SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period	Commission File	
ended June 30, 2001	Number 0-20001	
 
NATIONAL VISION, INC.	
(Exact name of registrant as specified in its charter)	
 
GEORGIA		58-1910859	
(State or other jurisdiction		(I.R.S. Employer	
of incorporation or organization)		Identification No.)	

296 Grayson Highway			
Lawrenceville, Georgia		30045	
(Address of principal executive offices)		(Zip Code)	

Registrant’s telephone number, including area code: (770) 822-3600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes     /X/        No     /_ /
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.        Yes     /X/       No      /_ /
The number of shares of Common Stock of the registrant outstanding as of August 1, 2001 was 5,000,000, including shares which are part of the disputed claims reserve in the registrant’s Chapter 11 Case.

 

 
FORM 10-Q INDEX
 
 		Page	
			
PART I	FINANCIAL INFORMATION		

Item 1.	Financial Statements.		
 			
	Condensed Consolidated Balance Sheets -		
	Successor – June 30, 2001	3	
	Predecessor – December 30, 2000		
 			
	Condensed Consolidated Statements of Operations -		
	Successor – One Month Ended June 30, 2001	5	
	Predecessor – Two Months Ended June 2, 2001		
	Predecessor – Three Months Ended July 1, 2000		
 			
	Successor – One Month Ended June 30, 2001		
	Predecessor – Five Months Ended June 2, 2001		
	Predecessor – Six Months Ended July 1, 2000		
 			
	Condensed Consolidated Statements of Cash Flows -		
	Successor – One Month Ended June 30, 2001	7	
	Predecessor – Five Months Ended June 2, 2001		
	Predecessor – Six Months Ended July 1, 2000		
 			
	Notes to Condensed Consolidated Financial Statements	8	
 			
Item 2.	Management’s Discussion And Analysis Of		
	Financial Condition And Results Of Operations	17	
 			
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	30	
 			
PART II	OTHER INFORMATION	30	
			
Item 1.	Legal Proceedings		
 			
Item 5.	Other Information		
 			
Item 6.	Exhibits And Reports On Form 8-K	31	
 			
Signatures	32	

 
PART I
FINANCIAL INFORMATION
 
Item 1.	Financial Statements	
 
NATIONAL VISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2001 and December 30, 2000
(In thousands except share information)
 
		Successor		 		Predecessor	
		June 30, 2001				December 30, 2000	
		(unaudited)					
							
ASSETS									
Current Assets:									
Cash and cash equivalents		$	10,342  				$	8,066 	
Accounts receivable									
(net of allowance: 2001 - $7,505; 2000 - $5,744)			7,493  					10,119 	
Inventories			19,157  					31,478 	
Other current assets			1,331  					1,590 	
									
Total current assets			38,323  					51,253 	

Property And Equipment:									
Equipment			16,583  					47,187 	
Furniture and fixtures			6,237  					23,272 	
Leasehold improvements			5,480  					18,664 	
Construction in progress			713  					540 	
									
			29,013  					89,663 	
Less accumulated depreciation			(910)					(60,092)	
									
Net property and equipment			28,103  					29,571 	

									
Other Intangible Assets									
(net of accumulated amortization: 2001 - $558)			109,149 					-- 	
									
Other Assets And Deferred Costs (net of									
accumulated amortization: 2001-$43; 2000 - $4,833)			1,819 					9,679 	
									
Deferred Income Tax Assets			385 					385	

	$		177,779 		 		$	90,888	

Page 3

 
LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT)	

 	
Liabilities Not Subject to Compromise:	
 				 			
Current Liabilities:							
Accounts payable	$	5,634 			$	783 	
Accrued expenses and other current liabilities		27,712 				19,693 	
Revolving credit facility and term loan		-- 				12,911 	
Current portion, other long-term debt		85 				-- 	
							
Total current liabilities		33,431 				33,387 	

Senior Notes		120,000 				-- 	
 							
Liabilities Subject to Compromise		-- 				170,824 	
 							
Commitments And Contingencies		-- 				-- 	
 							
Shareholders’ Equity/(Deficit):							
Preferred stock, $1 par value; 5,000,000 shares							
authorized, none issued		-- 				-- 	
Common stock, $0.01 par value; 100,000,000 							
shares authorized, 21,169,103 shares issued 							
and outstanding as of December 30, 2000							
(Predecessor)		-- 				211 	
Common stock, $0.01 par value;							
10,000,000 shares authorized,							
5,000,000 shares issued and outstanding							
as of June 30, 2001 (see note 2)		50 				-- 	
Additional paid-in capital		24,950 				47,387 	
Retained deficit		(711)				(156,848)	
Accumulated other comprehensive income		59 				(4,073)	

Total shareholders’ equity/(deficit)		24,348 				(113,323)	
							
	$	177,779 			$	90,888 	

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 4

 
NATIONAL VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share information)
(Unaudited)

			Successor				Predecessor	
								
			One month
ended				Two months
ended	Three months
 ended	
			June 30, 2001				June 2, 2001	July 1, 2000	

Net sales	$                   18,606 				$                 45,822 	$                     78,783 	
Cost of goods sold	8,295 				20,236 	36,287 	

Gross profit	10,311 				25,586 	42,496 	
Selling, general & administrative expense	9,913 				22,006 	42,424 	

Operating income	398 				3,580 	72 	
Interest expense	1,109 				411 	917 	

 Earnings/(loss) before reorganization
          items & taxes	
(711)				
3,169 	 
(845)	
Reorganization items and fresh-start
          adjustments	
-- 				 
(94,361)	 
4,379  	

Earnings/(loss) before taxes &
          extraordinary items	
(711)				 
97,530 	 
(5,224)	
Income tax benefit	-- 				-- 	-- 	

Net earnings/(loss) before extraordinary items	(711)				97,530 	(5,224)	
Extraordinary items, net of tax	-- 				17,182 	(827)	

Net earnings / (loss)	$                       (711)				$               114,712 	$                      (6,051)	

Basic and diluted earnings/(loss) per share:							
	Earnings/(loss) before extraordinary item	$                      (0.14)				$                    4.61 	$                        (0.25)	
	Extraordinary items, net	-- 				0.81 	(0.04)	

	Net earnings / (loss) per share	$                      (0.14)				$                     5.42 	$                        (0.29)	

 
Page 5

 
NATIONAL VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share information)
(Unaudited)

				Successor				Predecessor	
									
				One month ended				Five months
ended		Six months
 ended	
				June 30, 2001				June 2, 2001		July 1, 2000	
											
Net sales		$              18,606 				$              120,557 		$            161,963 	
Cost of goods sold		8,295 				54,761 		73,032 	

Gross profit		10,311 				65,796 		88,931 	
Selling, general & administrative
          expense		
9,913 				
61,077 		
88,183 	
Impairment loss on long-lived assets		-- 				-- 		2,684 	
Restructuring expense		-- 				-- 		1,601 	

Operating income / (loss)		398 				4,719 		(3,537)	
Interest expense		1,109 				1,150 		6,247 	

Earnings / (loss) before reorganization
          items & taxes	 
(711)				 
3,569 		
(9,784)	
Reorganization items and fresh-start
            adjustments	
-- 				
(92,573)		
4,379 	

Earnings / (loss)  before taxes &
          extraordinary items 	
(711)				
96,142 		
(14,163)	
Income tax benefit		-- 				-- 		-- 	

Net earnings / (loss) before extraordinary items	(711)				96,142 		(14,163)	
Extraordinary items, net of tax		-- 				17,182 		(827)	
Cumulative effect, net		-- 				-- 		(3,378)	

Net earnings / (loss)		$                 (711)				$               113,324 		$            (18,368)	

Basic and diluted earnings/ (loss) per share:							
	Earnings before extraordinary item		$                (0.14)				$                     4.54 		$                (0.67)	
	Extraordinary item, net		-- 				0.81 		(0.04)	
	Cumulative effect, net		-- 				-- 		(0.16)	

	Net earnings / (loss) per share		$                 (0.14)				$                     5.35 		$                (0.87)	

Page 6

NATIONAL VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
		Successor		 		Predecessor	
							
		One month
ended				Five months
ended		Six months
ended	
		June 30, 2001				June 2, 2001		July 1, 2000	

Cashflow from operating activities:								
Net income/(loss)	$                   (711)				$              113,324  		$                   (18,368)	
Adjustments to reconcile net income/(loss) to cash								
provided by operating activities:								
	Depreciation & amortization	1,511  				4,808  		9,498  	
	Impairment of long-lived assets	-  				-  		2,684  	
	Restructuring reserve	-  				-  		1,601  	
	Reorganization items	-  				17,790  		4,380  	
	Cumulative effect	-  				-  		3,378  	
	Fresh start adjustments	-  				(110,363)		-  	
	Extraordinary item	-  				(17,182)		827  	
Changes in operating assets & liabilities, net of
   effects of dispositions and fresh start adjustments:								
	Receivables	982  				(1,123)		(3,330)	
	Inventories	709  				1,440  		1,461  	
	Other current assets	(553)				597  		896  	
	Other assets	258  				(84)		489  	
	Accounts payable	3,772  				1,210  		8,752  	
	Accrued expenses	(3,294)				(853)		3,809  	
									
Total adjustments	3,385  				(103,760) 		34,445  	
									
Net cash provided by operating activities	$                  2,674  				$                  9,564  		$                    16,077  	

Cashflow from investing activities:								
	Proceeds from sale of freestanding operations	-  				5,656  		-  	
	Purchase of property & equipment	(335)				(2,084)		(3,241)	
									
Net cash provided by/ (used in) investing activities	$                    (335)				$                  3,572  		$                     (3,241)	

Net cash from financing activities:								
	Advances on revolver	17,130  				125,063  		159,487  	
	Payments on revolver	(20,130)				(134,975)		(165,884)	
	Payment of financing costs	(150)				(125)		(718)	
	Principal payments on other long-term debt	(12)				-		(830)	
									
Net cash used in financing activities	$                 (3,162)				$               (10,037)		$                     (7,945)	

Net increase/(decrease) in cash	(823)				3,099  		4,891  	
Cash, beginning of period	11,165  				8,066  		2,886  	

Cash, end of period	$                10,342  				$                11,165  		$                      7,777  	

 
Page 7

NATIONAL VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED) 
 
(1)	BASIS OF FINANCIAL STATEMENT PRESENTATION	
The accompanying unaudited condensed consolidated financial statements have been prepared by National Vision, Inc. (f.k.a. Vista Eyecare, Inc., "National Vision" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these interim condensed consolidated financial statements be read in conjunction with the Company’s most recent audited consolidated financial statements and notes thereto. In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented have been made. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 29, 2001. Certain amounts in the July 1, 2000  Condensed Consolidated Financial Statements have been reclassified to conform to the June 30, 2001 presentation.
Due to the Company’s emergence from bankruptcy and implementation of fresh start accounting principles, the Condensed Consolidated Financial Statements for the reorganized company as of June 2, 2001 and for the periods subsequent to June 2, 2001 will not be comparable to those of the Company for the periods prior to June 2, 2001. Although the Company’s plan of reorganization became effective on May 31, 2001, for financial reporting purposes the effective date of the plan of reorganization is considered to be June 2, 2001. The results of operations for the period from May 31, 2001 through June 2, 2001 were not material.
A black line has been drawn between the accompanying Condensed Consolidated Balance Sheets as of June 30, 2001 and December 30, 2000 to distinguish for accounting purposes between the reorganized company ("Successor") and the company prior to emergence from bankruptcy ("Predecessor").
The independent public accountants of the Company have qualified their report on the Company’s 2000 financial statements due to their doubt as to the ability of the Company to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in these financial statements, the Company has incurred losses prior to and during bankruptcy. In addition, the Company emerged from Chapter 11 protection under  the U.S. Bankruptcy Code on May 31, 2001 and has not had significant operations as a reorganized entity. These matters raise substantial doubt about the ability of National Vision, Inc. to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is suggested that unaudited interim condensed consolidated financial statements contained herein be used in conjunction with the financial statements and the accompanying notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2000.
(2)	BANKRUPTCY PROCEEDINGS AND FRESH START ADJUSTMENTS	
Proceedings Under Chapter 11 of the Bankruptcy Code
On April 5, 2000, the Company and ten of its subsidiaries (collectively, the "Debtors") filed voluntary petitions with the United States Bankruptcy Court for the Northern District of Georgia for reorganization under Chapter 11 (the "Chapter 11 Cases"). In March 2001, the Debtors filed a plan of reorganization (the "Plan") for the Chapter 11 Cases. The Plan was subsequently accepted by the required percentage of creditors entitled to vote on the Plan and was confirmed by the bankruptcy court by its order entered on May 18, 2001. On May 31, 2001, after securing a new revolving credit facility with Fleet Capital Corporation, the Company emerged from bankruptcy.

Page 8

 
The Plan provided for the conversion of the Company’s pre-petition unsecured claims into new secured notes and common stock. The secured notes have a face value of $120 million and provide for the payment of interest of 12% twice a year at the end of March and September. The notes are payable over eight years with principal repayments based on excess cash flow for the prior six month period, adjusted for existing cash balances, measured as of the end of June and December of each year, with the first measurement date occurring at the end of 2001. The principal repayments are to be made by the end of the second month subsequent to the measurement date. Five million shares of new common stock, par value $0.01, were issued based on the Company’s reorganization value . Under the Plan, former shareholders received no value for their interests, consequently, all predecessor common stock securities were cancelled.
The gain on cancellation of indebtedness aggregated $17.2 million before tax and has been treated as an extraordinary item in the accompanying Condensed Consolidated Statements of Operations for the period ended June 2, 2001.
At June 30, 2001 a portion of the new notes and equity were not distributed to creditors whose claims were disputed. The interests of creditors whose claims were not resolved upon the Company’s emergence from Chapter 11, were provided for in the Company’s disputed claim reserve. The notes and equity are effectively held in trust for the benefit of the creditors, and will be appropriately distributed upon resolution of disputed claims.
In accounting for the effects of the reorganization, the Company adopted "fresh start" accounting principles as contained in the American Institute of Certified Public Accountant’s Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 was applicable because pre-reorganization shareholders received none of the Company’s new common stock and the reorganization value of the assets of the successor company was less than the total pre-petition liabilities allowed plus post-petition liabilities.
"Fresh Start" accounting principles require that we determine the reorganization value of the reorganized Company. The Company’s reorganization value was developed by the Company, the Official Committee of Unsecured Creditors and their respective financial advisors. The reorganization value was based on a calculation of the present value of the free cash flows under the Company’s financial projections, including an assumption of a terminal value. Such projections were submitted to the court and to creditors for review via the Company’s disclosure statement accompanying the Plan.
The above summary of the Plan does not purport to be complete and is qualified in its entirety by reference to the Plan which is incorporated herein by reference to the Company’s Application for Qualification of Indenture on Form T-3 filed on May 31, 2001.
In the allocation of the reorganization value, the Company’s tangible and intangible assets were recorded at their assumed fair value. Other intangible assets approximating $110 million were established as part of fresh start accounting and will be amortized over 15 years using the straight-line method.
Changes to the fair value of the Company’s identifiable assets totaled $110.4 million. This amount was recognized as a gain in the Predecessor’s statement of operations and is detailed below: (amounts in thousands)

	Increase /(Decrease) 	
		
Inventory	          (700)        	
Property, plant and equipment, net	 1,942         	
Other assets 	(586)        	
Other intangible assets	 109,707         	
		
Total fair value adjustments 	$     110,363         	

Page 9

The application of fresh start accounting on the Predecessor Company’s June 2, 2001 balance sheet is as follows:   (amounts in thousands)
													
				Before								Reorganized	
				Fresh Start		Extinguishment		New issuance		Fair value		Balance Sheet	
				June 2, 2001		of debt		Notes / Stock		adjustments		June 2, 2001	

Cash & cash equivalents		$ 11,165 								$ 11,165	
Accounts receivable		8,475 								8,475	
Inventory			20,566 						(700)	(e)	19,866	
Other current assets		778 								778	
													
	Total current assets		40,984 		-- 		--		(700)		40,284	
													
Property, plant & equipment											
	Gross property, plant & equipment	89,599 						(60,914)		28,685	
	Accumulated depreciation		(62,856)						62,856 		--	
													
	Property, plant & equipment, net	26,743 		-- 		--		1,942 	(f)	28,685	
													
Other assets and deferred costs		9,551 		(7,063)	(a)			(586)	(g)	1,902	
Deferred tax asset		385 								385	
Other intangible assets		-- 						109,707 	(h)	109,707	
													
	Total assets		$ 77,663 		(7,063)		--		110,363 		$ 180,963	

Liabilities not subject to compromise:										
Current liabilities											
	Accounts payable		$ 1,858 		 						$ 1,858	
	Accrued expenses		28,608 		2,300 	(b)					31,008	
													
	Total current liabilities		30,466 		2,300 		--		-- 		32,866	
													
	Revolving credit facility		3,000 								3,000	
	Senior notes		-- 		 		120,000	(d)			120,000	
	Other debt		-- 		97 	(b)					97	
													
Liabilities subject to compromise	171,642 		(171,642)	(b)					--	
											
Stockholders’ equity											
	Common stock		211 				50	(d)	(211)	(i)	50	
	Additional paid-in capital		47,387 				24,950	(d)	(47,387)	(i)	24,950	
	Retained earnings		(171,070)		17,182 	(c)			153,889 	(i)	--	
	Other comprehensive income		(4,073)						4,073 	(i)	--	
													
	Total stockholders’ equity		(127,545)		17,182 		25,000		110,363 		25,000	

Total liabilities and stockholders’
          equity	
$           77,663 		
(152,063)		
145,000		
110,363 		
$          180,963	

 a.	Elimination of deferred financing costs associated with the senior notes being cancelled as part of the plan of reorganization. 
 
 b.	Elimination of pre-petition liabilities. Cash claims of $2.3 million were accrued as well as assumed capital leases totaling $97,000. 
 
Page 10

 
 c.	Gain on extinguishment of debt is calculated as follows: 
 
Liabilities subject to compromise	$    169,245 	
Deferred financing costs related to cancelled senior notes 	(7,063)	
		
Net liabilities extinguished 	162,182 	
Less: Reorganized value 	 145,000  	
		
Gain on extinguishment of debt 	 $     17,182  	

 d.	Issuance of new senior notes, totaling $120 million, and the issuance of 5,000,000 shares of new common stock with par value of $0.01. The reorganization value was derived from a recovery analysis filed in the bankruptcy court in connection with the Plan. The components of the reorganized value are shown below: (amounts in thousands) 
 
Reorganized value:		
New Debt  	$120,000 	
New Equity 	25,000 	
		
Reorganization value  	$145,000 	

 e.	Reduction of inventory for a change in accounting policy related to the capitalization of freight costs and certain business supplies.
 f.	Net increase in fixed assets is the result of fair value adjustments increasing equipment by approximately $3.4 million and decreasing certain leaseholds and furniture and fixtures by $1.5 million.
 g.	Elimination of all intangibles with the exception of the California HMO licenses.
 h.	Establishment of other intangible assets to be amortized over 15 years using the straight-line method.
 i.	Elimination of Predecessor equity. 
 
Page 11

 
(3)	LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS	
As part of fresh start accounting, liabilities subject to compromise in the amount of $169 million were exchanged for new notes and common stock as part of the discharge of debt in the bankruptcy. These liabilities are identified below: (amounts in thousands)
 
	June 2, 2001 	  December 30, 2000 	
Accounts payable 	$      27,830     	 $       25,856            	
Accrued expenses and provision for rejected contracts 	2,359(a)	 5,859             	
Senior notes, net of discount, including accrued interest 	131,356     	 131,266            	
Other long-term debt and capital lease obligations	 7,700(b)	 7,843            	
			
	$      169,245     	 $       170,824            	

 a.	This amount is net of an accrual for claims to be paid in cash of approximately $2.3 million. 
 b.	This amount is net of $97,000 worth of capital leases assumed to continue after emergence from bankruptcy. 
 
In accordance with SOP 90-7, the Predecessor company recorded all transactions incurred as a result of the Chapter 11 Cases as reorganization items. The table below summarizes these items: (amounts in thousands)
 
	Two Months	 Three Months 	Five Months	 Six Months	
	Ended	 Ended	 Ended	 Ended	
	June 2, 2001 	 July 1, 2000 	 June 2, 2001 	 July 1, 2000 	

Fresh start adjustments 	$      (110,363)     	 $             --      	 $      (110,363)        	 $             --       	
Impairment of fixed assets	 --      	 333      	 33         	 333      	
Provision for rejected leases	 895      	 1,834      	 1,592         	 1,834      	
Loss on sale of freestanding division 	9,688      	 --      	 9,688         	 --      	
Other store closing costs	 495      	 419      	 532         	 419      	
Professional fees	 1,000      	 1,156      	 2,008          	1,156      	
Retention plan 	3,231      	 549      	 3,231         	 549      	
Interest income	 (38)     	 (48)     	 (127)        	 (48)    	
Letter of credit reserve on DIP Facility 	197      	--      	 197         	 --      	
Other reorganization items	 534      	 136      	 636         	 136      	
					
Total reorganization items	 $        (94,361)     	 $       4,379      	 $      (92,573)        	 $       4,379      	

The loss on the disposition of the freestanding division of  $9.7 million was comprised of:
 
•	impairments of certain assets not acquired by the buyer,
•	accrued costs for freestanding employees for severance and health care costs for periods after the sale, and
•	other contracted expenses for which the Company will receive no future benefit. 
 
Page 12

 
(4)	DISPOSITION OF FREESTANDING OPERATIONS	
On April 20, 2001, the Company completed the sale of its freestanding retail operations to Vista Acquisition LLC (the "Buyer"). We received consideration of approximately $7.0 million, consisting of $5.7 million in cash and $1.3 million in notes receivable. The assets sold consisted primarily of furniture, fixtures and inventory at approximately 200 freestanding locations and inventory and equipment at the Fullerton, California laboratory/distribution center.
In a related transaction, the Company agreed to sell to the Buyer its interest in a subsidiary for a $1.0 million note receivable. This subsidiary owns a portion of the equipment in approximately half of the freestanding locations sold. This transaction is expected to close in the fall of 2001. For purposes of the unaudited pro forma financial information, these transactions have been combined.
Pro forma unaudited financial results of operations are presented below, as if the freestanding operations were disposed of at the beginning of the periods presented. The pro forma results presented include certain adjustments and estimates by management. The pro forma information does not necessarily reflect actual results that would have occurred nor is it necessarily indicative of future results of operations of the Company without the freestanding operations.

															
				Two months ended June 2, 2001		Three months ended July 1, 2000	
							
				As reported	Adjustments	Pro forma		As reported	Adjustments	Pro forma	
															
Net sales		$	45,822		(4,386)	$	41,436 	$	78,783 		(15,126)	$	63,657	
Gross profit		$ 	25,586		(2,199)	$ 	23,387 	$ 	42,496 		(8,401)	$ 	34,095	
Operating income	$ 	3,580		(264)	$ 	3,316 	$ 	72 		2,689 	$ 	2,761	
EBITDA prior to					$ 								
	significant provisions	$ 	5,472		(283)	$ 	5,189 	$ 	4,741 		950 	$ 	5,691	
	 		 												
				Five months ended June 2, 2001		Six months ended July 1, 2000	
							
				As reported	Adjustments	Pro forma		As reported	Adjustments	Pro forma	
															
Net sales		$	120,557		(18,215)	$	102,342 	$	161,963 		(33,038)	$	128,925	
Gross profit		$ 	65,796		(9,051)	$ 	56,745 	$ 	88,931 		(18,592)	$ 	70,339	
Operating income/(loss)	$ 	4,719		3,026 	$ 	7,745 	$ 	(3,537)		10,437 	$ 	6,900	
EBITDA prior to							$ 						
	significant provisions	$ 	9,493		2,941 	$ 	12,434 	$ 	10,113 		2,650 	$ 	12,763	

EBITDA is calculated as operating income before interest, taxes, depreciation and amortization. EBITDA prior to significant provisions is calculated as EBITDA prior to restructuring expense, impairment on long-lived assets, reorganization items, extraordinary items and the cumulative effect of a change in accounting principle.
The above pro forma information is intended to represent the Company’s consolidated operations excluding the freestanding operations sold or closed over the past two years. It does not exclude other operations that we actually closed and disposed of during the bankruptcy proceedings, including the Sam’s Club stores and Meijer Thrifty Acres stores. As such, the pro forma information is not necessarily indicative of the future financial results of the Company’s ongoing operations. Historical pro forma results of operations for the Company’s ongoing businesses are presented in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.
 
Page 13

 
(5)	LONG-TERM DEBT	
In May 2001, the Company’s secured revolving credit facility with Foothill Capital expired and was replaced with a senior secured revolving Credit Facility (the "Exit Facility") from Fleet Capital Corporation. The Exit Facility has a term of three years, bears interest at the prime rate plus 0.25% per annum or at LIBOR plus 2.5%, and, subject to customary terms and conditions, provides availability of an estimated $9.4 million, inclusive of letter of credit requirements.
 
(6)	CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE	
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements". SAB 101 summarizes the SEC’s view in applying generally accepted accounting principles to selected revenue recognition issues. Prior to the adoption of SAB 101, the Company recognized revenues and the related costs from retail sales when at least 50% of the payment was received. In response to SAB 101, the Company is required to recognize revenue upon delivery of the product. The amount of cash received at the time the customer’s order is placed is recorded as a deposit liability and is presented within accrued liabilities. The effect of this change in accounting principle was applied cumulatively as of the beginning of 2000 and totaled $3.4 million.
(7)	EARNINGS PER COMMON SHARE	
Basic earnings per common share were computed by dividing net income by the weighted average number of common shares outstanding during the quarter. Diluted earnings per common share were computed as basic earnings per common share, adjusted for outstanding stock options that are dilutive. The computation for basic and diluted earnings per share may be summarized as follows: (amounts in thousands except per share information)
							
		Successor		Predecessor	
					
		One month		Two months		Three months	
		ended		ended		ended	
		June 30, 2001		June 2, 2001		July 1, 2000	

Net earnings /(loss) before extraordinary items		$                (711)		$           97,530		$                (5,224)	
Extraordinary items, net		-- 		17,182		(827)	
							
Net earnings /(loss)		$                (711)		$         114,712		$                (6,051)	

Weighted average shares outstanding, basic and diluted	5,000 	 	21,169		21,179	
							
Basic and Diluted loss per share:							
							
Net earnings /(loss) before extraordinary items		$               (0.14)		$               4.61		$                  (0.25)	
Extraordinary items		-- 		0.81		(0.04)	
							
Net earnings /(loss) per share		$               (0.14)		$               5.42		$                  (0.29)	

Page 14

 
							
		Successor		Predecessor	
					
		One month		Five months		Six months	
		ended		ended		ended	
		June 30, 2001		June 2, 2001		July 1, 2000	

Net earnings /(loss) before cumulative effect							
and extraordinary items		$                  (711)		$              96,142		$           (14,163)	
Cumulative effect , net		--  		--		(3,378)	
Extraordinary items, net		--  		17,182		(827)	
							
Net earnings /(loss)		$                  (711)		$            113,324		$           (18,368)	

Weighted average shares outstanding, basic 
          and diluted		
5,000 		
21,169		
21,174	
							
Basic and Diluted loss per share:							
							
Net earnings /(loss) before cumulative effect							
and extraordinary item		$                 (0.14)		$                  4.54		$               (0.67)	
Cumulative effect		--  		--		(0.16)	
Extraordinary items		--  		0.81		(0.04)	
							
Net earnings /(loss) per share		$                 (0.14)		$                  5.35		$               (0.87)	

No outstanding options were included in the above calculation as their impact would be anti-dilutive.
 
(8)	SUPPLEMENTAL DISCLOSURE INFORMATION	
Inventory balances, by classification, may be summarized as follows: (amounts in thousands)
 	Successor
June 30, 2001	Predecessor
December 30, 2000	

Raw Material	$  13,942        	$  22,175          	
Finished Goods	4,766        	8,153          	
Supplies	      449        	    1,150          	
			
	$  19,157        	$  31,478          	

Page 15

 
Prior to emergence from bankruptcy, we stopped accruing interest on unsecured debt. Contractual interest for the two and five months ending June 2, 2001 was $3.0 million and $8.1 million, respectively. Contractual interest for the three and six months ended July 1, 2000 was $5.2 million. The components of interest expense, net, may be summarized as follows: (amounts in thousands)
 
		Successor			Predecessor	
					
		One month ended			Two months ended		Three months ended	
		June 30, 2001			June 2, 2001		July 1, 2000	

Interest expense on debt								
and capital leases		$ 1,133 				$ 246 		$ 739 	
Finance fees and amortization of									
deferred financing costs		11 				159 		187 	
Interest income		(37)				-- 		(2)	
Other		2 				6 		(7)	
									
		$ 1,109 				$ 411 		$ 917 	

		Successor		Predecessor	
					
		One month ended		Five months ended		Six months ended	
		June 30, 2001		June 2, 2001		July 1, 2000	

Interest expense on debt								
and capital leases		$             1,133 			$                805 		$             5,749  	
Finance fees and amortization of								
deferred financing costs		11 				349 		512 	
Interest income		(37)				-- 		(3)	
Other		2 				(4)		(11)	
									
		$             1,109 				$             1,150 		$             6,247 	

 
Interest expense, net excludes interest income of $38,000 and $127,000 for the two and five months ended June 2, 2001, respectively. These amounts were treated as reorganization items. (See Note 3 to Condensed Consolidated Financial Statements.)
The reserve for account receivable reflects uncertainty in the collection of certain third party insurance claims and other receivables.  A substantial portion of the reserves arise from 
1.  receivables related to the freestanding business which was disposed of by the Company in April 2001,
2.  certain older receivables sent to an outside collection agency, and
3.  a general increase in third party reserves as the Company transitions to a new processing environment.
(9)	COMPREHENSIVE INCOME	
Comprehensive income (loss), which consists of net income and foreign currency translation adjustments, was a loss of approximately $652,000 and income of $114.7 million for the one month and two months ended June 30, 2001 and June 2, 2001, respectively, and a loss of approximately $6.1 million for the three months ended July 1, 2000. Comprehensive income was approximately $113.3 million and a loss of $18.4 million for the five months and six months ended June 2, 2001 and July 1, 2000, respectively.
 
(10)	NEW ACCOUNTING PRONOUNCEMENTS	
Effective July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangibles" effective the beginning of fiscal year 2002. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 eliminates amortization of goodwill and requires acquired intangibles to be separately recognized. Goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. The Company has not yet determined the impact of adoption of these statements.
 
Page 16

 
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
 
Proceedings Under Chapter 11 of the Bankruptcy Code
On April 5, 2000, the Company and ten of its subsidiaries (collectively, the "Debtors") filed voluntary petitions with the United States Bankruptcy Court for the Northern District of Georgia for reorganization under Chapter 11 (the "Chapter 11 Cases"). In March 2001, the Debtors filed a plan of reorganization (the "Plan") for the Chapter 11 Cases. The Plan was subsequently accepted by the required percentage of creditors entitled to vote on the Plan and was confirmed by the bankruptcy court by its order entered on May 18, 2001. On May 31, 2001, after securing a new revolving credit facility with Fleet Capital Corporation, the Company emerged from bankruptcy.
Under the Plan, the Company’s pre-petition unsecured claims were converted into new secured notes and common stock. The secured notes have a face value of $120 million and will provide for the payment of interest of 12% twice a year at the end of March and September. The notes are payable over eight years with principal repayments based on excess cash flow for the prior six month period, adjusted for existing cash balances, measured as of the end of June and December of each year, with the first measurement date occurring at the end of 2001. The principal repayments are made by the end of the second month subsequent to the measurement date. The Company can provide no assurance as to whether it will generate sufficient cash to make such principal repayments or as to the amount of any such repayments. Five million shares of new common stock, par value $0.01, were issued based on the Company’s reorganization value. Under the Plan, former shareholders received no value for their interests, consequently, all common stock issued prior to emergence from bankruptcy was cancelled.
The Company’s reorganization value was developed by the Company, the Official Committee of Unsecured Creditors and their respective financial advisors. The reorganization value was based on a calculation of the present value of the free cash flows under the Company’s financial projections, including an assumption of a terminal value. Such projections were submitted to the court and to creditors for review via the Company’s disclosure statement accompanying the Plan. The allocation of the Company’s reorganization value is shown below:
 
Reorganized value:		
New Debt	 $120,000	
New Equity  	25,000 	
		
Reorganization value 	 $145,000 	
		
No assurances can be given as to the price at which the securities of the Company may trade (See Part II, Item 5, "Other Information"), and such prices may be materially different from the reorganization value prepared in connection with the Plan.
Results Of Operations
The Company emerged from Chapter 11 on May 31, 2001 and implemented "fresh start" accounting as of June 2, 2001. Results of operations for the period from May 31, 2001 through June 2, 2001 were not material. In accordance with fresh start accounting, all assets and liabilities were restated to reflect their respective fair values. The consolidated financial statements after that date are those of a new reporting entity and are not comparable to the pre-confirmation periods. However, for purposes of this discussion, the Successor results of one month ended June 30, 2001 have been combined with the Predecessor results of two and five months ended June 2, 2001 and then compared to the Predecessor results for the three and six months ended July 1, 2000, respectively. Differences between periods due to fresh start accounting are explained when necessary. EBITDA, prior to significant provisions, represents earnings before interest, taxes, depreciation and amortization, as well as, restructuring expenses, reorganization items and other bankruptcy and store closing charges. These periods are summarized in the following tables:
Page 17

 
National Vision, Inc.	
Condensed Consolidated Statements of Operations	
(in thousands)	
(Unaudited)	
					
	Three months ended			Three months ended	
	June 30, 2001			July 1, 2000	

Net sales	$                         64,428 			$                           78,783 	
Cost of goods sold	28,531 			36,287 	

Gross profit	35,897 			42,496 	
Selling, general & administrative expense	31,919 			42,424 	

Operating income	3,978 			72 	
Interest expense	1,520 			917 	

Earnings/ (loss) before reorganization items
          & taxes	
2,458 			
(845)	
Reorganization items and fresh-start adjustments	(94,361)			4,379 	

Earnings/(loss) before taxes & extraordinary item	96,819 			(5,224)	
Income tax benefit	--  			-- 	

Net earnings / (loss) before extraordinary items	96,819 			(5,224)	
Extraordinary items, net of tax	17,182 			(827)	

Net earnings / (loss)	$                       114,001 			$                           (6,051)	

EBITDA prior to significant provisions	$                           7,415 			$                             4,761 	

	Six months ended			Six months ended	
	June 30, 2001			July 1, 2000	

Net sales	$ 139,163 			$ 161,963 	
Cost of goods sold	63,056 			73,032 	

Gross profit	76,107 			88,931 	
Selling, general & administrative expense	70,990 			88,183 	
Impairment loss on long-lived assets	-- 			2,684 	
Restructuring expense	-- 			1,601 	

Operating income / (loss)	5,117 			(3,537)	
Interest expense	2,259 			6,247 	

Earnings/ (loss) before reorganization items
          & taxes	
2,858 			
(9,784)	
Reorganization items and fresh-start adjustments	(92,573)			4,379 	

Earnings / (loss) before taxes & extraordinary items	95,431			(14,163)	
Income tax benefit	-- 			-- 	

Net earnings / (loss) before extraordinary items	95,431 			(14,163)	
Extraordinary items, net of tax	17,182 			(827)	
Cumulative effect, net				(3,378)	

Net earnings / (loss)	$                       112,613 			$                         (18,368)	

EBITDA prior to significant provisions	$                         11,436 			$                           10,246 	

Page 18

 
The Company’s results of operations in any period are significantly affected by the number and mix of vision centers opened and operating during such period. At June 30, 2001, the Company operated 503 vision centers, versus 804 vision centers at July 1, 2000, summarized as follows:

	June 30, 2001 	  July 1, 2000 	
Wal-Mart vision centers in US	 398	 391	
Wal-Mart vision centers in Mexico 	   30	   27	
Fred Meyer vision centers 	   55	  55	
Military base vision centers	    20	   18	
Freestanding stores 	   --	 231	
Vision Centers in Sam’s Clubs	   --	   73	
Meijer Thrifty Acres vision centers 	   --	   9	
			
	503	 804	

 
 
Page 19

 
Three Months Ended June 30, 2001 (the "Current Three Months") Compared To Three Months Ended July 1, 2000 (the "Prior Three Months")
Consolidated Results
Net Sales. The Company recorded net sales of $64.4 million in the Current Three Months, a decrease of 18% from sales of $78.8 million in the Prior Three Months. Sales decreased due to the following:
•	Since April 2000, the Company has closed all of its freestanding stores, including the April 2001 sale of approximately 200 freestanding stores. These stores had sales of $15.1 million in the second quarter of 2000 versus $4.4 million in the same period in 2001.
•	The Company closed all of its Sam’s Club operations in the third quarter of 2000. These locations had sales of $4.2 million in the second quarter of 2000. 
Comparable store sales in the Company’s domestic host businesses increased 1% over levels recorded in the Prior Three Months. In addition, managed care sales increased as a percent of total sales in the Current Three Months compared with the same period a year ago.
Gross Profit. In the Current Three Months, gross profit decreased to $35.9 million from $42.5 million in the Prior Three Months. This decrease in gross profit dollars was primarily driven by a reduction in sales caused by the closure of the freestanding locations and the Sam’s Club locations. Gross margin as a percent of sales increased to 55.7% from 54.0% in the Prior Three Months. Gross margin percentage was positively impacted by an increase in eyeglass margins, resulting from the introduction and repositioning of certain eyeglass lens items and additional price-point options placed on the frame boards. This improvement was offset by increases in rent expense (which is a component of gross profit) as a percent of sales for the Wal-Mart division. This was due to approximately 46 vision centers entering the "3-year option period" of the Wal-Mart lease. The option period effectively increases each location’s minimum rent requirement. We expect this trend of increased rent to continue as additional Wal-Mart locations enter the "option period" of their lease.
Selling, General, And Administrative Expense ("SG&A expense"). SG&A expense (which includes both store operating expenses and home office overhead) decreased to $31.9 million in the Current Three Months from $42.4 million for the Prior Three Months. The dollar decrease was primarily the result of fewer payroll, depreciation and other expenses due to the above-mentioned store closures. SG&A expense also decreased as a percent of sales from 53.8% in the Prior Three Months to 49.5% in the Current Three Months.
The percentage decrease in SG&A was primarily the result of a 2.1% decrease in retail and field supervision payroll costs as a percent of sales. This is primarily the result of the closure of the freestanding stores which had higher payroll costs as a percent of sales. This decrease was partially offset by 1) an increase in third-party processing costs as a result of increased managed care sales and receipts, 2) an increase in advertising expenditures in the Current Three Months over the comparable prior year period and 3) the amortization of the newly established other intangibles of approximately $600,000 for the one month ended June 30, 2001. Third party processing costs are expected to increase as sales under managed care programs increase.

Page 20

 
 
Reorganization Items. The Company recorded all transactions incurred as a result of the Chapter 11 filing separately as a reorganization item. The table below summarizes these items: (amounts in thousands)
 
	Two Months Ended		 Three Months Ended	
	June 2, 2001		 July 1, 2000 	
				
Fresh start adjustments	 $(110,363)			 $               --		
Impairment of fixed assets 	--			 333		
Provision for rejected leases	 895			 1,834		
Loss on sale of freestanding division	 9,688			 --		
Other store closing costs 	495			 419		
Professional fees 	1,000			 1,156		
Retention plan 	3,231			 549		
Interest income 	(38)			 (48)		
Letter of credit reserve on DIP Facility 	197			 --		
Other reorganization items  	534 			 136 		
						
Total reorganization items 	 $   (94,361) 			 $        4,379 		

Operating Income. Operating income for the Current Three Months prior to restructuring reserves and the impairment loss on long-lived assets, increased to $4.0 million from $0.1 million in the Prior Three Months. Operating income as a percentage of sales prior to the restructuring reserve and the impairment loss was 6.2% in the Current Three Months, compared to break even levels in the Prior Three Months. This increase was primarily due to the closure of the freestanding locations and the Sam’s Club locations.
Interest Expense. Interest expense increased to $1.5 million compared to $0.9 million in the Prior Three Months. In the Prior Three Months, the Company stopped accruing interest on unsecured debt until we emerged from Chapter 11 bankruptcy. In the Current Three Months, the Company emerged from bankruptcy, and new senior notes in the amount of $120 million and bearing interest of 12% were issued and the previous notes were cancelled. The new notes were outstanding for one month in the current period and interest of approximately $1.1 million was accrued. Contractual interest for the second quarter of 2001 was $3.0 million.
Benefit For Income Taxes. The Company recorded a taxable operating loss in the Current Three Months. No tax benefit has been recorded due to the uncertainty of realizability.
Extraordinary Item. The extraordinary item in the Current Three Months represents the gain on extinguishment of debt as recorded in fresh start accounting.
Net Income. The Company posted net earnings of $114.0 million versus a net loss of $6.0 million in the Prior Three Months.
EBITDA Prior to Significant Provisions. EBITDA is calculated as operating income before interest, taxes, depreciation and amortization. EBITDA prior to significant provisions is calculated as EBITDA prior to restructuring expense, impairment on long-lived assets, reorganization items, extraordinary items and the cumulative effect of a change in accounting principle. EBITDA increased in the Current Three Months due to the disposal of the freestanding operations in April 2001. These stores had lower average sales and higher expenses as a percent of total sales than the domestic host businesses.
 
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Six Months Ended June 30, 2001 (the "Current Six Months") Compared To Six Months Ended July 1, 2000 (the "Prior Six Months")
Consolidated Results
Net Sales. The Company recorded net sales of $139.2 million in the Current Six Months, a decrease of 14% from sales of $162.0 million in the Prior Six Months. Sales decreased due to the following:
•	Since April 2001, the Company has closed all of its freestanding stores, including the April 2001 sale of approximately 200 freestanding stores. These stores had sales of $33.0 million in the Prior Six Months versus $18.2 million in the Current Six Months.
•	The Company closed all of its Sam’s Club operations in the third quarter of 2000. These locations had sales of $9.3 million in the Prior Six Months. 
Comparable store sales in the Company’s domestic host businesses remained even with levels recorded in the Prior Six Months. In addition, managed care sales increased as a percent of sales in the Current Six Months compared with the same period a year ago.
Gross Profit. In the Current Six Months, gross profit decreased to $76.1 million from $88.9 million in the Prior Six Months. This decrease in gross profit dollars was primarily driven by a reduction in sales caused by the closure of the freestanding locations and the Sam’s Club locations. Gross margin as a percent of sales decreased to 54.7% from 54.9% in the Prior Six Months. Gross margin percentage was negatively impacted by the freestanding division, as the Fullerton lab experienced a decrease in volume resulting in a loss of efficiency in the lab operation. In addition, rent expense, which is a component of gross profit, increased as a percent of sales for the Wal-Mart division. This was due to approximately 46 vision centers entering the "3-year option period" of the Wal-Mart lease. The option period effectively increases each location’s minimum rent requirement. We expect this trend of increased rent to continue as additional Wal-Mart locations enter the "option period" of their lease.
Selling, General, And Administrative Expense ("SG&A expense"). SG&A expense (which includes both store operating expenses and home office overhead) decreased to $71.0 million in the Current Six Months from $88.2 million for the Prior Six Months. The dollar decrease was primarily the result of fewer payroll, depreciation and other expenses due to the above-mentioned store closures. SG&A expense also decreased as a percent of sales from 54.4% in the Prior Six Months to 51.0% in the Current Six Months.
The percentage decrease in SG&A was due to the following:
•	A 2.5% decrease in retail and field supervision payroll costs as a percent of sales. This is primarily the result of the freestanding store closures. The closed stores had higher payroll costs as a percent of sales.
•	A 1.0% decrease in total advertising costs as a percent of sales in the Current Six Months. In the Prior Six Months, advertising efforts were increased in the freestanding stores. Although advertising for these stores continued in the Current Six Months, it was not at the same level as in the Prior Six Months.
•	A 0.7% decrease in depreciation and amortization costs as a percent of sales due to the third quarter 2000 goodwill impairment of $100.8 million, and fixed asset impairment of $12.0 million. 
These decreases were partially offset by:
•	amortization of other intangibles established as part of fresh start accounting, in the amount of approximately $600,000 for the one month period ended June 30, 2001,
•	an increase in third-party processing costs as a result of increased managed care sales and receipts,
•	an increase in group health benefit costs due to increased claims experience, and 
 
Page 22

 
•	an increase in workers’ compensation costs, due to rising claims experience. 
We expect the increase in third-party processing costs to continue as managed care sales become a larger percentage of our total sales. We also expect the increases in group health benefit costs and workers’ compensation costs to continue in the short-term.
Operating Income. Operating income for the Current Six Months prior to restructuring reserves and the impairment loss on long-lived assets, increased to $5.1 million from $0.7 million in the Prior Six Months. Operating income as a percentage of sales prior to the restructuring reserve and the impairment loss was 3.7% in the Current Six Months, compared to 0.4% in the Prior Six Months. This increase was primarily due to the closure of the freestanding locations and the Sam’s Club locations.
Impairment Loss, Restructuring Expense And Reorganization Items. In the first quarter of 2000, the Company recorded a noncash pre-tax charge of approximately $2.7 million primarily related to the impairment of leasehold improvements and furniture and fixtures in 91 closed stores.
Also, in the first quarter of 2000, the Company recorded a $1.6 million reserve for anticipated closing costs of stores. This charge was comprised of $1.4 million in lease termination costs and $239,000 in severance and other closing costs.
Generally accepted accounting principles require that these charges, incurred prior to the Company’s filing for Chapter 11 protection, be presented as components of operating income. Charges of this nature incurred subsequent to the Company’s Chapter 11 filing are presented below operating income as "Reorganization Items".   Results for the Current and Prior Six Months include charges which were incurred after the Company’s Chapter 11 filing. The table below summarizes these charges: (amounts in thousands)

 	Five Months Ended	Six Months Ended	
 	June 2, 2001	July 1, 2000	
			
Fresh start adjustments	$    (110,363)		$                 --		
Impairment of fixed assets	33 		333		
Provision for rejected leases	1,592 		1,834		
Loss on sale of freestanding division	9,688 		--		
Other store closing costs	532 		419		
Retention plan	3,231 		549		
Professional fees	2,008 		1,156		
Letter of credit reserve on DIP Facility	197 		--		
Interest income on accumulated cash	(127)		(48)		
Other reorganization costs	636 		     136		
					
	$     (92,573)		$           4,379		

Benefit For Income Taxes. The Company recorded a taxable operating loss in the Current Six Months. No tax benefit has been recorded due to the uncertainty of realizability.
Cumulative Effect Of A Change In Accounting Principle. In December 1999, the SEC issued Staff Accounting Bulletin No. 101,  (SAB 101) "Revenue Recognition in Financial Statements". SAB 101 summarizes the SEC’s view in applying generally accepted accounting principles to selected revenue recognition issues. Prior to the adoption of SAB 101, the Company recognized revenues and the related costs from retail sales when at least 50% of the payment was received. In response to SAB 101, the Company is required to recognize revenue upon delivery of the product. The amount of cash received at the time the customer’s order is placed is recorded as a deposit liability and is presented within accrued liabilities. The effect of this change in accounting principle was applied cumulatively as of the beginning of 2000 and totaled $3.4 million.
Extraordinary Item. The extraordinary item in the Current Six Months represents the gain on extinguishment of debt as recorded in fresh start accounting.
Net Income. The Company posted net earnings of $112.6 million versus a net loss of $18.4 million in the Prior Six Months.

 
Page 23

 
EBITDA Prior to Significant Provisions. EBITDA is calculated as operating income before interest, taxes, depreciation and amortization. EBITDA prior to significant provisions is calculated as EBITDA prior to restructuring expense, reorganization items, extraordinary items and the cumulative effect of a change in accounting principle. EBITDA increased in the Current Three Months due to the disposition of the freestanding operations in April 2001. These stores had lower average sales and higher expenses as a percent of total sales than the domestic host businesses.
Historical Pro Forma Results of Ongoing Operations
The following pro forma information presents the Company’s results of businesses for the retail store operations retained by the Company upon emergence from bankruptcy. Accordingly, such pro forma data is presented as if the freestanding operations, the Sam’s Club operations and other disposed operations, were closed or disposed of as of the beginning of the periods presented. Costs related to the bankruptcy, reorganization and restructuring are also excluded.

 	Three Months Ended	
		
 	June 30, 2001	July 1, 2000	
			
Net sales	$        60,042       	$       59,038       	
Gross profit	$        33,699       	$       32,229       	
Operating income	 $          3,714       	$         4,411       	
EBITDA prior to significant provisions	$          7,132       	$         7,228       	

 	Six Months Ended	
		
 	June 30, 2001	July 1, 2000	
			
Net sales	$       120,948       	$      118,765       	
Gross profit	$         67,056       	$        65,958       	
Operating income	$           8,142       	$        10,091       	
EBITDA prior to significant provisions	$         14,377       	$        15,727       	
 
Pro forma net sales and gross profit have increased over the comparable three and six month periods a year ago primarily due to twelve new host vision centers opened since July 1, 2000.
Pro forma operating income declined in the three months ended June 30, 2001 for the following reasons:
•	increases in rent expense in the Wal-Mart division, as previously discussed, 
•	increases in advertising expenditures over the comparable period a year ago, and 
•	amortization of other intangibles established during fresh start accounting, totaling approximately $600,000. 
Pro forma operating income declined in the six months ended June 30, 2001 due to all of the factors mentioned above, as well as increases in group health costs and workers’ compensation costs.
EBITDA prior to significant provisions decreased from the prior year for the reasons mentioned above, excluding the impact of the intangible amortization.
Liquidity And Capital Resources
Our capital needs have been for operating expenses, capital expenditures and principal repayments on the revolving credit facility. Our sources of capital have been cash flow from operations, borrowings under our credit facilities, and proceeds from the sale of the freestanding division.

Page 24

 
The Company emerged from bankruptcy on May 31, 2001. Upon emergence, all of the Company’s pre-petition unsecured liabilities, including the previous senior notes, and all former equity interests were cancelled. Liabilities Subject to Compromise were $169 million and were converted, at approximately 85% of face value, into a combination of new secured notes and common stock. The notes have a face value of $120 million and provide for payment of interest twice a year at the end of March and September. The notes are payable over eight years with principal repayments based on excess cash flow. Excess cash flow is defined as EBITDA plus or minus working capital changes, less the sum of capital expenditures, cash interest payments and cash tax payments, and is subject to a $3 million cash reserve. The obligation to prepay principal will have an adverse impact on the ability of the Company to accumulate cash.
In May 2001, the Company’s secured revolving credit facility with Foothill Capital expired and was replaced with a secured revolving Credit Facility (the "Exit Facility") from Fleet Capital Corporation. The Exit Facility has a term of three years, bears interest at the prime rate plus 0.25% per annum or at LIBOR plus 2.5%, and, subject to customary terms and conditions, provides availability of an estimated $9.4 million, inclusive of letter of credit requirements. We believe that the Exit Facility will provide the Company with adequate liquidity during 2001.
It is the Company’s intent to use cash reserves for its ongoing operations and for payment of interest expense and repayment of principal on the Company’s outstanding debt.
As of July 1, 2001, the Company had no borrowings under the Exit Facility, and letters of credit of $3.5 million outstanding. The remaining unused availability for borrowings under the Exit Facility was $9.4 million. The Company believes that cash generated from operations and funds available under the Exit Facility will be sufficient to satisfy its cash requirements through the remainder of the fiscal year.
In April 2001, the Company finalized the sale of its freestanding operations for consideration of $7.0 million, consisting of $5.7 million in cash and $1.3 million in notes receivable. The Company anticipates that cash flow from operations will improve with the disposition of the freestanding operations.
We plan, as of July 1, 2001, to open two Wal-Mart vision centers during the remainder of 2001. We may open up to 4 additional vision centers dependent upon liquidity, construction schedules and other constraints. For each of our new vision centers, we typically spend between $100,000 and $140,000 for fixed assets and approximately $25,000 for inventory.
In conjunction with our historical results from operations, emergence from Chapter 11 and the disposition of our free standing operations, the Company incurred significant net operating losses.  These losses are expected to result in significant net operating loss carryforwards, the amount of which has not yet been finally determined.
 
Summary of Master Lease Terms
The following table sets forth the number of existing leases for domestic Wal-Mart and Fred Meyer vision centers that expire each year, assuming that the Company exercises all available options to extend the terms of the leases. This table does not include any future Wal-Mart superstore conversions which are unknown at this time..
 
		Leases Expiring in	
			
Host Company		2002		2003		2004		2005		2006		2007		2008 and thereafter	

Wal-Mart		5		41		48		46		56		62		140		
Fred Meyer		-		-		-		-		-		-		55		

Totals		5		41		48		46		56		62		195		

 
 
Risk Factors
Any expectations, beliefs, and other non-historical statements contained in this Form 10-Q are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent the Company’s expectations or belief concerning future events, including the following: any statements regarding future sales levels, any statements regarding the continuation of historical trends, and any statements regarding the Company’s liquidity. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. With respect to such forward-looking statements and others which may be made by, or on behalf of, the Company, the factors described below could materially affect the Company’s actual results. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or other factors.

Page 25

Our ability to continue to generate revenue depends on our continued relationship with Wal-Mart.
We depend on our relationship with Wal-Mart. Our operations in Wal-Mart stores account for substantially all of our sales and our cash flow. Any change in that relationship could have a significant impact on our business.
Our recent emergence from bankruptcy may adversely affect our relationships with our vendors and customers.
Our various relationships with our vendors and our customers may be adversely affected by our past reliance on the protections afforded by Chapter 11. In addition, we continue to address and attempt to resolve disputed claims in the Chapter 11 Cases. This process may divert the time and resources of our management that could otherwise be used in running the business.
Our substantial indebtedness could adversely affect our financial health.
As a result of the issuance of the New Notes, we are highly leveraged. Our substantial indebtedness could:
  
•	Make it difficult for us to satisfy our obligations under the New Notes and the Exit Facility 
•	Increase our vulnerability to general adverse economic and industry conditions 
•	Limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements 
•	Require us to dedicate a substantial portion of our cash flow from operations to the payment of our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures or other general corporate purposes 
•	Limit our flexibility in planning for, or reacting to, changes in our business and our industry 
•	Place us at a competitive disadvantage compared to competitors that have less debt 
•	Limit our ability to borrow additional funds. 
Further distributions of our stock and the New Notes could adversely affect their trading prices.
We are issuing the New Common Stock and the New Notes to creditors pursuant to our plan of reorganization. Further distributions will be made pursuant to the Plan as disputed claims are resolved. Distributions of the New Common Stock and the New Notes could cause adverse changes in the trading prices of the New Common Stock and the New Notes.
Sales under managed care plans have unique risks and loss to our sales under managed care plans continue to grow.  We depend on reliable and timely reimbursement of claims we submit to third party payors.  There are risks we may not be paid on a timely basis, or that we will not be paid at all.  Some plans have complex forms to complete.  Sometimes our staff may incorrectly complete forms, delaying our reimbursement.  These delays can hurt our cash flow and also force us to write off more of these accounts receivable.  There are also processing costs we incur in connection with many sales under managed care plans; we expect these costs to increase as sales under the managed care plans increase.
It is important that we generate positive comparable store sales.
Each year, we expect to have additional vision centers under our Wal-Mart agreement come up for renewal.  Our rental obligations to Wal-Mart will increase in the three year option period.  We will need to continue to improve sales at these vision centers.  If we do not, our rent as a percent of sales will increase significantly during the option period.  In addition, other items, such as payroll, may increase significantly as a percent of sales.  Any decrease in sales would compound the negative impact.  If we anticipate such negative impact on a particular vision centers, we may choose not to exercise the option.
The terms of our Exit Facility and the Indenture restrict our corporate activities.
Our Exit Facility and our Indenture contain various restrictive covenants and require us to maintain specified financial ratios and satisfy certain financial tests, such as:
•	minimum EBITDA requirements, and 
•	minimum fixed charge coverage ratios. 
Our ability to meet these financial ratios and tests may be affected by events beyond our control, and we cannot assure you we will meet such tests. Our Exit Facility and our Indenture also limit our ability to take action with respect to:
•	capital expenditures, 
•	investments, 
•	indebtedness, 
•	liens, 
•	dividends, 
•	loans, 
•	prepayments of other indebtedness, 
•	mergers, acquisitions or sales of assets, 
•	changes in business activities, 
•	transactions with affiliates, and 
•	issuance of equity. 
Our breach of any of these covenants could result in an event of default under our Exit Facility. If a default occurs, our lender can declare our indebtedness, both principal and interest, immediately due and payable, and could terminate its commitment to make future advances. In addition, a default under the Indenture could cause the principal and accrued interest on the New Notes to become due and payable. The restrictions in the Indenture and the Exit Facility will likely restrict our ability to obtain additional financing for working capital, capital expenditures or general corporate purposes. Our indebtedness requires substantial debt service payments and, with respect to the Indenture, mandatory redemptions of principal, which may restrict our ability to use our operating cash flow for capital expenditures and other working capital requirements. We have pledged substantially all of our assets under our Exit Facility and under the Indenture. If we fail to repay all amounts declared due and payable, our lender and then the holders of New Notes could proceed against the collateral granted to it to satisfy our obligations. It is likely that our assets would be insufficient to repay in full that indebtedness and our other indebtedness, including the New Notes.
We may make mandatory redemptions of principal amounts owing on the New Notes which may have an adverse impact on our stock.
The indenture governing the New Notes requires mandatory redemptions of principal out of the excess cash flow that we may generate. There can be no assurances that we will generate enough excess cash flow to make any mandatory redemptions. Any prepayments of principal on the New Notes will prevent us from having excess cash to reinvest in our business, and could adversely affect the price of our stock and affect our liquidity.
The holders of our stock and the New Notes may exercise significant control over the Company and the price of our stock and the New Notes.
If holders of significant numbers of shares of our stock act as a group, such holders could be in a position to control the outcome of certain corporate actions requiring shareholder approval, including the election of directors. In addition, the possibility that one or more of the holders of significant numbers of shares of our stock or a large principal amount of the New Notes may determine to sell all or a large portion of their shares of our stock or their New Notes in a short period of time may adversely affect the market price of the stock or the New Notes.
Our stock and the New Notes were issued under the Plan to our unsecured creditors in connection with pre-bankruptcy claims against the Company. Some or all of the holders of our stock and the New Notes may therefore prefer to liquidate their investment rather than to hold it on a long-term basis. Partially for that reason, there can be no assurance as to the degree of price volatility in any trading market that may develop for the stock and the New Notes. As a result, no assurance can be given that any holder of our stock or the New Notes will be able to sell them or at what price any sale may occur. No assurance can be given as to the market price, if any, that will prevail for the stock in the future. If a market were to exist for the New Notes, they may trade at prices higher or lower than their face value, depending upon many factors, including, without limitation, the prevailing interest rates, markets for similar securities, industry conditions and the performance of, and investor expectations for us.
We have not declared dividends in the past, and do not anticipate doing so in the near future.
Our Exit Facility and the Indenture prohibit the payment of cash dividends without the consent of the lender and the holders of the New Notes, respectively. We have never declared or paid any dividend on our capital stock. We currently anticipate that all of our earnings, if any, will be retained for payment of the principal amount of the New Notes, and then for development of the Company’s business, and do not anticipate paying any cash dividends in the foreseeable future.
New advances in medicine and technology may reduce the need for our products.
Changes in technology could have an adverse impact on our business. For example, new surgical procedures or medical devices could reduce the demand for the Company’s products. Technological advances such as wafer technology and lens casting may make our current lens manufacturing method uncompetitive or obsolete. The number of individuals electing Lasik and similar surgical procedures has dramatically increased each year, which could significantly decrease demand for our goods and services. Corneal refractive surgery procedures such as laser surgery, radial-keratotomy and photo-refractive keratectomy may change the demand for our products. The development of new drugs may have a similar effect. Such medical and technological advances may have a material adverse effect on our operations.
 
Page 26

Our business may depend on our ability to provide for the availability of licensed optometrists in our vision centers.
We rely heavily on the availability of optical and optometric professionals.  Our business and marketing strategies emphasize the availability of independent optometrists in close proximity to our vision centers. Typically, a licensed optometrist occupies a space in or adjacent to each of our vision centers. Additionally, our agreement with Wal-Mart contemplates that we will make optometrists available at least 48 hours per week if permitted by law. Some states require that licensed opticians be present when eyeglasses or contact lenses are fitted or dispensed. Any difficulties or delays in securing the services of such optical professionals could adversely affect our business and our relationship with our host stores. Consequences of difficulty or delay could include termination of our host store licenses for those vision centers, and imposition of legal sanctions against us, including closure of vision centers without licensed professionals. Failure to have independent vision care professionals available in or near our vision centers would adversely affect our ability to win managed care and host store contracts, and could prevent us from operating in some states.
The use of Net Operating Loss Carryforwards may be subject to limitations.
In conjunction with our historical results from operations, emergence from Chapter 11 and the disposition of our free standing operations, the Company incurred significant net operating losses.  These losses are expected to result in significant net operating loss carryforwards, the amount of which has not yet been finally determined. The Company’s net operating losses that were realized prior to its emergence from Chapter 11 are subject to substantial limitation under Section 382 of the Internal Revenue Code of 1986. If the Company’s net operating losses that were realized after its emergence from Chapter 11 are subject to substantial limitation because of a future change of control of the Company or otherwise, the cash tax costs of the Company would increase and have an adverse effect on the Company’s ability to repay the Notes.
The retail optical industry is extremely competitive.
We compete with national companies such as Lenscrafters and Cole; we also compete with numerous regional and local firms. In addition, optometrists, ophthalmologists, and opticians provide many of the same goods and services we provide. The level and intensity of competition can vary dramatically depending on the particular market.
Federal and state governments extensively regulate the health care and insurance industries. A finding that we have violated existing regulations, or future adverse changes in those regulations, could negatively affect our business and its prospects.
Both federal and state governments extensively regulate the delivery of health care, including relationships among health care providers such as optometrists and eyewear providers like us. Many states prohibit business corporations from practicing medicine or controlling the medical judgments or decisions of physicians. States often also prohibit certain financial arrangements, such as splitting fees with physicians. The legality of our relationships with opticians and independent optometrists has been and may continue to be challenged from time to time. Regulations vary from state to state and are enforced by both courts and regulatory authorities, each with broad discretion. A ruling that we have violated these laws could, for example, result in:
•	censure, 
•	delicensing of optometrists, 
•	civil or criminal penalties, including large civil monetary penalties, 
•	invalidation or modification of our agreements with optometrists and opticians, or 
•	an order requiring us to change our business practices. 
These consequences could have an adverse effect on our business. Also, changes in our relationships with independent optometrists and opticians could adversely affect our relationship with Wal-Mart or our other host stores. Local ordinances (such as zoning requirements) can also impose significant burdens and costs of compliance. Frequently, our competitors sit on state and local boards. Our risks and costs of compliance are often increased as a result.
 
Page 27

The fraud and abuse provisions of the Social Security Act and anti-kickback laws and regulations adopted in many states prohibit soliciting, paying, receiving or offering any compensation for making, or to cause someone to make, certain referrals of patients, items or services. The Social Security Act also imposes significant penalties for false or improper Medicare and Medicaid billings. Many states have adopted similar laws applicable to any payor of health care services. We must also comply with federal laws such as the Health Insurance Portability Act of 1996 (which governs our participation in managed care programs) and the Food and Drug Administration Act (which regulates medical devices such as contact lenses). In addition, the Stark Self-Referral Law restricts referrals for Medicare or Medicaid covered services where the referring physician has a financial relationship with the service provider. In some cases, the rental of space constitutes a financial relationship under this law. Many states have adopted similar self-referral laws which are not limited to Medicare or Medicaid reimbursed services. Violations of these laws may result in substantial civil or criminal penalties, including double and treble civil monetary penalties, and in the case of federal laws, exclusion from the Medicare and Medicaid programs. Such exclusions and penalties, if applied to us, could have a material adverse effect on our business.
We do not have employment agreements with key management. The departure of key executives could adversely affect our business.
We depend on the continuing efforts of our executive officers and senior management. The departure of these individuals in significant numbers could adversely affect our business and prospects if we are unable to attract and retain qualified replacements. We do not currently have employment agreements with any personnel, including key executive officers and management.
Our success increasingly depends on our ability to develop and maintain relationships with managed vision care companies.
The ability to attract and retain arrangements with managed care payors is increasingly important in the optical industry. Loss of existing arrangements, or our failure to attract new managed care business, would impair our competitive position. Our success increasingly depends on our ability to develop and maintain relationships with managed vision care companies.   An increasing percentage of patients receive health care coverage through managed care payors. As this trend continues, our success will increasingly depend on our ability to negotiate contracts with health maintenance organizations ("HMOs"), employer groups and other private third party payors. We cannot assure you that we will be able to establish or maintain satisfactory relationships with managed care and other third party payors. Many managed care payors have existing provider structures in place that they may be unable or unwilling to change. Our inability to enter into such arrangements in the future could have a material adverse affect on our business.
We have established a network of optometrists and other providers located in or adjacent to our stores in order to enhance our ability to contract with managed care payors for both professional services and retail eyewear supplies. Managed care contracts include a variety of reimbursement methods, such as capitation (or risk basis) and fee for service. Our contracts with managed care companies on the one hand, and with networks of optometrists and other providers on the other, are subject to federal and state regulations, for example:
 Insurance Licensure. Most states impose strict licensure requirements on companies that engage in the business of insurance, including health insurance companies and HMOs. Many licensing laws mandate strict financial and other requirements which we may not be able to meet, were we deemed to be an engaging in the business of insurance. Additionally, the licensure process can be lengthy and time consuming.
 Any Willing Provider Laws. Some states require managed care payors to include any provider who is willing to abide by the terms of the payor’s contracts. Some states also prohibit termination of providers without cause. Other states are considering similar requirements. Such laws limit our ability to develop effective managed care provider networks.
 Antitrust Laws. A range of antitrust laws apply to us and our provider network. These laws prohibit anti-competitive conduct, including price-fixing, concerted refusals to deal, and divisions of markets. We cannot assure you that our operations will not be challenged on antitrust grounds in the future.
Proposed reforms may affect our business.
There have been numerous reform initiatives at the federal and state levels relating to the payment for and availability of healthcare services. We believe that such initiatives will continue for the foreseeable future. If adopted, some of these reforms could adversely affect our business.
We rely on third parties to pay many of our customers’ costs.
A significant portion of medical care in the United States is funded by government and private insurance programs, such as Medicare, Medicaid and corporate health insurance plans. According to government projections, more medical beneficiaries who are significant consumers of eye care services will enroll in managed care organizations. Governmental and private third party payors are trying to contain medical costs by:
•	lowering reimbursements, 
•	imposing use restrictions and risk-based compensation arrangements, 
•	redesigning benefits, and 
•	exploring more cost-effective methods of health care delivery. 
 
Page 28

These cost containment efforts may lead to limitations or reductions in reimbursement for eye care services, which would adversely affect our future sales. Additionally, some reimbursement programs require collection of amounts by the Company. Our inability to fully collect reimbursable amounts could adversely affect cash flow generated from operations.
A prolonged economic downturn could have an adverse impact on our industry.
A weakening economy may cause an increase in the period of time between repurchases of our retail products by consumers. Such an extension of the repurchase cycle could reduce the number of sales transactions generated by our vision centers and thereby reduce our sales.
Retail sales may be unpredictable.
Retail sale generally are subject to a number of unpredictable risks, such as the strength of the economy, advertising and marketing by competitors, other risks mentioned above and similar factors. We can not provide any assurances with respect to anticipated sales levels or the particular percentage of net sales represented by any particular expenses or other items.
Operating in other countries presents special risks that may affect our results of operations.
Our Mexican operations face risks substantially similar to those we face in our Wal-Mart stores, including dependence on the host store and limits on expansion. We cannot assure you that our Mexican operations will be able to attain profitability.  Our foreign operations expose us to all of the risks of investing and operating in foreign countries generally, including:
•	differing regulatory, political and governmental environments, 
•	currency fluctuations, 
•	high inflation, 
•	price controls, 
•	restrictions on profit repatriation, 
•	generally lower per capita income and spending levels, 
•	import duties and value-added taxes, and 
•	difficulties of cross-cultural marketing. 
Our Articles of Incorporation, By-Laws and Shareholder Rights Plan contain provisions which make it more difficult to effect a change in control of the Company.
Certain provisions of our Articles of Incorporation and By-Laws could discourage tender offers or other transactions that would result in shareholders receiving a premium over the market price for our Stock. These include provisions:
•	authorizing the issuance of preferred stock without shareholder approval, 
•	requiring a supermajority shareholder vote in certain circumstances, 
•	restricting who may call a special meeting of shareholders, 
•	permitting our Board of Directors to consider constituencies in addition to the shareholders, and 
•	requiring shareholders to comply with certain procedures in connection with any shareholder proposals or director nominations. 
Our Shareholder Rights Plan (the "Plan") provides us with a defensive mechanism that decreases the risk that a hostile acquirer will attempt to take control of us without negotiating directly with our Board of Directors. It is meant to prevent an acquirer from gaining control of us by paying an inadequate price or by using coercive techniques. The Plan may discourage acquirers from attempting to purchase us.
 
Page 29

 
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
 
Market risk is the potential change in an instrument’s value caused by, for example, fluctuations in interest and currency exchange rates. The Company’s primary market risk exposures are interest rate risk and the risk of unfavorable movements in exchange rates between the U.S. dollar and the Mexican peso. Monitoring and managing these risks is a continual process carried out by senior management, which reviews and approves the Company’s risk management policies. We manage market risk on the basis of an ongoing assessment of trends in interest rates, foreign exchange rates, and economic developments, giving consideration to possible effects on both total return and reported earnings. The Company’s financial advisors, both internal and external, provide ongoing advice regarding trends that affect management’s assessment.
Interest Rate Risk
The Company borrows long-term debt under our credit facility at variable interest rates. We therefore incur the risk of increased interest costs if interest rates rise.

PART II
OTHER INFORMATION
 
ITEM 1.                       LEGAL PROCEEDINGS
The section entitled "Proceedings Under Chapter 11 of the Bankruptcy Code" contained in Note 2 to Condensed Consolidated Financial Statements in Part I of this report is incorporated by reference.
ITEM 5.                      OTHER INFORMATION
On August 7, 2001, the American Stock Exchange notified the Company that it has approved the Company’s application to list its new common stock and the new notes. The Company expects that trading will begin later in August. The common stock of the Company will trade under the symbol "NVI" and the notes will trade under the symbol "NVI.A."
The plan of reorganization in the Chapter 11 Cases provides that, as claims of creditors are resolved, the Company will make periodic distributions of its new common stock and notes. As of August 7, 2001, the Company has made two such distributions, for a total of 4,059,919 shares of new common stock and $97.7 million face amount of new notes. The balance of 940,081 shares of new common stock and $22.3 million face amount of new notes are part of a disputed claim reserve and will be distributed as and when disputed claims are resolved. Such distributions could have an adverse impact on any trading price for the Company’s securities.

 
Page 30

 

Item 6.	EXHIBITS AND REPORTS ON FORM 8-K	 	
 	 	 	
 	(a)	Exhibits	 	
 	 	 	 	
 	 	The following exhibits are filed herewith or incorporated by reference:	 	

 	Exhibit
Number 

 	Amended and Restated Articles of Incorporation, as amended,
incorporated by reference to the Company’s Registration
Statement on Form 8-A filed on August 9, 2001	3.1	
 	 	
 	Amended and Restated Bylaws, incorporated by reference to the
Company’s Registration Statement on Form S-1, registration
number 33-46645, filed with the Commission on March 25, 1992,
and amendments thereto.	3.2	
 	 	
 	Form of Common Stock Certificate, incorporated by reference to
the Company’s Registration Statement on Form 8-A filed on
August 9, 2001	4.1	
 	 	 	
 	Indenture dated as of June 15, 2001, between the Company and State
Street Bank and Trust Company, as Trustee, incorporated by
reference to the Company’s Application for Qualification of
Indenture on Form T-3filed on May 31, 2001	4.6	
 	 	 	
 	First Amendment of Indenture dated as of June 6, 2001, between the
Company and State Street Bank and Trust Company, as Trustee,
incorporated by reference to the Company’s Registration
Statement on Form 8-A filed on August 9, 2001	4.7	
 	 	 	
 	Loan and Security Agreement dated as of May 30, 2001, between the
Company and Fleet Capital Corporation	10.18	
 	 	 	
 	Form of Indemnification Agreement for directors and executive
officers of the Company	10.19	

 	(b)	Reports on Form 8-K.	 	
The following reports on Form 8-K have been filed during the quarter for which this report is filed:
 
 	Date of Report	Item Reported	Financial Statements Filed	
 	 	 	 	
	May 8, 2001	2	National Vision, Inc. Pro Forma Financial Statements for disposition of free standing operations	
				
	June 1, 2001	3	National Vision, Inc. Pro Forma Reorganized Balance Sheet	
 
Page 31

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

 	NATIONAL VISION, INC.	

 	 	
 	By: /s/ Angus C. Morrison                                       	
 	        Angus C. Morrison	
 	        Senior Vice President	
 	        Chief Financial Officer	

 	By: /s/ Timothy W. Ranney                                    	
 	       Chief Accounting Officer	
 	 	
August 14, 2001	 	

 
 
Page 32

                                                                   Exhibit 10.19
                                                                   -------------

                            INDEMNIFICATION AGREEMENT

                  THIS AGREEMENT is made this ____ day of ___________, 2001, by
and between National Vision, Inc. a Georgia corporation (the "Corporation"), and
__________________ (the "Indemnified Party").

                              W I T N E S S E T H:
                               - - - - - - - - - -

         WHEREAS, the Indemnified Party currently serves as a director, officer,
or both of the Corporation, and in such capacity is performing a valuable
service; and

         WHEREAS, pursuant to the Corporation's Articles of Incorporation and
Bylaws, each as amended to date (collectively the "Charter"), the Corporation
may indemnify its directors and officers to the fullest extent authorized by
applicable law; and

         WHEREAS, Section 14-2-851 of the Georgia Business Corporation Code, as
amended to date (the "State Statute"), provides the statutory basis for the
indemnification of directors and officers of a Georgia corporation; and

         WHEREAS, in order to induce the Indemnified Party to continue to serve,
the Corporation has determined and agreed to enter into this Agreement with the
Indemnified Party;

         NOW, THEREFORE, in consideration of Indemnified Party's continued
service on behalf of the Corporation after the date hereof, the parties hereto
agree as follows:

         1. Indemnity. The Corporation hereby agrees to hold harmless and
indemnify the Indemnified Party to the fullest extent authorized or permitted by
the provisions of the State Statute with respect to the indemnification of
directors and officers, or by any amendment thereof or other statutory provision
authorizing or permitting such indemnification that is adopted after the date
hereof.

         2. Additional Indemnity. Subject only to the exclusions set forth in
Section 3 hereof, the Corporation hereby further agrees to hold harmless and
indemnify Indemnified Party against any and all expenses (including reasonable
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by Indemnified Party in connection with any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (including an action by or in the right of the
Corporation) to which Indemnified Party is, was or at any time becomes a party,
or is threatened to be made a party, by reason of the fact that Indemnified
Party is, was or at any time becomes a director, officer, employee, or agent of
the Corporation, or is or was serving or at any time serves at the request of
the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise.

         3.  Limitations  on  Additional  Indemnity.  No  indemnity  pursuant to
Sections 1 or 2 hereof shall be paid by the Corporation:

               (a) In respect of  expenses,  judgments,  fines,  and  settlement
amounts to the  extent  attributable  to  remuneration  paid or other  financial
benefit  provided to the  Indemnified  Party by the  Corporation  if it shall be
determined  by  a  final  judgment  or  other  final   adjudication   that  such
remuneration  or  financial  benefit was paid or provided  in  violation  of the
Indemnified Party's duties and obligations to the Corporation;

               (b) On account of any suit in which judgment is rendered  against
Indemnified  Party for an accounting of profits,  made from the purchase or sale
by the  Indemnified  Party of  securities  of the  Corporation,  pursuant to the
provisions of Section 16(b) of the Securities  Exchange Act of 1934, as amended,
or similar  provisions of any federal or state law, or on account of any payment
by the  Indemnified  Party to the  Corporation  in respect of any claim for such
accounting;

               (c) On account of the Indemnified  Party's conduct if it shall be
determined  by a final  judgment  or  other  final  adjudication  to  have  been
knowingly fraudulent,  deliberately  dishonest, or grossly negligent, or to have
constituted willful misconduct; or

               (d) If a final  decision by a court  having  jurisdiction  in the
matter shall determine that such indemnification is not lawful.

         4. Contribution. (a) If the indemnification provided in Sections 1 or 2
is  unavailable  and may not be paid to the  Indemnified  Party  for any  reason
(other than pursuant to Sections 3(a), (b), (c) and (d)), then in respect of any
threatened,  pending,  or completed  action,  suit,  or  proceeding in which the
Corporation is jointly liable with the Indemnified  Party (or would be if joined
in such action,  suit, or proceeding),  the Corporation  shall contribute to the
amount of expenses, judgments, fines, penalties, and settlements paid or payable
by the Indemnified Party in such proportion as is appropriate to reflect (i) the
relative  benefits  received  by  the  Corporation  on  the  one  hand  and  the
Indemnified  Party on the other from the  transaction  from  which such  action,
suit, or proceeding arose, and (ii) the relative fault of the Corporation on the
one hand and of the Indemnified Party on the other in connection with the events
that  resulted in such  expenses,  judgments,  fines,  penalties,  or settlement
amounts,  as well as any other relevant equitable  considerations.  The relative
fault of the  Corporation  on the one hand and of the  Indemnified  Party on the
other shall be  determined  by reference  to, among other  things,  the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent  the  circumstances  resulting  in  such  expenses,   judgments,  fines,
penalties,  or settlement  amounts.  The Corporation agrees that it would not be
just and equitable if contribution pursuant to this Section 4 were determined by
pro rata allocation or any other method of allocation that does not take account
of the foregoing equitable considerations.

               (b) The  determination as to the amount of the  contribution,  if
any,  shall  be  made  by:  (i) a  court  of  competent  jurisdiction  upon  the
application of both the  Indemnified  Party and the Corporation (if an action or
suit had been  brought in, and final  determination  had been  rendered by, such
court); (ii) the Board of Directors by a majority vote of a quorum consisting of
directors  who were not parties to such action,  suit, or  proceeding;  or (iii)
regular  outside counsel of the  Corporation,  if a quorum is not obtainable for
purposes  of  clause  (ii)  above,  or,  even  if  obtainable,  if a  quorum  of
disinterested directors so directs.

                                       -2-

         5.  Continuation of Obligations.  All agreements and obligations of the
Corporation  contained  herein shall continue  during the period the Indemnified
Party is a  director,  officer,  employee,  or agent of the  Corporation  (or is
serving at the request of the Corporation as a director,  officer,  employee, or
agent of  another  corporation,  partnership,  joint  venture,  trust,  employee
benefit plan, or other enterprise), and shall continue thereafter for so long as
the  Indemnified  Party shall be subject to any  possible  claim or  threatened,
pending,  or completed  action,  suit, or proceeding,  whether civil,  criminal,
administrative,  or  investigative,  by reason of the fact that the  Indemnified
Party was serving in any such capacity on behalf of the Corporation.

         6.  Advancement  of Expenses.  Expenses  (including  attorneys'  fees),
judgments,  fines,  penalties,  and  amounts  paid in  settlement  actually  and
reasonably  incurred by the Indemnified Party with respect to any action,  suit,
or  proceeding  referred  to  in  Sections  1 or 2  shall  be  advanced  by  the
Corporation  prior to the  time of the  disposition  of such  action,  suit,  or
proceeding  promptly  upon the  receipt of a (a)  written  affirmation  from the
Indemnified Party of his good faith belief that he is entitled to be indemnified
by the Corporation for such expenses,  judgments,  fines,  penalties, or amounts
paid in settlement under the provisions of the State Statute, the Charter,  this
Agreement,  or otherwise,  and (b) written  undertaking  to return  promptly any
amounts  advanced  hereunder  if it  shall  ultimately  be  determined  that the
Indemnified  Party is not entitled to  indemnification  from the Corporation for
such amounts  under the  provisions  of the State  Statute,  the  Charter,  this
Agreement, or otherwise.

         7.  Notification  and Defense of Claim.  Promptly  after receipt by the
Indemnified  Party  of  notice  of the  commencement  of any  action,  suit,  or
proceeding,  the Indemnified  Party will, if a claim in respect thereof is to be
made against the Corporation under this Agreement, notify the Corporation of the
commencement thereof, but the failure to notify the Corporation will not relieve
it from any liability that it may have to the  Indemnified  Party otherwise than
under this Agreement. With respect to any such action, suit, or proceeding as to
which the Indemnified Party so notifies the Corporation:

               (a) The  Corporation  will be entitled to  participate at its own
expense;

               (b) Except as  otherwise  provided  below,  the  Corporation  may
assume  the  defense  thereof,  with  counsel  reasonably  satisfactory  to  the
Indemnified Party. After notice from the Corporation to the Indemnified Party of
its election to assume such defense,  the Corporation  will not be liable to the
Indemnified  Party  under  this  Agreement  for  any  legal  or  other  expenses
subsequently  incurred by the  Indemnified  Party in connection with the defense
thereof,  other than reasonable costs of investigation or as otherwise  provided
below.  The Indemnified  Party shall have the right to employ its own counsel in
such  action,  suit,  or  proceeding,  but the fees and expenses of such counsel
incurred  after notice from the  Corporation  of its  assumption  of the defense
thereof  shall  be at the  expense  of the  Indemnified  Party,  unless  (i) the
employment  of  counsel  by the  Indemnified  Party has been  authorized  by the
Corporation,  (ii)  counsel  to the  Indemnified  Party  shall  have  reasonably
concluded that there may be a conflict of interest  between the  Corporation and
the  Indemnified  Party in the  conduct of the  defense  of such  action and has
advised  the  Indemnified  Party in  writing  that such a conflict  of  interest
exists,  or (iii) the  Corporation  shall not in fact have  employed  counsel to
assume the defense of such action,  in each of which cases the fees and expenses
of counsel for the Indemnified Party shall be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any action,

                                       -3-

suit, or proceeding  brought by or on behalf of the  Corporation  or as to which
the Indemnified Party shall have made the conclusion provided for in clause (ii)
above; and

               (c) The  Corporation  shall have no  obligation  to indemnify the
Indemnified Party under this Agreement for any amounts paid in settlement of any
action or claim effected without the  Corporation's  prior written consent.  The
Corporation shall not settle any action or claim in any manner that would impose
any penalty or  limitation  on the  Indemnified  Party  without the  Indemnified
Party's prior written consent. Neither the Corporation nor the Indemnified Party
will unreasonably withhold their consent to any proposed settlement.

         8. Repayment of Expenses. The Indemnified Party agrees to reimburse the
Corporation  for all  reasonable  expenses,  judgments,  fines,  penalties,  and
settlement  amounts paid by the  Corporation  in defending any civil,  criminal,
administrative,  or  investigative  action,  suit,  or  proceeding  against  the
Indemnified  Party or advanced by the  Corporation to the  Indemnified  Party in
such event,  but only to the extent that it shall be ultimately  determined that
the  Indemnified  Party is not entitled to be indemnified by the Corporation for
such expenses,  judgments, fines, penalties, or amounts paid in settlement under
the provisions of the State Statute, the Charter, this Agreement, or otherwise.

         9. Enforcement.  (a) The Corporation expressly confirms and agrees that
it has entered into this  Agreement  and assumed the  obligations  imposed on it
hereby in order to induce the  Indemnified  Party to continue to serve on behalf
of the Corporation,  and acknowledges that the Indemnified Party is relying upon
this Agreement in continuing to serve in such capacity.

               (b) If the  Indemnified  Party is required to bring any action to
enforce  rights or to collect  moneys due under this Agreement and is successful
in such action,  then the Corporation  shall reimburse the Indemnified Party for
all of the  Indemnified  Party's  reasonable  fees and  expenses in bringing and
pursuing such action.

         10.  Severability.  Each  of the  provisions  of  this  Agreement  is a
separate and distinct  agreement and  independent of the others,  so that if any
provision  hereof  shall be held to be invalid or  unenforceable  in whole or in
part for any reason,  such invalidity or  unenforceability  shall not affect the
validity or enforceability of the other provisions hereof.

         11. General and Miscellaneous.  (a) This Agreement shall be governed by
and construed and enforced in accordance  with the laws of the State of Georgia,
without regard to its conflicts of laws rules.

               (b) This Agreement shall be binding upon the  Indemnified  Party,
his heirs, personal representative, and assigns and upon the Corporation and its
successors and assigns,  and shall inure to the benefit of and be enforceable by
the Indemnified Party, his heirs, personal representatives,  and assigns, and by
the Corporation and its successors and assigns.

               (c) No amendment,  modification,  termination, or cancellation of
this  Agreement  shall be effective  unless in a writing  signed by both parties
hereto.

                                       -4-

               (d) This Agreement  supersedes any agreement  regarding indemnity
or contribution that the Indemnified Party and the Company or any predecessor of
the Company have entered into.

         12. No Duplication  of Payments.  The  Corporation  shall not be liable
under this Agreement to make any payment to the extent the Indemnified Party has
otherwise  actually  received  payment  (under  any  insurance  policy,  Charter
provision, or otherwise) of the amounts otherwise indemnifiable hereunder.

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement on
and as of the day and year first above written.

                                  CORPORATION:

                                  NATIONAL VISION, INC.

                                  By:
                                      -----------------------------------
                                  Name:
                                        ---------------------------------
                                  Title:
                                         --------------------------------

                                  INDEMNIFIED PARTY:
                                  -----------------

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

                                                                   Exhibit 10.18
                                                                   -------------

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

                              NATIONAL VISION, INC.

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

        =================================================================

                           LOAN AND SECURITY AGREEMENT

                            Dated: As of May 30, 2001

                                 $10,000,000.00

        =================================================================

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

                            FLEET CAPITAL CORPORATION
        -----------------------------------------------------------------

                                                  TABLE OF CONTENTS

                                                                                                                            Page
                                                                                                                       
SECTION 1.    CREDIT  FACILITIES.............................................................................................-1-
              1.1.    Revolver Commitment....................................................................................-1-
              1.2.    Reserved -2-
              1.3.    LC Facility............................................................................................-2-

SECTION 2.    INTEREST,  FEES  AND  CHARGES..................................................................................-4-
              2.1.    Interest...............................................................................................-4-
              2.2.    Fees...................................................................................................-6-
              2.3.    Computation of Interest and Fees.......................................................................-7-
              2.4.    Reimbursement of Expenses..............................................................................-7-
              2.5.    Bank Charges...........................................................................................-8-
              2.6.    Illegality.............................................................................................-8-
              2.7.    Increased Costs........................................................................................-8-
              2.8.    Capital Adequacy.......................................................................................-9-
              2.9.    Funding Losses........................................................................................-10-

SECTION 3.    LOAN  ADMINISTRATION..........................................................................................-11-
              3.1.    Manner of Borrowing and Funding Loans.................................................................-11-
              3.2.    Special Provisions Governing LIBOR Loans..............................................................-12-
              3.3.    All Loans to Constitute One Obligation................................................................-13-

SECTION 4.    PAYMENTS......................................................................................................-13-
              4.1.    General Payment Provisions............................................................................-13-
              4.2.    Repayment of Revolver Loans...........................................................................-13-
              4.3.    Reserved..............................................................................................-14-
              4.4.    Payment of Other Obligations..........................................................................-14-
              4.5.    Marshaling; Payments Set Aside........................................................................-14-
              4.6.    Application of Payments and Collateral Proceeds.......................................................-14-
              4.7.    Loan Account; Account Stated..........................................................................-15-
              4.8.    Gross Up for Taxes....................................................................................-15-

SECTION 5.    TERM AND TERMINATION OF COMMITMENT............................................................................-15-
              5.1.    Original Term of Revolver Commitment..................................................................-15-
              5.2.    Termination...........................................................................................-15-

SECTION 6.    COLLATERAL....................................................................................................-16-
              6.1.    Grant of Security Interest............................................................................-16-
              6.2.    Lien on Deposit Accounts..............................................................................-17-
              6.3.    Collateral Assignment of Leases.......................................................................-17-
              6.4.    Other Collateral......................................................................................-17-
              6.5.    No Assumption of Liability............................................................................-17-
              6.6.    Lien Perfection; Further Assurances...................................................................-18-

SECTION 7.    COLLATERAL ADMINISTRATION.....................................................................................-18-
              7.1.    General Provisions....................................................................................-18-
              7.2.    Administration of Accounts............................................................................-19-
              7.3.    Administration of Inventory...........................................................................-20-

                                                                 i

                                                               -31-

              7.4.    Administration of Equipment...........................................................................-21-
              7.5.    Borrowing Base Certificates...........................................................................-21-

SECTION 8.    REPRESENTATIONS AND WARRANTIES................................................................................-21-
              8.1.    General Representations and Warranties................................................................-21-
              8.2.    Reaffirmation of Representations and Warranties.......................................................-26-
              8.3.    Survival of Representations and Warranties............................................................-26-

SECTION 9.    COVENANTS AND CONTINUING AGREEMENTS...........................................................................-27-
              9.1.    Affirmative Covenants.................................................................................-27-
              9.2.    Negative Covenants....................................................................................-29-
              9.3.    Financial Covenants...................................................................................-32-

SECTION 10.  CONDITIONS PRECEDENT..........................................................................................-33-
             10.1.   Conditions Precedent to Initial Credit Extensions.....................................................-33-
             10.2.   Conditions Precedent to all Credit Extensions.........................................................-34-
             10.3    Limited Waiver of Conditions Precedent................................................................-35-

SECTION 11.  EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.............................................................-35-
             11.1.   Events of Default.....................................................................................-35-
             11.2.   Acceleration of  Obligations; Termination of Revolver Commitment......................................-37-
             11.3.   Other Remedies........................................................................................-37-
             11.4.   Setoff ...............................................................................................-38-
             11.5.   Remedies Cumulative; No Waiver........................................................................-39-

SECTION 12.  MISCELLANEOUS.................................................................................................-39-
             12.1.   Power of Attorney.....................................................................................-39-
             12.2.   General Indemnity.....................................................................................-40-
             12.3.   Survival of All Indemnities...........................................................................-40-
             12.4.   Modification of Agreement; Sale of Interest...........................................................-40-
             12.5.   Severability..........................................................................................-40-
             12.6.   Cumulative Effect; Conflict of Terms..................................................................-41-
             12.7.   Execution in Counterparts.............................................................................-41-
             12.8.   Lender's Consent......................................................................................-41-
             12.9.   Notices...............................................................................................-41-
             12.10.  Performance of Borrower's Obligations.................................................................-41-
             12.11.  Credit Inquiries......................................................................................-42-
             12.12.  Time of Essence.......................................................................................-42-
             12.13.  Indulgences Not Waivers...............................................................................-42-
             12.14.  Entire Agreement; Appendix A, Exhibits and Schedules..................................................-42-
             12.15.  Interpretation........................................................................................-42-
             12.16.  Advertising and Publicity.............................................................................-42-
             12.17.  Governing Law; Consent to Forum.......................................................................-42-
             12.18.   Waivers by Borrower..................................................................................-43-

                                                                ii

                         LIST OF EXHIBITS AND SCHEDULES

Exhibits

Exhibit A         Form of Notice of Conversion/Continuation
Exhibit B         Form of Notice of Borrowing
Exhibit C         Form of Compliance Certificate
Exhibit D         Opinion Letter Requirements
Exhibit E         Form of Letter of Credit Procurement Request

Schedules

Schedule 7.1.1    Borrower's and each Subsidiary's Business Locations
Schedule 7.1.2    Insurance

Schedule 8.1.1    Jurisdictions in which Borrower and each Subsidiary is
                  Authorized to do Business

Schedule  8.1.4   Capital  Structure of Borrower
Schedule  8.1.5   Corporate  Names
Schedule  8.1.12  Surety  Obligations
Schedule  8.1.13  Tax Identification  Numbers of Borrower and  Subsidiaries
Schedule  8.1.15  Patents, Trademarks,  Copyrights  and Licenses
Schedule  8.1.18  Restrictive  Agreements
Schedule  8.1.19  Litigation
Schedule  8.1.21  Capitalized and Operating  Leases
Schedule  8.1.22  Pension Plans
Schedule  8.1.24  Labor  Contracts
Schedule  9.2.5   Permitted Liens
Schedule  9.2.8   Upstream Payments

                                   iv

                           LOAN AND SECURITY AGREEMENT

         THIS LOAN AND SECURITY  AGREEMENT  is made as of May 30, 2001,  between
FLEET CAPITAL CORPORATION (together with its successors and assigns,  "Lender"),
a Rhode Island  corporation with an office at 300 Galleria Parkway,  N.W., Suite
800, Atlanta,  Georgia 30339; and NATIONAL VISION, INC. ("Borrower"),  a Georgia
corporation  with its chief executive  office and principal place of business at
296 Grayson Highway, Lawrenceville,  Georgia 30045-5737.  Capitalized terms used
in this  Agreement  have the  meanings  assigned to them in Appendix A,  General
Definitions.

SECTION 1.        CREDIT  FACILITIES

         Subject  to the terms  and  conditions  of,  and in  reliance  upon the
representations  and  warranties  made in,  this  Agreement  and the other  Loan
Documents,  Lender agrees to the extent and in the manner  hereinafter set forth
to make the Revolver Commitment available to Borrower, as follows:

         1.1.     Revolver Commitment.

                  1.1.1.  Revolver  Loans.  Lender agrees,  to the extent of the
Revolver  Commitment  and upon the terms and subject to the conditions set forth
herein, to make Revolver Loans to Borrower on any Business Day during the period
from the  date  hereof  through  the  Business  Day  before  the last day of the
Original Term or any applicable Renewal Term, which Revolver Loans may be repaid
and reborrowed in accordance  with the provisions of this  Agreement;  provided,
however, that Lender shall have no obligation to Borrower whatsoever to make any
Revolver Loan on or after the Commitment  Termination  Date or if at the time of
the  proposed  funding  thereof  the  aggregate  principal  amount of all of the
Revolver Loans and Pending  Revolver Loans then  outstanding  exceeds,  or would
exceed after the funding of such Revolver Loan, the Borrowing Base. The Revolver
Loans shall bear interest as set forth in Section 2.1 hereof. Each Revolver Loan
shall,  at the option of Borrower,  be made or continued as, or converted  into,
part of one or more Borrowings that, unless specifically  provided herein, shall
consist entirely of Base Rate Loans or LIBOR Loans.

                  1.1.2. Out-of-Formula Loans. If the unpaid balance of Revolver
Loans  outstanding at any time should exceed the Borrowing Base at such time (an
"Out-of-Formula  Condition"),  such Revolver Loans shall nevertheless constitute
Obligations  that are  secured  by the  Collateral  and  entitled  to all of the
benefits of the Loan Documents.  In the event that Lender is willing in its sole
and absolute discretion to make Out-of-Formula  Loans, such Out-of-Formula Loans
shall be payable on demand and shall bear interest as provided in Section 2.1.5.

                  1.1.3.  Use of Proceeds.  The  proceeds of the Revolver  Loans
shall be used by Borrower solely for one or more of the following purposes:  (i)
to satisfy any Debt owing on the Closing Date to Foothill;  (ii) to pay the fees
and  transaction  expenses  associated  with  the  closing  of the  transactions
described  herein;  (iii)  to pay  any of the  Obligations;  and  (iv)  to  make
expenditures   for  other  lawful   corporate   purposes  of  Borrower  and  its
Subsidiaries  to the  extent  such  expenditures  are  not  prohibited  by  this
Agreement or Applicable  Law. In no event may any Revolver Loan proceeds be used
by Borrower to purchase or to carry, or to reduce,  retire or refinance any Debt
incurred to purchase or carry,  any Margin Stock or for any related purpose that
violates the provisions of Regulations T, U or X of the Board of Governors.

                  1.1.4.  Voluntary Reductions of Revolver Commitment.  Borrower
shall have the right to permanently reduce the amount of the Revolver Commitment
at any time  and  from  time to time  upon  written  notice  to  Lender  of such
reduction,  which notice shall  specify the amount of such  reduction,  shall be
irrevocable once given, shall be given at least 5 Business Days prior to the end
of the month and shall be effective  only upon

Lender's receipt thereof.  The effective date of any voluntary  reduction of the
Revolver  Commitment  shall be the first day of a month  following  the month in
which such notice is timely received by Lender.  If on the effective date of any
such  reduction in the Revolver  Commitment  and after giving effect  thereto an
Out-of-Formula  Condition  exists,  then the  provisions  of Section  4.2.1(iii)
hereof shall apply,  except that such repayment  shall be due  immediately  upon
such  effective date without  further notice to or demand upon Borrower.  If the
Revolver  Commitment is reduced to zero,  then such reduction  shall be deemed a
termination  of the Revolver  Commitment  by Borrower  pursuant to Section 5.2.2
hereof. The Revolver Commitment, once reduced, may not be reinstated without the
written consent of Lender.

         1.2.     Reserved.

         1.3.     LC Facility.

                  1.3.1.  Procurement  of Letters  of Credit.  During the period
from the date  hereof to (but  excluding)  the 30th day prior to the last day of
the Original Term or any  applicable  Renewal  Term,  and provided no Default or
Event of Default exists,  Lender agrees to establish the LC Facility pursuant to
which Lender shall procure from Bank one or more Letters of Credit on Borrower's
request  therefor  from  time  to  time,  subject  to the  following  terms  and
conditions:

                    (i) Borrower  acknowledges that Bank's  willingness to issue
         any Letter of Credit is  conditioned  upon Bank's receipt of (A) the LC
         Support  duly  executed  and  delivered  to Bank by  Lender,  (B) an LC
         Application with respect to the requested Letter of Credit and (C) such
         other  instruments and agreements as Bank may  customarily  require for
         the issuance of a letter of credit of equivalent type and amount as the
         requested Letter of Credit.  Lender shall have no obligation to execute
         any LC Support or to join with Borrower in executing an LC  Application
         unless  (x) Lender  receives  an LC Request  from  Borrower  at least 5
         Business  Days  prior to the date on which  Borrower  desires to submit
         such LC  Application  to  Bank  and (y)  each of the LC  Conditions  is
         satisfied on the date of Lender's  receipt of the LC Request and at the
         time of the requested  execution of the LC  Application.  Any Letter of
         Credit  issued on the  Closing  Date  shall be for an amount in Dollars
         that is  greater  than  $250,000.  In no event  shall  Lender  have any
         liability or obligation to Borrower or any  Subsidiary  for any failure
         or refusal by Bank to issue,  for Bank's  delay in issuing,  or for any
         error of Bank in issuing any Letter of Credit.

                   (ii) Letters of Credit may be  requested by Borrower  only if
         they are to be used (a) to support  obligations of Borrower incurred in
         the Ordinary Course of Business of Borrower,  on a standby basis or (b)
         for such  other  purposes  as Lender may  approve  from time to time in
         writing.

                 (iii)  Borrower  shall  comply  with  all  of  the  terms  and
         conditions  imposed  on  Borrower  by  Bank,  whether  such  terms  and
         conditions  are contained in an LC Application or in any agreement with
         respect thereto,  and subject to the rights of Bank,  Lender shall have
         the same rights and remedies  that Bank has under any  agreements  that
         Borrower  may have with Bank in  addition  to any rights  and  remedies
         contained in any of the Loan  Documents.  Borrower  agrees to reimburse
         Bank for any draw under any Letter of Credit as  hereinafter  provided,
         and to pay Bank the  amount of all other  liabilities  and  obligations
         payable  to Bank  under or in  connection  with any  Letter  of  Credit
         immediately  when due,  irrespective of any claim,  setoff,  defense or
         other  right that  Borrower  may have at any time  against  Bank or any
         other  Person.  If Lender  shall pay any amount under a LC Support with
         respect to any Letter of Credit,  then Borrower shall pay to Lender, in
         Dollars on the first  Business Day  following the date on which payment
         was made by Lender under such LC Support (the "Reimbursement Date"), an
         amount  equal  to the  amount  paid by  Lender  under  such LC  Support
         together  with  interest  from and after the  Reimbursement  Date until
         payment in full is made by Borrower at the  Default  Rate for  Revolver
         Loans  constituting Base Rate Loans.  Until Lender has received payment
         from  Borrower in  accordance  with the  foregoing  provisions  of this
         clause  (iii),  Lender,  in  addition  to all of its other  rights  and
         remedies  under this  Agreement,  shall be fully  subrogated to (A) the
         rights and remedies of Bank as issuer of the Letter of

                                      -2-

         Credit under any agreement  with  Borrower  relating to the issuance of
         such  Letter  of  Credit,  and  (B) the  rights  and  remedies  of each
         beneficiary  under such Letter of Credit whose claims against  Borrower
         have been  discharged  with the  proceeds  of such  Letter  of  Credit.
         Whether or not  Borrower  submits  any Notice of  Borrowing  to Lender,
         Borrower  shall be deemed to have  requested from Lender a Borrowing of
         Base Rate Loans in an amount necessary to pay to Lender all amounts due
         Lender on any  Reimbursement  Date and  whether  or not any  Default or
         Event of Default has occurred or exists,  the Revolver  Commitment have
         been  terminated,  the funding of the  Borrowing  deemed  requested  by
         Borrower would result in, or increase the amount of, any Out-of-Formula
         Condition or any of the  conditions  set forth in Section 10 hereof are
         not satisfied.

                  (iv)  Borrower  assumes  all risks of the acts,  omissions  or
         misuses  of any  Letter  of  Credit  by the  beneficiary  thereof.  The
         obligation  of Borrower  to  reimburse  Lender for any payment  made by
         Lender  under  the LC  Support  shall be  absolute,  unconditional  and
         irrevocable and shall be paid without regard to any lack of validity or
         enforceability  of any Letter of Credit,  the  existence  of any claim,
         setoff,  defense or other  right  which  Borrower  may have at any time
         against a beneficiary of any Letter of Credit or improper honor by Bank
         of any draw  request  under a Letter of Credit.  If  presentation  of a
         demand,  draft,  certificate or other document does not comply with the
         terms  of  a  Letter  of  Credit  and  Borrower  contends  that,  as  a
         consequence  of such  noncompliance  it has no  obligation to reimburse
         Bank  for  any  payment  made  with  respect  thereto,  Borrower  shall
         nevertheless  be  obligated  to  reimburse  Lender for any payment made
         under the LC Support with respect to such Letter of Credit, but without
         waiving  any  claim  Borrower  may  have  against  Bank  in  connection
         therewith.  All  disputes  regarding  any  Letter  of  Credit  shall be
         resolved by Borrower directly with Bank.

                  (v) No Letter of Credit  shall be  extended  or amended in any
         respect that is not solely ministerial, unless all of the LC Conditions
         are met as though a new  Letter  of Credit  were  being  requested  and
         issued.

                  (vi) Borrower hereby authorizes and directs Bank to deliver to
         Lender all  instruments,  documents  and other  writings  and  Property
         received by Bank pursuant to or in connection with any Letter of Credit
         and to accept and rely upon Lender's  instructions  and agreements with
         respect to all matters arising in connection with such Letter of Credit
         and the related LC Application.

                  1.3.2.  Cash  Collateral  Account.  If  any  LC  Outstandings,
whether or not then due or payable,  shall for any reason be outstanding  (i) at
any time when an Event of Default has  occurred and is  continuing,  (ii) on any
date that  Availability  is less than zero, or (iii) on or at any time after the
Commitment Termination Date, then Borrower shall, on Lender's request, forthwith
deposit with Lender,  in cash, an amount equal to 105% of the maximum  aggregate
amount of all LC Outstandings then  outstanding.  If Borrower fails to make such
deposit on the first Business Day following Lender's demand therefor, Lender may
advance  such  amount  as  Revolver  Loans  (whether  or not  an  Out-of-Formula
Condition is created  thereby).  Such cash (together  with any interest  accrued
thereon)  shall be held by  Lender  in the Cash  Collateral  Account  and may be
invested, in Lender's discretion,  in Cash Equivalents.  Borrower hereby pledges
to Lender and grants to Lender a security  interest in all Cash  Collateral held
in the Cash Collateral  Account from time to time and all proceeds  thereof,  as
security for the payment of all Obligations, whether or not then due or payable.
From time to time after cash is deposited in the Cash Collateral Account, Lender
may apply  Cash  Collateral  then  held in the Cash  Collateral  Account  to the
payment of any amounts,  in such order as Lender may elect, as shall be or shall
become  due  and  payable  by  Borrower  to  Lender  with   respect  to  the  LC
Outstandings.  Neither  Borrower  nor any other Person  claiming by,  through or
under or on behalf of Borrower  shall have any right to withdraw any of the Cash
Collateral held in the Cash Collateral Account,  including any accrued interest,
provided  that upon  termination  or expiration of all Letters of Credit and the
payment  and  satisfaction  of all of the LC  Obligations,  any Cash  Collateral
remaining in the Cash Collateral Account shall be returned to Borrower unless an
Event of  Default  then  exists  (in which  event  Lender  may  apply  such Cash
Collateral to the payment of any other Obligations outstanding, with any surplus
to be turned over to Borrower).

                                      -3-

                  1.3.3.  Indemnifications.  In addition to any other  indemnity
which  Borrower  may have to Lender  under any of the other Loan  Documents  and
without limiting such other indemnification  provisions,  Borrower hereby agrees
to indemnify and defend each of the Lender  Indemnitees  and to hold each of the
Lender Indemnitees harmless from and against any and all Claims which any of the
Lender  Indemnitees  may  (other  than as the  actual  result of their own gross
negligence  or willful  misconduct)  incur or be  subject  to as a  consequence,
directly or indirectly, of (a) the issuance of, payment or failure to pay or any
performance  or failure  to perform  under any Letter of Credit or LC Support or
(b) any suit,  investigation or proceeding as to which Lender is or may become a
party to as a consequence, directly or indirectly, of the issuance of any Letter
of Credit or any LC Support or the payment or failure to pay thereunder.

SECTION 2.        INTEREST,  FEES  AND  CHARGES

         2.1.     Interest.

                 2.1.1.  Rates of Interest.  Borrower  agrees to pay interest in
respect  of  all  unpaid  principal  amounts  of the  Revolver  Loans  from  the
respective  dates such  principal  amounts are advanced  until paid  (whether at
stated maturity,  on acceleration or otherwise) at a rate per annum equal to the
applicable rate indicated below:

                  (i) for Revolver Loans made or outstanding as Base Rate Loans,
         .75% plus the Base Rate in effect from time to time; or

                  (ii) for Revolver  Loans made or  outstanding  as LIBOR Loans,
         3.0% plus the relevant Adjusted LIBOR Rate for the applicable  Interest
         Period selected by Borrower in conformity with this Agreement.

                  Upon  determining  the  Adjusted  LIBOR Rate for any  Interest
Period  requested by Borrower,  Lender shall promptly notify Borrower thereof by
telephone  and, if so requested by Borrower,  confirm the same in writing.  Such
determination shall, absent manifest error, be final,  conclusive and binding on
all parties  and for all  purposes.  The  applicable  rate of  interest  for all
Revolver Loans (or portions  thereof)  bearing interest based upon the Base Rate
shall be increased or  decreased,  as the case may be, by an amount equal to any
increase or decrease in the Base Rate, with such  adjustments to be effective as
of the  opening  of  business  on the day that any such  change in the Base Rate
becomes  effective.  Interest  on each  Revolver  Loan  shall  accrue  from  and
including the date on which such Revolver Loan is made,  converted to a Revolver
Loan of another Type or continued as a LIBOR Loan to (but excluding) the date of
any repayment thereof; provided,  however, that, if a Revolver Loan is repaid on
the same day made,  one day's  interest shall be paid on such Revolver Loan. The
Base  Rate on the date  hereof  is 7.0% per annum  and,  therefore,  the rate of
interest in effect  hereunder on the date hereof,  expressed in simple  interest
terms,  is 7.75% per annum with  respect to any  portion of the  Revolver  Loans
bearing interest as a Base Rate Loan.

                  2.1.2Conversions and Continuations.
                       -----------------------------

                 (i) Borrower may on any Business Day, subject to the giving of
         a proper Notice of  Conversion/Continuation  as hereinafter  described,
         elect (A) to  continue  all or any part of a LIBOR Loan by  selecting a
         new  Interest  Period  therefor,  to  commence  on the  last day of the
         immediately  preceding  Interest  Period,  or (B) to convert all or any
         part of a  Revolver  Loan of one Type into a  Revolver  Loan of another
         Type;  provided,  however,  that no  outstanding  Revolver Loans may be
         converted into or continued as LIBOR Loans when any Default or Event of
         Default  exists.  Any  conversion of a LIBOR Loan into a Base Rate Loan
         shall be made on the last day of the  Interest  Period  for such  LIBOR
         Loan.

                  (ii) Whenever Borrower desires to convert or continue Revolver
         Loans under Section 2.1.3(i), Borrower shall give Lender written notice
         (or telephonic notice promptly  confirmed in

                                      -4-

         writing)  substantially  in  the  form  of  Exhibit  A,  signed  by  an
         authorized  officer of  Borrower,  at least 1  Business  Day before the
         requested  conversion  date, in the case of a conversion into Base Rate
         Loans, and at least 3 Business Days before the requested  conversion or
         continuation  date, in the case of a conversion into or continuation of
         LIBOR  Loans.  Each  such  Notice of  Conversion/Continuation  shall be
         irrevocable  and shall  specify the aggregate  principal  amount of the
         Revolver  Loans  to  be  converted  or  continued,  the  date  of  such
         conversion or continuation  (which shall be a Business Day) and whether
         the Revolver Loans are being converted into or continued as LIBOR Loans
         (and,  if so, the  duration  of the  Interest  Period to be  applicable
         thereto) or Base Rate Loans.  If, upon the  expiration  of any Interest
         Period in respect of any LIBOR  Loans,  Borrower  shall have  failed to
         deliver the Notice of Conversion/Continuation, Borrower shall be deemed
         to have elected to convert such LIBOR Loans to Base Rate Loans.

                  2.1.3.  Interest  Periods.  In  connection  with the making or
continuation  of, or conversion  into,  each Borrowing of LIBOR Loans,  Borrower
shall select an interest period (each an "Interest  Period") to be applicable to
such LIBOR Loan,  which  interest  period shall  commence on the date such LIBOR
Loan is made and  shall end on a  numerically  corresponding  day in the  first,
third or sixth month thereafter; provided, however, that:

                  (i)  the  initial  Interest  Period  for a  LIBOR  Loan  shall
         commence  on the  date of such  Borrowing  (including  the  date of any
         conversion  from a  Revolver  Loan of another  Type) and each  Interest
         Period  occurring  thereafter  in respect of such  Revolver  Loan shall
         commence  on the  date on  which  the next  preceding  Interest  Period
         expires;

                  (ii) if any Interest  Period would  otherwise  expire on a day
         that is not a Business Day,  such  Interest  Period shall expire on the
         next succeeding  Business Day,  provided that if any Interest Period in
         respect of LIBOR Loans would  otherwise  expire on a day which is not a
         Business Day but is a day of the month after which no further  Business
         Day occurs in such month, such Interest Period shall expire on the next
         preceding Business Day;

                  (iii) any Interest Period that begins on a day for which there
         is no numerically corresponding day in the calendar month at the end of
         such  Interest  Period  shall  expire on the last  Business Day of such
         calendar month;

                  (iv)  no  Interest  Period  with  respect  to any  portion  of
         principal  of a  Revolver  Loan  shall  extend  beyond  a date on which
         Borrower is required  to make a  scheduled  payment of such  portion of
         principal; and

                  (v) no Interest Period shall extend beyond the last day of the
         Original Term or any applicable Renewal Term.

                  2.1.4.  Interest  Rate  Not  Ascertainable.  If  Lender  shall
determine  (which   determination   shall,  absent  manifest  error,  be  final,
conclusive  and binding upon all parties) that on any date for  determining  the
Adjusted LIBOR Rate for any Interest  Period,  by reason of any changes  arising
after  the date of this  Agreement  affecting  the  London  interbank  market or
Lender's or Bank's position in such market, adequate and fair means do not exist
for ascertaining  the applicable  interest rate on the basis provided for in the
definition of Adjusted  LIBOR Rate,  then,  and in any such event,  Lender shall
forthwith  give notice (by  telephone  confirmed in writing) to Borrower of such
determination. Until Lender notifies Borrower that the circumstances giving rise
to the suspension  described herein no longer exist, the obligation of Lender to
make LIBOR Loans  shall be  suspended,  and such  affected  Revolver  Loans then
outstanding shall, at the end of the then applicable  Interest Period or at such
earlier time as may be required by  Applicable  Law,  bear the same  interest as
Base Rate Loans.

                 2.1.5. Default Rate of Interest. Borrower shall pay interest at
a rate per annum equal to the  Default  Rate (i) with  respect to the  principal
amount of any  portion  of the  Obligations  (and,  to the extent  permitted  by
Applicable  Law, all past due interest) that is not paid on the due date thereof
(whether due at stated

                                      -5-

maturity,  on demand,  upon  acceleration or otherwise) until paid in full; (ii)
with respect to the  principal  amount of all of the  Obligations  (and,  to the
extent  permitted by Applicable  Law, all past due interest) upon the earlier to
occur of (x)  Borrower's  receipt of notice of  Lender's  election to charge the
Default Rate based upon the  existence  of any Event of Default,  whether or not
acceleration  or demand for payment of the Obligations has been made, or (y) the
commencement by or against Borrower of an Insolvency Proceeding,  whether or not
under the circumstances described in clauses (i) or (ii) hereof Lender elects to
accelerate the maturity or demand payment of any of the  Obligations;  and (iii)
with respect to the principal amount of any Out-of-Formula Loans, whether or not
demand for  payment  thereof  has been made by  Lender.  To the  fullest  extent
permitted  by  Applicable  Law,  the Default  Rate shall apply and accrue on any
judgment  entered  with  respect  to any of the  Obligations  and to the  unpaid
principal  amount  of  the  Obligations  during  any  Insolvency  Proceeding  of
Borrower.  Borrower  acknowledges  that the cost and expense to Lender attendant
upon the  occurrence  of an Event of  Default  are  difficult  to  ascertain  or
estimate  and  that  the  Default  Rate is a fair  and  reasonable  estimate  to
compensate  Lender  for such  added cost and  expense.  Interest  accrued at the
Default Rate shall be due and payable on demand.

         2.2. Fees. In consideration  of Lender's  establishment of the Revolver
Commitment  in favor of Borrower,  Borrower  hereby  agrees to pay the following
fees:

                  2.2.1.   Closing  Fee.  Borrower shall pay to Lender a closing
fee of $125,000 on  the Closing Date.

                  2.2.2.  Unused  Line Fee.  Borrower  shall pay to Lender a fee
equal to .5% per annum of the amount by which the Average  Revolver Loan Balance
for any Fiscal Quarter (or portion  thereof that this Agreement is in effect) is
less than the Revolver  Commitment,  such fee to be paid on the first day of the
following Fiscal Quarter;  but if the Revolver Commitment is terminated on a day
other than the first day of a Fiscal Quarter,  then any such fee payable for the
Fiscal Quarter in which  termination  shall occur shall be paid on the effective
date of such termination.

                  2.2.3 LC  Facility  Fees.  Borrower  shall  pay (i) to  Lender
through its Treasury and  International  Services Group, 3.0% per annum based on
the  average  amount   available  to  be  drawn  under  all  Letters  of  Credit
outstanding,  payable  monthly,  in arrears,  on the first  Business  Day of the
following  month;  and (ii) to Bank for its own account all normal and customary
charges  associated  with the issuance,  amending,  negotiating,  processing and
administration of Letters of Credit.

                  2.2.4.  Administrative  Fee. Borrower shall pay to Lender each
month (or portion  thereof that this  Agreement is in effect) an  administrative
fee of $2,750,  such fee to be paid on the first day of the following month; but
if the Revolver  Commitment is terminated on a day other than the first day of a
month,  then such fee  payable  for the month in which  termination  shall occur
shall be paid on the effective date of such termination.

                  2.2.5.  Audit and Appraisal  Fees.  Borrower  shall  reimburse
Lender for all  reasonable  costs and expenses  incurred by Lender in connection
with all  audits  and  appraisals  of any  Obligor's  books and  records  or any
Collateral as Lender shall deem appropriate and shall pay to Lender an audit fee
($750 as of the date  hereof)  per day for each day that an employee or agent of
Lender  shall be engaged in an audit or  appraisal  of any  Obligor's  books and
records or the Collateral.

                  2.2.6.  General Provisions.  All fees shall be fully earned by
the identified  recipient  thereof pursuant to the foregoing  provisions of this
Agreement on the due date thereof (and,  in the case of Letters of Credit,  upon
each  issuance,  renewal or extension  of such Letter of Credit) and,  except as
otherwise set forth herein or required by Applicable  Law,  shall not be subject
to rebate,  refund or  proration.  All fees  provided for in Section 2.2 are and
shall be deemed to be for  compensation  for services and are not, and shall not
be deemed  to be,  interest  or any other  charge  for the use,  forbearance  or
detention of money.

                                      -6-

         2.3.  Computation  of  Interest  and Fees.  All fees and other  charges
provided for in this Agreement that are calculated as a per annum  percentage of
any amount and all interest  shall be calculated  daily and shall be computed on
the actual  number of days  elapsed  over a year of 360 days.  For  purposes  of
computing  interest and other  charges  hereunder,  all Payment  Items and other
forms of payment received by Lender shall be deemed applied by Lender on account
of the Obligations  (subject to final payment of any such items) on the Business
Day after  Lender  receives  such items in  immediately  available  funds in the
Payment Account and Lender shall be deemed to have received such Payment Item on
the date specified in Section 4.6 hereof.

         2.4.     Reimbursement of Expenses.

                  2.4.1.   Borrower  shall  reimburse   Lender  for  all  legal,
accounting,  appraisal  and  other  fees and  expenses  incurred  by  Lender  in
connection  with  (i)  the  negotiation  and  preparation  of any  of  the  Loan
Documents,  any amendment or modification  thereto, any waiver of any Default or
Event of Default  thereunder,  or any  restructuring or forbearance with respect
thereto;  (ii) the  administration  of the Loan  Documents and the  transactions
contemplated  thereby,  to the extent that such fees and expenses are  expressly
provided for in this Agreement or any of the other Loan Documents;  (iii) action
taken to perfect or maintain the perfection or priority of any of Lender's Liens
with  respect  to  any of the  Collateral;  (iv)  any  inspection  of or  audits
conducted with respect to Borrower's books and records or any of the Collateral;
(v) any effort to verify, protect, preserve, or restore any of the Collateral or
to collect,  sell,  liquidate or otherwise dispose of or realize upon any of the
Collateral;  (vi) any litigation,  contest,  dispute, suit, proceeding or action
(whether  instituted by or against  Lender,  any Obligor or any other Person) in
any way arising out of or relating to any of the  Collateral  (or the  validity,
perfection  or  priority  of any of  Lender's  Liens  thereon),  any of the Loan
Documents or the validity, allowance or amount of any of the Obligations;  (vii)
the  protection  or  enforcement  or any  rights  or  remedies  of Lender in any
Insolvency  Proceeding;  and (viii) any other  action taken by Lender to enforce
any of the rights or  remedies  of Lender  against  any  Obligor or any  Account
Debtors to enforce collection of any of the Obligations or payments with respect
to any of the Collateral.  All amounts chargeable to Borrower under this Section
2.4 shall  constitute  Obligations that are secured by all of the Collateral and
shall be payable on demand to Lender.  Borrower shall also reimburse  Lender for
reasonable and actual expenses  incurred by Lender in its  administration of any
of the  Collateral to the extent and in the manner  provided in Section 7 hereof
or in any of the other Loan  Documents.  The foregoing  shall be in addition to,
and shall not be  construed  to limit,  any other  provision  of any of the Loan
Documents  regarding  the  reimbursement  by  Borrower  of  costs,  expenses  or
liabilities suffered or incurred by Lender.

                  2.4.2.  If at any time  Lender  shall agree to  indemnify  any
Person (including Bank) against losses or damages that such Person may suffer or
incur in its dealings or  transactions  with  Borrower,  or shall  guarantee any
liability or obligation of Borrower to such Person,  or otherwise  shall provide
assurances of Borrower's  payment or  performance  under any agreement with such
Person,  including  indemnities,  guaranties  or other  assurances of payment or
performance given by Lender with respect to Cash Management Agreements, Interest
Rate Contracts or Letters of Credit,  then the  Contingent  Obligation of Lender
providing  any  such  indemnity,  guaranty  or other  assurance  of  payment  or
performance,  together with any payment made or liability  incurred by Lender in
connection  therewith,  shall  constitute  Obligations  that are  secured by the
Collateral  and  Borrower  shall  repay,  on  demand,  any amount so paid or any
liability incurred by Lender in connection with any such indemnity,  guaranty or
assurance,  except that repayment with respect to any LC Support shall be due on
the Reimbursement Date as provided in Section  1.3.1(iii).  Nothing herein shall
be construed to impose upon Lender any obligation to provide any such indemnity,
guaranty or assurance  except to the extent provided in Section 1.3 hereof.  The
foregoing  agreement  of  Borrower  shall apply  whether or not such  indemnity,
guaranty  or  assurance  is in  writing  or oral and  regardless  of  Borrower's
knowledge  of the  existence  thereof,  and shall be in  addition  to any of the
provision of the Loan Documents  regarding  reimbursement  by Borrower of costs,
expenses or liabilities suffered or incurred by Lender.

         2.5. Bank Charges. Borrower shall pay to Lender, on demand, any and all
fees,  costs or expenses which Lender or any Participant pays to a bank or other
similar  institution  (including  any fees paid by  Lender  to

                                      -7-

any  Participant)  arising out of or in  connection  with (i) the  forwarding to
Borrower  or any other  Person on behalf of  Borrower  by Lender of  proceeds of
Revolver  Loans made by Lender to Borrower  pursuant to this  Agreement and (ii)
the  depositing  for  collection,  by Lender,  of any Payment  Item  received or
delivered to Lender on account of the  Obligations.  Borrower  acknowledges  and
agrees that Lender may charge such costs,  fees and  expenses to Borrower  based
upon Lender's good faith  estimate of such costs,  fees and expenses as they are
incurred by Lender.

         2.6.  Illegality.  Notwithstanding  anything to the contrary  contained
elsewhere in this  Agreement,  if (i) any change in any law or  regulation or in
the  interpretation  thereof  by any  Governmental  Authority  charged  with the
administration  thereof  shall make it unlawful for Lender to make or maintain a
LIBOR Loan or to give  effect to its  obligations  as  contemplated  hereby with
respect to a LIBOR Loan or (ii) at any time Lender determines that the making or
continuance  of any  LIBOR  Loan  has  become  impracticable  as a  result  of a
contingency  occurring after the date hereof which adversely  affects the London
interbank  market or the  position  of Lender in such  market,  then  after such
determination  Lender shall give Borrower  notice thereof and may thereafter (1)
declare that LIBOR Loans will not  thereafter  be made by Lender,  whereupon any
request by a Borrower for a LIBOR Loan shall be deemed a request for a Base Rate
Loan  unless  Lender's  declaration  shall  be  subsequently   withdrawn  (which
declaration shall be withdrawn promptly after the cessation of the circumstances
described  in clause (i) or (ii) above);  and (2) require  that all  outstanding
LIBOR  Loans  made  by  Lender  be  converted  to Base  Rate  Loans,  under  the
circumstances  of  clause  (i) or (ii) of this  Section  2.6  insofar  as Lender
determines the  continuance of LIBOR Loans to be  impracticable,  in which event
all such LIBOR Loans shall be  automatically  converted to Base Rate Loans as of
the date of Borrower's receipt of the aforesaid notice from Lender.

         2.7.  Increased Costs. If, by reason of (a) the introduction  after the
date  hereof of or any  change  (including  any change by way of  imposition  or
increase of  Statutory  Reserves  or other  reserve  requirements)  in or in the
interpretation  of any  law  or  regulation,  or (b)  the  compliance  with  any
guideline or request from any central  bank or other  Governmental  Authority or
quasi-Governmental   Authority   exercising  control  over  banks  or  financial
institutions generally (whether or not having the force of law):

                  (i)  Lender  shall be  subject  after  the date  hereof to any
         Taxes,  duty or other  charge  with  respect  to any LIBOR  Loan or its
         obligation  to make LIBOR Loans,  or a change shall result in the basis
         of taxation of payment to Lender of the principal of or interest on its
         LIBOR Loans or its  obligation  to make LIBOR Loans (except for changes
         in the rate of Tax on the  overall  net  income  or gross  receipts  of
         Lender  imposed  by  the  jurisdiction  in  which  Lender's   principal
         executive office is located); or

                  (ii)  any  reserve  (including  any  imposed  by the  Board of
         Governors),  special deposits or similar requirement against assets of,
         deposits  with or for the account  of, or credit  extended  by,  Lender
         shall be imposed or deemed applicable or any other condition  affecting
         its LIBOR Loans or its  obligation to make LIBOR Loans shall be imposed
         on Lender or the London interbank market;

and as a result  thereof  there  shall be any  increase in the cost to Lender of
agreeing to make or making,  funding or  maintaining  LIBOR Loans (except to the
extent already included in the  determination  of the applicable  Adjusted LIBOR
Rate for LIBOR Loans),  or there shall be a reduction in the amount  received or
receivable  by  Lender,  then  Lender  shall,  promptly  after  determining  the
existence or amount of any such  increased  costs for which Lender seeks payment
hereunder,  give Borrower  notice  thereof and Borrower shall from time to time,
upon written  notice from and demand by Lender,  pay to Lender,  within five (5)
Business Days after the date specified in such notice and demand,  an additional
amount   sufficient  to  indemnify   Lender  against  such  increased  costs.  A
certificate  as to the amount of such increased  cost,  submitted to Borrower by
Lender, shall be final, conclusive and binding for all purposes, absent manifest
error.

         If, at any time, because of the circumstances  described hereinabove in
this  Section  2.7 or any  other  circumstances  arising  after the date of this
Agreement  affecting Lender or the London interbank market or

                                      -8-

Lender's  or Bank's  position  in such  market,  the  Adjusted  LIBOR  Rate,  as
determined by Lender,  will not adequately and fairly reflect the cost to Lender
of funding LIBOR Loans, then, and in any such event:

                  (i) Lender shall forthwith give notice (by telephone confirmed
         in writing) to Borrower of such event;

                  (ii)  Borrower's  right to request and Lender's  obligation to
         make LIBOR Loans shall be immediately suspended and Borrower's right to
         continue  a LIBOR  Loan as such  beyond  the then  applicable  Interest
         Period shall also be  suspended,  until each  condition  giving rise to
         such suspension no longer exists; and

                  (iii)  Lender  shall  make a Base  Rate  Loan  as  part of the
         requested Borrowing of LIBOR Loans, which Base Rate Loan shall, for all
         purposes, be considered part of such Borrowing.

         For purposes of this Section  2.7,  all  references  to Lender shall be
deemed to include any bank holding company or bank parent of Lender.

         2.8. Capital Adequacy.  If Lender determines that after the date hereof
(a) the adoption of any Applicable Law regarding capital  requirements for banks
or bank holding  companies or the  subsidiaries  thereof,  (b) any change in the
interpretation  or administration of any such Applicable Law by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration  thereof, or (c) compliance by Lender or its holding company with
any request or directive  of any such  Governmental  Authority,  central bank or
comparable agency regarding capital adequacy (whether or not having the force of
law), has the effect of reducing the return on Lender's capital to a level below
that which Lender could have achieved  (taking into  consideration  Lender's and
its holding  company's  policies  with respect to capital  adequacy  immediately
before such adoption,  change or compliance  and assuming that Lender's  capital
was fully utilized prior to such  adoption,  change or compliance)  but for such
adoption,  change or compliance as a consequence of Lender's  commitment to make
the  Revolver  Loans  pursuant  hereto  by any  amount  deemed  by  Lender to be
material:

                  (i) Lender shall promptly give notice of its  determination of
         such occurrence to Borrower; and

                  (ii) Borrower  shall pay to Lender as an  additional  fee from
         time to time,  within 5  Business  Days after  demand by  Lender,  such
         amount as Lender  certifies to be the amount  reasonably  calculated to
         compensate Lender for such reduction.

         A certificate of Lender  claiming  entitlement to  compensation  as set
forth  above  will  be  conclusive  in  the  absence  of  manifest  error.  Such
certificate  will set forth the  nature of the  occurrence  giving  rise to such
compensation,  the additional  amount or amounts to be paid to Lender (including
the basis for Lender's  determination  of such amount),  and the method by which
such amounts were  determined.  In determining  such amount,  Lender may use any
reasonable  averaging and attribution  method.  For purposes of this Section 2.8
all references to Lender shall be deemed to include any bank holding  company or
bank parent of Lender.

         2.9. Funding Losses.  If for any reason (other than due to a default by
Lender or as a result of Lender's  refusal to honor a LIBOR Loan  request due to
circumstances described in Section 2.6 or Section 2.7 hereof) a Borrowing of, or
conversion  to or  continuation  of,  LIBOR  Loans  does  not  occur on the date
specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation
(whether or not  withdrawn),  or if any  repayment  (including  any  conversions
pursuant to Section  2.1.2  hereof) of any of its LIBOR  Loans  occurs on a date
that is not the last day of an Interest Period applicable thereto, or if for any
reason Borrower defaults in its obligation to repay LIBOR Loans when required by
the terms of this Agreement,  then Borrower shall pay to Lender,  within 10 days
after  Lender's  demand  therefor,  an amount  (if a positive  number)  computed
pursuant to the following formula:

                                      -9-

                  L =      (R - T) x P x D
                           ---------------
                           360
                  where
                   L =     amount payable
                   R =     interest rate applicable to the LIBOR Loan unborrowed
                           or prepaid
                   T =      effective  interest  rate per  annum at which  any
                           readily  marketable bond or other  obligations of the
                           United States,  selected at Lender's sole discretion,
                           maturing  on or  nearest  the  last  day of the  then
                           applicable  or  requested  Interest  Period  for such
                           LIBOR Loan and in  approximately  the same  amount as
                           such LIBOR Loan,  can be  purchased  by Lender on the
                           day of such payment of principal or failure to borrow
                    P =    the amount of  principal  paid or the amount of the
                           LIBOR Loan  requested  or to have been  continued  or
                           converted
                    D =    the number of days remaining in the Interest Period
                           as of the date of such  prepayment  or the  number of
                           days in the requested Interest Period

Borrower  shall pay such  amount  upon  presentation  by  Lender of a  statement
setting forth the amount and Lender's calculation thereof pursuant hereto, which
statement shall be deemed true and correct absent  manifest error.  For purposes
of this  Section 2.9,  all  references  to Lender shall be deemed to include any
bank holding company or bank parent of Lender.

         2.10. Maximum Interest. Regardless of any provision contained in any of
the Loan Documents, in no contingency or event whatsoever shall the aggregate of
all amounts that are contracted  for,  charged or received by Lender pursuant to
the terms of this  Agreement  or any of the other  Loan  Documents  and that are
deemed interest under Applicable Law exceed the highest rate  permissible  under
any  Applicable  Law. No  agreements,  conditions,  provisions  or  stipulations
contained in this  Agreement or any of the other Loan  Documents or the exercise
by Lender of the right to  accelerate  the payment or the maturity of all or any
portion of the Obligations,  or the exercise of any option whatsoever  contained
in any of the  Loan  Documents,  or the  prepayment  by  Borrower  of any of the
Obligations,  or the  occurrence of any  contingency  whatsoever,  shall entitle
Lender to charge or receive  in any event,  interest  or any  charges,  amounts,
premiums or fees deemed  interest by  Applicable  Law (such  interest,  charges,
amounts,  premiums and fees referred to herein  collectively  as  "Interest") in
excess of the Maximum  Rate and in no event shall  Borrower be  obligated to pay
Interest  exceeding  such  Maximum  Rate,  and  all  agreements,  conditions  or
stipulations,  if any, which may in any event or contingency  whatsoever operate
to bind,  obligate or compel Borrower to pay Interest exceeding the Maximum Rate
shall be without  binding  force or effect,  at law or in equity,  to the extent
only of the excess of  Interest  over such  Maximum  Rate.  If any  Interest  is
charged  or  received  in  excess  of  the  Maximum  Rate  ("Excess"),  Borrower
acknowledges  and stipulates that any such charge or receipt shall be the result
of an accident  and bona fide error,  and such Excess,  to the extent  received,
shall be applied first to reduce the principal  Obligations and the balance,  if
any,  returned to  Borrower,  it being the intent of the  parties  hereto not to
enter into a usurious or otherwise illegal relationship. The right to accelerate
the maturity of any of the Obligations  does not include the right to accelerate
any Interest  that has not otherwise  accrued on the date of such  acceleration,
and Lender does not intend to collect any unearned  Interest in the event of any
such acceleration.  Borrower  recognizes that, with fluctuations in the rates of
interest set forth in Section 2.1.1 of this Agreement and the Maximum Rate, such
an  unintentional  result could  inadvertently  occur. All monies paid to Lender
hereunder  or under any of the other Loan  Documents,  whether at maturity or by
prepayment,  shall be subject to any rebate of  unearned  Interest as and to the
extent required by Applicable Law. By the execution of this Agreement,  Borrower
covenants  that (i) the  credit or return of any  Excess  shall  constitute  the
acceptance  by  Borrower of such  Excess,  and (ii)  Borrower  shall not seek or
pursue any other remedy,  legal or equitable,  against Lender, based in whole or
in part upon  contracting  for,  charging or receiving any Interest in excess of
the Maximum Rate. For the purpose of  determining  whether or not any Excess has
been  contracted  for,  charged or received by Lender,  all Interest at any time
contracted for,  charged or received from Borrower in connection with any of the
Loan Documents  shall, to the extent  permitted by Applicable Law, be amortized,
prorated,  allocated and spread in equal parts  throughout  the full term of the
Obligations.  Borrower and Lender

                                      -10-

shall, to the maximum extent  permitted under  Applicable Law, (i)  characterize
any non-principal  payment as an expense, fee or premium rather than as Interest
and (ii) exclude voluntary  prepayments and the effects thereof.  The provisions
of this Section 2.10 shall be deemed to be incorporated into every Loan Document
(whether or not any provision of this Section is referred to therein).  All such
Loan Documents and communications  relating to any Interest owed by Borrower and
all figures set forth  therein  shall,  for the sole  purpose of  computing  the
extent of Obligations, be automatically recomputed by Borrower, and by any court
considering the same, to give effect to the  adjustments or credits  required by
this Section 2.10.

SECTION 3.        LOAN  ADMINISTRATION

         3.1.  Manner of  Borrowing  and  Funding  Loans.  Borrowings  under the
Revolver Commitment established pursuant to Section 1.1

hereof shall be made and funded as follows:

                  3.1.1.   Notice of Borrowing.
                           -------------------

                  (i)  Whenever  Borrower  desires  to  make a  Borrowing  under
         Section 1 of this  Agreement  (other than a Borrowing  resulting from a
         conversion or continuation  pursuant to Section 2.1.2),  Borrower shall
         give  Lender  prior  written  notice  (or  telephonic  notice  promptly
         confirmed  in  writing)  of  such  Borrowing   request  (a  "Notice  of
         Borrowing"), which shall be in the form of Exhibit B annexed hereto and
         signed by an authorized  officer of Borrower.  Such Notice of Borrowing
         shall be given by  Borrower  no later than 11:00 a.m.  at the office of
         Lender  designated  by Lender from time to time (a) on the Business Day
         of the requested  funding date of such  Borrowing,  in the case of Base
         Rate  Loans,  and (b) at least 4 Business  Days prior to the  requested
         funding date of such  Borrowing,  in the case of LIBOR  Loans.  Notices
         received after 11:00 a.m. shall be deemed received on the next Business
         Day. The  Revolver  Loans made by Lender on the Closing Date shall each
         be in excess  of  $250,000  and  shall be made as Base  Rate  Loans and
         thereafter  may be made or  continued  as or  converted  into Base Rate
         Loans or LIBOR Loans.  Each Notice of Borrowing (or  telephonic  notice
         thereof)  shall be  irrevocable  and shall  specify  (a) the  principal
         amount of the  Borrowing,  (b) the date of Borrowing  (which shall be a
         Business  Day),  (c) whether the  Borrowing  is to consist of Base Rate
         Loans or LIBOR Loans,  (d) in the case of LIBOR Loans,  the duration of
         the Interest  Period to be applicable  thereto,  and (e) the account of
         Borrower to which the proceeds of such  Borrowing  are to be disbursed.
         Borrower  may not  request  any LIBOR  Loans if a  Default  or Event of
         Default exists.

                  (ii) Unless payment is otherwise timely made by Borrower,  the
         becoming due of any amount  required to be paid under this Agreement or
         any of  the  other  Loan  Documents  with  respect  to the  Obligations
         (whether  as  principal,  accrued  interest,  fees or  other  charges),
         including  the  repayment  of  any LC  Outstandings,  shall  be  deemed
         irrevocably to be a request (without any requirement for the submission
         of a Notice of Borrowing) for Revolver Loans on the due date of, and in
         an aggregate amount required to pay, such Obligations, and the proceeds
         of such Revolver Loans may be disbursed by way of direct payment of the
         relevant  Obligation and shall bear interest as Base Rate Loans. Lender
         shall have no obligation to Borrower to honor any deemed  request for a
         Revolver  Loan  after  the  Commitment  Termination  Date  or  when  an
         Out-of-Formula  Condition exists or would result therefrom, or when any
         condition  precedent  set forth in Section 10 hereof is not  satisfied,
         but may do so in its discretion and without regard to the existence of,
         and  without  being  deemed to have  waived,  any  Default  or Event of
         Default and  regardless  of whether such  Revolver Loan is funded after
         the Commitment Termination Date.

                  (iii)  If   Borrower   elects  to   establish   a   Controlled
         Disbursement  Account  with  Bank or any  Affiliate  of Bank,  then the
         presentation  for payment by Bank of any check or other item of payment
         drawn on the Controlled  Disbursement  Account at a time when there are
         insufficient  funds in such account to cover such check shall be deemed
         irrevocably to be a request (without any requirement for the submission
         of a  Notice  of  Borrowing)  for  Revolver  Loans  on the date of such
         presentation  and in any

                                      -11-

         amount  equal  to the  aggregate  amount  of the  items  presented  for
         payment,  and the proceeds of such  Revolver  Loans may be disbursed to
         the  Controlled  Disbursement  Account and shall bear  interest as Base
         Rate Loans. Lender shall have no obligation to honor any deemed request
         for a Revolver Loan after the  Commitment  Termination  Date or when an
         Out-of-Formula  Condition  exists or would result therefrom or when any
         condition  precedent in Section 10 hereof is not satisfied,  but may do
         so in its  discretion  and  without  regard to the  existence  of,  and
         without  being deemed to have  waived,  any Default or Event of Default
         and  regardless  of  whether  such  Revolver  Loan is funded  after the
         Commitment Termination Date.

                  (iv)  As an  accommodation  to  Borrower,  Lender  may  permit
         telephonic  requests  for  Borrowings  and  electronic  transmittal  of
         instructions,  authorizations,  agreements  or  reports  to  Lender  by
         Borrower;  provided,  however,  that  Borrower  shall confirm each such
         telephonic  request for a  Borrowing  of LIBOR Loans by delivery of the
         required  Notice  of  Borrowing  to Lender  by  facsimile  transmission
         promptly,  but in no event later than 5:00 p.m. on the same day. Lender
         shall have no liability to Borrower for any loss or damage  suffered by
         Borrower as a result of Lender's honoring of any requests, execution of
         any  instructions,  authorizations  or  agreements  or  reliance on any
         reports   communicated  to  it  telephonically  or  electronically  and
         purporting  to have been sent to Lender by  Borrower  and Lender  shall
         have no duty to  verify  the  origin of any such  communication  or the
         identity or authority of the Person sending it.

                 3.1.2. Disbursement Authorization.  Borrower hereby irrevocably
authorizes  Lender to disburse the proceeds of each Revolver Loan requested,  or
deemed to be requested  pursuant to Section 3.1.1, as follows:  (i) the proceeds
of each Revolver Loan  requested  under Section  3.1.1(i)  shall be disbursed by
Lender in  accordance  with the terms of the  written  disbursement  letter from
Borrower  in the  case  of the  initial  Borrowing  and,  in the  case  of  each
subsequent  Borrowing,  by wire  transfer to such bank  account as may be agreed
upon by  Borrower  and Lender  from time to time or  elsewhere  if pursuant to a
written  direction  from  Borrower;  and (ii) the proceeds of each Revolver Loan
requested under Section  3.1.1(ii) shall be disbursed by Lender by way of direct
payment of the relevant interest or other Obligations.

         3.2.     Special Provisions Governing LIBOR Loans.

                  3.2.1.   Number of LIBOR Loans.  In no event may the number of
LIBOR Loans outstanding at any time to exceed 3.

                  3.2.2.  Minimum Amounts. Each election of LIBOR Loans pursuant
to Section  3.1.1(i),  and each  continuation  of or  conversion  to LIBOR Loans
pursuant to Section 2.1.2 hereof, shall be in a minimum amount of $1,000,000 and
integral multiples of $100,000 in excess of that amount.

                  3.2.3.  LIBOR  Lending  Office.  Lender's  initial  LIBOR
Lending  Office is set forth  opposite its name on the  signature  pages hereof.
Lender  shall  have the right at any time and from time to time to  designate  a
different office of itself or of any Affiliate as Lender's LIBOR Lending Office,
and to transfer any  outstanding  LIBOR Loans to such LIBOR Lending  Office.  No
such  designation  or  transfer  shall  result in any  liability  on the part of
Borrower for increased costs or expenses  resulting solely from such designation
or transfer  (except any such transfer that is made by Lender).  Increased costs
for expenses  resulting from a change in Applicable Law occurring  subsequent to
any such  designation or transfer shall be deemed not to result solely from such
designation or transfer.

                  3.2.4.  Conditions to LIBOR Loans.  In no event shall Borrower
be entitled to request that a Revolver Loan be made or continued as or converted
into a LIBOR Loan unless at the time of the  delivery by Borrower to Lender of a
Notice of  Borrowing or Notice of  Conversion/Continuation  relative to any such
request each of the LIBOR Loan Conditions is satisfied.

                                      -12-

         3.3. All Revolver  Loans to  Constitute  One  Obligation.  The Revolver
Loans shall constitute one general  Obligation of Borrower and (unless otherwise
expressly  provided in any Security  Document) shall be secured by Lender's Lien
upon all of the Collateral.

SECTION 4.        PAYMENTS

         4.1.   General  Payment   Provisions.   All  payments   (including  all
prepayments) of principal of and interest on the Revolver Loans, LC Outstandings
and other  Obligations  that are  payable  to Lender  shall be made to Lender in
Dollars  without any offset or  counterclaim  and free and clear of (and without
deduction  for) any present or future Taxes,  and, with respect to payments made
other than by  application  of balances in the Payment  Account,  in immediately
available  funds not later  than 12:00  noon on the due date (and  payment  made
after  such  time on the due date to be  deemed  to have  been  made on the next
succeeding Business Day).

         4.2.     Repayment of Revolver Loans.

                  4.2.1. Payment of Principal. The outstanding principal amounts
with respect to the Revolver Loans shall be repaid as follows:

                  (i)  Any  portion  of the  Revolver  Loans  consisting  of the
         principal  amount  of Base  Rate  Loans  shall be paid by  Borrower  to
         Lender, unless timely converted to a LIBOR Loan in accordance with this
         Agreement,  immediately  upon (a) each receipt by Lender or Borrower of
         any  proceeds  of any  Accounts  or  Inventory,  to the  extent of such
         proceeds, and (b) the Commitment Termination Date.

                  (ii) Any  portion  of the  Revolver  Loans  consisting  of the
         principal  amount of LIBOR  Loans  shall be paid by  Borrower to Lender
         unless  converted  to a Base Rate Loan or  continued as a LIBOR Loan in
         accordance with the terms of this Agreement,  immediately  upon (a) the
         last  day of  the  Interest  Period  applicable  thereto  and  (b)  the
         Commitment  Termination  Date. In no event shall Borrower be authorized
         to make a  voluntary  prepayment  with  respect  to any  Revolver  Loan
         outstanding  as a LIBOR  Loan  prior to the  last  day of the  Interest
         Period  applicable  thereto  unless (x) otherwise  agreed in writing by
         Lender or Borrower is otherwise expressly authorized or required by any
         other provision of this Agreement to pay any LIBOR Loan  outstanding on
         a date  other  than  the  last day of the  Interest  Period  applicable
         thereto,  and  (y)  Borrower  pays  to  Lender  concurrently  with  any
         prepayment  of a LIBOR Loan,  any amount due Lender  under  Section 2.9
         hereof as a consequence of such prepayment.

                  (iii)  Notwithstanding  anything  to  the  contrary  contained
         elsewhere  in this  Agreement,  if an  Out-of-Formula  Condition  shall
         exist, Borrower shall, on the sooner to occur of Lender's demand or the
         first  Business  Day after  Borrower  has  obtained  knowledge  of such
         Out-of-Formula Condition, repay the outstanding Revolver Loans that are
         Base Rate Loans in an amount  sufficient to reduce the aggregate unpaid
         principal  amount  of all  Revolver  Loans by an  amount  equal to such
         excess;  and, if such payment of Base Rate Loans is not  sufficient  to
         eliminate the Out-of-Formula Condition, then Borrower shall immediately
         either (a)  deposit  with  Lender for  application  to any  outstanding
         Revolver  Loans bearing  interest as LIBOR Loans as the same become due
         and payable  (whether at the end of the applicable  Interest Periods or
         on the  Commitment  Termination  Date) cash in an amount  sufficient to
         eliminate such Out-of-Formula  Condition,  to be held by Lender as Cash
         Collateral,  subject to Lender's Lien thereon and rights of offset with
         respect  thereto,  or (b) pay the Revolver  Loans  outstanding as LIBOR
         Loans  to  the  extent  necessary  to  eliminate  such   Out-of-Formula
         Condition  and also  pay to  Lender  any and all  amounts  required  by
         Section  2.9 hereof to be paid by reason of the  prepayment  of a LIBOR
         Loan prior to the last day of the Interest Period applicable thereto.

                  4.2.2.  Payment of Interest.  Interest accrued on the Revolver
Loans shall be due and payable on (i) the first  calendar day of each month (for
the immediately preceding month),  computed through the last calendar day of the
preceding month,  with respect to any Revolver Loan (whether a Base Rate Loan or
LIBOR

                                      -13-

Loan) and (ii) the last day of the applicable  Interest  Period in the case of a
LIBOR Loan.  Accrued  interest  shall also be paid by Borrower on the Commitment
Termination Date. With respect to any Base Rate Loan converted into a LIBOR Loan
pursuant to Section 2.1.2 on a day when interest  would not otherwise  have been
payable  with  respect to such Base Rate Loan,  accrued  interest to the date of
such  conversion on the amount of such Base Rate Loan so converted shall be paid
on the conversion date.

         4.3.     Reserved.

         4.4.  Payment of Other  Obligations.  The  balance  of the  Obligations
requiring the payment of money,  including the LC Outstandings and Extraordinary
Expenses  incurred by Lender,  shall be repaid by Borrower to Lender as and when
provided in the Loan Documents, or, if no date of payment is otherwise specified
in the Loan Documents, on demand.

         4.5.  Marshaling;   Payments  Set  Aside.  Lender  shall  be  under  no
obligation  to marshal any assets in favor of  Borrower or any other  Obligor or
against  or in  payment of any or all of the  Obligations.  To the  extent  that
Borrower  makes a payment  or  payments  or  Lender  receives  payment  from the
proceeds of any Collateral or exercises its right of setoff, and such payment or
payments or the proceeds of such enforcement or setoff (or any part thereof) are
subsequently invalidated,  declared to be fraudulent or preferential,  set aside
or required to be repaid to a trustee, receiver or any other Person, then to the
extent  of any  loss by  Lender,  the  Obligations  or part  thereof  originally
intended to be satisfied,  and all Liens, rights and remedies therefor, shall be
revived and  continued  in full force and effect as if such  payment or proceeds
had not  been  made or  received  and any such  enforcement  or  setoff  had not
occurred.  The provisions of the immediately  preceding sentence of this Section
4.5 shall survive any termination of the Revolver Commitment and payment in full
of the Obligations.

         4.6. Application of Payments and Collateral Proceeds. All Payment Items
received by Lender by 12:00 noon,  Hartford,  Connecticut  time, on any Business
Day shall be deemed  received on that Business  Day. All Payment Items  received
after 12:00 noon,  Hartford,  Connecticut  time,  on any  Business  Day shall be
deemed  received on the following  Business  Day.  Except to the extent that the
manner of application  to the  Obligations of payments or proceeds of Collateral
is  expressly   governed  by  other  provisions  of  this  Agreement,   Borrower
irrevocably  waives the right to direct the  application of any and all payments
and Collateral  proceeds at any time or times hereafter  received by Lender from
or on behalf of Borrower, and Borrower does hereby irrevocably agree that Lender
shall have the continuing  exclusive right to apply and reapply any and all such
payments  and  Collateral  proceeds  received at any time or times  hereafter by
Lender or its agent against the  Obligations,  in such manner as Lender may deem
advisable,  notwithstanding  any  entry  by  Lender  upon any of its  books  and
records.  If as the result of Lender's  collection  of proceeds of Accounts  and
other  Collateral as authorized by Section 7.2.6 a credit balance  exists,  such
credit  balance  shall not accrue  interest in favor of  Borrower,  but shall be
available to Borrower at any time or times for so long as no Default or Event of
Default exists.

         4.7.     Loan Account; Account Stated.

                  4.7.1  Loan Account.  Lender shall establish an account on its
books (the "Loan  Account") and shall enter all Revolver  Loans as debits to the
Loan  Account and shall also record in the Loan  Account  all  payments  made by
Borrower on any  Obligations  and all proceeds of  Collateral  which are finally
paid to Lender, and may record therein, in accordance with customary  accounting
practice,  other  debits and  credits,  including  interest  and all charges and
expenses properly chargeable to Borrower.

                  4.7.2  Statements of Account.  Lender will account to Borrower
monthly with a statement of Revolver  Loans,  charges and payments made pursuant
to this Agreement, and such accounting rendered by Lender shall be deemed final,
binding and  conclusive  upon Borrower  unless Lender is notified by Borrower in
writing to the contrary  within 30 days after the date each accounting is deemed
to have been sent pursuant to Section 12.10. Such notice shall only be deemed an
objection to those items specifically objected to therein.

                                      -14-

         4.8.  Gross Up for Taxes.  If Borrower  shall be required by Applicable
Law to withhold or deduct any Taxes from or in respect of any sum payable  under
this Agreement or any of the other Loan Documents, (a) the sum payable to Lender
shall be  increased  as may be  necessary  so that,  after  making all  required
withholding or deductions,  Lender  receives an amount equal to the sum it would
have  received had no such  withholding  or deductions  been made,  (b) Borrower
shall make such  withholding or deductions,  and (c) Borrower shall pay the full
amount  withheld  or  deducted  to the  relevant  taxation  authority  or  other
authority in accordance with Applicable Law.

SECTION 5.        TERM AND TERMINATION OF COMMITMENT

         5.1. Original Term of Revolver Commitment. Subject to Lender's right to
cease making Revolver Loans and other  extensions of credit to Borrower when any
Default  or  Event  of  Default  exists  or  upon  termination  of the  Revolver
Commitment as provided in Section 5.2 hereof,  the Revolver  Commitment shall be
in effect  for a period of 3 years  from the date  hereof  through  the close of
business on May 30, 2004 (the "Original Term"),  and shall  automatically  renew
for one-year periods  thereafter (each a "Renewal Term"),  unless  terminated as
provided in Section 5.2 hereof.

         5.2.     Termination.

                  5.2.1.   Termination  by  Lender.  Lender  may  terminate  the
Revolver Commitment upon at least 90 days prior written notice to Borrower as of
the last day of the  Original  Term or any  applicable  Renewal Term and without
notice upon or after the occurrence and during the  continuation  of an Event of
Default;  provided,  however,  that the Revolver  Commitment shall automatically
terminate as provided in Section 11.2 hereof.

                  5.2.2.  Termination  by Borrower.  Upon at least 30 days prior
written  notice to Lender,  Borrower may, at its option,  terminate the Revolver
Commitment;  provided,  however,  no  such  termination  by  Borrower  shall  be
effective  until  Borrower has satisfied all of the  Obligations.  Any notice of
termination  given by Borrower  shall be  irrevocable  unless  Lender  otherwise
agrees in writing.  Borrower may elect to terminate  the Revolver  Commitment in
its  entirety  only.  No  section of this  Agreement  or Type of  Revolver  Loan
available hereunder or Commitment may be terminated by Borrower singly.

                  5.2.3.   Termination   Charges.   On  the  effective  date  of
termination of the Revolver Commitment pursuant to Section 5.2.2, Borrower shall
pay to Lender (in addition to the then outstanding principal,  accrued interest,
fees and other  charges  owing under the terms of this  Agreement and any of the
other Loan Documents), as liquidated damages for the loss of the bargain and not
as a penalty,  an amount equal to 1.5% of the Average Revolver Loan Balance from
the Closing Date to the effective  date of  termination  if  termination  occurs
during the first Loan Year;  1% of the  Average  Revolver  Loan  Balance for the
365-day  period  immediately  preceding the  effective  date of  termination  if
termination  occurs during the second Loan Year; and .5% of the Average Revolver
Loan Balance for the 365-day period immediately  preceding the effective date of
termination if termination  occurs during the third Loan Year. In no event shall
any termination charge be payable if the effective date of termination occurs on
the last day of the Original Term or in any Renewal Term.

                  5.2.4.  Effect  of  Termination.  On  the  effective  date  of
termination  of the Revolver  Commitment  by Lender or by  Borrower,  all of the
Obligations  shall be  immediately  due and  payable  and  Lender  shall have no
obligation to make any Revolver  Loans or to procure any Letters of Credit.  All
undertakings,  agreements, covenants, warranties and representations of Borrower
contained in the Loan Documents  shall survive any such  termination  and Lender
shall  retain its Liens in the  Collateral  and all of its  rights and  remedies
under the Loan Documents  notwithstanding  such  termination  until Borrower has
satisfied  the  Obligations  to Lender,  in full,  and Lender has received  from
Obligors a full release of Claims in form and substance  satisfactory to Lender.
For purposes of this Agreement, the Obligations shall not be deemed to have been
satisfied  until all  Obligations  for the  payment  of money  have been paid to
Lender in same day funds and all  Obligations  that are at the time in  question
contingent  (including,   all  LC  Outstandings  that  exist  by  virtue  of  an
outstanding  Letter of

                                      -15-

Credit) have been fully cash  collateralized in favor and to the satisfaction of
Lender or Lender has  received as  beneficiary  a direct pay letter of credit in
form and from an issuing  bank  acceptable  to Lender and  providing  for direct
payment to Lender of all such  contingent  Obligations  at the time they  become
fixed (including reimbursement of all sums paid by Lender under any LC Support).
Notwithstanding  the  payment in full of the  Obligations,  Lender  shall not be
required to terminate its security  interests in any of the  Collateral  unless,
with respect to any loss or damage  Lender may incur as a result of the dishonor
or return of any Payment  Items  applied to the  Obligations,  Lender shall have
received  either (i) a written  agreement,  executed by Borrower  and any Person
deemed  financially  responsible  by Lender  whose  loans or other  advances  to
Borrower are used in whole or in part to satisfy the  Obligations,  indemnifying
Lender from any such loss or damage; or (ii) such monetary reserves and Liens on
the Collateral for such period of time as Lender, in its reasonable  discretion,
may  deem  necessary  to  protect  Lender  from  any such  loss or  damage.  The
provisions  of  Sections  2.4,  2.6,  4.5,  4.8 and this  Section  5.2.4 and all
obligations of Borrower to indemnify Lender pursuant to this Agreement or any of
the other Loan  Documents  shall in all events  survive any  termination  of the
Revolver Commitment.

SECTION 6.        COLLATERAL

         6.1.  Grant of  Security  Interest.  To secure the prompt  payment  and
performance  of all of the  Obligations,  Borrower  hereby  grants  to  Lender a
continuing  security  interest  in and Lien upon all of the  following  personal
Property  of  Borrower,  whether now owned or  existing  or  hereafter  created,
acquired or arising and wheresoever located:

                  (i)  all  Accounts  Collateral,   including  all  Health  Care
         Insurance Receivables;

                  (ii) all Goods, including all Inventory and all Equipment;

                  (iii) all Instruments;

                  (iv) all Chattel Paper,  including all Tangible  Chattel Paper
         and all Electronic Chattel Paper;

                  (v) all Documents;

                  (vi)  all   General   Intangibles,   including   all   Payment
         Intangibles and all Software;

                  (vii) all Deposit  Accounts  (other  than the  Administrative,
         Priority and Convenience Claims Reserve;

                  (viii) all  Investment  Property  (but  excluding  any portion
         thereof that  constitutes  Margin  Stock,  unless  otherwise  expressly
         provided  in  any  Security  Documents,   or  that  constitutes  Equity
         Interests in any Managed Care Subsidiary);

                  (ix) all Letter of Credit Rights;

                  (x) all  monies now or at any time or times  hereafter  in the
         possession  or under the control of Lender or a bailee or  Affiliate of
         Lender, including any Cash Collateral in the Cash Collateral Account;

                  (xi)   all   accessions   to,   substitutions   for   and  all
         replacements,  products and cash and  non-cash  proceeds of (i) through
         (x) above,  including proceeds of and unearned premiums with respect to
         insurance  policies  insuring any of the  Collateral and claims against
         any  Person  for loss  of,  damage  to,  or  destruction  of any of the
         Collateral; and

                  (xii) all books and records (including  customer lists, files,
         correspondence,   tapes,  computer  programs,   print-outs,  and  other
         computer  materials  and records) of Borrower  pertaining to any of (i)
         through (xi) above.

                                      -16-

         6.2. Lien on Deposit Accounts.  As additional  security for the payment
and  performance  of  the  Obligations,  Borrower  hereby  grants  to  Lender  a
continuing security interest in and Lien upon, and hereby  collaterally  assigns
to Lender,  all of Borrower's  right,  title and interest in and to each Deposit
Account of Borrower  (other than the  Administrative,  Priority and  Convenience
Claims Reserve) and in and to any deposits or other sums at any time credited to
each such Deposit Account (other than amounts deposited into the Administrative,
Priority and  Convenience  Claims  Reserve as and to the extent  required by the
Plans of  Reorganization),  including  any sums in any  blocked  account  or any
special  lockbox  account and in the  accounts in which sums are  deposited.  In
connection with the foregoing,  Borrower hereby authorizes and directs each such
bank or other  depository  to pay or deliver to Lender upon its  written  demand
therefor made at any time upon the occurrence and during the  continuation of an
Event of Default  and without  further  notice to Borrower  (such  notice  being
hereby  expressly  waived),  all  balances in each Deposit  Account  (other than
amounts  deposited  into the  Administrative,  Priority and  Convenience  Claims
Reserve as and to the extent required by the Plans of Reorganization) maintained
by  Borrower  with such  depository  for  application  to the  Obligations  then
outstanding,  and the rights given Lender in this  Section  shall be  cumulative
with and in  addition  to Lender's  other  rights and  remedies in regard to the
foregoing  Property as  proceeds  of  Collateral.  Borrower  hereby  irrevocably
appoints  Lender as  Borrower's  attorney-in-fact  to  collect  any and all such
balances  to the extent  any such  payment is not made to Lender by such bank or
other depository after demand thereon is made by Lender pursuant hereto.

         6.3.  Collateral  Assignment  of Leases.  To further  secure the prompt
payment and performance of the  Obligations,  Borrower hereby grants,  transfers
and assigns to Lender,  and hereby  grants to Lender a security  interest in and
Lien upon all of Borrower's  right,  title and interest in, to and under all now
or  hereafter  existing  leases of real  Property to which  Borrower is a party,
whether as lessor or lessee,  and all  extensions,  renewals  and  modifications
thereof,  provided that such security  interest and Lien shall not attach to any
lease if and for so long as such  attachment  would  result  in a  violation  or
breach of such lease.

         6.4. Other Collateral. In addition to the items of Property referred to
in  Section  6.1  above,  the  Obligations  shall  also be  secured  by the Cash
Collateral to the extent  provided herein and all of the other items of Property
from time to time described in any of the Security Documents as security for any
of the Obligations.

         6.5. No Assumption of Liability. The security interest granted pursuant
to this  Agreement is granted as security only and shall not subject  Lender to,
or in any way alter or modify,  any  obligation  of liability  of Borrower  with
respect to or arising out of the Collateral.

         6.6. Lien  Perfection;  Further  Assurances.  Promptly  after  Lender's
request therefor,  Borrower shall execute or cause to be executed and deliver to
Lender such instruments,  assignments,  title certificates or other documents as
are necessary under the UCC or other Applicable Law (including any motor vehicle
certificate  of title act) to perfect (or continue the  perfection  of) Lender's
Lien upon the Collateral and shall take such other action as may be requested by
Lender to give effect to or carry out the intent and purposes of this Agreement.
Unless  prohibited by  Applicable  Law,  Borrower  hereby  authorizes  Lender to
execute and file any such financing  statement on Borrower's behalf. The parties
agree that a carbon,  photographic or other reproduction of this Agreement shall
be  sufficient  as a  financing  statement  and may be filed in any  appropriate
office in lieu thereof.

                                      -17-

SECTION 7.        COLLATERAL ADMINISTRATION

         7.1.     General Provisions.

                  7.1.1.   Location  of   Collateral.   All  tangible  items  of
Collateral,  other  than  Inventory  in  transit,  shall at all times be kept by
Borrower  at one or more of the  business  locations  of  Borrower  set forth in
Schedule  7.1.1  hereto  and shall  not be moved  therefrom,  without  the prior
written  approval  of Lender,  except that in the absence of an Event of Default
and  acceleration  of the maturity of the  Obligations in  consequence  thereof,
Borrower  may (i) make  sales or other  dispositions  of any  Collateral  to the
extent  authorized by Section 9.2.10 hereof and (ii) move Inventory or Equipment
or any record  relating to any  Collateral  to a location  in the United  States
other than those shown on Schedule  7.1.1  hereto so long as Borrower  has given
Lender at least 15 days prior  written  notice of such new location and prior to
moving any  Inventory or Equipment  to such  location  Borrower has executed and
delivered  to  Lender  UCC-1  financing  statements  and any  other  appropriate
documentation  to perfect or continue  the  perfection  of  Lender's  Liens with
respect to such Inventory or Equipment. Notwithstanding anything to the contrary
contained in this Agreement,  Borrower shall not be permitted to keep,  store or
otherwise  maintain  any  Collateral  at any  location  (including  any location
described in Section  7.1.1) unless (i) Borrower is the owner of such  location,
(ii)  Borrower  leases  such  location  and uses its best  efforts  to cause the
landlord  to  execute  in  favor of  Lender  a  Landlord  Waiver,  or (iii)  the
Collateral  consists  of  Inventory  placed  with a  warehouseman,  bailee  or a
processor,  Lender has received from such  warehouseman,  bailee or processor an
acceptable Lien waiver  agreement and an appropriate  UCC-1 financing  statement
has been filed with the appropriate  Governmental  Authority in the jurisdiction
where such warehouseman,  bailee or processor is located in order to perfect, or
to maintain the  uninterrupted  perfection of Lender's security interest in such
Inventory.

                  7.1.2.   Insurance  of  Collateral;   Condemnation   Proceeds.
Borrower  shall  maintain and pay for insurance  upon all  Collateral,  wherever
located, covering casualty, hazard, public liability, theft, malicious mischief,
and such other risks in such  amounts and with such  insurance  companies as are
reasonably  satisfactory  to Lender.  Schedule 7.1.2  describes all insurance of
Borrower in effect on the date  hereof.  All  proceeds  payable  under each such
policy in excess of $200,000  shall be payable to Lender for  application to the
Obligations.  Borrower  shall deliver the originals or certified  copies of such
policies  to  Lender  with  satisfactory   lender's  loss  payable  endorsements
reasonably  satisfactory to Lender naming Lender as sole loss payee, assignee or
additional  insured,  as  appropriate.  Each policy of insurance or  endorsement
shall contain a clause requiring the insurer to give not less than 30 days prior
written  notice to Lender in the event of  cancellation  of the  policy  for any
reason  whatsoever and a clause specifying that the interest of Lender shall not
be impaired or invalidated by any act or neglect of Borrower or the owner of the
Property or by the  occupation of the premises for purposes more  hazardous than
are  permitted  by said  policy.  If Borrower  fails to provide and pay for such
insurance,  Lender may, at its option, but shall not be required to, procure the
same and  charge  Borrower  therefor.  Borrower  agrees to  deliver  to  Lender,
promptly as rendered,  true copies of all reports made in any reporting forms to
insurance companies.  For so long as no Event of Default exists,  Borrower shall
have the right to settle,  adjust and  compromise  any claim with respect to any
insurance  maintained by Borrower provided that all proceeds thereof are applied
in the manner specified in this Agreement, and Lender agrees promptly to provide
any necessary  endorsement to any checks or drafts issued in payment of any such
claim.  At any time  that an Event  of  Default  exists,  only  Lender  shall be
authorized to settle,  adjust and compromise such claims,  Lender shall have all
rights and remedies  with respect to such  policies of insurance as are provided
for in this Agreement and the other Loan Documents.

                 7.1.3.  Protection of  Collateral.  All expenses of protecting,
storing,   warehousing,   insuring,  handling,   maintaining  and  shipping  any
Collateral,  all Taxes imposed under any Applicable Law on any of the Collateral
or in respect of the sale thereof, and all other payments required to be made by
Lender to any Person to realize upon any  Collateral  shall be borne and paid by
Borrower.  Lender  shall  not be  liable  or  responsible  in any  way  for  the
safekeeping of any of the  Collateral or for any loss or damage thereto  (except
for reasonable  care in the custody  thereof while any Collateral is in Lender's
actual possession) or for any diminution in the value

                                      -18-

thereof,  or for any act or default  of any  warehouseman,  carrier,  forwarding
agency,  or other Person  whomsoever,  but the same shall be at Borrower's  sole
risk.

                 7.1.4.    Defense of Title to Collateral. Borrower shall at all
times defend  Borrower's  title to the  Collateral  and Lender's  Liens  therein
against all Persons and all claims and demands  whatsoever  other than Permitted
Liens.

         7.2.     Administration of Accounts.

                 7.2.1.  Records and Schedules of Accounts.  Borrower shall keep
accurate and complete  records of its Accounts and all payments and  collections
thereon  and  shall  submit to Lender  on such  periodic  basis as Lender  shall
reasonably  request a sales and collections  report for the preceding period, in
form satisfactory to Lender.  Borrower shall also provide to Lender on or before
the 30th day of each  month,  a detailed  aged trial  balance of all  Healthcare
Receivables  existing as of the last day of the  preceding  month  ("Schedule of
Accounts"),  and,  upon  Lender's  request  therefor,  a copy of all  documents,
including  repayment  histories  and  present  status  reports  relating  to the
Healthcare  Receivables  so  scheduled  and such other  matters and  information
relating  to the status of then  existing  Accounts as Lender  shall  reasonably
request. In addition,  if Healthcare  Receivables in an aggregate face amount in
excess of $100,000 cease to be Eligible  Accounts in whole or in part,  Borrower
shall  notify  Lender of such  occurrence  promptly  (and in any event  within 2
Business Days) after Borrower's having obtained knowledge of such occurrence and
the  Borrowing  Base shall  thereupon  be adjusted to reflect  such  occurrence.
Promptly  upon request by Lender,  Borrower  shall  deliver to Lender  copies of
invoices or invoice registers related to all of its Healthcare Receivables.

                 7.2.2. Discounts,  Disputes and Returns. If Borrower grants any
discounts,  allowances  or credits that are not shown on the face of the invoice
for the Account  involved,  Borrower shall report such discounts,  allowances or
credits,  as the case may be, to Lender as part of the next required Schedule of
Accounts.  If any  amounts  due and owing in excess of  $100,000  are in dispute
between  Borrower and any Account  Debtor,  Borrower  shall provide  Lender with
written  notice  thereof  at the  time of  submission  of the next  Schedule  of
Accounts,  explaining in detail the reason for the dispute or return, all claims
related thereto and the amount in  controversy.  At any time an Event of Default
exists,  Lender shall have the right to settle or adjust all disputes and claims
directly with the Account Debtor and to compromise the amount or extend the time
for payment of any Accounts  comprising a part of the Collateral upon such terms
and  conditions as Lender may deem  advisable,  and to charge the  deficiencies,
costs and expenses thereof, including attorneys' fees, to Borrower.

                 7.2.3.  Taxes. If an Account of Borrower  includes a charge for
any Taxes payable to any Governmental  Authority,  Lender is authorized,  in its
sole  discretion,  to pay the amount thereof to the proper taxing  authority for
the account of Borrower and to charge Borrower therefor; provided, however, that
Lender shall not be liable for any Taxes that may be due by Borrower.

                 7.2.4.  Account  Verification.  Whether  or not a Default or an
Event of Default  exists,  Lender shall have the right, at any time, in the name
of Lender, any designee of Lender or Borrower, to verify the validity, amount or
any other  matter  relating to any  Accounts  of  Borrower  by mail,  telephone,
telegraph or otherwise.  Borrower shall cooperate fully with Lender in an effort
to facilitate and promptly conclude any such verification process.

                 7.2.5. Maintenance of Dominion Account. Borrower shall maintain
a Dominion Account pursuant to a lockbox or other  arrangement with Bank that is
acceptable  to Lender.  Borrower  shall issue to Bank an  irrevocable  letter of
instruction  directing  Bank to deposit all payments or other  remittances  with
respect to Accounts  received in the lockbox  relating to the  Dominion  Account
into the  Dominion  Account.  Borrower  shall  enter  into  agreements,  in form
satisfactory  to Lender,  with Bank  pursuant  to which  Bank shall  immediately
transfer to the Payment  Account all monies  deposited to the Dominion  Account.
All funds  deposited in the Dominion  Account shall be subject to Lender's Lien.
Borrower  shall  obtain  the  agreement  (in  favor of and in

                                      -19-

form and  content  satisfactory  to Lender)  by Bank to waive any offset  rights
against the funds deposited into the Dominion  Account,  except offset rights in
respect of charges  incurred  in the  administration  of the  Dominion  Account.
Lender  does  not  assume  any  responsibility  to  Borrower  for  such  lockbox
arrangements or Dominion Account, including any claim of accord and satisfaction
or  release  with  respect  to  deposits  accepted  by  Bank  thereunder.  It is
contemplated  by Borrower  and Lender  that,  subsequent  to the  Closing  Date,
Borrower will transfer all of its Deposit Accounts and system of cash management
from existing financial institutions to Bank.

                 7.2.6.  Collection of Accounts and Proceeds of  Collateral.  To
expedite  collection,  Borrower  shall  endeavor  in the first  instance to make
collection of  Borrower's  Accounts for Lender.  All Payment  Items  received by
Borrower in respect of its  Accounts,  together  with the  proceeds of any other
Collateral,  shall be held by  Borrower  as  trustee  of an  express  trust  for
Lender's  benefit and  Borrower  shall  immediately  deposit same in kind in the
Dominion Account, except that (i) Borrower may deposit Payment Items received in
its retail  stores in such stores'  local  Deposit  Accounts,  provided that all
amounts in the local Deposit  Accounts of such stores are transferred on a daily
basis to a Dominion  Account and (ii) unless a Default or Event of Default  then
exists, Borrower may retain $500 for each of its retail store locations.  Lender
retains  the right at all times that a Default or an Event of Default  exists to
notify  Account  Debtors of Borrower  that Accounts have been assigned to Lender
and to collect  Accounts  directly in its own name and to charge to Borrower the
collection  costs  and  expenses  incurred  by  Lender,   including   reasonable
attorneys' fees.

         7.3.     Administration of Inventory.

                 7.3.1.  Records and Reports of Inventory.  Borrower  shall keep
accurate  and  complete  records  of its  Inventory  and  shall  furnish  Lender
inventory reports  respecting such Inventory in form and detail  satisfactory to
Lender at such times as Lender may request,  but, so long as no Default or Event
of Default exists,  no more frequently than once each month.  Borrower shall, at
its own expense,  conduct a physical  inventory no less frequently than annually
and periodic cycle counts  consistent with Borrower's  historical  practices and
shall provide to Lender a report based on each such physical  inventory promptly
thereafter,  together with such supporting  information as Lender shall request.
Lender may  participate in and observe each physical  count or inventory,  which
participation  shall be at Borrower's  expense any time that an Event of Default
exists.

                 7.3.2.  Returns of Inventory.  Borrower shall not return any of
its Inventory to a supplier or vendor thereof, or any other Person,  whether for
cash, credit against future purchases or then existing  payables,  or otherwise,
unless (i) such return is in the  Ordinary  Course of  Business of Borrower  and
such  Person,  (ii) no  Default  or  Event of  Default  exists  or would  result
therefrom,   (iii)  the  return  of  such   Inventory  will  not  result  in  an
Out-of-Formula Condition and (iv)any payments received by Borrower in connection
with any such return are promptly  turned over to Lender for  application to the
Obligations.

                 7.3.3. Acquisition of Inventory.  Borrower shall not acquire or
accept any Inventory on consignment or approval and will use its best efforts to
ensure that all Inventory  that is produced in the United States of America will
be produced in accordance with the FLSA.

         7.4.     Administration of Equipment.

                 7.4.1. Records and Schedules of Equipment.  Borrower shall keep
accurate records itemizing and describing the kind, type, quality,  quantity and
cost of its Equipment and all dispositions made in accordance with Section 7.4.2
hereof,  and  shall  furnish  Lender  with a  current  schedule  containing  the
foregoing information on at least an annual basis and more often if requested by
Lender.  Promptly  after request  therefor by Lender,  Borrower shall deliver to
Lender any and all evidence of ownership, if any, of any of the Equipment.

                 7.4.2. Dispositions of Equipment. Borrower will not sell, lease
or  otherwise  dispose of or transfer  any of the  Equipment or any part thereof
without  the prior  written  consent  of  Lender;  provided,  however,  that the
foregoing  restriction  shall not  apply,  for so long as no Default or Event of
Default exists,  to (i)

                                      -20-

dispositions  of  Equipment  which,  in the  aggregate  during  any  consecutive
12-month  period,  has a fair market value or book value,  whichever is more, of
$50,000 or less, in the case of Equipment  that is situated at Borrower's  place
of business in Lawrenceville,  Georgia or St. Cloud,  Minnesota (or any location
to which either of such locations of Borrower is transferred after prior written
approval by Lender as provided in Section 7.1.1  hereof),  and $250,000 or less,
in the case of Equipment  located at Host Locations or other retail locations of
Borrower,  provided that in each case all Net Proceeds thereof (other than those
used to  replace  such  Equipment  within 90 days after  such  disposition)  are
remitted to Lender for application to the Obligations,  or (ii)  replacements of
Equipment that is substantially worn, damaged or obsolete with Equipment of like
kind,  function and value,  provided  that the  replacement  Equipment  shall be
acquired prior to or concurrently  with any disposition of the Equipment that is
to be replaced, the replacement Equipment shall be free and clear of Liens other
than Permitted  Liens that are not Purchase Money Liens,  or (iii)  subleases of
Equipment  to  independent  eyecare  professionals  in the  Ordinary  Course  of
Business.

                  7.4.3  Condition  of  Equipment.  The  Equipment  is  in  good
operating  condition and repair,  and all necessary  replacements of and repairs
thereto  shall  be  made so that  the  value  and  operating  efficiency  of the
Equipment shall be maintained and preserved,  reasonable wear and tear excepted.
Borrower shall ensure that the Equipment shall be mechanically  and structurally
sound,  capable  of  performing  the  functions  for  which  the  Equipment  was
originally  designed,  in  accordance  with  the  manufacturer's  published  and
recommended  specifications.  Borrower  will not permit any of the  Equipment to
become  affixed to any real  Property  leased to  Borrower  so that an  interest
arises therein under the real estate laws of the applicable  jurisdiction unless
the landlord of such real  Property has executed a landlord  waiver or leasehold
mortgage in favor of and in form  acceptable  to Lender,  and Borrower  will not
permit any of the Equipment to become an accession to any personal Property that
is subject to a Lien unless the Lien is a Permitted Lien.

         7.5. Borrowing Base Certificates.  On the Closing Date and on or before
the 30th day after the end of each month after the Closing Date,  Borrower shall
deliver  to Lender a  Borrowing  Base  Certificate  prepared  as of the close of
business  of the  previous  period,  and at  such  other  times  as  Lender  may
reasonably  request.  All  calculations  of  Availability in connection with the
preparation  of any  Borrowing  Base  Certificate  shall  originally  be made by
Borrower and certified by a Senior Officer to Lender, provided that Lender shall
have the right to review and adjust,  in the exercise of its  reasonable  credit
judgment,  any such  calculation  (i) to  reflect  its  reasonable  estimate  of
declines  in value of any of the  Collateral  described  therein and (ii) to the
extent that such  calculation  is not in accordance  with this Agreement or does
not accurately reflect the amount of the Availability Reserve.

SECTION 8.        REPRESENTATIONS AND WARRANTIES

         8.1. General Representations and Warranties.  To induce Lender to enter
into this  Agreement  and to make  available the Revolver  Commitment,  Borrower
warrants and represents to Lender that:

                 8.1.1. Organization and Qualification. Each of Borrower and its
Subsidiaries is an entity duly organized,  validly existing and in good standing
under the laws of the jurisdiction of its organization. Each of Borrower and its
Subsidiaries  is duly  qualified and is authorized to do business and is in good
standing  as a  foreign  corporation  in each  state or  jurisdiction  listed on
Schedule  8.1.1  hereto and in all other states and  jurisdictions  in which the
failure of Borrower or any of such  Subsidiaries to be so qualified would have a
Material Adverse Effect.

                 8.1.2. Corporate Power and Authority.  Each of Borrower and its
Subsidiaries  is duly authorized and empowered to enter into,  execute,  deliver
and perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of the
other Loan  Documents have been duly  authorized by all necessary  action and do
not and will not (i)  require  any  consent or approval of any of the holders of
the Equity Interests of Borrower or any Subsidiary;  (ii) contravene  Borrower's
or any Subsidiary's Organization Documents;  (iii) violate, or cause Borrower or
any  Subsidiary to be in default  under,  any provision of any  Applicable  Law,
order,  writ,  judgment,  injunction,  decree,  determination or

                                      -21-

award in effect having applicability to Borrower or any Subsidiary;  (iv) result
in a breach of or  constitute  a default  under any  indenture or loan or credit
agreement or any other  agreement,  lease or instrument to which Borrower or any
Subsidiary is a party or by which it or its Properties may be bound or affected;
or (v) result in, or require, the creation or imposition of any Lien (other than
Permitted  Liens)  upon or with  respect to any of the  Properties  now owned or
hereafter acquired by Borrower or any Subsidiary.

                 8.1.3.  Legally Enforceable  Agreement.  This Agreement is, and
each of the other Loan Documents when delivered  under this Agreement will be, a
legal,  valid and binding  obligation  of each of Borrower and its  Subsidiaries
signatories  thereto  enforceable against them in accordance with the respective
terms of such  Loan  Documents,  except  as the  enforceability  thereof  may be
limited by bankruptcy,  insolvency or other similar laws of general  application
affecting the enforcement of creditors' rights.

                 8.1.4. Capital Structure. As of the date hereof, Schedule 8.1.4
hereto  states (i) the correct  name of each  Subsidiary,  its  jurisdiction  of
organization  and the  percentage of its Equity  Interests  having voting powers
owned by each Person, (ii) the name of each of Borrower's  corporate  Affiliates
and the nature of the  affiliation and (iii) the number of authorized and issued
Equity Interests (and treasury shares) of Borrower and each Subsidiary. Borrower
has good title to all of the shares it purports  to own of the Equity  Interests
of each of its Subsidiaries,  free and clear in each case of any Lien other than
Permitted  Liens.  All such Equity Interests have been duly issued and are fully
paid and non-assessable.  Since the date of the financial statements of Borrower
referred to in Section 8.1.9 hereof,  Borrower has not made, or obligated itself
to make, any  Distribution.  Except as provided in the Plans of  Reorganization,
there are no  outstanding  options to  purchase,  or any rights or  warrants  to
subscribe for, or any  commitments or agreements to issue or sell, or any Equity
Interests or obligations  convertible  into, or any powers of attorney  relating
to, shares of the capital stock of Borrower or any of its  Subsidiaries.  Except
as set forth on Schedule 8.1.4 hereto,  there are no  outstanding  agreements or
instruments binding upon the holders of any Borrower's Equity Interests relating
to the ownership of its Equity Interests.

                 8.1.5.  Corporate Names. During the 5-year period preceding the
date of this Agreement, neither Borrower nor any Subsidiary has been known as or
used any  corporate,  fictitious  or trade names except those listed on Schedule
8.1.5 hereto.  Except as set forth on Schedule 8.1.5,  neither  Borrower nor any
Subsidiary has been the surviving  corporation of a merger or  consolidation  or
acquired all or substantially  all of the assets of any Person during the 5-year
period preceding the date of this Agreement.

                 8.1.6.  Business  Locations;  Agent for Process. As of the date
hereof,  the chief executive office and other places of business of Borrower and
each Subsidiary are as listed on Schedule 7.1.1 hereto. During the 5-year period
preceding the date of this  Agreement,  neither  Borrower nor any Subsidiary has
had an office,  place of business or agent for service of process  other than as
listed on Schedule 7.1.1.  Except as shown on Schedule 7.1.1 on the date hereof,
no Inventory of Borrower or any Subsidiary is stored with a bailee, warehouseman
or similar Person, nor is any Inventory consigned to any Person.

                 8.1.7.  Title to  Properties;  Priority of Liens.  Borrower and
each Subsidiary has good and marketable title to and fee simple ownership of, or
valid  and  subsisting  leasehold  or  license  interests  in,  all of its  real
Property, and good title to all of its personal Property, including all Property
reflected in the financial  statements referred to in Section 8.1.9 or delivered
pursuant  to  Section  9.1.3,  in each case  free and clear of all Liens  except
Permitted Liens. Borrower has paid or discharged, and has caused each Subsidiary
to pay and discharge,  all lawful claims which,  if unpaid,  might become a Lien
against any  Properties of Borrower or such  Subsidiary  that is not a Permitted
Lien.  The Liens  granted to Lender  pursuant  to this  Agreement  and the other
Security  Documents are first priority  Liens,  subject only to those  Permitted
Liens  which are  expressly  permitted  by the terms of this  Agreement  to have
priority over the Liens of Lender.

                 8.1.8.   Accounts.   Lender  may  rely,  in  determining  which
Healthcare   Receivables   are  Eligible   Accounts,   on  all   statements  and
representations  made by Borrower  with  respect to any  Healthcare  Receivable.

                                      -22-

Unless  otherwise  indicated in writing to Lender,  with respect to each Account
that is Healthcare Receivable, Borrower warrants that:

                  (i) all  information  relating to such  Account  that has been
         delivered to Lender is true and correct in all material respects.  With
         respect  to each  such  Account  that has  been  billed,  Borrower  has
         delivered  to the Third  Party  Payor all  requested  supporting  claim
         documents  and all  information  set  forth in the bill and  supporting
         claim documents is true, complete and correct in all material respects;

                  (ii) such  Account  is (a)  payable in an amount not less than
         its Net  Realizable  Value  by the  Third  Party  Payor  identified  by
         Borrower as the payor  thereon and is  recognized as such by such Third
         Party Payor and (b) the legally  enforceable  obligation  of such Third
         Party  Payor.  There is no payor on such  Account  other than the Third
         Party Payor  identified  by Borrower as the payor  primarily  liable on
         such Account;

                  (iii) no such  Account (a) requires the approval of any Person
         for the grant of a Lien in such  Account to Lender  hereunder or (b) is
         past the statutory  limit for collection  applicable to the Third Party
         Payor;

                  (iv) the services  constituting  the basis of such Account (a)
         were  fully  covered  by the  insurance  policy or  Provider  Agreement
         obligating  the  applicable  Third  Party  Payor to make  payment  with
         respect to such Account (and Borrower has verified such  determination)
         and (b) the patient  received such  services in the ordinary  course of
         such Borrower's business;

                  (v) the fees and charges  charged by Borrower for the services
         constituting  the basis for such Account were when rendered  consistent
         with (a) the usual,  customary and reasonable  fees charged by Borrower
         or (b)  negotiated fee contracts  with, or imposed fee schedules  from,
         the applicable Third Party Payor;

                  (vi) the Third  Party  Payor with  respect to such  Account is
         located in the United  States and is (a) a Person which in the Ordinary
         Course of Business  agrees to pay for healthcare  services  received by
         individuals,  including  commercial  insurance companies and non-profit
         insurance  companies  issuing  health  or  other  types  of  insurance,
         employers or unions,  self-insured healthcare organizations,  preferred
         provider   organizations  and  health  insured,   prepaid   maintenance
         organizations,  (b) a state, an agency or instrumentality of a state or
         a  political  subdivision  of a state or (c) the  United  States  or an
         agency or instrumentality of the United States;

                  (vii) the insurance policy or Provider Agreement  obligating a
         Third Party Payor to make payment (a) does not prohibit the transfer of
         such  payment  obligation  from the customer to Borrower and (b) is and
         was in full force and effect and  applicable to the patient at the time
         the services constituting the basis for such Account were performed;

                  (viii) if requested by Lender, a copy of each related Provider
         Agreement  to which  Borrower is a party has been  delivered  to Lender
         unless any such  delivery is  prohibited  by the terms of the  Provider
         Agreement or by Applicable Law;

                  (ix) if such Account has not been billed,  the services giving
         rise  to  such  Account  have  been  properly  recorded  in  Borrower's
         accounting system;

                  (x) such  Account  has been (or if  unbilled,  will be) billed
         after the date the  services or goods  giving rise to such Account were
         rendered or provided, as applicable,  and each bill contains an express
         direction  requiring  the Third  Party  Payor to remit  payments to the
         Dominion Account; and

                                      -23-

                  (xi) neither such Account nor the related  Provider  Agreement
         contravenes any Applicable Laws applicable  thereto and Borrower is not
         in violation of any such Applicable Law.

                 8.1.9. Financial Statements;  Fiscal Year. The Consolidated and
consolidating  balance  sheets of  Borrower  and such  other  Persons  described
therein  (including  the  accounts  of all  Subsidiaries  of  Borrower  for  the
respective  periods  during  which  a  Subsidiary  relationship  existed)  as of
December  30,  2000,   and  the  related   statements  of  income,   changes  in
stockholder's equity, and changes in financial position for the periods ended on
such dates,  have been prepared in accordance  with GAAP, and present fairly the
financial  positions  of Borrower and such Persons at such dates and the results
of Borrower's  operations for such periods.  Since December 30, 2000,  there has
been no material  adverse  change in the condition,  financial or otherwise,  of
Borrower and such other Persons as shown on the Consolidated balance sheet as of
such date except for the losses  suffered  during  such  period by Midwest,  New
West, FNL and their respective  subsidiaries and non-recurring  charges relating
to the Chapter 11 Cases, none of which transactions or charges,  individually or
in the aggregate, has been materially adverse.

                  8.1.10. Full Disclosure.  The financial statements referred to
in Section  8.1.9 hereof do not contain any untrue  statement of a material fact
and neither this Agreement nor any other written statement contains or omits any
material fact necessary to make the statements  contained  herein or therein not
materially  misleading.  There is no fact or  circumstances  in existence on the
date hereof which  Borrower has failed to disclose to Lender in writing that may
reasonably be expected to have a Material Adverse Effect.

                  8.1.11.  Solvent Financial  Condition.  After giving effect to
the  consummation  of the  Plans of  Reorganization,  each of  Borrower  and its
Subsidiaries is now Solvent and, after giving effect to the Revolver Loans to be
made  hereunder,  the Letters of Credit to be issued in connection  herewith and
the  consummation  of the other  transactions  described in the Loan  Documents,
Borrower and each of its Subsidiaries will be Solvent.

                  8.1.12.  Surety  Obligations.  Except as set forth on Schedule
8.1.12 hereto on the date hereof,  neither  Borrower nor any of its Subsidiaries
is obligated as surety or  indemnitor  under any surety or similar bond or other
contract issued or entered into any agreement to assure payment,  performance or
completion of performance of any undertaking or obligation of any Person.

                  8.1.13.   Taxes.   The  FEIN  of  each  of  Borrower  and  the
Subsidiaries is as shown on Schedule 8.1.13 hereto. Borrower and each Subsidiary
has filed all  federal,  state and local tax  returns  and other  reports  it is
required by law to file and has paid, or made  provision for the payment of, all
Taxes  upon it, its  income  and  Properties  as and when such Taxes are due and
payable, except to the extent being Properly Contested.  The provision for Taxes
on the books of Borrower  and each  Subsidiary  are  adequate  for all years not
closed by applicable statutes, and for its current Fiscal Year.

                  8.1.14.  Brokers.  There are  no claims  against  Borrower for
brokerage  commissions,  finder's fees or investment  banking fees in connection
with the  transactions  contemplated  by this Agreement or any of the other Loan
Documents.

                  8.1.15.  Intellectual Property.  Borrower and its Subsidiaries
each owns or has the lawful right to use all Intellectual Property necessary for
the present and planned future conduct of its business without any conflict with
the rights of others;  there is no objection  to, or pending (or, to  Borrower's
knowledge,  threatened)  Intellectual Property Claim with respect to, Borrower's
or any Subsidiary's right to use any such Intellectual  Property and Borrower is
not aware of any grounds for challenge or objection thereto;  and, except as may
be disclosed on Schedule  8.1.15,  neither  Borrower nor any Subsidiary pays any
royalty  or  other  compensation  to  any  Person  for  the  right  to  use  any
Intellectual Property. All such patents, trademarks,  service marks, tradenames,
copyrights,  licenses  and other  similar  rights are listed on Schedule  8.1.15
hereto,  to the  extent  they are  registered  under any  Applicable  Law or are
otherwise material to Borrower's or any Subsidiary's business.

                                      -24-

                  8.1.16.  Governmental  Approvals.  Each  of  Borrower  and its
Subsidiaries  has, and is in good  standing  with  respect to, all  Governmental
Approvals  necessary  to  continue  to conduct its  business  as  heretofore  or
proposed to be conducted by it and to own or lease and operate its Properties as
now  owned or  leased  by it,  except  where  the  failure  to do so  could  not
reasonably be expected to have a Material Adverse Effect.

                  8.1.17.  Compliance  with  Laws.  Each  of  Borrower  and  its
Subsidiaries has duly complied with, and its Properties, business operations and
leaseholds  are in compliance in all material  respects  with, the provisions of
all  Applicable  Law  (except to the  extent  that any such  noncompliance  with
Applicable  Law could not  reasonably  be  expected  to have a Material  Adverse
Effect),  including  all  Healthcare  Laws.  No Inventory  has been  produced in
violation of the FLSA. Without limiting the generality of the foregoing,  except
to the extent that any failure of Borrower or any of its  Subsidiaries to comply
with an  Applicable  Law could not  reasonably  be  expected  to have a Material
Adverse Effect:

                  (i) neither Borrower nor any of the Subsidiaries is engaged in
         or has engaged in any course of conduct that could subject any of their
         respective  Properties to any Lien,  seizure or other  forfeiture under
         any criminal law,  racketeer-influenced  and corrupt organizations law,
         civil or criminal, or other similar laws; and

                  (ii) neither  Borrower nor any of the Subsidiaries has engaged
         in any activities that are prohibited under any Medicaid Regulations or
         Medicare  Regulations,  or any  related  state  or  local  statutes  or
         regulations,  or which are prohibited by binding rules of  professional
         conduct, including the following: (a) knowingly and willfully making or
         causing to be made a false  statement or  representation  of a material
         fact in any application  for any benefit or payment;  (b) knowingly and
         willfully   making  or  causing  to  be  made  a  false   statement  or
         representation of a material fact for use in determining  rights to any
         benefit or payment;  (c) failing to disclose knowledge by a claimant of
         the occurrence of any event affecting the initial or continued right to
         any  benefit  or  payment  on its own  behalf or on  behalf of  another
         Person, with intent to secure such benefit or payment fraudulently; (d)
         knowingly  and  willfully  soliciting  or  receiving  any  remuneration
         (including  any  kickback,  bribe or rebate),  directly or  indirectly,
         overtly  or  covertly,  in cash or in  kind,  or  offering  to pay such
         remuneration  (1) in return for referring an individual to a Person for
         the  furnishing or arranging for the  furnishing of any item or service
         for which payment may be made in whole or in part by or pursuant to any
         Medicare Regulations,  any Medicaid Regulations or any other Applicable
         Law  (including  any  Anti-Kickback  Statutes)  relating to Third Party
         Payors  or (2)  in  return  for  purchasing,  leasing  or  ordering  or
         arranging for or recommending  the  purchasing,  leasing or ordering of
         any good,  facility,  service or item for which  payment may be made in
         whole or in part by or pursuant to any Medicare  Regulations,  Medicaid
         Regulations or other Applicable Law relating to Third Party Payors.

                  8.1.18. Burdensome Contracts.  Neither Borrower nor any of the
Subsidiaries  is a party or subject to any  contract,  agreement,  or charter or
other corporate restriction, which has or could be reasonably expected to have a
Material Adverse Effect. Neither Borrower nor any of the Subsidiaries is a party
or subject to any Restrictive Agreements, except as set forth on Schedule 8.1.18
hereto,  none of which  prohibit  the  execution  or delivery of any of the Loan
Documents by any Obligor or the  performance  by any Obligor of its  obligations
under any of the Loan Documents to which it is a party,  in accordance  with the
terms of such Loan Documents.

                  8.1.19.  Litigation.  Except as set forth on  Schedule  8.1.19
hereto, there are no actions,  suits,  proceedings or investigations pending or,
to the knowledge of Borrower, threatened on the date hereof against or affecting
Borrower or any of the Subsidiaries,  or the business,  operations,  Properties,
prospects,  profits or  condition  of Borrower or any of the  Subsidiaries,  (i)
which  relate  to  any  of  the  Loan  Documents  or  any  of  the  transactions
contemplated  thereby or (ii) which, if determined  adversely to Borrower or any
Subsidiary,  could reasonably be expected to have a Material Adverse Effect.  To
the knowledge of Borrower,  neither  Borrower nor any of its  Subsidiaries is in
default  on the  date  hereof  with  respect  to any  order,  writ,  injunction,
judgment,  decree or rule of any court,  Governmental  Authority or  arbitration
board or tribunal.

                                      -25-

                  8.1.20.  No  Defaults.  No event has occurred and no condition
exists which would,  upon or after the execution and delivery of this  Agreement
or  Borrower's  performance  hereunder,  constitute  a  Default  or an  Event of
Default.  Neither  Borrower nor any of the  Subsidiaries  is in default,  and no
event has occurred and no condition  exists which  constitutes or which with the
passage of time or the giving of notice or both would  constitute a default,  in
the  payment of any Debt of  Borrower  or a  Subsidiary  to any Person for Money
Borrowed or under or in the  performance,  observance or  fulfillment  of any of
Borrower's  or  such  Subsidiary's  obligations  or  covenants  in any  Material
Contract which, if not remedied within any applicable grace period, could result
in the revocation,  cancellation or suspension of the Medicaid  Certification or
Medicare Certification of Borrower or such Subsidiary.  Neither Borrower nor any
of the Subsidiaries is in default in the performance,  observance or fulfillment
of any of Borrower's or any such  Subsidiary's  obligations  or covenants in any
Medicaid  Provider  Agreement,  Medicare  Provider  Agreement,  material Private
Provider  Agreement or other  agreement or instrument  to which  Borrower or any
such Subsidiary is a party, which default, if not remedied within any applicable
grace  period,  could result in the  revocation,  termination,  cancellation  or
suspension  of the  Medicaid  Certification  or  Medicare  Certification  or the
termination or cancellation of any material Private Provider Agreement.

                  8.1.21.  Leases.  Schedule 8.1.21 hereto is a complete listing
of each  capitalized and operating lease of Borrower and its Subsidiaries on the
date hereof  that  constitutes  a Material  Contract.  Each of Borrower  and its
Subsidiaries  is in substantial  compliance with all of the terms of each of its
respective capitalized and operating leases and there is no basis upon which the
lessors under any such leases could terminate same or declare Borrower or any of
its Subsidiaries in default thereunder.

                  8.1.22.  Pension Plans. Except as disclosed on Schedule 8.1.22
hereto,  neither  Borrower nor any of the  Subsidiaries has any Plan on the date
hereof.  Borrower and each of its  Subsidiaries is in compliance in all material
respects  with  the  requirements  of  ERISA  and  the  regulations  promulgated
thereunder  with respect to each Plan.  No fact or situation  that is reasonably
likely to result in a Material  Adverse  Effect  exists in  connection  with any
Plan. Neither Borrower nor any of its Subsidiaries has any withdrawal  liability
in connection with a Multiemployer Plan in excess of $250,000 individually or in
the aggregate.

                  8.1.23. Trade Relations.  There exists no actual or threatened
termination,   cancellation   or  limitation  of,  or  any  materially   adverse
modification or change in, the business  relationship  between  Borrower and any
customer  or any  group of  customers  whose  purchases  individually  or in the
aggregate  are  material  to the  business  of  Borrower,  or with any  material
supplier or group of suppliers,  and there exists no condition or state of facts
or circumstances which is reasonably likely to have a Material Adverse Effect or
prevent  Borrower from  conducting  such business after the  consummation of the
transactions  contemplated by this Agreement in substantially the same manner in
which it has heretofore been conducted.

                  8.1.24.  Labor  Relations.  Except as  described  on  Schedule
8.1.24 hereto,  neither  Borrower nor any of the  Subsidiaries is a party to any
collective  bargaining  agreement on the date hereof. On the date hereof,  there
are no  material  grievances,  disputes or  controversies  with any union or any
other organization of Borrower's or any Subsidiary's employees, or to Borrower's
knowledge,  any threats of  strikes,  work  stoppages  or any  asserted  pending
demands for collective bargaining by any union or organization.

                  8.1.25.   Not  a  Regulated  Entity.  No  Obligor  is  (i)  an
"investment company" or a "person directly or indirectly controlled by or acting
on behalf of an investment company" within the meaning of the Investment Company
Act of 1940; (ii) a "holding  company," or a "subsidiary  company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary  company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935;  or (iii)  subject to  regulation  under the Federal Power Act, the
Interstate  Commerce Act, any public  utilities code or any other Applicable Law
regarding its authority to incur Debt.

                                      -26-

                  8.1.26.  Margin  Stock.  Neither  Borrower  nor  any  of  the
Subsidiaries is engaged,  principally or as one of its important activities,  in
the business of extending  credit for the purpose of  purchasing or carrying any
Margin Stock.

                  8.1.27. Disclosure tatement.  All factual statements contained
in the Disclosure Statement are true and correct in all material respects.

                  8.1.28.  Reimbursement  from Third Party Payors.  The Accounts
have been and will continue to be adjusted to reflect reimbursement  policies of
Third Party Payors. In particular,  Accounts relating to such Third Party Payors
do not and will not exceed  amounts any obligee is entitled to receive under any
capitation arrangement, fee schedule, discount formula, cost-based reimbursement
or other adjudgment or limitation to its usual charges.

                  8.1.29.   Licensing,   Accreditation  and  Other  Governmental
Approvals. Except to the extent that the failure to have or maintain the same is
not reasonably  likely to have a Material  Adverse Effect,  Borrower and each of
the Subsidiaries  has, and is in good standing with respect to, all Governmental
Approvals  necessary  to  continue  to conduct its  business  as  heretofore  or
proposed to be conducted by it and to own or lease and operate its Properties as
now owned or leased by it. Except to the extent that the same is not  reasonably
likely to have a Material Adverse Effect,  Borrower and each of the Subsidiaries
has, to the extent applicable: (i) obtained (or been duly assigned) all required
certificates of need or determinations of need as required by the relevant state
Governmental  Authority  for  the  acquisition,   construction,   expansion  of,
investment  in or  operation  of its  businesses  as  currently  operated;  (ii)
obtained and  maintains in good  standing  all required  licenses;  (iii) to the
extent  prudent and  customary  in the industry in which such Person is engaged,
obtained and maintains  accreditation from all generally recognized  accrediting
agencies;  (iv)  obtained  and  maintains  Medicaid  Certification  and Medicare
Certification; and (v) entered into and maintains in good standing such Person's
Medicare Provider Agreement and Medicaid Provider Agreement.

         8.2.   Reaffirmation   of   Representations   and   Warranties.    Each
representation  and  warranty  contained  in this  Agreement  and the other Loan
Documents  shall be deemed to be  reaffirmed  by  Borrower  on each day that any
Obligations  are  outstanding  or that  Borrower  requests  or is deemed to have
requested an extension of credit hereunder,  except for changes in the nature of
Borrower's or, if applicable,  any of its  Subsidiaries'  business or operations
that may occur after the date hereof in the Ordinary  Course of Business so long
as Lender has consented to such changes or such changes are not violative of any
provision of this Agreement.  Notwithstanding the foregoing, representations and
warranties  which by their terms are applicable only to a specific date shall be
deemed made only at and as of such date.

         8.3. Survival of Representations  and Warranties.  All  representations
and warranties of Borrower  contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.

SECTION 9.        COVENANTS AND CONTINUING AGREEMENTS

         9.1.  Affirmative  Covenants.  For so long as  there  are any  Revolver
Commitment outstanding, and thereafter until payment in full of the Obligations,
Borrower  covenants that, unless Lender has otherwise  consented in writing,  it
shall and shall cause each Subsidiary to:

                  9.1.1.  Visits  and  Inspections.  Permit  representatives  of
Lender,  from time to time,  as often as may be reasonably  requested,  but only
during  normal  business  hours and  (except  when a Default or Event of Default
exists)  upon  reasonable  prior  notice to  Borrower,  to visit and inspect the
Properties  of Borrower and each  Subsidiary,  inspect,  audit and make extracts
from Borrower's and each  Subsidiary's

                                      -27-

books  and  records,  and  discuss  with its  officers,  its  employees  and its
independent  accountants,  Borrower's and each Subsidiary's business,  financial
condition,  business prospects and results of operations.  Lender shall not have
any duty to make any such inspection and shall not incur any liability by reason
of its failure to conduct or delay in conducting any such inspection.

                  9.1.2.  Notices.  Notify  Lender in  writing,  promptly  after
Borrower's   obtaining  knowledge  thereof,  (i)  of  the  commencement  of  any
litigation  affecting any Obligor or any of its  Properties,  whether or not the
claims  asserted in such  litigation are considered by Borrower to be covered by
insurance,  and of the  institution  of any  administrative  proceeding,  to the
extent that such  litigation  or  proceeding,  if  determined  adversely to such
Obligor, would reasonably be expected to have a Material Adverse Effect; (ii) of
any material labor dispute to which any Obligor may become a party,  any strikes
or  walkouts  relating  to  any of its  plants  or  other  facilities,  and  the
expiration of any labor contract to which it is a party or by which it is bound;
(iii) of any  material  default by any Obligor  under,  or  termination  of, any
Material Contract or any note, indenture, loan agreement, mortgage, lease, deed,
guaranty  or  other  similar  agreement  relating  to any  Debt of such  Obligor
exceeding  $250,000;  (iv) of the  existence of any Default or Event of Default;
(v) of any  default  by any  Person  under  any note or other  evidence  of Debt
payable to an  Obligor in an amount  exceeding  $250,000;  (vi) of any  judgment
against any Obligor in an amount exceeding  $250,000;  (vii) of the assertion by
any Person of any Intellectual  Property Claim, the adverse  resolution of which
could  reasonably be expected to have a Material  Adverse Effect;  (viii) of any
violation or asserted  violation by Borrower of any  Applicable  Law  (including
ERISA,  OSHA, FLSA or any  Environmental  Laws, the adverse  resolution of which
could  reasonably  be expected to have a Material  Adverse  Effect;  (ix) of any
material  Environmental  Release  by an  Obligor  or on any  Property  owned  or
occupied  by an Obligor  that is in  violation  of  Applicable  Law;  (x) of the
discharge of Borrower's independent accountants or any withdrawal or resignation
by such independent  accountants from their acting in such capacity; (xi) of the
termination or expiration of any of the Host License Agreements, or assertion by
any of the Host  Licensors of the  occurrence of a breach or default by Borrower
under the Host  License  Agreement to which such Host  Licensor is a party;  and
(xii) any notice  received by an Obligor from HHS,  HCFA or any other federal or
state  agency  relating  to  the  suspension  or  termination  of  an  Obligor's
participation in the Medicare or Medicaid program or of payments to such Obligor
thereunder.  In  addition,  Borrower  shall give  Lender at least 15 days' prior
written notice of any Obligor's opening of any new office or place of business.

                  9.1.3. Financial and Other Information.  Keep adequate records
and books of account  with respect to its  business  activities  in which proper
entries  are  made in  accordance  with  GAAP  reflecting  all of its  financial
transactions;  and  cause to be  prepared  and to be  furnished  to  Lender  the
following  (all to be prepared in  accordance  with GAAP applied on a consistent
basis,  unless  Borrower's  certified  public  accountants  concur in any change
therein,  such change is disclosed to Lender and is consistent with GAAP and, if
required by Lender, the financial covenants set forth in Section 9.3 are amended
in a manner  requested  by Lender  to take  into  account  the  effects  of such
change):

                  (i) as soon as  available,  and in any  event  within  90 days
         after the close of each Fiscal Year, unqualified audited balance sheets
         of Borrower and its  Subsidiaries as of the end of such Fiscal Year and
         the related statements of income,  shareholders'  equity and cash flow,
         on a Consolidated and consolidating  basis,  certified without material
         qualification by a firm of independent  certified public accountants of
         recognized  national  standing  selected  by  Borrower  but  reasonably
         acceptable  to  Lender  (except  for a  qualification  for a change  in
         accounting   principles  with  which  the  accountant   concurs),   and
         commencing with the Fiscal Year ending January 4, 2003 setting forth in
         each  case in  comparative  form  the  corresponding  Consolidated  and
         consolidating figures for the preceding Fiscal Year;

                  (ii) as soon as available, and in any event within 30 days (or
         45 days in the case of the third,  sixth,  ninth and twelfth  Reporting
         Periods of each  Fiscal  Year) after the end of each  Reporting  Period
         hereafter,  including the last  Reporting  Period of Borrower's  Fiscal
         Year,  unaudited  balance sheets of Borrower and its Subsidiaries as of
         the end of such Reporting Period and the related unaudited Consolidated
         statements  of income and cash flow for such  Reporting  Period and for
         the portion of Borrower's  Fiscal Year then elapsed,  on a Consolidated
         and consolidating basis, commencing with the

                                      -28-

         Fiscal  Year  ending  January  4,  2003  setting  forth in each case in
         comparative  form the  corresponding  figures for the preceding  Fiscal
         Year and  certified by the principal  financial  officer of Borrower as
         prepared in accordance with GAAP and fairly presenting the Consolidated
         financial  position  and  results of  operations  of  Borrower  and its
         Subsidiaries  for such  Reporting  Period  and period  subject  only to
         changes  from  audit and  year-end  adjustments  and  except  that such
         statements need not contain notes;

                  (iii) not later than 15 days after each  Reporting  Period,  a
         listing of all of Borrower's trade payables as of the last Business Day
         of such Reporting  Period,  specifying the name of and balance due each
         trade creditor, and, at Lender's request, detailed trade payable agings
         for each Reporting Period in form acceptable to Lender; and

                  (iv) promptly after the sending or filing thereof, as the case
         may be, copies of any proxy statements, financial statements or reports
         which Borrower has made  generally  available to its  shareholders  and
         copies of any  regular,  periodic and special  reports or  registration
         statements  which  Borrower  files  with  the  SEC or any  Governmental
         Authority which may be substituted therefor, or any national securities
         exchange.

         Concurrently with the delivery of the financial statements described in
clause (i) of this Section 9.1.3, Borrower shall deliver to Lender a copy of the
accountants' letter to Borrower's management that is prepared in connection with
such  financial  statements.  Concurrently  with the  delivery of the  financial
statements  described  in clauses (i) and (ii) of this  Section  9.1.3,  or more
frequently  if requested by Lender  during any period that a Default or Event of
Default  exists,  Borrower  shall cause to be prepared and furnished to Lender a
Compliance Certificate executed by the chief financial officer of Borrower.

                  Promptly after the sending or filing  thereof,  Borrower shall
also  provide to Lender  copies of any annual  report to be filed in  accordance
with ERISA in  connection  with each Plan and such  other  data and  information
(financial and otherwise) as Lender,  from time to time, may reasonably request,
bearing  upon  or  related  to the  Collateral  or  Borrower's  and  each of its
Subsidiaries' financial condition or results of operations.

                  9.1.4.  Landlord and Storage  Agreements.  Provide Lender with
copies of all existing agreements,  and promptly after execution thereof provide
Lender with copies of all future agreements,  between Borrower and any landlord,
warehouseman or bailee which owns any premises at which any Collateral may, from
time to time, be kept.

                   9.1.5. Projections.  No  later than 30 days after  the end of
each Fiscal Year of Borrower,  deliver to Lender the Projections of Borrower for
the forthcoming Fiscal Year, Reporting Period by Reporting Period.

                  9.1.6.   Taxes.   Pay  and  discharge  all Taxes  prior to the
date on which such Taxes become  delinquent or penalties attach thereto,  except
and to the extent only that such Taxes are being Properly Contested.

                  9.1.7.  Compliance with Laws.  Comply with all Applicable Law,
including ERISA, all Healthcare Laws, all Environmental Laws, FLSA, OHSA and all
laws, statutes, regulations and ordinances regarding the collection, payment and
deposit  of  Taxes,  and  obtain  and  keep in  force  any and all  Governmental
Approvals  necessary to the ownership of its Properties or to the conduct of its
business, to the extent that any such failure to comply, obtain or keep in force
could be reasonably expected to have a Material Adverse Effect. Without limiting
the generality of the foregoing,  if any Environmental Release shall occur at or
on any of the Properties of Borrower or any Subsidiary, Borrower shall, or shall
cause the  applicable  Subsidiary to, act promptly and diligently to investigate
and report to Lender and all appropriate Governmental Authorities the extent of,
and to  make  appropriate  remedial  action  to  eliminate,  such  Environmental
Release,  whether  or  not  ordered  or  otherwise  directed  to do  so  by  any
Governmental Authority.

                                      -29-

                  9.1.8. Insurance. In addition to the insurance required herein
with respect to the Collateral,  maintain with  financially  sound and reputable
insurers, (i) insurance with respect to its Properties and business against such
casualties and contingencies of such type (including product liability, workers'
compensation,   larceny,   embezzlement,   or  other  criminal  misappropriation
insurance)  and in such  amounts as is  customary in the business of Borrower or
such Subsidiary and (ii) business  interruption  insurance in an amount not less
than projected EBITDA for a period of at least 6 months.

                  9.1.9 Minimum Availability. Maintain at all times Availability
of at least $1,500,000.

                  9.1.10 Payment of Claims.  Pay, and cause the  Subsidiaries to
pay, on the Effective  Date all amounts  required to be paid by Borrower or such
Subsidiaries on the Effective Date pursuant to the Plans of Reorganization.

                  9.1.11.  Opening  Balance Sheet. On or before August 15, 2001,
deliver,  or  cause  Borrower's  independent  certified  public  accountants  to
deliver,  to Lender the opening  Consolidated  balance sheet of Borrower and its
Subsidiaries  as of the Effective  Date,  along with a standard review report by
such  independent   certified  public  accountants,   which  comports  with  the
principles  of  "fresh  start"  accounting  and  which  review  shall  have been
conducted in accordance with AICPA Statement of Auditing Standards Number 71.

                  9.1.12.  Post-Closing Obligations. On or before June 30, 2001:

                  (i)  exercise a good faith  effort to deliver to Lender a duly
         executed  amendment to the Wal-Mart  Agreement  memorializing the terms
         set forth in the letter of intent dated May 14, 2001  between  Borrower
         and Wal-Mart; and

                  (ii) deliver to Lender good standing certificates for Borrower
         issued by the Secretary of State or other appropriate  official of each
         jurisdiction denoted with an asterisk on Schedule 8.1.1 hereof.

         9.2.  Negative  Covenants.  For so  long  as  there  are  any  Revolver
Commitment  outstanding and thereafter until payment in full of the Obligations,
Borrower  covenants that, unless Lender has otherwise  consented in writing,  it
shall not and shall not permit any Subsidiary to:

                  9.2.1. Fundamental Changes. Merge, reorganize,  consolidate or
amalgamate  with any  Person,  or  liquidate,  wind up its  affairs or  dissolve
itself,  except for mergers or  consolidations  of any  Subsidiary  with another
Subsidiary or with Borrower or the  liquidation or dissolution of any Subsidiary
into Borrower or another Subsidiary;  change Borrower's name or conduct business
under any new fictitious name; or change Borrower's FEIN.

                  9.2.2.   Loans.  Make any loans or other advances of  money to
any Person except as follows:

                  (i) to an officer or employee of Borrower or a Subsidiary  for
         salary, travel advances, advances against commissions and other similar
         advances in the Ordinary Course of Business;

                  (ii) to  independent  eyecare  professionals  located  in Host
         Locations  occupied  under the Fred  Meyer  Agreement  in the  Ordinary
         Course of Business,  which loans or other advances are in the amount of
         the services rendered by such professionals to Borrower's customers and
         are  repaid by such  professionals  to  Borrower  as the  result of the
         collection by Borrower of such sums from such customers (or Third Party
         Payors) on behalf of such professionals; and

                  (iii) to any  Subsidiary  to the extent that (a) the amount of
         such  loans  and  other  advances,  when  combined  with the  aggregate
         outstanding   amount  of  all  other   such  loans  or   advances   and
         contributions  by  Borrower  to  the  equity  of  any  or  all  of  the
         Subsidiaries from and after the Closing Date, do not at any time exceed

                                      -30-

         a total amount, less reimbursements to Borrower, of $1,000,000,  (b) no
         Default  or Event of  Default  exists  at the time of,  or  immediately
         after,  the  making of each such loan or other  advance,  (c)  Borrower
         pledges to Lender each  promissory  note  evidencing  the amount of any
         such loan or other advance as security for the Obligations  pursuant to
         a note pledge agreement in form and substance  acceptable to Lender and
         (d) in no event  shall  Borrower  make any loans or other  advances  of
         money to any Subsidiary  that is subject to the  Subsidiaries'  Plan of
         Reorganization until the "Effective Date" under (and as defined in) the
         Subsidiaries'  Plan of Reorganization  has occurred (but the provisions
         of clauses (a) through (d) above shall not apply to any loan or advance
         by any Managed Care Subsidiary to another Managed Care Subsidiary).

                  9.2.3.   Permitted Debt.  Create, incur, assume, guarantee or
suffer to exist any Debt, except:

                    (i)    the Obligations;

                   (ii)    Subordinated Debt existing on the Closing Date;

                  (iii)  accounts  payable by Borrower or a Subsidiary  to trade
         creditors that are not aged more than 90 days from billing date or more
         than 30 days from the due date,  in each case  incurred in the Ordinary
         Course of Business  and paid within such time  period,  unless the same
         are being Properly Contested;

                  (iv) obligations to pay Rentals permitted by Section 9.2.14;

                  (v) Permitted Purchase Money Debt;

                  (vi) Debt for  accrued  payroll,  Taxes  and  other  operating
         expenses  (other  than for Money  Borrowed)  incurred  in the  Ordinary
         Course of  Business  of Borrower  or such  Subsidiary,  including  Cash
         Management Obligations,  in each case so long as payment thereof is not
         past due and payable unless, in the case of Taxes, such Taxes are being
         Properly Contested;

                  (vii) Debt for Money  Borrowed  by  Borrower,  but only to the
         extent that such Debt is  outstanding on the date of this Agreement and
         is not to be  satisfied  on or about the Closing Date from the proceeds
         of the initial Revolver Loans;

                  (viii) Permitted Contingent Obligations;

                  (ix) Debt not included in any of the  preceding  paragraphs of
         this Section  9.2.3 which is not secured by a Lien (unless such Lien is
         a Permitted  Lien) and does not exceed at any time,  in the  aggregate,
         the sum of $250,000 as to Borrower and all of its Subsidiaries;

                  (x) Debt of any  Subsidiary to another  Subsidiary or, subject
         to the limitations set forth in Section 9.2.2 hereof, to Borrower;

                  (xi) Debt owing by Borrower under the New Senior Notes;

                  (xii)  Debt of  Borrower  to FIFC  in the  original  principal
         amount of $893,087.24 incurred to finance insurance premiums,  but only
         to the  extent  that  such  Debt  is  outstanding  on the  date of this
         Agreement  and is not to be satisfied on or about the Closing Date from
         the proceeds of the initial Revolver Loans; and

                  (xiii)  Refinancing  Debt so  long as each of the  Refinancing
         Conditions is met.

                                      -31-

                  9.2.4.  Affiliate  Transactions.  Enter into, or be a party to
any transaction with any Affiliate or stockholder,  except: (i) the transactions
contemplated by the Loan Documents;  (ii) payment of reasonable  compensation to
officers  and  employees  for  services  actually  rendered  to  Borrower or its
Subsidiaries;  (iii) payment of customary directors' fees and indemnities;  (iv)
transactions  with Affiliates that were consummated prior to the date hereof and
have been  disclosed to Lender prior to the Closing Date;  and (v)  transactions
with  Affiliates  in  the  Ordinary  Course  of  Business  and  pursuant  to the
reasonable  requirements  of Borrower's or such  Subsidiary's  business and upon
fair and  reasonable  terms that are fully  disclosed  to Lender and are no less
favorable to Borrower or such Subsidiary than Borrower or such Subsidiary  would
obtain in a comparable  arm's length  transaction with a Person not an Affiliate
or stockholder of Borrower or such Subsidiary.

                  9.2.5.   Limitation  on Liens.  Create or suffer  to exist any
Lien upon any of its Property, income or profits, whether now owned or hereafter
acquired, except the following (collectively, "Permitted Liens"):

                  (i) Liens at any time granted in favor of Lender;

                  (ii) Liens for Taxes  (excluding any Lien imposed  pursuant to
         any  of the  provisions  of  ERISA)  not  yet  due  or  being  Properly
         Contested;

                  (iii) statutory Liens  (excluding any Lien imposed pursuant to
         any  of  the   provisions  of  ERISA  but   including  any   carrier's,
         warehouseman's, mechanic's, landlord's, materialman's and other similar
         Liens)  arising in the  Ordinary  Course of  Business  of Borrower or a
         Subsidiary,  but only if and for so long as (x)  payment  in respect of
         any such Lien is not at the time  required  or the Debt  secured by any
         such  Liens  is being  Properly  Contested  and (y)  such  Liens do not
         materially  detract  from the value of the Property of Borrower or such
         Subsidiary  and  do  not  materially  impair  the  use  thereof  in the
         operation of Borrower's or such Subsidiary's business;

                  (iv) Purchase  Money Liens securing  Permitted  Purchase Money
         Debt (including Capitalized Lease Obligations);

                  (v)  Liens  securing  Debt  of a  Subsidiary  of  Borrower  to
         Borrower or to another such Subsidiary;

                  (vi)  Liens  arising  by  virtue  of the  rendition,  entry or
         issuance  against  Borrower  or  any  Subsidiary,  or any  Property  of
         Borrower or any Subsidiary, of any judgment, writ, order, or decree for
         so long  as  each  such  Lien  (a) is in  existence  for  less  than 20
         consecutive  days after it first arises or is being Properly  Contested
         and (b) is at all  times  junior in  priority  to any Liens in favor of
         Lender;

                  (vii) Liens  incurred or deposits made in the Ordinary  Course
         of  Business  to secure  the  performance  of  tenders,  bids,  leases,
         contracts (other than for the repayment of Money  Borrowed),  statutory
         obligations  and other  similar  obligations  or arising as a result of
         progress  payments under  government  contracts,  provided that, to the
         extent any such Liens attach to any of the  Collateral,  such Liens are
         at all times subordinate and junior to the Liens upon the Collateral in
         favor of Lender;

                  (viii) easements,  rights-of-way,  restrictions,  covenants or
         other agreements of record and other similar charges or encumbrances on
         real  Property  of  Borrower  or a  Subsidiary  that do not  secure any
         monetary  obligation and do not interfere with the ordinary  conduct of
         the business of Borrower or such Subsidiary;

                  (ix) normal and  customary  rights of setoff upon  deposits of
         cash in favor of banks and other depository institutions and Liens of a
         collection bank arising under the UCC on Payment Items in the course of
         collection;

                                      -32-

                    (x) Liens in existence immediately prior to the Closing Date
         that are satisfied in full and released on the Closing Date as a result
         of the  application  of Borrower's  cash on hand at the Closing Date or
         the proceeds of Revolver Loans to be made on the Closing Date;

                   (xi) Liens  securing  Debt of  Borrower  under the New Senior
         Notes that are subordinate to the Liens of Lender pursuant to the terms
         of the New Notes  Indenture,  as in effect on the date hereof,  and the
         New Senior Notes, as in effect on the date hereof;

                  (xii) such other Liens as appear on Schedule 9.2.5 hereto,  to
         the extent provided therein;

                  (xiii) such other Liens as Lender in its sole  discretion  may
         hereafter approve in writing;

                  (xiv) Liens on the  Property of any  Managed  Care  Subsidiary
         pursuant to the applicable rules and regulations of, or  understandings
         made to, any regulatory  entity having  jurisdiction and authority over
         such Managed Care Subsidiary; and

                   (xv) Liens upon all return  premiums,  dividend  payments and
         loss  payments  which  reduce  unearned  premiums  securing the Debt of
         Borrower to FIFC described in Section 9.2.3(xii) hereof, subject at all
         times, however, to the Liens of Lender therein.

The foregoing  negative pledge shall not apply to any Margin Stock to the extent
that the  application of such negative pledge to such Margin Stock would require
filings or other actions by Lender under such regulations or otherwise result in
a violation of such regulations.

                  9.2.6.  Subordinated  Debt Make any payment of all or any part
of any  Subordinated  Debt or take any  other  action  or omit to take any other
action in  respect  of any  Subordinated  Debt,  except in  accordance  with the
subordination  agreement  relative thereto;  or amend or modify the terms of any
agreement  applicable to any Subordinated Debt, other than to extend the time of
payment  thereof  or to  reduce  the  rate of  interest  payable  in  connection
therewith.  To the extent that any payment is  permitted to be made with respect
to any  Subordinated  Debt  pursuant  to  the  provisions  of the  subordination
agreement relative thereto, as a condition precedent to Borrower's authorization
make any such  payment,  Borrower  shall  provide  to  Lender,  not less  than 5
Business  Days  prior to the  scheduled  payment,  a  certificate  from a Senior
Officer of Borrower  stating that no Default or Event of Default is in existence
as of the date of the certificate or will be in existence as of the date of such
payment (both with and without giving effect to the making of such payment), and
specifying the amount of principal and interest to be paid.

                  9.2.7.   Distributions.  Declare  or  make any  Distributions,
except for Upstream Payments.

                  9.2.8.  Upstream  Payments.  Create  or  suffer  to exist  any
encumbrance or restriction on the ability of a Subsidiary  (other than a Managed
Care  Subsidiary)  to make any  Upstream  Payment,  except for  encumbrances  or
restrictions  (i)  pursuant  to the  Loan  Documents  and  (ii)  existing  under
Applicable Law.

                  9.2.9.   Capital   Expenditures.   Make  Capital  Expenditures
(including  expenditures by way of capitalized  leases) which, in the aggregate,
as to Borrower and its  Subsidiaries,  exceed  $3,500,000 during the period from
the date of this  Agreement  through  December 29, 2001 or exceed  $5,500,000 or
during any Fiscal Year after December 29, 2001.

                  9.2.10. Disposition of Assets. Sell, assign, lease, consign or
otherwise  dispose of any of its Properties or any interest  therein,  including
any disposition of Property as part of a sale and leaseback  transaction,  to or
in favor of any Person,  except (i) sales of Inventory in the Ordinary Course of
Business for so long as no Event of Default exists hereunder,  (ii) dispositions
of Equipment to the extent authorized by Section 7.4.2 hereof,  (iii) a transfer
of  Property  to  Borrower  or  another   Subsidiary  by  a   Subsidiary,   (iv)
non-exclusive  licenses

                                      -33-

of technology and other  Intellectual  Property by and among Borrower and any of
its Subsidiaries,  (v) any other dispositions not otherwise  permitted hereunder
which are made for fair market value,  provided that (a) at the time of any such
disposition no Event of Default shall exist or result from such disposition, (b)
the  Value of all  Property  so sold by  Borrower  and its  Subsidiaries  in the
aggregate shall not exceed $100,000 and (c) the cash portion of the Net Proceeds
resulting  from any such  disposition  promptly shall be remitted by Borrower to
Lender for application to the  Obligations and the non-cash  portion of any such
Net Proceeds promptly shall be pledged to Lender as security for the Obligations
pursuant to a note pledge agreement in form and substance  acceptable to Lender,
(vi) subleases of real Property and Equipment in the Ordinary Course of Business
to independent eyecare  professionals,  (vii) sales or other dispositions of the
stock or Property of ProCare Eye Exam, Inc.,  provided that the non-cash portion
of the Net  Proceeds  resulting  from any  such  disposition  promptly  shall be
pledged to Lender  pursuant to a note  pledge  agreement  in form and  substance
acceptable  to Lender  and any  security  agreement  given by the  purchaser  as
security for its  obligations  under such  promissory note shall be collaterally
assigned  to  Lender  pursuant  to a  written  agreement  in form and  substance
acceptable to Lender,  in each case as security for the Obligations,  and (viii)
other  dispositions  expressly  authorized  by  other  provisions  of  the  Loan
Documents.

                  9.2.11.  Subsidiaries.  Form or acquire any  Subsidiary  after
the  Closing  Date or permit any  existing  Subsidiary  to issue any  additional
Equity Interests to any Person other than Borrower or another  Subsidiary except
director's qualifying shares.

                  9.2.12.  Bill-and-Hold Sales and Consignments.  Make a sale to
any  customer on a  bill-and-hold,  guaranteed  sale,  sale and return,  sale on
approval or consignment basis, or any sale on a repurchase or return basis other
than in  connection  with  consumer  transactions  entered  into in the Ordinary
Course of Business.

                  9.2.13.  Restricted Investments.  Make or have any  Restricted
Investment.

                  9.2.14.  Leases.  Become a lessee  under any  operating  lease
(other than a lease under which Borrower or any of the Subsidiaries is lessor or
the Host  Licensor  Agreements)  of Property if the  aggregate  Rentals  payable
during any current or future period of 12 consecutive  months under the lease in
question and all other leases under which Borrower or any of the Subsidiaries is
then lessee would exceed  $500,000.  The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease.

                  9.2.15.  Tax  Consolidation.  File  or  consent to  the filing
of any consolidated income tax return with any Person other than a Subsidiary.

                  9.2.16.  Accounting Changes.  Make any  significant  change in
accounting treatment or reporting practices,  except as may be required by GAAP,
or establish a fiscal year different from the Fiscal Year.

                  9.2.17.  Organization  Documents.  Amend,  modify or otherwise
change any of the terms or provisions in any of its Organization Documents as in
effect on the date  hereof,  except  for  changes  that do not affect in any way
Borrower's or such Subsidiary's rights and obligations to enter into and perform
the Loan Documents to which it is a party and to pay all of the  Obligations and
that do not otherwise have a Material Adverse Effect.

                  9.2.18.  Restrictive Agreements.  Enter into or become a party
to any Restrictive  Agreement;  provided,  however, that (i) the foregoing shall
not apply to Restrictive  Agreements  existing on the date hereof and identified
on Schedule 8.1.18 (but shall apply to any amendment or  modification  expanding
the scope of any  restriction  or condition  contained  in any such  Restrictive
Agreement),  (ii) the foregoing  shall not apply to  restrictions  or conditions
imposed by any Restrictive  Agreement relating to secured Debt permitted by this
Agreement  if such  restrictions  or  conditions  apply  only to the  Properties
securing  such  Debt and  (iii)  the  foregoing  shall  not  apply to  customary
provisions in leases and other contracts restricting the assignment thereof.

                                      -34-

                  9.2.19. Hedging Agreements.  Enter into any Hedging Agreement,
other  than (a)  Interest  Rate  Contracts  in effect  from time to time and (b)
Hedging  Agreements  entered into in the Ordinary Course of Business to hedge or
mitigate  risks to which Borrower or any Subsidiary is exposed in the conduct of
its business or the management of its  liabilities  and not for any  speculative
purpose.

                  9.2.20.  Conduct of  Business.  Engage in  any business  other
than the  business  engaged in by it on the  Closing  Date and any  business  or
activities which are substantially similar, related or incidental thereto.

                  9.2.21.   Plans  of  Reorganization.  Amend,  or  permit  any
Subsidiaries  to  amend,  either of the Plans of  Reorganization  in any  manner
adverse to Lender.

                  9.2.22.  New Notes Indenture and New Senior Notes.
                           ----------------------------------------

                    (i)  Amend or  modify  the New  Notes  Indenture  or any New
Senior Notes issued thereunder in any manner adverse to Lender. Without limiting
the  generality  of the  foregoing,  any proposed  amendment  whatsoever  to (i)
Article 3.06 of the New Notes Indenture,  as in effect on the date hereof,  (ii)
any of the defined  terms used in the  computation  of "Excess  Cash Flow" under
(and as defined in) the New Notes Indenture, as in effect on the date hereof, or
(iii) Article Ten of the New Notes  Indenture,  as in effect on the date hereof,
shall be deemed to be potentially  adverse to Lender and shall require the prior
written consent of Lender.

                   (ii) Make any payment  constituting a mandatory redemption of
the New Senior Notes pursuant to Section 3.06 of the New Notes Indenture,  as in
effect on the date hereof,  unless as of the "Balance Sheet Date" (as defined in
the New  Notes  Indenture,  as in effect on the Date  hereof)  relating  to such
mandatory redemption,  Borrower has not less than $3,000,000 in cash on hand, as
determined in  accordance  with Section 3.06 of the New Notes  Indenture,  as in
effect on the date hereof.

         9.3.     Financial  Covenants.  For  so long as  there are any Revolver
Commitment outstanding, and thereafter until payment in full of the Obligations,
Borrower covenants that, unless otherwise  consented to by Lender in writing, it
shall:

                  9.3.1.  Minimum  Consolidated  EBITDA.   Achieve  Consolidated
EBITDA of not less than the  amount  shown  below for the  period  corresponding
thereto:

                           Period                                Amount
                           ------                                ------

                  For the Fiscal Quarter                      $6,000,000
                   ending September 29, 2001

                  For the 2 Fiscal Quarters                   $11,000,000
                  ending December 29, 2001

                  For the 3 Fiscal Quarters                   $17,000,000
                  ending March 30, 2002

                                      -35-

                  For the 4 Fiscal Quarters                   $19,600,000
                  ending June 29, 2002 and
                  the 4-Fiscal Quarter
                  period ending on the last
                  day of each Fiscal Quarter
                  thereafter

                  9.3.2.  Minimum  Consolidated  Fixed  Charge  Coverage  Ratio.
Maintain a  Consolidated  Fixed Charge  Coverage Ratio as of the last day of the
Reporting Period ending on or about June 30 and December 31 of each year that is
not less than 1.0 to 1.0.

SECTION 10.  CONDITIONS PRECEDENT

         10.1.  Conditions Precedent to Initial Credit Extensions.  Lender shall
not be required to fund any Revolver  Loan  requested  by Borrower,  procure any
Letter of Credit or otherwise  extend credit to Borrower,  unless,  on or before
June 30, 2001,  each of the  following  conditions  has been and continues to be
satisfied:

                  10.1.1. Loan Documents. Each of the Loan Documents (other than
those  with  respect  to  Subsidiaries  subject  to the  Subsidiaries'  Plan  of
Reorganization) shall have been duly executed and delivered to Lender by each of
the  signatories  thereto and  accepted by Lender and each  Obligor  shall be in
compliance with all of the terms thereof.

                  10.1.2. Availability.  Lender shall have determined, and shall
be satisfied that,  immediately after Lender has made the initial Revolver Loans
on the  Closing  Date and Bank has issued the  Letters of Credit to be issued on
the Closing Date,  and Borrower has paid (or made  provision for payment of) all
closing costs incurred in connection with the Revolver Commitment,  Availability
is not less than $500,000.

                  10.1.3.  Evidence of Perfection and Priority of Liens.  Lender
shall have received copies of all filing receipts or  acknowledgments  issued by
any  Governmental  Authority to evidence any filing or recordation  necessary to
perfect the Liens of Lender in the Collateral and evidence in form  satisfactory
to Lender that such Liens constitute valid and perfected  security interests and
Liens,  and  that  there  are no other  Liens  upon any  Collateral  except  for
Permitted Liens.

                  10.1.4.  Organization  Documents.  Lender shall have  received
copies  of the  Organization  Documents  of each  Obligor,  and  all  amendments
thereto,  certified by the Secretary of State or other appropriate  officials of
the jurisdiction of Borrower's and each Obligor's states of organization.

                  10.1.5. Good Standing Certificates. Lender shall have received
good standing certificates for each Obligor, issued by the Secretary of State or
other  appropriate  official of such Obligor's  jurisdiction of organization and
each  jurisdiction  where the conduct of such Obligor's  business  activities or
ownership of its Property necessitates qualification.

                  10.1.6.   Opinion  Letters.   Lender  shall  have  received  a
favorable,  written opinion of Kilpatrick  Stockton LLP,  covering,  to Lender's
satisfaction, the matters set forth on Exhibit D attached hereto.

                  10.1.7. Insurance. Lender shall have received certified copies
of the property and casualty  insurance policies of Borrower with respect to the
Collateral,  or  certificates of insurance with respect to such policies in form
acceptable to Lender, and loss payable endorsements on Lender's standard form of
loss payee  endorsement  naming  Lender as loss payee with  respect to each such
policy  and  certified  copies  of  Borrower's   liability  insurance  policies,
including product liability  policies,  together with endorsements naming Lender
as an additional insured, all as required by the Loan Documents.

                                      -36-

                  10.1.8. Lockbox; Dominion Accounts. Lender shall have received
the duly executed agreements  establishing the lockbox and Dominion Account with
Bank,  in form  and  substance  acceptable  to  Lender,  for the  collection  or
servicing of the Accounts.

                  10.1.9.  Landlord Waivers. Lender shall have received Landlord
Waivers from Wal-Mart and Fred Meyer for all Host Locations in Wal-Mart and Fred
Meyer retail stores, respectively,  from Wal-Mart for Borrower's chief executive
office and distribution center in Lawrenceville, Georgia and from Myrel Neumann,
O.D.

                  10.1.10.  Payoff  Letter.  Lender shall have received a payoff
letter from Foothill  regarding  Borrower's Debt to Foothill that is in form and
substance acceptable to Lenders.

                  10.1.11.  No  Labor  Disputes.   Lender  shall  have  received
assurances  satisfactory  to it that  there are no  threats  of  strikes or work
stoppages by any employees,  or organization of employees,  of any Obligor which
Lender reasonably determines may have a Material Adverse Effect.

                  10.1.12.  Compliance  with Laws and Other  Agreements.  Lender
shall have determined or received assurances satisfactory to it that none of the
Loan  Documents  or any of the  transactions  contemplated  thereby  violate any
Applicable Law, court order or agreement binding upon any Obligor.

                  10.1.13.  No Material  Adverse  Change.  No  material  adverse
change in the  financial  condition  of Borrower or its  Subsidiaries  or in the
quality,  quantity or value of any Collateral shall have occurred since December
30, 2000,other than the losses suffered during such period by Midwest, New West,
FNL and their respective  subsidiaries and non-recurring charges relating to the
Chapter 11 Cases.

                  10.1.14.  Accounts  Payable.  Lender  shall have  reviewed and
found acceptable Borrower's accounts payable and vendor arrangements.

                  10.1.15. Projections.  Lender shall have received, in form and
substance   satisfactory  to  Lender,   Reporting  Period  by  Reporting  Period
Projections from the Closing Date through  December 31, 2003,  giving effect to,
among other things, Borrower's projected Borrowings under this Agreement.

                  10.1.16.  Payment of Fees.  Borrower  shall have paid, or made
provision  for the payment on the Closing  Date of, all fees and  expenses to be
paid hereunder to Lender on the Closing Date.

                  10.1.17. LC Conditions. With respect to the procurement of any
Letter of Credit on the Closing Date, each of the LC Conditions is satisfied.

                  10.1.18. Host Licensor Agreements. Lender shall have received,
reviewed and found satisfactory all of the Host Licensor  Agreements,  including
any amendments thereto.

                  10.1.19.   Bankruptcy Matters.
                             ------------------

                  (i)  Lender   shall   have   received,   reviewed   and  found
satisfactory the Disclosure Statement,  Plans of Reorganization and Confirmation
Order;

                  (ii) the Plans of  Reorganization  shall have been  confirmed,
after proper notice in hearing, by the Confirmation Order;

                  (iii) not less than 10 days shall have elapsed  following  the
entry of the Confirmation Order;

                                      -37-

                   (iv)  during  the  period  from  the  date  of  entry  of the
Confirmation  Order to the  Closing  Date,  there  shall have not been filed any
notice of appeal from the Confirmation  Order nor any motion to review,  modify,
vacate,  set aside or reconsider the  Confirmation  Order,  and the Conformation
Order shall have become a Final Order;

                    (v) all of the  conditions to the  Effective  Date under the
Plans  of   Reorganization,   other  than   consummation  of  the   transactions
contemplated by this Agreement, shall have occurred, as determined by Lender and
its counsel;

                   (vi) Lender shall have received a current  docket sheet as of
the Closing Date,  certified by the Bankruptcy  Court,  indicating all pleadings
and orders filed through the date of  confirmation  and for a period of at least
10 days thereafter;

                  (vii) Lender and its counsel  shall have  determined  to their
satisfaction that on the Effective Date Borrower and Guarantors will emerge from
the  Chapter  11  Cases in a  manner  that is  consistent  with  the  terms  and
provisions of the Plans of Reorganization;

                  (viii) no defaults or events of default  exist under either of
the Plans of Reorganization;

                   (ix)  Lender   shall  have   received,   reviewed  and  found
satisfactory a written statement of all Administrative  Claims,  Class 1 Claims,
Class 3 Claims and Class 4 Claims to be paid on the Effective Date; and

                    (x) Borrower shall have disclosed to Lender the amount to be
deposited by Borrower into the  Administrative,  Priority and Convenience Claims
Reserve.

                  10.1.20. New Notes Indenture.  The New Notes Indenture and New
Senior Notes issued  thereunder  shall be in form and  substance  acceptable  to
Lender.

                  10.1.21.   Inventory   Turnover  Report.   Lender  shall  have
received, reviewed and found acceptable a written report from Borrower detailing
the turnover ratio with respect to the Inventory of Borrower as of May 8, 2001.

                  10.1.22.  Evidence of Name Change. Lender shall have received,
reviewed and found  acceptable the Articles of Amendment to Amended  Articles of
Incorporation  of Vista  Eyecare,  Inc.  filed by Borrower with the Secretary of
State of Georgia to effect the change of  Borrower's  name from "Vista  Eyecare,
Inc." to "National Vision, Inc."

         10.2.  Conditions Precedent to all Credit Extensions.  Lender shall not
be  required  to fund any  Revolver  Loans,  procure  any  Letters  of Credit or
otherwise extend any credit to or for the benefit of Borrower,  unless and until
each of the following conditions has been and continues to be satisfied:

                  10.2.1. No Defaults.  No Default or Event of Default exists at
the time of, or would  result from,  the funding of any  Revolver  Loan or other
extension of credit.

                  10.2.2.  Satisfaction  of Conditions in Other Loan  Documents.
Each of the conditions precedent set forth in any other Loan Document shall have
been and shall remain satisfied.

                  10.2.3. No Litigation. No action,  proceeding,  investigation,
regulation or  legislation  shall have been  instituted,  threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit,  or to obtain  damages in respect of, or which is related to or arises
out  of any of  this  Agreement  or any  of  the  other  Loan  Documents  or the
consummation of the transactions contemplated hereby or thereby.

                                      -38-

                  10.2.4.  No  Material  Adverse  Effect.  No event  shall  have
occurred and no condition shall exist which has or could be reasonably  expected
to have a Material Adverse Effect.

                  10.2.5. Borrowing Base Certificate. Lender shall have received
each  Borrowing  Base  Certificate  required by the terms of this  Agreement  or
otherwise requested by Lender.

                  10.2.6. LC Conditions.  With respect to the procurement of any
Letter of Credit after the Closing Date, each of the LC Conditions is satisfied.

                  10.2.7. Effective Date of Subsidiaries Plan of Reorganization.
With  respect to the making of Revolver  Loans,  the  procurement  of Letters or
Credit or other  extensions of credit to or for the benefit of Borrower from and
after  the  Effective  Date of the  Subsidiaries'  Plan of  Reorganization,  the
Subsidiaries  subject to the Subsidiaries'  Plan of Reorganization  and Borrower
shall have executed and delivered to Lender Guaranties,  Security Agreements and
other Loan Documents required by Lender.

         10.3 Limited Waiver of Conditions  Precedent.  If Lender shall make any
Revolver  Loan,  procure any Letter of Credit or otherwise  extend any credit to
Borrower  under this  Agreement at a time when any of the  foregoing  conditions
precedent are not satisfied  (regardless of whether the failure of  satisfaction
of any such conditions precedent was known or unknown to Lender), the funding of
such  Revolver  Loan  shall  not  operate  as a waiver of the right of Lender to
insist upon the  satisfaction  of all conditions  precedent with respect to each
subsequent  Borrowing  requested by Borrower or a waiver of any Default or Event
of  Default  as a  consequence  of the  failure  of any  such  conditions  to be
satisfied,  unless Lender in writing  waives the  satisfaction  of any condition
precedent in which event such waiver shall only be  applicable  for the specific
instance  given and only to the  extent  and for the  period  of time  expressly
stated in such written waiver.

SECTION 11.  EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT

         11.1. Events of Default. The occurrence or existence of any one or more
of the  following  events or conditions  shall  constitute an "Event of Default"
(each of which  Events of  Default  shall be deemed  to exist  unless  and until
waived):

                  11.1.1. Payment of Obligations. Borrower shall fail to pay any
of the Obligations on the due date thereof (whether due at stated  maturity,  on
demand, upon acceleration or otherwise).

                  11.1.2.  Misrepresentations.  Any representation,  warranty or
other written  statement to Lender by or on behalf of any Obligor,  whether made
in or furnished in compliance with or in reference to any of the Loan Documents,
proves to have been false or  misleading  in any  material  respect when made or
furnished or when reaffirmed pursuant to Section 8.2 hereof.

                  11.1.3.  Breach of Specific Covenants.  Borrower shall fail or
neglect to perform,  keep or observe any  covenant  contained  in Sections  6.6,
7.1.1,  7.2.4,  7.2.5, 7.2.6, 7.5, 9.1.1, 9.1.3, 9.1.6, 9.1.9, 9.2 or 9.3 hereof
on the date that Borrower is required to perform, keep or observe such covenant.

                                      -39-

                  11.1.4.  Breach of Other  Covenants.  Borrower  shall  fail or
neglect to perform,  keep or observe any covenant  contained  in this  Agreement
(other than a covenant  which is dealt with  specifically  elsewhere  in Section
11.1  hereof)  and the breach of such other  covenant  is not cured to  Lender's
satisfaction  within 30 days after the  sooner to occur of any Senior  Officer's
receipt of notice of such breach  from Lender or the date on which such  failure
or neglect first becomes known to any Senior Officer;  provided,  however,  that
such notice and  opportunity  to cure shall not apply in the case of any failure
to perform,  keep or observe any covenant which is not capable of being cured at
all or within  such 30-day  period or which is a willful  and knowing  breach by
Borrower.

                  11.1.5.  Default Under  Security  Documents/Other  Agreements.
Borrower or any other Obligor  shall default in the due and punctual  observance
or  performance of any liability or obligation to be observed or performed by it
under any of the Other Agreements or Security Documents.

                  11.1.6. Other Defaults.  There shall occur: (i) any default or
event of  default  on the part of  Borrower  under (a) any of the Host  Licensor
Agreements  (1) with  respect  to 15 or more  Host  Locations  under  such  Host
Licensor  Agreement that would result in  termination  with respect to such Host
Locations or (2) that would result in the termination the Wal-Mart  Agreement or
the Fred Meyer Agreement or (b) the New Notes Indenture or any of the New Senior
Notes issued thereunder;  or (ii) any default or event of default on the part of
Borrower or any Subsidiary under any agreement,  document or instrument to which
Borrower or any  Subsidiary is a party or by which Borrower or any Subsidiary or
any of their  respective  Properties is bound,  creating or relating to any Debt
(other than the Obligations) in excess of $250,000 if the payment or maturity of
such Debt may be  accelerated  in consequence of such event of default or demand
for payment of such Debt may be made.

                  11.1.7.   Uninsured  Losses.   Any  loss,  theft,   damage  or
destruction  of any  of the  Collateral  not  fully  covered  (subject  to  such
deductibles  as Lender  shall have  permitted)  by  insurance  if the amount not
covered by insurance exceeds $250,000.

                  11.1.8.  Material Adverse Effect.  There shall occur any event
or condition that has a Material Adverse Effect.

                  11.1.9.  Solvency.  Any Obligor shall cease to be Solvent.

                  11.1.10.  Insolvency  Proceedings.  Any Insolvency  Proceeding
shall be commenced by any Obligor; an Insolvency Proceeding is commenced against
any Obligor and any of the following events occur:  such Obligor consents to the
institution of the Insolvency Proceeding against it, the petition commencing the
Insolvency  Proceeding is not timely controverted by such Obligor,  the petition
commencing the Insolvency  Proceeding is not dismissed  within 60 days after the
date of the filing thereof (provided that, in any event,  during the pendency of
any such period, Lender shall be relieved from their obligation to make Revolver
Loans or otherwise  extend credit to or for the benefit of Borrower  hereunder),
an interim  trustee is  appointed  to take  possession  of all or a  substantial
portion of the  Properties of such Obligor or to operate all or any  substantial
portion of the business of such Obligor,  or an order for relief shall have been
issued or entered in connection with such Insolvency Proceeding;  or any Obligor
shall make an offer of  settlement,  extension or  composition  to its unsecured
creditors generally.

                  11.1.11. Business Disruption;  Condemnation. There shall occur
a cessation  of a  substantial  part of the business of any Obligor for a period
which may be  reasonably  expected  to have a Material  Adverse  Effect;  or any
Obligor shall suffer the loss or revocation of any license or permit now held or
hereafter acquired by such Obligor which is necessary to the continued or lawful
operation of its business;  or any Obligor  shall be enjoined,  restrained or in
any way prevented by court, governmental or administrative order from conducting
all or any material  part of its business  affairs;  or any material part of the
Collateral  shall be taken  through  condemnation  or the value of such Property
shall be materially impaired through condemnation.

                                      -40-

                  11.1.12.  Change of  Control.  There  shall  occur a Change of
Control.

                  11.1.13.  ERISA. A Reportable  Event shall occur which Lender,
in its  reasonable  discretion,  shall  determine  constitutes  grounds  for the
termination by the Pension Benefit  Guaranty  Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan,  or if any Plan shall be terminated or any such trustee shall be requested
or appointed,  or if Borrower, any Subsidiary or any Obligor is in "default" (as
defined  in  Section  4219(c)(5)  of  ERISA)  with  respect  to  payments  to  a
Multiemployer  Plan  resulting  from  Borrower's,   such  Subsidiary's  or  such
Obligor's  complete  or  partial  withdrawal  from such  Plan,  and such  event,
termination,  default or  withdrawal  could  reasonably be expected to result in
liability to Borrower or any Subsidiary in excess of $250,000 individually or in
the aggregate.

                  11.1.14.  Challenge to Loan  Documents.  Any Obligor or any of
its Affiliates shall challenge or contest in any action,  suit or proceeding the
validity  or  enforceability  of any of the  Loan  Documents,  the  legality  or
enforceability  of any of the  Obligations  or the perfection or priority of any
Lien granted to Lender,  or any of the Loan Documents ceases to be in full force
or effect  for any  reason  other  than a full or  partial  waiver or release by
Lender in accordance with the terms thereof.

                  11.1.15.  Judgment.  One or more  judgments  or orders for the
payment of money in an amount  that  exceeds  $250,000,  individually  or in the
aggregate,  $250,000, shall be entered against Borrower or any other Obligor and
either:  (i) enforcement  proceedings  shall have been commenced by any creditor
upon such judgment or order, or (ii) there shall be any period of 10 consecutive
days during which a stay of enforcement of such judgment or order,  by reason of
a pending appeal or otherwise, shall not be in effect.

                  11.1.16.   Repudiation  of  or  Default  Under  Guaranty.  Any
Guarantor  shall  revoke  or  attempt  to  revoke  the  Guaranty  signed by such
Guarantor, shall repudiate such Guarantor's liability thereunder, or shall be in
default under the terms thereof,  or shall fail to confirm in writing,  promptly
after receipt of Lender's written request  therefor,  such  Guarantor's  ongoing
liability under the Guaranty in accordance with the terms thereof.

                  11.1.17.  Criminal Forfeiture.  Any Obligor shall be convicted
under any criminal  law that could lead to a forfeiture  of any Property of such
Obligor.

                  11.1.18.  Plans of Reorganization.  Borrower or any Subsidiary
defaults in the performance of or compliance with any material term or provision
contained in the Plans of Reorganization.

                  11.2.  Acceleration  of  Obligations;  Termination of Revolver
Commitment. Without in any way limiting the right of Lender to demand payment of
any  portion  of the  Obligations  payable  on  demand in  accordance  with this
Agreement:

                  11.2.1.  Upon or at any time after the  occurrence  and during
the  continuation of an Event of Default (other than pursuant to Section 11.1.10
hereof) and for so long as such Event of Default shall exist,  Lender may in its
discretion (a) declare the principal of and any accrued interest on the Revolver
Loans and all other  Obligations  owing under any of the Loan  Documents  to be,
whereupon the same shall become  without  further notice or demand (all of which
notice and demand  Borrower  expressly  waives),  forthwith  due and payable and
Borrower shall  forthwith pay to Lender the entire  principal of and accrued and
unpaid  interest on the Revolver  Loans and other  Obligations  plus  reasonable
attorneys'  fees and expenses if such principal and interest are collected by or
through an attorney-at-law and (b) terminate the Revolver Commitment.

                  11.2.2.  Upon the occurrence of an Event of Default  specified
in Section 11.1.10 hereof, all of the Obligations shall become automatically due
and payable without declaration,  notice or demand by Lender to or upon Borrower
and the Revolver  Commitment shall  automatically  terminate as if terminated by
Lender  pursuant  to Section  5.2.1  hereof and with the  effects  specified  in
Section 5.2.4 hereof; provided,  however, that, if

                                      -41-

Lender  shall  continue to make  Revolver  Loans or otherwise  extend  credit to
Borrower  pursuant  to this  Agreement  after an  automatic  termination  of the
Revolver Commitment by reason of the commencement of an Insolvency Proceeding by
or against Borrower,  such Revolver Loans and other credit shall nevertheless be
governed by this Agreement and  enforceable  against and  recoverable  from each
Obligor as if such Insolvency Proceeding had never been instituted.

                  11.3.  Other  Remedies.  Upon and after the  occurrence  of an
Event of Default and for so long as such Event of Default  shall  exist,  Lender
may in its  discretion  exercise  from  time to time the  following  rights  and
remedies:

                  11.3.1.  All of the rights  and  remedies  of a secured  party
under the UCC or under other  Applicable  Law, and all other legal and equitable
rights to which Lender may be entitled under any of the Loan  Documents,  all of
which rights and remedies  shall be  cumulative  and shall be in addition to any
other rights or remedies  contained  in this  Agreement or any of the other Loan
Documents, and none of which shall be exclusive.

                  11.3.2.  The right to collect all amounts at any time  payable
to Borrower  from any  Account  Debtor or other  Person at any time  indebted to
Borrower.

                  11.3.3.  The right to take immediate  possession of any of the
Collateral,  and  to  (i)  require  Borrower  to  assemble  the  Collateral,  at
Borrower's  expense,  and make it available to Lender at a place  designated  by
Lender  which is  reasonably  convenient  to both  parties,  and (ii)  enter any
premises where any of the Collateral  shall be located and to keep and store the
Collateral on said premises  until sold (and if said premises be the Property of
Borrower, then Borrower agrees not to charge Lender for storage thereof).

                  11.3.4.  The right to sell or otherwise  dispose of all or any
Collateral  in its  then  condition,  or  after  any  further  manufacturing  or
processing  thereof, at public or private sale or sales, with such notice as may
be required by Applicable Law, in lots or in bulk, for cash or on credit, all as
Lender,  in its sole  discretion,  may deem advisable.  Borrower agrees that any
requirement of notice to Borrower or any other Obligor of any proposed public or
private  sale or other  disposition  of  Collateral  by  Lender  shall be deemed
reasonable notice thereof if given at least 10 days prior thereto, and such sale
may be at such  locations as Lender may  designate in said notice.  Lender shall
have the right to  conduct  such  sales on  Borrower's  or any  other  Obligor's
premises,  without charge therefor, and such sales may be adjourned from time to
time in accordance  with  Applicable  Law.  Lender shall have the right to sell,
lease or otherwise  dispose of the  Collateral,  or any part thereof,  for cash,
credit or any  combination  thereof,  and Lender may purchase all or any part of
the  Collateral at public or, if permitted by law,  private sale and, in lieu of
actual  payment  of such  purchase  price,  may set off the amount of such price
against  the  Obligations.   The  proceeds  realized  from  the  sale  or  other
disposition  of  any  Collateral  may be  applied,  first  to any  Extraordinary
Expenses  incurred by Lender,  second to interest accrued with respect to any of
the Obligations;  and third, to the principal balance of the Obligations. If any
deficiency  shall arise,  Obligors shall remain jointly and severally  liable to
Lender therefor.

                  11.3.5.  The right to the  appointment of a receiver,  without
notice of any kind  whatsoever,  to take possession of all or any portion of the
Collateral and to exercise such rights and powers as the court  appointing  such
receiver shall confer upon such receiver.

                                      -42-

                  11.3.6.  The right to require  Borrower to deposit with Lender
funds equal to the LC Outstandings  and, if Borrower fails promptly to make such
deposit,  Lender may advance such amount as a Revolver  Loan  (whether or not an
Out-of-Formula  Condition  exists or is created  thereby).  Any such  deposit or
advance  shall be held by Lender as a reserve to fund future  payments on any LC
Support.  At such time as the LC  Support  has been paid or  terminated  and all
Letters of Credit have been drawn upon or expired, any amounts remaining in such
reserve  shall be  applied  against  any  outstanding  Obligations,  or,  if all
Obligations have been indefeasibly paid in full, returned to Borrower.

Lender is hereby granted an irrevocable, non-exclusive license or other right to
use,  license or sub-license  (exercisable  without  payment of royalty or other
compensation  to any  Obligor  or any  other  Person)  any or all of  Borrower's
Intellectual  Property and all of  Borrower's  computer  hardware and  software,
trade secrets, brochures, customer lists, promotional and advertising materials,
labels,  and  packaging  materials,  and any  Property of a similar  nature,  in
advertising  for sale,  marketing,  selling and collecting and in completing the
manufacturing  of any Collateral,  and Borrower's  rights under all licenses and
all franchise agreements shall inure to Lender's benefit.

         11.4.  Setoff.  In addition to any Liens  granted under any of the Loan
Documents and any rights now or hereafter available under Applicable Law, Lender
(and each of its  Affiliates) is hereby  authorized by Borrower at any time that
an Event of Default exists,  without notice to Borrower or any other Person (any
such notice being hereby expressly  waived) to set off and to appropriate and to
apply any and all  deposits,  general or special  (including  Debt  evidenced by
certificates  of deposit  whether  matured or unmatured (but not including trust
accounts))  and any other Debt at any time held or owing by Lender or any of its
Affiliates  to or for the  credit or the  account  of  Borrower  against  and on
account of the  Obligations  of Borrower  arising  under the Loan  Documents  to
Lender  or  any  of  its  Affiliates,   including  all  Revolver  Loans  and  LC
Outstandings  and all claims of any nature or  description  arising out of or in
connection with this Agreement,  irrespective of whether or not (i) Lender shall
have made any demand hereunder, (ii) Lender shall have declared the principal of
and interest on the Revolver Loans and other amounts due hereunder to be due and
payable as permitted by this Agreement and even though such  Obligations  may be
contingent or unmatured or (iii) the Collateral for the Obligations is adequate.

         11.5.    Remedies Cumulative; No Waiver.

                  11.5.1.  All covenants,  conditions,  provisions,  warranties,
guaranties,  indemnities,  and other  undertakings of Borrower contained in this
Agreement and the other Loan Documents, or in any document referred to herein or
contained  in any  agreement  supplementary  hereto or in any schedule or in any
Guaranty given to Lender or contained in any other agreement  between Lender and
Borrower,  heretofore,  concurrently, or hereafter entered into, shall be deemed
cumulative  to and  not  in  derogation  or  substitution  of any of the  terms,
covenants,  conditions,  or agreements of Borrower herein contained.  The rights
and remedies of Lender under this Agreement and the other Loan  Documents  shall
be  cumulative  and not  exclusive  of any rights or remedies  that Lender would
otherwise have.

                  11.5.2.  The  failure  or delay of  Lender to  require  strict
performance  by Borrower of any  provision  of any of the Loan  Documents  or to
exercise or enforce any rights, Liens, powers, or remedies under any of the Loan
Documents  or with  respect to any  Collateral  shall not operate as a waiver of
such performance, Liens, rights, powers and remedies, but all such requirements,
Liens,  rights,  powers,  and remedies  shall  continue in full force and effect
until all Revolver Loans and all other Obligations owing or to become owing from
Borrower to Lender shall have been fully  satisfied.  None of the  undertakings,
agreements,  warranties,  covenants and representations of Borrower contained in
this  Agreement  or any of the other Loan  Documents  and no Event of Default by
Borrower  under this  Agreement or any other Loan  Documents  shall be deemed to
have been suspended or waived by Lender,  unless such suspension or waiver is by
an instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to Borrower.

                                      -43-

                  11.5.3.  If Lender shall accept  performance  by Borrower,  in
whole or in part, of any obligation that Borrower is required by any of the Loan
Documents  to  perform  only when a Default or Event of  Default  exists,  or if
Lender shall  exercise any right or remedy under any of the Loan  Documents that
may not be  exercised  other  than when a Default  or Event of  Default  exists,
Lender's  acceptance of such performance by Borrower or Lender's exercise of any
such right or remedy  shall not operate to waive any such Event of Default or to
preclude the exercise by Lender of any other right or remedy,  unless  otherwise
expressly agreed in writing by Lender, as the case may be.

SECTION 12.  MISCELLANEOUS

         12.1. Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes  and  appoints  Lender  (and all  Persons  designated  by Lender) as
Borrower's true and lawful attorney (and  agent-in-fact) and Lender, or Lender's
designee,  may, without notice to Borrower and in either  Borrower's or Lender's
name, but at the cost and expense of Borrower (which appointment is coupled with
an interest):

                  12.1.1.  At such time or times as Lender or said designee,  in
its sole discretion, may determine,  endorse Borrower's name on any Payment Item
or proceeds of the Collateral  which come into the possession of Lender or under
Lender's control.

                  12.1.2.  At such time  that an Event of  Default  exists:  (i)
demand payment of the Accounts from the Account Debtors,  enforce payment of the
Accounts by legal  proceedings  or  otherwise,  and  generally  exercise  all of
Borrower's  rights and remedies with respect to the  collection of the Accounts;
(ii)  settle,  adjust,  compromise,  discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or  other  Collateral;  (iii)  sell or  assign  any of the  Accounts  and  other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems  advisable;  (iv) take control,  in any manner,  of any item of payment or
proceeds relating to any Collateral;  (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of Lien, assignment or satisfaction of Lien or similar document
in connection with any of the Collateral;  (vi) receive, open and dispose of all
mail  addressed  to  Borrower  and to notify  postal  authorities  to change the
address for  delivery  thereof to such  address as Lender may  designate;  (vii)
endorse  the name of  Borrower  upon any of the  items of  payment  or  proceeds
relating  to any  Collateral  and  deposit  the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document,  instrument,  invoice,  freight bill, bill of lading or similar
document or  agreement  relating to any Accounts or Inventory of any Obligor and
any  other  Collateral;  (ix)  use  Borrower's  stationery  and sign the name of
Borrower  to  verifications  of the  Accounts  and  notices  thereof  to Account
Debtors; (x) use the information recorded on or contained in any data processing
equipment  and  computer   hardware  and  software  relating  to  the  Accounts,
Inventory, Equipment and any other Collateral; (xi) make and adjust claims under
policies of insurance;  (xii) sign the name of Borrower on any proof of claim in
bankruptcy against Account Debtors and on notices of Liens, claims of mechanic's
Liens or  assignments  or releases of  mechanic's  Liens  securing any Accounts;
(xiii) take all action as may be  necessary  to obtain the payment of any letter
of credit or banker's  acceptance of which Borrower is a beneficiary;  and (xiv)
do all other acts and things necessary,  in Lender's  determination,  to fulfill
Borrower's obligations under this Agreement.

         12.2. General Indemnity. Borrower hereby agrees to indemnify and defend
the Lender  Indemnitees  and to hold the Lender  Indemnitees  harmless  from and
against any Claim ever  suffered  or  incurred by any of the Lender  Indemnitees
arising out of or related to this Agreement or any of the other Loan  Documents,
the  performance by Lender of its duties or the exercise of any of its rights or
remedies under this Agreement or any of the other Loan Documents, or as a result
of Borrower's failure to observe,  perform or discharge any of Borrower's duties
hereunder.  Borrower  shall also  indemnify  and  defend the Lender  Indemnitees
against and save the Lender  Indemnitees  harmless from all Claims of any Person
arising out of,  related to, or with  respect to any  transactions  entered into
pursuant  to this  Agreement  or  Lender's  Lien  upon the  Collateral.  Without
limiting the  generality of the foregoing,  this  indemnity  shall extend to any
Claims  asserted  against or  incurred by any of the Lender

                                      -44-

Indemnitees by any Person under any Environmental Laws or similar laws by reason
of Borrower's or any other  Person's  failure to comply with laws  applicable to
solid or hazardous waste materials or other toxic substances.  Additionally,  if
any Taxes  (excluding Taxes imposed upon or measured solely by the net income of
Lender, but including any intangibles tax, stamp tax, recording tax or franchise
tax) shall be payable by Lender or any  Obligor on account of the  execution  or
delivery of this Agreement, or the execution, delivery, issuance or recording of
any of the other Loan  Documents,  or the  creation or  repayment  of any of the
Obligations  hereunder,  by reason of any  Applicable  Law now or  hereafter  in
effect, Borrower will pay (or will promptly reimburse Lender for the payment of)
all such Taxes, including any interest and penalties thereon, and will indemnify
and  hold  Lender  Indemnitees  harmless  from  and  against  all  liability  in
connection  therewith.  The  foregoing  indemnities  shall  not  apply to Claims
incurred by any of the Lender  Indemnitees  as a direct and proximate  result of
their own gross negligence or willful misconduct.

         12.3.  Survival  of All  Indemnities.  Notwithstanding  anything to the
contrary in this Agreement or any of the other Loan Documents, the obligation of
Borrower with respect to each indemnity given by it in this Agreement,  or shall
survive the payment in full of the Obligations and the termination of any of the
Revolver Commitment.

         12.4.  Modification of Agreement;  Sale of Interest. This Agreement may
not be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender.

         12.5. Severability. Wherever possible, each provision of this Agreement
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
Applicable Law, but if any provision of this Agreement shall be prohibited by or
invalid under  Applicable Law, such provision  shall be ineffective  only to the
extent of such prohibition or invalidity,  without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

         12.6. Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements  and the  Security  Documents  are hereby  made  cumulative  with the
provisions of this Agreement.  Without limiting the generality of the foregoing,
the parties acknowledge that this Agreement and the other Loan Documents may use
several  different  limitations,  tests or  measurements to regulate the same or
similar matters and that such limitations, tests and measures are cumulative and
each must be  performed,  except as may be  expressly  stated to the contrary in
this Agreement.  Except as otherwise provided in any of the other Loan Documents
by specific  reference to the  applicable  provision of this  Agreement,  if any
provision   contained  in  this  Agreement  is  in  direct   conflict  with,  or
inconsistent  with,  any  provision  in any of the  other  Loan  Documents,  the
provision contained in this Agreement shall govern and control.

         12.7.  Execution in  Counterparts.  This  Agreement and any  amendments
hereto may be executed in any number of  counterparts  and by different  parties
hereto in separate  counterparts,  each of which when so executed and  delivered
shall be deemed to be an original and all of which  counterparts  taken together
shall constitute but one and the same instrument.

         12.8.  Lender's  Consent.  Whenever  Lender's consent is required to be
obtained  under this Agreement or any of the other Loan Documents as a condition
to any action, inaction,  condition or event, Lender shall be authorized to give
or withhold its consent in its sole and absolute discretion and to condition its
consent upon the giving of additional  collateral  security for the Obligations,
the payment of money or any other matter.

                                      -45-

         12.9.  Notices.  All  notices,  requests and demands to or upon a party
hereto shall be in writing and shall be sent by certified  or  registered  mail,
return receipt requested,  personal delivery against receipt or by telecopier or
other  facsimile  transmission  and shall be deemed to have been validly served,
given or delivered when delivered  against  receipt or, in the case of facsimile
transmission,  when  received  (if on a Business  Day and, if not  received on a
Business Day,  then on the next Business Day after  receipt) at the office where
the noticed  party's  telecopier  is  located,  in each case,  addressed  to the
noticed party at the address  shown for such party on the signature  page hereof
or to such other  address as each party may designate for itself by notice given
in accordance with this Section 12.9.  Notwithstanding the foregoing, no notice,
request or demand to or upon  Lender  pursuant to Sections  1.3,  2.1.2,  3.1 or
5.2.2 shall be effective until received by Lender.  Any written notice,  request
or  demand  that is not sent in  conformity  with the  provisions  hereof  shall
nevertheless  be effective  on the date that such  notice,  request or demand is
actually  received by the Person to whose  attention  at the noticed  party such
notice, request or demand is required to be sent.

         12.10. Performance of Borrower's Obligations. If Borrower shall fail to
discharge any covenant,  duty or obligation  hereunder or under any of the other
Loan  Documents,  Lender may, in its sole discretion at any time or from time to
time, for Borrower's account and at Borrower's expense, pay any amount or do any
act  required  of  Borrower  hereunder  or under  any of the Loan  Documents  or
otherwise  lawfully  requested by Lender to enforce any of the Loan Documents or
Obligations,  preserve,  protect,  insure or maintain any of the Collateral,  or
preserve, defend, protect or maintain the validity or priority of Lender's Liens
in any  of the  Collateral,  including  the  payment  of  any  judgment  against
Borrower,  any  insurance  premium,  any  warehouse  charge,  any  finishing  or
processing  charge,  any landlord claim,  any other Lien upon or with respect to
any of the  Collateral.  All  payments  that Lender may make under this  Section
12.10  and  all  out-of-pocket  costs  and  expenses  (including   Extraordinary
Expenses)  that Lender pays or incurs in connection  with any action taken by it
under this  Section  12.10 shall be  reimbursed  to Lender by Borrower on demand
with  interest  from the date such payment is made or such costs or expenses are
incurred  to the date of payment  thereof at the  Default  Rate  applicable  for
Revolver  Loans.  Any payment  made or other  action  taken by Lender under this
Section shall be without  prejudice to any right to assert,  and without  waiver
of, an Event of Default  hereunder and to proceed  thereafter as provided herein
or in any of the other Loan Documents.

         12.11. Credit Inquiries.  Borrower hereby authorizes and permits Lender
(but Lender shall have no obligation)  to respond to usual and customary  credit
inquiries from third parties concerning Borrower or any Subsidiaries.

         12.12. Time of Essence.  Time is of the essence of this Agreement,  the
Other Agreements and the Security Documents.

         12.13.  Indulgences Not Waivers.  Lender's failure at any time or times
hereafter,  to require  strict  performance by Borrower of any provision of this
Agreement shall not waive,  affect or diminish any right of Lender thereafter to
demand strict compliance and performance therewith.

         12.14.  Entire  Agreement;  Appendix A,  Exhibits and  Schedules.  This
Agreement and the other Loan  Documents,  together  with all other  instruments,
agreements and certificates  executed by the parties in connection  therewith or
with reference  thereto,  embody the entire  understanding and agreement between
the parties  hereto and thereto  with respect to the subject  matter  hereof and
thereof and  supersede all prior  agreements,  understandings  and  inducements,
whether  express or implied,  oral or written.  Appendix A, each of the Exhibits
and each of the Schedules  attached hereto are incorporated  into this Agreement
and by this reference made a part hereof.

         12.15.  Interpretation.  No provision  of this  Agreement or any of the
other  Loan  Documents  shall  be  construed   against  or  interpreted  to  the
disadvantage of any party hereto by any court or other  governmental or judicial
authority by reason of such party having or being deemed to have  structured  or
dictated such provision.

         12.16.  Advertising  and Publicity.  With the prior consent of Borrower
(which  shall not be  unreasonably  withheld or  delayed),  Lender may issue and
disseminate to the public (by advertisement or otherwise) information describing
the credit  accommodations  made available by Lender pursuant to this Agreement,
including  the name and address of  Borrower,  the amount and  security  for the
credit  accommodations and the general nature of Borrower's  business,  provided
that detail  regarding  terms (such as  interest  rate) may be provided  only to
industry publications, such as the "LPC Gold Sheets."

                                      -46-

         12.17.  Governing  Law;  Consent  to  Forum.  This  Agreement  has been
negotiated,  executed and  delivered at and shall be deemed to have been made in
Atlanta,  Georgia.  This  Agreement  shall  be  governed  by  and  construed  in
accordance with the laws of the State of Georgia; provided, however, that if any
of the Collateral shall be located in any jurisdiction  other than Georgia,  the
laws of such  jurisdiction  shall govern the method,  manner and  procedure  for
foreclosure  of  Lender's  Lien  upon such  Collateral  and the  enforcement  of
Lender's  other  remedies in respect of such  Collateral  to the extent that the
laws of such  jurisdiction  are different from or inconsistent  with the laws of
the State of Georgia.  As part of the consideration for new value received,  and
regardless of any present or future  domicile or principal  place of business of
Borrower or Lender,  Borrower hereby consents and agrees that the Superior Court
of Cobb County,  Georgia,  or, at Lender's  option,  the United States  District
Court for the  Northern  District  of  Georgia,  Atlanta  Division,  shall  have
jurisdiction to hear and determine any claims or disputes  between  Borrower and
Lender  pertaining to this  Agreement or to any matter arising out of or related
to this Agreement.  Borrower  expressly  submits and consents in advance to such
jurisdiction  in any action or suit  commenced  in any such court,  and Borrower
hereby waives any  objection  that Borrower may have based upon lack of personal
jurisdiction,  improper venue or forum non conveniens and hereby consents to the
granting  of such legal or  equitable  relief as is deemed  appropriate  by such
Court.  Borrower  hereby waives personal  service of the summons,  complaint and
other process  issued in any such action or suit and agrees that service of such
summons,  complaint and other process may be made by certified mail addressed to
Borrower  at the address set forth in this  Agreement  and that  service so made
shall be deemed completed upon the earlier of Borrower's  actual receipt thereof
or 5 Business  Days after deposit in the U.S.  mails,  proper  postage  prepaid.
Nothing  in this  Agreement  shall be deemed or  operate  to affect the right of
Lender to serve  legal  process  in any other  manner  permitted  by law,  or to
preclude the  enforcement  by Lender of any  judgment or order  obtained in such
forum or the taking of any action  under this  Agreement  to enforce same in any
other appropriate forum or jurisdiction.

         12.18.  Waivers  by  Borrower.  To  the  fullest  extent  permitted  by
Applicable  Law,  Borrower  waives (i) the right to trial by jury (which  Lender
hereby also waives) in any action, suit,  proceeding or counterclaim of any kind
arising out of or related to any of the Loan  Documents,  the Obligations or the
Collateral;  (ii)  presentment,  demand and protest  and notice of  presentment,
protest,  default,  non  payment,  maturity,  release,  compromise,  settlement,
extension or renewal of any or all commercial paper, accounts,  contract rights,
documents,  instruments, chattel paper and guaranties at any time held by Lender
on which  Borrower  may in any way be liable and hereby  ratifies  and  confirms
whatever Lender may do in this regard;  (iii) notice prior to taking  possession
or control of the  Collateral or any bond or security which might be required by
any court prior to allowing  Lender to exercise any of Lender's  remedies;  (iv)
the benefit of all  valuation,  appraisement  and exemption  laws; (v) any claim
against Agent or any Lender, on any theory of liability, for special,  indirect,
consequential,  or punitive  damages  (as  opposed to direct or actual  damages)
arising  out  of,  in  connection  with,  or as a  result  of,  any of the  Loan
Documents, any transaction thereunder or the use of the proceeds of any Revolver
Loans;  and (vi) notice of acceptance  hereof.  Borrower  acknowledges  that the
foregoing  waivers  are a material  inducement  to Lender's  entering  into this
Agreement  and that Lender is relying upon the  foregoing  waivers in its future
dealings with Borrower.  Borrower  warrants and represents  that it has reviewed
the foregoing  waivers with its legal counsel and has knowingly and  voluntarily
waived its jury trial rights following  consultation with legal counsel.  In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the Court.

                         [Signatures on following page]

                                      -47-

         IN WITNESS  WHEREOF,  this Agreement has been duly executed in Atlanta,
Georgia, as of the day and year specified at the beginning of this Agreement.

                                        NATIONAL VISION, INC.
                                        ("Borrower")

                                        By:  /s/ Angus C. Morrison
                                           -------------------------------------
                                              Angus C. Morrison, Senior Vice
                                              President

                                        Address:
                                        296 Grayson Highway
                                        Lawrenceville, Georgia  30045-5737
                                        Attention:  Chief Financial Officer
                                        Facsimile No.: (770) 822-2027

                                        With a copy to:
                                        --------------

                                        296 Grayson Highway
                                        Lawrenceville, Georgia  30045-5737
                                        Attention:  General Counsel
                                        Facsimile No.:  (770) 822-2029

                                        Kilpatrick Stockton LLP
                                        1100 Peachtree Street, N.E.
                                        Suite 2800
                                        Atlanta, Georgia  30309
                                        Attention:  David Stockton, Esq.

                                        Facsimile No.:  (404) 815-6555

                                        Accepted in Atlanta, Georgia:
                                        -----------------------------

                                        FLEET CAPITAL CORPORATION
                                        ("Lender")

                                        By:   /s/ David C. Rich
                                           -------------------------------------
                                              David C. Rich, Vice President

                                        Address and LIBOR Lending Office:
                                        300 Galleria Parkway, N.W.
                                        Suite 800
                                        Atlanta, Georgia 30339
                                        Attention: Loan Administration Manager
                                        ---------
                                        Facsimile No.: (770) 859-2437

                                        With a copy to:
                                        --------------

                                        Parker, Hudson, Rainer & Dobbs LLP
                                        1500 Marquis Two Tower
                                        285 Peachtree Center Avenue, N.E.
                                        Atlanta, Georgia 30303
                                        Attention:  C. Edward Dobbs, Esq.
                                        Facsimile No.:  (404) 522-8409

                                      -48-

                                   APPENDIX A

                               GENERAL DEFINITIONS

         When used in the Loan and Security  Agreement  dated as of May 30, 2001
(as at  any  time  amended,  the  "Agreement"),  by and  between  Fleet  Capital
Corporation  and  National  Vision,  Inc.,  the  following  terms shall have the
following  meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa):

                  Account - shall have the meaning  ascribed to "account" in the
         UCC and shall  include  any and all rights of  Borrower  to payment for
         goods sold or leased or for services rendered that are not evidenced by
         an Instrument or Chattel Paper, whether or not they have been earned by
         performance.

                  Account  Debtor - any Person  who is or may  become  obligated
         under or on account of an Account.

                  Accounts  Collateral - all Accounts of Borrower and all right,
         title and  interest of Borrower in or to any returned  Goods,  together
         with all rights, titles,  securities and guarantees with respect to any
         Account,  including  any  rights  to  stoppage  in  transit,  replevin,
         reclamation  and  resales,  and all  related  security  Liens,  whether
         voluntary or involuntary, in each case whether now existing or owned or
         hereafter created, arising or acquired.

                  Accounts  Formula  Amount  -  on  any  date  of  determination
         thereof,  an amount equal to the lesser of (i) the Revolver  Commitment
         on such date or (ii) an amount  equal to (a) 85% of the Net  Realizable
         Value of Eligible Accounts on such date minus (b) 85% of the Ineligible
         Billed Accounts Amount on such date.

                  Adjusted LIBOR Rate - with respect to each Interest Period for
         a LIBOR Loan, an interest rate per annum (rounded upwards,  to the next
         1/16th of 1%) equal to the quotient of (a) the LIBOR Rate in effect for
         such  Interest  Period  divided  by (b) a  percentage  (expressed  as a
         decimal) equal to 100% minus Statutory Reserves.

                  Administrative  Claims - shall have the  meaning  given to the
         term "Administrative Claims" in the Plans of Reorganization.

                  Administrative,  Priority  and  Convenience  Claims  Reserve -
         shall have the meaning given to the term "Administrative,  Priority and
         Convenience Claims Reserve" in the Plans of Reorganization.

                  Affiliate  - a Person  (other  than a  Subsidiary):  (i) which
         directly or indirectly through one or more intermediaries  controls, or
         is controlled by, or is under common control with, another Person; (ii)
         which beneficially owns or holds 10% or more of any class of the Equity
         Interests  of a Person;  or (iii) 10% or more of the  Equity  Interests
         with  power to vote of which is  beneficially  owned or held by another
         Person  or  a  Subsidiary  of  another  Person.  For  purposes  hereof,
         Acontrol@ means the possession, directly or indirectly, of the power to
         direct or cause the  direction  of the  management  and  policies  of a
         Person,  whether  through  the  ownership  of any Equity  Interest,  by
         contract or otherwise.

                  Agreement - the Loan and Security Agreement referred to in the
         first  sentence of this Appendix A, all Exhibits and Schedules  thereto
         and this Appendix A.

                  Agreement   Regarding   Per-Se   Agreements  -  the  Agreement
         Regarding  Per-Se  Agreements  to be  executed  by Borrower in favor of
         Lender, and acknowledged by Per-Se, on or before the Closing Date.

                  Alexis - Alexis Holding Company, Inc., an Arizona corporation.

                  Anti-Kickback  Statutes  -  Section  1128B(b)  of  the  Social
         Security Act and any other similar law,  rule or regulation  adopted by
         any Governmental Authority.

                  Applicable Law - all laws, rules and regulations applicable to
         the Person, conduct,  transaction,  covenant, Loan Document or Material
         Contract in question, including all applicable common law and equitable
         principles; all provisions of all applicable state, federal and foreign
         constitutions,   statutes,   rules,   regulations  and  all  orders  of
         governmental  bodies;  and orders,  judgments and decrees of all courts
         and arbitrators.

                  Availability  - on any  date,  the  amount  that  Borrower  is
         entitled to borrow as Revolver  Loans on such date,  such amount  being
         the difference derived when the sum of the principal amount of Revolver
         Loans then outstanding (including any amounts that Lender may have paid
         for the account of Borrower  pursuant to any of the Loan  Documents and
         that have not been  reimbursed  by  Borrower)  is  subtracted  from the
         Borrowing  Base on such date. If the amount  outstanding is equal to or
         greater than the Borrowing Base, Availability is zero.

                  Availability  Reserve - on any date of determination  thereof,
         an amount equal to the sum of the following (without duplication) (i) a
         reserve for general inventory  shrinkage,  whether as a result of theft
         or  otherwise,  that is  determined  by Lender from time to time in its
         reasonable credit judgment based upon Borrower's  historical losses due
         to such  shrinkage;  (ii) all  amounts of past due rent,  fees or other
         charges  owing  at such  time by any  Obligor  to any  landlord  of any
         premises  where any of the  Collateral is located or to any  processor,
         repairman,  mechanic  or  other  Person  who  is in  possession  of any
         Collateral  or has asserted any Lien or claim  thereto  (other than any
         landlord or other  Person who has  executed a Landlord  Waiver or other
         subordination  agreement  satisfactory  to  Lender);  (iii) any amounts
         which any Obligor is obligated to pay pursuant to the provisions of any
         of the Loan Documents that Lender elects to pay for the account of such
         Obligor  in  accordance  with  authority  contained  in any of the Loan
         Documents;  (iv) the LC  Outstandings  on such  date,  (v) if Lender so
         elects,  any amount  received by Lender from the Business  Interruption
         Insurance  Assignment  and  applied  to the  Revolver  Loans;  (vi) the
         aggregate  amount of reserves  established  by Lender in its reasonable
         credit judgment in respect of ACH (automated  clearinghouse)  transfers
         or  obligations  of Borrower  under any Interest  Rate Contract or Cash
         Management Agreement;  (vii) all customer deposits or other prepayments
         held by Borrower relating to Healthcare  Receivables that have not been
         taken into account to reduce the Net  Realizable  Value of any Eligible
         Account of Borrower;  (viii) an amount equal to  $1,500,000  to reflect
         the minimum Availability  requirement set forth in Section 9.1.9 of the
         Agreement;  (ix) the Dilution Reserve;  (x) the Collection Reserve; and
         (xi)  such  additional  reserves  as Lender  in its  reasonable  credit
         judgment may elect to impose from time to time.

                  Average  Revolver  Loan  Balance - for any period,  the amount
         obtained  by  adding  the  unpaid  balance  of  Revolver  Loans  and LC
         Outstandings at the end of each day during the period in question,  and
         by dividing such sum by the number of days in such period.

                  Bank - Fleet National Bank and its successors and assigns.

                  Bankruptcy Code - title 11 of the United States Code.

                  Bankruptcy Court - the United States  Bankruptcy Court for the
         Northern District of Georgia, Atlanta Division.

                  Bankruptcy Rules - the Federal Rules of Bankruptcy  Procedure,
         as prescribed by the United States  Supreme  Court,  and local rules of
         the Bankruptcy Court, as the context may require.

                                      -2-

                  Base Rate - the rate of interest  announced  or quoted by Bank
         from time to time as its prime rate.  The prime rate  announced by Bank
         is a reference  rate and does not  necessarily  represent the lowest or
         best rate charged by Bank.  Bank may make loans or other  extensions of
         credit at, above or below its  announced  prime rate. If the prime rate
         is  discontinued  by Bank as a standard,  a comparable  reference  rate
         designated by Bank as a substitute therefor shall be the Base Rate.

                  Base Rate Loan - a Revolver Loan, or portion  thereof,  during
         any  period in which it bears  interest  at a rate  based upon the Base
         Rate.

                  Board of  Governors  - the Board of  Governors  of the Federal
         Reserve System.

                  Borrowing - a borrowing  consisting  of Revolver  Loans of one
         Type made on the same day by Lender or a conversion  of a Revolver Loan
         or Revolver Loans of one Type from Lender on the same day.

                  Borrowing  Base - on any  date of  determination  thereof,  an
         amount  equal  to the  lesser  of:  (a)  the  amount  of  the  Revolver
         Commitment on such date minus the LC  Outstandings on such date; or (b)
         an amount equal to (i) the sum of the Accounts  Formula Amount plus the
         Inventory  Formula  Amount on such  date  minus  (ii) the  Availability
         Reserve on such date.

                  Borrowing  Base  Certificate  - a  certificate,  in  the  form
         requested by Lender,  by which Borrower  shall certify to Lender,  with
         such frequency as Lender may request,  the amount of the Borrowing Base
         as of the date of the  certificate  (which  date shall be not more than
         three (3) Business  Days earlier  than the date of  submission  of such
         certificate to Lender) and the calculation of such amount.

                  Business  Day - any day  excluding  Saturday,  Sunday  and any
         other  day  that is a legal  holiday  under  the  laws of the  State of
         Georgia or is a day on which banking institutions located in such state
         are closed; provided, however, that when used with reference to a LIBOR
         Loan  (including the making,  continuing,  prepaying or repaying of any
         LIBOR  Loan),  the term  "Business  Day" shall also  exclude any day on
         which banks are not open for dealings in Dollar  deposits on the London
         interbank market.

                  Business  Interruption  Insurance  Assignment - the Collateral
         Assignment  of  Business  Interruption  Insurance  to  be  executed  by
         Borrower on or before the Closing Date in favor of Lender,  in form and
         substance  satisfactory  to Lender,  as security for the payment of the
         Obligations.

                  Capital   Expenditures  -  expenditures  made  or  liabilities
         incurred  for the  acquisition  of any fixed  assets  or  improvements,
         replacements,  substitutions  or additions  thereto which have a useful
         life of more than one year,  including the total  principal  portion of
         Capitalized Lease Obligations.

                  Capitalized   Lease  Obligation  -  any  Debt  represented  by
         obligations  under  a lease  that is  required  to be  capitalized  for
         financial reporting purposes in accordance with GAAP.

                  Cash Collateral - cash or Cash  Equivalents,  and any interest
         earned  thereon,  that is deposited with Lender in accordance  with the
         Agreement as security for the Obligations to the extent provided in the
         Agreement.

                  Cash Collateral  Account - a demand  deposit,  money market or
         other account  established by Lender at such  financial  institution as
         Lender may select in its discretion, which account shall be in Lender's
         name and subject to Lender's Liens.

                  Cash Equivalents - (i) marketable direct obligations issued or
         unconditionally  guaranteed by the United States  government and backed
         by the full  faith and credit of the United  States  government  having
         maturities  of not more  than 12 months  from the date of  acquisition;
         (ii)  domestic   certificates  of  deposit

                                      -3-

         and time deposits having maturities of not more than 12 months from the
         date of acquisition, bankers' acceptances having maturities of not more
         than  12  months  from  the  date of  acquisition  and  overnight  bank
         deposits,  in each case issued by any commercial  bank organized  under
         the laws of the United  States,  any state  thereof or the  District of
         Columbia, which at the time of acquisition are rated A-1 (or better) by
         S&P or P-1 (or  better) by  Moody's,  and  (unless  issued by Lender or
         Bank) not subject to offset  rights in favor of such bank  arising from
         any banking  relationship with such bank; (iii) repurchase  obligations
         with a term of not more than 30 days for  underlying  securities of the
         types described in clauses (i) and (ii) entered into with any financial
         institution meeting the qualifications  specified in clause (ii) above;
         and (iv) commercial paper having at the time of investment therein or a
         contractual commitment to invest therein a rating of A-1 (or better) by
         S&P or P-1 (or  better) by  Moody's,  and  having a  maturity  within 9
         months after the date of acquisition thereof.

                  Cash Management  Agreements - any agreement  entered into from
         time to time between  Borrower or any of its  Subsidiaries,  on the one
         hand,  and  Bank  or any of its  Affiliates  or any  other  banking  or
         financial institution, on the other, in connection with cash management
         services  for  operating,  collections,  payroll and trust  accounts of
         Borrower  or its  Subsidiaries  provided by such  banking or  financial
         institution,  including automatic  clearinghouse  services,  controlled
         disbursement services, electronic funds transfer services,  information
         reporting  services,  lockbox services,  stop payment services and wire
         transfer services.

                  CERCLA - the Comprehensive Environmental Response Compensation
         and  Liability  Act,  42  U.S.C.  ' 9601 et seq.  and its  implementing
         regulations.

                  Change of Control - (a) any  "person"  or "group"  (within the
         meaning of Sections  13(d) and  14(d)(2) of the  Exchange  Act) becomes
         after the Closing Date the "beneficial owner" (as defined in Rule 13d-3
         under  the  Exchange  Act),  directly  or  indirectly,   of  more  than
         thirty-five  percent  (35%) of the total voting power of all classes of
         stock then outstanding of Borrower  entitled to vote in the election of
         directors  or (b)  during any period of  twenty-four  (24)  consecutive
         months  commencing  after  the  Closing  Date,  individuals  who at the
         beginning of such period constituted the Board of Directors of Borrower
         (together with any new directors  whose election by such Board or whose
         nomination for election by the stockholders of Borrower was approved by
         a  majority  of the  directors  then  still in office  who were  either
         directors  at the  beginning  of  such  period  or  whose  election  or
         nomination  for election  was  previously  so  approved)  cease for any
         reason to  constitute  a majority  of such Board of  Directors  then in
         office.

                  Chapter 11 Cases - the Chapter 11 cases  commenced by Borrower
         and certain of its  Subsidiaries,  being styled,  In re: Vista Eyecare,
         Inc.,  et al.,  Chapter  11 Case Nos.  00-65214  to  00-65224,  Jointly
         Administered, Judge James E. Massey presiding.

                  Chattel  Paper - shall  have the  meaning  given  to  "chattel
         paper" in the UCC.

                  Claims   -  any  and   all   claims,   demands,   liabilities,
         obligations,  losses, damages,  penalties,  actions,  judgments, suits,
         awards,  remedial response costs, expenses or disbursements of any kind
         or nature  whatsoever  (including  actual  and  reasonable  attorneys',
         accountants',  consultants' or paralegals' fees and expenses),  whether
         arising under or in connection with the Loan Documents,  any Applicable
         Law (including any  Environmental  Laws) or otherwise,  that may now or
         hereafter  be suffered or incurred by a Person and whether  suffered or
         incurred  in  or  as  a  result  of  any   investigation,   litigation,
         arbitration or other judicial or non-judicial proceeding or any appeals
         related thereto.

                  Class 1 Claim - shall  have  the  meaning  given  to the  term
         "Class 1 Claim" in the Plans of Reorganization.

                  Class 3 Claim - shall  have  the  meaning  given  to the  term
         "Class 3 Claim" in the Plans of Reorganization.

                                      -4-

                  Class 4 Claim - shall  have  the  meaning  given  to the  term
         "Class 4 Claim" in the Plans of Reorganization.

                  Closing  Date - the  date  on  which  all  of  the  conditions
         precedent in Section 10 of the  Agreement are satisfied and the initial
         Revolver Loans are made under the Agreement.

                  Collateral  - all of the  Property  and  interests in Property
         described in Section 6 of the Agreement;  all Property described in any
         of the Security Documents as security for the payment or performance of
         any of the  Obligations;  and  all  other  Property  and  interests  in
         Property  that now or hereafter  secure (or are intended to secure) the
         payment and performance of any of the Obligations.

                  Collection Reserve - on any date of determination  thereof, an
         amount  equal to the sum of (i) the  product  obtained  by  multiplying
         10.5% by the total amount of Eligible  Accounts  processed  under Other
         MIS  Systems  in  association  with  Per-Se  on such date plus (ii) any
         accrued  but unpaid  fees owing by  Borrower  to Per-Se and NDC on such
         date.

                  Commitment  Termination Date - the date that is the soonest to
         occur  of (i) the last day of the  Original  Term or of any  applicable
         Renewal Term;  (ii) the date on which Borrower  elects to terminate the
         Revolver Commitment pursuant to Section 5.2 of the Agreement;  or (iii)
         the date on which the Revolver  Commitment is automatically  terminated
         pursuant to Section 11.2 of the Agreement.

                  Compliance  Certificate  -  a  Compliance  Certificate  to  be
         provided  by  Borrower to Lender in  accordance  with,  and in the form
         annexed as Exhibit C to, the Agreement and the supporting  schedules to
         be annexed thereto.

                  Confirmation  Order  -  the  order  of  the  Bankruptcy  Court
         confirming each of the Plans of Reorganization pursuant to Section 1129
         of the Bankruptcy Code.

                  Consolidated - the  consolidation  in accordance  with GAAP of
         the accounts or other items as to which such term applies.

                  Consolidated  Adjusted  Net  Earnings  - with  respect  to any
         fiscal  period,  means the  Consolidated  Net Income (or loss) for such
         fiscal period of Borrower and the Subsidiaries, all as reflected on the
         financial  statement of Borrower supplied to Lender pursuant to Section
         9.1.3 of the  Agreement,  but  excluding:  (i) any gain or loss arising
         from the  sale of  capital  assets;  (ii)  any  gain  arising  from any
         write-up of assets during such period; (iii) earnings of any Subsidiary
         accrued prior to the date it became a Subsidiary;  (iv) earnings of any
         Person, substantially all the assets of which have been acquired in any
         manner of  Borrower,  realized by such Person prior to the date of such
         acquisition; (v) net earnings of any entity (other than a Subsidiary of
         Borrower) in which Borrower has an ownership  interest  unless such net
         earnings  have  actually  been received by Borrower in the form of cash
         Distributions;  (vi) any portion of the net earnings of any  Subsidiary
         which for any reason is  unavailable  for payment of  Distributions  to
         Borrower;  (vii) the  earnings  of any  Person  to which any  assets of
         Borrower  shall have been sold,  transferred  or  disposed  of, or into
         which Borrower shall have merged,  or been a party to any consolidation
         or other form of reorganization, prior to the date of such transaction;
         (viii) any gain  arising  from the  acquisition  of any  Securities  of
         Borrower;  and (ix) any gain arising from extraordinary or nonrecurring
         items,  all as determined  on a  Consolidated  basis in according  with
         GAAP.

                  Consolidated EBITDA - for any fiscal period of Borrower,  on a
         Consolidated  basis,  an amount equal to the sum for such fiscal period
         of (i)  Consolidated  Adjusted Net Earnings for such period,  plus (ii)
         Taxes based on income paid during such period,  plus (iii) Consolidated
         Interest Expense for such period, plus (iv) depreciation,  amortization
         (including  Goodwill  Amortization) and other non-cash charges for such
         period.

                                      -5-

                  Consolidated  Fixed  Charge  Coverage  Ratio - for the 6-month
         period of Borrower  ending on the date of  determination,  the ratio of
         (i) the sum of (a)  Consolidated  EBITDA  for  such  period  minus  (b)
         Borrower's  Capital  Expenditures for such period minus (c) Taxes based
         on income paid during such period plus (d) any decrease in Consolidated
         Working   Capital   during  such  period  or  minus  any   increase  in
         Consolidated  Working Capital during such period to (ii) the sum of (x)
         Consolidated  Fixed  Charges for such period plus (y) the amount of any
         mandatory  redemption  of the New Senior  Notes to which the holders of
         the New Senior  Notes would be entitled  under the New Notes  Indenture
         calculated  as of the date of  determination  and to be paid during the
         immediately succeeding 6-month period.

                  Consolidated   Fixed  Charges  -  for  any  fiscal  period  of
         Borrower,  the sum of (i) Consolidated Interest Expense for such period
         in respect of Funded  Debt plus (ii)  regularly  scheduled  payments of
         principal  on  Funded  Debt  (excluding  the  amount  of any  mandatory
         redemption of the New Senior Notes) due during such period.

                  Consolidated  Interest  Expense - for any period of  Borrower,
         total  interest  expense   (including  that  portion   attributable  to
         capitalized  leases  and  capitalized  interest)  of  Borrower  and its
         Subsidiaries  on a Consolidated  basis with respect to all  outstanding
         Debts of Borrower  and its  Subsidiaries,  including  all  commissions,
         discounts  and other fees and charges  owed with  respect to letters of
         credit and net cost under Interest Rate Contracts.

                  Consolidated  Net  Income - net  income  of  Borrower  and its
         Subsidiaries on a Consolidated  basis, as determined in accordance with
         GAAP.

                  Consolidated   Working   Capital   -  as  of   any   date   of
         determination,  an amount equal to (i) the sum of (a) Accounts  (net of
         reserves),  (b) Inventory and (c) other  Current  Assets  (exclusive of
         cash)  minus  (ii)  the sum of (x)  accounts  payable  and (y)  accrued
         expenses,  all as  determined  for Borrower and the  Subsidiaries  on a
         Consolidated basis in accordance with GAAP.

                  Contingent  Obligation  -  with  respect  to any  Person,  any
         obligation of such Person arising from any guaranty, indemnity or other
         assurance of payment or  performance  of any Debt,  lease,  dividend or
         other  obligation  ("primary  obligations")  of any other  Person  (the
         "primary  obligor")  in any manner,  whether  directly  or  indirectly,
         including (i) the direct or indirect guaranty  endorsement  (other than
         for  collection  or  deposit  in  the  Ordinary  Course  of  Business),
         co-making,  discounting  with  recourse  or sale with  recourse by such
         Person of the obligation of a primary  obligor,  (ii) the obligation to
         make  take-or-pay  or similar  payments,  if  required,  regardless  of
         nonperformance by any other party or parties to an agreement, (iii) any
         obligation of such Person,  whether or not contingent,  (A) to purchase
         any such  primary  obligation  or any Property  constituting  direct or
         indirect security therefor,  (B) to advance or supply funds (1) for the
         purchase or payment of any such primary  obligations or (2) to maintain
         working  capital or equity capital of the primary  obligor or otherwise
         to maintain  the net worth or solvency of the primary  obligor,  (C) to
         purchase Property,  Securities or services primarily for the purpose of
         assuring the owner of any such primary obligation of the ability of the
         primary  obligor to make  payment  of such  primary  obligation  or (D)
         otherwise  to  assure  or hold  harmless  the  holder  of such  primary
         obligation against loss in respect thereof; provided, however, that the
         term "Contingent  Obligation" shall not include any product  warranties
         extended  in  the  Ordinary  Course  of  Business.  The  amount  of any
         Contingent  Obligation  shall be deemed  to be an  amount  equal to the
         stated or determinable amount of the primary obligation with respect to
         which such  Contingent  Obligation  is made (or,  if less,  the maximum
         amount of such primary  obligation  for which such Person may be liable
         pursuant  to the terms of the  instrument  evidencing  such  Contingent
         Obligation) or, if not stated or determinable,  the maximum  reasonably
         anticipated  liability  with respect  thereto  (assuming such Person is
         required to perform  thereunder),  as determined by such Person in good
         faith.

                  Controlled  Disbursement  Account - a demand  deposit  account
maintained by Borrower.

                                      -6-

                  Current  Assets - on any date of  determination  thereof,  the
         amount at which all of the current assets of Borrower would be properly
         classified  as  current  assets  on a  Consolidated  balance  sheet  of
         Borrower at such date in accordance with GAAP.

                  Debt - as applied to a Person means, without duplication:  (i)
         all  items  which  in  accordance   with  GAAP  would  be  included  in
         determining  total  liabilities  as  shown on the  liability  side of a
         balance  sheet of such  Person as of the date as of which Debt is to be
         determined,   including   Capitalized  Lease   Obligations;   (ii)  all
         Contingent   Obligations  of  such  Person;   (iii)  all  reimbursement
         obligations  in  connection  with letters of credit or letter of credit
         guaranties issued for the account of such Person;  and (iv) in the case
         of  Borrower  (without  duplication),  the  Obligations.  The Debt of a
         Person shall  include any  recourse  Debt of any  partnership  or joint
         venture in which such Person is a general partner or joint venturer.

                  Default - an event or condition the occurrence of which would,
         with the lapse of time or the  giving  of  notice,  or both,  become an
         Event of Default.

                  Default  Rate - on any date, a rate per annum that is equal to
         (i) in the case of each Revolver Loan  outstanding  on such date, 2% in
         excess of the rate  otherwise  applicable to such Revolver Loan on such
         date, and (ii) in the case of any of the other Obligations  outstanding
         on such date, 6% in excess of the Base Rate in effect on such date.

                  Deposit  Account  Assignment - the  Collateral  Assignment  of
         Deposit  Accounts  to be  executed by Borrower on or before the Closing
         Date in favor of Lender as security for the Obligations.

                  Deposit  Accounts - all of a Person's demand,  time,  savings,
         passbook,   money  market  or  other  depository   accounts,   and  all
         certificates  of  deposit,  maintained  by such  Person  with any bank,
         savings  and  loan  association,   credit  union  or  other  depository
         institution.

                  Dilution  - for the  12-month  period  preceding  the  date of
         determination,  the  average  of the  percentage  each  month  of gross
         Accounts offset by returned items,  rebates,  concessions,  contractual
         adjustments and the like.

                  Dilution Reserve - on any date of determination  thereof,  the
         total of the amount by which Dilution  calculated under Premis and each
         of the Other MIS Systems exceeds 5%.

                  Disclosure  Statement - the First Amended Disclosure Statement
         to Accompany First Amended Joint Plan of  Reorganization  Under Chapter
         11, Title 11,  United  States Code,  filed by Vista  Eyecare,  Inc. and
         Certain of its  Debtor  Subsidiaries  and Joint Plan of  Reorganization
         Under Chapter 11, Title 11, United States Code,  filed by  Frame-n-Lens
         Optical,  Inc.,  Midwest  Vision,  Inc.,  New West  Eyeworks,  Inc. and
         certain of their  Debtor  Subsidiaries  dated April 13, 2001 filed with
         the Bankruptcy Court in the Chapter 11 Cases.

                  Disputed Claims Reserve - the reserve maintained and funded by
         Borrower   as  provided  in  Section  7.3  of  each  of  the  Plans  of
         Reorganization.

                  Distribution  - in respect of any  entity,  (i) any payment of
         any dividends or other  distributions on Equity Interests of the entity
         (except  distributions in such Equity Interests) and (ii) any purchase,
         redemption or other  acquisition  or retirement for value of any Equity
         Interests  of the entity or any  Affiliate  of the entity  unless  made
         contemporaneously   from  the  net  proceeds  of  the  sale  of  Equity
         Interests.

                  Document - shall have the meaning  given to  "document" in the
         UCC.

                                      -7-

                  Dollars and the sign "$" - lawful  money of the United  States
         of America.

                  Dominion Account - a special account  established by Borrower,
         for the benefit of Lender,  at Bank into which payments and remittances
         on all Accounts  are to be  deposited  and over which Lender shall have
         sole and exclusive access and control for withdrawal purposes.

                  Effective  Date - shall  have  the  meaning  given to the term
         "Effective  Date"  in  the  Parent  Plan  of   Reorganization   or  the
         Subsidiaries' Plan of  Reorganization,  or both of them, as the context
         requires.

                  Electronic  Chattel  Paper - shall have the  meaning  given to
"electronic chattel paper" in the UCC.

                  Eligible  Account - an Account  which  arises in the  Ordinary
         Course of Business of Borrower  from the  rendition or  performance  of
         services or  provision of goods,  is payable in Dollars,  is subject to
         Lender's duly perfected Lien and is deemed by Lender, in its reasonable
         credit  judgment,  to be an  Eligible  Account.  Without  limiting  the
         generality of the  foregoing,  no Account shall be an Eligible  Account
         if: (i) the Third Party Payor is an  Affiliate  of Borrower or a Person
         controlled by an Affiliate of Borrower; (ii) the Account is an unbilled
         Account and,  (a) if it is to be  processed  under one of the Other MIS
         Systems,  it is outstanding more than 90 days after the date of service
         or sale of goods, or (b) if it is to be processed  under Premis,  it is
         outstanding  (1) more than 60 days after the date of service or sale of
         goods,  during the period  commencing on the Closing Date and ending on
         March 31,  2002,  or (2) more than 30 days after the date of service of
         sale of goods,  at all times  after  March  31,  2002;  (iii) the total
         unbilled Accounts to be processed under Premis exceeds $250,000, to the
         extent of such excess;  (iv) 50% or more of the Accounts from the Third
         Party Payor are not deemed Eligible Accounts  hereunder;  (v) the total
         unpaid  Accounts of the Third Party Payor  exceed 20% of the  aggregate
         amount of all Eligible Accounts or exceed a credit limit established by
         Lender for such Third Party Payor,  in each case, to the extent of such
         excess; (vi) any covenant,  representation or warranty contained in the
         Agreement  with  respect to such Account has been  breached;  (vii) the
         Third Party Payor is also Borrower's creditor or supplier, or the Third
         Party Payor has disputed liability with respect to such Account, or the
         Third Party Payor has made any claim with respect to any other  Account
         due from such Third Party Payor to Borrower,  or the Account  otherwise
         is or  may  become  subject  to  any  right  of  setoff,  counterclaim,
         recoupment, reserve or chargeback,  provided that, the Accounts of such
         Third  Party  Payor  shall be  ineligible  only to the  extent  of such
         offset,   counterclaim,   recoupment,   disputed  amount,   reserve  or
         chargeback;  (viii) an Insolvency  Proceeding  has been commenced by or
         against  the Third  Party  Payor or the Third  Party  Payor has failed,
         suspended business or ceased to be Solvent;  (ix) the Third Party Payor
         has its  principal  office,  assets or place of  business  outside  the
         United States;  (x) the Third Party Payor is located in any state which
         imposes  conditions  on the right of a  creditor  to  collect  accounts
         receivable unless Borrower has either qualified to transact business in
         such state as a foreign entity or filed a Notice of Business Activities
         Report or other required report with the appropriate officials in those
         states for the then current year; (xi) the Third Party Payor is located
         in a state in which  Borrower is deemed to be doing  business under the
         laws of such state and which denies  creditors  access to its courts in
         the absence of qualification  to transact  business in such state or of
         the  filing  of any  reports  with  such  state,  unless  Borrower  has
         qualified as a foreign entity  authorized to transact  business in such
         state or has filed all required  reports;  (xii) the Account is subject
         to a Lien other than a Permitted Lien;  (xiii) the goods giving rise to
         such  Account  have not been  provided to the  customer or the services
         giving rise to such Account have not been performed by Borrower;  (xiv)
         the Account is evidenced by Chattel Paper or an Instrument of any kind,
         or has been  reduced  to  judgment;  (xvi)  the  Account  represents  a
         progress billing or a retainage; (xvii) Borrower has made any agreement
         with the Third  Party  Payor for any  deduction  therefrom,  except for
         discounts,  adjustments  or  allowances  which are made in the Ordinary
         Course of Business for prompt payment and which discounts or allowances
         are reflected in the  calculation of the Net  Realizable  Value of such
         Account;  (xviii)  Borrower has made an agreement  with the Third Party
         Payor to extend  the time of  payment  thereof;  or (xix)  the  Account
         represents,  in whole or in part, a billing for interest,  fees or late
         charges,  provided that such Account  shall be  ineligible  only to the
         extent  of the  amount  of such  billing;  (xx)  the  Account  is not a
         Healthcare  Receivable;  (xxi) the Account is a private pay Account due
         from a

                                      -8-

         Person other than a Third Party Payor and is due or unpaid more than 90
         days after the date of service or sale of goods;  (xxii) the Account is
         an unbilled  Account to be processed  under the Per-Se Midwest  System;
         (xxiii)  it  represents  a rental or  license  fee due from a  licensed
         eyecare professional under a lease or sublease with Borrower; (xxiv) it
         constitutes  a credit  card  receivable;  and  (xxv) to the  extent  it
         constitutes  a  credit  balance  that is more  than  90 days  from  the
         original invoice date therefor.

                  Eligible  Inventory - such  Inventory of Borrower  (other than
         packaging materials (which term shall not be deemed to include eyeglass
         cases), labels and non-retail supplies) which Lender, in its reasonable
         credit judgment,  deems to be Eligible Inventory.  Without limiting the
         generality of the foregoing,  no Inventory shall be Eligible  Inventory
         unless:  (i) it is raw  materials,  finished  goods or  work-in-process
         (including eyeglass frames, eyeglass lenses, contact lenses, sunglasses
         and related accessories);  (ii) it is owned by Borrower and not held by
         it on consignment  or other sale or return terms;  (iii) it is in good,
         new and saleable condition and is not damaged or defective;  (iv) it is
         not  characterized by Borrower as  "Discontinued"  and is not otherwise
         slow-moving,  obsolete or  unmerchantable  and is not goods returned to
         Borrower by or  repossessed  from an Account  Debtor;  (v) it meets all
         standards  imposed by any Governmental  Authority;  (vi) it conforms in
         all respects to the  warranties  and  representations  set forth in the
         Agreement;  (viii)  it  is  at  all  times  subject  to  Lender's  duly
         perfected,  first priority security interest and no other Lien except a
         Permitted  Lien;  (viii) it is situated in  Borrower's  possession  and
         control at a  location  in  compliance  with the  Agreement,  is not in
         transit  (unless it is in transit  from one location of Borrower in the
         United States to another  location of Borrower in the United States) or
         outside the  continental  United  States,  and is not  consigned to any
         Person; (ix) it is not the subject of a negotiable warehouse receipt or
         other  negotiable  Document;  (x) it is  not  subject  to  any  License
         Agreement  or other  agreement  that  limits,  conditions  or restricts
         Borrower's  or  Lender's  right to sell or  otherwise  dispose  of such
         Inventory;  (xi)  it is not the  subject  of an  Intellectual  Property
         Claim;  (xii) it is not located on a United States  military base or on
         real Property leased by Borrower from the United States government; and
         (xiii) it does not represent capitalized freight costs.

                  Environmental Laws - all federal, state and local laws, rules,
         regulations,  codes, ordinances,  programs, permits, guidance documents
         promulgated by regulatory agencies,  orders and consent decrees, now or
         hereafter  in effect  and  relating  to human  health and safety or the
         protection or pollution of the environment, including CERCLA.

                  Environmental  Release - a  release  as  defined  in CERCLA or
         under any applicable Environmental Law.

                  Equipment - all of Borrower's machinery, apparatus, equipment,
         fittings,  furniture,  fixtures,  motor  vehicles  and  other  tangible
         personal Property (other than Inventory) of every kind and description,
         whether  now owned or  hereafter  acquired  by  Borrower  and  wherever
         located,  and all parts,  accessories and special tools  therefor,  all
         accessions thereto, and all substitutions and replacements thereof.

                  Equity  Interest  - the  interest  of (i) a  shareholder  in a
         corporation,   (ii)  a  partner  (whether  general  or  limited)  in  a
         partnership  (whether general,  limited or limited liability),  (iii) a
         member in a limited liability company,  or (iv) any other Person having
         any other form of equity security or ownership interest.

                  ERISA - the Employee  Retirement  Income  Security Act of 1974
         and all rules and regulations from time to time promulgated thereunder.

                  Event of Default - as defined in Section 11 of the Agreement.

                  Exchange  Act - the  Securities  Exchange  Act  of  1934,  and
         regulations promulgated thereunder.

                  Extraordinary  Expenses  - all actual  and  reasonable  costs,
         expenses,  fees and advances which Lender may suffer or incur,  whether
         prior to or after the  occurrence  of an Event of Default,  and whether

                                      -9-

         prior to, after or during the pendency of an  Insolvency  Proceeding of
         an  Obligor,  on  account  of or in  connection  with  (i)  the  audit,
         inspection,   repossession,   storage,  repair,  appraisal,   insuring,
         completion of the manufacture of,  preparing for sale,  advertising for
         sale, selling, collecting or otherwise preserving or realizing upon any
         Collateral;  (ii) the defense of Lender's  Lien upon any  Collateral or
         the priority  thereof or any adverse claim with respect to the Revolver
         Loans,  the Loan Documents or the  Collateral  asserted by any Obligor,
         any   receiver  or  trustee   for  any  Obligor  or  any   creditor  or
         representative  of creditors of any Obligor;  (iii) the  settlement  or
         satisfaction  of any Liens  upon any  Collateral  (whether  or not such
         Liens are Permitted  Liens);  (iv) the collection or enforcement of any
         of the Obligations; (v) the negotiation,  documentation, and closing of
         any  restructuring  or  forbearance  agreement with respect to the Loan
         Documents or Obligations;  (vi) amounts  advanced by Lender pursuant to
         Section 7.1.3 of the  Agreement;  (vii) the  enforcement  of any of the
         provisions of any of the Loan Documents;  or (viii) any payment under a
         guaranty,  indemnity or other payment  agreement  provided by Lender to
         any financial institution in connection with any Dominion Account. Such
         costs,  expenses and advances may include transfer fees, taxes, storage
         fees,  insurance costs,  permit fees,  utility  reservation and standby
         fees,  legal  fees,  appraisal  fees,  brokers'  fees and  commissions,
         auctioneers'  fees and commissions,  accountants'  fees,  environmental
         study  fees,  wages and  salaries  paid to  employees  of  Borrower  or
         independent contractors in liquidating any Collateral, travel expenses,
         all other fees and expenses  payable or reimbursable by Borrower or any
         other Obligor under any of the Loan  Documents,  and all other fees and
         expenses  associated  with the  enforcement of rights or remedies under
         any of the Loan Documents, but excluding compensation paid to employees
         (including inside legal counsel who are employees) of Lender.

                  Family  Vision -  Family  Vision  Centers,  Inc.,  a  Delaware
         corporation.

                  Federal Funds Rate - for any period,  a  fluctuating  interest
         rate per annum equal for each date  during such period to the  weighted
         average  of the rates on  overnight  federal  funds  transactions  with
         members  of the  Federal  Reserve  System  arranged  by  federal  funds
         brokers,  as published  for such day (or, if such day is not a Business
         Day, for the next  preceding  Business Day) in Atlanta,  Georgia by the
         Federal  Reserve  Bank of Atlanta,  or if such rate is not so published
         for any day which is a Business Day, the average of the  quotations for
         such day on such  transactions  received by Lender from 3 federal funds
         brokers of recognized standing selected by Lender.

                  FEIN -  with  respect  to any  Person,  the  Federal  Employer
Identification Number of such Person.

                  FIFC - First Insurance Funding Corp.

                  Final  Order - an order or  judgment  of a court of  competent
         jurisdiction  as  entered  on its  docket  that has not been  reversed,
         stayed pursuant to Bankruptcy Rule 8005 or any other applicable rule of
         civil or appellate procedure,  modified or amended, and as to which the
         time  to  appeal,  petition  for  certiorari,  or  seek  reargument  or
         rehearing  has expired,  and as to which no notice of appeal,  petition
         for  certiorari or motion for reargument or rehearing was timely filed,
         or as to which any right to appeal,  petition  for  certiorari  or seek
         reargument  or  rehearing  has  been  waived  in  writing  in a  manner
         satisfactory  to  Lender  or,  if a  notice  of  appeal,  petition  for
         certiorari or motion for reargument or rehearing was timely filed,  the
         order or judgment has been  affirmed by the highest  court to which the
         order  or  judgment  was  appealed  or from  which  the  reargument  or
         rehearing was sought,  or certiorari  has been denied,  and the time to
         file any  further  appeal  or to  petition  for  certiorari  or to seek
         further reargument or rehearing has expired.

                  Fiscal Quarter - each consecutive period of 13 weeks beginning
         on the first day of a Fiscal Year (and,  in the case of any Fiscal Year
         of 53 weeks, the 14-week period occurring at the end thereof).

                  Fiscal Year - the fiscal year of Borrower and its Subsidiaries
         for  accounting  and tax purposes,  which shall consist of 12 Reporting
         Periods  beginning on the Sunday after the Saturday nearest December 31
         of each calendar year and ending on the Saturday nearest December 31 of
         the next succeeding  calendar year and when preceded by the designation
         of a calendar  year (e.g.,  2001 Fiscal

                                      -10-

         Year) means the fiscal year of Borrower and its  Subsidiaries  ended on
         the Saturday nearest December 31 of such designated calendar year.

                  FLSA - the Fair Labor Standards Act of 1938.

                  FNL - Frame-n-Lens Optical, Inc., a California  corporation.

                  Foothill - Foothill Capital Corporation.

                  Fred Meyer - collectively,  Fred Meyer Stores,  Inc.,  Roundup
         Co., Grand Central, Inc. and Fred Meyer of Alaska, Inc.

                  Fred Meyer  Agreement - the Retail Lease  Agreement  (Multiple
         Location  Master Lease)  bearing a date of "March ___,  1999,"  between
         Fred Meyer and Borrower.

                  Funded  Debt  -  for  Borrower  and  the  Subsidiaries,  on  a
         Consolidated  basis,  (a) the  aggregate  principal  amount of Debt for
         Money Borrowed which would,  in accordance  with GAAP, be classified as
         long-term Debt, together with the current maturities thereof,  plus (b)
         all Debt  outstanding  under any  revolving  credit,  line of credit or
         renewals  thereof,  notwithstanding  that any such Debt is  created  or
         incurred within 1 year after the expiration of such facility,  plus (c)
         Capitalized Lease Obligations.

                  GAAP - generally accepted accounting  principles in the United
         States of America in effect from time to time.

                  General  Intangibles  - all general  intangibles  of Borrower,
         whether  now  owned or  hereafter  created  or  acquired  by  Borrower,
         including  all  choses in action,  causes of  action,  company or other
         business records,  inventions,  blueprints,  designs,  patents,  patent
         applications,  trademarks,  trademark applications,  trade names, trade
         secrets,    service   marks,   goodwill,   brand   names,   copyrights,
         registrations,  licenses,  franchises,  customer  lists,  permits,  tax
         refund  claims,  computer  programs,   operational  manuals,   internet
         addresses and domain names,  insurance refunds and premium rebates, all
         claims under guaranties,  security  interests or other security held by
         or granted to Borrower to secure payment of any of Borrower's  Accounts
         by an  Account  Debtor,  all  rights to  indemnification  and all other
         intangible  property of  Borrower of every kind and nature  (other than
         Accounts).

                  Goods - shall have the meaning given to "goods" in the UCC.

                  Goodwill  Amortization  - for any  period,  on a  Consolidated
         basis,  the  amortization  of  goodwill  in the amount of  $105,000,000
         constituting the difference between the  reorganization  value and book
         value of Borrower and certain of the  Subsidiaries  over a period of 15
         years from the  "Effective  Date" (under and as defined in the Plans of
         Reorganization).

                  Governmental   Approvals  -  all   authorizations,   consents,
         approvals,  licenses and exemptions of, registrations and filings with,
         and reports to, all Governmental Authorities.

                  Governmental  Authority  -  any  federal,   state,  municipal,
         national, foreign or other governmental department,  commission, board,
         bureau,  court,  agency or  instrumentality  or  political  subdivision
         thereof  or any entity or officer  exercising  executive,  legislative,
         judicial,  regulatory or  administrative  functions of or pertaining to
         any  government or any court,  in each case whether  associated  with a
         state of the United  States,  the  District  of  Columbia  or a foreign
         entity or government.

                  Governmental  Receivable - a Healthcare  Receivable in respect
         of which the Third Party  Payor is a  Governmental  Authority,  such as
         Medicare, Medicaid, CHAMPUS or CHAMPVA.

                                      -11-

                  Guarantors - Midwest,  FNL, New West,  Family  Vision,  Vision
         Administrators,  Alexis, Vista Network,  IVA, NVAL, Optical Express and
         each other Person who guarantees payment or performance of the whole or
         any part of the Obligations.

                  Guaranty - each guaranty  agreement now or hereafter  executed
         by a  Guarantor  in  favor  of  Lender  with  respect  to  any  of  the
         Obligations.

                  HCFA  - the  Health  Care  Financing  Administration  and  any
         successor thereto.

                  Health  Care  Insurance  Receivable  - shall have the  meaning
         given to the term "health care insurance receivable" in the UCC.

                  Healthcare Laws - Medicaid Regulations,  Medicare Regulations,
         Anti-Kickback Statutes, CHAMPUS (10 U.S.C. Sections 1071-1106), CHAMPVA
         (38 U.S.C.  Section 1713) and all other  applicable  current and future
         laws,  rules,   regulations,   codes,   ordinances,   orders,  decrees,
         judgments,  injunctions or binding  agreements  issued,  promulgated or
         entered into by the Food and Drug Administration, HCFA, HHS, the Office
         of Inspector General of HHS, the Drug Enforcement Administration or any
         other Governmental Authority, including any state or local professional
         licensing laws,  certificate of need laws and state reimbursement laws,
         relating in any way to the  conduct of the  business of Borrower or any
         of the Subsidiaries or the provision of healthcare services generally.

                  Healthcare  Purchaser  - a  health  maintenance  organization,
         prepaid  health   clinic,   managed  care  plan,   preferred   provider
         organization  or  other   institutional,   governmental  or  commercial
         purchaser of healthcare services,  which has engaged Borrower or any of
         the  Subsidiaries  to  provide  contact  lenses,  eyeglasses  and other
         eyecare or related  products  or  services  to Members of health  plans
         offered by such purchaser pursuant to a Private Provider Agreement.

                  Healthcare  Receivable  - an Account  arising from the sale of
         eyeglasses,  contact lenses or other eyecare or related products or the
         provision  of eyecare or related  services to a customer in  connection
         with which a Third Party Payor is  responsible  for payment of all or a
         part of such Account.

                  Hedging  Agreement - any interest rate  protection  agreement,
         foreign  currency  exchange   agreement,   commodity  price  protection
         agreement  or other  interest or currency  exchange  rate or  commodity
         price hedging arrangement.

                  HHS - the Department of Health and Human Services.

                  Host Licensor  Agreements - the Wal-Mart  Agreement,  the Fred
         Meyer Agreement,  the Military  Agreements and any other like agreement
         entered into after the Closing Date by Borrower and any Person pursuant
         to which  Borrower is licensed to operate a retail vision center within
         the retail space of such Person.

                  Host  Licensor  -  Wal-Mart,   Fred  Meyer,  any  Governmental
         Authority  party to the  Military  Agreement  and any other Person that
         enters into a Host License  Agreement  with Borrower  after the Closing
         Date.

                  Host  Locations - the premises  licensed to Borrower by a Host
         Licensor  within  the  retail  store  of such  Host  Licensor  at which
         Borrower operates a retail vision center.

                  Indemnified  Amount - in the case of Lender  Indemnitees,  the
         amount of any loss,  cost,  expenses or damages suffered or incurred by
         Lender  Indemnitees  and against  which  Borrower  or any Obligor  have
         agreed to  indemnify  Lender  Indemnitees  pursuant to the terms of the
         Agreement  or any of the other  Loan  Documents;  in the case of Lender
         Indemnitees, the amount of any loss, cost, expenses or damages

                                      -12-

         suffered or incurred by Lender  Indemnitees and against which Lender or
         any Obligor have agreed to indemnify Lender Indemnitees pursuant to the
         terms of the Agreement or any of the other Loan Documents.

                  Ineligible   Billed   Accounts   Amount   -  on  any  date  of
         determination  thereof,  with respect to billed Accounts the greater of
         (i) the total amount on such date of all billed  Accounts  that are due
         or unpaid more than 90 days after the original  invoice  date  therefor
         and (ii) the total amount on such date of all billed  Accounts that are
         due or unpaid,  (a) in the case of Accounts  processed  under Other MIS
         Systems, more than 180 days after the date of service or sale of goods,
         or (b) in the case of Accounts  processed  under  Premis,  (1) 150 days
         after the date of service or sale of goods during the period commencing
         on the  Closing  Date and ending on March 31, 2002 or (2) 90 days after
         the date of service or sale of goods at all times after March 31, 2002.

                  Insolvency   Proceeding  -  any  action,  case  or  proceeding
         commenced by or against a Person, or any agreement of such Person,  for
         (i)  the  entry  of an  order  for  relief  under  any  chapter  of the
         Bankruptcy  Code or other  insolvency or debt  adjustment  law (whether
         state,  federal  or  foreign),  (ii)  the  appointment  of a  receiver,
         trustee,  liquidator or other  custodian for such Person or any part of
         its Property,  (iii) an assignment or trust mortgage for the benefit of
         creditors  of such  Person,  or (iv) the  liquidation,  dissolution  or
         winding up of the affairs of such Person.

                  Instrument  - shall  have  the  meaning  ascribed  to the term
         "instrument" in the UCC.

                  Intellectual  Property - all intellectual and similar Property
         of every kind and description,  including inventions, designs, patents,
         patent applications, copyrights, trademarks, service marks, tradenames,
         mask works,  trade secrets,  confidential  or proprietary  information,
         know-how,  software  and  databases  and all  embodiments  or fixations
         thereof and related  documentation,  registrations and franchises,  all
         books and records  describing or used in connection  with the foregoing
         and all licenses, or other rights to use any of the foregoing.

                  Intellectual Property Claim - the assertion by any Person of a
         claim (whether  asserted in writing,  by action,  suit or proceeding or
         otherwise)  that  Borrower's   ownership,   use,  marketing,   sale  or
         distribution  of any  Inventory,  Equipment,  Intellectual  Property or
         other  Property  is  violative  of any  ownership  or  right to use any
         Intellectual Property of such Person.

                  Interest Expense - for any period of a Person, an amount equal
         to the total interest of such Person during such period,  as determined
         on a Consolidated basis in accordance with GAAP.

                  Interest  Period - shall have the  meaning  ascribed  to it in
         Section 2.13 of the Agreement.

                  Interest Rate Contract - any interest rate agreement, interest
         rate collar agreement, interest rate swap agreement, or other agreement
         or  arrangement  at any time entered into by Borrower with Bank that is
         designed to protect against fluctuations in interest rates.

                  Inventory - all of Borrower's inventory,  whether now owned or
         hereafter  acquired,  including all goods intended for sale or lease by
         Borrower,  to be furnished by Borrower under  contracts of service,  or
         for display or  demonstration;  all work in process;  all raw materials
         and other materials and supplies of every nature and  description  used
         or which might be used in connection  with the  manufacture,  printing,
         packing, shipping, advertising,  selling, leasing or furnishing of such
         goods or otherwise  used or consumed in  Borrower's  business;  and all
         Documents  evidencing  and General  Intangibles  relating to any of the
         foregoing, whether now owned or hereafter acquired by Borrower.

                  Inventory  Formula  Amount  - on  any  date  of  determination
         thereof, an amount equal to the lesser of (i) $6,000,000 or (ii) 30% of
         the Value of Eligible Inventory on such date.

                                      -13-

                  Investment   Property  -  shall  have  the  meaning  given  to
         "investment  property"  in the UCC and  shall  include  all  Securities
         (whether  certificated  or  uncertificated),   security   entitlements,
         securities accounts, commodity contracts and commodity accounts.

                  IVA  -  International  Vision  Associates,   Ltd.,  a  Georgia
         corporation.

                  Landlord  Waiver  - an  agreement  duly  executed  in favor of
         Lender, in form and content  acceptable to Lender, by which an owner or
         mortgagee of premises  upon which any Property of an Obligor is located
         agrees to waive or  subordinate  any Lien it may have with  respect  to
         such Property in favor of Lender's Lien therein and to permit Lender to
         enter upon such  premises  and to remove  such  Property or to use such
         premises to store or dispose of such Property.

                  LC Application - an application by Borrower to Bank,  pursuant
         to a form  approved  by Bank,  for the  issuance of a Letter of Credit,
         that is  submitted  to  Bank at  least 2  Business  Days  prior  to the
         requested issuance of such Letter of Credit.

                  LC Conditions - the following conditions,  the satisfaction of
         each of which is required  before  Lender shall be obligated to provide
         any LC Support to Bank for the issuance of a Letter of Credit: (i) each
         of the conditions set forth in Section 10 of the Agreement has been and
         continues  to be  satisfied,  including  the  absence of any Default or
         Event of  Default;  (ii) after  giving  effect to the  issuance  of the
         requested Letter of Credit and all other unissued Letters of Credit for
         which an LC Application has been signed by Lender,  the LC Outstandings
         would not  exceed  $4,500,000  and no  Out-of-Formula  Condition  would
         exist,  and, if no Revolver Loans are outstanding,  the LC Outstandings
         do not,  and would not upon the  issuance  of the  requested  Letter of
         Credit,  exceed the Borrowing Base; (iii) the expiry date of the Letter
         of Credit does not extend  beyond the earlier to occur of 365 days from
         the  date of  issuance  or the  10th  Business  Day  prior  to the last
         Business Day of the  Original  Term or any Renewal  Term;  and (iv) the
         currency  in which  payment is to be made under the Letter of Credit is
         Dollars.

                  LC  Documents  -  any  and  all  agreements,  instruments  and
         documents  (other than an LC Application or an LC Support)  required by
         Bank to be executed by Borrower or any other  Person and  delivered  to
         Bank for the issuance of a Letter of Credit.

                  LC  Facility  -  a  subfacility  of  the  Revolver  Commitment
         established pursuant to Section 1.3 of the Agreement.

                  LC  Outstandings - on any date of  determination  thereof,  an
         amount (in  Dollars)  equal to the sum of (i) all amounts  then due and
         payable by any Obligor on such date by reason of any payment made on or
         before such date by Lender under any LC Support plus (ii) the aggregate
         available  amount of all  Letters of Credit then  outstanding  or to be
         issued by Bank under an LC Application theretofore submitted to Bank.

                  LC  Request  - a Letter  of Credit  Procurement  Request  from
         Borrower to Lender in the form of Exhibit E annexed hereto.

                  LC Support - a guaranty or other support agreement from Lender
         in favor of Bank pursuant to which Lender shall  guarantee or otherwise
         assure the payment or performance by the parties (other than Lender, if
         a party) to an LC Application of such parties' obligations with respect
         to such Letter of Credit,  including the  obligation of such parties to
         reimburse  Bank for any  payment  made by Bank  under  such  Letter  of
         Credit.

                  Lender   Indemnitee  -  Lender  and  its  present  and  future
         officers, directors, agents and attorneys.

                                      -14-

                  Letter of Credit - any standby letter of credit issued by Bank
         for the account of Borrower.

                  Letter of Credit  Right - shall have the meaning  given to the
         term "letter of credit right" in the UCC and shall include any right of
         Borrower to payment or  performance  under a letter of credit  (whether
         the letter of credit is written or electronic), whether or not Borrower
         has  demanded  or  is  at  the  time  entitled  to  demand  payment  or
         performance.

                  LIBOR Loan - a Loan, or portion thereof,  during any period in
         which it bears  interest at a rate based upon the  applicable  Adjusted
         LIBOR Rate.

                  LIBOR  Loan  Conditions  -  the  following   conditions,   the
         satisfaction  of each of  which  is  required  before  Lender  shall be
         obligated  to make or  continue  a  Revolver  Loan to  Borrower  as, or
         convert a Revolver Loan to, a LIBOR Loan: (i) the Average Revolver Loan
         Balance during the 90-day period  preceding the delivery by Borrower to
         Lender of a Notice of  Borrowing  or Notice of  Conversion/Continuation
         requesting  that a Revolver  Loan be made or  continued as or converted
         into a LIBOR Loan exceeds  $5,000,000;  and (ii) no Default or Event of
         Default exists.

                  LIBOR Rate - with respect to an Interest Period,  the rate per
         annum  reported to Lender by Bank as the rate at which deposits of U.S.
         Dollars approximately equal in principal amount to or comparable to the
         amount of the LIBOR Loan to which such Interest  Period relates and for
         a term  comparable to such Interest Period are offered to Bank by prime
         banks in the  London  interbank  foreign  currency  deposits  market at
         approximately  11:00 a.m.,  London time, two (2) Business Days prior to
         the commencement of such Interest Period.  Each determination by Lender
         of any LIBOR Rate  shall,  in the  absence of any  manifest  error,  be
         conclusive.

                  License  Agreement  - any  agreement  between  Borrower  and a
         Licensor   pursuant  to  which   Borrower  is  authorized  to  use  any
         Intellectual Property in connection with the manufacturing,  marketing,
         sale or other distribution of any Inventory of Borrower.

                  Licensor - any Person from whom Borrower  obtains the right to
         use (whether on an exclusive or  non-exclusive  basis) any Intellectual
         Property in connection with Borrower's manufacture,  marketing, sale or
         other distribution of any Inventory.

                  Lien - any interest in Property  securing an  obligation  owed
         to,  or a claim  by, a Person  other  than the  owner of the  Property,
         whether such interest is based on common law, statute or contract.  The
         term "Lien" shall also include reservations, exceptions, encroachments,
         easements, rights-of-way,  covenants, conditions,  restrictions, leases
         and other title exceptions and encumbrances affecting Property. For the
         purpose of the  Agreement,  Borrower shall be deemed to be the owner of
         any Property  which it has acquired or holds  subject to a  conditional
         sale  agreement  or other  arrangement  pursuant  to which title to the
         Property  has been  retained  by or vested  in some  other  Person  for
         security purposes.

                  Loan Account - the loan account  established  by Lender on its
         books pursuant to Section 4.7 of the Agreement.

                  Loan Documents - the Agreement,  the Other  Agreements and the
         Security Documents.

                  Loan Year - a period commencing each calendar year on the same
         month and day as the date of the Agreement and ending on the same month
         and day in the  immediately  succeeding  calendar year,  with the first
         such period (i.e., the first Loan Year) to commence on the date of this
         Agreement.

                  Managed  Care  Subsidiary  - (a)  NVAL  VisionCare  System  of
         California,  Inc.,  ProCare Eye Exam, Inc. and NVAL VisionCare of North
         Carolina,  Inc.  and (b) any other  Subsidiary  of  Borrower  formed or
         acquired  after the  Closing  Date  with the  consent  of Lender  whose
         financial  condition or activities are regulated under  Applicable Laws
         of any  Governmental  Authority  in  connection  with its  provision of
         health or vision care  products or services (or related  administrative
         services) and shall include a health maintenance  organization (whether
         single- or  multi-service),  third  party  administrator  or any Person
         similar to any of the foregoing.

                                      -15-

                  Margin  Stock -  shall  have  the  meaning  ascribed  to it in
         Regulation U of the Board of Governors.

                  Material Adverse Effect - the effect of any event,  condition,
         action,  omission or circumstance,  which, alone or when taken together
         with other  events,  conditions,  actions,  omissions or  circumstances
         occurring  or  existing  concurrently  therewith,  (i)  has a  material
         adverse effect upon the business,  operations,  Properties or condition
         (financial or  otherwise) of Borrower;  (ii) has or could be reasonably
         expected  to have  any  material  adverse  effect  whatsoever  upon the
         validity or  enforceability  of the  Agreement or any of the other Loan
         Documents;  (iii) has any material adverse effect upon the value of the
         whole or any material part of the Collateral,  the Liens of Lender with
         respect to the  Collateral  or the  priority  of any such  Liens;  (iv)
         materially  impairs  the  ability of any other  Obligor to perform  its
         obligations  under the  Agreement  or any of the other Loan  Documents,
         including  repayment  of  any  of  the  Obligations  when  due;  or (v)
         materially  impairs  the  ability of Lender to  enforce or collect  the
         Obligations  or realize upon any of the  Collateral in accordance  with
         the Loan Documents and Applicable Law.

                  Material  Contract  - an  agreement  to which an  Obligor is a
         party  (other  than the Loan  Documents)  (i)  which is  deemed to be a
         material  contract as provided in Regulation S-K promulgated by the SEC
         under the Securities Act of 1933 or (ii) for which breach, termination,
         cancellation,  nonperformance  or failure to renew could  reasonably be
         expected to have a Material Adverse Effect.

                  Maximum  Rate - the  maximum  non-usurious  rate  of  interest
         permitted by Applicable Law that at any time, or from time to time, may
         be contracted for, taken, reserved,  charged or received on the Debt in
         question  or,  to the  extent  that  at any  time  Applicable  Law  may
         thereafter permit a higher maximum non-usurious rate of interest,  then
         such higher  rate.  Notwithstanding  any other  provision  hereof,  the
         Maximum  Rate shall be  calculated  on a daily basis  (computed  on the
         actual  number of days elapsed  over a year of 365 or 366 days,  as the
         case may be).

                  Medicaid  Certification  -  certification  by  HCFA or a state
         agency or entity  under  contract  with HCFA that  health  maintenance,
         management  or  care  operations  are  in  compliance  with  all of the
         conditions of participation set forth in the Medicaid Regulations.

                  Medicaid  Provider  Agreement  -  an  agreement  entered  into
         between a state agency or other such entity  administering the Medicaid
         program and a health  maintenance  management or care  operation  under
         which the health  maintenance,  management or care operation  agrees to
         provide services for Medicaid  patients in accordance with the terms of
         the agreement and Medicaid Regulations.

                  Medicaid Regulations - collectively,  (i) all federal statutes
         (whether  set  forth  in  Title  XIX  of  the  Social  Security  Act or
         elsewhere)  affecting the medical  assistance  program  established  by
         Title  XIX of the  Social  Security  Act  and  any  statute  succeeding
         thereto);   (ii)  all  applicable  provisions  of  all  federal  rules,
         regulations,   manuals  and  orders  of  all  Governmental  Authorities
         promulgated pursuant to or in connection with the statutes described in
         clause  (i) above and all  federal  administrative,  reimbursement  and
         other  guidelines of all Governmental  Authorities  having the force of
         law  promulgated  pursuant  to  or  in  connection  with  the  statutes
         described in clause (i) above;  (iii) all state  statutes and plans for
         medical   assistance  enacted  in  connection  with  the  statutes  and
         provisions  described  in  clauses  (i) and  (ii)  above;  and (iv) all
         applicable provisions of all rules, regulations,  manuals and orders of
         all Governmental  Authorities  promulgated pursuant to or in connection
         with the  statutes  described  in clause  (iii)  above  and all  stated
         administrative,  reimbursement and other guidelines of all Governmental
         Authorities  having  the  force of law  promulgated  pursuant  to or in
         connection with the statutes described in clause (ii) above.

                                      -16-

                  Medicare  Certification  -  certification  by  HCFA or a state
         agency or entity under contract with HCFA that the health  maintenance,
         management  or  care  operations  is in  compliance  with  all  of  the
         conditions of participation set forth in the Medicare Regulations.

                  Medicare  Provider  Agreement  -  an  agreement  entered  into
         between a state agency or other such entity  administering the Medicare
         program and a health  maintenance,  management or care operation  under
         which the health  maintenance,  management or care operation  agrees to
         provide services for Medicare  patients in accordance with the terms of
         the agreement and Medicare Regulations.

                  Medicare  Regulations  -  collectively,  all federal  statutes
         (whether  set  forth  in  Title  XVIII of the  Social  Security  Act or
         elsewhere)  affecting  the health  insurance  program  for the aged and
         disabled  established by Title XVIII of the Social Security Act and any
         statute succeeding thereto,  together with all applicable provisions of
         all  rules,   regulations,   manuals  and  orders  and  administrative,
         reimbursement  and  other  guidelines  having  the  force of law of all
         Governmental  Authorities  (including  HHS,  HCFA,  the  Office  of the
         Inspector General for HHS or any Persons succeeding to the functions of
         any of the foregoing) promulgated pursuant to or in connection with any
         of the foregoing having the force of law.

                  Member  -  an  individual  who  is  a  member,  subscriber  or
         enrollee, or any dependent of any member, subscriber or enrollee, under
         any health plan offered by a Healthcare Purchaser.

                  Midwest - Midwest Vision, Inc., a Minnesota corporation.

                  Military  Agreements  - the  agreements  between  Borrower and
         certain  Governmental  Authorities  pursuant to which Borrower operates
         Host Locations on United States military bases.

                  Money  Borrowed - as applied to any Person,  (i) Debt  arising
         from the  lending  of money by any other  Person to such  Person;  (ii)
         Debt, whether or not in any such case arising from the lending of money
         by another  Person to such Person,  (A) which is  represented  by notes
         payable or drafts  accepted  that evidence  extensions  of credit,  (B)
         which constitutes obligations evidenced by bonds, debentures,  notes or
         similar instruments, or (C) upon which interest charges are customarily
         paid  (other  than  accounts  payable) or that was issued or assumed as
         full or partial  payment for  Property;  (iii) Debt that  constitutes a
         Capitalized  Lease  Obligation;  (iv)  reimbursement  obligations  with
         respect to letters of credit or guaranties of letters of credit and (v)
         Debt of such  Person  under any  guaranty  of  obligations  that  would
         constitute  Debt for Money  Borrowed  under  clauses (i) through  (iii)
         hereof, if owed directly by such Person.

                  Moody's - Moody's Investors Services, Inc.

                  Multiemployer  Plan - has the  meaning  set  forth in  Section
4001(a)(3) of ERISA.

                  NDC - National Data Corp.

                  Net  Proceeds  -  with  respect  to  a   disposition   of  any
         Collateral,  proceeds (including cash receivable (when received) by way
         of  deferred  payment)  received  by  Borrower  from the  sale,  lease,
         transfer or other  disposition  of any  Property,  including  insurance
         proceeds  and  awards of  compensation  received  with  respect  to the
         destruction or  condemnation  of all or part of such Property,  net of:
         (i) the reasonable and customary costs of such sale, lease, transfer or
         other  disposition  (including legal fees and sales  commissions);  and
         (ii) amounts applied to repayment of Debt (other than the  Obligations)
         secured  by a  Permitted  Lien on the  Collateral  disposed  of that is
         senior to Lender's Liens.

                                      -17-

                  Net  Realizable   Value  -  with  respect  to  any  Healthcare
         Receivable,  the amount reasonably  estimated by Borrower to be the net
         collectible  or  realizable   value  of  such   Healthcare   Receivable
         determined to reflect reimbursement  policies of Third Party Payors and
         otherwise in accordance with Section 8.1.28 of the Agreement.

                  New Notes  Indenture  - the  Indenture  to be entered  into by
         Borrower,  as issuer, and New Notes Indenture  Trustee,  as trustee for
         the holders of the New Senior  Notes,  pursuant to which the New Senior
         Notes  will be  issued,  that is in form and  substance  acceptable  to
         Lender.

                  New Notes  Indenture  Trustee - the bank or trust company that
         will serve as trustee under the New Notes Indenture.

                  New Senior Notes - up to  $120,000,000  of 12% Senior  Secured
         Notes due 2009  authorized  and to be issued  pursuant  to the Plans of
         Reorganization and the New Notes Indenture.

                  New West - New West Eyeworks, Inc., a Delaware corporation.

                  Note Pledge  Agreements  - the Note Pledge  Agreement  and the
         Collateral  Assignment of Security Agreement to be executed by Borrower
         in favor of Lender on or before  the  Closing  Date,  in each case with
         respect to the $1,500,000 promissory note made by Vista Acquisition LLC
         to the order of Borrower, as security for the Obligations.

                  Notice of  Borrowing  - as defined in Section  3.1.1(i) of the
         Agreement.

                  Notice of  Conversion/Continuation  - as  defined  in  Section
         2.1.2(ii) of the Agreement.

                  NVAL - NVAL Healthcare Systems, Inc., a Georgia corporation.

                  Obligations  - in  each  case,  whether  now in  existence  or
         hereafter arising,  (i) the principal of, and interest and premium,  if
         any, on, the Revolver  Loans;  (ii) all LC  Outstandings  and all other
         obligations  of any Obligor to Lender  arising in  connection  with the
         issuance of any Letter of Credit;  (iii) all Debt and other obligations
         of Borrower to Lender under or in  connection  with any  Interest  Rate
         Contract or Currency Contract,  including any premature  termination or
         breakage  costs;  and (iv)  all  other  Debts,  covenants,  duties  and
         obligations  (including  Contingent  Obligations) now or at any time or
         times hereafter owing by any Obligor to Lender under or pursuant to the
         Agreement or any of the other Loan Documents,  whether evidenced by any
         note or other  writing,  whether  arising from any extension of credit,
         opening   of  a  letter  of   credit,   acceptance,   loan,   guaranty,
         indemnification or otherwise, and whether direct or indirect,  absolute
         or contingent,  due or to become due, primary or secondary, or joint or
         several, including all interest,  charges, expenses, fees or other sums
         (including  Extraordinary  Expenses)  chargeable to any or all Obligors
         hereunder or under any of the other Loan Documents.

                  Obligor - Borrower  and each  Guarantor  and any other  Person
         that is at any time  liable for the payment of the whole or any part of
         the  Obligations or that has granted in favor of Lender a Lien upon any
         of  any  of  such  Person's  assets  to  secure  payment  of any of the
         Obligations.

                                      -18-

                  Optical  Express  - Vista  Optical  Express,  Inc.,  a Georgia
         corporation.

                  Ordinary  Course of Business - with respect to any transaction
         involving any Person, the ordinary course of such Person's business, as
         conducted  by  such  Person  in  accordance  with  past  practices  and
         undertaken  by such  Person in good  faith and not for the  purpose  of
         evading any covenant or restriction in any Loan Document.

                  Organization  Documents  - with  respect  to any  Person,  its
         charter, certificate or articles of incorporation,  bylaws, articles of
         organization,   operating  agreement,  members  agreement,  partnership
         agreement,  voting trust or similar  agreement or instrument  governing
         the formation or operation of such Person.

                  Original Term - as defined in Section 5.1 of the Agreement.

                  OSHA - the Occupational Safety and Hazard Act of 1970.

                  Other  Agreements  -  each  LC  Support,  each  Interest  Rate
         Contract  with Lender or with Bank subject to credit  enhancement  from
         Lender,  and any and all agreements,  instruments and documents  (other
         than the  Agreement  and the Security  Documents),  heretofore,  now or
         hereafter  executed by  Borrower,  any Obligor or any other  Person and
         delivered to Lender in respect of the transactions  contemplated by the
         Agreement.

                  Other MIS Systems - management information systems, other than
         Premis,  utilized  by  Borrower  to  process  Accounts,  including  the
         Per-Se-Midwest System.

                  Out-of-Formula  Condition - as defined in Section 1.1.2 of the
         Agreement.

                  Out-of-Formula   Loan  -  a   Revolver   Loan   made  when  an
         Out-of-Formula  Condition  exists or the  amount of any  Revolver  Loan
         which, when funded, results in an Out-of-Formula Condition.

                  Parent   Plan  of   Reorganization   -  the   Joint   Plan  of
         Reorganization Under Chapter 11, Title 11, United States Code, filed by
         Borrower  (f/k/a  Vista  Eyecare,  Inc.)  and  Certain  of  its  Debtor
         Subsidiaries  with the  Bankruptcy  Court in the  Chapter  11 Case,  as
         amended as of May 17, 2001.

                  Participant  - each  Person who shall be granted  the right by
         Lender to  participate  in any of the Revolver  Loans  described in the
         Agreement and who shall have entered into a participation  agreement in
         form and substance satisfactory to Lender.

                  Payment Account - an account maintained by Lender to which all
         monies from time to time  deposited  to the Dominion  Account  shall be
         transferred  and all  other  payments  shall  be  sent  in  immediately
         available federal funds.

                  Payment Intangibles - shall have the meaning given to the term
"payment intangibles" in the UCC.

                  Payment Items - all checks,  drafts, or other items of payment
         payable to Borrower, including proceeds of any of the Collateral.

                                      -19-

                  Pending Revolver Loans - at any date, the aggregate  principal
         amount of all Revolver Loans which have been requested in any Notice of
         Borrowing  received  by Lender  but  which  have not  theretofore  been
         advanced by Lender.

                  Permitted  Contingent  Obligations  -  Contingent  Obligations
         arising from endorsements of Payment Items for collection or deposit in
         the Ordinary Course of Business;  Contingent  Obligations  arising from
         Interest Rate Contracts entered into in the Ordinary Course of Business
         pursuant to this  Agreement or with  Lender's  prior  written  consent;
         Contingent  Obligations of Borrower and its Subsidiaries existing as of
         the Closing Date, including extensions and renewals thereof that do not
         increase the amount of such  Contingent  Obligations  as of the date of
         such  extension  or  renewal;  Contingent  Obligations  incurred in the
         Ordinary Course of Business with respect to surety bonds, appeal bonds,
         performance bonds and other similar obligations; Contingent Obligations
         arising  under  indemnity  agreements  to title  insurers to cause such
         title insurers to issue to Lender title insurance policies;  Contingent
         Obligations  with respect to customary  indemnification  obligations in
         favor of  purchasers  in  connection  with  dispositions  of  Equipment
         permitted under Section 7.4.2 of the Agreement;  Contingent Obligations
         consisting  of  reimbursement  obligations  from time to time  owing by
         Borrower to Bank with  respect to Letters of Credit (but in no event to
         include reimbursement  obligations at any time owing by Borrower to any
         other  Person  that may issue  letters  of credit  for the  account  of
         Borrower);  and other Contingent  Obligations not to exceed $100,000 in
         the aggregate at any time.

                  Permitted  Lien - a Lien of a kind  specified in Section 9.2.5
         of the Agreement.

                  Permitted  Purchase  Money  Debt  -  Purchase  Money  Debt  of
         Borrower and its  Subsidiaries  which is incurred after the date of the
         Agreement  and that is secured  by no Lien or only by a Purchase  Money
         Lien,  provided  that the  aggregate  amount  of  Purchase  Money  Debt
         outstanding at any time does not exceed  $250,000 and the incurrence of
         such  Purchase  Money Debt does not violate any  limitation in the Loan
         Documents  regarding  Capital  Expenditures.  For the  purposes of this
         definition,  the principal amount of any Purchase Money Debt consisting
         of  capitalized  leases  shall  be  computed  as  a  Capitalized  Lease
         Obligation.

                  Per-Se - PST  Services,  Inc.  d/b/a  Per-Se  Technologies,  a
         Georgia corporation.

                  Per-Se Agreements - the Services  Agreement between Per-Se and
         Borrower  (f/k/a Vista Eyecare,  Inc.) for a term commencing on October
         15, 2000, and the Practice Management Services Agreement dated June 30,
         1998, between Per-Se (f/k/a Medaphis  Physician  Services  Corporation)
         and Borrower (f/k/a National Vision Associates, Ltd.).

                  Per-Se-Midwest  System  - the  management  information  system
         utilized  by Borrower in  association  with Per-Se to process  Accounts
         resulting from sales by Borrower from retail locations of Midwest.

                  Person  - an  individual,  partnership,  corporation,  limited
         liability company, limited liability partnership,  joint stock company,
         land  trust,  business  trust,  or  unincorporated  organization  or  a
         Governmental Authority.

                  Plan - an employee  benefit plan now or  hereafter  maintained
         for employees of Borrower that is covered by Title IV of ERISA.

                  Plans of  Reorganization  - the Parent Plan of  Reorganization
         and the Subsidiaries' Plan of Reorganization.

                                      -20-

                  Pledge  Agreement  - the  Pledge  Agreement  (and  Irrevocable
         Powers and Assignments  related  thereto) to be executed by Borrower on
         or before the Closing  Date in favor of Lender,  in form and  substance
         satisfactory to Lender, as security for the Obligations.

                  Premis - Borrower's  newly  developed  proprietary  management
         information system to process Healthcare  Receivables utilizing a point
         of sale system that  electronically  links Borrower's  retail stores to
         Borrower's chief executive office for transmission of claims to NDC for
         billing.

                  Private Provider Agreement - an agreement entered into between
         Borrower  and a Healthcare  Purchaser  under which  Borrower  agrees to
         provide  services  for  Members  of  a  health  plan  offered  by  such
         Healthcare Purchaser.

                  Projections  -  Borrower's  forecasted  (a)  Consolidated  and
         consolidating  balance sheets,  profit and loss  statements,  cash flow
         statements and capitalization  statements, all prepared on a consistent
         basis with Borrower's  historical financial  statements,  together with
         (b)  appropriate  supporting  details  and a  statement  of  underlying
         assumptions   and  (c)  a  projection   of  the   Borrowing   Base  and
         Availability.

                  Properly  Contested  - in the case of any  Debt of an  Obligor
         (including  any  Taxes)  that is not paid as and when due or payable by
         reason of such Obligor's bona fide dispute  concerning its liability to
         pay same or  concerning  the  amount  thereof,  (i) such  Debt is being
         properly  contested in good faith by appropriate  proceedings  promptly
         instituted and diligently conducted;  (ii) such Obligor has established
         appropriate  reserves  as shall be required  in  conformity  with GAAP;
         (iii) the  non-payment  of such Debt will not have a  Material  Adverse
         Effect  and will not  result  in a  forfeiture  of any  assets  of such
         Obligor; (iv) no Lien is imposed upon any of such Obligor's assets with
         respect  to such  Debt  unless  such Lien is at all  times  junior  and
         subordinate  in priority to the Liens in favor of Lender  (except  only
         with  respect  to  property  taxes  that have  priority  as a matter of
         applicable state law) and enforcement of such Lien is stayed during the
         period prior to the final  resolution or  disposition  of such dispute;
         (v) if the Debt results from, or is determined by the entry,  rendition
         or  issuance  against an  Obligor  or any of its assets of a  judgment,
         writ,  order or decree,  enforcement of such judgment,  writ,  order or
         decree is stayed pending a timely appeal or other judicial review;  and
         (vi) if such contest is abandoned,  settled or determined adversely (in
         whole or in part) to such  Obligor,  such Obligor  forthwith  pays such
         Debt and all  penalties,  interest and other  amounts due in connection
         therewith.

                  Property  - any  interest  in any kind of  property  or asset,
         whether real, personal or mixed, and whether tangible or intangible.

                  Provider  Agreement - the  Medicaid  Provider  Agreement,  the
         Medicare  provider  Agreement,  any Private  Provider  Agreement or any
         other  agreement  by which a Third Party Payor is  obligated to pay for
         services  rendered  to  patients of  Borrower,  or all of them,  as the
         context requires.

                  Purchase  Money Debt - means and includes (i) Debt (other than
         the  Obligations)  for the  payment of all or any part of the  purchase
         price of any fixed assets,  (ii) any Debt (other than the  Obligations)
         incurred  at the  time of or  within  10 days  prior  to or  after  the
         acquisition of any fixed assets for the purpose of financing all or any
         part of the purchase price thereof, and (iii) any renewals,  extensions
         or  refinancings  (but  not any  increases  in the  principal  amounts)
         thereof outstanding at the time.

                                      -21-

                  Purchase  Money Lien - a Lien upon fixed assets which  secures
         Purchase  Money  Debt,  but only if such  Lien  shall  at all  times be
         confined solely to the fixed assets acquired  through the incurrence of
         the Purchase  Money Debt secured by such Lien and the proceeds  thereof
         and such Lien constitutes a purchase money security  interest under the
         UCC.

                  Refinancing  Conditions - the  following  conditions,  each of
         which must be  satisfied  before  Refinancing  Debt shall be  permitted
         under Section 9.2.3 of the Agreement: (i) the Refinancing Debt is in an
         aggregate principal amount that does not exceed the aggregate principal
         amount of the Debt  being  extended,  renewed or  refinanced,  (ii) the
         Refinancing  Debt has a later or equal final  maturity  and a longer or
         equal weighted  average life than the Debt being  extended,  renewed or
         refinanced, (iii) the Refinancing Debt does not bear a rate of interest
         that  exceeds a market  rate (as  determined  in good faith by a Senior
         Officer) as of the date of such extension, renewal or refinancing, (iv)
         if the Debt being extended, renewed or refinanced is subordinate to the
         Obligations,  the Refinancing  Debt is subordinated to the same extent,
         (v) the covenants  contained in any instrument or agreement relating to
         the  Refinancing  Debt are no less  favorable  to  Borrower  than those
         relating to the Debt being extended, renewed or refinanced, and (vi) at
         the time of and after  giving  effect  to such  extension,  renewal  or
         refinancing, no Default or Event of Default shall exist.

                  Refinancing  Debt - Debt for Money  Borrowed that is permitted
         by clause (v) or (vii) of Section  9.2.3 and that is the subject or the
         result of an extension, renewal or refinancing.

                  Regulation D - Regulation D of the Board of Governors.

                  Reimbursement  Date - as defined in Section  1.3.1(iii) of the
         Agreement.

                  Renewal Term - as defined in Section 5.1 of the Agreement.

                  Rentals - as defined in Section 9.2.14 of the Agreement.

                  Reorganization  Expenses - for any period,  on a  Consolidated
         basis,    Borrower's   and   its   Subsidiaries'    restructuring   and
         reorganization  costs  for  such  period,  including  compensation  for
         services   rendered   and   reimbursement   of  expenses   incurred  by
         professionals  retained  by the  Obligors  and  their  creditors;  fees
         incurred in connection with the execution,  delivery and performance of
         the  Agreement;  expenses  (including  severance)  associated  with the
         consolidation  or closing of facilities;  and expenses  associated with
         the Obligors' management retention program.

                  Reportable  Event - any of the  events  set  forth in  Section
         4043(b) of ERISA.

                  Reporting Period - means any monthly fiscal period of Borrower
         beginning on December 31, 2000.

                  Restricted   Investment  -  any  acquisition  of  Property  by
         Borrower  or any of its  Subsidiaries  in  exchange  for  cash or other
         Property,  whether in the form of an acquisition of Equity Interests or
         Debt, or the purchase or  acquisition  by Borrower or any Subsidiary of
         any  other  Property,  or a  loan,  advance,  capital  contribution  or
         subscription,  except  acquisitions of or investments in the following:
         (i) fixed  assets to be used in the  Ordinary  Course  of  Business  of
         Borrower or any  Subsidiary  so long as the  acquisition  costs thereof
         constitute Capital Expenditures  permitted  hereunder;  (ii) goods held
         for  sale or  lease  or to be used in the  manufacture  of goods or the
         provision  of services by Borrower or any  Subsidiary  in the  Ordinary
         Course of Business; (iii) Current Assets arising from the sale or lease
         of

                                      -22-

         goods or the  rendition of services in the Ordinary  Course of Business
         of Borrower or any Subsidiary;  (iv) investments in Subsidiaries to the
         extent such  Subsidiaries  are existing on the Closing  Date,  provided
         that  (a) the  amount  of such  investments,  when  combined  with  the
         aggregate amount of such investments made by Borrower since the Closing
         Date and the aggregate  outstanding  amount of all loans or advances of
         money made by Borrower to the  Subsidiaries,  do not at any time exceed
         the total amount, less reimbursements to Borrower,  of $1,000,000,  (b)
         no Default or Event of  Default  exists at the time of, or  immediately
         after,  the  making  of  such  investment,  and (c) in no  event  shall
         Borrower make any such  investment in any Subsidiary that is subject to
         the  Subsidiaries'  Plan of  Reorganization  until the "Effective Date"
         under (and as defined in) the Subsidiaries'  Plan of Reorganization has
         occurred (but the provisions of clauses (a) through (c) above shall not
         apply to any  investment  by any  Managed  Care  Subsidiary  in another
         Managed Care  Subsidiary);  (v) Cash Equivalents to the extent they are
         not  subject  to rights of offset  in favor of any  Person  other  than
         Lender;  (vi) the Disputed  Claims Reserve;  (vii) the  Administrative,
         Priority  and  Convenience   Claims  Reserve;   and  (viii)  the  Vista
         Acquisition  Account  through and including July 1, 2001 (provided that
         the amount therein does not exceed  $5,700,000 and no additional  funds
         are deposited therein by Borrower from and after the Closing Date).

                  Restrictive  Agreement - an  agreement  (other than any of the
         Loan  Documents)  that,  if  and  for  so  long  as an  Obligor  or any
         Subsidiary  of  such  Obligor  is  a  party  thereto,  would  prohibit,
         condition or restrict such Obligor's or Subsidiary's  right to incur or
         repay Debt for Money Borrowed (including any of the Obligations); grant
         Liens upon any of such  Obligor's  or  Subsidiary's  assets  (including
         Liens  granted  in favor of  Lender  pursuant  to the Loan  Documents);
         declare  or make  Distributions;  amend,  modify,  extend  or renew any
         agreement evidencing Debt for Money Borrowed (including any of the Loan
         Documents); or repay any Debt owed to another Obligor.

                  Revolver  Commitment  -  the  obligation  of  Lender  to  make
         Revolver Loans and make available the LC Facility pursuant to the terms
         and conditions of the Agreement, which shall not exceed $10,000,000, as
         further  modified  from  time  to time  pursuant  to the  terms  of the
         Agreement.

                  Revolver  Loan - a Loan made by Lender as  provided in Section
         1.1 of the Agreement.

                  S&P  -  Standard  &  Poor's   Ratings  Group,  a  division  of
         McGraw-Hill, Inc.

                  Schedule  of  Accounts - as  defined  in Section  6.2.2 of the
         Agreement.

                  SEC - Securities and Exchange Commission.

                  Security - shall have the same  meaning as in Section  2(1) of
         the Securities Act of 1933.

                  Security  Agreement - each  Security  Agreement  executed by a
         Guarantor  in favor of Lender on or before the Closing Date as security
         for such Guarantor's Guaranty and the Obligations.

                  Security  Documents - the Trademark Security  Agreement,  each
         Guaranty,  each  Security  Agreement,  the Note Pledge  Agreement,  the
         Deposit  Account  Assignment,   the  Business  Interruption   Insurance
         Assignment,  the  Agreement  Regarding  Per-Se  Agreements,  the Pledge
         Agreement and all other  instruments  and agreements now or at any time
         hereafter securing the whole or any part of the Obligations.

                  Senior  Officer - the chairman of the board of directors,  the
         president, the chief financial officer,  treasurer or controller of, or
         in-house legal counsel to, Borrower.

                  Software - shall have the meaning given to the term "software"
         in the UCC.

                                      -23-

                  Solvent - as to any  Person,  such  Person  (i) owns  Property
         whose fair  saleable  value is greater than the amount  required to pay
         all of such Person's Debts (including  contingent Debts),  (ii) is able
         to pay all of its  Debts  as  such  Debts  mature,  (iii)  has  capital
         sufficient to carry on its business and  transactions  and all business
         and  transactions  in  which it is  about  to  engage;  and (iv) is not
         "insolvent"  within the  meaning of Section  101(32) of the  Bankruptcy
         Code.

                  Statutory Reserves - on any date, the percentage (expressed as
         a  decimal)  established  by the Board of  Governors  which is the then
         stated  maximum  rate  for  all  reserves   (including  any  emergency,
         supplemental or other marginal reserve requirements)  applicable to any
         member bank of the Federal  Reserve  System in respect to  Eurocurrency
         Liabilities (or any successor  category of liabilities under Regulation
         D). Such reserve  percentage  shall include  those imposed  pursuant to
         said   Regulation   D.  The   Statutory   Reserve   shall  be  adjusted
         automatically  on and as of the  effective  date of any  change in such
         percentage.

                  Subordinated  Debt  - Debt  of  Borrower  that  is  fully  and
         absolutely  subordinated  in right of payment to the  Obligations  in a
         manner satisfactory to Lender.

                  Subsidiary  - any  Person  in  which  more  than  50%  of  its
         outstanding  Voting Securities or more than 50% of all Equity Interests
         is owned  directly  or  indirectly  by  Borrower,  by one or more other
         Subsidiaries  of  Borrower  or  by  Borrower  and  one  or  more  other
         Subsidiaries.

                  Subsidiaries'  Plan  of  Reorganization  - the  Joint  Plan of
         Reorganization Under Chapter 11, Title 11, United States Code, filed by
         Frame-n-Lens  Optical,  Inc., Midwest Vision,  Inc., New West Eyeworks,
         Inc. and Certain of Their Debtor Subsidiaries with the Bankruptcy Court
         in the Chapter 11 Cases, as amended as of May 17, 2001.

                  Tangible  Chattel  Paper - shall have the meaning given to the
         term "tangible chattel paper" in the UCC.

                  Taxes - any present or future taxes, levies, imposts,  duties,
         fees,  assessments,   deductions,  withholdings  or  other  charges  of
         whatever nature, including income, receipts,  excise, property,  sales,
         use,  transfer,  license,  payroll,  withholding,  social  security and
         franchise  taxes now or  hereafter  imposed  or  levied  by the  United
         States,  or  any  other   Governmental   Authority  and  all  interest,
         penalties,  additions  to tax  and  similar  liabilities  with  respect
         thereto,  but  excluding,  in the case of Lender,  taxes  imposed on or
         measured by the net income or overall gross receipts of such Lender.

                  Third Party Payor - any Person (other than the customer)  that
         is  responsible  for  payment  of  all or any  portion  of an  Account,
         including  any  commercial  or  non-profit   insurer,   any  Healthcare
         Purchaser and any Governmental Authority making payment pursuant to any
         Healthcare Law.

                  Trademark   Security   Agreement  -  the  Trademark   Security
         Agreement  to be  executed  by Borrower in favor of Lender on or before
         the  Closing  Date and by which  Borrower  shall  assign to Lender,  as
         security  for the  Obligations,  all of  Borrower's  right,  title  and
         interest in and to all of its trademarks.

                  Type - any type of a Revolver Loan  determined with respect to
         the interest option applicable  thereto,  which shall be either a LIBOR
         Loan or a Base Rate Loan.

                                      -24-

                  UCC - the Uniform  Commercial Code (or any successor  statute)
         as adopted  and in force in the State of Georgia  or,  when the laws of
         any other  state  govern  the  method or  manner of the  perfection  or
         enforcement  of any  security  interest in any of the  Collateral,  the
         Uniform Commercial Code (or any successor statute) of such state.

                  Upstream  Payment - a payment or distribution of cash or other
         Property by a Subsidiary to Borrower or another Subsidiary,  whether in
         repayment  of Debt owed by such  Subsidiary  to  Borrower or such other
         Subsidiary,  to pay  dividends on account of  Borrower's  or such other
         Subsidiary's ownership of Equity Interests, or otherwise.

                  Value - with  reference  to the value of  Eligible  Inventory,
         value  determined  on the  basis of the lower of cost or market of such
         Eligible  Inventory,  with the cost thereof  calculated  on a first-in,
         first-out basis determined in accordance with GAAP.

                  Vision  Administrators  -  Vision   Administrators,   Inc.,  a
         California corporation.

                  Vista Acquisition Account - the Deposit Account which contains
         the cash proceeds (and accretions thereto) of the sale of substantially
         all of the  assets of  Midwest,  New West and FNL to Vista  Acquisition
         LLC.

                  Vista Network - Vista Eyecare Network, LLC, a Delaware limited
         liability company.

                  Voting  Securities - Equity  Interests of any class or classes
         of a corporation  or other entity the holders of which are  ordinarily,
         in the  absence of  contingencies,  entitled to elect a majority of the
         corporate directors or Persons performing similar functions.

                  Wal-Mart - Wal-Mart Stores, Inc., a Delaware corporation.

                  Wal-Mart   Agreement  -  the  Vision  Center  Master   License
         Agreement dated as of June 16, 1994, between Wal-Mart, as licensor, and
         Borrower  (formerly  known as National  Vision  Associates,  Ltd.),  as
         licensee.

                  Accounting Terms. Unless otherwise specified herein, all terms
of an accounting  character  used in the  Agreement  shall be  interpreted,  all
accounting  determinations  under the Agreement shall be made, and all financial
statements  required to be delivered under the Agreement  shall be prepared,  in
accordance with GAAP, applied on a basis consistent with the most recent audited
Consolidated  financial  statements of Borrower and its Subsidiaries  heretofore
delivered to Lender and using the same method for inventory valuation as used in
such audited financial statements, except for any change required by GAAP.

                  Other Terms.  All other terms contained in the Agreement shall
have, when the context so indicates, the meanings provided for by the UCC to the
extent the same are used or defined therein.

                  Certain Matters of Construction.  The terms "herein," "hereof"
and  "hereunder"  and other words of similar  import refer to the Agreement as a
whole and not to any particular section,  paragraph or subdivision.  Any pronoun
used shall be deemed to cover all genders. In the computation of periods of time
from a specified date to a later specified date, the word "from" means "from and
including"  and the words "to" and "until"  each means "to but  excluding."  The
section  titles,  table of contents  and list of exhibits  appear as a matter of
convenience only and shall not affect the  interpretation of the Agreement.  All
references to statutes and related  regulations  shall include any amendments of
same and any successor statutes and regulations; to any of the Loan Documents or
any other agreement,  including the Host Licensor Agreements,  shall include any
and all  modifications  and  amendments  thereto  and any and all  restatements,
extensions  or  renewals  thereof;  to any  Person  shall mean and  include  the
successors and permitted  assigns of such Person;  to "including"  and "include"
shall be understood to mean "including,  without limitation;" (and, for purposes
of the Agreement and each other

                                      -25-

Loan Document,  the parties agree that the rule of ejusdem  generis shall not be
applicable to limit a general statement, which is followed by or referable to an
enumeration of specific  matters to matters similar to the matters  specifically
mentioned);  and to the  time of day  shall  mean  the time of day on the day in
question  in  Atlanta,  Georgia,  unless  otherwise  expressly  provided  in the
Agreement.  A  Default  or an Event of  Default  shall be deemed to exist at all
times  during the period  commencing  on the date that such  Default or Event of
Default  occurs to the date on which such  Default or Event of Default is waived
in writing by Lender pursuant to the Agreement or, in the case of a Default,  is
cured within any period of cure  expressly  provided in this  Agreement;  and an
Event of Default shall "continue" or be "continuing" until such Event of Default
has been  waived in writing by Lender.  All  calculations  of Value  shall be in
Dollars, all Revolver Loans shall be funded in Dollars and all Obligations shall
be repaid in Dollars.  Whenever the phrase "to the best of Borrower's knowledge"
or words of  similar  import  relating  to the  knowledge  or the  awareness  of
Borrower are used in the  Agreement or other Loan  Documents,  such phrase shall
mean and refer to (i) the actual  knowledge  of a Senior  Officer of Borrower or
(ii) the knowledge  that a Senior  Officer would have obtained if he had engaged
in good faith and diligent  performance  of his duties,  including the making of
such  reasonably  specific  inquiries as may be  necessary  of the  employees or
agents of  Borrower  and a good faith  attempt to  ascertain  the  existence  or
accuracy of the matter to which such phrase relates.

                         [Signatures on following page]

                                      -26-

         IN WITNESS  WHEREOF,  this  Appendix has been duly executed in Atlanta,
Georgia, as of May 30, 2001.

                                       NATIONAL VISION, INC.
                                       ("Borrower")

                                       By:____________________________________
                                             Angus C. Morrison, Senior Vice
                                             President

                                       Accepted in Atlanta, Georgia:

                                       FLEET CAPITAL CORPORATION
                                       ("Lender")

                                       By:____________________________________
                                             David C. Rich, Vice President

                                      -27-

                                    EXHIBIT A

                    Form of Notice of Conversion/Continuation

                           Date ______________,______

Fleet Capital Corporation
300 Galleria Parkway, N.W.
Suite 800
Atlanta, Georgia  30339
Attention: Loan Administration Officer

         Re:      Loan and Security  Agreement  dated as of May 30, 2001, by and
                  between  National Vision,  Inc. and Fleet Capital  Corporation
                  (as at any time amended, the "Loan Agreement")

Gentlemen:

         This Notice of  Conversion/Continuation is delivered to you pursuant to
Section  2.1.2  of  the  Loan  Agreement.   Unless  otherwise   defined  herein,
capitalized  terms used herein shall have the meanings  attributable  thereto in
the Loan Agreement. Borrower hereby gives notice of its request as follows:

Check as applicable:

         _ A conversion of Revolver Loans from one Type to another, as follows:

                  (i)      The  requested  date of the  proposed  conversion  is
                           ______________, ______ (the "Conversion Date");

                  (ii)     The Type of Revolver  Loans to be converted  pursuant
                           hereto  are  presently   __________________   [select
                           either  LIBOR  Loans  or  Base  Rate  Loans]  in  the
                           principal amount of $_____________  outstanding as of
                           the Conversion Date;

                  (iii)    The  portion of the  aforesaid  Revolver  Loans to be
                           converted on the  Conversion  Date is  $_____________
                           (the "Conversion Amount");

                  (iv)     The  Conversion  Amount  is to be  converted  into  a
                           ____________  [select  either a LIBOR  Loan or a Base
                           Rate Loan] (the  "Converted  Loan") on the Conversion
                           Date;

                  (v)      [In  the  event  Borrower   selects  a  LIBOR  Loan:]
                           Borrower hereby requests that the Interest Period for
                           such  Converted  Loan  be  for a  duration  of  _____
                           [insert length of Interest Period].

         _ A continuation of LIBOR Loans for new Interest Period, as follows:

                  (i)      The requested  date of the proposed  continuation  is
                           _______________, ____ (the "Continuation Date");

                  (ii)     The  aggregate  amount of the LIBOR Loans  subject to
                           such continuation is $__________________;

                  (iii)    The duration of the selected  Interest Period for the
                           LIBOR   Loans   which   are  the   subject   of  such
                           continuation  is:  _____________  [select duration of
                           applicable Interest Period].

         Borrower  hereby  ratifies and  reaffirms  all of its  liabilities  and
obligations  under the Loan  Documents and certifies that no Default or Event of
Default exists on the date hereof.

         Borrower  has  caused  this  Notice  of  Conversion/Continuation  to be
executed  and  delivered  by its duly  authorized  officer,  this _______ day of
______________, _______.

                                            NATIONAL VISION, INC.

                                            By:_______________________________

                                            Title:____________________________

                                    EXHIBIT B

                           Form of Notice of Borrowing

                           Date ______________, ______

Fleet Capital Corporation
300 Galleria Parkway, N.W.
Suite 800
Atlanta, Georgia  30339
Attention: Loan Administration Officer

         Re:      Loan and Security  Agreement  dated as of May 30, 2001, by and
                  between  National Vision,  Inc. and Fleet Capital  Corporation
                  (as at any time amended, the "Loan Agreement")

         This Notice of Borrowing is delivered to you pursuant to Section  3.1.1
of the Loan Agreement.  Unless otherwise defined herein,  capitalized terms used
herein  shall have the  meanings  attributable  thereto  in the Loan  Agreement.
Borrower  hereby requests a Revolver Loan in the aggregate  principal  amount of
$______________ to be made on _____________, _____, and to consist of:

Check as applicable:  __    Base Rate Loans in the aggregate principal amount of
                            $_____________

                      __    LIBOR Loans in the aggregate principal amount of
                            $___________, with Interest Periods as follows:

                           (i)      As to $_____________,  an Interest Period of
                                    ______ month(s);

                           (ii)     As to $_____________,  an Interest Period of
                                    ______ months;

                           (iii)    As to $_____________,  an Interest Period of
                                    ______ months.

         Borrower  hereby  ratifies and  reaffirms  all of its  liabilities  and
obligations  under the Loan  Documents  and Borrower  hereby  certifies  that no
Default or Event of Default exists on the date hereof.

                  Borrower  has caused this Notice of  Borrowing  to be executed
         and  delivered  by its duly  authorized  officer,  this  ______  day of
         ______________, ____.

                                            NATIONAL VISION, INC.

                                            By:________________________________

                                            Title:_____________________________

                                    EXHIBIT C

                             COMPLIANCE CERTIFICATE

                            [Letterhead of Borrower]

                            __________________, 20__

Fleet Capital Corporation
300 Galleria Parkway, N.W.
Suite 800
Atlanta, Georgia  30339

         The undersigned,  the chief financial officer of National Vision, Inc.,
a  _______________  corporation  ("Borrower"),  gives this  certificate to Fleet
Capital  Corporation  ("Lender") in accordance with the  requirements of Section
9.1.3 of that  certain  Loan and  Security  Agreement  dated as of May 30, 2001,
between  Borrower and Lender (as amended from time to time,  "Loan  Agreement"),
and in my representative capacity on behalf of Borrower.  Capitalized terms used
in this Certificate,  unless otherwise  defined herein,  shall have the meanings
ascribed to them in the Loan Agreement.

                  1. Based upon my review of the balance  sheets and  statements
         of income of Borrower for the [fiscal year]  [quarterly  period] ending
         __________________, 20__, copies of which are attached hereto, I hereby
         certify, in my representative capacity on behalf of Borrower, that:

                           (a)       Consolidated        EBITDA       is       $
                  ;_______________________________

                           (b)  Consolidated  Fixed  Charge  Coverage  Ratio  is
                  ____________ to 1.0; and

                           (c)  Capital  Expenditures  during the period and for
                  the fiscal  year to date total  $__________  and  $__________,
                  respectively.

         2. No Default exists on the date hereof, other than: __________________
________________________________________________ [if none, so state]; and

         3. No Event of Default exists on the date hereof, other than __________
____________________________________________________ [if none, so state].

         4. As of the date  hereof,  Borrower  is current in its  payment of all
accrued rent and other  charges to Persons who own or lease any  premises  where
any of the  Collateral is located,  and there are no pending  disputes or claims
regarding  Borrower's  failure  to pay or delay in  payment  of any such rent or
other charges.

         5. Attached hereto is a schedule showing the calculations  that support
Borrower's compliance  [non-compliance]  with the financial covenants,  as shown
above.

                                                    Very truly yours,

                                                    ---------------------------
                                                    Chief Financial Officer

                                    EXHIBIT D

                           OPINION LETTER REQUIREMENTS

                  With respect to Borrower and each  Guarantor,  Borrower's  and
         Guarantors'  counsel's opinion letter should address the following in a
         manner satisfactory to Lender:

         1.       Borrower's  and  each  Guarantor's  due  incorporation,  valid
                  existence,  good  standing  and  qualification  as  a  foreign
                  corporation.

         2.       Corporate name of Borrower and each Guarantor.

         3.       Borrower's and each  Guarantor's  corporate  power to execute,
                  deliver and perform the Loan  Documents to which it is a party
                  and its due execution and delivery thereof.

         4.       Borrower's and each Guarantor's due  authorization to execute,
                  deliver and perform the Loan  Documents to which it is a party
                  and its due execution and delivery thereof.

         5.       Borrower's  and  each  Guarantor's  execution,   delivery  and
                  performance  of the Loan  Documents  to which it is a party do
                  not (a) violate the articles or bylaws,  (b) cause a breach or
                  default  under any material  written  agreement  known to such
                  counsel, (c) violate any law,  regulation,  judgment or order,
                  or (d) result in or require a Lien or other  encumbrance other
                  than in favor of Lender.

         6.       The Loan  Documents as legal,  valid and binding  obligations,
                  enforceable  against  all  Obligors in  accordance  with their
                  respective  terms,  subject to standard  bankruptcy  and other
                  creditor's rights and equity exceptions.

         7.       Counsel's   lack  of  knowledge   of  pending  or   threatened
                  litigation or other  proceedings,  except as disclosed in Loan
                  Agreement.

         8.       Absence  of any  registration,  filing,  consent  or  approval
                  requirement of  Governmental  Authority in connection with the
                  execution, delivery and performance of the Loan Documents.

         9.       Non-violation  by the Loan  Documents  of any  Applicable  Law
                  relating to interest or usury.

         10.      Creation  in  favor of  Lender  of a duly  perfected  security
                  interest in the Collateral described in the Loan Agreement and
                  the Security Documents.

         11.      Absence of violation of Section 7 of the  Securities  Exchange
                  Act of 1934,  as  amended,  any  regulations  issued  pursuant
                  thereto,  or  Regulations T, U and X of the Board of Governors
                  of  the   Federal   Reserve   System,   by  the   transactions
                  contemplated by the Loan Documents.

         12.      Neither Borrower nor any Guarantor is an "investment  company"
                  or a company  "controlled"  by an "investment  company" within
                  the  meaning  of the  Investment  Company  Act of  1940,  or a
                  "holding  company"  or a  "subsidiary  company"  of a "holding
                  company"  or an  "affiliate"  or a "holding  company"  or of a
                  "subsidiary company" of a "holding company" within the meaning
                  of the Public Utility Holding Company Act of 1935.

         13.      The Plans of Reorganization has been properly confirmed by the
                  Confirmation Orders.

         14.      Borrower  and  Guarantors  have  acted in good  faith and have
                  satisfied all of the  requirements  of Section  1129(a) of the
                  Bankruptcy  Code  necessary for  confirmation  of the Plans of
                  Reorganization.

         15.      Based upon a search of the  Bankruptcy  Court's  records as of
                  the Closing  Date,  there is no pending  motion or appeal with
                  respect  to the  Confirmation  Orders,  and  the  Confirmation
                  Orders are Final Orders.

         16.      The certified  docket sheet for the Bankruptcy  Court reflects
                  no Liens granted or conferred by the Bankruptcy Court upon any
                  party  in  interest,   including   any  Liens   granted  to  a
                  debtor-in-possession  lender,  or  adequate  protection  Liens
                  granted  with  respect  to any  property  of  Borrower  or any
                  Guarantor.

                                    EXHIBIT E

                      LETTER OF CREDIT PROCUREMENT REQUEST

         Fleet Capital Corporation
         Suite 800
         300 Galleria Parkway, N.W.
         Atlanta, Georgia 30339

                  This Letter of Credit Procurement  Request is delivered to you
         pursuant to the Loan and Security  Agreement  dated as of May 30, 2001,
         between National Vision,  Inc., a Georgia corporation  ("Borrower") and
         Fleet  Capital  Corporation  ("Lender")  (as the same  may be  amended,
         supplemented,  restated or otherwise  modified  from time to time,  the
         "Loan Agreement").  Unless otherwise defined herein,  terms used herein
         have the meanings assigned to them in the Loan Agreement.

                  Borrower  hereby  requests  Lender to provide an LC Support to
         induce Bank to issue a Letter of Credit, as follows,

                  (1)  Amount of Letter of Credit:        $_____________________
                  (2)  Issuance Date:                      _____________________
                  (3)  Beneficiary's Name:                 _____________________
                  (4)  Beneficiary's Address:              _____________________
                                                           _____________________
                                                           _____________________
                  (5)  Expiry Date:                        _____________________
                  (6)  Draw Conditions:                    _____________________
                                                           _____________________
                                                           _____________________
                                                           _____________________

                  (7) Single draw 9 or Multiple draw 9

                  (8  Purpose of Letter of Credit:        _____________________
                                                          _____________________
                                                          _____________________

                                      -28-

                  Attached   hereto  is  the  Bank's  form  of  LC  Application,
         completed with the details of the Letter of Credit requested herein.

                  Borrower  hereby  certifies  that each of the LC Conditions is
         now,  and will on the date of  issuance  of the  Letter of  Credit,  be
         satisfied  in all  respects  and that no  Default  or Event of  Default
         exists.  Borrower  hereby  ratifies  and  reaffirms  all  of  the  Loan
         Documents and Obligations arising thereunder.

                  IN WITNESS WHEREOF,  Borrower has caused this Letter of Credit
         Procurement Request to be executed and delivered by its duly authorized
         officer, this ___ day of _________________, ____.

                                        NATIONAL VISION, INC.
                                        ("Borrower")

                                        By: ________________________________
                                                 Name: _____________________
                                                 Title: ____________________

                                 SCHEDULE 7.1.1

                               BUSINESS LOCATIONS

1.       Borrower currently has the following business locations, and no others:

         Chief Executive Office:  296 Grayson Highway, Lawrenceville, Georgia
                                 30045-5791

         Other    Locations: See attached.

2.       Borrower  maintains  its books and records  relating  to  Accounts  and
         General Intangibles at:

         296 Grayson Highway, Lawrenceville, Georgia 30045-5791

3.       Borrower  has had no office,  place of  business  or agent for  process
         located in any county other than as set forth above, except:

         None.

4.       Each Subsidiary currently has the following business locations,  and no
         others:

         Chief Executive Office: See attached.

         Other Locations: None.

5.       Each  Subsidiary  maintains its books and records  relating to Accounts
         and General Intangibles at:

         See attached.

6.       Each  Subsidiary  has had no  office,  place of  business  or agent for
         process located in any county other than as set forth above, except:

         None.

                                      -29-

7.       The following  bailees,  warehouseman,  similar  parties and consignees
         hold inventory of Borrower or one of its Subsidiaries:

         None.

                              Subsidiary Locations

                                 SCHEDULE 7.1.2

                                    INSURANCE

    Policy Number           Insurance Carrier                      Type         Expiration
                                                                                Date          Amount of Coverage

    OO4735933               American Int'l South Ins.              D&O          10/02/01      $25,000,000

    OO2787905               American Int'l Specialty Lines         EPLI         10/30/01      $1,000,000

    81421337                Federal Insurance Co.                  Fiduciary    10/19/01      Fiduciary - $2,000,000

    OO2787933               American Int'l Specialty Lines         Prof. Liab   10/12/01      Lawyers Professional B
                                                                                              $2,000,000

    SM807375                Evanston Ins. Co.                      E&O          08/18/01      $2,000,000 per Occurrence/
                                                                                              $4,000,000 aggregate

    SM807373                Evanston Ins. Co.                      E&O          08/18/01      $2,000,000 per Occurrence/
                                                                                              $4,000,000 aggregate

    81421337                Federal Insurance Co.                  Crime        10/19/01      Employee Dishonesty - $2,000,000
                                                                                              Depositors Forgery - $2,000,000
                                                                                              Theft, Disp. - $2,000,000
                                                                                              Computer Fraud - $2,000,000

    TRJUB394J903300         Travelers Insurance Co.                WC           10/19/01      Each Accident $500,000
                                                                                              Disease-Policy Limit $500,000
                                                                                              Disease-Ea Employee $500,000

    TRJGLSA120X880400       Travelers Insurance Co.                Liability    10/19/01      General Aggregate  $10,0000
                                                                                              Products Com/Op Agg $2,000,000
                                                                                              Personal & Adv Injury $1,000,000
                                                                                              Each Occurrence $1,000,000
                                                                                              Fire Damage (any one fire) $300,000
                                                                                              Med Exp (any one person) $10,000

    TJCAP394J908200         Travelers Insurance Co.                Auto         10/19/01      Combined Single Limit $1,000,000

    IMF0019512              Mt. Hawley Ins. Co.                    DIC          10/19/01      Earthquake  -  $50,000,000  in all 50
                                                                                              States
                                                                                              Flood  -  $50,000,000  for  locations
                                                                                              designated Flood Zones A,B, or V

    79723783                Federal Ins. Co. (Chubb)               Umb.         10/19/01      Each Occurrence $25,000,000
                                                                                              Aggregate $25,000,000

    XXK68207653             Fireman's Fund                         Ex Umb       10/19/01      Each Occurrence $25,000,000
                                                                                              Aggregate $25,000,000

    EX55810137              Ins. Co. of The State of PA            Int'l Pkg                  Foreign Property - $6,400,000

                                                                               
                                                                                              Foreign Business Income-$1,180,000
                                                                                              Earthquake - $1,500,000
                                                                                              Flood - $1,000,000
                                                                                              Foreign  Corporate  Kidnap and Ransom
                                                                                              - $1,000,000
                                                                                              Foreign Gen. Liab. - $1,000,000
                                                                                              Foreign Auto Liab - $1,000,000
                                                                                              Foreign Employers Liab - $1,000,000
                                                                                              Repatriation Expense - $25,000

    KTJCMB275T996398        Travelers Insurance Co.                Property                   $139,142,000 Blanket Buildings,
                                                                                              Personal Property, Business Income

    20CTPRS4602             Hartford                               Cargo                      $250,000 any one vessel
                                                                                              $2,500 any one pkg by parcel post

                                                      SCHEDULE 8.1.1

                                              JURISDICTIONS IN WHICH BORROWER
                                                  AND EACH SUBSIDIARY IS
                                                 AUTHORIZED TO DO BUSINESS

                  Name of Entity                                                Jurisdictions
                                                           
                  National Vision, Inc.                       Alabama, Alaska, Arizona, California, Colorado,
                                                              Connecticut, Florida, Hawaii, Kansas*, Kentucky,Louisiana,
                                                              Maryland*, Massachusetts*, Michigan, Minnesota,  Montana,  Nevada,
                                                              New Hampshire, New Jersey, New Mexico*, New York, North Carolina,
                                                              North Dakota, Oregon* Pennsylvania, South Carolina, South Dakota,
                                                              Tennessee*,Texas, Virginia*, Washington*,  West Virginia* and Wyoming.

                  Midwest Vision, Inc.                        None.

                  Frame-n-Lens Optical, Inc.                  None.

                  Family Vision Centers, Inc.                 Georgia

                  Vision Administrators, Inc.                 None.

                  ProCare Eye Exam, Inc.                      None.

                  New West Eyeworks, Inc.                     None.

                  Vista Eyecare Network, LLC                  None.

                  NVAL Healthcare Systems, Inc.               None.

                  NVAL Visioncare Systems                     None.
                  of California, Inc.

                  NVAL Visioncare Systems                     None.
                  of North Carolina, Inc.

                  Vista Optical Express, Inc.                 None.

                  Alexis Holding Company, Inc.                None.

                  International Vision Associates, Ltd.       None.

                  Mexican Vision Associates, S.A. de C.V.None.

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

         * Not  currently  authorized;  to be  authorized  on or before June 30,
2001.

                  Mexican Vision Associates Operadora,        None.
                  s. de R.L. de C.V.

                  Mexican Vision Associates                   None.
                  Servicios, s. de R.L. de C.V.

                  CECIVA B.V.                                 None.

                  International Vision Associates             None.
                  (Netherlands) B.V.

                  Czech Vision Associates, s.r.o.             None.

                  Slovak Vision Associates, s.r.o.            None.

                                 SCHEDULE 8.1.4

                                CAPITAL STRUCTURE

1.       The  classes  and  number of  authorized  shares of  Borrower  and each
         Subsidiary and the record owner of such shares are as follows:

Borrower:  The  common  stock of  Borrower  will be  publicly  traded  as of the
effective date of the Parent Plan.  Unsecured  creditors will receive new common
stock of Borrower pursuant to the Plans of Reorganization,  which will represent
all outstanding common stock of Borrower.

Subsidiaries:
- ------------

          Subsidiary            Class of Stock         Number of Shares              Record Owners            Number of Shares
                                                      Issued and Outstanding                                 Authorized but Unissued
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 
International Vision            Common Stock                   500              National Vision                   9,500
Associates, Ltd.                                                                Associates, Ltd.

NVAL Healthcare Systems, Inc.   Common Stock                   500              National Vision                  999,500
                                                                                Associates, Ltd.

Midwest Vision, Inc.            Common Stock                   220              National Vision
                                                                                Associates, Ltd.

Frame-n-Lens Optical, Inc.      Class A Common              198,377.22          National Vision              1,347,622.78
                                Stock                                           Associates, Ltd.

                                Class B Common              185,340.22          National Vision              1,360,659.78
                                Stock                                           Associates, Ltd.

                                Class D Common               34,297             National Vision              1,511,703
                                Stock                                           Associates, Ltd.

                                Series A                      3,899             National Vision               1143
                                Preferred Stock                                 Associates, Ltd.

New West Eyeworks, Inc.         Common Stock                 10,000             National Vision              90,000
                                                                                Associates, Ltd.

Family Vision Centers, Inc.     Common Stock                   100              Frame-n-Lens Optical, Inc.   209,000

Vision Administrators, Inc.     Common Stock                  1,000             Frame-n-Lens Optical, Inc.    9,000

Alexis Holding Company, Inc.    Common Stock                   500              New West Eyeworks, Inc.

Vista Optical Express, Inc.     Common Stock                   500              Vista Eyecare, Inc.

Vista Eyecare Network, LLC      Membership                    100%              New West Eyecare, Inc.        100%
                                Interest

2.       The number,  nature and holder of all other  outstanding  Securities of
         Borrower and each Subsidiary are as follows:

         None.

3.       The correct name and  jurisdiction of  incorporation of each Subsidiary
         of Borrower and the  percentage  of its issued and  outstanding  shares
         owned by Borrower are as follows: See also attached.

                    Name                Jurisdiction of Incorporation               Percentage of Shares
                                                                                     Owned by Borrower

Midwest Vision, Inc.                          Minnesota                                   100%

Frame-n-Lens Optical, Inc.                    California                                  100%

Family Vision Centers, Inc.                   Delaware                                    100%

Vision Administrators, Inc.                   California                                  100%

ProCare Eye Exam, Inc.                        California                                  100%

New West Eyeworks, Inc.                       Delaware                                    100%

Vista Eyecare Network, LLC                    Delaware                                    100%

NVAL Healthcare Systems, Inc.                 Georgia                                     100%

NVAL Visioncare Systems of California, Inc.   California                                  100%

NVAL Visioncare Systems of North Carolina,    North Carolina                              100%
Inc.

Vista Optical Express, Inc.                   Georgia                                     100%

Alexis Holding Company, Inc.                  Arizona                                     100%

International Vision Associates, Ltd.         Georgia                                     100%

Mexican Vision Associates, S.A. de C.V.       Mexico                                      100%

Mexican Vision Associates Operadora, s. de    Mexico                                      100%
R.L. de C.V.

Mexican Vision Associates Servicios, s. de    Mexico                                      100%
R.L. de C.V.

CECIVA B.V.                                   The Netherlands                             100%

International Vision Associates               The Netherlands                             100%
(Netherlands) B.V.

Czech Vision Associates, s.r.o                Czech Republic                              100%

Slovak Vision Associates, s.r.o.              Slovakia                                    100%

4.       The name of each of Borrower's  corporate or joint  venture  Affiliates
         and the nature of the affiliation are as follows:

         None.

                                                   SCHEDULE 8.1.5

                                                   CORPORATE NAMES

1.       Borrower's  correct corporate name, as registered with the Secretary of
         State of the State of Georgia, is:

         National Vision, Inc.

2.       In the conduct of its business, Borrower has used the following names:

Vista    Eyecare,  Inc.;  National  Vision  Associates,  Ltd.;  National  Vision
         Eyecare  Center;  Vista  Optical;  Vision  Center  Located in Wal*Mart;
         Vision Center in Wal-Mart; The Vision Center; National Vision Optical

3.       Each  Subsidiaries'  correct  corporate  name, as  registered  with the
         Secretary of State of the State of its incorporation, is:

         See Schedule 8.1.4.

4.       In the conduct of its business,  each Subsidiary has used the following
         names:

         Midwest Vision, Inc.               -        Vista Optical
         --------------------

         Frame-n-Lens Optical, Inc.         -        Vista Optical

         Family Vision Centers, Inc.        -        Vista Optical
         ---------------------------
                                                     Optical Center in Sam's
                                                     Club
                                                     Optical Center Inside Sam's
                                                     Club

         New West Eyeworks, Inc.            -       Vista Optical
         ----------------------

                                 SCHEDULE 8.1.12

                               SURETY OBLIGATIONS

In connection with the Stock Purchase Agreement (the "Stock Purchase Agreement")
dated as of February 22, 2001,  between FNL and Vista  Acquisition  LLC ("VAL"),
FNL is required to deliver to VAL, at the closing of VAL's purchase of the stock
of ProCare Eye Exam,  Inc.,  from FNL, an  Indemnity  Agreement  (in the form of
Exhibit F to the Stock Purchase  Agreement) duly executed by Borrower.  Pursuant
to such Indemnity  Agreement,  Borrower would indemnify VAL from and against any
Adverse  Consequences (as defined in the Stock Purchase  Agreement)  suffered by
VAL as  result  of any  breach by FNL of the  Stock  Purchase  Agreement  or any
default by FNL thereunder.

                                 SCHEDULE 8.1.13

                        FEIN OF BORROWER AND SUBSIDIARIES

Borrower's FEIN is  58-1910859

         Name of Subsidiary                     FEIN

MIDWEST VISION, INC.                        41-0953179

FRAME-N-LENS OPTICAL, INC.                  95-34324042

FAMILY VISION CENTERS, INC.                 71-0698445

NEW WEST EYEWORKS, INC.                     34-1589514

INTERNATIONAL VISION
ASSOCIATES, LTD.                            58-2015987

NVAL HEALTHCARE SYSTEMS, INC.               58-2297129

NVAL VISIONCARE SYSTEMS OF
NORTH CAROLINA, INC.                        58-2241647

NVAL VISIONCARE SYSTEMS OF
CALIFORNIA, INC.                            68-0394771

PROCARE EYE EXAM, INC.                      33-0756424

VISION ADMINISTRATORS, INC.                 95-4543663

VISTA EYECARE NETWORK, LLC                  86-0891113

ALEXIS HOLDING COMPANY, INC.                86-0672242

VISTA OPTICAL EXPRESS, INC.                 58-2484568

                                 SCHEDULE 8.1.15

                  PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES

1.       Borrower's and its Subsidiaries' patents:   None.

2.       Borrower's and its Subsidiaries' trademarks:         See attached.

3.       Borrower's and its Subsidiaries' copyrights:         None.

4.       Borrower's and its Subsidiaries'  licenses (other than routine business
         licenses,    authorizing   them   to   transact   business   in   local
         jurisdictions):None.

                                 SCHEDULE 8.1.18

                             RESTRICTIVE AGREEMENTS

  Contracts that restrict the right of Borrower to incur Debt:

        Title of Contract                Identity of Parties             Nature of Restriction              Term of Contract
        -----------------                -------------------             ---------------------              ----------------

Indenture dated as of              Borrower, as issuer, and State   Unless Borrower complies with           Notes due 2009
____________, 2001                 Street Bank and Trust Company,   a fixed charge coverage test,
                                   as trustee                       Borrower cannot incur any
                                                                    indebtedness other than
                                                                    certain permitted
                                                                    indebtedness.  Borrower cannot
                                                                    incur liens on its assets
                                                                    except certain permitted Liens.

                                 SCHEDULE 8.1.19

                                   LITIGATION

1.       Actions, suits, proceedings and investigations pending against Borrower
         or any Subsidiary:

Karen  Kremer,  Barbara  Riddle,  as  Individuals  and on  behalf  of all  other
individuals  similarly  situated v. Vista  Eyecare,  Inc., et. al. Case #814791,
filed in the Superior  Court of the State of California,  Orange  County.  Class
action lawsuit by present and former managers of Frame-N-Lens Optical, Inc.

Michael  Ward,  as natural  parent and next friend of Nathan Ward,  a minor,  v.
Family Vision  Centers,  Inc.,  d/b/a Wal-Mart Vision Center,  and  Frame-N-Lens
Optical, Inc. d/b/a Frame & Lens [Frame-n-Lens Optical,  Inc.]. Case #CIV-98-63,
filed in the Circuit Court of Pope County,  Arkansas.  Personal  injury  lawsuit
claiming $15,000,000 in damages.

Elda Y. Cone v. Vista Eyecare, Inc. and Scott Comer. Case #D.N. CV-01-0557970-S,
filed with the Superior Court of Judicial  District of New London,  Connecticut.
Alleges  wrongful  termination.  Claims $15,000 plus attorneys  fees,  costs and
interest. Company believes plaintiff's claims to be without merit.

2.       The only threatened  actions,  suits,  proceedings or investigations of
         which Borrower or any Subsidiary is aware are as follows:

  None.

                                 SCHEDULE 8.1.21

                        CAPITALIZED AND OPERATING LEASES

Borrower and its Subsidiaries have the following capitalized leases:   None.

Borrower and its Subsidiaries have the following operating leases: See attached.

                                 SCHEDULE 8.1.22

                                  PENSION PLANS

Borrower and its Subsidiaries have the following Plans:

            Party                              Type of Plan
            -----                              ------------

Borrower                                   Life Insurance; Short Term/Long Term Disability, Basic AD&D;
                                           Medical/Dental; 401K

Subsidiaries                               None.

                                 SCHEDULE 8.1.24

              COLLECTIVE BARGAINING AGREEMENTS; LABOR CONTROVERSIES

1.       Borrower and its Subsidiaries  are parties to the following  collective
         bargaining agreements:

None,  except  that  Mexican  Vision  Associates   Operadora  has  a  collective
bargaining agreement governing that Subsidiary's retail employees in Mexico.

2.       Material  grievances,  disputes of controversies  with employees are as
         follows: None.

3.       Threatened  strikes,  work stoppages and asserted  pending  demands for
         collective bargaining are as follows:

  None.

                                 SCHEDULE 9.2.5

                                 PERMITTED LIENS

                    Secured Party                                            Nature of Lien
                    -------------                                            --------------
                                                     
Darrell Flowe and Associates, Inc., with Regions Bank   Computer Equipment (hardware and software) as specified
as assignee                                             in Master Equipment Lease

Darrell Flowe and Associates, Inc., with Regions Bank   All hardware, software and peripherals as specified in
as assignee                                             Master Equipment Lease

IBM Credit Corporation                                  Certain IBM Equipment as referenced on IBM Slip #222272

IBM Credit Corporation                                  Certain IBM Equipment as referenced on IBM Slip #303254

Darrell Flowe and Associates, Inc., with Regions Bank   IBM 9406/8051 to 8052 Base Storage Expansion Unit and
as assignee                                             IBM 9406/6907 4.19GB Disk Unit

Wachovia Leasing Corporation                            Certain Leased Equipment specified in Master Lease
                                                        Agreement

First National Bank of West Point                       MB9600-Briot Complete Finishing Lab and related Equipment