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:



                                           Unused         Applicable Spread        Commission
                  Ratio                     Fee           Prime Rate   LIBOR          Rate  
                  -----                    ------        --------------------      ---------
                                                                               
               .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%


               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





                             
       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




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

<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.

               (c)      "Collateral" means all property or rights in which a
       security interest is granted under this Security Agreement.

               (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.

       2.      FINANCING STATEMENTS.  The Company authorizes the Bank at the
expense of the Company to execute on its behalf and file a financing statement
or statements in those public offices deemed necessary by the Bank to perfect
its security interest.  Such financing statements may be signed by the Bank
alone.



                                  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


                                                                              
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



                                  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:

       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-2"
                               Page 1 of 5 pages
<PAGE>   58





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-2"
                               Page 2 of 5 pages
<PAGE>   59





       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-2"
                               Page 3 of 5 pages
<PAGE>   60





       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 Nevada; (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

                                        KATHY'S NATURAL FOOD RANCH
                                          MARKET, INC.

Witness                                    
Signature:                                 By:                             
          ------------------------------         ------------------------------

                                                                               
          ------------------------------         ------------------------------
            (printed name of Witness)              (printed name and title)

Witness
Signature:                              
          ------------------------------

                                      
          ------------------------------
            (printed name of Witness)






                                 Exhibit "E-2"
                               Page 4 of 5 pages
<PAGE>   61





                                     ANNEX


                         CERTIFICATE REGARDING SOLVENCY


       KATHY'S NATURAL FOOD RANCH MARKET, INC., a Nevada 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___.


                                        KATHY'S NATURAL FOOD RANCH
                                          MARKET, INC.
                                        
                                        By:                                   
                                                ------------------------------
                                        
                                                                              
                                                ------------------------------
                                                (printed name and title)





                                 Exhibit "E-2"
                               Page 5 of 5 pages
<PAGE>   62
                               GUARANTY AGREEMENT

       This undertaking and agreement (this "Guaranty") is made by KATHY'S
NATURAL FOOD RANCH MARKET-WEST, 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:

       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-3"
                               Page 1 of 5 pages
<PAGE>   63





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-3"
                               Page 2 of 5 pages
<PAGE>   64





       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-3"
                               Page 3 of 5 pages
<PAGE>   65





       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 Nevada; (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

                                           KATHY'S NATURAL FOOD RANCH
                                             MARKET-WEST, INC.

Witness                                    
Signature:                                 By:                             
          ------------------------------         ------------------------------

                                                                               
          ------------------------------         ------------------------------
            (printed name of Witness)              (printed name and title)

Witness
Signature:                              
          ------------------------------

                                      
          ------------------------------
            (printed name of Witness)





                                 Exhibit "E-3"
                               Page 4 of 5 pages
<PAGE>   66





                                     ANNEX


                         CERTIFICATE REGARDING SOLVENCY


       KATHY'S NATURAL FOOD RANCH MARKET-WEST, INC., a Nevada 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___.


                                        KATHY'S NATURAL FOOD RANCH   
                                         MARKET-WEST, INC.
                                        
                                        
                                        By:                                   
                                                ------------------------------
                                        
                                                                              
                                                ------------------------------
                                                (printed name and title)





                                 Exhibit "E-3"
                               Page 5 of 5 pages
<PAGE>   67
                               SECURITY AGREEMENT
      (Equipment, Inventory, Accounts Receivable and General Intangibles)


       THE WILD SIDE, INC., a Colorado 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.

               (c)      "Collateral" means all property or rights in which a
       security interest is granted under this Security Agreement.

               (d)      "Collateral Account" is used as defined in Paragraph
       10(a).

               (e)      "Credit Agreement" means the Credit Agreement between
       Wild Oats Markets, Inc. 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)      "Guaranty Agreement" means the Guaranty Agreement
       executed by the Company in favor of the Bank and dated the date of this
       Security Agreement.

               (j)      "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.

               (k)      "Obligations" means all of the obligations of the
       Company under the Guaranty Agreement.



                                 Exhibit "F-1"
                               Page 1 of 6 pages
<PAGE>   68





       2.      FINANCING STATEMENTS.  The Company authorizes the Bank at the
expense of the Company to execute on its behalf and file a financing statement
or statements in those public offices deemed necessary by the Bank to perfect
its security interest.  Such financing statements may be signed by the Bank
alone.  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 address 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





                                 Exhibit "F-1"
                               Page 2 of 6 pages
<PAGE>   69





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
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





                                 Exhibit "F-1"
                               Page 3 of 6 pages
<PAGE>   70





       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;

               (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 "F-1"
                               Page 4 of 6 pages
<PAGE>   71





       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

                                        THE WILD SIDE, INC.
                                        
                                        
                                        By:                                     
                                           -------------------------------------
                                        
                                                                                
                                           -------------------------------------
                                                (Printed Name and Title)





                                 Exhibit "F-1"
                               Page 5 of 6 pages
<PAGE>   72





                                   SCHEDULE I










                                 Exhibit "F-1"
                               Page 6 of 6 pages
<PAGE>   73
                               SECURITY AGREEMENT
      (Equipment, Inventory, Accounts Receivable and General Intangibles)


       KATHY'S NATURAL FOOD RANCH MARKET, INC., a Nevada 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.

               (c)      "Collateral" means all property or rights in which a
       security interest is granted under this Security Agreement.

               (d)      "Collateral Account" is used as defined in Paragraph
       10(a).

               (e)      "Credit Agreement" means the Credit Agreement between
       Wild Oats Markets, Inc. 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)      "Guaranty Agreement" means the Guaranty Agreement
       executed by the Company in favor of the Bank and dated the date of this
       Security Agreement.

               (j)      "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.

               (k)      "Obligations" means all of the obligations of the
       Company under the Guaranty Agreement.



                                 Exhibit "F-2"
                               Page 1 of 6 pages
<PAGE>   74





       2.      FINANCING STATEMENTS.  The Company authorizes the Bank at the
expense of the Company to execute on its behalf and file a financing statement
or statements in those public offices deemed necessary by the Bank to perfect
its security interest.  Such financing statements may be signed by the Bank
alone.  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 address 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





                                 Exhibit "F-2"
                               Page 2 of 6 pages
<PAGE>   75





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
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





                                 Exhibit "F-2"
                               Page 3 of 6 pages
<PAGE>   76





       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;

               (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 "F-2"
                               Page 4 of 6 pages
<PAGE>   77





       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

                                        KATHY'S NATURAL FOOD RANCH MARKET, INC.
                                        
                                        
                                        By:                                     
                                           -------------------------------------
                                        
                                                                                
                                           -------------------------------------
                                                (Printed Name and Title)





                                 Exhibit "F-2"
                               Page 5 of 6 pages
<PAGE>   78



                                   SCHEDULE I


--------------------------------------------------------------------------------
                                   Schedule I

                       Names and addresses of all stores,
                       warehouses, bakeries and kitchens

                    KATHY'S NATURAL FOOD RANCH MARKET, INC.
                                 STORE LISTING
--------------------------------------------------------------------------------

WILD OATS LAS VEGAS
EAST
3455 East Flamingo
Las Vegas, NV 89121-5099


                                 Exhibit "F-2"
                               Page 6 of 6 pages
<PAGE>   79
                               SECURITY AGREEMENT
      (Equipment, Inventory, Accounts Receivable and General Intangibles)


       KATHY'S NATURAL FOOD RANCH MARKET-WEST, INC., a Nevada 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.

               (c)      "Collateral" means all property or rights in which a
       security interest is granted under this Security Agreement.

               (d)      "Collateral Account" is used as defined in Paragraph
       10(a).

               (e)      "Credit Agreement" means the Credit Agreement between
       Wild Oats Markets, Inc. 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)      "Guaranty Agreement" means the Guaranty Agreement
       executed by the Company in favor of the Bank and dated the date of this
       Security Agreement.

               (j)      "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.

               (k)      "Obligations" means all of the obligations of the
       Company under the Guaranty Agreement.



                                 Exhibit "F-3"
                               Page 1 of 6 pages
<PAGE>   80





       2.      FINANCING STATEMENTS.  The Company authorizes the Bank at the
expense of the Company to execute on its behalf and file a financing statement
or statements in those public offices deemed necessary by the Bank to perfect
its security interest.  Such financing statements may be signed by the Bank
alone.  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 address 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





                                 Exhibit "F-3"
                               Page 2 of 6 pages
<PAGE>   81





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
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





                                 Exhibit "F-3"
                               Page 3 of 6 pages
<PAGE>   82





       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;

               (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 "F-3"
                               Page 4 of 6 pages
<PAGE>   83





       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

                                        KATHY'S NATURAL FOOD RANCH
                                          MARKET-WEST, INC.
                                        
                                        
                                        By:                                     
                                           -------------------------------------
                                        
                                                                                
                                           -------------------------------------
                                                (Printed Name and Title)





                                 Exhibit "F-3"
                               Page 5 of 6 pages
<PAGE>   84



                                   SCHEDULE I


--------------------------------------------------------------------------------
                                   Schedule I

                       Names and addresses of all stores,
                       warehouses, bakeries and kitchens

                    KATHY'S NATURAL FOOD RANCH MARKET-WEST,
                               INC. STORE LISTING
--------------------------------------------------------------------------------

WILD OATS LAS VEGAS
WEST
6720 West Sahara
Las Vegas, NV 89102-2964



                                 Exhibit "F-3"
                               Page 6 of 6 pages
<PAGE>   85

                            SUBORDINATION AGREEMENT


       WILD OATS MARKETS, INC., a Delaware corporation (the "Company"), BANK
ONE, INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking association (the
"Bank"), and _____________________________, a resident of _______________ (the
"Junior Creditor"), agree as follows:

       1.      Background -- Definitions.  This Agreement is made in the
context of the following agreed state of facts:

       a.      The Bank and the Company are parties to a Credit Agreement dated
               the date of this Subordination Agreement under the terms of
               which the Bank will extend a revolving line of credit (the
               "Revolving Loan") to the Company for loans up to a maximum
               outstanding principal amount of $20,000,000.00.  The Revolving
               Loan is hereafter referred to as the "Loan."  All obligations of
               the Company to the Bank on account of the Loan, whether such
               obligations now exist or arise hereafter, including principal,
               interest and expenses of collection, and including any
               obligations on account of any extension, renewal or
               restructuring of the Loan, are hereafter referred to as the
               "Senior Obligations."

       b.      The Company is indebted to the Junior Creditor in the principal
               amount of $________________.  The indebtedness of the Company to
               the Junior Creditor is represented by the promissory note of the
               Company dated ____________________ (the "Subordinated Note").
               Any promissory note which may hereafter be given by the Company
               to the Junior Creditor to replace the Subordinated Note or to
               represent any extension, renewal or restructuring of the
               indebtedness now represented by the Subordinated Note is
               hereafter referred to as a "Substitute Subordinated Note."  All
               obligations of the Company to the Junior Creditor now
               represented by the Subordinated Note or any Substitute
               Subordinated Note are hereafter referred to as the "Junior
               Obligations."

As used in this Agreement, the term "Loan Document" means any instrument or
document which evidences or secures the Loan or which expresses an agreement
between the Company and the Bank as to terms applicable to the Loan.  As used
in this Agreement, the term "Default" means an Event of Default or Unmatured
Event of Default as those terms are defined in the Credit Agreement and
includes, without limitation, not only failure of the Company to pay any
installment of principal or interest on the Loan when due, but also failure of
the Company to observe certain covenants contained in the Credit Agreement,
including financial covenants.  As used in this Agreement, the term "Insolvency
Proceeding" means any proceeding, whether voluntary or involuntary, for the
distribution, division or application of assets of the Company or the proceeds
thereof, regardless of whether such proceeding is for the liquidation,
dissolution, winding up of affairs, reorganization or arrangement of the
obligations of the Company, or for a composition among the creditors of the
Company and whether in bankruptcy or in connection with a receivership or under
an assignment for the benefit of the Creditors of the Company or otherwise
including, without limitation, any meeting of Creditors of the Company in
connection with any such proceeding.


                                  Exhibit "G"
                               Page 1 of 4 pages
<PAGE>   86





       2.      Subordination.  The Junior Obligations are and shall hereafter
be subordinate and inferior in right of payment to all of the Senior
Obligations.  Notwithstanding any provision to the contrary contained in the
Subordinated Note or any other agreement between the Company and the Junior
Creditor with respect to the Junior Obligations, the Company shall not make and
shall not be required to make any payment on account of the principal of or
interest on the Junior Obligations until the Senior Obligations have been paid
in full and the Bank has no further obligation to make additional advances to
the Company under the Revolving Loan, including advances made pursuant to any
extension of the term of the Revolving Loan, provided that the Company may make
the regularly scheduled payments of principal and interest provided for under
the terms of the Subordinated Note so long as no Default has occurred and is
continuing or would occur as a result of such payment, and provided further
that no such payment shall be made more than ten (10) days prior to its
regularly scheduled due date.  The Company shall not be required to perform or
omit any other act otherwise required to be performed or omitted under the
terms of the Subordinated Note or otherwise with respect to the Junior
Obligations at any time such performance or omission would result in the
occurrence of a Default.  The due date for any payment or performance of any
Junior Obligation shall be deemed to be extended during any period in which
such payment or performance is prevented by the provisions of this Agreement,
and no cause of action against the Company will accrue to the Junior Creditor
or any subsequent holder of the Junior Obligations during the continuance of
any such extension.

       3.      Improper Payment.  Any amount paid by the Company to the Junior
Creditor in violation of any provision of this Agreement shall be received in
trust by the Junior Creditor for the benefit of the Bank and shall, with or
without demand, be immediately delivered by the Junior Creditor to the Bank in
the same form in which received, with the addition only of such endorsements or
assignments as may be necessary to perfect the title of the Bank to such
payment.  Such amounts may be applied by the Bank to any item of the Senior
Obligations in such order as the Bank in its discretion shall determine or may
be returned to the Company at the Bank's discretion.  Upon the request of the
Bank, the Company and the Junior Creditor will execute such documents and
perform all such other acts as may reasonably be required to rescind premature
performance of any Junior Obligation and to reestablish, to the maximum extent
practical, the status quo prior to such premature performance.

       4.      Authority of Bank to Act for Junior Creditor.  The Junior
Creditor appoints the Bank or, at the Bank's discretion any officer of the
Bank, as the Junior Creditor's attorney-in-fact, with full power of
substitution, and with the exclusive right and power to enforce claims arising
on account of the Junior Obligations by proof of debt, proof of claim or
otherwise in any Insolvency Proceeding; to collect any assets of the Company
distributed in any such Proceeding by way of dividend or otherwise, and to
receive any securities of the Company or of any reorganized entity emerging
from any Insolvency Proceeding, which securities are issued and distributed on
account of the Junior Obligations; to vote claims of the Junior Creditor
arising on account of the Junior Obligations in any Insolvency Proceeding and
to accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension in any Insolvency
Proceeding; to execute any endorsement or assignment of the Subordinated Note
or any Substitute Subordinated Note required in connection with any Insolvency
Proceeding, and





                                  Exhibit "G"
                               Page 2 of 4 pages
<PAGE>   87





generally to take any action in connection with any Insolvency Proceeding which
the Junior Creditor would be authorized to take but for this Agreement.  Any
action taken by the Bank or the Bank's officer pursuant to the power of
attorney granted under the terms of this Paragraph shall be taken for the use
and benefit of the Bank, and may be taken in the name of the Bank or in the
name of the Junior Creditor and without notice to the Junior Creditor.  Such
power of attorney is a power coupled with an interest and shall be irrevocable
until all of the Senior Obligations have been satisfied in full and until the
Bank is no longer under any obligation under the terms of the Credit Agreement
to make any further loan or advance to the Company.

       5.      Distributions in Liquidation.  In the event of the liquidation
of the Company or the distribution of any of its assets or the securities of
any successor on account of any liquidation, bankruptcy, receivership,
reorganization, assignment for the benefit of creditors or similar proceeding,
the Junior Creditor shall not be entitled to any payment or distribution on
account of any Junior Obligation until all Senior Obligations have been
satisfied in full, and the Junior Creditor shall receive any money, securities
or other property distributed in any such proceeding to the Junior Creditor on
account of Junior Obligations in trust for the benefit of the Bank and shall
deliver any such property to the Bank in the same form as received, adding only
such endorsements or assignments as may be necessary to perfect the title of
the Bank to such property, for application to the satisfaction of the Senior
Obligations in such order as the Bank in its discretion may determine.  Any
excess of such property remaining after satisfaction of all of the Senior
Obligations shall be returned to the Junior Creditor.  The Bank may liquidate
any noncash property received from the Junior Creditor because of any provision
of this Section in the manner in which collateral may be liquidated under the
terms of the Uniform Commercial Code as enacted in the State of Indiana, and
such property may be liquidated in any order that the Bank shall determine in
the exercise of the Bank's sole discretion.

       6.      Subordination Absolute.  The subordination of the Junior
Obligations to the Senior Obligations effected by this Subordination Agreement
shall be absolute and the Bank may from time to time, without the consent of or
notice to the Junior Creditor and without affecting the subordination of the
Junior Obligations to the Senior Obligations:  (i) obtain a security interest
in any property to secure any of the Senior Obligations; (ii) obtain the
primary or secondary liability of any party or parties in addition to the
Company with respect to any of the Senior Obligations; (iii) extend or renew
any of the Senior Obligations for any period beyond their original due dates;
(iv) release or compromise any liability of any other party or parties
primarily or secondarily liable with respect to any of the Senior Obligations;
(v) release any security interest that the Bank might now have or hereafter
obtain in any property securing any of the Senior Obligations and permit any
substitution or exchange of any such property; (vi) extend loans and other
credit accommodations to the Company in addition to the Revolving Loan and
increase the maximum amount which may be loaned to the Company under the
Revolving Loan.

       7.      Notice of Subordination.  The Company and the Junior Creditor
shall, contemporaneously with the execution of this Agreement, cause the
following legend to be placed on the face of the Subordinated Note:





                                  Exhibit "G"
                               Page 3 of 4 pages
<PAGE>   88





               This Promissory Note is subject to a Subordination Agreement
               dated March 15, 1995, in favor of BANK ONE, INDIANAPOLIS,
               National Association.

       A photocopy of the Note with such legend endorsed thereon shall
immediately be delivered to the Bank.  The same legend shall be placed on any
Substitute Subordinated Note before it is delivered to the Junior Creditor and
a photocopy of any Substitute Subordinated Note shall be delivered to the Bank
immediately upon its execution and delivery to the Junior Creditor.

       8.      Successors and Assigns.  This Agreement shall be binding upon
the Company and the Junior Creditor and the Junior Creditor's successors in
interest to the Subordinated Note and any Substitute Subordinated Note and the
Junior Obligations and shall inure to the benefit of the Bank and its
successors and assigns.

       9.      Severability.  If any provision of this Agreement is determined
to be illegal or unenforceable, such provision shall be deemed to be severable
from the balance of the provisions of this Agreement and the remaining
provisions shall be enforceable in accordance with their terms.

       10.     Governing Law.  This Agreement 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.

Dated:  March 15, 1995


                                        WILD OATS MARKETS, INC.
                                        
                                        By:                                
                                            -------------------------------
                                        
                                                                           
                                            -------------------------------
                                                (Printed Name and Title)
                                        
                                        
                                        BANK ONE, INDIANAPOLIS,
                                          NATIONAL ASSOCIATION
                                        
                                        By:                               
                                             -----------------------------
                                             Efthimios P. Sotos, Assistant
                                             Vice President
                                        
                                        
                                        
                                        
                                         (Printed Name)  (Junior Creditor)





                                  Exhibit "G"
                               Page 4 of 4 pages

Source: OneCLE Business Contracts.