholder does not sell or otherwise dispose of such shares of Offered
Securities within the specified 90 day period, the right of first offer
provided for in this Section 3 shall continue to be applicable to any
subsequent disposition of such shares.

(c) Notwithstanding the terms and provisions of Section
3(a) hereof, the right of first offer provided for in this Section 3 shall not
be applicable to (i) any transfers by Stockholders of Offered Securities to
family members or to trusts or other fiduciaries for the benefit of family
members, (ii) any transactions associated with the Merger, including the
redemption of shares held by the WO Sellers, (iii) the sale or transfer of
additional shares of Equity Securities aggregating less than 10% of the Equity
Securities held by a WO Founder, (iv) the purchase by Michael C. Gilliland or
Libby C. Cook of the Equity Securities owned by Mark R. Clapp pursuant the
Section 2A above, (v) the sale by a Selling Stockholder of Equity Securities in
a Public Offering, or (vi) any transfer by a Founder to an affiliate or direct
or indirect equity holder thereof.

6.
<PAGE> 7

(d) In the event that the right of first offer set forth
in this Section 3 is not exercised the purchaser of such shares shall not be
bound by the terms of this Agreement or be entitled to any benefits hereunder.

(e) Notwithstanding the other provisions of this
Agreement, this Section 3 shall not apply to any sale of Equity Securities in
the Public Offering.

4. CO-SALE PROVISIONS.

(a) Prior to the Company's Public Offering, in the event
that an Offering Stockholder after the application of Section 3 hereof
continues to propose to offer Offered Securities to any Person (individually a
"THIRD PARTY" and collectively, "THIRD PARTIES") other than to the Company or
the Founders, in any one transaction or any series of related transactions,
directly or indirectly, such sale or other disposition shall not be permitted
unless the Offering Stockholder shall offer (or cause the Third Party to offer)
the Investors the right to elect to include, at the sole option of the
Investors, in the sale or other disposition to the Third Party such number of
shares of Offered Securities owned by the Investors as shall be determined in
accordance with subsection (a)(i) of this Section 4 (the "TAG-ALONG SHARES").
At any time within 15 days after the giving of the Reoffer Notice described in
Section 3 hereof, each Investor may make an election to include the Tag-Along
Shares in such a sale or other disposition (the "INCLUSION ELECTION") by giving
written notice of its Inclusion Election to the Offering Stockholder and
delivering to the Company a stock certificate or certificates representing the
Tag-Along Shares, together with a limited power-of-attorney authorizing the
Offering Stockholder to sell or otherwise dispose of such Tag-Along Shares
pursuant to the terms of such Third Party's offer.

(i) Each Investor shall have the right to sell,
pursuant to the Third Party's offer, that percentage (the "TAG-ALONG
PERCENTAGE") of the number of shares of Equity Securities to be sold to the
Third Party equal to the ratio (expressed as a percentage) of (i) the shares of
Equity Securities (treating the Equity Securities as having been converted
into, or exchanged or exercised for, Common Stock) owned by the Investor, as
compared with (ii) the aggregate number of shares of Equity Securities owned by
the Offering Stockholder and the Equity Securities owned by all Investors
(treating the Equity Securities as having been converted into, or exchanged or
exercised for, Common Stock). In the event that (i) the Investors in the
aggregate elect to sell fewer Tag-Along Shares than they are entitled to sell
in the aggregate and (ii) certain Investors wish to sell an aggregate amount in
excess of each such Investor's Tag-Along Percentage, then the excess available
Tag-Along Shares shall be allocated among such Investors pro rata based upon
the number of shares of Equity Securities (treating the Equity Securities as
having been converted into, or exchanged or exercised for, Common Stock) owned
by such Investors, or as otherwise agreed among such Investors.

(ii) The purchase from the Investors pursuant to
this Section 4(a) shall be on the same terms and conditions, including the
price per share and the date of sale or other disposition, as are received by
the Offering Stockholder and stated in the Reoffer Notice.

7.
<PAGE> 8

(iii) Promptly (but in no event later than five
business days) after the consummation of the sale or other disposition of
shares of Offered Securities of the Offering Stockholder and the Investors to
the Third Party pursuant to the Third Party's offer, the Offering Stockholder
shall (i) notify the Investors of the completion thereof, (ii) cause to be
remitted to the Investors the total sales price attributable to the shares of
Offered Securities which the Investors sold or otherwise disposed of pursuant
thereto, and (iii) furnish such other evidence of the completion and time of
completion of such sale or other disposition and the terms thereof as may be
reasonably requested by the Investors.

(iv) If within 20 days after the Reoffer Notice is
given, an Investor has not accepted the offer to make an Inclusion Election,
such Investor will be deemed to have waived any and all of its rights with
respect to the sale or other disposition of shares of Offered Securities
described in the reoffer Notice. The Offering Stockholder shall have 90 days
after such 20-day period in which to sell or otherwise dispose of the shares of
Offered Securities of the Offering Stockholder to the Third Party or any other
Person at a price and on terms not more favorable to the Offering Stockholder
than were set forth in the Reoffer Notice.

(v) If, at the end of such 90-day period, the
Offering Stockholder has not completed the sale of shares of Offered Securities
of the Offering Stockholder in accordance with the terms of the Third Party's
offer, all the restrictions on sale contained in this Agreement with respect to
Offered Securities owned by the Offering Stockholder shall again be in effect
(unless such 90-day period is extended with the consent of each of the
Stockholders).

(b) The rights provided in this Section 4 shall not be
applicable to any transaction if Section 3(c) or Section 3(e) makes Section 3
inapplicable thereto.

(c) The provisions of Section 3 shall take priority over
this Section 4, and nothing in this Section 4 shall be construed to relieve any
Investor or any Offering Stockholder of its obligation to deliver an Offering
Notice to each of the other Investors pursuant to the terms of Section 3 in
connection with such a proposed transaction.

(d) In the event that a sale of shares of Common Stock is
made to a Third Party pursuant to this Section 4, such Third Party shall not be
bound by the terms of this Agreement, nor shall it be entitled to any benefits
hereunder.

5. GOVERNANCE.

(a) Until the closing of the Public Offering, the
Stockholders each hereby agree to take any and all action reasonably necessary
(including, without limitation, voting their shares of Voting Stock or shares
of Voting Stock over which they exercise voting control, executing and
delivering written consents of stockholders, and calling special stockholders'
meetings) to cause the Board of Directors of the Company (the "BOARD") to be
comprised as follows:

8.
<PAGE> 9

(i) The number of directors on the Board shall be
not more than eleven, and such Directors shall consist of:

(1) one representative designated by
holders of a majority of the Series A Preferred Stock, voting together as a
separate class, for so long as there remains outstanding shares of Series A
Preferred Stock sold pursuant to the Series A Stock Purchase Agreement having
an aggregate original purchase price of $1,000,000 or more; provided that for
so long as Weston Presidio Offshore Capital C.V. ("WPC") holds at least 42,000
shares of Series A Preferred Stock such designee shall be James B. McElwee, or,
if Mr. McElwee is unable or unwilling to continue to perform his duties as a
director, then Michael Lazarus or Michael Cronin or any other individual
designated by WPC and reasonably acceptable to the Company; and provided,
further, that WPC's right to designate such individual shall not be
transferable to purchasers or transferees of its shares;

(2) one representative designated by
holders of a majority of the Series C Preferred Stock, voting together as a
separate class, for so long as there remains outstanding shares of Series C
Preferred Stock sold pursuant to the Series C Stock Purchase Agreement having
an aggregate original purchase price of $1,000,000 or more; provided that for
so long as Chase Venture Capital Associates, L.P. ("CVCA") along with any of
its Affiliates (collectively, "CVCA"), holds an aggregate of at least 42,000
shares of Series C Preferred Stock such director shall be designated by CVCA,
whose initial designee shall be David Ferguson; and provided, further, that
CVCA's right to designate such director shall not be transferable to purchasers
or transferees of its shares who are not an Affiliate of CVCA; if Mr. Ferguson
is unable or unwilling to continue to perform his duties as a director, then
the representative shall be another individual designated by CVCA and
reasonably acceptable to the Company;

(3) one representative designated by the
holders of a majority of the Series D Preferred Stock, voting together as a
separate class, for so long as there remains outstanding shares of Series D
Preferred Stock having an aggregate original purchase price of $1,000,000 or
more; provided that for so long as Frontenac VI Limited Partnership
("FRONTENAC"), holds an aggregate of at least 42,000 shares of Series D
Preferred Stock such director shall be designated by Frontenac, whose initial
designee shall be M. Laird Koldyke; and provided, further, that Frontenac's
right to designate such director shall not be transferable to purchasers or
transferees of its shares who are not Affiliates of Frontenac;

(4) One representative designated by the
holders of a majority of the Series E Preferred Stock, voting together as a
separate class, for so long as there remains outstanding shares of Series E
Preferred Stock having an aggregate original purchase price of $1,000,000 or
more; provided that for so long as CVCA holds an aggregate of 340,000 shares of
Series E Preferred Stock such director shall be designated by CVCA and
reasonably acceptable to the Company; and provided, further, that CVCA's right
to designate such director shall not be transferable to purchasers or
transferees of its shares who are not Affiliates of CVCA.

9.
<PAGE> 10

(5) one representative designated by the
Holdings Founder, for so long as the Holdings Founder holds Common Stock having
a fair market value of $1,000,000 or more, whose initial designee shall be S.
M. Hassan.

(6) two representatives designated by
the holders of at least a majority of the shares of Common Stock held by the WO
Founders whose initial designees shall be Elizabeth C. Cook and Michael C.
Gilliland; and

(7) the remaining four representatives
shall be disinterested and independent directors designated by a majority of
the directors designated to the Board pursuant to subsections (1)-(6) above;
provided that, effective upon the closing of the Merger, and for one year after
the closing of the Merger, John Shields ("SHIELDS"), who initially shall be
Chairman of the Board, and Barney Feinblum ("FEINBLUM") will be two of the
initial four directors designated to the Board pursuant to this section
5(a)(i)(7) unless either is removed by eight of the remaining directors,
including in the case of Shields, removal from his position as Chairman of the
Board; and further provided that, if either Shields or Feinblum is removed
pursuant to this section, Frontenac and the Holdings Founder shall be entitled
to designate the replacement director(s), subject to the approval of a majority
of the other directors, which approval shall not be unreasonably withheld.

(ii) Any Director who is elected to the Board
pursuant to a designation under clause (1), (2), (3), (4), (5) or (6) of
paragraph (i) of this Section 5(a), may be removed from the Board only upon the
request of the Person(s) who designated such Director. In the event that a
Director so elected resigns, is removed from, or otherwise ceases to serve on,
the Board, for whatever reason, the vacancy shall be filled with an individual
designated in accordance with paragraph (a)(i) and the Stockholders hereby
agree to call a special stockholders meeting and to vote their shares of Voting
Stock or shares of Voting Stock over which they exercise voting control, at
such meeting or to execute a written consent of stockholders, upon the request
of such Person(s), in order to effect such removal.

(b) Until the closing of the Public Offering and for so
long as there continues to remain outstanding at least 25% of the shares of
Series A Preferred Stock sold pursuant to the Series A Stock Purchase
Agreement, each Stockholder, other than holders of Series D Preferred Stock or
Common Stock issued upon conversion of Series D Preferred Stock, agrees to vote
to elect the representative of the Series A Preferred Stockholder on the Board
of Directors as a member of the Compensation Committee and Audit Committee of
the Board of Directors.

(c) For a period of four years from and after the closing
of the Public Offering and provided CVCA shall hold not less than 4% of the
shares of the Common Stock (on a fully diluted basis), the Stockholders, other
than holders of Series D Preferred Stock or Common Stock issued upon conversion
of Series D Preferred Stock, each hereby agree, upon the request of CVCA, to
take any and all action reasonably requested (including, without limitation,
voting their shares of Voting Stock or shares of Voting Stock over which they
exercise voting control and executing and delivering written consents of
stockholders, and

10.
<PAGE> 11
calling special stockholders' meetings) to cause a designee of CVCA to be
elected to the Board. So long as a designee of CVCA shall be a member of the
Board, that director shall also, if requested by CVCA, be designated as a
member of each committee of the Board including, without limitation, the Audit
and Compensation committees.

(d) RIGHT OF THE PREFERRED STOCKHOLDERS TO DESIGNATE
ADDITIONAL MEMBERS OF THE BOARD. Notwithstanding the provisions of Section
5(a) of this Agreement from and after the occurrence of a Triggering Event (as
defined herein) other than a Special Triggering Event (as defined in the Series
E Stock Purchase Agreement), subject to the provisions of Section 7(c) hereof
the Preferred Stockholders shall thereafter be entitled to elect a majority of
the Board of Directors. In such event, a majority of the Investor
Representatives designated by a Series of Redeemable Preferred Stock which is
outstanding (as defined in the Certificate of Incorporation) and who so elect,
shall be entitled to elect one additional director or such equal number of
additional directors so that the representatives of such series of Redeemable
Preferred Stock on the Board of Directors will comprise a majority of the Board
of Directors. In the event that all outstanding shares of a Series of
Redeemable Preferred Stock are redeemed, the Investor Representatives elected
by such Series shall resign from the Company's Board of Directors and shall
have no further right with regard to the governance of the Company pursuant to
this subsection 5 (d). "Redeemable Preferred Stock" shall mean the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock. If necessary, a majority of the
Investor Representatives designated by the holders of Redeemable Preferred
Stock shall have the right to remove directors, as necessary, to create
vacancies on the Board of Directors as provided for and in accordance with the
provisions of this Agreement. In the event that such Investor Representatives
are entitled and elect to designate members of the Board pursuant to this
Section 5(b), a majority of such Investor Representatives may, and at their
request the other Stockholders shall immediately cause the Company to, call a
special stockholders' meeting to be held as soon as possible, but in any event
not later than 15 days after the date of such request. At such special
stockholders' meeting, a majority of the Investor Representatives shall be
entitled to designate such additional individuals to be elected to the Board of
Directors, and the Stockholders hereby agree that in such event they will vote
any and all shares of Voting Stock they are entitled to vote, and take any
other actions (including, without limitation, appointing proxies or executing
written consents or removing, if necessary, one or more individuals elected to
the Board of Directors pursuant to clauses (5), (6) and (7) of Section 5(a)(i)
to create vacancies on the Board of Directors in order to limit the maximum
number of directors to eleven so that the Board of Directors would consist of a
majority of members designated by a majority of the Investor Representatives,
as may be necessary to elect as Directors the individuals designated by a
majority of the Investor Representatives. Subject to their fiduciary duties,
and after receiving written notice from the Investor Representatives of their
intent to exercise the rights set forth in this subsection (d), no director
shall consent to any action by the Board of Directors from the date of the
Triggering Event until the configuration of the Board as set forth above,
except for actions to comply with the Company's redemption obligations in
respect of Preferred Stock

11.
<PAGE> 12

(e) BOARD MEETINGS. The Company shall call, and use its
best efforts to have, regular Board meetings at least once every other month.
Meetings of the Board shall not be held on less than two days written notice to
the Directors unless a shorter notice period is consented to in writing by each
of the Directors designated by the Preferred Stockholders. All notices of a
Board meeting shall include an agenda setting forth in reasonable detail any
and all matters to be officially acted upon at such meeting, but such agenda
shall not limit any matters that may be officially acted upon at any such
meeting. The directors appointed to the Board pursuant to Section 5(a) shall
be entitled to receive reimbursement from the Company for all reasonable
expenses directly related to attendance at all board of directors or committee
meetings.

(f) SUBSIDIARIES. The Company shall cause the Board of
Directors of any subsidiary to include the same individuals as the Board.

(g) GRANT OF PROXY. Until the closing of the Public
Offering, Mark R. Clapp hereby irrevocably appoints Michael C. Gilliland, with
full power of substitution and resubstitution, as proxy to any and all Voting
Stock owned by Mr. Clapp, for and in the name, place and stead of Mr. Clapp, at
any annual, special or other meeting of stockholders, at any adjournment
thereof or pursuant to any consent in lieu of a meeting or otherwise, with
respect to any matter to be voted on or consented to by the stockholders of the
Company. Mark R. Clapp acknowledges that such proxy is coupled with an
interest and, therefore, is not terminable by Mr. Clapp without the prior
written consent of Mr. Gilliland. Mr. Gilliland agrees to vote all such Voting
Stock in accordance with the terms of this Agreement.

6. RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 6, the Company hereby grants to each Investor a right
to participate in future sales by the Company of its Shares (as hereinafter
defined). An Investor shall be entitled to apportion the right of first offer
hereby granted it among itself and its Affiliates and other related entities
and persons in such proportions as it deems appropriate.

Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("SHARES"), the Company shall first make an offering of a portion of such
Shares (as determined in subsection (b) below) to each Investor in accordance
with the following provisions:

(a) The Company shall deliver a written notice ("NOTICE")
to the Investors stating (i) its bona fide intention to offer such Shares, (ii)
the number of such Shares to be offered, and (iii) the price and terms, if any,
upon which it proposes to offer such Shares.

(b) Within 30 calendar days after receipt of the Notice,
an Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Preferred Stock, by such Investor, bears to the
total number of shares of Common Stock of the Company then outstanding
(assuming full conversion of all outstanding Preferred Stock).

12.
<PAGE> 13

(c) The Company may, during the 30-day period during
which such Shares are offered to the Investors, offer the portion of such
Shares which the Investors are not entitled to purchase hereunder to other
persons and, during the 60-day period following the expiration of the period
provided in subsection (b) hereof, offer the remaining unsubscribed portion of
such Shares which the Investors have not elected to purchase under subsection
(b) hereof to any person or persons at a price not less than, and upon terms no
more favorable to the offeree than those specified in the Notice. If the
Company does not enter into an agreement for the sale of the Shares within such
period, or if such agreement is not consummated within 90 days following the
expiration of the period provided in subsection 6(b) hereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors in accordance herewith.

(d) The right of first offer in this Section 6 shall not
be applicable (i) to the issuance or sale of shares of Common Stock (as
adjusted to reflect any stock splits, combinations or other events involving
the Common Stock) to employees, consultants or members of the Board of
Directors pursuant to employee or director stock plans which are approved in
writing by each of the Investor Representatives on the Board of Directors, (ii)
to the Public Offering or to any offering of shares after consummation of the
Public Offering, (iii) the issuance of securities pursuant to the conversion or
exercise of presently outstanding convertible or exercisable securities, (iv)
to any Common Stock issued upon conversion of the Preferred Stock, (v) to
securities issued in connection with any acquisition or business combination
transaction approved in writing by each of the Investor Representatives, or
(vi) to securities issued in connection with equipment lease financings or
other financings with commercial lenders or in strategic transactions involving
the Company and other entities including joint ventures or marketing,
distribution or development arrangements, in each case provided that any
issuance pursuant to subsection (vi) has been approved in writing by each of
the Investor Representatives.

7. TRIGGERING EVENTS.

(a) TRIGGERING EVENTS. Each of the following events
shall constitute a "Triggering Event" for purposes of this Agreement and the
Holdings Certificate of Incorporation:

(i) The Company shall fail to perform or observe
any material covenant contained in this Agreement, in the Series E Stock
Purchase Agreement (other than with respect to any failure to complete the
Merger), in the Registration Rights Agreement or the Certificate of
Incorporation and such failure shall have continued unremedied for a period of
30 days (or such longer period as the Company is diligently to the reasonable
satisfaction of the Investors working to cure such default) after the earlier
of (A) the date on which the Company should have given notice thereof in
accordance with Section 7(d) hereof or (B) the date on which the Company
receives notice thereof from an Investor;

(ii) Any representation or warranty made by the
Company in the Series E Purchase Agreement (other than with respect to any
failure to complete the Merger),

13.
<PAGE> 14
in any schedule to the Series E Purchase Agreement or in any certificate
delivered to the Series E Investors at the closing (as defined in the Series E
Stock Purchase Agreement) shall prove to have been untrue or incorrect in any
material respect when made or shall prove to have had intentionally omitted
from it any material fact necessary to make the information provided therein,
when taken as a whole, not misleading, as of the date it was made;

(iii) The Company shall have been declared in
default under any material indebtedness for borrowed money or other material
financing or security agreement or other instrument evidencing or related to
material indebtedness of the Company, and the effect of such default has caused
such third party to take such action as is necessary to declare or otherwise
cause such indebtedness to become due and payable prior to its scheduled
maturity or redemption date, as the case may be;

(iv) Any voluntary case or proceeding or
involuntary case or proceeding not dismissed within 60 days against the Company
seeking liquidation, reorganization or other relief with respect to
indebtedness under any applicable federal or state bankruptcy, insolvency,
reorganization or similar law now or hereafter in effect or seeking the
appointment of a custodian, receiver, liquidator, assignee, trustee or similar
official has been instituted, or any assignment by the Company for the benefit
of creditors or the failure by the Company to satisfy any judgment; or

(v) Failure by Michael C. Gilliland to continue
as Chief Executive Officer of the Company as a result of death, disability or
voluntary resignation; provided that, such failure shall not be a Triggering
Event unless the Company has failed to retain a replacement to Mr. Gilliland
acceptable to the holders of a majority of the Investor Representatives within
6 months of Mr. Gilliland's ceasing to be a Chief Executive Officer of the
Company.

(b) CERTIFICATE OF CEO. Upon request by any Investor
Representative, the Company shall deliver to each of the Investors within 30
days after the end of each quarter commencing October 1, 1996, a certificate
from the CEO of the Company stating that such officer has no knowledge of the
occurrence or the existence of a Triggering Event or an event or circumstance
that, given notice or lapse of time, or both, would constitute a Triggering
Event, or if a Triggering Event or such an event or circumstance shall have
occurred, a detailed description thereof.

(c) REMEDIES. If a Triggering Event (other than a
Special Triggering Event as provided in the Holdings Certificate of
Incorporation) shall occur and be continuing, then, unless such Triggering
Event has been waived by a majority of the Investor Representatives, in
addition to all other remedies that may be available to them pursuant to
Section 5(d) hereof or at law or in equity in accordance with Section 7(e)
hereof, the holders of a majority of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock, each voting as a separate class, may declare their
respective shares of Preferred Stock immediately redeemable by the Company,
including a premium, as provided in the Company's Certificate of Incorporation.
If (i) the Company

14.
<PAGE> 15
does not have sufficient funds to redeem such Preferred Stock (provided that
this subsection 7(c) shall not be construed in a manner inconsistent with the
intent of, or to otherwise deprive the holders of Series E Preferred Stock the
benefit of, their redemption priority provided in Section 4(d) of the Company's
Certificate of Incorporation) or (ii) the Company is prohibited by law from
making such payment, then a majority of the Investor Representatives
representing any series of Preferred Stock which has not been redeemed shall
have the right to designate a majority of the Board of Directors of the Company
in the manner provided in Section 5(d) of this Agreement and Article IV Section
5 of the Company's Certificate of Incorporation. In the event that all
outstanding shares of a series of Preferred Stock are redeemed, the Investor
Representative elected by such series of Preferred Stock shall resign from the
Company's Board of Directors and shall have no further right with regard to the
governance of the Company pursuant to this subsection 7 (c).

(d) NOTICE OF TRIGGERING EVENT. When the Company becomes
actually aware that any Triggering Event has occurred and is continuing, the
Company shall give written notice to each of the Investors within five business
days after the Company becomes actually aware that such Triggering Event has
occurred and is continuing. When, in the judgment of an Investor, a Triggering
Event shall have occurred, such Investor shall so notify the Company with
reasonable promptness; provided, however, that any failure to give such notice
shall not be a waiver by the Investors of any of their rights hereunder.

(e) SUITS FOR ENFORCEMENT. The parties hereto agree that
upon a Triggering Event, a remedy at law would not be adequate. In case any
one or more Triggering Events shall have occurred and be continuing, unless
such Triggering Events shall have been waived in the manner provided in Section
14 hereof, the Investors may proceed to protect and enforce their rights under
this Section 7 by suit in equity or action at law, including, without
limitation, by suit for specific performance or injunctive relief. It is
agreed that the prevailing party in any such action shall be entitled to
receive from the other party all reasonable fees, costs, and expenses incurred
by them or it, including, without limitation, such reasonable fees and expenses
of counsel and reasonable fees, costs, and expenses of appeals.

(f) REMEDIES CUMULATIVE. No specific right, power, or
remedy conferred by this Agreement shall be exclusive, and each such right,
power, or remedy shall be cumulative and in addition to every other right,
power, or remedy, whether conferred hereby or by any security of the Company or
now or hereafter available, at law or in equity, by statute or otherwise.

(g) REMEDIES NOT WAIVED. No course of dealing between
the Company and the Investors, and no delay in exercising any right, power, or
remedy conferred hereby or by any security issued by the Company, or now or
hereafter available at law or in equity, by statute or otherwise, shall operate
as a waiver of or otherwise prejudice any such right, power, or remedy.

15.
<PAGE> 16

8. COVENANTS OF THE COMPANY.

(a) DELIVERY OF FINANCIAL STATEMENTS. The Company shall
deliver to each Investor so long as such Investor shall own any shares of
Preferred Stock or Common Stock issued upon conversion thereof:

(i) as soon as practicable, but in any event
within ninety (90) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the Company and a
statement of stockholders' equity as of the end of such year, and a schedule as
to the sources and applications of funds for each year, such year-end financial
reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants approved by the Board of Directors of the
Company, unqualified by such accountants as to the scope of the audit;

(ii) within thirty (30) days of the end of each
month, an unaudited income statement and schedule as to the sources and
application of funds and balance sheet for and as of the end of such month, in
reasonable detail;

(iii) as soon as practicable, but in any event
thirty (30) days prior to the end of each fiscal year, a budget for the next
fiscal year, prepared on a monthly basis, including income statements, balance
sheets and sources and applications of funds statements for such months and, as
soon as practicable after the adoption thereof, any revisions to such annual
budget;

(iv) such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Investor may from time to time reasonably request; provided, however, that
the Company shall not be obligated under this subsection (iv) or any other
subsection of this Section 8(a) to provide information which it reasonably
considers to be a trade secret or similar confidential information; and

(v) as soon as is practicable after delivery or
occurrence, but in no event later than ten (10) days following such delivery or
occurrence, any material notices or reports to stockholders or members of the
financial community, governmental agencies or authorities.

(b) INSPECTION. So long as an Investor holds any
Preferred Stock or Common Stock issued upon conversion thereof, the Company
shall permit such Investor, at such Investor's expense, to visit and inspect
the Company's properties, to examine its books of account and records and to
discuss the Company's affairs, finances and accounts with its officers, all at
such reasonable times as may be requested by the Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 8(b) to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information.

16.
<PAGE> 17

(c) TERMINATION OF COVENANTS. The covenants set forth in
Sections 8(a), 8(b), 8(d) and 8(f) shall terminate as to the Investors and be
of no further force or effect upon the closing of a Public Offering.

(d) KEY-MAN INSURANCE. The Company shall maintain in
full force and effect, a key-man life insurance policy in the amount of
$2,000,000 on the life of Michael Gilliland, with proceeds payable to the
Company.

(e) USE OF PROCEEDS. The Company covenants that it shall
use all proceeds received from the Series E Investors in connection with the
issuance and sale of the Series E Preferred Stock hereunder solely for the
purposes set forth on Schedule D of the Series E Preferred Stock Purchase
Agreement of even date herewith unless otherwise agreed in writing by the
holders of a majority of the Series E Preferred Stock, voting as a separate
class.

(f) NEGATIVE COVENANTS. Without the written consent of
the holders of (i) at least 51% of the then outstanding Preferred Stock,
including the vote of CVCA and (ii) at least one other Investor holding either
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock, the Company agrees that it shall not:

(i) authorize or issue, or obligate itself to
authorize or issue, additional shares of Common Stock, Preferred Stock or any
other capital stock except (A) the issuance of shares of Common Stock pursuant
to stock option plans or restricted stock plans approved in writing by a
majority of the Investor Representatives (B) the issuance of shares of Common
Stock upon the conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, (C) issuances of shares of Common Stock upon the conversion of any
convertible securities outstanding on or prior to the Series E Purchase Date
and disclosed in the Series E Preferred Stock Purchase Agreement, (D) in
connection with an acquisition or merger approved in writing by a majority of
the Investor Representatives; or (E) in an offering described in Section 6(d)
hereof; or

(ii) declare or pay any dividends on any shares of
Common Stock, or repurchase any shares of Preferred Stock or Common Stock;
provided, however, that repurchase of such shares may be made in connection
with any employee stock purchase plans, pursuant to any redemptions required
under the Certificate of Incorporation or the terms of this Agreement or the
redemption of all or a portion of the Common Stock or Preferred Stock held by
the Selling Stockholders as described in the Merger Agreement.

(iii) make or permit any subsidiary or other
Affiliate to make loans or advances, except in the ordinary course of business
or, except to a wholly-owned subsidiary;

(iv) make any loans or advances to employees,
except in the ordinary course of business (e.g., travel advances and similar
transactions);

17.
<PAGE> 18

(v) make any guarantees, except in the ordinary
course of business or except with respect to obligations incurred by
wholly-owned subsidiaries which obligations are not otherwise restricted
hereunder;

(vi) sell, convey or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate with
any other corporation or effect any transaction or series of related
transactions in which more than 50% of the voting power of the corporation is
disposed of; and

(vii) permit any subsidiary or other affiliate of
the Company to own, any stock or other securities of any affiliate or other
corporation, partnership or entity, unless such entity is wholly owned by the
Company, or except for investments in interest bearing bank accounts, short
term certificates of deposit issued by a bank having assets in excess of
$100,000,000, short term securities issued or guaranteed by the United States
Government or money market accounts;

(viii) amend its Certificate of Incorporation or
Bylaws except in accordance with the provisions set forth in the Certificate of
Incorporation and Bylaws;

(ix) pay any cash compensation to the Founders of
the Company in excess of the amounts determined by the Company's Compensation
Committee; provided, however, should the Investor Representatives not
constitute a majority of the Company's Compensation Committee, such management
compensation will be determined by the Investor Representatives; provided
further that management salaries shall not be reduced below the salaries set
forth on Exhibit E hereto; and

(x) amend this Agreement to reduce the amount set
forth in Section 8(f)(ii).

The covenants contained in this Section 8(f) shall terminate
on the earlier of (a) the redemption by the Company of all of the shares of
Preferred Stock or (b) the closing of the Public Offering.

(g) POSITIVE COVENANTS. Unless otherwise consented to in
writing by a majority of the Investor Representatives, the Company agrees as
follows:

(i) The Company will promptly pay and discharge,
or cause to be paid and discharged, when due and payable, all lawful taxes,
assessments, and governmental charges or levies imposed upon the income,
profits, property, or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge, or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereof, and provided further, that the Company will pay
all such taxes, assessments, charges, or levies forthwith upon the commencement
of proceedings to foreclose any lien that may have attached as security
therefor. The Company will promptly pay or cause to be paid

18.
<PAGE> 19
when due, or in conformance with customary trade terms, all other indebtedness
incident to the operations of the Company;

(ii) The Company will keep its properties and
those of its subsidiaries in good repair, working order, and condition,
reasonable wear and tear excepted, and from time to time make all necessary and
proper repairs, renewals, replacements, additions, and improvements thereto;
and the Company and its subsidiaries will at all times comply with the
provisions of all material leases to which any of them is a party or under
which any of them occupies property so as to prevent any material adverse
effect to the business, assets or property of the Company;

(iii) The Company will keep true records and books
of account in which full, true, and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with GAAP applied on a consistent basis;

(iv) The Company and all its subsidiaries shall
duly observe and conform to all valid requirements of governmental authorities
which are material to the conduct of their businesses or to their property or
assets;

(v) The Company shall, except as otherwise
contemplated by the Merger Agreement, maintain in full force and effect its
corporate existence, rights, and franchises and all material licenses and other
material rights to use processes, licenses, trademarks, trade names, or
copyrights owned or possessed by it or any subsidiary and deemed by the Company
to be necessary to the conduct of its business;

(vi) Prior to the Company filing a registration
statement pursuant to the Securities Act with the SEC, the Company shall
maintain a stockholders' equity as shown on its balance sheet prepared in
accordance with GAAP of at least $10,000,000, excluding any negative effects of
acquisitions; and

(vii) The Company will assist the Stockholders in
any filings or other compliance reports necessary by virtue of ownership of
such shares or the exercise of the conversion right thereunder including,
without limitation, any filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. This subsection 8.7(g)(vii) shall
survive so long as any shares of Preferred Stock are outstanding.

(h) EMPLOYEE OPTIONS. The Company shall not grant any
options exercisable for Common Stock or any other capital shares of the Company
to employees, officers or directors of the Company or any of its subsidiaries
except for Permitted Options (as defined below) without the prior written
consent of a majority of the Investor Representatives. For the purposes of
this Section 8(h), "Permitted Options" shall mean, effective upon the closing
of the Merger, options exercisable for Common Stock, subject to adjustment
provided for herein, up to an aggregate of not more than 440,706 shares of
Common Stock, including options exercisable for 264,024 shares of Common Stock
outstanding as of the closing of the Merger and options exercisable for 176,682
available for grant. The Permitted Options available for grant shall be granted
pursuant to the terms of employee or director stock option

19.
<PAGE> 20
plans approved in writing by a majority of the Investor Representatives. Such
number of Permitted Options available for grant may be increased, subject to
the approval of the Board of Directors, in an amount not to exceed 5% of the
number of shares of the Company's Common Stock issued after the closing of the
Merger, assuming the conversion or exercise of all convertible or exercisable
securities issued after the closing of the Merger (as adjusted for any stock
split).

(i) ASSIGNMENT. The covenants set forth in this Section
8 shall be assignable to a purchaser, assignee or transferee who purchases
shares of Preferred Stock from a Stockholder; provided, however, that if any
Stockholder shall distribute any shares of Preferred Stock to its limited
partners, such partners shall appoint a single agent for purposes of receiving
notices and giving consents hereunder and in that connection, shall execute and
deliver an irrevocable proxy to such agent. Notwithstanding this Section 8(i),
CVCA's right to designate the Series C Stockholder Representative as set forth
herein shall not be assignable to purchasers, assignees or transferees of the
shares.

9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE AS APPLIED TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF.

10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

11. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

12. NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party hereto to another party hereto shall be in
writing, shall be deemed to have been duly given or delivered when delivered
personally or telecopied (receipt confirmed, with a copy sent by reputable
overnight courier, or one business day after delivery to a reputable overnight
courier, postage prepaid, to the address of the party set forth below such
person's signature on this Agreement or to such address as the party to whom
notice is to be given may provide in a written notice to each of the other
parties to this Agreement, a copy of which written notice shall be on file with
the Secretary of the Company.

13. LEGEND.

(a) Each certificate representing shares of Common Stock
or Preferred Stock subject to this Agreement shall be endorsed with the
following legends:

"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN STOCKHOLDERS

20.
<PAGE> 21
AGREEMENT BY AND AMONG THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF
THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."

(b) Each party to this Agreement agrees that the Company
may instruct the transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in Section 13 above
to enforce the provisions of this Agreement. The legend shall be removed upon
termination of this Agreement.

14. AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the holders of a majority of
each class or series, as applicable, of capital stock to be affected by such
amendment or waiver voting as separate classes or series, as applicable, and
any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities at the time outstanding (including
securities into which securities are convertible), each future holder of all
securities and the Company; provided that the amount set forth in Section
8(f)(ii) shall not be reduced except as provided in Section 8(f).

15. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms to the fullest extent permitted by law.

16. FURTHER ASSURANCES. Each of the parties shall without further
consideration, use reasonable efforts to execute and deliver such additional
documents and take such other action as the other parties, or any of them may
reasonably request to carry out the intent of this Agreement and the
transactions contemplated hereby.

17. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and all rights hereto shall inure to the benefit of the Company, its successors
and permitted assigns, and shall be binding upon and all rights hereto shall
inure to the benefit of the other parties hereto and their respective heirs,
successors and permitted assigns, including transferees of any shares of
Preferred Stock or Common Stock issued upon conversion thereof. Any such
transferee shall, upon the request of the Company, execute a written
acknowledgment of the foregoing.

18. ENTIRE AGREEMENT. This Agreement, together with the Series E
Stock Purchase Agreement, the Registration Rights Agreement dated even herewith
and the Company's Certificate of Incorporation, embody the entire agreement and
understanding of the parties hereto in respect of the actions and transactions
contemplated by this Agreement. There are no restrictions, promises,
inducements, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein, in the Series E Stock Purchase
Agreement, the Merger Agreement, Termination of the Series A Preferred Stock

21.
<PAGE> 22
Purchase Agreement dated of even date herewith, by and between the Company and
the Series A Investors, Termination of the Series C Preferred Stock Purchase
Agreement dated of even date herewith, by and between the Company and the
Series C Investors, the Series D Side Letter dated of even date herewith, by
and between the Company and the Series D Investors, and the Registration Rights
Agreement dated even herewith or in the Company's Certificate of Incorporation.

19. SPECIFIC PERFORMANCE. Each of the Stockholders acknowledges
and agrees that in the event of any breach of this Agreement, the non-breaching
party or parties would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the Stockholders will waive
the defense in any action for specific performance that a remedy at law would
be adequate and that the Stockholders, in addition to any other remedy to which
they may be entitled at law or in equity, shall be entitled to compel specific
performance of this Agreement in any action instituted in the Delaware Court of
Chancery or the United States District Court for the District of Colorado or,
in the event said Courts would not have jurisdiction for such action, in any
court of the United States or any state thereof having jurisdiction for such
action.

(Signature Pages Follow)

22.
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.

WILD OATS MARKETS, INC.

By: /s/ Michael C. Gilliland
-------------------------------------
Michael C. Gilliland,
Chief Executive Officer

Address: 1668 Valtec Lane
Boulder, CO 80301
Telecopy: (303) 938-1350

THE WO FOUNDERS:

/s/ Michael C. Gilliland
----------------------------------------
Michael C. Gilliland

/s/ Elizabeth C. Cook
----------------------------------------
Elizabeth C. Cook

/s/ Mark R. Clapp
----------------------------------------
Mark R. Clapp

THE HOLDINGS FOUNDER:

/s/ S.M. Hassan
----------------------------------------
S.M. Hassan

23.
<PAGE> 24
The foregoing Agreement is hereby accepted as of the date first above written.

THE STOCKHOLDERS:

CHASE VENTURE CAPITAL ASSOCIATES, L.P.,
a California Limited Partnership

By: Chase Capital Partners, a New York
general partnership

By: /s/ David L. Ferguson
---------------------------------------
David L. Ferguson,
General Partner

Address 380 Madison Avenue, 12th Floor
New York, NY 10017
Telecopy: (212) 622-3101

Copy to:

Address: CVP Management Corporation
840 Apollo Street, Suite 223
El Segundo, CA 90245
Telecopy (310) 335-1965

WESTON PRESIDIO OFFSHORE CAPITAL C.V.,
a Netherlands Antilles Limited Partnership

By: Weston Presidio Capital Management
L.P., a Delaware Limited Partnership

By: /s/ James B. McElwee
---------------------------------------
James B. McElwee,
General Partner

Address: 343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Telecopy: (415) 398-0990

24.
<PAGE> 25
FRONTENAC VI LIMITED PARTNERSHIP

By: Frontenac Company

By: /s/ M. Laird Koldyke
---------------------------------------
M. Laird Koldyke

Address: 135 South LaSalle Street,
Suite 3800
Chicago, Illinois 60603

MONTGOMERY ASSOCIATES, 1992 L.P.

By: /s/ Jack G. Levin
---------------------------------------
Jack G. Levin, Managing Partner

Address: 600 Montgomery Street
San Francisco, California 94111

25.

<PAGE> 1

AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT

THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of
August __, 1996 (the "Agreement"), is made by and among WILD OATS MARKETS,
INC., a Delaware corporation (the "Company"), and the stockholders of the
Company listed on Exhibit A attached hereto.

RECITALS:

A. Each of the Stockholders (as defined below) owns that
number of shares of the capital stock of the Company set forth opposite his or
her name on Exhibit A hereto.

B. The Company and the Stockholders entered into the
Stockholders Agreement dated as of July 12, 1996 (the "Prior Agreement"),
pursuant to which the parties entered into certain understandings regarding the
transfer of Common Stock and Preferred Stock, the management of the Company and
other matters, as set forth therein.

C. The Company and the Stockholders desire to enter into
this Agreement effective upon the closing of the Company's Public Offering (as
defined below) in order to reflect the conversion of the Preferred Stock, the
termination of certain provisions of the Prior Agreement and the adoption of
certain stockholder protection measures by the Company.

AGREEMENT:

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

1. CERTAIN DEFINITIONS. As used in this Agreement the following
terms shall have the meanings set forth below:

"Common Stock" shall mean the [20,000,000] shares of Common
Stock of the Company, par value $.001 per share.

"CVCA" shall mean Chase Venture Capital Associates, L.P.

"Effective Date" shall mean the closing of the Public
Offering.

"Equity Securities" shall mean shares of, or securities
convertible into or exercisable or exchangeable for, any shares of, any class
of the Company's capital stock, including without limitation, its Common Stock
and Preferred Stock.

"Preferred Stock" shall mean any preferred stock designated by
the Board of Directors.

1.
<PAGE> 2
"Public Offering" shall mean the Company's sale of its Common
Stock in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended, where (i)
gross proceeds to the Company are not less than $20,000,000, and (ii) the
product of the price per share to the public of the Common Stock times the
number of shares of Common Stock outstanding immediately prior to the
consummation of the underwritten sale (including any shares of Common Stock
then issued or issuable upon conversion of the Preferred Stock) shall be not
less than $140,000,000.

"Stockholders" shall mean any of the Stockholders listed on
Exhibit A hereto and their respective assignees and successors.

"Voting Stock" shall mean any class or classes of the capital
stock of the Company the holders of which are entitled to participate generally
in the election of directors of the Company, including, but not limited to, the
Common Stock and the Preferred Stock.

2. EFFECTIVENESS OF AGREEMENT; SUPERSEDES PRIOR STOCKHOLDERS
AGREEMENT. This Agreement shall be effective from and after the Effective Date
and shall supersede the Prior Agreement, which agreement is hereby terminated
without any liability to any party thereto and shall be of no further force or
effect. By executing this Agreement, each signatory consents to the
termination of such prior agreement, without liability to any party thereto, as
provided by this Section 2.

2A. RIGHT OF GILLILAND AND COOK TO PURCHASE CLAPP SHARES. In the
event of the death or disability (as such term is defined below) of Mark R.
Clapp, each of Michael C. Gilliland and Elizabeth C. Cook shall have the right
to purchase up to 50% (for a total of 100%) of the Equity Securities owned by
Mark R. Clapp at the date of this Agreement (the "Clapp Shares") at a purchase
price equal to the fair market value (as such term is defined below) of the
Clapp Shares on the date of such event. Such right to purchase shall be for a
period of 90 days after Mr. Gilliland and Ms. Cook receive notice of the
occurrence of such event. The purchase price shall be payable in the form of a
check or note payable to the order of Mr. Clapp or his estate or heirs in the
event of his death. For purposes of this Section 2A, "disability" shall have
the meaning set forth in Section 22(e)(4) of the Internal Revenue Code, as
amended, and "fair market value" shall mean, if the shares are listed on a
national securities exchange or designated for trading on the Nasdaq National
Market, the closing sales price of the Common Stock on the date of such event
or, if the shares are traded on any over-the-counter market, the average of the
bid and asked prices of the Common Stock on the date of such event, or if the
Company's Common Stock is not publicly traded, the fair market value of the
Clapp Shares as determined by the Company's Board of Directors (excluding Mr.
Gilliland and Ms. Cook if such persons are members of the Board of Directors at
the time of determination) in good faith, taking into account all factors which
they deem relevant.

2.
<PAGE> 3

3. GOVERNANCE.

(a) For a period of four years from and after the closing
of the Public Offering and provided CVCA shall hold not less than 4% of the
shares of the Common Stock (on a fully diluted basis), the Stockholders, other
than holders of Common Stock issued upon conversion of the Series D Preferred
Stock, each hereby agree, upon the request of CVCA, to take any and all action
reasonably requested (including, without limitation, voting their shares of
Voting Stock or shares of Voting Stock over which they exercise voting control
and executing and delivering written consents of stockholders, and calling
special stockholders' meetings) to cause a designee of CVCA to be elected to
the Board. So long as a designee of CVCA shall be a member of the Board, that
director shall also, if requested by CVCA, be designated as a member of each
committee of the Board including, without limitation, the Audit and
Compensation committees.

(b) The Company shall call, and use its best efforts to
have, regular Board meetings at least once every quarter. Meetings of the
Board shall not be held on less than two days written notice to the Directors
unless a shorter notice period is consented to in writing by a majority of the
Directors. All notices of a Board meeting shall include an agenda setting
forth in reasonable detail any and all matters to be officially acted upon at
such meeting, but such agenda shall not limit any matters that may be
officially acted upon at any such meeting. The non-employee directors shall be
entitled to receive reimbursement from the Company for all reasonable expenses
directly related to attendance at all board of directors or committee meetings.

(d) Until the closing of the Public Offering and for so
long as there continues to remain outstanding at least 25% of the shares of
Common Stock issued upon conversion of the Series A Preferred Stock, each
Stockholder, other than holders of Common Stock issued upon conversion of the
Series D Preferred Stock, agrees to vote to elect the representative designated
by Weston Presidio Offshore Capital C.V. as a member of the Board of Directors
as a member of the Compensation Committee and Audit Committee of the Board of
Directors.

4. POSITIVE COVENANTS. Unless otherwise consented to in writing
by a majority of the Board of Directors, the Company agrees as follows:

(a) The Company will promptly pay and discharge, or cause
to be paid and discharged, when due and payable, all lawful taxes, assessments,
and governmental charges or levies imposed upon the income, profits, property,
or business of the Company or any subsidiary; provided, however, that any such
tax, assessment, charge, or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereof, and provided further, that the Company will pay all such taxes,
assessments, charges, or levies

3.
<PAGE> 4

forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor. The Company will promptly pay or cause to
be paid when due, or in conformance with customary trade terms, all other
indebtedness incident to the operations of the Company;

(b) The Company will keep its properties and those of its
subsidiaries in good repair, working order, and condition, reasonable wear and
tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions, and improvements thereto; and the Company
and its subsidiaries will at all times comply with the provisions of all
material leases to which any of them is a party or under which any of them
occupies property so as to prevent any material adverse effect to the business,
assets or property of the Company;

(c) The Company will keep true records and books of
account in which full, true, and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with GAAP
applied on a consistent basis;

(d) The Company and all its subsidiaries shall duly
observe and conform to all valid requirements of governmental authorities which
are material to the conduct of their businesses or to their property or assets;

(e) The Company shall maintain in full force and effect
its corporate existence, rights, and franchises and all material licenses and
other material rights to use processes, licenses, trademarks, trade names, or
copyrights owned or possessed by it or any subsidiary and deemed by the Company
to be necessary to the conduct of its business;

(f) The Company shall not grant any options exercisable
for Common Stock or any other capital shares of the Company to employees,
officers or directors of the Company or any of its subsidiaries except for
Permitted Options (as defined below) without the prior written consent of a
majority of the Board of Directors. For the purposes of this Section 4(f),
"Permitted Options" shall mean options exercisable for Common Stock, subject to
adjustment provided for herein, up to an aggregate of not more than 468,670
shares of Common Stock, including options exercisable for 375,676 shares of
Common Stock outstanding as of the Effective Date and options exercisable for
92,994 available for grant. The Permitted Options available for grant shall
be granted pursuant to the terms of employee or director stock option plans
approved in writing by a majority of the directors. Such number of Permitted
Options available for grant may be increased, subject to the approval of the
Board of Directors, in an amount not to exceed 15% of the number of shares of
the Company's Common Stock outstanding, assuming the conversion or exercise of
all convertible or exercisable securities outstanding (as adjusted for any
stock split).

(g) The covenants set forth in this Section 4 shall be
assignable to a purchaser, assignee or transferee who purchases shares of
Preferred Stock from a Stockholder; provided, however, that if any Stockholder
shall distribute any shares of stock to its limited partners, such partners
shall appoint a single agent for purposes of receiving notices and

4.
<PAGE> 5

giving consents hereunder and in that connection, shall execute and deliver an
irrevocable proxy to such agent. Notwithstanding this Section 4(g), CVCA's
right to designate a representative on the Board of Directors as set forth
herein shall not be assignable to purchasers, assignees or transferees of the
shares.

5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE AS APPLIED TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF.

6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

7. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

8. NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party hereto to another party hereto shall be in
writing, shall be deemed to have been duly given or delivered when delivered
personally or telecopied (receipt confirmed, with a copy sent by reputable
overnight courier, or one business day after delivery to a reputable overnight
courier, postage prepaid, to the address of the party set forth below such
person's signature on this Agreement or to such address as the party to whom
notice is to be given may provide in a written notice to each of the other
parties to this Agreement, a copy of which written notice shall be on file with
the Secretary of the Company.

9. LEGEND.

(a) Each certificate representing shares of Common Stock
subject to this Agreement shall be endorsed with the following legends:

"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN STOCKHOLDERS AGREEMENT BY AND AMONG THE CORPORATION AND
CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."

(b) Each party to this Agreement agrees that the Company
may instruct the transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in this Section 9
above to enforce the provisions of this Agreement. The legend shall be removed
upon termination of this Agreement.

5.
<PAGE> 6

10. AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the holders of a majority of
each class or series, as applicable, of capital stock to be affected by such
amendment or waiver voting as separate classes or series, as applicable, and
any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities at the time outstanding (including
securities into which securities are convertible), each future holder of all
securities and the Company.

11. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms to the fullest extent permitted by law.

12. FURTHER ASSURANCES. Each of the parties shall without further
consideration, use reasonable efforts to execute and deliver such additional
documents and take such other action as the other parties, or any of them may
reasonably request to carry out the intent of this Agreement and the
transactions contemplated hereby.

13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and all rights hereto shall inure to the benefit of the Company, its successors
and permitted assigns, and shall be binding upon and all rights hereto shall
inure to the benefit of the other parties hereto and their respective heirs,
successors and permitted assigns, including transferees of any shares of Common
Stock (including Common Stock issued upon conversion of Preferred Stock). Any
such transferee shall, upon the request of the Company, execute a written
acknowledgment of the foregoing.

14. ENTIRE AGREEMENT. This Agreement, together with the Series E
Stock Purchase Agreement and the Registration Rights Agreement dated as of July
12, 1996 and the Company's Amended and Restated Certificate of Incorporation,
embody the entire agreement and understanding of the parties hereto in respect
of the actions and transactions contemplated by this Agreement. There are no
restrictions, promises, inducements, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein or in
the Company's Amended and Restated Certificate of Incorporation.

15. SPECIFIC PERFORMANCE. Each of the Stockholders acknowledges
and agrees that in the event of any breach of this Agreement, the non-breaching
party or parties would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the Stockholders will waive
the defense in any action for specific performance that a remedy at law would
be adequate and that the Stockholders, in addition to any other remedy to which
they may be entitled at law or in equity, shall be entitled to compel specific
performance of this Agreement in any action instituted in the Delaware Court of
Chancery or the United States District Court for the District of Colorado or,
in the event said Courts would not have jurisdiction for such action, in any
court of the United States or any state thereof having jurisdiction for such
action.

6.
<PAGE> 7

(Signature Pages Follow)

7.
<PAGE> 8

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.

WILD OATS MARKETS, INC.

By: /s/ MICHAEL C. GILLILAND
----------------------------------------
Michael C. Gilliland,
Chief Executive Officer

Address: 1645 Broadway
Boulder, CO 80302
Telecopy: (303) 440-5220

THE STOCKHOLDERS:

/s/ MICHAEL C. GILLILAND
-------------------------------------------
Michael C. Gilliland

/s/ ELIZABETH C. COOK
-------------------------------------------
Elizabeth C. Cook

/s/ MARK R. CLAPP
-------------------------------------------
Mark R. Clapp

/s/ S.M. HASSAN
-------------------------------------------
S.M. Hassan

8.
<PAGE> 9

CHASE VENTURE CAPITAL ASSOCIATES, L.P.,
a California Limited Partnership

By: Chase Capital Partners, a New York
general partnership

By: /s/ DAVID L. FERGUSON
-------------------------------------
David L. Ferguson,
General Partner

Address 380 Madison Avenue, 12th Floor
New York, NY 10017
Telecopy: (212) 622-3101

Copy to:

Address: CVP Management Corporation
840 Apollo Street, Suite 223
El Segundo, CA 90245
Telecopy (310) 335-1965

WESTON PRESIDIO OFFSHORE CAPITAL C.V.,
a Netherlands Antilles Limited
Partnership

By: Weston Presidio Capital Management
L.P., a Delaware Limited Partnership

By: /s/ JAMES B. McELWEE
-------------------------------------
James B. McElwee,
General Partner

Address: 343 Sansome Street, Suite 1210
San Francisco, CA 94104-1316
Telecopy: (415) 398-0990

9.
<PAGE> 10

FRONTENAC VI LIMITED PARTNERSHIP

By: Frontenac Company

By: /s/ M. LAIRD KOLDYKE
-------------------------------------
M. Laird Koldyke

Address: 135 South LaSalle Street,
Suite 3800
Chicago, Illinois 60603

MONTGOMERY ASSOCIATES, 1992 L.P.

By: /s/ JACK G. LEVIN
-------------------------------------
JACK G. Levin, Managing Partner

Address: 600 Montgomery Street
San Francisco, California
94111

10.
<PAGE> 11

EXHIBIT A

<TABLE>
<CAPTION>
COMMON
STOCKHOLDER STOCK
---------------------------------------------------------------------------
<S> <C>
Michael C. Gilliland 453,851
Elizabeth Cook 453,851
Mark R. Clapp 341,571
Bennett Bertoli 32,191
David Chamberlain 4,296
Peter Behrendt 2,865
Bob Stone 1,053
John Heavey 802
Jon Fisher 201
S.M. Hassan 50,684
Weston Presidio Offshore Capital, C.V. 303,012(1)
Chase Venture Capital Associates, L.P. 731,851(2)
Montgomery Associates, 1992 L.P. 8,781(3)
Frontenac VI Limited Partnership 237,209

</TABLE>

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

(1) Includes an unexercised warrant to purchase such shares with exercise
prices of $17.50 to $18.75.
(2) Includes 31,658 shares owned by Wild Oats Investors GP, for which Chase
Capital Partners holds the proxy.
(3) Consists of 3,792 shares of Series C Preferred Stock held by Montgomery
and an unexercised warrant to purchase 1,976 shares of Series C
Preferred Stock at an exercise price of $37.91.

<PAGE> 1

REGISTRATION RIGHTS AGREEMENT

Upon the closing of the merger of WILD OATS MARKETS, INC., a Delaware
corporation ("WILD OATS") and WO HOLDINGS, INC., a Delaware corporation (the
"COMPANY"), this REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), dated as of
July 12, 1996, is made effective by and among the Company, the persons
purchasing shares of the Company's Series E Preferred Stock, par value $.001
per share (the "SERIES E PREFERRED STOCK"), on the date hereof, those Holders
(as defined herein) who may execute this Agreement from time to time and whose
names are thereupon listed on Schedule A hereto, and Holdings.

AGREEMENT:

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

1. DEFINITIONS. For purposes of this Agreement:

(a) The term "ADDITIONAL HOLDERS" means each of Messrs.
Michael C. Gilliland, Mark R. Clapp, S.M. Hassan, Barry Perzow and Ms.
Elizabeth C. Cook.

(b) The term "COMMON STOCK" shall mean the common stock,
par value $.001 per share, of Holdings.

(c) The term "FORM S-3" means such form under the
Securities Act of 1933, as amended (the "1933 Act"), as in effect on the date
hereof or any registration form under the 1933 Act subsequently adopted by the
Securities and Exchange Commission (the "SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.

(d) The term "HOLDER" means any person who is the record
owner of Registrable Securities or shares of Preferred Stock convertible into
such Registrable Securities, or any assignee thereof in accordance with Section
13 hereof.

(e) The term "MERGER" shall mean the merger of Wild Oats
and Holdings pursuant to the Agreement and Plan of Merger by and among Wild
Oats, Alfalfa's, Inc. and the Company, a wholly owned subsidiary of Alfalfa's,
Inc., of even date herewith (the "Merger Agreement").

(f) The term "PREFERRED STOCK" shall mean, collectively,
the Company's Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock.

(g) The term "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement or similar document in

1.
<PAGE> 2
compliance with the 1933 Act, and the declaration or ordering of effectiveness
of such registration statement or document.

(h) The term "REGISTRABLE SECURITIES" means (i) the
Common Stock issuable or issued upon conversion of the Preferred Stock, (ii)
the 6,966 shares of Common Stock held by Frontenac VI Limited Partnership,
(iii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Preferred Stock, other preferred stock of the Company or
Common Stock and (iv) with respect to registrations pursuant to Sections 3 and
3A hereof, shares of Common Stock owned by the Additional Holders; provided,
however, that Common Stock or other securities shall only be treated as
Registrable Securities if and so long as (A) they have not been sold to or
through a broker or dealer or underwriter in a public distribution or otherwise
pursuant to an effective Registration Statement under the 1933 Act, or (B) they
have not been sold in a transaction exempt from the registration and prospectus
delivery requirements of the 1933 Act under Section 4(l) thereof (including any
sale pursuant to Rule 144 of the 1933 Act or any similar provision) so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale.

(i) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.

(j) The term "SERIES A REGISTRABLE SECURITIES" shall mean
the Registrable Securities issued or issuable in respect of the Series A
Preferred Stock.

(k) The term "SERIES B REGISTRABLE SECURITIES" shall mean
the Registrable Securities issued or issuable in respect of the Series B
Preferred Stock.

(l) The term "SERIES C REGISTRABLE SECURITIES" shall mean
the Registrable Securities issued or issuable in respect of the Series C
Preferred Stock.

(m) The term "SERIES D REGISTRABLE SECURITIES" shall mean
the Registrable Securities issued or issuable in respect of the Series D
Preferred Stock.

(n) The term "SERIES E REGISTRABLE SECURITIES" shall mean
the Registrable Securities issued or issuable in respect of the Series E
Preferred Stock.

(o) The term "SERIES A PREFERRED STOCK" means the Series
A Preferred Stock, par value $.001 per share, of the Company.

(p) The term "SERIES B PREFERRED STOCK" means the Series
B Preferred Stock, par value $.001 per share, of the Company.

2.
<PAGE> 3
(q) The term "SERIES C PREFERRED STOCK" shall mean, the
Series C Preferred Stock, par value $.001 per share, of the Company.

(r) The term "SERIES D PREFERRED STOCK" shall mean the
Series D Preferred Stock, par value $.001 per share, of the Company.

(s) The term "SERIES E PREFERRED STOCK" shall mean the
Series E Preferred Stock, par value $.001 per share, of the Company.

1A. EFFECT OF MERGER.

This Agreement shall be effective from and after the date
hereof and shall supersede (i) that certain Amended and Restated Registration
Rights Agreement, dated as of November 14, 1994, among Wild Oats, the WO
Founders, the Series A Investors and the Series C Investors, as amended and
supplemented to date, (ii) that certain Alfalfa's Registration Rights Agreement
dated February 28, 1995 among the Company and the holders of its Series D
Preferred Stock (the Series D Preferred Stock was issued in exchange for the
Company's Series A Preferred Stock in connection with the Company's
reincorporation merger with Alfalfa's, Inc.), and (iii) all other rights with
regard to registration of the Company's or Wild Oats' capital stock pursuant to
the 1933 Act which agreements are hereby terminated without any liability to
any party thereto and shall be of no further force or effect. By executing
this Agreement, each Holder and each Additional Holder consents to the
termination of all such prior registration rights agreements without liability
to any party thereto as provided in this Section 1A.

2. REQUEST FOR REGISTRATION.

(a) SERIES A AND B DEMAND RIGHTS. If the Company shall
receive at any time after the earlier of (i) November 14, 1997, or (ii) six (6)
months after the effective date of the first registration statement for a
public offering of securities of the Company (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction), a written request from the Holders of sixty percent (60%) of the
Series A Registrable Securities and Series B Registrable Securities then
outstanding that the Company file a registration statement under the 1933 Act
covering the registration of all or a portion of the Registrable Securities
then outstanding, then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of Sections 2(e) and 2(f), use its best efforts to effect as
soon as practicable, and in any event within 90 days of the receipt of such
request, the registration under the 1933 Act of all Registrable Securities
which the Holders request to be registered within twenty (20) days of the
mailing of such notice by the Company in accordance with Section 22 hereof.

(b) SERIES C DEMAND RIGHTS. If the Company shall receive
at any time after the earlier of (i) November 14, 1997, or (ii) six (6) months
after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a

3.
<PAGE> 4
stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a
written request from the Holders of sixty percent (60%) of the Series C
Registrable Securities then outstanding that the Company file a registration
statement under the 1933 Act covering the registration of all or a portion of
the Registrable Securities then outstanding, then the Company shall, within ten
(10) days of the receipt thereof, give written notice of such request to all
Holders and shall, subject to the limitations of Sections 2(e) and 2(f), use
its best efforts to effect as soon as practicable, and in any event within 90
days of the receipt of such request, the registration under the 1933 Act of all
Registrable Securities which the Holders request to be registered within twenty
(20) days of the mailing of such notice by the Company in accordance with
Section 22 hereof.

(c) SERIES D DEMAND RIGHTS. If the Company shall receive
at any time after the earlier of (i) November 14, 1997, or (ii) six (6) months
after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction), a written request from the Holders of sixty percent (60%) of the
Series D Registrable Securities then outstanding that the Company file a
registration statement under the 1933 Act covering the registration of all or a
portion of the Registrable Securities then outstanding, then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of Sections 2(e)
and 2(f), use its best efforts to effect as soon as practicable, and in any
event within 90 days of the receipt of such request, the registration under the
1933 Act of all Registrable Securities which the Holders request to be
registered within twenty (20) days of the mailing of such notice by the Company
in accordance with Section 22 hereof.

(d) SERIES E DEMAND RIGHTS. If the Company shall receive
at any time after the earlier of (i) July 12, 1999, or (ii) six (6) months
after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction), a written request from the Holders of sixty percent (60%) of the
Series E Registrable Securities then outstanding that the Company file a
registration statement under the 1933 Act covering the registration of all or a
portion of the Registrable Securities then outstanding, then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of Sections 2(e)
and 2(f), use its best efforts to effect as soon as practicable, and in any
event within 90 days of the receipt of such request, the registration under the
1933 Act of all Registrable Securities which the Holders request to be
registered within twenty (20) days of the mailing of such notice by the Company
in accordance with Section 22 hereof.

(e) UNDERWRITER; CUT-BACK. If the Holders initiating the
registration request under Section 2(a), 2(b), 2(c) or 2(d) ("INITIATING
HOLDERS") intend to distribute the Registrable Securities covered by their
request by means of an underwriting, they shall so advise the Company as a part
of their request made pursuant to this Agreement and the Company shall

4.
<PAGE> 5
include such information in the written notice referred to in Sections 2(a),
2(b), 2(c) and 2(d). The selection of the managing underwriter in any
registration under this Section 2 shall require the consent of a majority of
the Investor Representatives (as defined in the Company's Stockholder's
Agreement dated even herewith). In the case of an underwritten offering, the
right of any Holder to include his Registrable Securities in such registration
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority of the Initiating Holders and
such Holder to the extent provided herein). All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in Section 4(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting; provided that, such underwriting agreement shall include
indemnification obligations with regard to the Holders substantially similar to
those set forth in Section 10 hereof. Notwithstanding any other provision of
this Agreement, if the underwriter advises the Initiating Holders in writing
that marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first
entirely excluded from the underwriting.

(f) LIMIT ON DEMAND REGISTRATIONS. The Company is
obligated to effect only two (2) such registrations pursuant to Section 2(a),
two (2) such registrations pursuant to Section 2(b), two (2) such registrations
pursuant to Section 2(c), and two (2) such registrations pursuant to Section
2(d). For purposes of this section 2(f), no such Demand Registration shall be
deemed to have taken place unless the Registration Statement filed pursuant to
such Demand Registration has been declared effective by the SEC and sales of
the securities have been permitted consistent with the plan of distribution
described in the Registration Statement.

(g) RIGHT TO DEFER IPO. Notwithstanding the foregoing,
if the Company receives a request for registration under this Agreement before
the Company has completed its initial public offering registered under the 1933
Act, it may postpone such request for registration for six months in order to
file a registration statement for a primary offering of securities. In such
event, the Holders of Registrable Securities shall have piggyback registration
rights pursuant to Section 3 or 3A hereof.

(h) RIGHT TO DEFER; GENERAL. Notwithstanding the
foregoing, if the Company shall furnish to Holders requesting a registration
statement pursuant to this Agreement a certificate signed by the President of
the Company stating that, in the good faith judgment of the Board of Directors
of the Company, it would be detrimental to the Company and its stockholders for
such registration statement to be filed and it is therefore necessary to defer
the filing of such registration statement, the Company shall have the right to
defer such filing for a period of not more than 90 days after receipt of the
request of the Initiating Holders; provided, however, that

5.
<PAGE> 6
the Company may not utilize this right more than once in any twelve month
period and in no event will the Company be permitted to defer such filing for
more than 6 months in the aggregate pursuant to Section 2(g) and (h) hereof.

3. COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company pursuant to Section 2 of this Agreement or for
stockholders other than the Holders or the Additional Holders) any of its stock
or other securities under the 1933 Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely
to the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities or a SEC Rule 145 transaction),
the Company shall, at such time, promptly give each Holder and each Additional
Holder written notice of such registration. Upon the written request of each
Holder and each Additional Holder given within fifteen (15) days after mailing
of such notice by the Company in accordance with Section 22 hereof, the Company
shall, subject to the provisions of Section 8, cause to be registered under the
1933 Act all of the Registrable Securities that each such Holder and each such
Additional Holder has requested to be registered subject to underwriter cutback
and other provisions of Section 8 hereof. Notwithstanding the foregoing, after
the Company's initial public offering, the Company will not be required to give
notice to the Holders or the Additional Holders, if the underwriters managing
the proposed offering have advised the Company in writing that in their
judgment market conditions will not allow the inclusion of any secondary shares
in such offering. In the event the managing underwriters and the Company
subsequently determine to add any secondary shares in the offering, such notice
shall be provided. In the case of the Company's initial public offering, the
selection of the managing underwriter in any registration under this Section 3
or 3A shall require the consent of a majority of the Investor Representatives,
which consent shall not be unreasonably withheld or delayed.

3A. ADDITIONAL HOLDERS REGISTRATION. Notwithstanding Section 3
hereof, the Additional Holders shall be entitled to include up to ten percent
(10%) of the shares of Common Stock then held by each Additional Holder in the
Company's initial public offering registered under the 1933 Act, subject to
underwriter cut-back, before any other Registrable Securities are included in
such initial public offering.

4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:

(a) SEC FILING. Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective, and,
upon the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to 90
days or until all of the securities registered thereunder are sold, whichever
occurs sooner.

6.
<PAGE> 7
(b) AMENDMENTS. Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the 1933 Act with respect to the disposition of
all securities covered by such registration statement.

(c) PROSPECTUS. Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

(d) BLUE SKY QUALIFICATION. Use its best efforts to
register and qualify the securities covered by such registration statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.

(e) UNDERWRITING AGREEMENT. In the event of any
underwritten public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement.

(f) PROSPECTUS DELIVERY. Notify each Holder of
Registrable Securities covered by such registration statement at any time when
a prospectus relating thereto is required to be delivered under the 1933 Act of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.

5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities as shall be required to effect the registration of such Holder's
Registrable Securities.

6. EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions and stock transfer taxes incurred in
connection with registrations, filings or qualifications of Registrable
Securities pursuant to Section 2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees,
reasonable fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company, which counsel the Company may request be the Company's
counsel if such counsel is reasonably acceptable to such selling Holders;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
holders participating in such registration shall bear such

7.
<PAGE> 8
expenses), unless one of the Initiating Holders agree to forfeit its right to
one demand registration pursuant to Section 2.

7. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities pursuant to Section 3 or 3A, including
(without limitation) all registration, filing, and qualification fees, printers
and accounting fees relating or apportionable thereto and fees and
disbursements of one counsel for the selling Holders and Additional Holders
selected by them (which the Company may request be the Company's counsel if
such counsel is reasonably acceptable to such selling Holders and Additional
Holders), but excluding underwriting discounts and commissions and stock
transfer taxes relating to Registrable Securities.

8. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 3 or 3A to include any of the Holders' or
Additional Holders' securities in such underwriting unless they accept the
terms of the underwriting as agreed upon between the Company and the
underwriters (which terms shall include indemnification obligations with regard
to the Holders substantially similar to those set forth in Section 10 hereof)
selected by the person(s) entitled to select the underwriters, and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by Holders and
Additional Holders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned (i) with respect to the Company's
initial public offering, first pro rata among all selling Additional Holders
until such Additional Holders have sold up to ten (10%) of the shares of Common
Stock then held by them, and next pro rata among all selling Holders and
Additional Holders according to the total amount of securities owned by each
selling Holder and each Additional Holder or in such other proportions as shall
mutually be agreed to by such selling Holders and Additional Holders; (ii) with
respect to any subsequent public offering, pro rata among all selling Holders
and Additional Holders according to the total amount of securities owned by
each selling Holder and Additional Holder or in such other proportions as shall
mutually be agreed to by such selling Holders). For purposes of the preceding
parenthetical concerning apportionment, the partners, retired partners and
stockholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling stockholder," and any
pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.

9. DELAY OF REGISTRATION. No Holder or Additional Holder shall
have any right to obtain or seek an injunction restraining or otherwise
delaying any such registration as the result

8.
<PAGE> 9
of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.

10. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Agreement:

(a) INDEMNIFICATION BY THE COMPANY. To the extent
permitted by law, the Company will indemnify and hold harmless each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of the 1933 Act
or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), against
any losses, claims, damages, or liabilities (joint or several) to which they
may become subject under the 1933 Act, or the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "VIOLATION"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not misleading,
or (iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act or any state securities law or any rule or regulation promulgated
under the 1933 Act, the 1934 Act or any state securities law; and the Company
will pay to each such Holder, underwriter or controlling person, as incurred,
any legal or other expenses reasonably incurred by one law firm retained by
them, plus appropriate local counsel (or such additional law firms retained by
a Holder or Holders if such Holder or Holders reasonably believe there exists a
conflict of interest among them), in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 10(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to which any
Holder, underwriter or controlling person may become subject to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in
connection with such registration by such Holder, underwriter or controlling
person.

(b) INDEMNIFICATION BY SELLING HOLDER AND ADDITIONAL
HOLDER. To the extent permitted by law, each selling Holder and Additional
Holder severally, but not jointly, will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within
the meaning of the 1933 Act, any underwriter, any other Holder or Additional
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder or Additional Holder against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the 1933 Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with

9.
<PAGE> 10
written information furnished by such Holder or Additional Holder expressly for
use in connection with such registration; and each such Holder or Additional
Holder will pay, as incurred, any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this Section 10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 10(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder or Additional Holder, which consent shall not be
unreasonably withheld; provided, further, that, in no event shall any indemnity
under this Section 10(b) exceed the net proceeds from the offering received by
such Holder or Additional Holder.

(c) PROCEDURES. Promptly after receipt by an indemnified
party under this Section 10 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
10, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel (plus appropriate local counsel), with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial in any material
respect to its ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this Section 10, but the
omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 10.

(d) SURVIVAL. The obligations of the Company and Holders
under this Section 10 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Agreement, and
otherwise.

11. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration statement filed by
the Company for the offering of its securities to the general public;

10.
<PAGE> 11
(b) use its best efforts, including voluntarily
registering its Common Stock under Section 12 of the 1934 Act, to qualify for
registration on Form S-3 for the sale of their Registrable Securities, as soon
as it becomes eligible to file such resale registration statement;

(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act;
and

(d) furnish to any Holder, Additional Holder, so long as
the Holder owns any Registrable Securities, forthwith upon request (i) a
written statement by the Company that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company), the
1933 Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule
or regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.

12. FORM S-3 REGISTRATION. In case the Company shall receive from
any Additional Holder or any Holder or Holders of (i) sixty percent (60%) or
more of the Series A Registrable Securities and Series B Registrable Securities
then outstanding, (ii) sixty percent (60%) or more of the Series C Registrable
Securities then outstanding, (iii) sixty percent (60%) or more of the Series D
Registrable Securities then outstanding, or (iv) sixty percent (60%) or more of
the Series E Registrable Securities then outstanding, a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Additional Holder, Holder or Holders, the Company
will:

(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
and Additional Holders; and

(b) as soon as practicable, effect such registration and
all such qualifications and compliance as may be so requested and as would
permit or facilitate the sale and distribution of all or a portion of each such
Holder's or Additional Holder's Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holder or Additional Holder joining in such request as are specified in a
written request given within 15 days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 12: (i) if Form S-3 is not available for such offering by the
Additional Holders or the Holders; (ii) if the Company shall furnish to the
Additional Holders or the Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be detrimental to the Company and its stockholders for
such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than 90 days after receipt of the request of
the Additional Holders or the

11.
<PAGE> 12
Holders under this Section 12; provided, however, that the Company shall not
utilize this right more than once in any twelve month period; (iii) if the
Company has, within the twelve (12) month period preceding the date of such
request, already effected two registrations for the Additional Holders or the
Holders pursuant to Sections 2, 3 and/or this Section 12; or (iv) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.

(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Additional Holders or the Holders. All expenses
incurred in connection with three registrations requested by the Additional
Holders or three registrations requested pursuant to clause (i) of the first
sentence of this Section 12, or three registrations requested pursuant to
clause (ii) of the first sentence of this Section 12, or three registrations
requested pursuant to clause (iii) of the first sentence of this Section 12, or
three registrations requested pursuant to clause (iv) of the first sentence of
this Section 12, or including (without limitation) all registration, filing,
qualification, printer's and accounting fees, the reasonable fees and
disbursements of one counsel for the selling Additional Holders and Holders
(which counsel the Company may request be the Company's counsel if such counsel
is reasonably acceptable to such selling Additional Holders or Holders) and
counsel for the Company shall be borne by the Company; provided, however, that
the underwriters' discounts or commissions associated with Registrable
Securities shall not be borne by the Company, but shall be borne by the
applicable Additional Holders or Holders of such Registrable Securities.
Registrations effected pursuant to this Section 12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 2, 3 or
3A, respectively.

(d) For purposes of this Section 12, if any registration
effected pursuant to this Section 12 is to be an underwritten offering, such
registration shall be subject to underwriter cut-back and other provisions as
provided in Section 8.

13. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Agreement may only
be assigned to a purchaser, assignee or transferee of the underlying
Registrable Securities.

14. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Series A Registrable
Securities, a majority of the outstanding Series C Registrable Securities, a
majority of the outstanding Series D Registrable Securities and a majority of
the outstanding Series E Registrable Securities, enter into any agreement with
any holder or prospective holder of any securities of the Company which would
allow such holder or prospective holder (a) to include such securities in any
registration filed under Section 2, 3 or 3A hereof, unless under the terms of
such agreement, such holder or prospective holder may include such securities
in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or, (b) to make a demand registration which could
result in such registration statement being declared

12.
<PAGE> 13
effective prior to the earlier of either of the dates set forth in Section
2(a), 2(b), 2(c) or 2(d) or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 2.

15. "MARKET STAND-OFF" AGREEMENT. Each Holder and Additional
Holder hereby agrees that for a period of 90 days following the effective date
of the first registration statement of the Company covering common stock filed
on Form S-1 or similar form under the 1933 Act and for any registration
effected pursuant to Sections 2, 3 or 3A (provided the Holders and the
Additional Holders are given written notice of the offering at least fifteen
days prior to the Company's filing with the SEC of a registration statement
relating thereto), it shall not, unless otherwise agreed to by the managing
underwriters, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase
or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any securities of the Company held by it at any time during
such period except Common Stock included in such registration; provided,
however, that all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements. In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Registrable
Securities of each Holder (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period.

16. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company, the holders of a
majority of the Series A Registrable Securities then outstanding, the holders
of a majority of the Series C Registrable Securities then outstanding, the
holders of a majority of the Series D Registrable Securities then outstanding
and the holder of a majority of the Series E Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.

17. INTENTIONALLY DELETED

18. TERMINATION. The rights provided in this Agreement shall
terminate on the tenth anniversary of the closing of the Company's initial
public offering pursuant to which the Company registers shares of Common Stock
under the 1933 Act and following shortly after or concurrently with which the
Company registers its Common Stock under the 1934 Act.

19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE AS APPLIED TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF.

13.
<PAGE> 14
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

21. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

22. NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party hereto to another party hereto shall be in
writing, shall be deemed to have been duly given or delivered when delivered
personally or telecopied (receipt confirmed, with a copy sent by reputable
overnight courier), or one business day after delivery to a reputable overnight
courier, postage prepaid, to the address of the party set forth below such
person's signature on this Agreement or to such address as the party to whom
notice is to be given may provide in a written notice to each of the other
parties to this Agreement, a copy of which written notice shall be on file with
the Secretary of the Company.

23. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms to the fullest extent permitted by law.

24. FURTHER ASSURANCES. Each of the parties shall, without
further consideration, use reasonable efforts to execute and deliver such
additional documents and take such other action as the other parties, or any of
them may reasonably request to carry out the intent of this Agreement and the
transactions contemplated hereby.

25. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and all rights hereto shall inure to the benefit of the Company, its successors
and permitted assigns, and shall be binding upon and all rights hereto shall
inure to the benefit of the other parties hereto and their respective heirs,
successors and permitted assigns, including transferees of any Registrable
Securities.

26. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the actions and
transactions contemplated by this Agreement. There are no restrictions,
promises, inducements, representations, warranties, covenants or undertakings
with regard to the registration of the Company's capital stock pursuant to the
1933 Act, other than those expressly set forth or referred to in this
Agreement.

[SIGNATURE PAGES FOLLOW]

14.
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.

WILD OATS MARKETS, INC.

By: /s/ MICHAEL C. GILLILAND
----------------------------------
Michael C. Gilliland,
Chief Executive Officer

Address: 1668 Valtec Lane
Boulder, CO 80301
Telecopy: (303) 938-1350

/s/ MICHAEL C. GILLILAND
-------------------------------------------
Michael C. Gilliland

/s/ ELIZABETH C. COOK
-------------------------------------------
Elizabeth C. Cook

/s/ MARK R. CLAPP
-------------------------------------------
Mark R. Clapp

15.
<PAGE> 16
The foregoing Agreement is hereby accepted as of the date first above
written.

WESTON PRESIDIO OFFSHORE CAPITAL C.V.,
a Netherlands Antilles partnership

By: Weston Presidio Capital
Management L.P., a Delaware limited
partnership

By: /s/ JAMES P. MCELWEE
--------------------------------------
James P. McElwee,
General Partner

Address: 343 Sansome Street
Suite 1210
San Francisco, CA 94104-1316
Telecopy: (415) 398-0990

CHASE VENTURE CAPITAL
ASSOCIATES, L.P.,
a California limited partnership

By: Chase Capital Partners, a
New York general partnership

By: /s/ DAVID L. FERGUSON
--------------------------------------
David L. Ferguson,
General Partner

Address: 380 Madison Avenue, 12th Floor
New York, NY 10017
Attn: Chief Administrative Office
Telecopy: (212) 622-3101

Copy to: CVP Management Corporation
840 Apollo Street, Suite 223
El Segundo, CA 90245
Telecopy: (310) 335-1965

16.
<PAGE> 17
WO HOLDINGS, INC.

By: /s/ S.M. HASSAN
------------------------------------------

Address:

/s/ S.M. HASSAN
----------------------------------------------
S.M. Hassan

Address:

/s/ BARRY PERZOW
----------------------------------------------
Barry Perzow

Address:

FRONTENAC VI LIMITED PARTNERSHIP

135 South LaSalle Street, Suite 3800
Chicago, IL 60603

By: Frontenac Company

Its: General Partner

By: /s/ M. LAIRD KOLDYKE
-----------------------------------------

Its: General Partner
----------------------------------------

17.
<PAGE> 18

WILD OATS INVESTORS FUND, G.P.,
a Delaware general partnership

By: /s/ THOMAS R. HEIDENTHAL
-------------------------------------
Thomas R. Heidenthal
Administrative Partner

Address: c/o TA Instruments, Inc
109 Lukens Drive
New Castle, DE 19720

18.

<PAGE> 19
SCHEDULE A

1. Weston Presidio Offshore Capital C.V.
2. Chase Venture Capital Associates, L.P.
3. Montgomery Associates, 1992 L.P
4. Frontenac VI Limited Partnership
5. Wild Oats Investors Fund, G.P.

<PAGE> 1

CREDIT AGREEMENT

WILD OATS MARKETS, INC., a Delaware corporation (the "Company"), and
BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking association
with its principal office in Indianapolis, Indiana, (the "Bank") agree as
follows:

Section 1. ACCOUNTING TERMS -- DEFINITIONS. All accounting and
financial terms used in this Agreement are used with the meanings such terms
would be given in accordance with generally accepted accounting principles
except as may be otherwise specifically provided in this Agreement. The
following terms have the meanings indicated when used in this Agreement with
the initial letter capitalized:

o "Adjusted Earnings" means an amount equal to the excess of (a)
the product of three times the lesser of (i) the Company's
Adjusted EBITDA for the twelve consecutive months ending as of
the end of the month immediately preceding the date as of which
the Adjusted Earnings is being calculated or (ii) the product of
two times the Company's Adjusted EBITDA for the six consecutive
months ending as of the end of the month immediately preceding
the date as of which the Adjusted Earnings is being calculated
over (b) the Company's aggregate Subordinated Debt.

o "Adjusted Earnings Certificate" means a certificate of the
Company signed by an appropriate officer indicating the amount
of the Adjusted Earnings as of a stated date and in such form
and showing such detail as the Bank may reasonably require.

o "Adjusted EBITDA" means the amount equal to EBITDA for any
accounting period plus all pre-opening expenses incurred during
such accounting period, provided that pre-opening expenses in
excess of $250,000.00 for any one store shall not be included in
such calculation.

o "Advance" means a disbursement of proceeds of the Revolving
Loan.

o "Agreement" means this Credit Agreement between the Company and
the Bank, as it may from time to time be amended.

o "Applicable Rate" means any of the Applicable Commission Rate,
the Applicable Unused Fee or the Applicable Spread, as the
context requires, and when used in the plural form refers to two
or more of the Applicable Commission Rate, the Applicable Unused
Fee and the Applicable Spread, as the context requires. The
Applicable Rate
<PAGE> 2
shall be determined by reference to the ratio of the Company's
Total Funded Debt to its Total Capitalization in accordance with
the following table:

<TABLE>
<CAPTION>
Unused Applicable Spread Commission
Ratio Fee Prime Rate LIBOR Rate
----- ------ -------------------- ---------
<S> <C> <C> <C> <C>
.40 to 1.0 or
greater .375% .50% 2.50% 1.50%

.35 to 1.0 or
greater, but less
than .40 to 1.0 .375% .25% 2.25% 1.375%

.30 to 1.0 or
greater, but less
than .35 to 1.0 .250% .00% 2.00% 1.250%

less than .30 to 1.0 .250% .00% 1.75% 1.000%
</TABLE>

Initially the Applicable Rate shall be the largest spread shown
on the above table. After the Closing Date, the Applicable Rate
shall be determined on the basis of the financial statements of
the Company for each fiscal quarter furnished to the Bank
pursuant to the requirements of the Credit Agreement, with
prospective effect for the following fiscal quarter; provided
that a reduction in the Applicable Rate shall only be effective
if the Company meets the requirements for a decreased Applicable
Rate for at least two (2) consecutive fiscal quarters, and
provided further that at any time the Company makes an
acquisition, the Applicable Rate shall be determined on the
basis of the pro-forma financial statements of the Company
furnished to the Bank at the time of such acquisition with
prospective effect for the remainder of the fiscal quarter in
which such acquisition occurred. Interest or fees will accrue
and be payable in any fiscal quarter on the basis of the
Applicable Rate in effect during the preceding fiscal quarter or
partial fiscal quarter until an adjustment is made under the
provisions of this subsection. The Applicable Rate shall be
adjusted on the first day of the calendar month which follows
receipt by the Bank of the financial statements upon which such
adjustment is based, but such adjustment shall not be effective
as to any LIBOR-based Rate elected prior to the date of such
adjustment until the expiration of the period of time for which
such LIBOR-based Rate shall have been elected by the Company.
In the

-2-
<PAGE> 3

event that the Company fails to deliver the financial statements
and compliance certificates required under the Credit Agreement
for any month which ends a fiscal quarter, then the Applicable
Rate shall be the largest spread shown on the above table from
the date such financial statements were required to be delivered
until the first day of the calendar month which follows delivery
to the Bank of such financial statements.

o "Applicable Commission Rate" means the rate at which the fee for
each letter of credit issued for the account of the Company
under the terms of this Agreement will be calculated.

o "Applicable Spread" means the number of percentage points to be
taken into account in calculating the per annum rate at which
interest will accrue on the Loan.

o "Applicable Unused Fee" means the percentage to be taken into
account in calculating the unused facility fee.

o "Application for Revolving Loan Advance" or "Application" means
a written application of the Company for a disbursement of
proceeds of the Revolving Loan substantially in the form of
Exhibit "A" attached hereto.

o "Authorized Officer" means the President, Vice
President/Secretary or the Treasurer/Chief Financial Officer of
the Company or such other officer whose authority to perform
acts to be performed only by an Authorized Officer under the
terms of this Agreement is evidenced to the Bank by a certified
copy of an appropriate resolution of the Board of Directors of
the Company.

o "Bank" is used as defined in the preamble.

o "Banking Day" means a day on which the principal office of the
Bank in the City of Indianapolis, Indiana, is open for the
purpose of conducting substantially all of the Bank's business
activities.

o "Code" means the Internal Revenue Code of 1986, as amended.

o "Commitment" means the agreement of the Bank to extend the
Revolving Loan to the Company until the Revolving Loan Maturity
Date, and if the context so requires, the term may also refer to
the maximum principal amount which is permitted to be
outstanding under the Revolving Loan at any time.

o "Companies" means, collectively, the Company and all of its
Subsidiaries.

-3-
<PAGE> 4

o "Company" is used as defined in the Preamble.

o "EBITDA" means the net income of the Company for any accounting
period plus the sum of (i) income tax expense and (ii) interest,
depreciation and amortization expense for such accounting
period, all determined in accordance with generally accepted
accounting principles.

o "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

o "Event of Default" means any of the events described in Section
8.

o "Fiscal Quarter" means a fiscal quarter of the Company
consisting of thirteen (13) consecutive weeks.

o "Guaranty Agreement" is used as defined in Section 4.d.

o "Hazardous Substance" means any hazardous or toxic substance
regulated by any federal, state or local statute or regulation
including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource
Conservation and Recovery Act and the Toxic Substance Control
Act, or by any federal, state or local governmental agencies
having jurisdiction over the control of any such substance
including but not limited to the United States Environmental
Protection Agency.

o "Letter of Credit" is used as defined in Section 2.a(vii).

o "LIBOR-based Rate" means that per annum rate of interest which
is equal to the sum of the LIBOR Applicable Spread per annum
plus the London Interbank Offered Rate.

o "LIBOR Applicable Spread" means the number of percentage points
to be taken into account in calculating the LIBOR-based Rate.

o "London Interbank Offered Rate" means the per annum rate of
interest, as determined by the Bank, at which dollar deposits in
immediately available funds are offered to the principal banks
in the London interbank market by other principal banks in that
market two Banking Days prior to the commencement of a period of
either one month, three months or six months for which the
Company shall have requested a quotation of the rate in amounts
equal to the amount for which the Company shall have requested a
quotation of the rate, increased by an amount equal to any
increase, as determined by the Bank, in the cost to the Bank of
obtaining such deposits resulting from the imposition of any
additional reserves or from any increase in the amount of

-4-
<PAGE> 5

reserves presently required by any United States or foreign
governmental authority including, but not limited to, any
marginal or extraordinary reserves imposed to give effect to
monetary policy. Any determination by the Bank of increased
costs of maintaining deposits made pursuant to the provisions of
the preceding sentence shall be final, absent manifest error.

o "Loan" means the Revolving Loan.

o "Loan Document" means any of this Agreement, the Revolving Note,
the Security Agreement, the Guaranty Agreement, any and all
Reimbursement Agreements and any other instrument or document
which evidences or secures the Loan or which expresses an
agreement as to terms applicable to the Loan, and in the plural
means any two or more of the Loan Documents, as the context
requires.

o "Note" means the Revolving Note.

o "Obligations" means all obligations of the Company in favor of
the Bank of every type and description, direct or indirect,
absolute or contingent, due or to become due, now existing or
hereafter arising, including but not limited to: (i) all of
such obligations on account of the Loan, including any Advances
made pursuant to any extension of the Commitment beyond the
initial Revolving Loan Maturity Date or pursuant to any other
amendment of this Agreement, (ii) the duty of the Company under
Section 2.a(vii) to reimburse the Bank with interest for all
amounts paid by the Bank on account of a Letter of Credit and to
pay all commissions and fees on account thereof and (iii) all
other obligations arising under any Loan Document as amended
from time to time.

o "Officer's Certificate" means a certificate in the form included
as a part of Exhibit "A" attached hereto signed by the chief
executive officer or the chief financial officer of the Company,
confirming that all of the representations and warranties
contained in Section 3 of this Agreement are true and correct as
of the date of such certificate except as specified therein and
with the further exceptions that: (i) the representation
contained in Section 3.d shall be construed so as to refer to
the latest financial statements which have been furnished to the
Bank as of the date of any Officer's Certificate, (ii) the
representations contained in Section 3.k (with respect to
Hazardous Substances) will be construed so as to apply not

-5-
<PAGE> 6

only to the Company, but also to any Subsidiaries, whether now
owned or hereafter acquired, (iii) the representation contained
in Section 3.l shall be deemed to be amended to reflect the
existence of any Subsidiary hereafter formed or acquired by the
Company with the consent of the Bank, and (iv) all other
representations will be construed to have been amended to
conform with any changes of which the Company shall have
previously given the Bank notice in writing. The Certificate
shall further confirm that no Event of Default or Unmatured
Event of Default shall have occurred and be continuing as of the
date of the Certificate or shall describe any such event which
shall have occurred and be then continuing and the steps being
taken by the Company to correct it.

o "Optional Rate" means a LIBOR-based Rate.

o "Plan" means an employee pension benefit plan as defined in
ERISA.

o "Prepayment Premium" means the excess, if any, as determined by
the Bank of: (i) the present value at the time of prepayment of
the interest payments which would have been payable on account
of an amount prepaid from the date of prepayment until the end
of the period during which interest would have accrued at an
Optional Rate but for prepayment over (ii) the present value at
the time of prepayment of interest payments calculated at the
rate (the "Reinvestment Rate") which the Bank then estimates it
would receive upon reinvesting the principal amount of the
prepayment in an obligation which presents a credit risk
substantially similar (as determined in accordance with the
commercial credit rating system then used by the Bank) to that
which is then presented by the Loan for a period approximately
equal to the balance of the period during which interest would
accrue on the portion of the Loan prepaid at an Optional Rate,
but for prepayment. The discount rate used by the Bank in
determining such present values shall be the Reinvestment Rate.

o "Prime-based Rate" means any variable rate at which interest may
accrue on all or a portion of either of the Loans under the
terms of this Agreement, which rate is determined by reference
to the Prime Rate.

o "Prime Rate" means a variable per annum interest rate equal at
all times to the rate of interest established and quoted by the
Bank as

-6-
<PAGE> 7

its Prime Rate, such rate to change contemporaneously with each
change in such established and quoted rate, provided that it is
understood that the Prime Rate shall not necessarily be
representative of the rate of interest actually charged by the
Bank on any loan or class of loans.

o "Prime Rate Applicable Spread" means the number of percentage
points to be taken into account in calculating the Prime-based
Rate at which interest will accrue on the Loan.

o "Reimbursement Agreement" is used as defined in Section
2.a(vii).

o "Reinvestment Rate" is used as defined in the text of the
definition of "Prepayment Premium" in this Section.

o "Revolving Loan" is used as defined in Section 2.a(i).

o "Revolving Loan Maturity Date" means initially February 28,
2002, and hereafter any other date to which the Commitment may
be extended by the Bank pursuant to the terms of Section
2.a(iv).

o "Revolving Note" is used as defined in Section 2.a(ii).

o "Security Agreement" is used as defined in Section 4.a.

o "Subordinated Debt" means indebtedness of the Company which is
subordinated to the indebtedness of the Company to the Bank
under the terms of the Subordination Agreement and any other
indebtedness of the Company which is subordinated to the
Company's indebtedness to the Bank on substantially similar
terms.

o "Subordination Agreement" is used as defined in Section 4.c.

o "Subsidiary" means any corporation, partnership, joint venture
or other business entity over which the Company exercises
control, provided that it shall be conclusively presumed that
the Company exercises control over any such entity 51% or more
of the equity interest in which is owned by the Company,
directly or indirectly.

o "Tangible Capital Base" means the shareholders' equity of the
Company less any allowance for goodwill, patents, trademarks,
trade secrets, and any other assets which would be classified as
intangible assets under generally accepted accounting
principles, plus the principal amount of the Company's
Subordinated Debt.

o "Total Capitalization" means, as of any date, the sum of the
Total Funded Debt plus shareholders' equity.

o "Total Funded Debt" means, as of any date, the sum of the
following (without duplication): (i) all interest-bearing

-7-
<PAGE> 8

indebtedness of the Company and its Subsidiaries as of such date
which would be reflected on a consolidated balance sheet of the
Company and its Subsidiaries prepared as of such date in
accordance with generally accepted accounting principles and
(ii) the present value of all obligations in respect of capital
leases incurred by the Company and its Subsidiaries.

o "Unmatured Event of Default" means any event specified in
Section 8, which is not initially an Event of Default, but which
would, if uncured, become an Event of Default with the giving of
notice or the passage of time or both.

Section 2. THE LOANS. Subject to all of the terms and conditions of
this Agreement, the Bank will make the Loan described in this Section to the
Company.

a. The Revolving Loan. The Bank will make a revolving loan to the
Company on the following terms and subject to the following
conditions:

(i) The Commitment -- Use of Proceeds -- Principal
Reductions. From this date and until the Revolving
Loan Maturity Date, the Bank agrees to make Advances
(collectively, the "Revolving Loan") under a revolving
line of credit from time to time to the Company of
amounts not exceeding in the aggregate at any time
outstanding the lesser of Twenty Million and 00/100
Dollars ($20,000,000.00) (the "Commitment") or the
Adjusted Earnings, provided that all of the conditions
of lending stated in Section 7 of this Agreement as
being applicable to the Revolving Loan have been
fulfilled at the time of each Advance and provided
further that the Commitment shall decrease to Fifteen
Million and 00/100 Dollars ($15,000,000.00) on March
31, 1998, and shall decrease by $937,500.00 at each
calendar quarter end thereafter (each such amount
referred to in this subsection as a "Principal
Reduction"). The Company shall pay such amounts as are
required to reduce the outstanding principal balance of
the Revolving Loan to the Commitment less the aggregate
amount of the scheduled Principal Reductions, including
the Principal Reduction due on such date, on each date
that a Principal Reduction is required. Proceeds of
the Revolving Loan may be

-8-
<PAGE> 9

used by the Company only to fund general working
capital requirements of the Company, to finance capital
expenditures and acquisitions and to repay existing
indebtedness of the Company.

(ii) Method of Borrowing. The obligation of the Company to
repay the Revolving Loan shall be evidenced by a
promissory note (the "Revolving Note") of the Company
in the form of Exhibit "B." So long as no Event of
Default or Unmatured Event of Default shall have
occurred and be continuing and until the Revolving Loan
Maturity Date, the Company may borrow, repay (subject
to the requirements of Section 2.b(i)B) and reborrow
under the Revolving Note on any Banking Day, provided
that no borrowing may cause the principal balance of
the Loan to exceed the lesser of the Commitment or the
Adjusted Earnings or may result in an Event of Default
or an Unmatured Event of Default. Each Advance under
the Revolving Loan shall be conditioned upon receipt by
the Bank from the Company of an Application for
Revolving Loan Advance and an Officer's Certificate,
provided that the Bank may, at its discretion, make a
disbursement upon the oral request of the Company made
by an Authorized Officer, or upon a request transmitted
to the Bank by telephone facsimile ("fax") machine, or
by any other form of written electronic communication
(all such requests for Advances being hereafter
referred to as "informal requests"). In so doing, the
Bank may rely on any informal request which shall have
been received by it in good faith from a person
reasonably believed to be an Authorized Officer. Each
informal request shall be promptly confirmed by a duly
executed Application and Officer's Certificate if the
Bank so requires and shall in and of itself constitute
the representation of the Company that no Event of
Default or Unmatured Event of Default has occurred and
is continuing or would result from the making of the
requested Advance and that the making of the requested
Advance shall not cause the principal balance of the
Revolving Loan to exceed the lesser of the Commitment
or the Adjusted Earnings. All borrowings and
reborrowings and all repayments shall be in amounts of
not less than One Hundred Thousand Dollars
($100,000.00) and increments of Ten Thousand Dollars

-9-
<PAGE> 10

($10,000.00) thereafter, except for repayment of the
entire principal balance of the Revolving Loan and
except for special prepayments of principal required
under the terms of Section 2.a(v). Upon receipt of an
Application, or at the Bank's discretion upon receipt
of an informal request for an Advance and upon
compliance with any other conditions of lending stated
in Section 7 of this Agreement applicable to the
Revolving Loan, the Bank shall disburse the amount of
the requested Advance to the Company. All Advances by
the Bank and payments by the Company shall be recorded
by the Bank on its books and records, and the principal
amount outstanding from time to time, plus interest
payable thereon, shall be determined by reference to
the books and records of the Bank. The Bank's books
and records shall be presumed prima facie to be correct
as to such matters.

(iii) Interest on the Revolving Loan. The principal amount
of the Revolving Loan outstanding from time to time
shall bear interest until maturity of the Revolving
Note at a rate per annum equal to the Prime Rate plus
the Prime Rate Applicable Spread, except that at the
option of the Company, exercised from time to time as
provided in Section 2.b(i), interest may accrue prior
to maturity on any Advance or on the entire outstanding
balance of the Revolving Loan which Advance or balance
is not less than One Million Dollars ($1,000,000.00)
and increments of One Hundred Thousand Dollars
($100,000.00) thereafter and as to which no Optional
Rate previously elected remains in effect, at a
LIBOR-based Rate for a period of 30, 90 or 180 days,
provided that an election of an Optional Rate for a
period extending beyond the Revolving Loan Maturity
Date shall be permitted only at the discretion of the
Bank. After maturity, whether on the Revolving Loan
Maturity Date or on account of acceleration of maturity
upon the occurrence of an Event of Default, and until
paid in full, the Revolving Loan shall bear interest at
a per annum rate equal to the Prime Rate plus two
percent (2%) plus the Prime Rate Applicable Spread,
except that as to any portion of the Loan for which the
Company may have elected an Optional Rate for a period
of time that has not expired at maturity, such portion
shall, during the remainder of such period, bear

-10-
<PAGE> 11

interest at a per annum rate equal to the greater of
the Prime Rate plus two percent (2%) plus the Prime
Rate Applicable Spread or the Optional Rate then in
effect plus two percent (2%) per annum. Accrued
interest shall be due and payable monthly on the last
Banking Day of each month prior to maturity. After
maturity, interest shall be payable as accrued and
without demand.

(iv) Extensions of Revolving Loan Maturity Date. The Bank
may, upon the request of the Company, but at the Bank's
sole discretion, extend the Revolving Loan Maturity
Date from time to time to such date or dates as the
Bank may elect by notice in writing to the Company, and
upon any such extension and upon execution and delivery
by the Company of a Revolving Note reflecting the
extended maturity date, the date to which the
Commitment is then extended will become the "Revolving
Loan Maturity Date" for purposes of this Agreement.

(v) Special Repayments of Principal. At any time the
principal balance of the Revolving Loan exceeds the
Adjusted Earnings, as determined on the basis of the
most recent Adjusted Earnings Certificate furnished by
the Company or as determined by the Bank upon an
inspection of the books and records of the Company, the
Company shall immediately repay that portion of the
principal balance of the Revolving Loan which is in
excess of the Adjusted Earnings. Such repayment shall
be due without demand. For purposes of this
subsection, the principal balance of the Revolving Loan
shall be deemed to include an amount equal to the total
amount of all Letters of Credit which are outstanding
from time to time.

(vi) Facility Fee. In addition to interest on the Revolving
Loan, the Company shall pay to the Bank a facility fee
for each partial or full calendar quarter during which
the Commitment is outstanding equal to the Applicable
Unused Fee per annum of the average daily excess of the
Commitment over the principal balance of the Revolving
Loan. Facility fees for each calendar quarter shall be
due and payable within ten (10) days following the
Bank's submission of a statement of the amount due.
Such

-11-
<PAGE> 12

fees may be debited by the Bank when due to any demand
deposit account of the Company carried with the Bank
without further authority.

(vii) Standby Letters of Credit. At any time that the
Company is entitled to an Advance under the Revolving
Loan, the Bank shall, upon the application of the
Company, issue for the account of the Company, a
standby letter of credit (each a "Letter of Credit") in
an amount not in excess of the maximum Advance that the
Company would then be entitled to obtain under the
Revolving Loan, provided that (A) the total amount of
Letters of Credit which are outstanding at any time
shall not exceed $2,500,000.00, (B) the issuance of any
Letter of Credit with a maturity date beyond the
Revolving Loan Maturity Date shall be entirely at the
discretion of the Bank, (C) the form of the requested
Letter of Credit shall be satisfactory to the Bank in
the reasonable exercise of the Bank's discretion, and
(D) the Company shall have executed an application and
reimbursement agreement for the Letter of Credit (a
"Reimbursement Agreement") in the Bank's standard form.
While any Letter of Credit is outstanding, the maximum
amount of Advances which may be outstanding under the
Revolving Loan shall be reduced by the maximum amount
available to be drawn under the Letter of Credit. The
Company shall pay the Bank a commission for each
standby Letter of Credit issued calculated at the
Applicable Commission Rate per annum of the maximum
amount available to be drawn under the standby Letter
of Credit. Such commissions shall be calculated on the
basis of a 360 day year and the actual number of days
in the period during which the standby Letter of Credit
will be outstanding. The Company shall pay the Bank's
standard transaction fees with respect to any
transactions occurring on account of any Letter of
Credit. Commissions shall be payable when the related
Letters of Credit are issued and transaction fees shall
be payable upon completion of the transaction as to
which they are charged. All such commissions and fees
may be debited by the Bank to any deposit account of
the Company carried with the Bank without further

-12-
<PAGE> 13

authority, and in any event, shall be paid by the
Company within ten (10) days following billing.

b. Additional Provisions Applicable to the Loan. The following
provisions are applicable to the Loan:

(i) Procedures for Electing Optional Rates -- Certain
Effects of Election. Optional Rates may be elected
only in accordance with the following procedures, shall
be subject to the following conditions and the election
of an Optional Rate shall have the following
consequences in addition to other consequences stated
in this Agreement:

A. No Optional Rate may be elected at any time
that an Event of Default or Unmatured Event of
Default has occurred and is continuing.

B. Voluntary prepayment prior to scheduled
maturity of all or any portion of the Loan on
which interest is accruing at an Optional Rate
shall be subject to contemporaneous payment of
the Prepayment Premium if, at the time of
prepayment, the Reinvestment Rate is less than
the Optional Rate at which interest accrues on
the Loan. A Prepayment Premium shall also be
due and payable on prepayment of all or any
portion of the Loan prior to scheduled maturity
because of acceleration of maturity on account
of an Event of Default if, at the time of
acceleration of maturity, the Reinvestment Rate
is less than the Optional Rate at which
interest is accruing on the Loan. If any
portion of the principal balance of the
Revolving Loan is required to be prepaid in
order to reduce the balance of the Revolving
Loan to an amount equal to the Adjusted
Earnings or if any portion of the Revolving
Loan is required to be paid on account of a
Principal Reduction required under the
provisions of Section 2.a(i), and while
interest is accruing on such portion at an
Optional Rate, then a Prepayment Premium shall
be due and payable in addition to the principal
amount required to be prepaid, if, at the time
such principal payment is required,
Reinvestment Rate is less than the Optional
Rate at which interest is accruing on such
portion of the Loan. If at the time of

-13-
<PAGE> 14

any voluntary or mandatory prepayment of any
portion of the principal of the Loan, interest
accrues at both an Optional Rate or Rates and
at a Prime-based Rate on portions of the Loan,
then any prepayment of principal will be
applied first to the portion of the Loan on
which interest accrues at the Prime-based Rate
and next to the portion or portions at which
interest accrues at an Optional Rate or Rates,
and if interest accrues on the Loan at more
than one Optional Rate, first to that portion
or those portions on which interest accrues at
a Rate or Rates which results in no Prepayment
Premium or the lowest Prepayment Premium or
Premiums.

C. On any Banking Day, the Company may request a
quotation of the Optional Rates then in effect
from the Bank. As soon as possible, and in any
event before the close of business on the next
following Banking Day, the Bank shall quote
such Optional Rates. The Company shall then
have until the end of the Banking Day on which
such quotation is given or within such shorter
time as the Bank may specify, to exercise its
option to elect any Optional Rate quoted,
subject to all other conditions and limitations
stated in this Agreement. The period for which
any Optional Rate is effective shall begin on
the second Banking Day following the day on
which the quotation is given.

D. An election of an Optional Rate may be
communicated to the Bank on behalf of the
Company only by an Authorized Officer. Such
election may be communicated by telephone, or
by telephone facsimile (fax) machine or any
other form of written electronic communication,
or by a writing delivered to the Bank. At the
request of the Bank, the Company shall confirm
any election in writing and such written
confirmation shall be signed by an Authorized
Officer. The Bank shall be entitled to rely on
any oral or written electronic communication of
an election of an Optional Rate which is
received by an appropriate Bank employee from
anyone reasonably believed in good faith by
such employee to be an Authorized Officer.

-14-
<PAGE> 15

E. Notwithstanding any other provision of this
Agreement, the Bank may elect not to quote a
LIBOR-based Rate on any day on which the Bank
has determined that it is not practical to
quote such rate because of the unavailability
of sufficient funds to the Bank for appropriate
terms at rates approximating the relevant
London Interbank Offered Rate, or because of
legal or regulatory changes which make it
impractical or burdensome for the Bank to lend
money at a LIBOR-based Rate.

(ii) Calculation of Interest, Fees and Commissions.
Interest on the Loan and any fees or commissions
payable under the terms of this Agreement shall be
calculated on the basis of a year of 360 days.

(iii) Manner of Payment - Application. All payments of
principal and interest on the Loan and all payments of
fees and commissions shall be payable at the principal
office of the Bank in Indianapolis, Indiana, in funds
available for the Bank's immediate use in that city and
no payment will be considered to have been made until
received in such funds. All payments received on
account of the Loan will be applied first to the
satisfaction of any interest which is then due and
payable, and to principal only after all interest which
is due and payable has been satisfied.

(iv) Commitment Fee. The Bank acknowledges receipt from the
Company of the sum of $100,000.00, either previous to
or contemporaneously with the execution of this
Agreement, as a fee for the Bank's commitment to make
the Loan.

Section 3. REPRESENTATIONS AND WARRANTIES. To induce the Bank to make
the Loans, the Company represents and warrants to the Bank that:

a. Organization of the Company and the Subsidiaries. The Company
is a corporation organized, existing and in good standing under
the laws of the State of Delaware and each Subsidiary is a
corporation organized, existing and in good standing under the
laws of the State of its respective incorporation. The
Companies are each qualified to do business in every
jurisdiction in which: (i) the nature of the business conducted
or the character or location of properties owned or leased, or
the residences or activities of employees make such
qualification necessary, and (ii) failure so to qualify might
impair

-15-
<PAGE> 16

the title of any of the Companies to material properties or any
right to enforce material contracts or result in exposure any of
the Companies to liability for material penalties in such
jurisdiction. No jurisdiction in which any of the Companies is
not qualified to do business has asserted that such corporation
is required to be qualified therein. The principal office of
each of the Company and the Subsidiaries is located at 1668
Valtec Lane, Boulder, Colorado 80301. The Company does not
conduct any material operations or keep any material amounts of
property at any other location, except the locations listed in
Schedule I of Exhibit "D" attached to this Agreement. Neither
the Company nor any Subsidiary has done business under any name
other than its present corporate name at any time during the six
years preceding the date of this agreement except as listed in
the "Schedule of Exceptions" attached as Exhibit "C."

b. Authorization; No Conflict. The execution and delivery of this
Agreement, the borrowings hereunder, the execution and delivery
of all of the other Loan Documents and the performance by the
Company of its obligations under this Agreement and the
performance by the Company and each Subsidiary of its respective
obligations under all of the other Loan Documents to which it is
a party are within the corporate powers of the Company and each
Subsidiary, have been duly authorized by all necessary corporate
action, have received any required governmental or regulatory
agency approvals and do not and will not contravene or conflict
with any provision of law or of the articles of incorporation or
bylaws of the Company or any Subsidiary or of any agreement
binding upon the Company or any Subsidiary or the properties of
the Company or any Subsidiary.

c. Validity and Binding Nature. This Agreement and all of the
other Loan Documents to which each is a party are the legal,
valid and binding obligations of the Company and each
Subsidiary, enforceable against the Company and each Subsidiary
in accordance with their respective terms, except to the extent
that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws enacted
for the relief of debtors generally and other similar laws
affecting the enforcement of creditors' rights generally or by
equitable principles which may affect the availability of
specific performance and other equitable remedies.

-16-
<PAGE> 17

d. Financial Statements. The Company has delivered to the Bank its
audited financial statements as of January 1, 1994, and for the
fiscal year of the Company then ended and its unaudited interim
financial statements as of December 31, 1994, and for the fiscal
year then ended. Such statements have been prepared in
accordance with generally accepted accounting principles
consistently applied except, as to the interim statements, for
the absence of footnotes and adjustments normally made at year
end which are not material in amount. Such statements present
fairly the financial position of the Company as of the dates
thereof and the results of its operations for the periods
covered and since the date of the latest of such statements
there has been no material adverse change in the financial
position of the Company or in the results of its operations.

e. Litigation and Contingent Liabilities. No litigation,
arbitration proceedings or governmental proceedings are pending
or threatened against the Company or any Subsidiary which would,
if adversely determined, materially and adversely affect its
financial position or continued operations. Neither the Company
nor any Subsidiary has any material contingent liabilities not
provided for or disclosed in the financial statements referred
to in Section 3.d or in the "Schedule of Exceptions" attached as
Exhibit "C."

f. Liens. None of the assets of the Company or any Subsidiary are
subject to any mortgage, pledge, title retention lien, or other
lien, encumbrance or security interest except for liens and
security interests described in the exceptions enumerated in
Section 6.b.

g. Employee Benefit Plans. Each Plan maintained by the Company and
each Subsidiary is in material compliance with ERISA, the Code,
and all applicable rules and regulations adopted by regulatory
authorities pursuant thereto, and the Company and each
Subsidiary have filed all reports and returns required to be
filed by ERISA, the Code and such rules and regulations. No
Plan maintained by the Company or any Subsidiary and no trust
created under any such Plan has incurred any "accumulated
funding deficiency" within the meaning of Section 412(c)(1) of
the Code, and the present value of all benefits vested under
each Plan did not exceed, as of the last annual valuation date,
the value of the assets of the respective Plans allocable to
such

-17-
<PAGE> 18

vested benefits. Neither the Company nor any Subsidiary has any
knowledge that any "reportable event" as defined in ERISA has
occurred with respect to any Plan.

h. Payment of Taxes. The Company and each Subsidiary have filed
all federal, state and local tax returns and tax related reports
which each is required to file by any statute or regulation and
all taxes and any tax related interest payments and penalties
that are due and payable have been paid, except for such as are
being contested in good faith and by appropriate proceedings and
as to which appropriate reserves have been established.
Adequate provision has been made for the payment when due of
all tax liabilities which have been incurred, but are not as yet
due and payable.

i. Investment Company Act. Neither the Company nor any Subsidiary
is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.

j. Regulation U. Neither the Company nor any Subsidiary is engaged
principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or
carrying margin stock within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System. Not more than
twenty-five percent (25%) of the consolidated assets of the
Company or of any Subsidiary of the Company consists of margin
stock, within the contemplation of Regulation U, as amended.

k. Hazardous Substances. Except as disclosed on the "Schedule of
Exceptions" attached as Exhibit "C", to the best knowledge of
the Company after due inquiry and investigation; (i) there are
no underground storage tanks of any kind on any premises owned
or occupied by or under lease to the Company or any Subsidiary;
(ii) there are no tanks, drums or other containers of any kind
on premises owned or occupied by or under lease to the Company
or any Subsidiary, the contents of which are unknown to the
Company; (iii) no premises owned or occupied by or under lease
to the Company or any Subsidiary have ever been used, and as of
the date of this Agreement, no such premises are being used for
any activities involving the use, treatment, transportation,
generation, storage or disposal of any Hazardous Substances in
reportable quantities, and (iv) no Hazardous

-18-
<PAGE> 19

Substances in reportable quantities have been released on any
such premises nor is there any threat of release of any
Hazardous Substances in reportable quantities on any such
premises.

l. Subsidiaries. The only Subsidiaries of the Company as of the
date of this Agreement are The Wild Side, Inc., a Colorado
corporation, Kathy's Natural Food Ranch Market, Inc., a Nevada
corporation ("Kathy's East"), and Kathy's Natural Food Ranch
Market-West, Inc., a Nevada corporation ("Kathy's West").

Section 4. COLLATERAL FOR THE OBLIGATIONS. The Obligations will be
secured and supported as provided in this Section:

a. Security Agreement. The Obligations will be secured by a
security interest in all equipment, inventory, accounts
receivable and general intangibles of the Company now owned and
hereafter acquired and in the proceeds thereof, which security
interest will be created by a Security Agreement (the "Security
Agreement") in the form attached as Exhibit "D." The Security
Agreement will provide a security interest in the collateral
described therein subject only to liens and security interests
described in the exceptions enumerated in Section 6.b.

b. Guaranty Agreements. The Obligations will be supported by the
unconditional guaranty of prompt payment of each of the
Subsidiaries, each of which guaranty shall be evidenced by a
Guaranty Agreement (collectively, the "Guaranty Agreements") in
the form of Exhibit "E."

c. Subsidiary Security Agreements. The obligations of each
Subsidiary under its respective Guaranty Agreement will be
secured by a security interest in all equipment, inventory,
accounts receivable and general intangibles of such Subsidiary
now owned and hereafter acquired and in the proceeds thereof,
which security interest will be created by a Security Agreement
(collectively, the "Subsidiary Security Agreements") in the form
attached as Exhibit "F." Each Subsidiary Security Agreement
will provide a security interest in the collateral described
therein subject only to liens and security interests described
in the exceptions enumerated in Section 6.b.

d. Subordination. The indebtedness of the Company to shareholders
existing on the date of this Agreement and not paid
contemporaneously herewith will be subordinated to the
indebtedness of the Company to

-19-
<PAGE> 20

the Bank under the terms of a Subordination Agreement (the
"Subordination Agreement") in the form of Exhibit "G" attached
hereto.

Section 5. AFFIRMATIVE COVENANTS OF THE COMPANY. Until all Obligations
of the Company terminate or are paid and satisfied in full, and so long as the
Commitment or any Letter of Credit is outstanding, the Company shall strictly
observe the following covenants, unless at any time the Bank shall otherwise
expressly consent in writing, which consent shall not be unreasonably withheld:

a. Corporate Existence. The Company shall preserve, and shall
cause each Subsidiary to preserve, its corporate existence,
except that Kathy's East and Kathy's West may be merged into the
Company so long as the Company is the surviving entity.

b. Reports, Certificates and Other Information. The Company shall
furnish to the Bank copies of the following financial
statements, certificates and other information:

(i) Annual Statements. As soon as available and in any
event within one hundred twenty (120) days after the
close of each fiscal year, consolidated financial
statements of the Company and its Subsidiaries for such
fiscal year prepared and presented in accordance with
generally accepted accounting principles, consistently
applied (except for changes in which the independent
accountants of the Company concur) in each case setting
forth in comparative form corresponding figures for the
preceding fiscal year, together with the audit report,
unqualified as to scope, of independent certified
public accountants approved by the Bank, which approval
shall not be unreasonably withheld. In the event
that any Subsidiary is formed after the date of this
Agreement as provided herein, the Company shall provide
supplementary consolidating financial statements of the
Company and its Subsidiaries prepared by the Company.

(ii) Interim Statements. As soon as available and in any
event within thirty (30) days after the end of each
month, a copy of the consolidated, and in the event
that any Subsidiary is formed as provided herein after
the date of this Agreement consolidating, interim
financial statements of the Company and its
Subsidiaries, consisting at a minimum of:

-20-
<PAGE> 21

A. the balance sheet as of the end of the month,

B. a statement of income for the month and for the
partial or full fiscal year ended as of the end
of the month, and

C. the operating performance of each
store/kitchen/bakery,all in reasonable detail,
in each case setting forth in comparative form
corresponding figures for the same period in
the preceding fiscal year and for the current
year's budget, and accompanied by the written
representation of the chief financial officer
of the Company that such financial statements
have been prepared in accordance with generally
accepted accounting principles (except that
they need not include footnotes and need not
reflect adjustments normally made at year end,
if such adjustments are not material in
amount), consistently applied, (except for
changes in which the independent accountants of
the Company concur) and present fairly the
financial position of the Company and the
results of its operation as of the dates of
such statements and for the fiscal periods then
ended.

(iii) Certificates. Contemporaneously with the furnishing of
each set of financial statements provided for in
Sections 5.b(i) and 5.b(ii), an Officer's Certificate.

(iv) Management Letter. As soon as available and in any
event within sixty (60) days after receipt, a copy of
any management letter from the Company's independent
certified public accountants, together with a copy of
any response by the Company to such letter.

(v) Annual Budget. As soon as available and in any event
within sixty (60) days after the close of each fiscal
year, a summary of the Budget (including, without
limitation, projected capital expenditures, balance
sheets, statements of income and of cash flows on a
monthly basis) for the following fiscal year.

(vi) Adjusted Earnings Certificates. Within thirty (30)
days after the end of each month, an Adjusted Earnings
Certificate as of that month end and promptly as of
such other dates as the Bank may reasonably require.

-21-
<PAGE> 22

(vii) Orders. Prompt notice of any orders in any material
proceedings to which the Company or any Subsidiary is a
party, issued by any court or regulatory agency,
federal or state, and if the Bank should so request, a
copy of any such order.

(viii) Notice of Default or Litigation. Immediately upon
learning of the occurrence of an Event of Default or
Unmatured Event of Default, or the institution of or
any adverse determination in any litigation,
arbitration proceeding or governmental proceeding which
is material to the Company or any Subsidiary, or the
occurrence of any event which could have a material
adverse effect upon the Company or any Subsidiary,
written notice thereof describing the same and the
steps being taken with respect thereto.

(ix) Compliance Certificates. Within thirty (30) days
following each month end, a certificate of the Chief
Financial Officer or other appropriate officer of the
Company demonstrating compliance with the applicable
financial covenants stated in Section 5.g and
compliance with the covenant limiting new store
openings of the Company stated in Section 6.k. Such
certificate shall relate the covenants to the month-end
figures and shall otherwise be in such form and provide
such detail as may be reasonably satisfactory to the
Bank.

(x) Registration Statements and Reports. Promptly upon
filing with the Securities and Exchange Commission or
any state securities regulatory authority, copies of
all registration statements and all periodic and
special reports required or permitted to be filed under
federal or state securities laws and regulations.

(xi) Other Information. From time to time such other
information concerning the Company or any Subsidiary as
the Bank may reasonably request.

c. Books, Records and Inspections. The Company shall maintain, and
shall cause each Subsidiary to maintain, complete and accurate
books and records, and permit access thereto by the Bank for
purposes of inspection, copying and audit. The Company shall
permit, and shall cause each Subsidiary to permit, the Bank to
inspect its properties and operations at all reasonable times.

-22-
<PAGE> 23

d. Insurance. In addition to any insurance required by the
Security Agreement and the Subsidiary Security Agreements, the
Company shall maintain, and shall cause each Subsidiary to
maintain, such insurance as may be required by law and such
other insurance, to such extent and against such material
hazards and liabilities, as is customarily maintained by
companies similarly situated. The Company shall name, and shall
cause each Subsidiary to name, the Bank as additional loss payee
on any such insurance policy under a standard lender's loss
payable clause and shall provide a copy of any such policy to
the Bank.

e. Taxes and Liabilities. The Company shall pay, and shall cause
each Subsidiary to pay, when due all taxes, material license
fees, assessments and other liabilities except such as are being
contested in good faith and by appropriate proceedings and for
which appropriate reserves have been established.

f. Compliance with Legal and Regulatory Requirements. The Company
shall maintain, and shall cause each Subsidiary to maintain,
material compliance with the applicable provisions of all
federal, state and local statutes, ordinances and regulations
and any court orders or orders of regulatory authorities issued
thereunder.

g. Financial Covenants. The Company shall observe, on a
consolidated basis, each of the following financial covenants:

(i) Net Worth. Commencing at the end of the 26-week period
ending as of the end of the second Fiscal Quarter of
fiscal year 1995 and thereafter for each period of 26
weeks ending as of the end of the second and fourth
Fiscal Quarters of each fiscal year, the Company shall
maintain its shareholders' equity at a level not less
than the shareholders' equity required at the end of the
immediately prior 26-week period plus seventy-five
percent (75%) of the net income of the Company for the
26-week period then ended, exclusive of any loss.

(ii) Tangible Capital Base. The Company shall maintain its
Tangible Capital Base at a level not less than zero
($0) at the end of each fiscal month.

-23-
<PAGE> 24

(iii) Ratio of Total Funded Debt to Total Capitalization.
The Company shall maintain at all times the ratio of
Total Funded Debt less Subordinated Debt to Total
Capitalization at a level not less than .50 to 1.0.

(iv) Interest Coverage. For each period of four consecutive
Fiscal Quarters ending during any fiscal year, the
Company shall maintain an interest coverage ratio of
not less than 3.0 to 1.0. For purposes of this
covenant, the phrase "interest coverage ratio" means
the sum of net income plus, without duplication and to
the extent deducted in determining such net income, (A)
interest expense and (B) income tax expense; divided by
interest expense.

(v) Fixed Charge Coverage. Commencing March 31, 1998, for
each period of four consecutive Fiscal Quarters ending
during any fiscal year, the Company shall maintain a
fixed charge coverage ratio of not less than 1.25 to
1.0. For purposes of this covenant, the phrase "fixed
charge coverage ratio" means EBITDA divided by the sum
of (A) principal payments paid on term debt during such
fiscal period, including capital lease payments, (B)
required principal payments made under the Revolving
Loan, (C) income taxes paid, (D) interest expense and
(E) expenditures for fixed assets.

h. Primary Banking Relationship. The Company shall maintain its
primary concentration and, where practical, its deposit accounts
with the Bank or, at the Company's option, with an affiliate of
the Bank.

i. Employee Benefit Plans. The Company shall maintain and shall
cause any Subsidiary to maintain, any Plan in material
compliance with ERISA, the Code, and all rules and regulations
of regulatory authorities pursuant thereto and shall file and
shall cause any Subsidiary to file all reports required to be
filed pursuant to ERISA, the Code, and such rules and
regulations.

j. Hazardous Substances. If the Company or any Subsidiary should
commence the use, treatment, transportation, generation, storage
or disposal of any Hazardous Substance in reportable quantities
in its operations in addition to those noted in Exhibit "C", the
Company shall immediately notify the Bank of the commencement of
such

-24-
<PAGE> 25

activity with respect to each such Hazardous Substance. The
Company shall cause any Hazardous Substances which are now or
may hereafter be used or generated in the operations of the
Company or any Subsidiary in reportable quantities to be
accounted for and disposed of in compliance with all applicable
federal, state and local laws and regulations. The Company
shall notify the Bank immediately upon obtaining knowledge that:

(i) any premises which have at any time been owned or
occupied by or have been under lease to the Company or
any Subsidiary are the subject of an environmental
investigation by any federal, state or local
governmental agency having jurisdiction over the
regulation of any Hazardous Substances, the purpose of
which investigation is to quantify the levels of
Hazardous Substances located on such premises, or

(ii) the Company or any Subsidiary has been named or is
threatened to be named as a party responsible for the
possible contamination of any real property or ground
water with Hazardous Substances, including, but not
limited to the contamination of past and present waste
disposal sites.

If the Company or any Subsidiary is notified of any event
described at items (i) or (ii) above, the Company shall
immediately engage, or shall cause the Subsidiary to engage, a
firm or firms of engineers or environmental consultants
appropriately qualified to determine as quickly as practical the
extent of contamination and the potential financial liability of
the Company or the Subsidiary with respect thereto, and the Bank
shall be provided with a copy of any report prepared by such
firm or by any governmental agency as to such matters as soon as
any such report becomes available to the Company. The selection
of any engineers or environmental consultants engaged pursuant
to the requirements of this Section shall be subject to the
approval of the Bank, which approval shall not be unreasonably
withheld.

Section 6. NEGATIVE COVENANTS OF THE COMPANY. Until all Obligations of
the Company terminate or are paid and satisfied in full, and so long as the
Commitment or any Letter of Credit is outstanding, the Company shall strictly
observe the following covenants, unless at any time the Bank shall otherwise
expressly consent in writing:

-25-
<PAGE> 26

a. Restricted Payments. The Company shall not purchase or redeem
anymore than ten percent (10%) of the issued and outstanding
shares of the capital stock of the Company during the term of
this Agreement or declare or pay any dividends thereon except
for dividends payable entirely in capital stock, provided that
the Company may redeem any class of Preferred Stock at the time
of any election by the holders of such Preferred Stock under the
provisions of the Company's Articles of Incorporation, as
amended or restated from time to time, a certified copy of which
shall have been provided to the Bank contemporaneously with the
execution of this Agreement, so long as no Event of Default or
Unmatured Event of Default shall have occurred and be continuing
or would result from such redemption. The Company shall not
make any other distributions to shareholders as shareholders, or
set aside any funds for any such purpose, or prepay, purchase or
redeem any subordinated indebtedness of the Company.

b. Liens. The Company shall not create or permit, and shall not
permit any Subsidiary to create or permit, to exist any
mortgage, pledge, title retention lien or other lien,
encumbrance or security interest (all of which are hereafter
referred to in this subsection as a "lien" or "liens") with
respect to any property or assets now owned or hereafter
acquired except:

(i) liens in favor of the Bank created pursuant to the
requirements of this Agreement or otherwise;

(ii) any lien or deposit with any governmental agency
required or permitted to qualify the Company or such
Subsidiary to conduct business or exercise any
privilege, franchise or license, or to maintain
self-insurance or to obtain the benefits of or secure
obligations under any law pertaining to workmen's
compensation, unemployment insurance, old age pensions,
social security or similar matters, or to obtain any
stay or discharge in any legal or administrative
proceedings, or any similar lien or deposit arising in
the ordinary course of business;

(iii) any mechanic's, workmen's, repairmen's, carrier's,
warehousemen's or other like liens arising in the
ordinary course of business for amounts not yet due and
for the payment of which adequate reserves have been
established, or deposits made to obtain the release of
such liens;

-26-
<PAGE> 27

(iv) easements, licenses, minor irregularities in title or
minor encumbrances on or over any real property which
do not, in the judgment of the Bank, materially detract
from the value of such property or its marketability or
its usefulness in the business of the Company or such
Subsidiary;

(v) liens for taxes and governmental charges which are not
yet due or which are being contested in good faith and
by appropriate proceedings and for which appropriate
reserves have been established;

(vi) liens created by or resulting from any litigation or
legal proceeding which is being contested in good faith
and by appropriate proceedings and for which
appropriate reserves have been established;

(vii) purchase-money liens on any equipment hereafter
acquired, or the assumption of any lien on equipment
existing at the time of such acquisition, or a lien
incurred in connection with any conditional sale or
other title retention agreement or a finance lease;
provided that (A) any equipment subject to any of the
foregoing is acquired by the Company or any Subsidiary
in the ordinary course of their respective business,
(B) the lien on any such equipment is created
contemporaneously with such acquisition and attaches
only to the equipment so acquired and fixed
improvements thereon, and (C) the total indebtedness
secured by all such liens shall not exceed Five Million
Dollars ($5,000,000.00) at any time outstanding in the
aggregate; and

(viii) those specific liens now existing described on the
"Schedule of Exceptions" attached as Exhibit "C."

c. Guaranties. The Company shall not be, and shall permit any
Subsidiary to be, a guarantor or surety of, or otherwise be
responsible in any manner with respect to any undertaking of any
other person or entity, whether by guaranty agreement or by
agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or
services, or otherwise, except for:

(i) guaranties in favor of the Bank;

(ii) guaranties by endorsement of instruments for deposit
made in the ordinary course of business;

-27-
<PAGE> 28

(iii) guaranties which do not exceed the aggregate amount of
$500,000.00 at any time outstanding; and

(iv) those specific existing guaranties listed in the
"Schedule of Exceptions" attached as Exhibit "C."

d. Loans or Advances. The Company shall not make or permit, and
shall not permit any Subsidiary to make or permit, to exist any
loans or advances to any other person or entity, except for:

(i) extensions of credit or credit accommodations to
customers or vendors made by the Company or such
Subsidiary in the ordinary course of its business as
now conducted;

(ii) reasonable salary advances to non-executive employees,
and other advances to agents and employees for
anticipated expenses to be incurred on behalf of the
Company or such Subsidiary in the course of discharging
their assigned duties;

(iii) loans or advances which do not exceed the aggregate
amount of $100,000.00 at any time outstanding; and

(iv) the specific items listed in the "Schedule of
Exceptions" attached as Exhibit "C";

e. Mergers, Consolidations, Sales, Acquisition or Formation of
Subsidiaries. The Company shall not be, and shall not permit
any Subsidiary to be, a party to any consolidation or to any
merger and shall not purchase the capital stock of or otherwise
acquire any equity interest in any other business entity. The
Company shall not acquire any material part of the assets of any
other business entity, except in the ordinary course of
business. The Company shall not sell, transfer, convey or lease
all or any material part of its assets, except in the ordinary
course of business, or sell or assign with or without recourse
any receivables. The Company shall not cause to be created or
otherwise acquire any Subsidiaries. Notwithstanding any
provision of this subsection to the contrary, the Company may
make (i) individual acquisitions in any fiscal year which do not
exceed Six Million Dollars ($6,000,000.00) in total cost to the
Company and which will not have revenues in excess of twenty
percent (20%) of the Company's consolidated pro-forma revenues
and (ii) total acquisitions in any fiscal year which do not
exceed the aggregate amount of Twelve Million Dollars
($12,000,000.00) in total

-28-
<PAGE> 29

cost to the Company and which will not have revenues in excess
of forty percent (40%) of the Company's consolidated pro-forma
revenues.

f. Margin Stock. The Company shall not use or cause or permit, and
shall not permit any Subsidiary to use or cause or permit, the
proceeds of the Loan to be used, either directly or indirectly,
for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve
System, as amended from time to time.

g. Other Agreements. The Company shall not enter, and shall not
permit any Subsidiary to enter, into any agreement containing
any provision which would be violated or breached in material
respect by the performance of its obligations under this
Agreement or under any other Loan Document.

h. Judgments. The Company shall not permit, and shall not allow
any Subsidiary to permit, any uninsured judgment or monetary
penalty rendered against it in any judicial or administrative
proceeding to remain unsatisfied for a period in excess of
forty-five (45) days unless such judgment or penalty is being
contested in good faith by appropriate proceedings and execution
upon such judgment has been stayed, and unless an appropriate
reserve has been established with respect thereto.

i. Principal Office. The Company shall not change, and shall not
permit any Subsidiary to change, the location of its principal
office unless it gives not less than ten (10) days prior written
notice of such change to the Bank.

j. Hazardous Substances. The Company shall not allow or permit,
and shall not permit any Subsidiary to allow or permit, to
continue the release or threatened release of any Hazardous
Substance on any premises owned or occupied by or under lease to
the Company or any Subsidiary.

k. New Store Opening Limitation. The Company shall not open more
than seven (7) stores in fiscal year 1995, nine (9) stores in
fiscal year 1996, and ten (10) stores in fiscal year 1997; and,
in any fiscal year thereafter, the Company shall not open any
number of stores in

-29-
<PAGE> 30

excess of the number identified in a plan presented by the
Company and approved by the Bank, which approval shall not be
unreasonably withheld.

l. Debt. The Company shall not incur nor permit to exist any
indebtedness for borrowed money except (i) to the Bank, (ii) for
indebtedness secured by purchase-money liens as provided under
the provisions of Section 6.b(vii) of this Agreement, (iii) for
Subordinated Debt and (iv) for those existing obligations
disclosed on the "Schedule of Exceptions" attached as Exhibit
"C." For purposes of this covenant, the phrase "indebtedness
for borrowed money," shall be construed to include capital lease
obligations.

Section 7. CONDITIONS OF LENDING. The obligation of the Bank to make
any Advance shall be subject to fulfillment of each of the following conditions
precedent:

a. No Default. No Event of Default or Unmatured Event of Default
shall have occurred and be continuing, and the representations
and warranties of the Company contained in Section 3 shall be
true and correct as of the date of this Agreement and as of the
date of each Advance, except that after the date of this
Agreement: (i) the representations contained in Section 3.d
will be construed so as to refer to the latest financial
statements furnished to the Bank by the Company pursuant to the
requirements of this Agreement, (ii) the representations
contained in Section 3.k (with respect to Hazardous Substances)
will be construed so as to apply not only to the Company, but
also to any Subsidiaries, (iii) the representation contained in
Section 3.l will be construed so as to except any Subsidiary
which may hereafter be formed or acquired by the Company with
the consent of the Bank, and (iv) all other representations will
be construed to have been amended to conform with any changes of
which the Bank shall previously have been given notice in
writing by the Company.

b. Documents to be Furnished at Closing. The Bank shall have
received contemporaneously with the execution of this Agreement,
the following, each duly executed, currently dated and in form
and substance satisfactory to the Bank:

(i) The Revolving Note.

(ii) The Security Agreement.

-30-
<PAGE> 31

(iii) The Subsidiary Security Agreements.

(iv) The Subordination Agreements.

(v) The Guaranty Agreements.

(vi) A certified copy of a Resolution of the Board of
Directors of the Company authorizing the execution,
delivery and performance, respectively, of this
Agreement and the other Loan Documents provided for in
this Agreement to which the Company is a party.

(vii) A certificate of the Secretary of the Company
certifying the names of the officer or officers
authorized to sign this Agreement and the other Loan
Documents provided for in this Agreement to which the
Company is a party, together with a sample of the true
signature of each such officer.

(viii) A copy of the file-marked Articles of Incorporation of
the Company and a copy of the By-Laws of the Company,
certified as complete and correct by the Secretary of
the Company.

(ix) A certified copy of a Resolution of the respective
Board of Directors of each Subsidiary authorizing the
execution, delivery and performance, respectively, of
its Guaranty Agreement, its Subsidiary Security
Agreement, and any other Loan Documents provided for in
this Agreement to which such Subsidiary is a party.

(x) A certificate of the respective Secretary of each
Subsidiary certifying the names of the officer or
officers authorized to sign its Guaranty Agreement, its
Subsidiary Security Agreement, and any other Loan
Documents provided for in this Agreement to which such
Subsidiary is a party, together with a sample of the
true signature of each such officer.

(xi) A currently dated certificate of existence or good
standing of the Company and each Subsidiary issued by
the Secretary of State of its incorporation and of each
State in which the Company or any Subsidiary is
registered to transact business.

(xii) The opinion of counsel for the Company addressed to the
Bank to the effect that the representations stated in
Sections 3.a, 3.b, 3.c, 3.e, 3.f, and 3.i are correct.
Such opinion shall be in such form as may be reasonably
acceptable to the Bank.

-31-
<PAGE> 32

(xiii) Certificates evidencing the existence of all insurance
required under the terms of this Agreement or any other
Loan Document.

(xiv) Such other documents as the Bank may reasonably
require.

c. Documents to be Furnished at Time of Each Advance. The Bank
shall have received the following prior to making any Advance,
each duly executed and currently dated, unless waived at the
Bank's discretion as provided in Section 2.a(ii):

(i) An Application for the Advance.

(ii) An Officer's Certificate.

(iii) Such other documents as the Bank may reasonably
require.

Section 8. EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default under this Agreement:

a. Nonpayment of the Loan. Default in the payment when due of any
amount payable under the terms of the Note, or otherwise payable
to the Bank or any other holder of the Note under the terms of
this Agreement.

b. Nonpayment of Other Indebtedness for Borrowed Money. Default by
the Company in the payment when due, whether by acceleration or
otherwise, of any other material indebtedness for borrowed
money, or default in the performance or observance of any
obligation or condition with respect to any such other
indebtedness if the effect of such default results in the
acceleration of the maturity of such other indebtedness or
permits the holder or holders thereof, or any trustee or agent
for such holders, to cause such indebtedness to become due and
payable prior to its scheduled maturity, unless the Company is
contesting the existence of such default in good faith and by
appropriate proceedings.

c. Other Material Obligations. Subject to the expiration of any
applicable grace period, default by the Company in the payment
when due, or in the performance or observance of any material
obligation of, or condition agreed to by the Company with
respect to any material purchase or lease of goods, securities
or services if such default materially adversely affects the
business, operations or financial condition of the Company,
except only to the

-32-
<PAGE> 33

extent that the existence of any such default is being contested
in good faith and by appropriate proceedings and that
appropriate reserves have been established with respect thereto.

d. Bankruptcy, Insolvency, etc. The Company or any Subsidiary
admitting in writing its inability to pay its debts as they
mature or an administrative or judicial order of dissolution or
determination of insolvency being entered against the Company or
such Subsidiary; or the Company or any Subsidiary applying for,
consenting to, or acquiescing in the appointment of a trustee or
receiver for the Company or such Subsidiary or any property
thereof, or the Company or any Subsidiary making a general
assignment for the benefit of creditors; or, in the absence of
such application, consent or acquiescence, a trustee or receiver
being appointed for the Company or such Subsidiary or for a
substantial part of its property and not being discharged within
sixty (60) days; or any bankruptcy, reorganization, debt
arrangement, or other proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding
being instituted by or against the Company or any Subsidiary,
and, if involuntary, being consented to or acquiesced in by the
Company or such Subsidiary or remaining for sixty (60) days
undismissed.

e. Warranties and Representations. Any warranty or representation
made by the Company in this Agreement proving to have been false
or misleading in any material respect when made, or any
schedule, certificate, financial statement, report, notice, or
other writing furnished by the Company to the Bank proving to
have been false or misleading in any material respect when made
or delivered.

f. Violations of Negative and Financial Covenants. Failure by the
Company to comply with or perform any covenant stated in Section
5.g or Section 6 of this Agreement.

g. Noncompliance With Other Provisions of this Agreement or any
other Loan Document. Failure of the Company to comply with or
perform any covenant or other provision of this Agreement or to
perform any other Obligation (which failure does not constitute
an Event of Default under any of the preceding provisions of
this Section 8) or failure of the Company or any Subsidiary to
comply with or perform any

-33-
<PAGE> 34

provision of any other Loan Document and continuance of such
failure for thirty (30) days after notice thereof to the Company
from the Bank.

Section 9. EFFECT OF EVENT OF DEFAULT. If any Event of Default
described in Section 8.d shall occur, maturity of the Loan shall immediately be
accelerated and the Note and the Loan evidenced thereby, and all other
indebtedness and any other payment Obligations of the Company to the Bank shall
become immediately due and payable, and the Commitment shall immediately
terminate, all without notice of any kind. When any other Event of Default has
occurred and is continuing, the Bank or any other holder of the Note may
accelerate payment of the Loan and declare the Note and all other payment
Obligations due and payable, whereupon maturity of the Loan shall be
accelerated and the Note and the Loan evidenced thereby, and all other payment
Obligations shall become immediately due and payable and the Commitment shall
immediately terminate, all without notice of any kind. The Bank or such other
holder shall promptly advise the Company of any such declaration, but failure
to do so shall not impair the effect of such declaration. The remedies of the
Bank specified in this Agreement or in any other Loan Document shall not be
exclusive, and the Bank may avail itself of any other remedies provided by law
as well as any equitable remedies available to the Bank.

Section 10. WAIVER -- AMENDMENTS. No delay on the part of the Bank, or
any holder of the Note in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or partial exercise by any of
them of any right, power or remedy preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. No amendment,
modification or waiver of, or consent with respect to any of the provisions of
this Agreement or the other Loan Documents or otherwise of the Obligations
shall be effective unless such amendment, modification, waiver or consent is in
writing and signed by the Bank.

Section 11. NOTICES. Any notice given under or with respect to this
Agreement to the Company or the Bank shall be in writing and, if delivered by
hand or sent by overnight courier service, shall be deemed to have been given
when delivered and, if mailed, shall be deemed to have been given five (5) days
after the date when sent by registered or certified mail, postage prepaid, and
addressed to the Company or the Bank (or other holder of the

-34-
<PAGE> 35

Notes) at its address shown below, or at such other address as any such party
may, by written notice to the other party to this Agreement, have designated as
its address for such purpose. The addresses referred to are as follows:

As to the Company: Wild Oats Markets, Inc.
1668 Valtec Lane
Boulder, Colorado 80301
Attention: Treasurer and Chief Financial Officer

As to the Bank: Bank One, Indianapolis, NA
Bank One Center/Tower - Suite 1911
lll Monument Circle
P.O. Box 7700
Indianapolis, Indiana 46277-0119
Attention: Manager, Mid America Department A

Section 12. COSTS, EXPENSES AND TAXES. The Company shall pay or
reimburse the Bank on demand for all reasonable out-of-pocket costs and
expenses of the Bank (including reasonable attorneys' fees and legal expenses)
incurred by it in connection with the enforcement of this Agreement or any
other Loan Document. The Company shall also reimburse the Bank for expenses
incurred by the Bank in connection with any audit of the books and records or
physical assets of the Company conducted pursuant to any right granted to the
Bank under the terms of this Agreement or any other Loan Document, provided
that the expenses reimbursed on account of any and all such audits shall not
exceed, in the aggregate amount, $6,000.00 in any fiscal year. Such
reimbursement shall include, without limitation, reimbursement of the Bank for
its overhead expenses reasonably allocated to such audits. In addition, the
Company shall pay or reimburse the Bank for all expenses incurred by the Bank
in connection with the perfection of any security interests or mortgage liens
granted to the Bank by the Company and for any stamp or similar documentary or
transaction taxes which may be payable in connection with the execution or
delivery of this Agreement or any other Loan Document or in connection with any
other instruments or documents provided for herein or delivered or required in
connection herewith including, without limitation, expenses incident to any
lien or title search or title insurance commitment or policy. All obligations
provided for in this Section shall survive termination of this Agreement.

Section 13. SEVERABILITY. If any provision of this Agreement or any
other Loan Document is determined to be illegal or unenforceable, such

-35-
<PAGE> 36

provision shall be deemed to be severable from the balance of the provisions of
this Agreement or such Document and the remaining provisions shall be
enforceable in accordance with their terms.

Section 14. CAPTIONS. Section captions used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.

Section 15. GOVERNING LAW -- JURISDICTION. Except as may otherwise
be expressly provided in any other Loan Document, this Agreement and all other
Loan Documents are made under and will be governed in all cases by the
substantive laws of the State of Indiana, notwithstanding the fact that Indiana
conflicts of law rules might otherwise require the substantive rules of law of
another jurisdiction to apply. The Company consents to the jurisdiction of any
state or federal court located within Marion County, Indiana, and waives
personal service of any and all process upon the Company. All service of
process may be made by messenger, by certified mail, return receipt requested,
or by registered mail directed to the Company at the address stated in Section
11. The Company waives any objection which the Company may have to any
proceeding commenced in a federal or state court located within Marion County,
Indiana, based upon improper venue or forum non conveniens. Nothing contained
in this Section shall affect the right of the Bank to serve legal process in
any other manner permitted by law or to bring any action or proceeding against
the Company or its property in the courts of any other jurisdiction.

Section 16. PRIOR AGREEMENTS, ETC. This Agreement supersedes all
previous agreements and commitments made by the Bank and the Company with
respect to the Loan and all other subjects of this Agreement, including,
without limitation, any oral or written proposals or commitments made or issued
by the Bank.

Section 17. SUCCESSORS AND ASSIGNS. This Agreement and the other
Loan Documents shall be binding upon and shall inure to the benefit of the
Company and the Bank and their respective successors and assigns, provided that
the Company's rights under this Agreement shall not be assignable without the
prior written consent of the Bank.

Section 18. WAIVER OF JURY TRIAL. THE BANK AND THE COMPANY
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY DISPUTE
OR CLAIM, WHETHER BASED UPON CONTRACT OR ALLEGED WRONGFUL ACT OR OMISSION,
WHICH DISPUTE

-36-
<PAGE> 37

OR CLAIM ARISES OUT OF, OR IS INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THE COMPANY AND THE BANK BY THIS OR ANY OTHER LOAN DOCUMENT. THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO ENTER INTO THIS AGREEMENT.

Dated: March 15, 1995
WILD OATS MARKETS, INC.

By: /s/ MICHAEL C. GILLILAND
--------------------------------

MICHAEL C. GILLILAND
--------------------------------
(printed name and title)

BANK ONE, INDIANAPOLIS,
NATIONAL ASSOCIATION

By: /s/ EFTHIMIOS P. SOTOS
--------------------------------
Efthimios P. Sotos
Assistant Vice President

-37-
<PAGE> 38

LIST OF EXHIBITS

<TABLE>
<S> <C>
Exhibit A Officer's Certificate

Exhibit B Revolving Note

Exhibit C Schedule of Exceptions

Exhibit D Security Agreement

Exhibit E Guaranty Agreement

Exhibit F Subsidiary Security Agreement

Exhibit G Subordination Agreement
</TABLE>

-38-
<PAGE> 39
APPLICATION FOR REVOLVING LOAN ADVANCE

Date: ________________________

BANK ONE, INDIANAPOLIS,
National Association
111 Monument Circle
Indianapolis, Indiana 46277

Ladies and Gentlemen:

We request an advance in the amount of $______________ under the
Revolving Loan provided for in the Credit Agreement dated March 15, 1995,
between WILD OATS MARKETS, INC., and BANK ONE, INDIANAPOLIS, NATIONAL
ASSOCIATION. Please disburse this Advance by crediting the amount thereof to
our Account No. _____________ maintained with you.

Very truly yours,

WILD OATS MARKETS, INC.

By:
------------------------------

------------------------------
(Printed Name and Title)

OFFICER'S CERTIFICATE

I represent that I am the (chief executive officer or chief financial
officer) of Wild Oats Markets, Inc. (the "Company").

In support of the above Application for a Revolving Loan Advance and
pursuant to the terms of the Credit Agreement mentioned therein, I certify to
you that:

1. Each of the representations contained in Sections 3.a through
3.c, inclusive, and 3.e through 3.l, inclusive, of the Credit
Agreement are true and correct as of this date.

2. The financial statements of the Company as of ________________,
19__, and for the fiscal year then ended, and the financial
statements as of ___________, 19__, and for the partial fiscal
year then ended, present fairly the financial condition of the
Company and the results of its operations as of the dates of
such statements and for the fiscal periods then ended, and since
the date of the latest of such statements there has been no
material adverse change in its financial position or its
operations.

Exhibit "A"
Page 1 of 2 Pages
<PAGE> 40

3. No Event of Default or Unmatured Event of Default, as those
terms are defined in the Credit Agreement, has occurred and is
continuing.

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

(Printed Name and Title)

of WILD OATS MARKETS, INC.

Exhibit "A"
Page 2 of 2 Pages
<PAGE> 41
PROMISSORY NOTE
(Revolving Loan)

Indianapolis, Indiana
$20,000,000.00 Dated: March 15, 1995
Final Maturity: February 28, 2002

On or before February 28, 2002 ("Final Maturity"), WILD OATS MARKETS, INC. (the
"Maker") promises to pay to the order of BANK ONE, INDIANAPOLIS, National
Association (the "Bank") at the principal office of the Bank at Indianapolis,
Indiana, the principal sum of Twenty Million and No/100 Dollars
($20,000,000.00) or so much of the principal amount of the Loan represented by
this Note as may be disbursed by the Bank under the terms of the Credit
Agreement described below, and to pay interest on the unpaid principal balance
outstanding from time to time as provided in this Note.

This Note evidences indebtedness (the "Loan") incurred or to be incurred
by the Maker under a revolving line of credit extended to the Maker by the Bank
under a Credit Agreement dated the date of this Note. All references in this
Note to the Credit Agreement shall be construed as references to that Agreement
as it may be amended from time to time. The Loan is referred to in the Credit
Agreement as the "Revolving Loan." Subject to the terms and conditions of the
Credit Agreement, the proceeds of the Loan may be advanced and repaid and
re-advanced until Final Maturity. The principal amount of the Loan outstanding
from time to time shall be determined by reference to the books and records of
the Bank on which all Advances under the Loan and all payments by the Maker on
account of the Loan shall be recorded. Such books and records shall be deemed
prima facie to be correct as to such matters.

The terms "Advance" and "Banking Day" are used in this Note as defined
in the Credit Agreement.

Interest on the unpaid principal balance of the Loan outstanding from
time to time prior to and after maturity will accrue at the rate or rates
provided in the Credit Agreement. Prior to maturity, accrued interest shall be
due and payable on the last Banking Day of each month commencing on the last
Banking Day of the month in which this Note is executed. After maturity,
interest shall be due and payable as accrued and without demand. Interest will
be calculated on the basis that an entire year's interest is earned in 360
days.

The entire outstanding principal balance of this Note shall be due and
payable, together with accrued interest, at Final Maturity. Reference is made
to the Credit Agreement for provisions requiring prepayment of principal under
certain circumstances. Principal may be prepaid but only as provided in the
Credit Agreement.

If any installment of interest due under the terms of this Note is not
paid when due, then the Bank or any subsequent holder of this Note may, subject
to the terms of the Credit Agreement, at its option and without notice, declare
the entire principal amount of the Note and all accrued interest immediately
due and payable. Reference is made to the Credit

Exhibit "B"
Page 1 of 2 pages
<PAGE> 42

Agreement which provides for acceleration of the maturity of this Note upon the
happening of other "Events of Default" as defined therein.

If any installment of interest due under the terms of this Note prior to
maturity is not paid in full when due, then the Bank at its option and without
prior notice to the Maker, may assess a late payment fee in an amount equal to
the greater of $50.00 or five percent (5%) of the amount past due. Each late
payment fee assessed shall be due and payable on the earlier of the next
regularly scheduled interest payment date or the maturity of this Note. Waiver
by the Bank of any late payment fee assessed, or the failure of the Bank in any
instance to assess a late payment fee shall not be construed as a waiver by the
Bank of its right to assess late payment fees thereafter.

All payments on account of this Note shall be applied first to expenses of
collection, next to any late payment fees which are due and payable, next to
interest which is due and payable, and only after satisfaction of all such
expenses, fees and interest, to principal.

The Maker and any endorsers severally waive demand, presentment for
payment and notice of nonpayment of this Note, and each of them consents to any
renewals or extensions of the time of payment of this Note without notice.

All amounts payable under the terms of this Note shall be payable with
expenses of collection, including attorneys' fees, and without relief from
valuation and appraisement laws.

This Note is made under and will be governed in all cases by the
substantive laws of the State of Indiana, notwithstanding the fact that
Indiana conflicts of law rules might otherwise require the substantive
rules of law of another jurisdiction to apply.

WILD OATS MARKETS, INC.

By:
---------------------------------

---------------------------------
(printed name and title)

Exhibit "B"
Page 2 of 2 pages
<PAGE> 43
SCHEDULE OF EXCEPTIONS

This Schedule is part of the Credit Agreement between WILD OATS
MARKETS, INC., a Delaware corporation (the "Company"), and BANK ONE,
INDIANAPOLIS, NATIONAL ASSOCIATION (the "Bank") dated as of the date of this
Schedule.

1. Litigation and Contingent Liabilities. There are no exceptions
to the representations contained in Section 3.e with respect to
litigation and contingent liabilities, except the following:

PASADENA STORE: Lease dated September 1, 1993, between
Jurgensen's Market, Inc. ("Jurgensen's") and Wild Oats
Markets, Inc. ("Wild Oats")/603 South Lake Avenue,
Pasadena, California. A dispute has arisen between
Jurgensen's and Wild Oats with regard to the above lease.
Jurgensen's is a debtor-in-possession in a Chapter 11
bankruptcy proceeding known as In re Jurgensen's Market,
Inc., United States Bankruptcy Court, Central District of
California, Case No. LA-93-47229 VP. In its suit,
Jurgensen's contends that Wild Oats is in default under the
lease for failure to pay various amounts due and for breach
of various of its obligations under the lease. However, the
Bankruptcy Court judge recently granted Wild Oats' motion
to compel binding arbitration. Wild Oats' maximum exposure
for obligations under the lease is $50,000.00.

OTHER: Wild Oats is also contesting three former employees'
unrelated administrative claims filed with the EEOC. Wild
Oats believes all three claims are without merit and has
rebuffed all settlement offers with the charging parties.

2. Hazardous Substances. There are no exceptions to the
representation contained in Section 3.k., except the following:
The Company has conducted the following levels of inquiry and
investigation with respect to hazardous substances at its various
locations:

The Company has not conducted any inquiry or investigation with
respect to hazardous substances at the following locations:
Wild Oats Boulder; Wild Oats Vegetarian Market; Wild Oats
Fort Collins; Wild Oats Aurora; Wild Oats Denver; Wild Oats
Kansas City; Wild Oats Las Vegas East and Wild Oats Las
Vegas West.

The Company has reviewed Level 1 environmental studies (or
comparable studies) on the following locations: Wild Oats
Mission and Wild Oats Washington Park.

Exhibit "C"
Page 1 of 2 Pages
<PAGE> 44
The Company has reviewed Level 2 environmental studies (or
comparable studies) on the following locations: Wild Oats
St. Francis and Wild Oats Lawrence.

The Company has relied on indemnification or assurance from the
landlord(s) of the following locations that there is no
presence of any kind of hazardous substance and, therefore,
the Company did not make any further inquiry or
investigation into the matter: Wild Oats Orchard; Wild Oats
Pasadena; Wild Oats St. Michaels; Wild Oats Juan Tabo; Wild
Oats Colorado Springs; Wild Oats Santa Monica; and Wild
Oats Albuquerque.

3. Liens. There are no "liens" (as defined in Section 6.b) on any
property of the Company except for liens of the types described
in items (i) through (vi) of the enumeration contained in Section
6.b., and except for the following: See attached Schedule.

4. Guaranties. The Company is not a guarantor or surety of, or
otherwise responsible in any manner with respect to any
undertaking of any other person or entity, except for the items
of the type described in items (i) and (ii) of the enumeration
contained in Section 6.c., except for the following: NONE.

5. Loans and Advances. The Company does not have outstanding any
loans or advances to any person or entity except for items of a
type described in items (i) and (ii) of the enumeration contained
in Section 6.d., and except for the following: NONE.

6. Indebtedness and Capital Leases. The Company presently has no
indebtedness for borrowed money nor is the Company a lessee under
any capital lease except for such obligations to the Bank, and
except for the following: See Item 3 above.

7. Other Names used by Company or Subsidiaries. Neither the
Company nor any Subsidiary has done business under any name
other than its present corporate name at any time during the six
years preceding the date of the Credit Agreement, except for the
following:

Agora Markets, Inc.; Wild Oats Market, Inc.; Wild Oats of Santa
Fe, Inc.; Wild Oats of Denver, Inc.; and Agora Management.

By its execution of this Schedule, the Company acknowledges that it was
prepared in accordance with information provided by the Company.

Dated: March 15, 1995

WILD OATS MARKETS, INC.

By:
-----------------------------------

---------------------------------------
(printed name and title)

Exhibit "C"
Page 2 of 2 Pages
<PAGE> 45
WILD OATS MARKETS, INC.
DEBT SUMMARY AS OF 02/25/95

BALANCE MONTHLY
LENDER ORIGINATION MATURITY AMOUNT INTEREST % 2/25/95 PAYMENT USE OF PROCEEDS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Term Notes
- --------------------

Gerald Segal 8/29/88 1/1/96 $300,000 10.00% 119,073 Interest only Purchase of Fort Collins
store
Bank of Boulder 9/17/91 9/9/96 $20,000 prime + 2.5% 0 445 Truck
Sunwest 8/10/92 4/10/95 $400,000 9.00% 34,932 17,662 Albuquerque construction
Norwest 8/11/92 3/1/98 $400,000 prime + 1.5% 239,992 6,667 Colorado Springs
construction
Norwest 12/15/92 12/15/96 $13,700 8.00% 6,823 334 Car
United Missouri 4/1/93 3/1/98 $425,000 9.00% 396,936 4,311 Lawrence building
Premark 4/1/93 3/1/96 $100,000 9.00% 4,546 4,568 Purchase of Kansas City
store
Chase Manhattan 7/15/93 6/15/96 $16,090 6.75% 11,542 318 Car
United Missouri 8/20/93 2/20/95 $400,000 prime + 1% 0 Interest only Seasonal working capital
line
Merrill Lynch 9/15/93 9/15/95 $750,000 prime + 1% 0 Interest only Seasonal working capital
line
Bank of Boulder 11/1/93 10/31/97 $22,000 7.50% 15,801 533 Truck
Norwest 12/1/93 10/31/97 $24,411 7.75% 21,475 715 Truck
Merrill Lynch 7/94 7/99 $750,000 prime + 2% 687,500 12,500 + interest Pasadena equipment
Kathy's Sellers* 7/94 4/95 $1,708,741 0.00% 208,741 0 Purchase of Kathy's
Kathy's Sellers* 7/94 10/95 $1,711,400 0.00% 1,711,400 0 Purchase of Kathy's
Heller Financial 11/94 10/98 $1,300,000 prime + 1.75% 1,245,833 27,083 + interest Refinance Kathy's
equipment
CU Credit Union 12/94 2/97 $12,046 14.60% 11,371 482 Libby's car
CU Credit Union 12/94 2/99 $15,548 3.80% 14,972 337 Mike's car
Bank of Boulder 12/94 12/99 $12,000 8.95% 11,680 249 Jim Ware's car
Ron Hemelgam* 7/94 8/97 $143,298 10.00% 119,570 4,500 Existing Kathy's debt -
expansion funding
Ken Melby* 7/94 3/97 $132,929 10.00% 108,581 4,500 Existing Kathy's debt -
expansion funding
Holiday Village* 7/94 3/97 $81,891 10.00% 71,350 2,151 Existing Kathy's debt -
expansion funding
Ron Hemelgam* 7/94 8/97 $198,058 10.00% 190,740 2,670 Existing Kathy's debt -
expansion funding
Ken Melby* 7/94 3/97 $198,058 10.00% 190,740 2,670 Existing Kathy's debt -
expansion funding
Nature's Best 7/94 3/95 $101,000 0.00% 59,000 6,000 Existing Kathy's debt -
expansion funding
---------- -----------------
$5,482,598 $35,553
========== =================
Stockholder Notes
- --------------------

ECC & MCG (Rose Real) 8/1/90 7/31/95 $20,000 12.00% $2,570 $445 Kitchen/bakery remodel
ECC & MCG (Rainbow) 2/1/90 2/1/97 $250,000 9.00% 87,388 3,992 Purchase of Aurora &
Denver stores
MRC* 6/1/92 6/1/95 $50,000 10.00% 3,984 1,613 Expansion funding
ECC & MCG & MRC* 8/31/92 8/31/97 $300,000 9.00% 34,338 Interest only Expansion funding
ECC & MCG & MRC* 6/30/93 5/31/95 $63,000 9.00% 48,000 Interest only Lawrence building
ECC & MCG* 7/31/93 6/30/95 $55,798 9.00% 55,798 Interest only Retroactive tax adjustment
MRC* 7/31/93 6/30/95 $27,000 9.00% 27,000 Interest only Retroactive tax adjustment
</TABLE>
<PAGE> 46
SECURITY AGREEMENT
(Equipment, Inventory, Accounts Receivable and General Intangibles)

WILD OATS MARKETS, INC., a Delaware corporation (the "Company"), grants
to BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION (the "Bank") a security
interest in the Company's Equipment, Inventory, Accounts Receivable and General
Intangibles, whether now owned and hereafter acquired, and in the proceeds
thereof to secure the payment and performance of all of the Obligations. Such
security interest is granted on the terms stated in this Security Agreement.

1. DEFINITIONS. As used in this Security Agreement, the following
terms have the meanings indicated when used with the initial letter
capitalized:

(a) "Account Debtor" means a party who is obligated to the
Company with respect to any Account Receivable, or General Intangible.

(b) "Accounts Receivable" or "Account" means any right of
the Company to payment for goods sold or leased or for services
rendered, whether or not earned by performance.

(d) "Collateral Account" is used as defined in Paragraph
10(a).

(e) "Credit Agreement" means the Credit Agreement between
the Company and the Bank dated the date of this Security Agreement, as
it may be amended from time to time.

(f) "Default" means an "Event of Default" as defined in the
Credit Agreement.

(g) "Equipment" means all of the furniture, fixtures,
machinery and equipment of the Company together with all tools,
accessories, parts and accessions now in, attached to or hereafter
placed in or added to such property, and any replacements of any such
property.

(h) "General Intangibles" means any personal property
(including things in action) other than goods, Accounts, chattel paper,
documents, instruments and money.

(i) "Inventory" means all goods which are held for sale or
lease to customers or which are furnished, have been furnished or are to
be furnished under contracts of service, or which are raw materials,
work in process or materials used or consumed in the Company's business.

(j) "Obligations" is used as defined in the Credit
Agreement.

Exhibit "D"
Page 1 of 6 pages
<PAGE> 47

In addition, the Company shall execute and deliver any financing statement or
other document that the Bank may request to perfect or to further evidence the
security interest created by this Security Agreement including, without
limitation, any certificate or certificates of title to the Collateral with the
security interest of the Bank noted thereon or executed applications for such
certificates of title.

3. LOCATION, INSPECTION AND PROTECTION OF COLLATERAL. Unless the
Company gives the Bank not less than ten (10) days prior written notice of
additional locations at which Inventory and Equipment shall be kept, all
Inventory and Equipment is kept and shall be kept at the addresses listed in
Schedule I attached hereto. Unless the Company gives the Bank written notice
of the location of additional offices where records of the Company relative to
Accounts Receivable and General Intangibles are kept, all such records of the
Company shall be kept at 1668 Valtec Lane, Boulder, Colorado 80301 which, the
Company represents, is also the address of its principal office. The Company
shall not keep duplicate Accounts Receivable records at any other address or
change the location of its principal office unless the Company gives the Bank
not less than 10 days prior written notice of such event. The Company shall,
at all reasonable times and in a reasonable manner, allow the officers,
attorneys and accountants of the Bank to examine, inspect, photocopy and make
abstracts from the Company's books and records and to verify Equipment and
Inventory, the latter both as to quantity and quality, and to arrange for
verification of Accounts Receivable, under reasonable procedures, directly with
the Account Debtors or by other methods. The Company shall also deliver to the
Bank upon request any promissory notes or other papers evidencing any Account
and any guaranty or collateral together with appropriate endorsements and
assignments and any information relating thereto and shall do anything else the
Bank may reasonably require to further protect the Bank's interest in the
Collateral. If any of the Collateral consists of Equipment normally used in
more than one state and the Company intends to use any of such Collateral in
any jurisdiction other than a state in which the Company shall have previously
advised the Bank such Collateral is to be used, the Company shall not commence
use in such other jurisdiction except upon ten (10) days prior written notice
to the Bank.

4. FIXTURES. None of the Collateral is attached to real estate,
other than real estate described in Schedule I, so as to constitute a fixture.
If any Collateral is hereafter so attached to any real estate, other than real
estate described in Schedule I, notice of the common address, legal
description, and name of the owner of record of such real estate shall be
furnished to the Bank at least ten (10) days prior to such attachment. If any
Collateral is hereafter attached to real estate prior to the perfection of the
security interest created by this Security Agreement in such Collateral, the
Company shall, on demand, furnish the Bank with a disclaimer of interest in the
Collateral executed by each person having an interest in such real estate.

5. THE COMPANY'S TITLE. The Company has full and clear title to
all of the Collateral presently owned and shall have such title to all
Collateral hereafter acquired except for the security interest granted by this
Security Agreement and any other lien or security interest permitted under the
terms of the Credit Agreement, and the Company shall keep the Collateral free
at all times from any lien or encumbrance except those permitted by the Credit

Exhibit "D"
Page 2 of 6 pages
<PAGE> 48

Agreement. No financing statements covering all or any portion of the
Collateral is on file at any public office except as may be required or
permitted by this Security Agreement and the Credit Agreement.

6. THE COMPANY'S DUTY TO MAINTAIN THE COLLATERAL. The Company
shall keep all tangible Collateral in good order and repair and shall not waste
or destroy any of the Collateral. The Company shall not use the Collateral in
violation of any statute or ordinance or contrary to the provisions of any
policy of insurance thereon.

7. INSURANCE. In addition to maintaining such insurance on the
Collateral as is required by the Credit Agreement, the Company shall, upon the
reasonable request of the Bank, keep the Collateral insured against such
additional risks, in such amounts and under such policies as the Bank may
reasonably require and with such companies as shall be reasonably acceptable to
the Bank. All policies providing insurance on the Collateral shall, provide
that any loss thereunder shall be payable to the Bank under a standard form of
secured lender's loss payable endorsement. The Company authorizes the Bank to
endorse on the Company's behalf and to negotiate drafts reflecting proceeds of
insurance on the Collateral, provided that the Bank shall remit to the Company
such surplus, if any, as remains after the proceeds have been applied at the
Bank's option, (a) to the satisfaction of all of the Obligations or to the
establishment of a cash collateral account for the Obligations, or (b) to the
replacement or repair of the Collateral; provided, however, that so long as no
Default exists, and provided further that the Company can demonstrate to the
Bank's satisfaction that any proposed replacement or repair of collateral is
economically and physically feasible, such proceeds shall be applied, at the
Company's option and to the extent necessary, as provided in the foregoing
clause (b). Certificates evidencing the existence of all of the insurance
required under the Credit Agreement or this Security Agreement shall be
furnished to the Bank by the Company and the original policies providing such
insurance shall be delivered to the Bank at its request.

8. ADVANCES TO PROTECT COLLATERAL. Upon failure of the Company to
procure any required insurance or to remove any prohibited encumbrance upon the
Collateral or if any policy providing any required insurance is cancelled, the
Bank may procure such insurance or remove any encumbrance on the Collateral and
any amounts expended by the Bank for such purposes shall be immediately due and
payable by the Company to the Bank and shall be added to and become a part of
the Obligations secured hereby and shall bear interest at the Prime Rate, as
defined in the Credit Agreement, plus three percent (3%) per annum.

9. DEALING WITH COLLATERAL PRIOR TO DEFAULT. Prior to Default and
thereafter until the Bank shall notify the Company of the revocation of such
authority:

(a) the Company may, in the ordinary course of business, at its
own expense, sell, lease or furnish under contracts of service, any of
the Inventory normally held by the Company for such purposes, provided
that a sale in the ordinary course of business shall not include a
transfer in total or partial satisfaction of a debt, and the Company may
use and consume, in the ordinary course of its business, any raw
materials, work in process or materials normally held by it for such
purposes;

Exhibit "D"
Page 3 of 6 pages
<PAGE> 49

(b) the Company shall, at its own expense, endeavor to collect,
when due, all amounts due with respect to any Accounts or General
Intangibles, and shall take such action with respect to collection as
the Bank may reasonably request or, in the absence of such request, as
the Company may deem advisable in accordance with sound business
practice, and

(c) the Company may grant, in the ordinary course of business,
to any Account Debtor, any rebate, refund or adjustment to which such
Account Debtor may be entitled, and may accept, in connection therewith,
the return of the goods, the sale or lease of which shall have given
rise to the obligation of the Account Debtor.

10. DEALING WITH COLLATERAL AFTER DEFAULT. After Default and upon
the request of the Bank:

(a) the Company shall upon receipt of any checks, drafts, cash
or other remittances in payment of Inventory sold or in payment of
Accounts Receivable of the Company, deposit the same in a special
collateral account (the "Collateral Account") maintained with the Bank;
such proceeds shall be deposited in the form received except for the
indorsement of the Company when required, which indorsement the Bank is
authorized to make on the Company's behalf, and shall be held by the
Bank as security for all Obligations;

(b) the Company shall deliver to the Bank all other instruments
and chattel paper which constitute proceeds from the sale of Collateral,
whether then held or thereafter acquired, and

(c) the Company shall keep segregated any such checks, drafts,
cash, other instruments, chattel paper or other remittances from any of
the Company's other funds or property and shall hold such items in trust
for the benefit of the Bank until delivery to the Bank or deposit in the
Collateral Account and the Bank may apply all or any portion of the
funds on deposit in the Collateral Account against any Obligations in
the order of application provided for in the Credit Agreement or, absent
such provision, at the discretion of the Bank.

After Default, the Bank may notify any Account Debtor to make payment directly
to the Bank of any amounts due or to become due under any Account Receivable,
General Intangible instrument or chattel paper and the Bank may enforce the
collection of any Account Receivable, General Intangible, instrument or chattel
paper in its name or in the name of the Company, by suit or otherwise, and may
surrender, release or exchange all or any part thereof or compromise or extend
or renew for any period, whether or not longer than the original period, any
indebtedness thereunder or evidenced thereby, and any Account Debtor will be
fully protected in relying upon the representation of the Bank that it has
authority under the terms of this Security Agreement to deal with any Account
Receivable, General Intangible, instrument or chattel paper and need not look
beyond this Security Agreement and such representation of the Bank to establish
the Bank's authority in that regard.

Exhibit "D"
Page 4 of 6 pages
<PAGE> 50

11. SUBSTITUTION AND SALE OF EQUIPMENT. The Company may from time
to time so long as no Default has occurred and is continuing, substitute items
of Equipment so long as any new Equipment becomes subject to the security
interest created by this Security Agreement and is subject to no prior liens or
security interest other than those permitted by the Credit Agreement. So long
as no Default has occurred and is continuing, the Company may, in the ordinary
course of its business, sell or otherwise dispose of any items of Equipment for
which substitutes have been obtained or which are no longer useful to the
Company in its operations, provided that at least 10 days prior written notice
of any proposed disposition of any material amount of Equipment in a single or
a planned series of transactions is given to the Bank. Upon the request of the
Company, the Bank will deliver an appropriate release of its security interest
in any item of Equipment disposed of by the Company pursuant to the provisions
of this paragraph.

12. REMEDIES UPON DEFAULT. Upon the occurrence of any Default the
Bank shall have with respect to the Collateral, in addition to all rights and
remedies specified in the Credit Agreement, this Security Agreement or any
other agreement between the Company and the Bank, the remedies of a secured
party under the Uniform Commercial Code as in force from time to time in
Indiana, regardless of whether the Code in such form has been enacted in the
jurisdiction in which any such right or remedy is asserted. Any notice
required by law, including but not limited to notice of the intended
disposition of all or any portion of the Collateral, shall be deemed reasonably
and properly given if given at least l0 days prior to such disposition in the
manner prescribed for the giving of notices in the Credit Agreement. Any
proceeds of the disposition of any of the Collateral shall be applied first to
the payment of the expenses of the retaking, holding, repairing, preparing for
sale and sale of the Collateral, including reasonable attorneys' fees and legal
expenses in connection therewith and any balance of such proceeds shall be
applied by the Bank to the Obligations in such order as the Bank shall
determine.

13. RELATION TO CREDIT AGREEMENT. This Security Agreement is given
pursuant to the terms of the Credit Agreement and shall be deemed a part
thereof and subject to the terms and conditions of the Credit Agreement.

14. NOTICES. Any notice required or otherwise given concerning this
Security Agreement by either party to the other shall be given as notices are
required to be given under the terms of the Credit Agreement.

Dated: March 15, 1995

WILD OATS MARKETS, INC.

By:
-------------------------------------

-------------------------------------
(Printed Name and Title)

Exhibit "D"
Page 5 of 6 pages
<PAGE> 51

SCHEDULE I

Names and addresses of all stores,
warehouses, bakeries and kitchens

WILD OATS MARKETS, INC. STORE LISTING

<TABLE>
<S> <C> <C>
WILD OATS WILD OATS LAS VEGAS WILD OATS VEGETARIAN
ALBUQUERQUE EAST MARKET
6300 A San Mateo NE 3455 East Flamingo 1823 Pearl Street
Albuquerque, NM 87109-3530 Las Vegas, NV 89121-5099 Boulder, CO 80302-5518

WILD OATS AURORA WILD OATS LAS VEGAS WILD OATS HOME OFFICE
12131 East Iliff Ave. WEST 1668 Valtec Lane
Aurora, CO 80014-1238 6720 West Sahara Boulder, CO 80301
Las Vegas, NV 89102-2964
WILD OATS BOULDER BOULDER KITCHEN
2584 Baseline Road WILD OATS MISSION 649 - 27th Street
Boulder, CO 80303-3324 5101 Johnson Drive Boulder, CO 80303
Mission, KS 66205-2906
WILD OATS COLORADO WILD BAKERY
SPRINGS WILD OATS ORCHARD 647 - 27th Street
5075 N. Academy Blvd. 6000 S. Holly Boulder, CO 80303
Colorado Springs, CO 80918-3684 Greenwood Village, CO 80111
SANTA FE KITCHEN
WILD OATS DENVER WILD OATS PASADENA 1130 Agua Fria Street
2260 East Colfax Ave. 603 South Lake Ave. Santa Fe, NM 87501
Denver, CO 80206-1312 Pasadena, CA 91106-3915
LOS ANGELES KITCHEN
WILD OATS FORT WILD OATS SANTA 17732 1/2 Sherman Way
COLLINS MONICA Reseda, CA 91335
1611 S. College Ave. 1425 Montana Ave.
Fort Collins, CO 80525-1074 Santa Monica, CA 90403 WILD OATS WAREHOUSE
6763 E. 50th Avenue
WILD OATS JUAN TABO WILD OATS ST. FRANCIS Commerce City, CO 80022
11035 Menual Blvd. NE 1010 St. Francis Dr.
Albuquerque, New Mexico 87112-2432 Santa Fe, NM 87501-4254 DENVER WAREHOUSE
3000 Clarkson Street, Unit D
WILD OATS KANSAS CITY WILD OATS ST. MICHAELS Denver, CO
4301 Main Street 1708 Llano Street
Kansas City, MO 64111-7710 Santa Fe, NM 87505-5460 SANTA FE WAREHOUSE
950 West Cordova Road
WILD OATS LAWRENCE WILD OATS WASH. PARK Santa Fe, NM 87501
1040 Vermont 1111 South Washington
Lawrence, KS 66044-2982 Denver, CO 80210-1615
</TABLE>

Exhibit "D"
Page 6 of 6 pages
<PAGE> 52

GUARANTY AGREEMENT

This undertaking and agreement (this "Guaranty") is made by THE WILD
SIDE, INC., a Colorado corporation (the "Guarantor"), in favor of BANK ONE,
INDIANAPOLIS, NATIONAL ASSOCIATION (the "Bank") in consideration of the loan
described in this Guaranty made or to be made by the Bank to WILD OATS MARKETS,
INC., a Delaware corporation (the "Borrower"). This Guaranty is on the
following terms:

1. Background of this Guaranty -- Certain Definitions. The Bank
and the Borrower are parties to a Credit Agreement dated the date of this
Guaranty (the "Credit Agreement") under the terms of which the Bank has agreed
to extend a revolving line of credit (referred to in the Credit Agreement as
the "Revolving Loan") to the Borrower subject to the fulfillment of certain
conditions, one of which is the execution and delivery by the Guarantor of this
Guaranty. This Guaranty is made by the Guarantor in consideration of the
agreement of the Bank to make the Revolving Loan. In addition to the term
"Revolving Loan," the terms "Advances," "Commitment," "Revolving Loan Maturity
Date" and "Loan Document" are used in this Guaranty as defined in the Credit
Agreement. The term "Obligations" as used in this Guaranty means all of the
obligations of the Borrower in favor of the Bank of every type and description,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, including but not limited to the Borrower's obligation to
repay the principal of, interest on and expenses of collection of the Loans as
provided in the Credit Agreement and the other Loan Documents, including any
Advances under the Revolving Loan made after this date and after the initial
Revolving Loan Maturity Date pursuant to any extension or extensions of the
Revolving Loan Maturity Date, and all other obligations incurred pursuant to
the terms of the Credit Agreement and any other Loan Document including any
obligations arising on account of any amendment to or extension of the Credit
Agreement or any other Loan Document. The term "Default" means an "Event of
Default" as defined in the Credit Agreement.

2. The Guaranty. The Guarantor guarantees the full and prompt
payment of all of the Obligations when due, whether at scheduled maturity or at
maturity by virtue of acceleration on account of a Default. The Guarantor
further agrees to pay to the Bank an amount equal to all expenses, including
reasonable attorneys' fees, paid or incurred by the Bank after Default in
endeavoring to enforce this Guaranty.

Notwithstanding any other provision of this Guaranty, the Guarantor's liability
hereunder shall be limited to the lesser of the following amounts minus, in
either case, One Dollar ($1.00):

a. the lowest amount which would render this Guaranty a fraudulent
transfer under Section 548 of the Bankruptcy Code of 1978, as
amended, or

b. if this Guaranty is subject to the Uniform Fraudulent Transfer
Act (the "UFTA") or the Uniform Fraudulent Conveyance Act (the
"UFCA") or any similar or analogous statute or rule of law, then
the lowest amount which would render this Guaranty a fraudulent
conveyance or a fraudulent transfer under the UFTA, the UFCA, or
any such similar or analogous statute or rule of law.

Exhibit "E-1"
Page 1 of 5 pages
<PAGE> 53

The amount of the limitation imposed upon the Guarantor's liability under the
terms of the preceding sentence shall be subject to redetermination as of each
date a "transfer" is deemed to have been made on account of this Guaranty under
applicable law. The Guarantor acknowledges that information concerning the
Guarantor's financial condition is under the control of the Guarantor and is
more readily available to the Guarantor than to the Bank, and for that reason
the Guarantor agrees that should the Guarantor claim that the amount of its
liability under this Guaranty is less than the full amount of the Obligations
because of the provisions of this paragraph, then the burden of proving the
facts which would result in such limitation shall be upon the Guarantor.

3. Financial Information. As long as this Guaranty is in effect
the Guarantor shall furnish to the Bank the following:

a. Certificates Regarding Solvency. At such times as the Bank may
reasonably require, a "Certificate Regarding Solvency" in the
form of the attached "Annex."

b. Other Information. Such other information relating to the
financial condition of the Guarantor as the Bank may reasonably
require.

4. Guaranty Absolute. This Guaranty shall be absolute, continuing
and unconditional, irrespective of the irregularity, invalidity or
unenforceability of any other Loan Document and shall not be affected or
impaired by any failure, negligence or omission on the part of the Bank to
realize upon and protect any collateral for any of the Obligations. This
Guaranty shall remain in full force and effect until all of the Obligations
have been satisfied in full and the Commitment of the Bank to make Advances
under the Revolving Loan has expired. The Bank may from time to time, without
notice to the Guarantor and without affecting the Guarantor's liability under
this Guaranty:

a. obtain a security interest in any property to secure any of the
Obligations;

b. obtain the primary or secondary liability of any party or
parties in addition to the Borrower and the Guarantor with
respect to any of the Obligations;

c. extend or renew any of the Obligations for any period beyond
their original due dates;

d. release or compromise the liability of any other party or
parties which are now or may hereafter become primarily or
secondarily liable with respect to any of the Obligations;

e. release any security interest which the Bank now has or may
hereafter obtain in any property securing any of the Obligations
and permit any substitution or exchange of any such property;

Exhibit "E-1"
Page 2 of 5 pages
<PAGE> 54

f. proceed against the Guarantor for payment of the Obligations,
whether or not the Bank shall have resorted to any property
securing any of the Obligations or shall have proceeded against
the Borrower or any other party primarily or secondarily liable
with respect to any of the Obligations;

g. amend the terms of the Credit Agreement from time to time in any
particulars, or

h. extend loans and other credit accommodations to the Borrower in
addition to the Revolving Loan and increase the maximum amount
which may be loaned to the Borrower under the Revolving Loan.

5. Assignments and Participations. The Bank may, without notice to
the Borrower or the Guarantor, sell or otherwise assign all or any portion of
the Obligations and any participations therein, and upon any such sale or
assignment, the transferee shall have the right to enforce this Guaranty to the
extent of the transferee's interest directly against the Guarantor as fully as
if the transferee were specifically named in the Guaranty as the holder of such
interest, but the Bank shall have the unimpaired right to enforce this Guaranty
for the benefit of the Bank and for the benefit of any participant in respect
of whose participation the Bank has retained such right.

6. Subrogation Waiver. In order to induce the Bank to make the
Loans in reliance, in part, upon this Guaranty, notwithstanding the fact that
the Guarantor is an "insider" with respect to the Borrower, as the term
"insider" is defined in the Bankruptcy Code, the Guarantor waives for itself,
its legal representatives and assigns any right of indemnity, reimbursement or
contribution from the Borrower or any other person obligated with respect to
any of the Obligations (any such other person being referred to hereafter in
this paragraph as a "Co-Obligor") or from the property of the Borrower or from
the property of any Co-Obligor, and the Guarantor further waives any right of
subrogation to the rights of the Bank against the Borrower or any Co-Obligor or
the property of the Borrower or any Co-Obligor which would otherwise arise by
virtue of any payment made by the Guarantor to the Bank on account of this
Guaranty, whether any such right of indemnity, reimbursement, contribution or
subrogation would otherwise arise by virtue of contract, whether express or
implied, with any person or as a matter of law or equity, and the Guarantor
undertakes on behalf of itself, its legal representatives and assigns that
neither the Guarantor nor the Guarantor's legal representatives or assigns will
attempt to exercise or accept the benefits of any such right and should the
Guarantor or the Guarantor's legal representative or assigns receive any
payment or distribution of money or other property on account of such right
notwithstanding the provisions of this paragraph, such money or other property
shall be held in trust by the recipient for the Bank and shall immediately be
delivered to the Bank for application to the Obligations in the same form as
received, with the addition only of such endorsements or assignments as may be
necessary to perfect the title of the Bank thereto.

7. Other Waivers. The Guarantor waives: (i) notice of the
acceptance of this Guaranty, (ii) notice of the existence and creation of all
or any of the Obligations, (iii) notice of nonpayment of any of the Obligations
and (iv) diligence by the Bank in collection of the Obligations and the
protection of or realization upon any collateral for the Obligations.

Exhibit "E-1"
Page 3 of 5 pages
<PAGE> 55

8. Reinstatement. If any amount which is paid to the Bank by the
Borrower or any other party and which is applied by the Bank to the
satisfaction of any of the Obligations, is returned by the Bank to the Borrower
or such other party or a trustee in Bankruptcy or other legal representative of
the Borrower or such other party by virtue of a claim that such payment
constituted a voidable preference under the Bankruptcy Code or under any state
insolvency law, whether such amount is returned under court order or pursuant
to settlement of the claim of preference, then this Guaranty shall be
reinstated as to such amount as though such payment to the Bank had never been
made and notwithstanding any intervening return or cancellation of any note or
other instrument or agreement evidencing the reinstated Obligations.

9. Miscellaneous. This Guaranty shall be binding upon the
Guarantor, upon the Guarantor's legal representatives, successors and assigns.
If any provision of this Guaranty is determined to be illegal or unenforceable,
such provision shall be deemed to be severable from the balance of the
provisions of this Guaranty and the remaining provisions shall be enforceable
in accordance with their terms.

10. Choice of Law. This Guaranty is made under and will be governed
in all cases by the substantive laws of the State of Indiana, notwithstanding
the fact that Indiana conflicts of law rules might otherwise require the
substantive rules of law of another jurisdiction to apply.

11. Corporate Authority. In order to induce the Bank to accept this
Guaranty and to make the Loans to the Borrower, the Guarantor represents and
warrants to the Bank that: (i) the Guarantor is a corporation organized,
existing and in good standing under the laws of the State of Colorado; (ii)
execution and delivery of this Guaranty are within the Guarantor's corporate
powers, have been duly authorized by all necessary corporate action and do not
contravene or conflict with any provision of law or of the Articles of
Incorporation or By-laws of the Guarantor or of any agreement binding upon the
Guarantor or its properties, and (iii) this Guaranty is the legal, valid and
binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms.

Dated: March 15, 1995

THE WILD SIDE, INC.

Witness
Signature: By:
------------------------------ ------------------------------

----------------------------- ------------------------------
(printed name of Witness) (printed name and title)

Witness
Signature:
------------------------------

-------------------------------
(printed name of Witness)

Exhibit "E-1"
Page 4 of 5 pages
<PAGE> 56

ANNEX

CERTIFICATE REGARDING SOLVENCY

THE WILD SIDE, INC., a Colorado corporation (the "Guarantor"), by its
duly authorized officer, makes the following representations to BANK ONE,
INDIANAPOLIS, NATIONAL ASSOCIATION (the "Bank") and acknowledges that the Bank
is entitled to rely and will rely upon these representations, in providing
certain financial accommodations to WILD OATS MARKETS, INC., a Delaware
corporation, pursuant to a certain Credit Agreement dated March 15, 1995, (the
"Credit Agreement").

1. The assets of the Guarantor at a "fair valuation" within the
meaning of the Bankruptcy Code of 1978, as amended, (the "Code")
are worth approximately $______________________as of this date.

2. The liabilities of the Guarantor, including without limitation
contingent liabilities to the extent appropriate for
consideration in determining whether the Guarantor is
"insolvent", within the meaning of the Code, but excluding the
Guarantor's contingent liability under the Guaranty Agreement
(the "Guaranty") required to be given by the Guarantor under the
terms of the Credit Agreement, total approximately
$______________________ as of __________________, 19__, the end
of the last fiscal quarter of the Guarantor.

3. The Guarantor is not insolvent within the meaning of the Code,
after taking into account its contingent liability under the
Guaranty.

4. After taking into account its contingent liability under the
Guaranty, the Guarantor has sufficient capital for the operation
of its business as presently conducted and at the level of
operations contemplated for the foreseeable future. The minimum
amount of capital required to support the Guarantor's operations
at the level planned for the foreseeable future is
$_______________________.

5. The Guarantor is currently paying its debts as they become due
in the ordinary course of its business. After taking into
account its contingent liability under the Guaranty, the
Guarantor believes that it will be able to continue to pay its
debts as they become due in the ordinary course of its business.

Dated: ____________________, 19___.

THE WILD SIDE, INC.

By:
------------------------------

------------------------------
(printed name and title)

Exhibit "E-1"
Page 5 of 5 pages
<PAGE> 57
GUARANTY AGREEMENT

This undertaking and agreement (this "Guaranty") is made by KATHY'S
NATURAL FOOD RANCH MARKET, INC., a Nevada corporation (the "Guarantor"), in
favor of BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION (the "Bank") in
consideration of the loan described in this Guaranty made or to be made by the
Bank to WILD OATS MARKETS, INC., a Delaware corporation (the "Borrower"). This
Guaranty is on the following terms:

Notwithstanding any other provision of this Guaranty, the Guarantor's liability
hereunder shall be limited to the lesser of the following amounts minus, in
either case, One Dollar ($1.00):

a. the lowest amount which would render this Guaranty a fraudulent
transfer under Section 548 of the Bankruptcy Code of 1978, as
amended, or

Exhibit "E-2"
Page 1 of 5 pages
<PAGE> 58