-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eDkH5rMTATX7auVr38NSGFVfdV2VR5JBgRS0XPrRVQfO4NMoch9aCWraX/kivUfp 94XnjUi1c+F9oSAs9jy8ww== 0000850309-94-000003.txt : 19940331 0000850309-94-000003.hdr.sgml : 19940331 ACCESSION NUMBER: 0000850309-94-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19940101 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITHS FOOD & DRUG CENTERS INC CENTRAL INDEX KEY: 0000850309 STANDARD INDUSTRIAL CLASSIFICATION: 5411 IRS NUMBER: 870258768 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10252 FILM NUMBER: 94518117 BUSINESS ADDRESS: STREET 1: 1550 S REDWOOD RD CITY: SALT LAKE CITY STATE: UT ZIP: 84104 BUSINESS PHONE: 8019741400 10-K 1 FORM 10K FOR YEAR ENDED JANUARY 1, 1994 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 1994 (fifty-two weeks) Commission File Number: 001-10252 SMITH'S FOOD & DRUG CENTERS, INC. (Exact name of registrant as specified in its charter) Delaware 87-0258768 (State of incorporation) (I.R.S. Employer Identification No.) 1550 South Redwood Road, Salt Lake City, UT 84104 (Address of principal executive offices) (Zip Code) (801) 974-1400 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Class B Common Stock, $.01 par value New York Stock Exchange (Title of each class) (Name of each exchange on which registered) 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 The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sale price of the Class B Common Stock on February 28, 1994: $454,935,147 Number of shares outstanding of each class of common stock as of February 28, 1994: Class A 12,493,665 Class B 17,357,636 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive Proxy Statement dated March 25, 1994 for the Annual Meeting of Stockholders to be held on April 26, 1994 are incorporated by reference into Part III of this Form 10-K. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. [ ] TABLE OF CONTENTS PART I 3 Item 1. Business 3 Item 2. Properties 5 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II........ 6 Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 6 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 8. Financial Statements and Supplementary Data 7 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 7 PART III 7 Item 10. Directors and Executive Officers of the Registrant 7 Item 11. Executive Compensation 8 Item 12. Security Ownership of Certain Beneficial Owners and Management 8 Item 13. Certain Relationships and Related Transactions 8 PART IV 8 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 8 PART I Item 1. Business Smith's Food & Drug Centers, Inc. (the "Company") is a leading regional supermarket and drug store chain operating in the Intermountain, Southwestern, and Southern California regions of the United States, with 129 stores in Arizona, California, Idaho, New Mexico, Nevada, Texas, Utah and Wyoming. The Company was founded in 1948 and reincorporated under Delaware law in 1989. The Company's Class B Common Stock is traded on the New York Stock Exchange under the symbol "SFD". The Company develops and operates combination food and drug centers which offer a full selection of supermarket food items, a wide assortment of nonfood and drug items and a number of specialty departments including a "Big-Deals" section which offers many food and household items in larger "warehouse" pack sizes at warehouse club prices. Primary food products sold in the stores include groceries, meat, poultry, produce, dairy products, delicatessen items, prepared foods, bakery products, frozen foods, take-out foods, fresh juices, and specialty fish, meat and cheese. Some or all of the following nonfood items are available in the stores: full-line pharmacy and related over-the-counter drug items, health and beauty aids, video rentals, in-store banking services, housewares, toys, camera/photo department items, one-hour photo processing, cosmetics and other general merchandise. The average size of the Company's food and drug centers opened during fiscal 1993 was 75,700 square feet. The Company's food and drug centers currently being opened range in size from approximately 45,000 to 82,000 square feet per store, and future stores are expected to range in size from 54,000 to 66,000 square feet per store, depending on site constraints and the number and size of competing stores in relation to the population of the market area being served. In order to respond to changing consumer needs, the Company continually refines its store configurations and lay- outs. The Company's 129 stores at January 1, 1994 consisted of 115 large combination food and drug centers averaging 69,200 square feet, 12 superstores averaging 40,500 square feet and two conventional stores averaging 26,000 square feet. The combination stores range in size from 45,000 to 84,000 square feet and offer a complete line of supermarket, nonfood and drug products. These stores feature modern, attractive layouts with wide aisles and well-lighted spaces to facilitate convenient shopping, a variety of specialty departments, and centralized, highly automated checkout facilities. The superstores range in size from 30,000 to 45,000 square feet and have the appearance of a large supermarket augmented with a significant amount of nonfood and drug merchandise. Generally the superstores have fewer and more limited specialty departments than the combination stores. The conventional stores have the appearance of traditional supermarkets. The Company's strategy is to offer customers a broad product selection at everyday low prices combined with quality customer service in large, modern, attractive food and drug centers with ample parking. Customers are able to fill a substantial portion of their daily and weekly shopping needs at one convenient location. The Company promotes its reputation as a low price competitor in its market areas through a policy of everyday low pricing. Management attributes much of the Company's success to combining broad product selection and everyday low prices with quality customer service. The Company's primary focus in existing markets has been on increasing sales volume by offering customers low prices and quality customer service combined with specifically designed marketing programs. The Company also has focused on increasing sales volume by opening new stores in existing and adjacent markets. During 1993, the Company opened eleven combination stores in the following states: eight in California, one in New Mexico, one in Texas and one in Utah. The Company has an expansion program in progress which calls for a total of up to 60 stores in Southern California (San Diego to Fresno) prior to mid-1997. The Company currently plans to open 10 to 12 new stores at locations primarily in Southern California in 1994, three of which were opened during the first two months of 1994. Operations During 1993 the Company consolidated its Intermountain and Southwest Regions into one region. The new Region I consists of 103 stores in Arizona, Idaho, New Mexico, Nevada, Texas, Utah and Wyoming. Region II consists of 26 stores in Southern California. The regions are divided into 10 geographic districts ranging from 10 to 17 stores each. The regions and districts are staffed with operational managers who are given as much autonomy as possible while retaining the advantages of central control and economies of scale over accounting, real estate, legal and data processing functions. This operational autonomy enables operating management to react quickly to local market circumstances and gain competitive advantages as local conditions change. District and store managers are responsible for all aspects of store operations. Competition The retail food and drug industry is highly competitive. The Company competes with other large regional and national food and drug store chains, local food and drug stores, specialty food stores, convenience stores, restaurants and fast food chains. Principal competitive factors include store location, price, service, convenience, cleanliness, product quality and variety. Because the food and drug store business is characterized by narrow profit margins, the Company's earnings depend primarily on high sales volume and operating efficiency. The Company engages in aggressive price competition in each market that it serves and monitors its market share in those markets through internal research which is updated on a regular basis. As the Company continues to move into new market areas (including the expansion into Southern California), it anticipates significant competitive pressure on its operating margins in those markets. Purchasing, Distribution and Processing In the fourth quarter of 1993, a new 1,000,000 square foot, fully- integrated distribution center in Riverside, California, including a dairy processing plant, was completed and began operations. With the addition of this distribution center, the Company operates approximately 4.2 million square feet of distribution and processing facilities. Central distribution facilities in Salt Lake City and Layton, Utah; Tolleson, Arizona; and Riverside, California supply products to all of the Company's stores. The Company also operates a produce warehouse located in California. The Company's processing facilities located in Layton, Utah produce a variety of products under the Company's private labels for distribution to Company stores. The Company's dairy plants located in Layton, Tolleson and Riverside process a variety of milk, milk products and fruit beverages. The Company's automated frozen dough plant produces frozen bakery goods for final baking at in-store bakeries. The Company's cultured dairy products plant produces sour cream, yogurt, cottage cheese and chip dip products. The Company's ice cream processing plant supplies all stores with Smith's private label ice cream. The Company purchases significant levels of selected products, typically fast moving inventory items, on a forward purchase basis in order to secure lower prices or to take advantage of special buying opportunities. Forward purchasing exposes the Company to risks of decreases in product pricing during the time held in stock, changes in demand for such product and increases in the costs of financing inventory. The Company transports food and merchandise from its distribution centers through a Company-owned fleet of tractors and trailers which primarily serve nearby stores and through common carriers for stores located at greater distances. Employees The Company has over 18,000 employees. Approximately half of the Company's employees are nonunionized, although the Company anticipates that nearly all of the Company's new employees in California will be unionized. The Company's unionized employees work under 20 collective bargaining agreements with local labor unions. Three collective bargaining agreements are subject to renegotiation or will become subject to renegotiation during 1994. There can be no assurance that such agreements will be renewed or that the terms of any such renewal will be similar to the terms of existing agreements. Management of the Company believes that it will be able to renew such agreements on terms acceptable to the Company. If it is unable to do so, there could be a material adverse effect on the Company's operations. Governmental Regulation The Company is subject to regulation by a variety of governmental authorities, including federal, state and local agencies which regulate the distribution and sale of alcoholic beverages, pharmaceuticals, milk and other agricultural products, as well as various other food and drug items and also regulate trade practices, building standards, labor, health, safety and environmental matters. The Company from time to time receives inquiries from state and federal regulatory authorities with respect to its advertising practices, pricing policies and other trade practices. None of these inquiries, individually or in the aggregate, has resulted, or is expected by management to result, in any order, judgment, fine or other action that has, or would have, a material adverse effect on the business or financial position of the Company. Item 2. Properties At January 1, 1994, the Company operated 129 stores located in eight states. Of the 129 stores, the Company owned 95 with the remainder leased from third parties. The following is an analysis of the Company's store properties by state at January 1, 1994: State Owned Leased Total Utah 29 5 34 California 17 9 26 Arizona 21 3 24 Nevada 6 10 16 New Mexico 11 4 15 Idaho 4 1 5 Wyoming 3 2 5 Texas 4 0 4 -- -- --- Total 95 34 129 The Company leases or subleases 34 of its operating stores under leases expiring between 1994 and 2023. Nine of the Company-owned stores are situated on property which is ground-leased, in whole or in part, from third parties under leases expiring between 2002 and 2040. In most cases, such building and ground leases are subject to customary renewal options. The Company owns 579,000 square feet of grocery warehousing facilities and 326,000 square feet of processing plants in Layton, Utah; a 226,000 square foot nonfood warehouse in Salt Lake City, Utah; and a 1,089,000 square foot grocery and nonfood warehouse and 91,000 square feet of processing plants in Tolleson, Arizona. The Company leases a 40,000 square foot produce and forward purchasing warehouse in Albuquerque, New Mexico; a 190,000 square foot combination grocery and nonfood warehouse and a 408,000 square foot grocery warehouse in Salt Lake City, Utah; and a 204,000 square foot produce warehouse in Ontario, California, under leases expiring in 1995, 1997, 1997 and 1999, respectively. The Company also leases a 114,000 square foot processing plant and a 981,000 square foot grocery warehouse in Riverside, California under leases expiring in 2018. In addition, the Company's corporate offices, data processing and records storage facilities are located in over 100,000 square feet of office and storage space owned by the Company in Salt Lake City, Utah. Item 3. Legal Proceedings The Company is a party to several actions arising in the ordinary course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial position. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1993. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's Class B Common Stock is listed on the New York Stock Exchange under the symbol "SFD". The following table shows the high and low sales prices per share for all quarters of fiscal 1992 and 1993: High Low Fiscal 1992 First Quarter $43 1/4 $33 3/8 Second Quarter 38 27 7/8 Third Quarter 34 3/4 25 3/4 Fourth Quarter 37 3/4 32 3/4 Fiscal 1993 First Quarter $37 1/4 $31 Second Quarter 33 1/4 23 5/8 Third Quarter 26 1/2 20 Fourth Quarter 22 1/2 19 As of February 28, 1994 there were 289 Class A Common Stockholders and 1,229 Class B Common Stockholders of record. There are numerous stockholders who hold their Class B Common Stock in the "street name" of their various stock brokerage houses. Cash dividends of $.13 per share of Class A Common Stock and Class B Common Stock were paid in each of the four quarters of fiscal 1993, totaling $.52 per common share for fiscal 1993. Cash dividends of $.11 per share of Class A Common Stock and Class B Common Stock were paid in each of the four quarters of fiscal 1992, totaling $.44 per common share for fiscal 1992. The Board of Directors has approved a quarterly cash dividend of $.13 per common share commencing in the first quarter of fiscal 1994, which, if continued, would total $.52 per common share for fiscal 1994. Item 6. Selected Financial Data The information required for this item is included in the Annual Report to Stockholders for the fiscal year ended January 1, 1994 on the schedule entitled "Five Year Summary of Selected Financial and Operating Data" which information is attached as part of Exhibit 13.1 hereto and incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required for this item is included in the Annual Report to Stockholders for the fiscal year ended January 1, 1994 in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" which information is attached as part of Exhibit 13.1 hereto and incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The consolidated financial statements of the Company included in the Annual Report to Stockholders for the fiscal year ended January 1, 1994 are attached as part of Exhibit 13.1 hereto and incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information concerning directors and certain executive officers of the Company is included in the Company's Proxy Statement dated March 25, 1994 under the caption "Election of Directors," and "Other Matters -- Compliance with Section 16(a) of the Exchange Act," which information is incorporated herein by reference. The following sets forth certain information with regard to other executive officers of the Company: Matthew G. Tezak, age 38, became Senior Vice President and Chief Financial Officer in 1993. He served as Senior Vice President, Finance and Treasurer from 1992 to 1993 and Vice President, Finance and Treasurer from 1987 to 1992. Mr. Tezak, a certified public accountant, joined the Company in 1979 as Assistant Controller. Larry R. McNeill, age 52, has served as Senior Vice President, Corporate Development since 1992. Mr. McNeill joined the Company in 1979 as Vice President, Corporate Development. Richard C. Bylski, age 54, has served as Senior Vice President, Human Resources since 1992. He served as Vice President, Human Resources of the Company since 1979. Michael C. Frei, age 47, joined the Company in March 1990 as Senior Vice President, General Counsel and Corporate Secretary. Prior to that time, Mr. Frei served as Vice President and General Counsel of Price Development Company, a commercial real estate developer, since 1981. Fred F. Urbanek, age 58, has served as Senior Vice President, Facility Engineering since 1992. He served as Vice President, Facility Engineering of the Company since 1985. The Company's executive officers are appointed to serve, at the discretion of the Board of Directors, until their successors are appointed. Item 11. Executive Compensation Information concerning Executive Compensation is included in the Company's Proxy Statement dated March 25, 1994 under the caption "Executive Compensation" which information is incorporated herein by reference (other than information under the sub captions "Report of the Compensation Committee on Executive Compensation" and "Performance Graph", which shall not be deemed to be incorporated by reference herein.). Item 12. Security Ownership of Certain Beneficial Owners and Management Information concerning Security Ownership of Certain Beneficial Owners and Management is included in the Company's Proxy Statement dated March 25, 1994 under the caption "Security Ownership of Certain Beneficial Owners and Management" which information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information concerning Certain Relationships and Related Transactions is included in the Company's Proxy Statement dated March 25, 1994 under the caption "Certain Transactions" which information is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of this report: 1.Financial Statements: The following consolidated financial statements of the Company and its subsidiaries and the Report of Ernst & Young, Independent Auditors included in the Company's Annual Report to Stockholders for the fiscal year ended January 1, 1994 are incorporated herein by reference: Consolidated Statements of Income--fiscal years ended January 1, 1994, January 2, 1993 and December 28, 1991 Consolidated Balance Sheets--January 1, 1994 and January 2, 1993 Consolidated Statements of Common Stockholders' Equity-- fiscal years ended January 1, 1994, January 2, 1993 and December 28, 1991 Consolidated Statements of Cash Flows--fiscal years ended January 1, 1994, January 2, 1993 and December 28, 1991 Notes to Consolidated Financial Statements Report of Ernst & Young, Independent Auditors 2.Financial Statement Schedules: The following financial statement schedules of the Company and its subsidiaries are filed as part of this Annual Report on Form 10-K: Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties Schedule V - Property, Plant and Equipment Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3.Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of the Form 10-K. (b) Reports on Form 8-K: There were no reports filed on Form 8-K during the fourth quarter of fiscal 1993.
SMITH'S FOOD & DRUG CENTERS, INC. SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES Deductions Balance at Amounts Balance at End Balance at Amounts of Period Beginning Amounts Written Not Name of Debtor of Period Additions Collected Off Current Current Fiscal year 1993: Scott Fishburn, note with interest at 10%, due 5/7/95 $100,000 $100,000 Harry Moskal, notes with interest at 10%: Due 12/31/97 310,000 310,000 Due 1/10/01 350,000 $350,000 non-interest bearing note, due on demand 6,000 2,000 $ 2,000 2,000 Tom Potter, notes with interest at 10%: Due 3/11/94 $ 20,000 20,000 Due 3/11/94 105,000 30,915 $14,398 59,687 Charlie Yamashita, note with interest at 10%: Due on demand 9,268 9,268 Due 3/11/94 94,000 94,000 Brent Farnsworth, notes with interest at 10%: Due on demand 300,000 300,000 Due 3/11/94 7,050 7,050 -------- -------- -------- ------- -------- -------- $880,268 $421,050 $392,183 $14,398 $482,737 $412,000 Fiscal year 1992: Scott Fishburn, note with interest at 10%, due 5/7/95 $100,000 $100,000 Harry Moskal, notes with interest at 10%: Due 12/31/97 $310,000 310,000 Due 1/10/01 350,000 350,000 non-interest bearing note, due on demand 6,000 $ 2,000 4,000 Rick Nelson, note with interest at 10%, due on demand 65,000 $65,000 Tom Potter, note with interest at 10%, due 3/11/94 105,000 35,000 70,000 Charlie Yamashita, note with interest at 10%, due on demand 12,307 3,039 4,000 5,268 -------- -------- ------- ------- -------- $527,307 $421,000 $68,039 $41,000 $839,268 Fiscal year 1991: Scott Fishburn, note with interest at 10%, due 5/7/95 $100,000 $100,000 Harry Moskal, note with interest at 10%, due 1/10/01 $350,000 350,000 Rick Nelson, notes with interest at 10%: Due on demand 75,000 $ 10,000 $ 65,000 Due 3/31/92 25,000 25,000 Abel Porter, note with interest at 10%, due on demand 350,000 350,000 Charlie Yamashita, notes with interest at 10%: Due on demand 10,386 1,921 3,039 9,268 Due 3/1/90 10,000 10,000 Due 4/1/99 89,995 89,995 -------- -------- -------- -------- -------- $560,381 $451,921 $484,995 $ 68,039 $459,268
SMITH'S FOOD & DRUG CENTERS, INC. SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (DOLLAR AMOUNTS IN THOUSANDS) Balance at Other Balance at Beginning Additions Increase End of Classification of Period at Cost Retirements (Decrease) Period Fiscal Year 1993: Land $ 277,167 $ 43,452 $ 38,150 $ 282,469 Buildings 549,935 153,675 120,835 582,775 Leasehold 30,668 8,257 59 38,866 Improvements Fixtures and 436,969 116,917 15,004 538,882 Equipment $1,294,739 $322,301 $174,048 $1,442,992 Fiscal Year 1992: Land $ 186,672 $ 91,489 $ 994 $ 277,167 Buildings 455,853 96,633 2,551 549,935 Leasehold 26,046 5,236 614 30,668 Improvements Fixtures and 356,457 94,631 14,119 436,969 Equipment $1,025,028 $287,989 $18,278 $1,294,739 Fiscal Year 1991: Land $134,464 $ 53,773 $ 1,565 $ 186,672 Buildings 327,705 131,593 3,445 455,853 Leasehold 26,297 1,756 2,007 26,046 Improvements Fixtures and 282,180 94,438 20,161 356,457 Equipment $770,646 $281,560 $27,178 $1,025,028 SMITH'S FOOD & DRUG CENTERS, INC. SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (DOLLAR AMOUNTS IN THOUSANDS) Additions Balance at Charged to Other Balance at Beginning Costs and Increase End of Classification of Period Expenses Retirements (Decrease) Period Fiscal Year 1993: Buildings $ 60,199 $17,902 $ 2,438 $ 75,663 Leasehold 6,742 1,884 293 8,333 Improvements Fixtures and 150,160 62,387 12,180 200,367 Equipment $217,101 $82,173 $14,911 $284,363 Fiscal Year 1992: Buildings $ 45,388 $15,675 $ 864 $ 60,199 Leasehold 5,371 1,744 373 6,742 Improvements Fixtures and 112,919 50,362 13,121 150,160 Equipment $163,678 $67,781 $14,358 $217,101 Fiscal Year 1991: Land Buildings $ 34,482 $11,312 $ 406 $ 45,388 Leasehold 5,560 1,553 1,742 5,371 Improvements Fixtures and 93,292 37,630 18,003 112,919 Equipment $133,334 $50,495 $20,151 $163,678 INDEX TO EXHIBITS (Item 14(a)) Exhibit Number Document 3(i) Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 in the Company's Registration Statement on Form S-1 (Commission File No. 33-28698) which became effective on June 21, 1989). 3(ii)By-Laws of the Company (incorporated by reference to Exhibit 3.2 in the Company's Registration Statement on Form S-1 (Commission File No. 33-28698) which became effective on June 21, 1989). 4.1 Article IV of Restated Certificate of Incorporation of the Company (see Exhibit 3(i)). 4.2 Certain instruments which define the rights of holders of long-term debt of the Company and its subsidiaries are not being filed because the total amount of securities authorized under each such instrument does not exceed 10% of the total consolidated assets of the Company and its subsidiaries. The Company hereby agrees to furnish a copy of each such instrument to the Commission upon request. 4.3 Form of Pass Through Trust Agreement between the Company and the Pass Through Trustee Company (incorporated by reference to Exhibit 4.1 in the Company's Registration Statement on Form S-3 (Commission File No. 33-51097) which became effective on January 26, 1994). 4.4 Form of Pass Through Certificate (included in Exhibit 4.3). *10.1 Amended and Restated 1989 Stock Option Plan (incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1991). *10.2 1993 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). *10.3First Amendment to the 1993 Employee Stock Purchase Plan (Exhibit 10.2) dated as of August 2, 1993. *10.4Employees' Profit Sharing Plan and Trust, as amended and restated as of July 27, 1982 (incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-1 (Commission File No. 33-28698) which became effective June 21, 1989). *10.5 Pension Plan of Employees, as amended and restated as of July 27, 1982 (incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-1 (Commission File No. 33-28698) which became effective on June 21, 1989) 10.6 Employee Profit Sharing Plan dated as of January 3, 1994, First Amendment dated as of August 2, 1994 and Second Amendment dated as of January 27, 1994. *10.7 Forms of Supplemental Compensation Agreements dated as of January 2, 1985, and amended as of March 14, 1985, between the Company and certain executive officers (incorporated by reference to Exhibit 10.6 of the Company's Registration Statement on Form S-1 (Commission File No. 33-28698) which became effective on June 21, 1989). 10.8 Commitment Letter to the Company from Banco di Roma, dated as of July 16, 1993. 10.9 Revolving Credit Agreement, dated as of October 15, 1993, between the Company and Credit Suisse. 10.10 Promissory Note of the Company to Banque Nationale de Paris, dated as of May 29, 1991, and Commitment Letter to the Company from Banque Nationale de Paris, dated as of May 29, 1991 (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1991) 10.11 Promissory Notes of the Company to West One Bank Idaho, N.A., dated as of July 22, 1993. 10.12 Loan Agreement Between the Company and a consortium of lenders dated May 1, 1992 (incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). 10.13 Loan Agreement between the Company and a consortium of lenders dated December 15, 1992 (incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). *10.14 Form of Additional Retirement Benefit Agreement between the Company and certain of its executive officers (incorporated by reference to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). *10.15 Form of Indemnification Agreement between the Company and its directors and officers (incorporated by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). 10.16 Revolving Credit Agreement, dated as of June 28, 1993, between the Company and Bank of America (incorporated by reference to Exhibit 10.15 of the Company's Form 10-Q for the second quarter ended July 3, 1993). 10.17 Loan Agreement between the Company and a consortium of lenders dated November 1, 1993. 13.1 Company's Annual Report to Stockholders for the fiscal year ended January 1, 1994 (selected pages only). 22.1 Subsidiaries of the Company. 23.1 Consent of Ernst & Young, Independent Auditors. * Indicates management contract or compensatory plan or arrangement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. SMITH'S FOOD & DRUG CENTERS, INC. Date: March 24, 1994 By /s/ Jeffrey P. Smith Jeffrey P. Smith Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ Jeffrey P. Smith Chairman of the Board of March 24, 1994 Jeffrey P. Smith Directors and Chief Executive Officer (Principal Executive Officer) /s/ Richard D. Smith President and Chief March 24, 1994 Richard D. Smith Operating Officer; Director /s/ Robert D. Bolinder Executive Vice President, March 24, 1994 Robert D. Bolinder Corporate Planning and Development; Director /s/ Matthew G. Tezak Senior Vice President and March 24, 1994 Matthew G. Tezak Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Kenneth A. White Senior Vice President and March 24, 1994 Kenneth A. White Regional Manager, Region II; Director /s/ Rodney H. Brady Director March 24, 1994 Rodney H. Brady /s/ Allen P. Martindale Director March 24, 1994 Allen P. Martindale /s/ DeLonne Anderson Director March 24, 1994 DeLonne Anderson /s/ Alan R. Hoefer Director March 24, 1994 Alan R. Hoefer /s/ Duane Peters Director March 24, 1994 Duane Peters /s/ Ray V. Rose Director March 24, 1994 Ray V. Rose /s/ Fred L. Smith Director March 24, 1994 Fred L. Smith /s/ Sean D. Smith Director March 24, 1994 Sean D. Smith /s/ Douglas John Tigert Director March 24, 1994 Douglas John Tigert INDEX TO EXHIBITS Page Number in Exhibit Sequentially Number Document Numbered Copy 3(i) Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 in the Company's Registration Statement on Form S- 1 (Commission File No. 33-28698) which became effective on June 21, 1989). 3(ii) By-Laws of the Company (incorporated by reference to Exhibit 3.2 in the Company's Registration Statement on Form S-1 (Commission File No. 33- 28698) which became effective on June 21, 1989).. 4.1 Article IV of Restated Certificate of Incorporation of the Company (see Exhibit 3(i)). 4.2 Certain instruments which define the rights of holders of long-term debt of the Company and its subsidiaries are not being filed because the total amount of securities authorized under each such instrument does not exceed 10% of the total consolidated assets of the Company and its subsidiaries. The Company hereby agrees to furnish a copy of each such instrument to the Commission upon request. 4.3 Form of Pass Through Trust Agreement between the Company and the Pass Through Trustee (incorporated by reference to Exhibit 4.1 in the Company's Registration Statement on Form S-3 (Commission File No. 33-51097) which became effective on January 26, 1994). 4.4 Form of Pass Through Certificate (included in Exhibit 4.3). *10.1 Amended and Restated 1989 Stock Option Plan (incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1991). *10.2 1993 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). *10.3 First Amendment to the 1993 Employee Stock Purchase Plan (Exhibit 10.2) dated as of August 2, 1993. *10.4 Employees' Profit Sharing Plan and Trust, as amended and restated as of July 27, 1982 (incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-1 (Commission File No. 33-28698) which became effective on June 21, 1989). *10.5 Pension Plan of Employees, as amended and restated as of July 27, 1982 (incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-1 (Commission File No. 33- 28698) which became effective on June 21, 1989) 10.6 Employee Profit Sharing Plan dated as of January 3, 1994, First Amendment dated as of August 2, 1994 and Second Amendment dated as of January 27, 1994. *10.7 Forms of Supplemental Compensation Agreements dated as of January 2, 1985, and amended as of March 14, 1985, between the Company and certain executive officers (incorporated by reference to Exhibit 10.6 of the Company's Registration Statement on Form S-1 (Commission File No. 33- 28698) which became effective on June 21, 1989). 10.8 Commitment Letter to the Company from Banco di Roma, dated as of July 16, 1993. 10.9 Revolving Credit Agreement, dated as of October 15, 1993, between the Company and Credit Suisse. 10.10 Promissory Note of the Company to Banque Nationale de Paris, dated as of May 29, 1991, and Commitment Letter to the Company from Banque Nationale de Paris, dated as of May 29, 1991 (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1991). 10.11 Promissory Notes of the Company to West One Bank, Idaho, N.A., dated as of July 22, 1993. 10.12 Loan Agreement between the Company and a consortium of lenders dated May 1, 1992 (incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). 10.13 Loan Agreement between the Company and a consortium of lenders dated December 15, 1992 (incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). *10.14 Form of Additional Retirement Benefit Agreement between the Company and certain of its executive officers (incorporated by reference to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). *10.15 Form of Indemnification Agreement between the Company and its directors and officers (incorporated by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993). 10.16 Revolving Credit Agreement, dated as of June 28, 1993, between the Company and Bank of America (incorporated by reference to Exhibit 10.15 of the Company's Form 10-Q for the second quarter ended July 3, 1993). 10.17 Loan Agreement between the Company and a consortium of lenders dated November 1, 1993. 13.1 Company's Annual Report to Stockholders for the fiscal year ended January 1, 1994 (selected pages only). 22.1 Subsidiaries of the Company. 23.1 Consent of Ernst & Young, Independent Auditors. * Indicates management contract or compensatory plan or arrangement. EX-10.3 2 EXHIBIT 10.3 EXHIBIT 10.3 FIRST AMENDMENT TO SMITH'S FOOD & DRUG CENTERS, INC. 1993 EMPLOYEE STOCK PURCHASE PLAN WHEREAS, the 1993 Employee Stock Purchase Plan (the "Plan") of Smith's Food & Drug Centers, Inc. (the "Company") was established by the Company effective January 3, 1993; and WHEREAS, the Company desires to amend the Plan as hereinafter set forth; NOW, THEREFORE, Paragraph 3(a) of the Plan is hereby amended and restated to read in its entirety as follows: 3. Eligibility. (a) Employment. Any Employee who is not an executive officer or a director and who (i) shall be employed by the Company on the date of such Employee's enrollment in the Plan; and (ii) shall be at least eighteen (18) years of age shall be eligible to participate in the Plan. Executive officers of the Company and directors (if they are otherwise eligible to participate in the Plan) may only so participate provided they have been employed by the Company for at least three (3) months. Such amendment of Paragraph 3(a) shall serve to eliminate the three (3) month waiting period for eligibility under the Plan for all employees other than officers and directors. The Plan remains in full force and effect and remains unmodified except to the extent specifically amended herein. IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly authorized officers this __________ day of ____________________, 1993. SMITH'S FOOD & DRUG CENTERS, INC. By: ______________________________ Its __________________________ ATTEST: _______________________ EX-10.6 3 EXHIBIT 10.6 14248.2 EXHIBIT 10.6 SMITH'S FOOD & DRUG CENTERS, INC. EMPLOYEE PROFIT SHARING PLAN Established Effective January 3, 1993 TABLE OF CONTENTS Page ARTICLE I - DEFINITIONS 1 Affiliated Company 1 Agent for Service 1 Authorized Absence 1 Beneficiary 2 Break in Service 2 Code 2 Committee 2 Common Stock 2 Company 2 Compensation 2 Disability 3 Employee 3 Employment Commencement Date 3 ERISA 3 Fiduciary 3 Hour of Service 4 Named Fiduciary 4 Participant 4 Participant Account 4 Plan 4 Plan Year 4 Related Plan 4 Trust 4 Trust Fund 4 Trustees 4 Valuation Date 4 Year of Service 4 ARTICLE II - SERVICE AND LEAVE OF ABSENCE 5 2.1 Years of Service 5 2.2 Hours of Service. 5 ARTICLE III - ELIGIBILITY AND PARTICIPATION 7 3.1 Initial Participation 7 3.2 Termination of Participation 7 3.3 Participation Following Re-Employment or Ineligible Employment 7 ARTICLE IV - CONTRIBUTIONS 8 4.1 Amount of Contributions 8 4.2 Time for Payment 8 4.3 Form of Contributions 8 4.4 Return of Contributions for Failure of Deductibility or Mistake of Fact 8 4.5 For Exclusive Benefit of Employees 9 4.6 Participant Contributions 9 4.7 Rollovers and Transfers from Other Plans 9 ARTICLE V - ACCOUNTS, ALLOCATIONS AND VESTING 9 5.1 Participant Accounts 9 5.2 Allocation and Crediting of Company Contributions and Forfeitures 9 5.3 Allocation and Crediting of Cash Dividends 9 5.4 Stock Splits, Warrants and Options 10 5.5 General Limitation on Allocations to P articipants 10 5.6 Vesting 12 5.7 Permissive Vesting 12 ARTICLE VI - VALUATION 12 6.1 Valuation of Trust Fund 12 6.2 Allocation of Earnings and Losses 13 6.3 Notice of Value of Participant Accounts 13 ARTICLE VII - PAYMENT OF ACCOUNT BALANCES 13 7.1 Fully Vested Benefits 13 7.2 Non-Vested Benefits 13 7.3 Forfeitures 13 7.4 Manner of Making Distributions 13 7.5 Time for Making Distributions 14 7.6 Persons Under Legal or Other Disability 14 7.7 Designation of Beneficiaries 15 7.8 Missing Participants or Beneficiaries 15 7.9 Pre-Termination Distributions on Account of Hardship 16 7.10 Rollover Transfers and Withholding 17 ARTICLE VIII - LIMITATIONS OF RIGHTS 17 8.1 Non-Transferability of Benefits 17 8.2 Employees' Rights; Limitations 17 ARTICLE IX - AMENDMENT; MERGER, CONSOLIDATION OR TRANSFER OF ASSETS; TERMINATION 17 9.1 Amendment 17 9.2 Merger, Consolidation or Transfer of Assets 18 9.3 Termination 18 9.4 Discontinuance of Contributions 18 9.5 Limitations 19 9.6 Notice of Amendment, Termination or Partial Termination 19 ARTICLE X - TRUST FUND 19 10.1 Trust Agreement 19 10.2 Trust Contributions 19 10.3 Trust Fund Investments 20 10.4 Participant Accounts 20 10.5 Voting Rights 20 ARTICLE XI - CLAIM AND REVIEW PROCEDURE 20 11.1 Definitions 20 11.2 Claim Filing Procedure 20 11.3 Consideration of Claim; Rendering of Decision 21 11.4 Appellate Review Procedure 21 11.5 Limitation on Claims Procedure 22 11.6 Other Remedies 22 11.7 Authorized Representatives 22 ARTICLE XII - ADMINISTRATION 22 12.1 Allocation of Responsibility Among Fiduciaries 22 12.2 Appointment of Committee 23 12.3 Committee Meetings 23 12.4 Committee Officers 23 12.5 Committee Expenses 23 12.6 Committee Responsibilities 24 12.7 Other Powers 24 12.8 Indemnification of Committee 24 12.9 Expenses of Establishing and Administering the Plan 25 ARTICLE XIII - TOP-HEAVY PROVISIONS 25 13.1 Special Rules Applicable for Top-Heavy Plan Years 25 13.2 Definitions Relating to Top-Heavy Provisions 26 ARTICLE XIV - MISCELLANEOUS 28 14.1 Governing Law 28 14.2 Information Returns 28 14.3 Company Action 28 14.4 Company Records 28 14.5 No Guarantee of Interests 28 14.6 Interpretations and Adjustments 28 14.7 Uniform Rules 29 14.8 Evidence 29 14.9 Waiver of Notice 29 14.10 Gender and Number 29 SMITH'S FOOD & DRUG CENTERS, INC. EMPLOYEE PROFIT SHARING PLAN Established Effective January 3, 1993 THIS EMPLOYEE PROFIT SHARING PLAN, is hereby established effective January 3, 1993, by Smith's Food & Drug Centers, Inc., a Delaware corporation, for the purpose of providing funds for the eventual retirement of its eligible employees, and to provide eligible employees greater incentive to strive for the success of the operation of Smith's Food & Drug Centers, Inc. through ownership of Smith's Food & Drug Centers, Inc. common stock acquired with plan contributions. ARTICLE I DEFINITIONS The following terms, when used in the Plan, shall have the meaning set forth below, unless a different meaning is plainly required by the context: "Affiliated Company" means the Company, and any other employer that is, along with the Company, a member of a controlled group of corporations or under common control (as defined in Section 414(b) and (c) of the Code), a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company or any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code. "Agent for Service" means the Committee or any member thereof. "Authorized Absence" means any of the following periods of absence from employment from the Company: (a) layoffs, not in excess of 6 months, due to temporary closing or downturn of business, (b) leaves of absence authorized by the Company in accordance with standard personnel policies applied in a uniform and nondiscriminatory manner to all Employees similarly situated, and (c) military leave while the Employee's rights are protected by law; provided the Employee returns to employment with the Company immediately (but in the case of military leave, within the 90-day period following release or discharge from the military or within the period prescribed by applicable law, whichever is longer) upon the expiration of such periods of absence. "Beneficiary" means the person or persons who become entitled to receive payments in the event of the death of a Participant in accordance with the provisions of Section 7.7. "Break in Service" means a Plan Year during which an Employee or Participant is credited with 500 or fewer Hours of Service with the Company. A Break in Service shall not be deemed to have occurred during any period of Authorized Absence. "Code" means the Internal Revenue Code of 1986, as amended. Reference to a section of the Code shall include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes said section. "Committee" means the Administrative Committee designated in accordance with Section 12.2. "Common Stock" means the Company's Class B common stock which is readily tradable on an established securities market or other common stock issued by the Company which is readily tradable on an established securities market. "Company" means Smith's Food & Drug Centers, Inc., a corporation organized and existing under the laws of the State of Delaware, and, where applicable, its subsidiaries which have adopted the Plan. "Compensation" means wages within the meaning of Section 3401(a) of the Code and all other payments of compensation to an Employee by the Company for which the Company is required to furnish the Employee a written statement under Sections 6041(d), 6051(a)(3) and 6052 of the Code. Compensation is determined without regard to any rules under Section 3401 which limit the remuneration included in wages based on the nature or location of the employment or the services performed. Notwithstanding the foregoing, Compensation shall include any amount which is contributed by the Company pursuant to a salary reduction arrangement and which is not includable in the gross income of the Employee under Sections 125 (i.e., a cafeteria plan) or 402(a)(8) (i.e., a Section 401(k) cash or deferred arrangement) of the Code. Notwithstanding the foregoing, Compensation shall not include amounts in excess of $200,000 (adjusted at the same time and in the same manner as permitted under Section 415(d) of the Code). In determining the Compensation of a Participant for purposes of this limitation, the rules of Section 414(q)(6) of the Code shall apply, except that in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the applicable period. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this provision prior to the application of this limitation. "Disability" means, as determined by the Committee in its sole discretion, the inability of a Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. "Employee" means any person who is employed by the Company but excludes any person who is employed as an independent contractor. A person who is considered a leased employee of the Company within the meaning of Sections 414(n)(2) and 414(o)(2) of the Code shall not be considered an Employee for purposes of the Plan but shall be considered an employee for purposes of the requirements of Section 414(n)(3) of the Code; provided, however, a leased employee shall not be considered an employee of the Company for any purpose if: (a) such leased employee is covered by a money purchase pension plan providing: (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Sections 125, 401(a)(8), 402(h) or 403(b) of the Code; (2) immediate participation; and (3) full and immediate vesting. (b) leased employees do not constitute more than 20% of the recipient's non-highly compensated work force. "Employment Commencement Date" means the date on which an Employee is first credited with an Hour of Service or, if applicable, the date on which an Employee is first credited with an Hour of Service following a Break in Service. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Fiduciary" means any person who: (a) exercises any discretionary authority or control respecting management of the Plan or exercises any authority or control respecting management or disposition of the assets of the Plan, (b) renders investment advice for a fee or any other compensation, direct or indirect, with respect to any monies or other property of the Trust Fund, or has any authority or responsibility to do so, or (c) has any discretionary responsibility in the administration of the Plan and Trust. "Hour of Service" mean each hour credited to an Employee under Section 2.2. "Named Fiduciary" means the Committee. "Participant" means any Employee who becomes a Participant as provided in Article III hereof. Whether or not an Employee is eligible to be a Participant shall be determined by the Committee. "Participant Account" means the account established and maintained for each Participant pursuant to Article V. "Plan" means the plan set forth in and created by this document, and all subsequent amendments thereto. "Plan Year" means the fiscal year of the Plan and shall coincide with the Company's fiscal year. "Related Plan" means any defined contribution plan (as defined in Section 415(k) of the Code) maintained by the Company or by any other employer that is, along with the Company, a member of a controlled group of corporations or under common control (as defined in Section 414(b) and (c) of the Code, as modified by Section 415(h) thereof) or by any member of an affiliated service group (as defined in Section 414(m) of the Code) or by any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code. "Trust" means the trust set forth in and created by the Smith's Food & Drug Centers, Inc. Stock Profit Sharing Trust effective January 3, 1993. "Trust Fund" means all assets held by the Trustees for the Company under the Trust. "Trustees" means the trustee or trustees of the Trust created pursuant to the Plan and any duly appointed and qualified successor trustee or trustees. "Valuation Date" means each date the Trust Fund is valued by the Trustees in accordance with Section 6.1. "Year of Service" means each year credited to an Employee under Section 2.1. ARTICLE II SERVICE AND LEAVE OF ABSENCE 2.1 Years of Service. Years of Service shall include each Plan Year during which an Employee has completed at least 1,000 Hours of Service with the Company. 2.1.1 Years of Service shall not include Plan Years beginning prior to the effective date of the Plan. 2.1.2 If a Participant who incurred a Break in Service is reemployed by the Company, his Years of Service shall include Years of Service to his credit at the beginning of such Break in Service, unless he did not have a vested and nonforfeitable right to any portion of his Participant Account prior to such Break in Service and the number of consecutive one-year Breaks in Service equals or exceeds five. 2.2 Hours of Service. The term "Hour of Service", with respect to any Employee, shall include: 2.2.1 Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Company or an Affiliated Company. These hours shall be credited to the Employee for the computation period or periods in which the duties are performed. 2.2.2 Each hour for which an Employee is paid, or entitled to payment, by the Company or an Affiliated Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), lay off, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference. 2.2.3 Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company or an Affiliated Company. For vesting purposes, these hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. 2.2.4 Hours of Service shall be determined on the following basis: for hourly paid Employees, from records of the Company or Affiliated Company of hours worked and hours for which payment is made or due as determined under this Section 2.2, and for salaried Employees, on the basis of 45 hours per week, with an Employee receiving credit for a full week for each week during which he has one Hour of Service. An Employee shall not receive credit more than once for any Hour of Service. 2.2.5 For purposes only of determining a Break in Service: (a) For any period of Authorized Absence, Hours of Service are determined on the basis of a 45-hour week or pro rata portion thereof. (b) For any period of absence (i) by reason of the pregnancy of the Employee, the birth of a child of the Employee, or the placement of a child with the Employee in connection with the adoption of such child by the Employee or (ii) for purposes of caring for such child of the Employee for a period beginning immediately following such birth or placement, Hours of Service are determined under 2.2.5(c) and (d). (c) The hours to be credited as Hours of Service for purposes of 2.2.5(b) shall be those Hours of Service which otherwise would normally have been credited to the Employee under the Plan, except that if the Committee is unable to determine the foregoing, eight Hours of Service shall be credited to the Employee for each working day of such absence. Provided, that the total Hours of Service to be credited by reason of any one pregnancy or placement shall not exceed 501. (d) The Hours of Service described in 2.2.5(b) and (c) shall be credited only to the computation period in which the period of absence begins if the Employee would be prevented from incurring a One Year Break in Service in such period solely because such period of absence is treated as Hours of Service hereunder, or, in any other case, in the immediately following computation period. 2.2.6 Notwithstanding anything else to the contrary, for purposes only of allocating contributions and forfeitures under Section 5.2, the following shall apply: (a) The hours to be credited as Hours of Service pursuant to this Section 2.2 shall only be hours for which an Employee is paid, or entitled to payment, by the Company and such hours shall be credited to the Plan Year in which the payment is made. Hours of Service for salaried Employees shall be determined on the basis of 45 hours per week. A salaried Employee who is employed for less than a full week shall be credited with the pro rata portion of such week during which he is employed by the Company. (b) The Hours of Service credited to a Participant during a Plan Year shall not exceed 2,080. 2.2.7 Provisions of this Section 2.2 shall be construed so as to resolve any ambiguities in favor of crediting an Employee with Hours of Service. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Initial Participation. Each Employee shall become a Participant in the Plan on his Employment Commencement Date. Notwithstanding the foregoing, the following classes of Employees shall be excluded from participation in the Plan: (a) Employees who are holding or have exercised an option under any stock option plan of the Company; (b) Employees who are officers of the Company; and (c) Employees who are members of the Board of Directors of the Company. 3.2 Termination of Participation. A Participant shall continue to be such until the first to occur of the following events: 3.2.1 Normal or Late Retirement. The Participant retires from the employ of the Company on or after the date on which he attains age 65. Until actual retirement, a Participant shall continue to participate in the Plan. 3.2.2 Disability Retirement. The Participant retires or is retired from the employ of the Company because of Disability, irrespective of his age. 3.2.3 Death. The Participant dies. 3.2.4 Resignation or Dismissal. The Participant resigns or is dismissed from the employ of the Company before retirement in accordance with 3.2.l or 3.2.2 above. 3.2.5 Ineligible Class of Employees. The Participant becomes a member of an ineligible class of Employees. 3.3 Participation Following Re-Employment or Ineligible Employment. 3.3.1 Former Employees. A former Participant shall become a Participant immediately upon his return to the employ of the Company. 3.3.2 Eligible Classes of Employees. In the event a Participant becomes ineligible to participate because the Employee is no longer a member of the eligible class of Employees, such Employee shall participate immediately upon his return to an eligible class of Employees. In the event an Employee who has never been a Participant because the Employee was not a member of the eligible class of Employees becomes a member of the eligible class, such Employee shall participate immediately if such Employee has satisfied the requirements of Section 3.1, and would have previously become a Participant had the Employee been in the eligible class. ARTICLE IV CONTRIBUTIONS 4.1 Amount of Contributions. With respect to each Plan Year and subject to Section 4.4, the Company shall contribute to the Plan such amounts as may be determined by the Executive Committee of the Board of Directors or by the executive officer(s) of the Company to whom the Board of Directors has delegated such responsibility. 4.2 Time for Payment. The Company may make payment of its contribution for a Plan Year in one sum or several installments on any date or dates which the Company may select, but shall complete the transfer of its contribution for each Plan Year on or before the date prescribed by law (including extensions thereof) for the filing of its federal income tax return for the fiscal year corresponding to the applicable Plan Year. 4.3 Form of Contributions. The Company contributions with respect to each Plan Year shall be transferred to the Trustees in the form of cash or Common Stock, as determined by the Company's Board of Directors. 4.4 Return of Contributions for Failure of Deductibility or Mistake of Fact. Notwithstanding anything herein to the contrary, upon the Company's request, a contribution which was conditioned upon the deductibility of the contribution under Section 404 of the Code shall be returned (to the extent the deduction is disallowed) to the Company within one year after the date on which the deduction is disallowed. Each contribution made by the Company pursuant to this Article IV is hereby expressly conditioned upon the deductibility of the contribution under Section 404 of the Code. If a contribution or any portion thereof is made by the Company as a result of a mistake of fact, the Trustees shall, upon written request by the Company, return the contribution or such portion to the Company within one year after the date of payment to the Trustees. If a contribution under the Plan is conditioned on initial qualification of the Plan under Section 401(a) of the Code, and the Plan receives an adverse determination with respect to its initial qualification, the Trustees shall, upon written request of the Company, return to the Company the amount of such contribution (increased by earnings attributable thereto and reduced by losses attributable thereto) within one calendar year after the date that qualification of the Plan is denied, provided that the application for the determination is made by the time prescribed by law for filing the Company's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe. 4.5 For Exclusive Benefit of Employees. Any and all contributions by the Company to the Plan, with the exceptions covered by Section 4.4, shall be irrevocable, and neither such contributions nor any income therefrom shall be used for, nor diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries under the Plan. 4.6 Participant Contributions. No Participant shall be required or permitted to make contributions to the Plan. 4.7 Rollovers and Transfers from Other Plans. Rollover contributions and transfers from other qualified retirement plans shall not be permitted. ARTICLE V ACCOUNTS, ALLOCATIONS AND VESTING 5.1 Participant Accounts. A separate Participant Account shall be established and maintained by the Committee for each Participant. 5.2 Allocation and Crediting of Company Contributions and Forfeitures. Subject to the limitations in this Section 5.2 and Section 5.5, as of the last day of each Plan Year, the Company contribution for the Plan Year ending on that date, together with forfeitures which arose under the Plan during that year, shall be allocated among and credited to the Participant Accounts of the Participants described below in the ratio which the Hours of Service credited to each Participant for the Plan Year bears to the total Hours of Service credited to all Participants for such Plan Year. The Company contribution for any Plan Year will be allocated among and credited to the Participant Accounts of the following Participants: 5.2.1 Participants who are credited with a Year of Service for the Plan Year and are still Employees as of the last day of the Plan Year; and 5.2.2 Participants who died, retired or became permanently and totally disabled during the Plan Year. Any allocation of Common Stock will be carried in whole and fractional shares. 5.3 Allocation and Crediting of Cash Dividends. Any cash dividends declared on the Common Stock held in Participant Accounts shall be allocated to the corresponding Participant Accounts and may be applied by the Trustees to the purchase of additional Common Stock. 5.4 Stock Splits, Warrants and Options. Any Common Stock received by the Trustees as a result of a stock split or stock dividend, or a reorganization or other recapitalization of the Company will be allocated in the same manner as the Common Stock to which it is attributable is then allocated. In the event any rights, warrants or options are issued on Common Stock, the Trustees will exercise them for the acquisition of additional Common Stock to the extent that cash is then available from any source including dividends on Common Stock. Any Common Stock acquired in this fashion will be treated as Common Stock bought by the Trustees for the net price paid. Any rights, warrants or options on Common Stock which cannot be exercised for lack of cash may be sold by the Trustees and the proceeds treated as a current cash dividend received on Common Stock. Common Stock acquired in this fashion will be allocated to each Participant Account in the same ratio that the Common Stock in each Participant Account bears to the aggregate total of the Common Stock in all Participant Accounts. 5.5 General Limitation on Allocations to Participants. Notwithstanding any other provisions of the Plan, the Annual Addition (defined in 5.5.4) credited to a Participant Account for any Plan Year shall not exceed an amount equal to: 5.5.1 The lesser of: (a) $30,000 or, if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1)(A) of the Code as in effect for the limitation year; or (b) 25 percent of the Participant's Compensation for the limitation year (defined in 5.5.6). If the foregoing limitation is exceeded, the Participant's Annual Addition shall be reduced as provided in 5.5.5. 5.5.2 The limitation in 5.5.1 shall not apply to any contribution for medical benefits (within the meaning of Section 419A(f)(2) of the Code) after separation from service and any other amount which is otherwise treated as an Annual Addition under Section 415(l)(1) of the Code. 5.5.3 If a Participant also participates in a defined benefit plan (as defined in Section 415(k) of the Code) maintained by the Company, the sum of the defined benefit plan fraction and the defined contribution plan fraction (as such terms are defined in Section 415(e) of the Code) shall not exceed 1.0 for any limitation year (defined in 5.5.6). If the sum of the fractions exceeds 1.0, the Participant's Annual Addition shall be reduced as provided in 5.5.5. For purposes of this Section 5.5, a plan is deemed to be maintained by the Company if the plan is maintained by any employer that is, along with the Company, a member of a controlled group of corporations or under common control (as defined in Section 414(b) and (c) of the Code, as modified by Section 415(b) thereof) or a member of an affiliated service group (as defined in Section 414(m) of the Code). 5.5.4 The Annual Addition described in 5.5.1 subject to the above limitations consists of the following: (a) The amount of any Company contributions credited to the Participant's Account under the Plan and the Participant's account under any Related Plan during the Plan Year; (b) The amount of any forfeitures credited to the Participant's Account under the Plan and the Participant's account under any Related Plan during the Plan Year; (c) The amount of any contributions made by the Participant under any Related Plan during the Plan Year; and (d) The amount allocated to the Participant's individual medical account, as defined in Section 415(1)(1) of the Code, under any Related Plan during the Plan Year; and (e) The amount attributable to post-retirement medical benefits allocated to the separate account of a Participant, who is a key employee (as defined in Section 419A(d)(3) of the Code), under a welfare benefit plan (as defined in Section 419(e) of the Code) maintained by the Company. 5.5.5 Any increases in the value of a Participant's Account due to an increase in the fair market value of the Trust Fund are not subject to the limitations of 5.5.1. In the event that it is determined that, but for this 5.5.5, the Annual Addition to a Participant's Account would be in excess of the limitations contained in this Section, such Annual Addition shall be reduced to the extent necessary to bring such Annual Addition within the limitations contained in this Section in the following order: (a) Any Participant contributions which are included in such Annual Addition shall be returned to a Participant and shall be treated as a withdrawal of Participant contributions; and (b) If there are no such Participant contributions, or if such Participant contributions are not sufficient to reduce the Annual Addition to the limitations contained herein, such Participant's allocable share of Company contributions for the Plan Year shall be reduced. The portion of any contribution which has been allocated to a Participant under the Plan for a Plan Year, but which cannot be credited to his Participant Account because of the limitations imposed by this Section 5.5 shall, subject to the limitations of this Section 5.5, be allocated among and credited to the Participants entitled to share in the contribution for that year in accordance with Section 5.2. 5.5.6 For purposes of this Section 5.5, the term "limitation year" means the period to be used in determining the Plan's compliance with Section 415 of the Code and the regulations thereunder. The Company shall take all actions to ensure that the limitation year is the same period as the Plan Year. 5.6 Vesting. A Participant's interest in his Participant Account shall become vested and nonforfeitable to the extent of the following percentages, based upon his Years of Service completed after the effective date of the Plan, unless otherwise provided in Articles IX or XIII: Years of Service Percentage Vested Less than 5 0 5 or more 100 The foregoing to the contrary notwithstanding, if a Participant retires or is retired pursuant to 3.2.1 or 3.2.2 or dies while an Employee of the Company, the Participant's interest in his Participant Account shall thereafter be fully vested and nonforfeitable. 5.7 Permissive Vesting. Notwithstanding the rules of Section 5.6 above, the Board of Directors of the Company may determine that the interests of all Participants under the Plan who are affected by a closure or sale of a unit of the Company to an entity that is not an Affiliated Company shall become fully vested and nonforfeitable, notwithstanding the fact that the closure or sale does not constitute a partial termination under Section 9.3. ARTICLE VI VALUATION 6.1 Valuation of Trust Fund. As soon as practicable, the Trustees shall determine the fair market value of the Trust Fund as of the last day of each Plan Year (excluding the Company's contribution due as of that day and any amounts distributed to Participants whose participation was terminated during the period), and as of such other dates as may be determined by the Trustees, in such manner as the Trustees in their discretion shall prescribe but in accordance with a method consistently followed and uniformly applied. 6.2 Allocation of Earnings and Losses. Any increases or decreases in such value since the preceding Valuation Date shall be allocated by the Committee to Participant Accounts on the basis of account balances as of the last day of the current Plan Year, but prior to crediting of any contributions for such Plan Year. 6.3 Notice of Value of Participant Accounts. Within 60 days following receipt of a written request (but not more frequently than once during any 12-month period), the Committee shall give a Participant notice in writing of the fair market value of his Participant Account. Alternatively, the Committee may elect to give each Participant notice in writing as soon as practicable after the end of the Plan Year of the fair market value of his Participant Account including Company contributions and forfeitures allocated to his account as of the last day of the Plan Year. ARTICLE VII PAYMENT OF ACCOUNT BALANCES 7.1 Fully Vested Benefits. If a Participant retires or is retired from the employ of the Company under 3.2.1 or 3.2.2, dies while in the employ of the Company, or resigns or is dismissed when his Participant Account is fully vested in him, the entire balance (after all adjustments then required under the Plan have been made) in his Participant Account will become distributable to or for his benefit, or to or for the benefit of his Beneficiary, as the case may be, in accordance with Sections 7.4 and 7.5. 7.2 Non-Vested Benefits. Except as specifically provided in Section 7.1, if a Participant resigns or is dismissed from the employ of the Company before retirement under 3.2.1 or 3.2.2 and before becoming vested under Article V, the Participant will not be entitled to a benefit under the Plan. The balance in his Participant Account will be reduced to the extent not vested in accordance with Article V. 7.3 Forfeitures. The amount, if any, by which a Participant Account is reduced in accordance with Section 7.2 will be a forfeiture and, to the extent not needed to restore forfeitures pursuant to this Section 7.3, will be allocated and credited in accordance with Section 5.2 as of the last day of the Plan Year in which the Participant was deemed to receive a distribution of his Participant Account. For purposes of this Section 7.3, a zero vested Participant Account balance will be deemed distributed immediately upon termination of employment by the Participant. If a Participant is deemed to receive a distribution pursuant to this Section 7.3, and the Participant resumes employment covered under this Plan before the Participant has incurred five consecutive one-year Breaks in Service, his Participant Account balance on the date of the deemed distribution shall be restored, without adjustment for earnings or losses. 7.4 Manner of Making Distributions. The entire balance (after all adjustments then required under the Plan have been made) in a Participant Account, as of the Valuation Date next preceding the date of distribution, will be distributed in a single sum to or for the benefit of the Participant, or in the event of his death to or for the benefit of his Beneficiary, in the form of whole shares of Common Stock, or cash in the following manner. At least 30 days before the proposed payment date, the Committee shall notify the Participant of his right to demand distribution of his Participant Account entirely in whole shares of Common Stock (with the value of fractional shares paid in cash). The Participant or, if applicable, the Beneficiary does not elect, within 15 days following the date of notification by the Committee of such right, to receive a distribution of his Participant Account entirely in whole shares of Common Stock (with the value of fractional shares paid in cash), the Participant Account shall be distributed entirely in whole shares of Common Stock (with the value of fractional shares paid in cash) or in cash as determined by the Committee. The amount of fractional shares, if any, to be paid in cash will be based on the market value of the Common Stock as of the Valuation Date coincident with or immediately preceding the date on which the distribution occurs. 7.5 Time for Making Distributions. If a Participant Account becomes distributable under Section 7.1, distribution of the balance of such Account will be made as soon as administratively practicable following the date the Participant terminates participation in the Plan pursuant to Section 3.2, but in no event later than the 60th day next following the close of the Plan Year during which the Participant attains age 65 or terminates employment with the Company, whichever occurs last. However, if the balance of the Participant Account exceeds $3,500, distribution of such Account shall not be made prior to age 65 or death, whichever occurs first, unless the Participant consents in writing to such distribution. Anything else to the contrary notwithstanding, distribution of the Participant Account will be made or commenced by April 1 of the calendar year following the calendar year in which the Participant attains 70-1/2 without regard to whether the Participant has terminated employment. If a Participant is eligible to share in any contribution or other amount not distributed pursuant to the foregoing provisions, such amount shall be distributed as soon as administratively practicable after the time such amount is allocated on his behalf. If part or all of a Participant Account is assigned to an alternate payee pursuant to a qualified domestic relations order within the meaning of Section 414(p) of the Code, distribution of the assigned portion of such Account may be made or commenced in accordance with this Article without regard to whether the Participant has attained his "earliest retirement age" within the meaning of Section 414(p) of the Code. For purposes of the distribution of the assigned portion of the Participant Account, the alternate payee will be treated as if the alternate payee were a Participant. 7.6 Persons Under Legal or Other Disability. In the event a Participant or Beneficiary is declared incompetent and a conservator or other person legally charged with the care of his person or of his estate is appointed, any benefits to which such Participant or Beneficiary is entitled shall be paid to such conservator or other person legally charged with the care of his person or of his estate. 7.7 Designation of Beneficiaries. Each Participant from time to time, by signing a form furnished by the Committee, may designate any person or persons to whom his benefits under the Plan are to be distributed if the Participant dies before receiving all of such benefits. If the Participant is married, the Participant may not designate a Beneficiary other than the Participant's spouse unless the Participant's spouse consents in writing to such designation. The consent is irrevocable, must designate a Beneficiary which cannot be changed without spousal consent (unless the consent of the spouse expressly permits designations by the Participant without spousal consent), must acknowledge the effect of such designation, and must be witnessed by a Plan representative or a notary public. Such consent will not be required if it is established to the satisfaction of the Committee that the spouse cannot be located or that there is some other circumstance precluding such consent as set forth in regulations under Section 417 of the Code. If the spouse is legally incompetent to give consent, the spouse's legal guardian, even if such guardian is the Participant, may give consent. Any beneficiary designation or any consent by the Participant's spouse (or establishment that a spouse cannot be located) will be void if the Participant marries or remarries. A beneficiary designation form will be effective only when the form is filed in writing with the Committee while the Participant is alive and will cancel all beneficiary designation forms previously signed and filed by the Participant. If a Participant failed to designate a Beneficiary before his death as provided above, or if the Beneficiary designated by a deceased Participant dies before him or before complete distribution of his benefits, the Beneficiary designated shall be deemed to be the Participant's spouse, if the Participant was married at the time of his death. If the Participant was not married at the time of his death, the Committee shall make distribution of the Participant's interest in the Trust Fund to the person or persons indicated below in the following order of priority: 7.7.1 The issue of the Participant by right of representation. 7.7.2 The parents of the Participant. 7.7.3 The siblings of the Participant and their issue by right of representation. 7.7.4 The executor, administrator or personal representative of the Participant's estate. 7.8 Missing Participants or Beneficiaries. Each Participant and each designated Beneficiary must file with the Company from time to time in writing his post office address and each change of post office address. Any communication, statement or notice addressed to a Participant or Beneficiary at his last post office address filed with the Company will be binding on the Participant and his Beneficiary for all purposes of the Plan. The Committee shall not be required to search for or locate a Participant or Beneficiary. If the Company or Committee notify a Participant or Beneficiary that he is entitled to a distribution and also notifies him of the provisions of this Section, and the Participant or Beneficiary fails to claim his benefits under the Plan or make his whereabouts known to the Company or the Committee within two calendar years after the notification, the benefits under the Plan of the Participant or Beneficiary will be disposed of as follows: 7.8.1 If the whereabouts of the Participant is unknown but the whereabouts of the Participant's designated Beneficiary then is known to the Company or the Committee, distribution will be made to the designated Beneficiary. 7.8.2 If the whereabouts of the Participant and his designated Beneficiary then is unknown to the Company or the Committee, but the whereabouts of one or more relatives by adoption, blood or marriage of the Participant is known to the Company or the Committee, the Committee shall distribute the Participant's benefits to any one or more of such relatives and in such proportions as the Committee determines. 7.8.3 If the whereabouts of the Participant, his designated Beneficiary and relatives is unknown, the balance of the Participant Account shall be deemed a forfeiture. The foregoing to the contrary notwithstanding, if a claim for benefits distributed pursuant to the foregoing provisions is made by a Participant or designated Beneficiary who has not received such distribution and who would otherwise be entitled thereto, the Participant's benefit shall be restored and distributed under the applicable provisions of the Plan. 7.9 Pre-Termination Distributions on Account of Hardship. The Committee may, upon the request of a Participant at any time prior to his termination of employment, direct the Trustees to make a lump-sum distribution to the Participant from the vested portion of his Participant Account, determined as of the Valuation Date coinciding with or immediately succeeding the date a request is made hereunder, for the purposes set forth below, subject to the following rules: (a) Each request for a distribution must be made by written application to the Committee supported by such evidence as the Committee may require; (b) In no event shall the amount distributed to a Participant in accordance with this Section 7.9 exceed the amount necessary to satisfy the financial hardship serving as the basis for the distribution; (c) The Committee shall direct the Trustee to make a distribution to a Participant in accordance with this Section 7.9 only to enable the Participant (1) to meet any expenses incurred or necessary for medical care, described in Section 213(d) of the Code, to the extent not covered by insurance, for the Participant or any of his dependents; (2) to pay tuition and related educational fees for the next 12-months post-secondary education for the Participant or any of his dependents; or (3) to purchase a principal residence for the Participant; or (4) to prevent eviction from the Participant's principal residence or foreclosure of the mortgage on the Participant's principal residence. 7.10 Rollover Transfers and Withholding. If a distribution under this Article VII constitutes an "eligible rollover distribution" within the meaning of Section 402(f)(2)(A) of the Code, and the Participant or Beneficiary entitled to such distribution elects to have such distribution paid directly to an "eligible retirement plan" within the meaning of Section 401(a)(31)(D) of the Code, the Committee shall cause the distribution to be made in the form of a "trustee-to-trustee transfer" to the "eligible retirement plan" pursuant to Section 401(a)(31) of the Code and regulations thereunder. Within a reasonable time (i.e., no earlier than 90 days and no later than 30 days) prior to making an "eligible rollover distribution," the Committee shall provide the Participant or Beneficiary, whichever is applicable, with the written explanation described in Section 402(f) of the Code. To the extent required by the Code and regulations thereunder, the Committee shall direct the Trustees to withhold income tax on distributions from the Plan. ARTICLE VIII LIMITATIONS OF RIGHTS 8.1 Non-Transferability of Benefits. The interests of Participants and Beneficiaries under the Plan are not subject to the claims of their creditors and may not in any way be assigned, alienated or encumbered. The foregoing shall not apply to qualified domestic relations orders within the meaning of Section 414(p) of the Code and regulations thereunder. The Committee shall adopt written rules and procedures relating to the administration of and payment pursuant to qualified domestic relations orders. 8.2 Employees' Rights; Limitations. Neither the adoption of this Plan nor any modification thereof, nor the payment of any benefits, shall be construed as giving any Participant or other person any legal or equitable right against the Company, the Committee or the Trustees, or in or to any property in the Trust Fund, except as provided herein, nor as enlarging, modifying or affecting the tenure or terms of employment of any Participant. ARTICLE IX AMENDMENT; MERGER, CONSOLIDATION OR TRANSFER OF ASSETS; TERMINATION 9.1 Amendment. While the Company expects and intends to continue the Plan, it must necessarily reserve and reserves the right, subject to Section 9.5, to amend the Plan in whole or in part from time to time either retroactively or prospectively, by an instrument in writing, duly executed and acknowledged. 9.2 Merger, Consolidation or Transfer of Assets. This Plan shall not be merged or consolidated with, nor shall any assets or liabilities be transferred to, any other plan, unless the benefits payable to each Participant if the Plan was terminated immediately after such action would be equal to or greater than the benefits to which such Participant would have been entitled if this Plan had been terminated immediately before such action. 9.3 Termination. 9.3.1 The Plan will terminate on the date the Plan is terminated by the Company. Notwithstanding the foregoing, the Plan will terminate on the last day of the Plan Year coincident with or next following the first to occur of the following: (a) The date the Company is judicially declared bankrupt or insolvent; or (b) The dissolution, merger, consolidation or reorganization of the Company, or the sale by the Company of all or substantially all of its assets, except that, subject to the provisions of Section 9.2, in any such event arrangements may be made whereby the Plan will be continued by any successor to the Company or any purchaser of all or substantially all of the Company's assets, in which case the successor or purchaser will be substituted for the Company under the Plan. 9.3.2 On termination of the Plan in accordance with 9.3.1, or on partial termination of the Plan by operation of law, any adjustments required under the Plan as of the last day of the Plan Year coincident with or next following such termination or partial termination shall be made and each affected Participant's benefits will be fully vested and nonforfeitable. The Committee shall then direct the Trustees to make distribution of such benefits in accordance with Article VII. All appropriate accounting provisions of the Plan will continue to apply until the benefits of all affected Participants have been distributed to them. 9.4 Discontinuance of Contributions. The Company shall have the right at any time to discontinue its contributions hereunder. For purposes of this Section 9.4, a complete discontinuance of contributions is contrasted with a suspension of contributions under the Plan which is merely a temporary cessation of contributions by the Company. Upon complete discontinuance of the Company's contributions, all affected Participants' rights to benefits shall become vested and nonforfeitable. The Committee shall continue to direct the Trustees to make distributions of benefits from time to time in accordance with Article VII. All appropriate accounting provisions of the Plan will continue to apply until the benefits of all affected Participants have been distributed to them. 9.5 Limitations. 9.5.1 No amendment, modification or termination of this Plan shall reduce the vested interest of any Participant or cause any part of the Trust Fund to revert to the Company (except as may be specifically provided elsewhere in the Plan with respect to the return of Company contributions) or to be used for or diverted to or for the benefit of anyone other than Participants in the Plan and their Beneficiaries, including for this purpose former Participants and their Beneficiaries. For purposes of this paragraph, a Plan amendment which has the effect of (a) eliminating or reducing an early retirement benefit or a retirement-type subsidy, or (b) eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment, shall be treated as reducing vested interests. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a Participant who satisfies (either before or after the amendment) the pre-amendment conditions for the subsidy. 9.5.2 If any amendment changes the vesting schedule, any Participant with three or more Years of Service may, by filing a written request with the Committee within 60 days after receipt of notice of such amendment, elect to have his vested interest computed under the vesting schedule in effect prior to the amendment. 9.5.3 The rights, duties or responsibilities of the Trustees shall not be changed without their written consent. 9.6 Notice of Amendment, Termination or Partial Termination. Affected Participants will be notified by the Committee of an amendment, termination or partial termination of the Plan within a reasonable time. ARTICLE X TRUST FUND 10.1 Trust Agreement. The Company will enter into a Trust Agreement with the Trustees providing for the administration of the Trust Fund in such form and containing such provisions as the Company deems appropriate, including, but not by way of limitation, provisions with respect to the powers and authority of the Trustees, and the authority of the Company to amend or terminate the Trust Agreement or to change Trustees and to settle accounts of the Trustees on behalf of all persons having an interest in the Trust Fund. 10.2 Trust Contributions. The Trustees will not be responsible in any way for the collection of contributions provided for under this Plan. The Trustees will accept and hold under the Trust Agreement such contributions as they may receive from time to time from the Company. All contributions under the Plan will be paid over to the Trustees and will be held and administered under the Trust Agreement together with the income therefrom, for use in providing the benefits of the Plan. The Company will have no liability for the payment of benefits under the Plan. 10.3 Trust Fund Investments. The Trust Fund will consist primarily of Common Stock. The Trustees are directed to invest and hold up to 100% of the Trust Fund in shares of Common Stock. The Trustees may purchase or sell Common Stock from or to the Company (provided, the requirements of Section 408(e) of ERISA are satisfied) or from or to any other source, and such Common Stock may be outstanding, newly issued or treasury securities. The Trustees shall not borrow money from the Company for the purpose of purchasing Common Stock. 10.4 Participant Accounts. The Trustees are not required to maintain a segregation of assets in the Trust Fund for each Participant Account. 10.5 Voting Rights. The Trustees will, in their fiduciary capacity, exercise all voting rights with respect to the Common Stock in the Trust Fund. ARTICLE XI CLAIM AND REVIEW PROCEDURE 11.1 Definitions. For the purposes of the Claims Procedure described in this Article, the following definitions shall apply: 11.1.1 "Claim" refers to a request by a Claimant in accordance with this Article for a benefit under this Plan. 11.1.2 "Claimant" refers to any Participant of this Plan and to any Beneficiary who is either in pay status on the date of a Claim is submitted hereunder or who as of such date claims to be entitled to receive a benefit under this Plan. 11.2 Claim Filing Procedure. Each Claimant shall have the right to submit a Claim with respect to a benefit sought hereunder. Such Claim shall be in writing, signed by the Claimant under oath, and addressed and delivered to the Committee or its designated representative either personally or by certified or registered mail, return receipt requested. The Claim shall state with particularity: 11.2.1 The benefit claimed; 11.2.2 The provisions of the Plan and the particular provisions of law, if any, upon which the Claimant relies in support of his Claim; and 11.2.3 All facts believed to be relevant in connection with such Claim. 11.3 Consideration of Claim; Rendering of Decision. Upon receipt of a Claim hereunder, the Committee or its designated representative shall consider the merits of the Claim and shall within 90 days from the receipt of the Claim render a decision on the merits and communicate the same to the Claimant. In the event the Committee or its designated representative denies the Claim in whole or in part, the Claimant shall be so notified in writing, which shall set forth the following in a manner reasonably calculated to be understood by the Claimant: 11.3.1 The reason or reasons for rejection of the Claim; 11.3.2 The provisions of the Plan and the particular provisions of law, if any, relied upon in reaching such determination; 11.3.3 A description of any additional information needed from the Claimant in order for him to perfect his Claim; and 11.3.4 A statement outlining the Appellate Review Procedure as set forth in Section 11.4. The failure of the Committee or its designated representative to render a decision on the merits of a Claim shall be deemed to be a denial of such Claim; notice of such denial shall be deemed to have been given to the Claimant on the 90th day from receipt by the Committee or its designated representative of the Claim. 11.4 Appellate Review Procedure. Where a Claim has been or is deemed denied, the Claimant shall have the right within 60 days after the date he receives or is deemed to have been given notice that his Claim has been rejected, in whole or in part, to a full and fair review pursuant to the Appellate Review Procedure set forth herein. Such procedure shall enable the Claimant to appeal from an adverse decision by delivering a written request for an appeal to the Committee either personally or by certified or registered mail, return receipt requested. Such request shall set forth the reasons why the Claimant believes the decision rejecting his Claim is erroneous and shall be signed by the Claimant under oath. Within 30 days after such request is received, the Committee will conduct a full and fair review of the entire Claim at a hearing, de novo, at which the Committee may invite the Claimant to present his views with respect to the merits of the Claim. In addition, the Claimant may submit issues and comments in writing to the Committee for consideration and may review pertinent documents. A decision with respect to the merits of the Claim shall be rendered by the Committee not later than 60 days after the delivery of the written request for an appeal hereunder, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, and then not later than 120 days after receipt of the request. The Claimant shall be notified in writing of the Appellate Review decision, which shall include specific reasons believed to support such decision, including specific references to provisions of this Plan and of law, shall be written in a manner reasonably calculated to be understood by the Claimant and shall be delivered to the Claimant. 11.5 Limitation on Claims Procedure. 11.5.1 Insofar as the same is consistent with regulations promulgated under Section 503 of the ERISA, relating to Claims Procedures, any Claim under this Claims Procedure must be submitted within 18 months from the earlier of (1) the date on which the Claimant learned of facts sufficient to enable him to formulate such Claim, or (2) the date on which the Claimant should reasonably have been expected to learn the facts sufficient to enable him to formulate such Claim. For this purpose, the first date on which any document that is filed with any governmental organization is either given to or made available (under law) to a Participant or beneficiary (in pay status), and which discloses facts sufficient to enable a reasonable person to formulate a Claim hereunder, shall be conclusively deemed to be the date on which the Claimant should reasonably have been expected to learn the facts sufficient to enable him to formulate such a Claim. Claims submitted after such period shall be deemed to have been waived by the Claimant and shall thereafter be wholly unenforceable. 11.5.2 No statute of limitations set forth under either Section 413 of the ERISA, or any other applicable provision of law, shall be deemed to be extended in any way by the period of limitations set forth herein with respect to this Plan's Claims Procedure. 11.6 Other Remedies. No action shall be commenced under Section 502(a)(1)(B) of the ERISA until the Claimant shall first have exhausted the Claims Procedure available to him hereunder, provided that such Claimant would not have been irreparably and materially harmed by any delay occasioned by this Claims Procedure. 11.7 Authorized Representatives. All references in this Article to Claimant shall include representatives who are duly authorized as such, in writing, which authorization shall have been delivered to the Committee at some stage of the Claims Procedure. After such written authorization is delivered to the Committee, copies of all subsequent communications with the Claimant and decisions with respect to his Claim shall be delivered to the authorized representative, as well as to the Claimant. ARTICLE XII ADMINISTRATION 12.1 Allocation of Responsibility Among Fiduciaries. The Fiduciaries shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under the Plan. In general, the Company shall have the sole responsibility for making the contributions necessary to provide benefits under the Plan, and shall have the sole authority to appoint and remove the Trustees and members of the Committee, and to amend or terminate the Plan, in whole or in part. The Committee shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in the Plan. The Trustees shall have the sole responsibility for the administration and management of the Trust Fund. Each Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan authorizing or providing for such direction, information or action. Furthermore, each Fiduciary may rely upon any such direction, information or action of another Fiduciary as being proper under the Plan, and is not required to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan and shall not be responsible for any act or failure to act of another Fiduciary. No Fiduciary guarantees the Trust Fund in any manner against investment loss or depreciation in asset value. 12.2 Appointment of Committee. The Plan shall be administered by a Committee consisting of such persons, who shall serve for such terms, as the Chief Executive Officer of the Company shall determine. Members of the Committee may also act as Trustees. 12.3 Committee Meetings. The Committee shall hold meetings upon such notices and at such place or places, and at such time or times as it may determine. Notices shall not be required if waived in writing. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting shall be by a vote of the majority of those present at any such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent signed by at least a majority of the members of the Committee. The Committee shall keep minutes of its actions. No member of the Committee shall have any right to vote on any matter relating solely to himself or to his rights or benefits under the Plan. In the event of a deadlock or other situation which prevents agreement of a majority of the Committee members, the matter shall be decided by a majority of the Board of Directors of the Company. 12.4 Committee Officers. The Committee shall appoint one member as chairman of the Committee, and the chairman may appoint a secretary who need not be a member of the Committee. The Committee shall designate the person or persons who shall be authorized to sign for the Committee. 12.5 Committee Expenses. All reasonable expenses of the Committee may be paid by the Company, but if not paid by the Company shall be paid from the Trust Fund. However, no fee or compensation shall be paid to any member of the Committee for his services as such. 12.6 Committee Responsibilities. The Committee shall have the responsibility for the general administration of the Plan. It shall have the power and duty to do all things necessary or convenient to effect the intent and purposes of the Plan and not inconsistent with any of the provisions hereof, whether or not such powers and duties are specifically set forth herein, and in amplification of the foregoing and not in limitation thereof, the Committee shall have the power to construe the Plan, to make such investigations as they may deem necessary, to determine all questions arising hereunder, including particularly directions to the Trustees on all matters necessary for it to properly discharge its powers and duties, but subject in all cases to the right of the Trustees to obtain and act upon the advice of their own legal counsel. In addition, the Committee shall have the responsibility for the reporting and disclosure requirements under ERISA permitted to be done by plan administrators (i.e., filing Form 5500s, Annual Reports, summary plan descriptions, and participant reports). Decisions of the Committee made in good faith upon any matters within the scope of its authority shall, unless disapproved by the Board of Directors of the Company, be final and binding on the Company, the Trustees, Participants, their Beneficiaries and all others. The Committee at all times, in making and carrying out its decisions and directions, shall act in a uniform and nondiscriminatory manner and may, from time to time, prescribe and modify uniform rules of interpretation and administration. 12.7 Other Powers. In addition to the foregoing, the Committee shall have the following powers: 12.7.1 To appoint or employ such accountants, legal counsel, specialists or other agents, persons or firms as they deem necessary or desirable in connection with the administration of the Plan and to delegate to such persons any powers and duties, both ministerial and discretionary, as the Committee deems appropriate. 12.7.2 To prescribe procedures to be followed by Participants and Beneficiaries filing applications for benefits. 12.7.3 To receive from the Company and from Participants such information as shall be necessary for the proper administration of the Plan. 12.8 Indemnification of Committee. Each member of the Committee shall be indemnified by the Company (i.e., not from the Trust Fund) against costs, expenses, and liabilities reasonably incurred by him in connection with any action to which he may be a party by reason of his service as a member of the Committee except in relation to matters as to which he shall be adjudged in such action to be liable for negligence or willful misconduct in the performance of his duties. The foregoing right to indemnification shall be in addition to such other rights as each member of the Committee may enjoy as a matter of law or by reason of insurance coverage of any kind, but shall not extend to costs, expenses, and/or liabilities otherwise covered by insurance or that would be so covered by any insurance then in force if such insurance contained a waiver of subrogation. Rights granted hereunder shall be in addition to and not in lieu of any rights to indemnification to which each member of the Committee may be entitled pursuant to the by-laws of the Company. Service as a member of the Committee shall be deemed in partial fulfillment of the member's function as an Employee, officer and/or director of the Company, if he serves in such capacity as well. 12.9 Expenses of Establishing and Administering the Plan. All expenses paid or incurred in establishing and administering the Plan may be paid by the Company, but if not paid by the Company, shall be paid by the Trustees from the Trust Fund. Provided, that if expenses are paid by the Company, the Company may withhold as reimbursement such amounts from the contribution due the Plan for the fiscal year of the Company for which the expenses are paid or incurred. ARTICLE XIII TOP-HEAVY PROVISIONS 13.1 Special Rules Applicable for Top-Heavy Plan Years. The special rules of this Article shall apply to any Top-Heavy Plan Year and shall supersede any conflicting provisions elsewhere in the Plan. 13.1.1 For any Top-Heavy Plan Year, a Participant's interest in his Participant Account shall become vested and nonforfeitable to the extent of the following percentages based upon his Years of Service: Years of Service Vested Percentage Less than 3 0 3 or more 100 This vesting schedule shall not apply to the Participant Account of any Participant who is not credited with an Hour of Service during the Top-Heavy Plan Year. If the Plan becomes a Top-Heavy Plan and subsequently ceases being a Top-Heavy Plan, the vesting schedule set forth above shall automatically cease to apply and the vesting schedule set forth in Section 5.6 shall automatically apply with respect to all amounts allocated to the Participant Account for Plan Years after the last Top- Heavy Plan Year. This change in vesting schedules shall apply only to the extent that Section 11.5 of the Plan and Section 411(a)(10) of the Code are satisfied. 13.1.2 For any Top-Heavy Plan Year, the amount allocated to each Non-Key Employee who is employed by the Company on the last day of the Plan Year, under this Plan and any other defined contribution plan included in the Required Aggregation Group, shall not be less than the lesser of 3% of his Compensation for that Plan Year, or the largest percentage, as a percentage of the first $200,000 of the Key Employee's Compensation for that Plan Year, allocated to any Key Employee for that Plan Year. The foregoing minimum benefit shall be determined without regard to (a) contributions under the Federal Insurance Contributions Act or similar state or federal laws, (b) the number of Hours of Service credited to the Participant during the Plan Year, (c) whether the Participant's Compensation is less than a stated amount and (d) whether the Participant made an otherwise mandatory contribution to the Plan. If the Participant is also covered by a defined benefit Top Heavy Plan sponsored by the Company, the minimum benefit required by this subsection shall be satisfied by providing the required minimum benefit under the defined benefit plan offset by the benefits provided under this Plan and any other defined contribution plan maintained by the Company. 13.1.3 Only the first $200,000 (as adjusted to take into account any cost-of-living increase adjustments provided under Section 416(d)(2) of the Code) of a Participant's Compensation for that Plan Year shall be taken into account for purposes of the Plan. 13.1.4 The limitation on contributions shall be applied by substituting "1.0" for "1.25" in computing the defined benefit plan fraction and the defined contribution plan fraction for purposes of 5.5.3. This rule shall not apply, however, if the Plan is not a Super Top-Heavy Plan and each Participant who is not a Key Employee either (a) receives an allocation of at least 4% of his compensation for that year under the Plan or (b) accrues the minimum defined benefit accrual (defined in Section 416(c)(1) of the Code as modified by Section 416(h)(2)(A)(ii)(I) Code) for that year under any defined benefit plan maintained by the Company or an Affiliated Company. 13.2 Definitions Relating to Top-Heavy Provisions. The following terms, when used in this Article, shall have the meaning set forth below, unless a different meaning is plainly required by the context: "Determination Date" means the last day of the preceding Plan Year or the last day of the first Plan Year. "Key Employee" means each Employee or former Employee (and his Beneficiary) who at any time during the five Plan Years ending on the Determination Date: (a) Was an officer of the Employer or an Affiliated Company (but only if he had Compensation greater than 50% of the dollar amount an effect under Section 415(b)(1)(A) of the Code for the Plan Year), (b) Was one of the ten Employees owning the largest interest of the Company and its Affiliated Companies (but only if he had Compensation greater than the dollar amount in effect under Section 415(c)(1)(A) of the Code for the Plan Year), (c) Owned at least 5% of the Company's outstanding shares of stock or at least 5% of the total combined voting power of the Company's shares of stock, or (d) Owned at least 1% of the Company's outstanding shares of stock or at least 1% of the total combined voting power of the Company's shares of stock and had Compensation of more than $150,000 from the Company and/or any Affiliated Company. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the regulations thereunder. "Non-Key Employee" means any Employee or former Employee who is not a Key Employee. "Permissive Aggregation Group" means all qualified employee pension benefit plans (within the meaning of ERISA) in the Required Aggregation Group and any qualified employee pension benefit plans sponsored by the Company or an Affiliated Company which are not part of the Required Aggregation Group, but which satisfy the requirements of Sections 401(a)(4) and 410 of the Code when considered together with the Required Aggregation Group, and which the Company elects to include in the Permissive Aggregation Group. "Required Aggregation Group" means the Plan and any other qualified employee pension benefit plan sponsored by the Company or an Affiliated Company in which a Key Employee participates, or which enables the Plan to meet the requirements of Sections 401(a)(4) or 410 of the Code. "Super Top-Heavy Plan" means this Plan if it would constitute a Top-Heavy Plan if "90%" is substituted for "60%" wherever it appears in the definition of Top-Heavy Plan and Top-Heavy Group. "Top-Heavy Group" means all plans of the Company and any Affiliated Company in the Required Aggregation Group and any other qualified employee pension benefit plan of the Company and any Affiliated Company which the Company elects to aggregate as part of a Permissive Aggregation Group if, on any Determination Date, the Valuation Amount of all Key Employees' accrued benefits under those plans exceeds 60% of the Valuation Amount of all Participants' accrued benefits. "Top-Heavy Plan" means this Plan if, on any Determination Date, the Valuation Amount of Key Employees' accrued benefits exceeds 60% of all Participants' accrued benefits. "Top-Heavy Plan Year" means any Plan Year during which the Plan is a Top-Heavy Plan or part of a Top-Heavy Group. "Valuation Amount" means, in the case of a defined benefit plan, the present value of the cumulative accrued benefits and, in the case of a defined contribution plan, the Participant's account balance adjusted for contributions due as of the Determination Date. Valuation Amount shall be determined as of the most recent valuation date which is within the 12-month period ending on the Determination Date. For purposes of determining the present value of cumulative accrued benefits and account balances, distributions made during the five Plan Years ending on the Determination Date shall be taken into account. The determination of Valuation Amount will be made in accordance with Section 416(g) of the Code and the regulations thereunder. ARTICLE XIV MISCELLANEOUS 14.1 Governing Law. Notwithstanding any other provisions of the Plan, the Committee shall administer the Plan in conformity with the applicable laws of the State of Utah and of the United States (including ERISA) and all rules and regulations from time to time promulgated under the authority of such laws. 14.2 Information Returns. The Company shall furnish the Committee all data and information which is necessary to enable the Committee to file returns and reports required by the Internal Revenue Service and the Department of Labor. 14.3 Company Action. Any action required or permitted to be taken by the Company may be taken on behalf of the Company by any officer of the Company. 14.4 Company Records. Records of the Company as to an Employee's or Participant's period of employment, termination of employment and the reason therefor, leaves of absence, re-employment and compensation will be conclusive on all persons, unless determined by the Committee to be incorrect. 14.5 No Guarantee of Interests. Neither the Trustees, the Committee nor the Company in any way guarantees the Trust Fund from loss or depreciation, nor do they guarantee any payment to any person. The liability of the Trustees, the Committee and the Company to make any payments hereunder is limited to the available assets of the Trust Fund. 14.6 Interpretations and Adjustments. To the extent permitted by law, an interpretation of the Plan and a decision on any matter within the Committee's discretion made in good faith is binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known, and the Committee shall make such adjustment on account thereof as it considers equitable and practicable. 14.7 Uniform Rules. In the administration of the Plan, uniform rules will be applied to all Participants similarly situated. 14.8 Evidence. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable and signed, made or presented by the proper party or parties. 14.9 Waiver of Notice. Any notice required under the Plan may be waived by the person entitled to notice. 14.10 Gender and Number. Except where otherwise clearly indicated by the context, the masculine and the neuter shall include the feminine and the neuter, the singular shall include the plural, and vice-versa. IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly authorized officers this ____ day of _____________________, 1992. SMITH'S FOOD & DRUG CENTERS, INC. By Its ATTEST: FIRST AMENDMENT TO SMITH'S FOOD & DRUG CENTERS, INC. EMPLOYEE PROFIT SHARING PLAN WHEREAS, the Smith's Food & Drug Centers, Inc. Employee Profit Sharing Plan (the "Plan") was established effective January 3, 1993; WHEREAS, in order to receive a favorable determination letter, the Internal Revenue Service has required that the Plan be amended; WHEREAS, the Company desires to amend the Plan; NOW, THEREFORE, Section 7.10 of the Plan is hereby amended and restated, effective January 3, 1993, to read in its entirety as follows: 7.10 Rollover Transfers and Withholding. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section 7.10, a distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 7.10.1 An eligible rollover distribution is any distribution of all of any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of 10 years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 7.10.2 An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. 7.10.3 A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse, and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. 7.10.4 A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 7.10.5 Within a reasonable time (i.e., no earlier than 90 days) prior to making an eligible rollover distribution, the Committee shall provide the distributee with the written explanation described in Section 402(f) of the Code. To the extent required by the Code and regulations thereunder, the Committee shall direct the Trustee to withhold income tax on distributions from the Plan. IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officers this 2nd day of August, 1993. SMITH'S FOOD & DRUG CENTERS, INC. By: _______________________________ Its ___________________________ ATTEST: ________________________ SECOND AMENDMENT TO SMITH'S FOOD & DRUG CENTERS, INC. EMPLOYEE PROFIT SHARING PLAN WHEREAS, the Smith's Food & Drug Centers, Inc. Employee Profit Sharing Plan (the "Plan") was established effective January 3, 1993; WHEREAS, the Company desires to amend the Plan to clarify the hours to be credited as Hours of Service; NOW, THEREFORE, subsections 2.2.2 and 2.2.6 of the Plan are hereby amended and restated, effective January 3, 1993, to read in their entirety as follows: 2.2.2 Each hour for which an Employee is paid, or entitled to payment, by the Company or an Affiliated Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), lay off, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this subsection 2.2.2 for any single continuous period (whether or not such period occurs in a single computation period). In addition, no Hours of Service shall be credited for payments made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation or disability insurance laws. Hours under this subsection 2.2.2 shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference. . . . 2.2.6 Notwithstanding anything else to the contrary, for purposes only of allocating contributions and forfeitures under Section 5.2, the following shall apply: (a) The hours to be credited as Hours of Service pursuant to this Section 2.2 shall only be hours for which an Employee is paid, or entitled to payment, by the Company and such hours shall be credited to the Plan Year in which the payment is made. No hours will be credited with respect to payments on account of disability, whether or not made or due under a plan maintained solely for the purpose of complying with applicable disability insurance laws. Hours of Service for salaried Employees shall be determined on the basis of 45 hours per week. A salaried Employee who is employed for less than a full week shall be credited with the pro rata portion of such week during which he is employed by the Company. (b) The Hours of Service credited to a Participant during a Plan Year shall not exceed 2,080. IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officers this _____ day of _____________. SMITH'S FOOD & DRUG CENTERS, INC. By Its ATTEST: ___________________________ EX-10.8 4 EXHIBIT 10.8 EXHIBIT 10.8 July 16, 1993 SMITH'S FOOD & DRUG CENTERS, INC. P.O. Box 30550 Salt Lake City, Utah 84130 Attention: Mr. Richard J. Osborne Assistant Treasurer Gentlemen: Following our annual review of your file, we are pleased to confirm the committed line of credit which we extend in your favor per the following details: COMMITMENT TOTAL: USD 15,000,000 - Clean advances up to 180 days evidenced by promissory notes. INTEREST RATE: Our most competitive rates to be negotiated at the time of utilization. COMMITMENT FEE: A commitment fee of 1/4 of 1% per annum on the unused portion, computed on a 360 day basis for the actual days elapsed, is payable calendar quarterly in arrears. DURATION OF FACILITY: Committed for a period of eighteen months plus one day to include an "evergreen" clause for the automatic renewal of same each six months, barring notice of cancellation by yourselves or ourselves of the evergreen feature. For example, and retaining the previous trigger dates, the commitment currently expires on October 31, 1994, but on October 31, 1993, the expirations extends to April 30, 1995 automatically. Thereafter, on April 30, 1994, the expiry date automatically pushes out to October 31, 1995, and so on, so that at no time will there be less than one year and one day of availability (unless cancellation notice is given of the evergreen feature). Additionally we are pleased to advance to you an additional up to USD 5,000,000 for periods of up to 30 days, as you may from time to time have need, and with interest rates usually as described above. This $5MM availability is not a commitment and may be withdrawn by us at any time. Please indicate your acceptance of the terms and conditions of this letter by acknowledgement as indicated below, signed by an authorized officer, and returning to us the enclosed executed duplicate. We consider your existing promissory notes to continue to be valid, with their relevant grids. As to your Corporate Resolution to Borrow, unless you advise us otherwise, we consider to remain valid that which you provided as of 4 June 1992. This letter effectively supersedes our previous Credit Agreement Letter dated June 3, 1992, as acknowledged by you. It is indeed our pleasure to have served Smith's now for some twelve years, and we look forward to a continued mutually beneficial relationship. Sincerely, BANCA DI ROMA - San Francisco RICHARD G. DIETZ 97271 The above terms and conditions are hereby accepted. SMITH'S FOOD & DRUG CENTERS, INC. By: ______________________________ Its __________________________ Dated ___________________ EX-10.9 5 EXHIBIT 10.9 Smith's Food & Drug Centers, Inc. Page 4 EXHIBIT 10.9 October 15, 1993 SMITH'S FOOD & DRUG CENTERS, INC. 1550 South Redwood Road Salt Lake City, Utah 84104 Attn: Mr. Casey Jones Director of Capital Development and Banking Gentlemen: We are pleased to confirm to you by this letter agreement (the "Agreement") that a new unsecured revolving credit facility has been placed at the disposal of SMITH'S FOOD & DRUG CENTERS, INC. (the "Company") for general corporate purposes under the following terms and conditions. This facility replaces the existing $15,000,000 revolving credit facility with Credit Suisse dated September 15, 1992. 1. THE REVOLVING CREDIT 1.1 Amount and General Terms: Subject to the terms hereof, we will make loans to the Company as you may request from time to time from the date hereof (the "Effective Date") to June 30, 1996 (the "Commitment Termination Date"), up to but not exceeding $15,000,000.00 in aggregate principal amount at any time outstanding (the "Commitment"). The Company may borrow, repay, and reborrow hereunder, from the date of its acceptance of this Agreement until the commitment Termination Date, either the full amount of the Commitment or any lesser sum which is $1,000,000 or a multiple thereof, by means of the borrowing options outlined below, provided that all loans will be repaid to us on the Commitment Termination Date. 1.2 Borrowing Options and Interest Rates: Interest on the principal balance of the loan, from time to time outstanding, will be payable at the Company's option at the following rates per annum: (a) For periods of one, two, three or six months, London Interbank Offered Rate (LIBOR) plus a margin of 50.0 basis points. (b) For periods of one to twenty-nine days, Credit Suisse Base Rate. "Base Rate" means the higher of (1) the base commercial lending rate announced by us from time to time or (2) the rate of interest quoted to us from time to time for the purchase by us from other banks or dealers of United States Federal Funds on an overnight basis in an amount comparable to the principal amount of the relevant loan plus 50 basis points. Any change in such Base Rate shall be effective on the date specified in the public announcement of such change. (c) For periods of one to twenty-nine days, bid option at negotiated rates. Interest is payable on the last business day of the interest period of the relevant borrowing and if such interest period is longer than three months, at intervals of three months after the first day thereof, and at a maturity of the relevant borrowing. Interest shall be computed on the actual number of days elapsed on a 360-day year basis. Overdue payments of principal and interest shall bear interest, payable on demand, at a rate equal to the Base Rate plus 1% per annum until paid in full. All borrowing under this Commitment will be evidenced by one Revolving Promissory Note (attached) duly executed by the Company. 1.3 Borrowing Notices, Payments and Prepayments: (a) Request for Base Rate borrowing and bid option should be made before 11:00 A.M. Los Angeles time on the date of such request. (b) Request for LIBOR borrowing should be made three business days prior to the intended drawing as it is customary that the rate applicable to the specific borrowing period be fixed two London business days preceding the date of borrowing. All loans will be paid free and clear of all taxes now imposed, or those that will affect any change in the basis of taxation of any amounts payable to the Bank (other than Federal, State and Local income taxes imposed on the Bank). Loans based on Base Rate may be prepaid without penalty. Prepayment of loans granted on a LIBOR basis will be subject to a prepayment penalty equal to the amount of any loss incurred by us in liquidating and/or re-employing the amounts borrowed by us to fund the loans, plus related reasonable expenses. 1.4 Commitment Fees. From and after the date hereof, until the Commitment Termination Date, the Company will pay us a commitment fee equal to 25.0 basis points per annum on the average daily undisbursed amount of the Commitment, from the Effective Date up to and including the Commitment Termination Date, payable quarterly in arrears, commencing on December 31, 1993. The commitment fee shall be calculated on the basis of actual days elapsed and a year of 360 days. All disbursements and payments hereunder are to be made in U.S. dollars in immediately available funds. All payments by or on behalf of the Company to us under this Agreement shall be made prior or 12:00 P.M. Los Angeles time on the date due to us at offices at 12 East 49th Street, New York, NY 10017 (Attn: Loan Department). 2. YIELD PROTECTION AND ILLEGALITY 2.1 Additional Costs. In the event that by reason of the provisions of Federal Reserve Board Regulation D as presently in effect or by reason of any amendment or change in said regulation or in any other applicable banking law or regulations or the interpretation thereof or by reason of any requirements or directives of any governmental authority whatsoever, we incur reserve costs on, or on account of, any advance or commitment, we shall inform the Company accordingly and shall from time to time charge the Company for such reserve costs. 2.2 Capital Adequacy. In addition, the Company agrees to pay us on demand such amounts as we reasonably determine are necessary to compensate us for any increased costs or reduction in rates of return attributable to this Agreement and resulting from the applications of any law, regulation, directive or request becoming effective after the date of this Agreement (regardless if earlier promulgated or announced) and applicable to the Bank regarding any reserve, assessment, capital adequacy or capital maintenance or similar requirement relating to this Agreement. 2.3 Illegality. Notwithstanding any other provision in this Agreement, in the event that it becomes unlawful for us to honor our obligations to make or maintain LIBOR loans hereunder, the we shall promptly notify the Company thereof and our obligation to make, maintain or to convert into LIBOR loans hereunder shall be suspended until such time as we may again make and maintain LIBOR loans. In such event, we shall make every effort to provide an alterative hereunder to such LIBOR loans which is reasonably comparable thereto. 3. REPRESENTATIONS AND WARRANTIES The Company hereby represents to us that: 3.1 Corporate Organization and Authority. (i) The Company has the power, authority and capacity to execute, deliver and perform this Agreement and all other documents executed in connection herewith and (ii) this Agreement and the documents executed in connection herewith constitute the valid and binding obligations of the Company and are enforceable in accordance with their respective terms. 3.2 Financial Condition. The Company represents and warrants that the financial statements of the Company dated March 31, 1991 furnished to the Bank fairly present the Company's financial position as of the date of such statements and the results of its operations and the changes in such financial position for the period then ended in accordance with generally accepted accounting principles consistently applied. As of the date of this Agreement and the date of any borrowing hereunder, the Company represents that no material adverse change has occurred since March 31, 1991, with respect to the ability of the Company to perform under this facility. The Company will furnish the Bank audited financial statements within 120 days after the closing of the Company's fiscal year, and unaudited financial statements within 60 days after the closing of each of the first three fiscal quarters. The Company will also provide any additional information as the Bank may reasonably request and will allow the Bank reasonable access to its books and records. Accompanying the annual financial statements, the Company will provide an opinion of an independent certified public accountant of recognized national standing, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company as at the end of, and for, such fiscal year, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default. Promptly after the Company knows or has reason to know that any Default has occurred or any event which with notice or lapse of time or both would become an Event of Default, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken and proposes to take with respect thereto; and The Company will furnish, at the time it furnishes each set of financial statements, a certificate of a senior financial officer of the Company (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken and proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with the covenants per 4.1. 3.3 Restriction on Fundamental Changes. The Company will not, and will not permit any of its subsidiaries to, enter into any transaction of merger or consolidation or liquidate, wind up or dissolve itself or convey, sell, lease, transfer or otherwise dispose of all or substantially all its assets to any other Person, except in the ordinary course of its business, provided that the Company may merge with another Person if (i) the Company is the corporation surviving such merger and (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing. 4 COVENANTS 4.1 Financial Covenants. The Company covenants and agrees that so long as this facility shall remain available, and until the full and final payment of all indebtedness incurred hereunder, it will, unless we waive compliance in writing: (a) Maintain a Fixed Charge Coverage ratio of not less than 1.5 to 1, measured at the end of each fiscal quarter. "Fixed Charge Coverage" means the sum of net income plus income taxes plus fixed charges (interest plus net rents) divided by fixed charges. (b) Maintain a Tangible Net Worth of not less than the sum of $400 million, plus 30% of net income after taxes on a quarterly basis, plus 100% of any increase in shareholder's equity other than the quarterly income increases, measured at the end of each fiscal quarter, commencing with the quarter ending September 30, 1992. (c) Maintain a Leverage Ratio not to exceed 2.0 to 1, measured at the of each fiscal quarter. As used herein, "Leverage Ratio" means the ratio of total debt to tangible net worth. Total debt includes all borrowed money and lease obligations (including capital leases and operating leases, the latter to be calculated as six times the annual amount owed.) 4.2 Negative Pledge. The Company will cause the payment obligations under this Agreement at all times to rank at least equally and rateably in all respects with all its other unsecured and unsubordinated indebtedness, and the Company will not, nor will it permit any of its subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its inventory, whether now owned or hereafter acquired, unless the benefit of the relevant security, or of alternative security satisfactory to us, is at the same time and in a manner satisfactory to us extended equally and rateably to the loans made and/or to be made and all other sums payable by the Company under this Agreement. 5. EVENTS OF DEFAULT In the event of any of the following defaults, the Bank may without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Company, declare the principal of all drawings plus accrued interest to be immediately due and payable and terminate this line of credit: 5.1 Failure to pay principal, interest or fees under this Agreement within 10 days after such becomes due. 5.2 Failure to comply with any other covenants or obligation in this Agreement for 30 days. 5.3 If any material representation made by the Company to us concerning the Company's business or financial condition shall prove to have been incorrect when made. 5.4 If the Company shall default in the performance or observance of any provision or covenant contained within any existing loan agreement other than this Agreement which the Company may have in effect with any other lender, other than to us, during the tenor of this Agreement, and such default shall continue unremedied for a period of 20 calendar days. 5.5 If the Company shall admit its inability to pay its debts as they mature, or shall make an assignment for the benefit of any of its creditors, or proceedings are instituted by or against the Company under any bankruptcy, reorganization or insolvency law or other law for the relief of debtors. 5.6 If the Company shall suffer final judgment for the payment of money aggregating in excess of US$5,000,000 and shall not discharge the same within a period of 30 days unless, pending further proceedings, execution has not been commenced or if commenced has been effectively stayed. 5.7 The Company shall fail to meet any of its obligations under the Employment Retirement Income Security Act of 1974 ("ERISA") or notice of a proceeding to terminate any "plan" under ERISA to appoint a trustee of a "plan" is not dismissed within 60 days of such notice. Upon the occurrence of any of the above listed events of default, we may, without prior notice, set off and apply any and all deposits maintained with us and any other indebtedness owing by us to the Company against any and all obligations of the Company hereunder. 6 EXPENSES The Company agrees to reimburse us for all out-of-pocket expenses that we may incur relating to any default, dispute or enforcement of these terms and conditions or of the Revolving Promissory Note, including reasonable attorneys' fees, and all costs of collection. The party prevailing with respect to any action brought by the other party with respect to the enforceability of this Agreement in any court of competent jurisdiction shall be reimbursed by the non-prevailing party for all reasonable costs and expenses, including reasonable attorney fees, with respect to this Agreement. 7. DOCUMENTATION Our obligation to extend credit under this line of credit is conditioned upon the receipt of all of the following documents, dated as of a recent date and in a form and substance satisfactory to us: - A certified copy of a Resolution of the Board of Directors of the Company authorizing the execution, delivery, and performance of all documents relative to the commitment contemplated herein, and the making of the credit. Such Resolution will be certified by the Secretary or any other appropriate officer of the Company. - A certified copy of the Articles of Incorporation and By-laws of the Company - Specimen Signature Records of the Company - Revolving Promissory Note (enclosed) 8. MISCELLANEOUS 8.1 This Agreement is governed by California law, and may not be amended except by instrument in writing signed by the Company and us. 8.2 We may assign, negotiate, pledge or otherwise hypothecate all or any portion of this Agreement, or grant participation herein or in any of our rights and security hereunder. 8.3 Nothing herein shall prohibit us from pledging or assigning the Revolving Promissory Note to any Federal Reserve Bank in accordance with applicable law. If the foregoing meets with your approval, please sign and return to us the enclosed copy of this letter agreement to signify your agreement with the terms and conditions stipulated therein. It is our pleasure to make this line available to you, and we look forward to a long and mutually satisfactory relationship. Very truly yours, CREDIT SUISSE David J. Worthington Edward Siegel Member of Senior Management Associate Credit Suisse Telephone No.: (213) 955-8200 800 Wilshire Blvd. Telex No.: 67227 Los Angeles, CA 90017 Telefax No. (213) 955-8245 Read, Agreed & Accepted: By: ______________________ Title: ___________________ SMITH'S FOOD & DRUG CENTERS, INC. Telephone No.: __________________________ Telex No.: __________________________ Telefax No.: __________________________ REVOLVING PROMISSORY NOTE October 15, 1993 US$15,000,000.00 FOR VALUE RECEIVED, SMITH'S FOOD & DRUG CENTERS, INC., a Delaware Corporation (the "Company"), hereby promises to pay to Credit Suisse, (the "Bank"), or order, at the office of the Bank at 12 East 49th Street, New York, N.Y. 10017 the principal sum of US$15,000,000 (USDOLLAR FIFTEEN MILLION) or such lesser amount as shall equal the aggregate unpaid principal amount of the loans made by the Bank to the Company under the letter agreement dated as of October 15, 1993 between the Company and the Bank (the "Agreement"), in lawful money of the United States of America and in immediately available funds, on the dates and in the amounts specified in the Agreement and to pay interest on the principal amount of each such loan, at such office, in like money and funds, for the period commencing on the date of such loan until such loan shall be paid in full, at the rates per annum and on the dates provided in the Agreement. The books and accounts of the Bank shall be conclusive evidence, absent manifest error, of the amounts of all loans, interest, fees and other charges advanced, due, outstanding or paid pursuant to the Agreement and this Note. This Note is the Revolving Promissory Note referred to in the Agreement under Section 1.2 and evidences loans made by the Bank thereunder. This Note is entitled to the benefits of the Agreement, which Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events. This Note shall remain valid and in force despite the fact that there may be times when no indebtedness is owing hereunder. If payment is not made when due, then the unpaid principal and any accrued interest which are past due shall bear interest at the Bank's Base Rate (as defined in the Agreement) plus 1% per annum until paid in full. Presentment, demand, protest and diligence and notices of protest, dishonor and non-payment of this Note and all notices of every kind are hereby waived by the Company and each endorser, guarantor and surety of this Note. This Note shall be governed by and construed in accordance with the laws of the State of California. SMITH'S FOOD & DRUG CENTERS, INC. By: ______________________________ Its __________________________ EX-10.11 6 EXHIBIT 10.11 EXHIBIT 10.11 July 22, 1993 Mr. Paul Tezak Vice President Smith's Food & Drug Centers, Inc. 1550 South Redwood Road Salt Lake City, Utah 84104 Dear Paul: On behalf of West One Bank, Idaho, I am pleased to extend the following financing commitment to Smith's Food & Drug Centers, Inc. Borrower: Smith's Food & Drug Centers, Inc. Lender/Bank: West One Bank, Idaho Committed Credit Facility: Fifteen Million Dollars ($15,000,000) unsecured committed revolving line of credit. The line of credit shall be evidenced by two notes, the West One Bank, Idaho Reference Rate Promissory Note and the Negotiated Rate Promissory Note, which notes shall replace the two Fifteen Million Dollars ($15,000,000) notes, the West One Bank, Idaho Reference Rate Promissory Note and the Negotiated Rate Promissory Note, dated June 1, 1992. At no time shall the aggregate amount outstanding under the Committed Credit Facility exceed Fifteen Million Dollars ($15,000,000). Maturity: May 31, 1995 Interest Rate: One of two options to be decided upon by Borrower on the date of each requested advance: a. Negotiated rate and term to be agreed upon at the time of each requested advance. No advance shall exceed a maximum term of 180 days. b. West One Bank, Idaho Reference Rate as that rate may change from time to time. Fee: .125% Non-Usage fee calculated on the unused daily balance of the Committed Credit Facility which fee shall be payable quarterly in arrears. Covenants: The commitment of the Bank to provide the financing described herein is conditioned upon the following: a. Receipt by Bank of Borrower's audited fiscal year-end financial statement within 90 days of each fiscal year-end. b. Receipt by Bank of Borrower's quarterly company prepared financial statements or 10-Q's within 60 days of each fiscal quarter end. c. Receipt by Bank of Borrower's quarterly compliance certificate within 60 days of each fiscal quarter end. d. Borrower shall maintain stockholders equity of no less than Four Hundred Fifty Million Dollars ($450,000,000). e. Borrower shall maintain a Debt/Net Worth ratio of no greater than 3.00:1. Debt/Net Worth ratio calculated as total liabilities divided by stockholders equity. f. Borrower shall maintain a cash flow ratio of no less than 1.50:1. Cash flow ratio calculated as (earnings before interest & taxes + rent expense - sublease) divided by (rent expense - sublease + interest expense). Uncommitted Credit Facility: Five Million Dollars ($5,000,000) unsecured uncommitted revolving line of credit. The line of credit shall be evidenced by a note, the Promissory Note, which note shall replace the Five Million Dollars ($5,000,000) Promissory Note dated June 1, 1992. It is understood and agreed that advances on the Uncommitted Credit Facility are at the sole option and discretion of Bank. Interest Rate: Negotiated rate and term to be agreed upon at the time of each requested advance. No advance shall exceed a maximum term of 180 days. Contractual rate, (ie. or bid rate) cannot exceed West One Bank, Idaho reference rate. Fee: None. This financing commitment shall expire on August 6, 1993 unless accepted by Borrower and received by Bank on or before that date. Sincerely, George Welch Vice President Corporate Banking Utah (801) 534-6071 This financing commitment and all terms and conditions herein are understood, agreed to, and accepted this ____ day of ____________, 199__. SMITH'S FOOD & DRUG CENTERS, INC. By: _____________________ Its _________________ CORPORATE RESOLUTION AUTHORIZING BORROWINGS I, the undersigned Secretary of Smith's Food & Drug, Inc. (herein called the "Corporation"), hereby certify as follows: The corporation is organized and existing under and by virtue of the laws of the State of Delaware has its principal office at 1550 South Redwood Road, Salt Lake City, Utah. I further certify that at a meeting of the Directors of the Corporation (or by other duly authorized corporate action in lieu of a meeting), duly and regularly called andheld on April 29, 1993, at which a quorum was present and voting, the following resolutions were unanimously adopted: Be it resolved that any one (1) of the following named officers or employees of this Corporation, whose actual signatures are shown below: NAME TITLE ACTUAL SIGNATURE Matthew G. Tezak Senior Vice President, CFO _________________________________ Richard Osborne Assistant Treasurer _________________________________ Casey Jones Director of Banking _________________________________ Paul Tezak Vice President, Finance & Treasurer _________________________________ acting for and on behalf of this Corporation and as its act and deed, be and they are hereby authorized and empowered: Borrow. To borrow without limitation from West One Bank, Idaho, N.A. (herein called the "Bank"), on such terms as may be agreed upon between the officers and employees and the Bank, such sum or sums of money as in their judgment should be borrowed. Execute Notes. To execute and deliver to the Bank the promissory note or notes of the Corporation, on the Bank's forms, at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any indebtedness of the Corporation to the Bank, and also to execute and deliver to the Bank any renewal or renewals of the notes, or any of them, or any part thereof. Negotiate. To draw, endorse, and discount with the Bank drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which Corporation may have an interest, and either to receive cash for the same or to cause such other disposition of the proceeds derived therefrom as they may deem advisable. Further Acts. To do and perform such other acts and things and to execute and deliver such other documents, including limited authorizations to other corporate officers or employees to perform any acts, as may in their discretion be deemed reasonably necessary or proper in order to carry into effect any of the provisions of these Resolutions. BE IT FURTHER RESOLVED, that these Resolutions shall remain in full force and effect until written notice of the revocation thereof shall have been delivered to and received by the Bank. Any such notice shall not affect any agreements in effect or committed at the time notice is given. I FURTHER CERTIFY that the persons named above are principal officers of the Corporation and occupy the positions set opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; that they are in full force and effect and have not been modified or revoked in any manner whatsoever. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the seal of the Corporation as of April 29, 1993. Secretary' Signature _____________________________________ Michael C. Frei (corporate seal if any) Senior Vice President & Corporate Secretary NEGOTIATED RATE PROMISSORY NOTE $15,000,000.00 June 1, 1993 FOR VALUE RECEIVED, Smith's Food & Drug Centers, Inc. ("Borrower") does hereby promise to pay to the order of West One Bank, Idaho ("Bank") at its Corporate Banking Office at 101 South Capitol Boulevard, Boise, Idaho 83702, in lawful money of the United States of America and in immediately available funds, the principal amount of Fifteen Million ($15,000,000.00) Dollars or such lesser amount that may be advanced by Bank from time to time to or for the benefit of Borrower from and after the date of this note through the final maturity date of May 31, 1995. Interest shall commence to accrue with respect to each borrowing at the Negotiated Rate on the date of each borrowing, calculated on a 360-day basis and shall be payable, in like funds, on the earlier of the maturity date of the borrowing or the final maturity date. All borrowings and all payments made on account of principal shall be recorded on the Bank's ledger. Each such record of any borrowing hereunder shall be conclusive evidence that such borrowing was made by Bank to Borrower. The principal and interest balance due as stated on the Bank's ledger shall be the sole criteria for computation of principal and interest balances. Provided the resulting unpaid balance does not exceed the maximum amount stated above, advances may be made at the oral or written request of Matthew Tezak, or Paul Tezak, or Casey Jones, or Richard Osborne, any one acting alone, who is authorized to request borrowings, to agree on rate, to set the maturity of each borrowing, and to direct the disposition of any such borrowings until written notice of the revocation of such authority is received by the Bank. Failure to pay any principal or interest when due, or failure to comply with any provision of this note entitles the holder to declare, at its option, the entire remaining unpaid balance of principal and accrued interest immediately due and payable, without presentment, protest, or further demand or notice of any kind, all of which are hereby expressly waived. Any unpaid balance, after maturity, including principal and interest and late charges, shall bear interest at a rate per annum equal to West One Bank, Idaho Reference Rate, which rate is changed from time to time and is effective as of the date of such change, plus 2 percent. Borrower promises to pay all costs of collection, including reasonable attorneys' fees, whether or not suit is commenced. SMITH'S FOOD & DRUG CENTERS, INC. By: _____________________________ Its _________________________ WEST ONE BANK, IDAHO REFERENCE RATE PROMISSORY NOTE June 1, 1993 $15,000,000.00 FOR VALUE RECEIVED, Smith's Food & Drug Centers, Inc. ("Borrower") does hereby promise to pay to the order of West one Bank, Idaho ("Payee") at its office at 101 South Capitol Boulevard, Boise, Idaho 83702, in lawful money of the United States of America, in immediately available funds, the principal amount of Fifteen Million Dollars ($15,000,000.00)or the total unpaid principal amount advanced by Bank from time to time to or for the benefit of or at the request of Borrower from and after the date of this note through the final maturity date of May 31, 1995, together with interest thereon at the time and rate specified in this note. Provided the resulting unpaid balance does not exceed the maximum amount stated above, advances may be made at the oral or written request of Matthew Tezak, or Paul Tezak, or Casey Jones, or Richard Osborne, any one acting alone, who is authorized to request advances and to direct the disposition of any such advances until written notice of the revocation of such authority is received by the Payee. All advances and all payments made on account of principal shall be recorded on the Bank's ledger. Each such record of any advance hereunder shall be conclusive evidence that the advance was made by Bank to Borrower. The principal and interest balance due as reflected on the Bank's ledger shall be the sole criteria for computation of principal and interest balances. Each advance under the note shall bear interest from the date of such advance until payment in full at a rate equal to the rate of interest publicly announced from time to time by West one Bank, Idaho, as its West One bank, Idaho Reference Rate. Interest shall be computed on the basis of a 365 or 366 day year and actual days elapsed. Any change in the interest rate of this note shall take effect at the opening of business of the day specified in the public announcement of a change in said West One Bank, Idaho Reference Rate. Accrued interest shall be payable monthly on the last day of each month commencing June 30, 1993, and on the last day of each successive month thereafter, and upon payment in full of principal of this note on the final maturity date. Failure to pay any principal or interest when due, or failure to comply with any provision of any document executed by the undersigned, entitles the holder to declare, at its option, the entire remaining unpaid balance of principal and accrued interest immediately due and payable, without presentment, protest, or further demand or notice of any kind, all of which are hereby expressly waived. Any unpaid balance, after maturity, including principal and interest and late charges, shall bear interest at a rate per annum equal to said West One Bank, Idaho Reference Rate, plus 2 percent. Borrower promises to pay all costs of collection, including reasonable attorney's fees, whether or not suit is commenced. SMITH'S FOOD & DRUG CENTERS, INC. By: _________________________ Its _____________________ PROMISSORY NOTE June 1, 1993 $5,000,000.00 FOR VALUE RECEIVED, Smith's Food & Drug Centers, Inc. ("Borrower") does hereby promise to pay to the order of West One Bank, Idaho ("Bank") at its Corporate Banking Office at 101 South Capitol Boulevard, Boise, Idaho 83702, in lawful money of the United States of America and in immediately available funds, the principal amount of Five Million ($5,000,000.00) Dollars or such lesser amount that may be advanced by Bank from time to time to or for the benefit of Borrower from and after the date of this note through the maturity date established by Bank and Borrower each time Borrower requests and Bank agrees to make a loan. Interest shall commence to accrue with respect to each borrowing at a rate negotiated by Bank and Borrower at the time of each borrowing, calculated on a 360-day basis and shall be payable, in like funds, on the maturity date established by Bank and Borrower at the time of each borrowing. All borrowings and all payments made on account of principal shall be recorded on the Bank's ledger. Each such record of any borrowing hereunder shall be conclusive evidence that such borrowing was made by Bank to Borrower. The principal and interest balance due as stated on the Bank's ledger shall be the sole criteria for computation of principal and interest balances. Provided the resulting unpaid balance does not exceed the maximum amount stated above, advances may be made at the oral or written request of Matthew Tezak, or Paul Tezak, or Richard Osborne, or Casey Jones, any one acting alone, who is authorized to request borrowings, to agree on rate, to set the maturity of each borrowing, and to direct the disposition of any such borrowings until written notice of the revocation of such authority is received by the Bank. Failure to pay any principal or interest when due, or failure to comply with any provision of this note entitles the holder to declare, at its option, the entire remaining unpaid balance of principal and accrued interest immediately due and payable, without presentment, protest, or further demand or notice of any kind, all of which are hereby expressly waived. Any unpaid balance, after maturity, including principal and interest and late charges,shall bear interest at a rate per annum equal to West One Bank, Idaho, Reference Rate, which rate is changed from time to time and is effective as of the date of such change, plus 2 percent. Borrower promises to pay all costs of collection, including reasonable attorney's fees, whether or not suit is commenced. It is understood and agreed that this note does not in any manner obligate the Bank to lend to Borrower and that all borrowings are made at the sole discretion of Bank. SMITH'S FOOD & DRUG CENTERS, INC. By: _______________________ Its ___________________ EX-10.17 7 EXHIBIT 10.17 EXHIBIT 10.17 Execution Copy Smith's Food & Drug Centers, Inc. Note Agreement Dated as of November 1, 1993 Re: $81,000,000 6.44% Senior Notes, Series 1993-E, Due December 1, 2005, $21,000,000 6.54% Senior Notes, Series 1993-F, Due December 1, 2007, $35,000,000 6.69% Senior Notes, Series 1993-G, Due December 1, 2010 and $13,000,000 6.94% Senior Notes, Series 1993-H, Due December 1, 2015 Table of Contents (Not a part of the Agreement) Section Heading Page Section 1. Description of Notes and Commitment 1 Section 1.1. Description of Notes 1 Section 1.2. Commitment, Closing Date 2 Section 1.3. Other Agreements 3 Section 2. Prepayment of Notes 3 Section 2.1. Required Prepayments 3 Section 2.2. Optional Prepayment with Premium 4 Section 2.3. Prepayment of Notes upon Change of Control 5 Section 2.4. Notice of Optional Prepayments 8 Section 2.5. Application of Prepayments 8 Section 2.6. Direct Payment 8 Section 3. Representations 8 Section 3.1. Representations of the Company 8 Section 3.2. Representations of the Purchaser Section 4. Closing Conditions 9 Section 4.1. Conditions 9 Section 4.2. Waiver of Conditions 10 Section 5. Company Covenants 11 Section 5.1. Corporate Existence, Etc 11 Section 5.2. Insurance 11 Section 5.3. Taxes, Claims for Labor and Materials; Compliance with Laws 11 Section 5.4. Maintenance, Etc 12 Section 5.5. Nature of Business 12 Section 5.6. Consolidated Tangible Net Worth 12 Section 5.7. Limitations on Indebtedness 12 Section 5.8. Limitation on Liens 14 Section 5.9. Mergers, Consolidations and Sales of Assets 16 Section 5.10.Redesignation of Subsidiaries 20 Section 5.11.Repurchase of Notes 21 Section 5.12.Transactions with Affiliates 21 Section 5.13.Termination of Pension Plans 21 Section 5.14.Reports and Rights of Inspection 21 Section 6. Events of Default and Remedies Therefor 24 Section 6.1. Events of Default 24 Section 6.2. Notice to Holders 26 Section 6.3. Acceleration of Maturities 26 Section 6.4. Rescission of Acceleration 27 Section 7. Amendments, Waivers and Consents 28 Section 7.1. Consent Required 28 Section 7.2. Solicitation of Holders 28 Section 7.3. Effect of Amendment or Waiver; Scope of Consent 29 Section 8. Interpretation of Agreement; Definitions 29 Section 8.1. Definitions 29 Section 8.2. Accounting Principles 40 Section 8.3. Directly or Indirectly 40 Section 9. Miscellaneous 40 Section 9.1. Registered Notes 40 Section 9.2. Exchange of Notes 40 Section 9.3. Loss, Theft, Etc. of Notes 41 Section 9.4. Expenses, Stamp Tax Indemnity 41 Section 9.5. Powers and Rights Not Waived; Remedies Cumulative 42 Section 9.6. Notices 42 Section 9.7. Successors and Assigns 42 Section 9.8. Substitution of Purchaser 42 Section 9.9. Survival of Covenants and Representations 43 Section 9.10.Severability 43 Section 9.11.Governing Law 43 Section 9.12.Submission to Jurisdiction 43 Section 9.13.Reproduction of Documents 43 Section 9.14.Captions 44 Signature 45 Attachments to Note Agreement: Schedule I _ Names and Addresses of Purchasers and Amounts of Commitments Schedule II _ Description of Funded Debt, Capitalized Leases, Liens Securing Funded Debt and Intangibles included in Consolidated Tangible Net Worth as of the Closing Date Schedule III _ Description of Restricted Subsidiaries and Unrestricted Subsidiaries of the Company Exhibit A-1 _ Form of 6.44% Senior Notes, Series 1993-E, due December 1, 2005 Exhibit A-2 _ Form of 6.54% Senior Notes, Series 1993-F, due December 1, 2007 Exhibit A-3 _ Form of 6.69% Senior Notes, Series 1993-G, due December 1, 2010 Exhibit A-4 _ Form of 6.94% Senior Notes, Series 1993-H due December 1, 2015 Exhibit B _ Representations and Warranties of the Company Exhibit C _ Description of Special Counsel's Closing Opinion Exhibit D _ Description of Closing Opinion of Independent Counsel to the Company Exhibit E _ Description of Closing Opinion of the General Counsel to the Company Exhibit F _ Subordination Provisions Applicable to Subordinated Funded Debt Smith's Food & Drug Centers, Inc. 1550 South Redwood Road Salt Lake City, Utah 84104 Note Agreement Re: $81,000,000 6.44% Senior Notes, Series 1993-E, Due December 1, 2005, $21,000,000 6.54% Senior Notes, Series 1993-F, Due December 1, 2007, $35,000,000 6.69% Senior Notes, Series 1993-G, Due December 1, 2010 and $13,000,000 6.94% Senior Notes, Series 1993-H, Due December 1, 2015 Dated as of November 1, 1993 To the Purchaser named in Schedule I hereto which is a signatory of this Agreement Ladies and Gentlemen: The undersigned, Smith's Food & Drug Centers, Inc., a Delaware corporation (the "Company"), agrees with you as follows: Section1.Description of Notes and Commitment. Section1.1.Description of Notes. (a) The Company will authorize the issue and sale of its 6.44% Senior Notes, Series 1993-E, due December 1, 2005 (the "Series 1993-E Notes") in an aggregate principal amount equal to $81,000,000, its 6.54% Senior Notes, Series 1993-F, due December 1, 2007 (the "Series 1993-F Notes") in an aggregate principal amount equal to $21,000,000, its 6.69% Senior Notes, Series 1993-G, due December 1, 2010 (the "Series 1993-G Notes") in an aggregate principal amount equal to $35,000,000 and its 6.94% Senior Notes, Series 1993-H, due December 1, 2015 (the "Series 1993-H Notes") in an aggregate principal equal to $13,000,000. The Series 1993-E Notes, the Series 1993-F Notes, the Series 1993-G Notes and the Series 1993-H Notes are hereinafter collectively referred to as the "Notes". (b) The Series 1993-E Notes will be dated the date of issue, will bear interest from such date at the rate of 6.44% per annum, payable semi- annually on the first day of each June and December in each year (commencing on the first such day after the date of issue) and at maturity and will bear interest on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid. The Series 1993-E Notes shall mature on December 1, 2005 and shall be substantially in the form attached hereto as Exhibit A-1. The Series 1993-F Notes will be dated the date of issue, will bear interest from such date at the rate of 6.54% per annum payable semi-annually on the first day of each June and December in each year (commencing on the first such day after the date of issue) and at maturity and will bear interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid. The Series 1993-F Notes shall mature on December 1, 2007 and shall be substantially in the form attached hereto as Exhibit A-2. The Series 1993-G Notes will be dated the date of issue, will bear interest from such date at the rate of 6.69% per annum, payable semi-annually on the first day of each June and December in each year (commencing on the first such day after the date of issue) and at maturity and will bear interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid. The Series 1993-G Notes shall mature on December 1, 2010 and shall be substantially in the form attached hereto as Exhibit A-3. The Series 1993-H Notes will be dated the date of issue, will bear interest from such date at the rate of 6.94% per annum, payable semiannually on the first day of each June and December in each year (commencing on the first such day after the date of issue) and at maturity and will bear interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the overdue rate after the date due, whether by acceleration or otherwise, until paid. The Series 1993-H Notes will mature on December 1, 2015 and shall be substantially in the form attached hereto as Exhibit A-4. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in 2 of this Agreement. The term "Notes" as used herein shall include each Note delivered pursuant to this Agreement and the separate agreements with the other purchasers named in Schedule I. You and the other purchasers named in Schedule I are hereinafter sometimes referred to as the "Purchasers". The terms which are capitalized herein shall have the meanings set forth in 8.1. Section1.2.Commitment, Closing Date. Subject to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, the Company agrees to issue and sell to you, and you agree to purchase from the Company, Notes of the series and in the principal amount set forth opposite your name on Schedule I hereto at a price of 100% of the principal amount thereof on the Closing Date. The Notes will be delivered to you on December 1, 1993 (the "Closing Date"). Delivery of the Notes on the Closing Date will be made at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment therefor in Federal Reserve or other funds current and immediately available at the principal office of Zions First National Bank in the amount of the purchase price at 10:00 A.M., Salt Lake City, Utah time. The Notes delivered to you will be delivered to you in the form of a single registered Note for the full amount of your purchase (unless different denominations are specified by you), registered in your name or in the name of such nominee, as may be specified in Schedule I attached hereto and in substantially the form attached hereto as Exhibit A-1, Exhibit A-2, Exhibit A-3 or Exhibit A-4, as the case may be. Section1.3.Other Agreements. Simultaneously with the execution and delivery of this Agreement, the Company is entering into similar agreements with the other Purchasers under which such other Purchasers agree to purchase from the Company the principal amount of Notes set opposite such Purchasers' names in Schedule I, and your obligation and the obligations of the Company hereunder are subject to the execution and delivery of the similar agreements by the other Purchasers. This Agreement and said similar agreements with the other Purchasers are herein collectively referred to as the "Agreements". The obligations of each Purchaser shall be several and not joint and no Purchaser shall be liable or responsible for the acts of any other Purchaser. Section2.Prepayment of Notes. No prepayment of the Notes may be made except to the extent and in the manner expressly provided in this Agreement. Section2.1.Required Prepayments. In addition to paying the entire outstanding principal amount and the interest due on the Notes on the maturity dates thereof, the Company agrees it will prepay and apply and there shall become due and payable the following sums in respect of the aggregate principal indebtedness evidenced by the Notes: Series 1993-E Notes Applicable Amount of Required Payment Dates Required Principal Payments December 1, 2001 $16,200,000 December 1, 2002 $16,200,000 December 1, 2003 $16,200,000 December 1, 2004 $16,200,000 Series 1993-F Notes Applicable Amount of Required Payment Dates Required Principal Payments December 1, 2003 $4,200,000 December 1, 2004 $4,200,000 December 1, 2005 $4,200,000 December 1, 2006 $4,200,000 Series 1993-G Notes Applicable Amount of Required Payment Dates Required Principal Payments December 1, 2006 $7,000,000 December 1, 2007 $7,000,000 December 1, 2008 $7,000,000 December 1, 2009 $7,000,000 Series 1993-H Notes Applicable Amount of Required Payment Dates Required Principal Payments December 1, 2011 $2,600,000 December 1, 2012 $2,600,000 December 1, 2013 $2,600,000 December 1, 2014 $2,600,000 No premium shall be payable in connection with any required prepayment made pursuant to this 2.1. Any payment of less than all of any series of Notes pursuant to the provisions of any other section hereof shall not relieve the Company of the obligation to make required payments or prepayments on such series of Notes in accordance with the terms of this 2.1. In the event that the Company shall prepay less than all of the Notes pursuant to 2.2 hereof, the amounts of the prepayments required by this 2.1 shall be reduced in the same proportion that the principal amount of the Notes outstanding immediately preceding such partial prepayment has been reduced by such partial prepayment to the end that the remaining prepayments required to be made pursuant to the provisions of this 2.1 on the Notes remaining outstanding will result in the same proportionate rate of prepayment as if the Notes had not been so prepaid. Section2.2.Optional Prepayment with Premium. In addition to the payments required by 2.1, upon compliance with 2.4, the Company shall be entitled, at any time and from time to time, to prepay the outstanding Notes, either in whole or in part (but if in part then in a minimum principal amount of $500,000) by payment of the principal amount of the Notes, or portion thereof to be prepaid, and accrued interest thereon to the date of such prepayment, together with a premium equal to the Make-Whole Amount, determined as of two Business Days prior to the date of such prepayment pursuant to this 2.2. Section2.3.Prepayment of Notes upon Change of Control. (a) In the event that any Change of Control (as hereinafter defined) shall occur or the Company shall have knowledge of any proposed Change of Control, the Company will give written notice (the "Company Notice") of such fact in the manner provided in 9.6 hereof to the holders of the Notes. The Company Notice shall be delivered promptly upon receipt of such knowledge by the Company and in any event no later than three Business Days following the occurrence of any Change of Control. The Company Notice shall (1) describe the facts and circumstances of such Change of Control in reasonable detail, (2) make reference to this 2.3 and the right of the holders of the Notes to require prepayment on the terms and conditions provided for in this 2.3, (3) offer in writing to prepay the outstanding Notes, together with accrued interest to the date of prepayment and a premium equal to the then applicable Make- Whole Amount and (4) specify a date for such prepayment (the "Change of Control Prepayment Date"), which Change of Control Prepayment Date shall be not more than 90 days nor less than 30 days following the date of such Company Notice. Each holder of the then outstanding Notes shall have the right to accept such offer and require prepayment in full of the Notes held by such holder by written notice to the Company (a "Noteholder Notice") given not later than 20 days after receipt of the Company Notice. Not later than two Business Days prior to the Change of Control Prepayment Date, the Company shall provide each holder of a Note which has so accepted such offer of prepayment written notice of the premium, if any, payable in connection with such prepayment and, whether or not any premium is payable, a reasonably detailed computation of the Make-Whole Amount including a copy of "Page 500" on the Telerate Service or the Statistical Release used in connection with such computation. The Company shall on the Change of Control Prepayment Date prepay in full all of the Notes held by holders which have so accepted such offer of prepayment. The prepayment price of the Notes payable upon the occurrence of any Change of Control shall be an amount equal to 100% of the outstanding principal amount of the Notes so to be prepaid and accrued interest thereon to the date of such prepayment, together with a premium equal to the then applicable Make-Whole Amount determined as of two Business Days prior to such Change of Control Prepayment Date. (b) Without limiting the foregoing, notwithstanding any failure on the part of the Company to give the Company Notice herein required as a result of the occurrence of a Change of Control, each holder of the Notes shall have the right by delivery of written notice to the Company to require the Company to prepay, and the Company will prepay in full, such holder's Notes, together with accrued interest thereon to the date of prepayment and a premium equal to the then applicable Make-Whole Amount; provided that such holder of the Notes shall so notify the Company of its election to require the Company to prepay its Notes in accordance with this 2.3(b) within 90 days after such holder has actual knowledge of any such Change of Control. Notice of any required prepayment pursuant to this 2.3(b) shall be delivered by any holder of the Notes which was entitled to, but did not receive, such Company Notice to the Company after such holder has actual knowledge of such Change of Control. On the date (the "Change of Control Delayed Prepayment Date") designated in such holder's notice (which shall be not more than 90 days nor less than 30 days following the date of such holder's notice), the Company shall prepay in full all of the Notes held by such holder, together with accrued interest thereon to the date of prepayment and a premium equal to the then applicable Make-Whole Amount. If the holder of any Note gives any notice pursuant to this 2.3(b), the Company shall give a Company Notice within three Business Days of receipt of such notice and identify the Change of Control Delayed Prepayment Date to all holders of the Notes and each of such holders shall then and thereupon have the right to accept the Company's offer to prepay in full the Notes held by such holder and require prepayment of such Notes by delivery of a Noteholder Notice within 20 days following receipt of such Company Notice; provided only that any date for prepayment of such holder's Notes shall be the Change of Control Delayed Prepayment Date. Not later than two Business Days prior to the Change of Control Delayed Prepayment Date, the Company shall provide each holder of a Note which has so accepted such offer of prepayment written notice of the premium, if any, payable in connection with such prepayment and, whether or not any premium is payable, a reasonably detailed computation of the Make- Whole Amount including a copy of "Page 500" on the Telerate Service or the Statistical Release used in connection with such computation. On the Change of Control Delayed Prepayment Date, the Company shall prepay in full the Notes of each holder thereof which has accepted such offer of prepayment at a prepayment price equal to 100% of the outstanding principal amount of the Notes so to be prepaid and accrued interest thereon to the date of such prepayment, together with a premium equal to the then applicable Make-Whole Amount determined as of two Business Days prior to the date of such prepayment pursuant to this 2.3(b). (c) As used in this 2.3, a "Change of Control" of the Company shall occur when (1)(i) the Company enters into a binding written commitment with an Acquiring Person to permit such Acquiring Person to acquire, directly or indirectly, beneficial ownership of more than 50% of the total voting power of the Voting Stock of the Company then outstanding, or (ii) there has been a successful completion of a tender offer or exchange offer that results in an Acquiring Person, directly or indirectly, beneficially owning more than 50% of the total voting power of the Voting Stock of the Company then outstanding, or (iii) an Acquiring Person, directly or indirectly, becomes the beneficial owner of more than 50% of the total voting power of the Voting Stock of the Company then outstanding or (iv) there has been a merger between the Company and any other Person, a consolidation of the Company with any other Person, or an acquisition of any other Person by the Company or a Subsidiary of the Company, if immediately after such event, an Acquiring Person shall then hold more than 50% of the total voting power of the Voting Stock of the Company outstanding immediately after giving effect to such merger, consolidation or acquisition, or (v) the capital stock of the Company is no longer Publicly Traded, if in connection therewith and after giving effect thereto the aggregate voting power of the Voting Stock of the Company owned or controlled by the Smith Control Group is less than 90% of the aggregate voting power of the Voting Stock of the Company owned or controlled by the Smith Control Group immediately prior to the last date such capital stock was Publicly Traded and (2) immediately after giving effect thereto either (i) the long-term debt rating of such Acquiring Person, or, with respect to clause (c)(1)(v), the Company, shall be below "BBB-" by Standard & Poor's Corporation or "Baa3" by Moody's Investors Service, Inc. or (ii) if the long-term debt of such Acquiring Person, or, with respect to clause (c)(1)(v), the Company, shall for any reason whatsoever not be rated by Standard & Poor's Corporation and Moody's Investors Service, Inc. then, within 90 days after the occurrence of any event described in clause (c)(1), such Acquiring Person, or, with respect to clause (c)(1)(v), the Company, shall not have received a rating on each series of the Notes of at least "BBB-" by Standard & Poor's Corporation or "Baa3" by Moody's Investors Service, Inc. The term "Acquiring Person" shall mean a "person" or "group of persons" within the meaning of Section 13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended; provided that notwithstanding the foregoing, "Acquiring Person" shall not be deemed to include any member of the Smith Control Group unless such member has, directly or indirectly, disposed of, sold or otherwise transferred to, or encumbered or restricted (whether by means of voting trust agreement or otherwise) for the benefit of, an Acquiring Person, all or any portion of the voting power of the Voting Stock of the Company directly or indirectly owned or controlled by such member or such member directly or indirectly acquiesces in, consents to or votes all or any portion of the voting power of the Voting Stock of the Company directly or indirectly owned or controlled by such member for the taking of any action which, directly or indirectly, constitutes or would result in a Change of Control, in which event such member of the Smith Control Group shall be deemed to constitute an Acquiring Person to the extent of the voting power of the Voting Stock of the Company owned or controlled by such member. The term "Management" shall mean, without duplication, all officers and directors and shareholders of the Company's Class A stock who are not within the definition of Smith Family and who are employed on a full-time basis by the Company on the date immediately preceding the date of any such Change of Control. The term "Publicly Traded" shall mean the trading of any capital stock of the Company in any over-the-counter securities market (including the National Association of Securities Dealers Automated Quotations System) or the listing for trading of any capital stock of the Company on the NASDAQ National Market System or any regionally or nationally recognized Securities exchange. The term "Smith Control Group" shall mean collectively, the Smith Family and Management. The term "Smith Family" shall mean all, or any combination of, or any of the spouse of D. Glen Smith, each of his three sons, Jeffrey P. Smith, Richard D. Smith and Fred L. Smith and any trusts established for the benefit of the natural children or stepchildren of Jeffrey P. Smith, Richard D. Smith or Fred L. Smith; provided that the power to vote any shares of the Company's stock held in such trusts shall have been granted to all, or any combination of, or any of Jeffrey P. Smith, Richard D. Smith, Fred L. Smith or the spouse of D. Glen Smith. Section2.4.Notice of Optional Prepayments. The Company will give notice of any prepayment of the Notes pursuant to 2.2 to each holder thereof not less than 30 days nor more than 60 days before the date fixed for such optional prepayment specifying (a) such date, (b) the principal amount of the holder's Notes to be prepaid on such date, (c) that a premium may be payable, (d) the date when such premium will be calculated, (e) the estimated premium, (f) whether or not a premium is payable, a reasonably detailed calculation of the Make-Whole Amount including a copy of "Page 500" on the Telerate Service or the Statistical Release used in connection with such computation, and (g) the accrued interest applicable to the prepayment. Such notice of prepayment shall also certify all facts, if any, which are conditions precedent to any such prepayment. Notice of prepayment having been so given, the aggregate principal amount of the Notes specified in such notice, together with accrued interest thereon and the premium, if any, payable with respect thereto shall become due and payable on the prepayment date specified in said notice. Not later than two Business Days prior to the prepayment date specified in such notice, the Company shall provide each holder of a Note written notice of the premium, if any, payable in connection with such prepayment and, whether or not any premium is payable, a reasonably detailed computation of the Make- Whole Amount including a copy of "Page 500" on the Telerate Service or the Statistical Release used in connection with such computation. Section2.5.Application of Prepayments. Except in the case of prepayment of the Notes pursuant to 2.3, all partial prepayments shall be applied on all outstanding Notes ratably in accordance with the unpaid principal amounts thereof. Section2.6.Direct Payment. Notwithstanding anything to the contrary contained in this Agreement or the Notes, in the case of any Note owned by you or your nominee or owned by any subsequent Institutional Holder which has given written notice to the Company requesting that the provisions of this 2.6 shall apply, the Company will pay punctually when due the principal thereof, interest thereon and premium, if any, due with respect to said principal, without any presentment thereof, directly to you, to your nominee or to such subsequent Institutional Holder at your address or your nominee's address set forth in Schedule I hereto or such other address as you, your nominee or such subsequent Institutional Holder may from time to time designate in writing to the Company or, if a bank account with a United States bank is designated for you or your nominee on Schedule I hereto or in any written notice to the Company from you, from your nominee or from any such subsequent Institutional Holder, the Company will make such payments in immediately available Federal funds to such bank account, marked for attention as indicated, or in such other manner or to such other account in any United States bank as you, your nominee or any such subsequent Institutional Holder may from time to time direct in writing. Section3.Representations. Section3.1.Representations of the Company. The Company represents and warrants that all representations and warranties set forth in Exhibit B are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section3.2.Representations of the Purchaser. (a) You represent, and in entering into this Agreement the Company understands, that you are acquiring the Notes for the purpose of investment and not with a view to the distribution thereof, and that you have no present intention of selling, negotiating or otherwise disposing of the Notes; it being understood, however, that the disposition of your property shall at all times be and remain within your control. (b) You further represent that: (1) no part of the funds to be used by you to purchase the Notes constitutes assets allocated to any separate account maintained by you; or (2) no part of the funds to be used by you to purchase the Notes constitutes assets allocated to any separate account maintained by you such that the application of such funds constitutes a prohibited transaction under Section 406 of ERISA; or (3) all or a part of such funds constitute assets of one or more separate accounts, trusts or a commingled pension trust maintained by you, and you have disclosed to the Company the names of such employee benefit plans whose assets in such separate account or accounts or pension trusts exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account or accounts or trusts as of the date of such purchase and the Company has advised you in writing (and in making the representations set forth in this clause (3) you are relying on such advice) that the Company is not a party- in-interest nor are the Notes employer securities with respect to the particular employee benefit plan disclosed to the Company by you as aforesaid (for the purpose of this clause (3), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan). As used in this 3.2(b), the terms "separate account," "party-in-interest," "employer securities," and "employee benefit plan" shall have the respective meanings assigned to them in ERISA. Section4.Closing Conditions. Section4.1.Conditions. Your obligation to purchase the Notes on the Closing Date set forth opposite your name on Schedule I hereto shall be subject to the performance by the Company of its agreements hereunder which by the terms hereof are to be performed at or prior to the time of delivery of the Notes and to the following further conditions precedent: (a) Closing Certificate. You shall have received a certificate dated the Closing Date, signed by Robert D. Bolinder as Executive Vice President, Corporate Planning and Development or Matthew G. Tezak as Senior Vice President and Chief Financial Officer of the Company, the truth and accuracy of which shall be a condition to your obligation to purchase the Notes proposed to be sold to you and to the effect that (1) the representations and warranties of the Company set forth in Exhibit B hereto are true and correct on and with respect to the Closing Date, (2) the Company has performed all of its obligations hereunder which are to be performed on or prior to the Closing Date, and (3) no Default or Event of Default has occurred and is continuing. (b) Legal Opinions. You shall have received from Chapman and Cutler, your special counsel in this transaction, from Ray, Quinney & Nebeker, independent counsel for the Company and from Michael C. Frei, Esq., General Counsel to the Company, their respective opinions dated the Closing Date, in form and substance satisfactory to you, and covering the matters set forth in Exhibits C, D and E, respectively, hereto. (c) Company's Existence and Authority. On or prior to the Closing Date, you shall have received, in form and substance satisfactory to you and your special counsel, such documents and evidence with respect to the Company as you may reasonably request in order to establish the existence and good standing of the Company and the authorization of the transactions contemplated by this Agreement; provided that any certificates of public officials delivered pursuant to this 4.1(c) shall be dated no more than two weeks prior to the Closing Date. (d) Related Transactions. The Company shall have consummated the sale of the entire principal amount of the Notes scheduled to be sold on the Closing Date pursuant to the Agreements. (e) Private Placement Number. On or prior to the Closing Date, special counsel to the Purchasers of the Notes shall have received from Standard & Poor's CUSIP Service Bureau, as agent for the National Association of Insurance Commissioners, private placement numbers for each series of the Notes. (f) Funding Instructions. At least three Business Days prior to the Closing Date, you shall have received written instructions executed by a Responsible Officer of the Company known to you directing the manner of the payment of funds and setting forth (1) the name and address of the transferee bank, (2) such transferee bank's ABA number, (3) the account name and number into which the purchase price for the Notes is to be deposited, and (4) the name and telephone number of the account representative responsible for verifying receipt of such funds. (g) Legality of Investment. The Notes to be purchased by you shall be a legal investment for you under the laws of each jurisdiction to which you may be subject (without resort to any so- called "basket provisions" to such laws). (h) Satisfactory Proceedings. All proceedings taken in connection with the transactions contemplated by this Agreement, and all documents necessary to the consummation thereof, shall be reasonably satisfactory in form and substance to you and your special counsel, and you shall have received a copy (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the consummation of said transactions. Section4.2.Waiver of Conditions. If on the Closing Date the Company fails to tender to you the Notes to be issued to you on such date or if the conditions specified in 4.1 have not been fulfilled, you may thereupon elect to be relieved of all further obligations under this Agreement. Without limiting the foregoing, if the conditions specified in 4.1 have not been fulfilled, you may waive compliance by the Company with any such condition to such extent as you may in your sole discretion determine. Nothing in this 4.2 shall operate to relieve the Company of any of its obligations hereunder or to waive any of your rights against the Company. Section5.Company Covenants. From and after the Closing Date and continuing so long as any amount remains unpaid on any Note: Section5.1.Corporate Existence, Etc. The Company will preserve and keep in full force and effect, and will cause each Significant Restricted Subsidiary to preserve and keep in full force and effect, its corporate existence and all licenses and permits necessary to the proper conduct of its business, provided that the foregoing shall not prevent any transaction permitted by 5.9. Section5.2.Insurance. The Company will maintain, and will cause each Significant Restricted Subsidiary to maintain, insurance coverage by financially sound and reputable insurers and in such forms and amounts and against such risks as are maintained by prudent corporations of established reputation engaged in the same or a similar business, owning and operating similar properties and, in the case of the Company, having a consolidated net worth determined in accordance with GAAP similar to the Consolidated Net Worth of the Company at the time in question. Section5.3.Taxes, Claims for Labor and Materials; Compliance with Laws. (a) The Company will promptly pay and discharge, and will cause each Restricted Subsidiary promptly to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon the Company or such Restricted Subsidiary, respectively, or upon or in respect of all or any part of the property or business of the Company or such Restricted Subsidiary, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which are due and which if unpaid might become a Lien upon any property of the Company or such Restricted Subsidiary; provided the Company or such Restricted Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (1) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent (i) the forfeiture or sale of any property of the Company or such Restricted Subsidiary the forfeiture or sale of which could materially affect adversely the properties, business, prospects, ongoing profitability or condition (financial or otherwise) of the Company and its Restricted Subsidiaries or (ii) any material interference with the use thereof by the Company or such Restricted Subsidiary, and (2) the Company or such Restricted Subsidiary shall set aside on its books, adequate reserves with respect thereto. (b) The Company shall promptly comply and shall cause each Restricted Subsidiary to comply with all laws, ordinances or governmental rules and regulations to which it is subject including, without limitation, the Occupational Safety and Health Act of 1970, as amended and ERISA, the violation of which could materially affect adversely the properties, business, prospects, ongoing profitability or condition (financial or otherwise) of the Company and its Restricted Subsidiaries. (c) The Company shall promptly comply and shall cause each Restricted Subsidiary to comply in all material respects with all applicable Environmental Laws, now in existence or applicable in the future, if, individually or in the aggregate, failure to comply therewith would materially affect adversely the properties, business, prospects, ongoing profitability or condition (financial or otherwise) of the Company and its Restricted Subsidiaries. (d) The Company will not, and will not permit any of its Restricted Subsidiaries to, cause or allow any Hazardous Substance to be present at any time on, in, under or above any real property or any part thereof in which the Company or any Restricted Subsidiary has a direct interest (including, without limitation, ownership thereof or any arrangement for the lease, rental or other use thereof, or the retention of any mortgage or security interest therein or thereon), except in a manner and to the extent that it is in compliance in all material respects with all applicable Environmental Laws and in a manner that will not materially affect adversely the properties, business, prospects, ongoing profitability or condition (financial or otherwise) of the Company and its Restricted Subsidiaries. Section5.4.Maintenance, Etc. The Company will maintain, preserve and keep, and will cause each Restricted Subsidiary to maintain, preserve and keep, its properties which are used or useful in the conduct of its business (whether owned in fee or a leasehold interest) in good repair and working order and from time to time will make all necessary repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be maintained. Section5.5.Nature of Business. Neither the Company nor any Restricted Subsidiary will engage in any business if, as a result, the nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Restricted Subsidiaries would be substantially different than distributing, either at retail or wholesale, food and drug store products, and operating businesses involving the manufacture, distribution or sale of consumer products and services. Section5.6.Consolidated Tangible Net Worth. The Company will at all times keep and maintain Consolidated Tangible Net Worth at an amount not less than the sum of (a) $350,000,000 plus (b) 20% of Consolidated Net Income computed on a cumulative basis for each of the elapsed fiscal years ending after December 28, 1991; provided that notwithstanding that Consolidated Net Income for any such elapsed fiscal year may be a deficit figure, no reduction as a result thereof shall be made in the sum to be maintained pursuant hereto. Section5.7.Limitations on Indebtedness. (a) The Company will not create, assume, guarantee or otherwise incur or in any manner be or become liable in respect of any Funded Debt and will not permit any Restricted Subsidiary to, create, assume, guarantee or otherwise incur or in any manner be or become liable in respect of any Indebtedness, except: (1) Funded Debt evidenced by the Notes; (2) Funded Debt of the Company and Indebtedness of Restricted Subsidiaries outstanding as of the Closing Date and described on Schedule II hereto; (3) additional Funded Debt of the Company and Indebtedness of its Restricted Subsidiaries provided that at the time of creation, issuance, assumption, guarantee or incurrence thereof and after giving effect thereto and to the application of the proceeds thereof: (i) the ratio of Net Income Available for Fixed Charges for the immediately preceding four consecutive fiscal quarter period to Pro Forma Fixed Charges for such four consecutive fiscal quarter period (assuming such additional Funded Debt to be so created, issued, assumed, guaranteed or incurred is to be outstanding for the entirety of such four fiscal quarters) shall be not less than 1.45 to 1.00; (ii) in the case of the issuance of any Funded Debt of the Company secured by Liens solely permitted by 5.8(j) or the issuance of Indebtedness of a Restricted Subsidiary (other than Indebtedness of a Restricted Subsidiary secured by Liens permitted by 5.8(g)), the sum of (A) all Funded Debt of the Company secured by Liens solely permitted by 5.8(j) and (B) the aggregate amount of all Indebtedness of Restricted Subsidiaries incurred in accordance with the provisions of this clause (ii) would not exceed 10% of Consolidated Tangible Capitalization; and (iii) no Default or Event of Default would exist; (4) Subordinated Funded Debt of the Company to a Wholly-owned Restricted Subsidiary; and (5) Funded Debt of a Restricted Subsidiary to the Company or to another Restricted Subsidiary. (b) Funded Debt issued or incurred in accordance with the limitations of 5.7(a)(2) may be renewed, extended or refunded (without any increase in principal amount remaining unpaid at the time of such renewal, extension or refunding), provided that at the time of such renewal, extension or refunding and after giving effect thereto (1) no Default or Event of Default would exist and (2) and the Company would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt. (c) The Company may acquire any corporation with existing Indebtedness and designate such corporation as a Restricted Subsidiary, provided that at the time of acquisition of such corporation and immediately after giving effect thereto (1) no Default or Event of Default would exist and (2) the Company would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt. Section5.8.Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien on its or their property or assets, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Restricted Subsidiary to acquire, any property or assets upon conditional sales agreements or other title retention devices, except: (a) Liens for property taxes and assessments or governmental charges or levies and Liens securing claims or demands of mechanics and materialmen, provided that payment thereof is not at the time required by 5.3; (b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or a Restricted Subsidiary shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured and for which the Company or such Restricted Subsidiary shall have set aside on its books, adequate reserves with respect thereto; (c) Liens incidental to the conduct of business or the ownership of properties and assets (including Liens in connection with worker's compensation, unemployment insurance and other like laws, warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money, provided in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings; (d) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Company and its Restricted Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Company and its Restricted Subsidiaries; (e) leases on real property owned by the Company or any Restricted Subsidiary wherein the Company or such Restricted Subsidiary is the lessor; provided that (1) the rentals payable under any such lease are for fair rental value and (2) any such lease is entered into in (i) an "arm's length" transaction and (ii) the ordinary course of the Company's or such Restricted Subsidiary's business; (f) Liens existing as of the Closing Date and described on Schedule II hereto; (g) Liens created or incurred after the Closing Date given to secure the payment of the purchase price incurred in connection with the acquisition, construction or improvement of fixed assets useful and intended to be used in carrying on the business of the Company or a Restricted Subsidiary, including Liens existing on such fixed assets at the time of acquisition thereof or at the time of acquisition by the Company or a Restricted Subsidiary of any business entity then owning such fixed assets, whether or not such existing Liens were given to secure the payment of the purchase price of the fixed assets to which they attach, so long as such existing Liens were not incurred, extended or renewed in contemplation of such acquisition, provided that (1) the Lien shall attach solely to the fixed assets acquired, purchased, constructed or improved, (2) such Lien shall have been created or incurred within 270 days of the date of acquisition or purchase or the date of completion of construction or improvements, as the case may be, (3) at the time of acquisition, construction or improvement of such fixed assets, the aggregate amount remaining unpaid on all Indebtedness secured by Liens on such fixed assets, whether or not assumed by the Company or a Restricted Subsidiary, shall not exceed an amount equal to the lesser of the total purchase price or fair market value at the time of acquisition of such fixed assets (as determined in good faith by the Board of Directors of the Company), and (4) all such Indebtedness shall have been incurred within the limitations provided in 5.7(a)(3)(i) and (iii); (h) Liens created or incurred after the Closing Date on the fixed assets or capital stock of any corporation at the time such corporation becomes a Restricted Subsidiary given to secure the payment of the purchase price incurred in connection with the acquisition of such corporation by the Company or a Restricted Subsidiary; provided that (1) the Lien shall attach solely to the fixed assets or capital stock acquired or purchased, (2) such Lien shall have been created or incurred substantially concurrently with such acquisition or purchase, (3) at the time of such acquisition or purchase of such corporation the aggregate amount of Indebtedness secured by such Liens (whether or not assumed by the Company or any Restricted Subsidiary) shall not exceed an amount equal to the lesser of the purchase price or fair market value of such fixed assets or capital stock at the time of such acquisition or purchase thereof (as determined in good faith by the Board of Directors of the Company), and (4) all Indebtedness secured by such Liens shall have been incurred within the limitations provided in 5.7(a)(3)(i) and (iii); (i) Liens existing on the fixed assets of any Subsidiary on the date the Company designates such Subsidiary as a Restricted Subsidiary; provided that all Indebtedness secured by such Liens shall have been incurred within the applicable limitations provided in 5.7(c); (j) Liens created or incurred after the Closing Date given to secure Funded Debt of the Company or Indebtedness of any Restricted Subsidiary in addition to the Liens permitted by the preceding clauses (a) through (i) hereof; provided that all of such Indebtedness shall have been incurred within the limitations provided in 5.7(a)(3)(i), (ii) and (iii); and (k) any extension, renewal or replacement of any Lien permitted by the preceding clauses (f) through (j), inclusive, hereof in respect of the same property theretofore subject to such Lien in connection with the extension, renewal or refunding of the Indebtedness secured thereby; provided that (1) such Lien shall attach solely to the same such property, (2) the principal amount of Indebtedness secured by such Lien shall not have been increased, (3) no Default or Event of Default would exist and (4) after giving effect to any such extension, renewal or replacement, the Company would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt. Section5.9.Mergers, Consolidations and Sales of Assets. (a) The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or be a party to a merger with any other Person, or sell, lease or otherwise dispose of all or substantially all of its assets; provided that: (1) any Restricted Subsidiary may merge or consolidate with or into the Company or any other Restricted Subsidiary so long as in any merger or consolidation involving the Company, the Company shall be the surviving or continuing corporation; (2) any Restricted Subsidiary may merge or consolidate with any other corporation so long as such Restricted Subsidiary shall be the surviving or continuing corporation and at the time of such merger or consolidation and immediately after giving effect thereto, (i) no Default or Event of Default would exist and (ii) the Company would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt; (3) any Restricted Subsidiary may merge or consolidate into any other corporation; provided that at the time of such merger or consolidation and after giving effect thereto, (i) no Default or Event of Default would exist, (ii) the Company would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt and (iii) the disposition of such Restricted Subsidiary's assets or capital stock would be permitted by the provisions of 5.9(b) or (c); (4) the Company may merge or consolidate with any other corporation if (i) the corporation which results from such merger or consolidation (the "surviving corporation") is organized under the laws of any State of the United States or the District of Columbia, (ii) the due and punctual payment of the principal of, premium, if any, and interest on all of the Notes, according to their tenor, and the due and punctual performance and observation of all of the covenants in the Notes and this Agreement to be performed or observed by the Company are expressly assumed in writing by the surviving corporation and the surviving corporation shall furnish the holders of the Notes an opinion of counsel satisfactory to such holders to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of the surviving corporation enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, and (iii) at the time of such consolidation or merger and immediately after giving effect thereto, (A) no Default or Event of Default would exist and (B) the surviving corporation would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt; (5) the Company may sell or otherwise dispose of all or substantially all of its assets (other than stock and Indebtedness of a Subsidiary, which may only be sold or otherwise disposed of pursuant to 5.9(c)) to any Person for consideration which represents the fair market value (as determined in good faith by the Board of Directors of the Company, a copy of such determination, certified by the Secretary or an Assistant Secretary of the Company, having been furnished to the holders of the Notes) at the time of such sale or other disposition if (i) the acquiring Person is a corporation organized under the laws of any State of the United States or District of Columbia, (ii) the due and punctual payment of the principal of, premium, if any, and interest on all the Notes, according to their tenor, and the due and punctual performance and observance of all of the covenants in the Notes and in this Agreement to be performed or observed by the Company are expressly assumed in writing by the acquiring corporation and the acquiring corporation shall furnish the holders of the Notes an opinion of counsel satisfactory to such holders to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of such acquiring corporation enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, and (iii) at the time of such sale or disposition and immediately after giving effect thereto, (A) no Default or Event of Default would exist and (B) the acquiring corporation would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt. (b) The Company will not, and will not permit any Restricted Subsidiary to, sell, lease, transfer, abandon or otherwise dispose of, assets (except assets sold in the ordinary course of business for fair market value and except as provided in 5.9(a)(5)); provided that the foregoing restrictions do not apply to: (1) the sale, lease, transfer or other disposition of assets of a Restricted Subsidiary to the Company or another Restricted Subsidiary; or (2) the sale, lease, transfer or other disposition of any asset of the Company or a Restricted Subsidiary the book value of which at the time of such sale, lease, transfer or other disposition shall be less than $5,000,000; provided that in the opinion of the Company's Chief Executive Officer (i) the sale is for fair value and is in the best interests of the Company and (ii) such sale, lease, transfer or other disposition is not part of a plan by the Company to divest itself of assets (in which event such sale, lease, transfer or other disposition shall be made within the limitations of 5.9(b)(4) or 5.9(c)(3)); or (3) the sale or transfer of assets of the Company or a Restricted Subsidiary whenever it is determined in the good faith judgment of the Company's Chief Executive Officer that such assets are obsolete, worn out or without economic value to the Company or any of its Restricted Subsidiaries; or (4) the sale of assets for cash or other property to a Person or Persons other than an Affiliate if all of the following conditions are met: (i) such assets (valued at net book value) do not, together with all other assets of the Company and its Restricted Subsidiaries previously disposed of during the same fiscal year (other than in the ordinary course of business), exceed 10% of Consolidated Total Assets determined as of the end of the immediately preceding fiscal quarter; (ii) in the opinion of the Company's Chief Executive Officer, the sale is for fair value and is in the best interests of the Company; and (iii) immediately after the consummation of the transaction and after giving effect thereto, (A) no Default or Event of Default would exist, and (B) the Company would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt; provided, however, that notwithstanding 5.9(b)(4)(i), the Company may sell or otherwise dispose of assets (valued at net book value) which, together with all other assets of the Company and its Restricted Subsidiaries similarly valued and previously disposed of during the same fiscal year, would exceed 10% of Consolidated Total Assets if (A) the Company has otherwise satisfied the requirements of 5.9(b)(4)(ii) and (iii), (B) immediately after giving effect to such sale or other disposition, the ratio of Consolidated Free Fixed Assets to unsecured Consolidated Senior Funded Debt would not be less than 1.25 to 1.00, and (C) the Company shall apply an amount equal to that portion of the proceeds from all such sales or other dispositions in excess of 10% of Consolidated Total Assets (determined as of the end of the immediately preceding fiscal quarter) within twelve months of the date of such sale or other disposition (x) to the acquisition of fixed assets useful and intended to be used in the operations of the Company and its Restricted Subsidiaries as contemplated by 5.5 (as determined in good faith by the Chief Executive Officer of the Company) and having a fair market value (as determined in good faith by the Chief Executive Officer of the Company) at least equal to that of the assets so sold or otherwise disposed of or (y) with respect to the sale of assets secured by Liens permitted by 5.8 hereof, first, to the prepayment (including any applicable prepayment premium) of Senior Funded Debt of the Company secured by such Liens and second, to the prepayment (including any applicable prepayment premium) of unsecured Senior Funded Debt of the Company or (z) with respect to the sale of assets not secured by Liens permitted by 5.8, to the prepayment (including any applicable prepayment premium) of unsecured Senior Funded Debt of the Company, it being understood and agreed by the Company that any such proceeds paid and applied to the prepayment of the Notes shall be prepaid as and to the extent provided in 2.2. Computations pursuant to this 5.9(b) shall include dispositions made pursuant to 5.9(c) and computations pursuant to 5.9(c) shall include dispositions made pursuant to this 5.9(b). (c) The Company will not, and will not permit any Restricted Subsidiary to, sell, pledge or otherwise dispose of any shares of the stock (including as "stock" for the purposes of this Section any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of a Restricted Subsidiary (said stock, options, warrants and other Securities herein called "Subsidiary Stock") or any Indebtedness of any Restricted Subsidiary, nor will any Restricted Subsidiary issue, sell, pledge or otherwise dispose of any shares of its own Subsidiary Stock, provided that the foregoing restrictions do not apply to: (1) the issue of directors' qualifying shares; or (2) the issue of Subsidiary Stock to the Company or to a Wholly- owned Restricted Subsidiary; and (3) the sale or other disposition at one time to a Person (other than directly or indirectly to an Affiliate) of the entire Investment of the Company and its other Restricted Subsidiaries in any Restricted Subsidiary if all of the following conditions are met; provided, however, clause (ii) hereof shall only apply to the sale of Significant Restricted Subsidiaries: (i) such assets (valued at net book value) of the Restricted Subsidiary do not, together with all other assets of the Company and its Restricted Subsidiaries previously disposed of during the same fiscal year (other than in the ordinary course of business), exceed 10% of Consolidated Total Assets determined as of the immediately preceding fiscal quarter; (ii) in the opinion of the Company's Board of Directors, the sale is for fair value and is in the best interests of the Company; (iii) immediately after the consummation of the transaction and after giving effect thereto, such Restricted Subsidiary shall have no Indebtedness of or continuing Investment in the capital stock of the Company or of any Restricted Subsidiary and any such Indebtedness or Investment shall have been discharged or acquired, as the case may be, by the Company or a Restricted Subsidiary; and (iv) immediately after the consummation of the transaction and after giving effect thereto, (A) no Default or Event of Default would exist, and (B) the Company would be permitted by the provisions of 5.7(a)(3)(i) to incur at least $1.00 of additional Funded Debt; provided, however, that notwithstanding 5.9(c)(3)(i), the Company may sell or otherwise dispose of assets (valued at net book value) which, together with all other assets of the Company and its Restricted Subsidiaries similarly valued and previously disposed of during the same fiscal year, would exceed 10% of Consolidated Total Assets if (A) the Company has otherwise satisfied the requirements of 5.9(c)(3)(ii), (iii) and (iv), (B) immediately after giving effect to such sale or other disposition, the ratio of Consolidated Free Fixed Assets to unsecured Consolidated Senior Funded Debt would not be less than 1.25 to 1.00, and (C) the Company shall apply an amount equal to that portion of the proceeds from all such sales or other dispositions in excess of 10% of Consolidated Total Assets (determined as of the end of the immediately preceding fiscal quarter) within twelve months of the date of such sale or other disposition (x) to the acquisition of fixed assets useful and intended to be used in the operations of the Company and its Restricted Subsidiaries as contemplated by 5.5 (as determined in good faith by the Chief Executive Officer of the Company) and having a fair market value (as determined in good faith by the Chief Executive Officer of the Company) at least equal to that of the assets so sold or otherwise disposed of or (y) with respect to the sale of assets secured by Liens permitted by 5.8 hereof, first, to the prepayment (including any applicable prepayment premium) of Senior Funded Debt of the Company secured by such Liens and second, to the prepayment (including any applicable prepayment premium) of unsecured Senior Funded Debt of the Company or (z) with respect to the sale of assets not secured by Liens permitted by 5.8 hereof, to the prepayment (including any applicable prepayment premium) of unsecured Senior Funded Debt of the Company, it being understood and agreed by the Company that any such proceeds paid and applied to the prepayment of the Notes shall be prepaid as and to the extent provided in 2.2. Computations pursuant to this 5.9(c) shall include dispositions made pursuant to 5.9(b) and computations pursuant to 5.9(b) shall include dispositions made pursuant to this 5.9(c). Section5.10.Redesignation of Subsidiaries. (a) The Company may designate any Restricted Subsidiary as an Unrestricted Subsidiary if, immediately after giving effect thereto, (1) no Default or Event of Default would exist, (2) the Company would be permitted by the provisions of 5.7(a)(3) to incur at least $1.00 of additional Funded Debt and (3) such Restricted Subsidiary would not have a continuing Investment in the capital stock or other Securities of the Company or any other Restricted Subsidiary; provided, however, that once a Subsidiary has its designation as a Restricted Subsidiary withdrawn, such Subsidiary may no longer be designated as a Restricted Subsidiary as set forth in paragraph (b) below. (b) The Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving affect thereto, (1) such Subsidiary is in compliance with all covenants of this Agreement applicable to Restricted Subsidiaries, (2) no Default or Event of Default would exist, and (3) the Company would be permitted by the provisions of 5.7(a)(3) to incur at least $1.00 of additional Funded Debt provided, however, that once a Subsidiary has had its designation as an Unrestricted Subsidiary withdrawn, such Subsidiary may no longer be designated as an Unrestricted Subsidiary as set forth in paragraph (a) above. Each change in the designation of a Subsidiary shall be made by resolution of the Board of Directors of the Company and the Company shall within 30 days after such action give written notice thereof to the holders of the Notes. Section5.11.Repurchase of Notes. Neither the Company nor any Restricted Subsidiary or Affiliate, directly or indirectly, may repurchase or make any offer to repurchase any Notes unless an offer has been made to repurchase Notes, pro rata, from all holders of the Notes at the same time and upon the same terms. In case the Company repurchases or otherwise acquires any Notes, such Notes shall immediately thereafter be cancelled and no Notes shall be issued in substitution therefor. Without limiting the foregoing, upon the purchase or other acquisition of any Notes by the Company, any Restricted Subsidiary or any Affiliate, such Notes shall no longer be outstanding for purposes of any section of this Agreement relating to the taking by the holders of the Notes of any actions with respect hereto, including, without limitation, 6.3, 6.4 and 7.1. Section5.12.Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtained in a comparable arm's-length transaction with a Person other than an Affiliate. Section5.13.Termination of Pension Plans. The Company will not and will not permit any Subsidiary to withdraw from any Multiemployer Plan or permit any employee benefit plan maintained by it to be terminated if such withdrawal or termination could result in withdrawal liability (as described in Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a Lien on any property of the Company or any Subsidiary pursuant to Section 4068 of ERISA. Section5.14.Reports and Rights of Inspection. (a) The Company will keep, and will cause each Restricted Subsidiary to keep, proper books of record and account in which full and correct entries will be made of all dealings or transactions of, or in relation to, the business and affairs of the Company or such Restricted Subsidiary, in accordance with GAAP consistently applied (except for changes disclosed in the financial statements furnished to you pursuant to this 5.14(a) and concurred in by the independent public accountants referred to in 5.14(a)(2) hereof), and will furnish to you so long as you are the holder of any Note and to each other Institutional Holder of the then outstanding Notes (in duplicate if so specified below or otherwise requested), and in the case of the financial statements delivered pursuant to paragraph 5.14(a)(2), to the Securities Valuation Office, National Association of Insurance Commissioners, 195 Broadway, Suite 1903, New York, New York 10007: (1) Quarterly Statements. As soon as available and in any event within 60 days after the end of each quarterly fiscal period (except the last) of each fiscal year, copies of: (i) consolidated balance sheets of the Company and its Restricted Subsidiaries as of the close of such quarterly fiscal period, setting forth in comparative form the consolidated figures for the fiscal year then most recently ended, (ii) consolidated statements of income of the Company and its Restricted Subsidiaries for such quarterly fiscal period and for the portion of the fiscal year ending with such quarterly fiscal period, in each case setting forth in comparative form the consolidated figures for the corresponding periods of the preceding fiscal year, and (iii) consolidated statements of cash flows of the Company and its Restricted Subsidiaries for the portion of the fiscal year ending with such quarterly fiscal period, setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified as complete and correct by an authorized financial officer of the Company; (2) Annual Statements. As soon as available and in any event within 120 days after the close of each fiscal year of the Company, copies of: (i) consolidated balance sheets of the Company and its Restricted Subsidiaries as of the close of such fiscal year, and (ii) consolidated statements of income and retained earnings and cash flows of the Company and its Restricted Subsidiaries for such fiscal year, in each case setting forth in comparative form the consolidated figures for the preceding fiscal year, all in reasonable detail and accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Company and otherwise without qualification except as therein noted, of a firm of independent public accountants of recognized national standing selected by the Company to the effect that the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its Restricted Subsidiaries as of the end of the fiscal year being reported on and the consolidated results of the operations and cash flows for said year in conformity with GAAP and that the examination of such accountants in connection with such financial statements has been conducted in accordance with generally accepted auditing standards and included such tests of the accounting records and such other auditing procedures as said accountants deemed necessary in the circumstances; (3) Audit Reports. Promptly upon receipt thereof, one copy of each interim or special audit made by independent accountants of the books of the Company or any Restricted Subsidiary and any management letter received from such accountants with respect to such interim or special audits; (4) SEC and Other Reports. Promptly upon their becoming available and in any event no later than the date on which such information is distributed to the Company's stockholders, one copy of each financial statement, report, notice or proxy statement sent by the Company to stockholders generally and of each regular or periodic report, and any final registration statement or prospectus filed by the Company or any Subsidiary with any Securities exchange or the Securities and Exchange Commission or any successor agency; (5) ERISA Reports. Promptly upon the occurrence thereof, written notice of (i) a Reportable Event with respect to any Plan; (ii) the institution of any steps by the Company, any ERISA Affiliate, the PBGC or any other Person to terminate any Plan; (iii) the institution of any steps by the Company or any ERISA Affiliate to withdraw from any Plan; (iv) a non-exempt "prohibited transaction" within the meaning of Section 406 of ERISA in connection with any Plan; (v) any material increase in the contingent liability of the Company or any Restricted Subsidiary with respect to any post- retirement welfare liability; or (vi) the taking of any action by, or the threatening of the taking of any action by, the Internal Revenue Service, the Department of Labor or the PBGC with respect to any of the foregoing; (6) Officer's Certificates. Within the periods provided in paragraphs (1) and (2) above, a certificate of an authorized financial officer of the Company stating that such officer has reviewed the provisions of this Agreement and setting forth: (i) the information and computations (in sufficient detail) required in order to establish whether the Company was in compliance with the requirements of 5.6 through 5.9 at the end of the period covered by the financial statements then being furnished, and (ii) whether there existed as of the date of such financial statements and whether, to the best of such officer's knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Company is taking and proposes to take with respect thereto; (7) Accountant's Certificates. Within the period provided in paragraph (2) above, a certificate of the accountants who render an opinion with respect to such financial statements, stating that they have reviewed this Agreement in connection with making their audit and not solely for the purposes of compliance with this 5.14(a)(7), and stating further whether, in making such audit, anything came to their attention that caused them to believe that the Company had failed in compliance or continues to be in noncompliance with the terms, covenants, provisions and conditions of this Agreement insofar as the same relate, pertain to or involve accounting matters or determinations and if such condition or event then exists, specifying the nature and period of existence thereof; (8) Rule 144A. Except at such times as the Company is a reporting company under Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended, or has complied with the requirements for the exemption from registration under the Securities and Exchange Act of 1934, as amended, set forth in Rule 12g3-2(b) under such Act, such financial or other information as any holder of the Notes or any Person designated by such holder may reasonably determine is required to permit such holder to comply with the requirements of Rule 144A promulgated under the Act in connection with the resale by it of the Notes, in any such case promptly after the same is requested; and (9) Requested Information. With reasonable promptness, such other data and information as you or any such Institutional Holder may reasonably request. (b) Without limiting the foregoing, the Company will permit you, so long as you are the holder of any Note, and each Institutional Holder of the then outstanding Notes (or such Persons as either you or such Institutional Holder may designate), to visit and inspect, under the Company's guidance, any of the properties of the Company or any Restricted Subsidiary, to examine all of their books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss their respective affairs, finances and accounts with their respective officers, employees, and, after prior written notice thereof to the Company, independent public accountants (and by this provision the Company authorizes said accountants to discuss with you the finances and affairs of the Company and its Restricted Subsidiaries) all at such reasonable times and as often as may be reasonably requested. Subject to the provisions of 6.3 and 9.4 hereof, any visitation shall be at your sole expense or the sole expense of any such Institutional Holder. Section6.Events of Default and Remedies Therefor. Section6.1.Events of Default. Any one or more of the following shall constitute an "Event of Default" as such term is used herein: (a) Default shall occur in the payment of interest on any Note when the same shall have become due and such default shall continue for more than five Business Days; or (b) Default shall occur in the making of any required prepayment on any of the Notes as provided in 2.1; or (c) Default shall occur in the making of any other payment of the principal of any Note or premium, if any, thereon at the expressed or any accelerated maturity date or at any date fixed for prepayment; or (d) Default shall occur in the observance or performance of any covenant or agreement contained in 5.5 through 5.13 or 5.14(b); or (e) Default shall occur in the observance or performance of any other provision of this Agreement which is not remedied within 30 days after the earlier of (1) the day on which a Responsible Officer of the Company first obtains knowledge of such Default, or (2) the day on which written notice thereof is given to the Company by the holder of any Note; provided that in the case of any Default pursuant to this 6.1(e) which cannot with due diligence be cured within such 30-day period, if the Company shall proceed promptly to cure the same and thereafter prosecute the curing of such Default with due diligence, the time within which to cure such Default shall be extended for such period as may be necessary but in no event more than 60 additional days; or (f) Default shall be made in the payment when due (whether by lapse of time, by declaration, by call for redemption or otherwise) of the principal of or interest on any Indebtedness for borrowed money (other than the Notes) under any indenture, agreement or other instrument under which any Indebtedness for borrowed money of the Company or any Restricted Subsidiary aggregating $10,000,000 or more is outstanding and such default or event shall occur at the maturity of, or result in the acceleration of, any Indebtedness for borrowed money of the Company or any Restricted Subsidiary outstanding thereunder and such acceleration shall not have been rescinded or annulled; or (g) Default or the happening of any event shall occur under any indenture, agreement or other instrument under which any Indebtedness for borrowed money of the Company or any Restricted Subsidiary aggregating $10,000,000 or more is outstanding and such default or event shall occur at the maturity of, or result in the acceleration of, any Indebtedness for borrowed money of the Company or any Restricted Subsidiary outstanding thereunder and such acceleration shall not have been rescinded or annulled; or (h) Any representation or warranty made by the Company herein, or made by the Company in any statement or certificate furnished by the Company in connection with the consummation of the issuance and delivery of the Notes or furnished by the Company pursuant hereto, is untrue in any material respect as of the date of the issuance or making thereof; or (i) Final judgment or final judgments for the payment of money aggregating in excess of $10,000,000 (excluding for purposes of such determination the amount of any insurance proceeds received by, or paid on behalf of, the Company or any Restricted Subsidiary in respect of such judgment or judgments) is or are outstanding against the Company or any Restricted Subsidiary or against any property or assets of either and any one of such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of which is the lesser of (i) 60 days from the date of its entry or (ii) the amount of days (not less than 30 days) from the date of its entry which are required to elapse prior to a judgment creditor in such jurisdiction being permitted to execute upon such final judgment; or (j) A custodian, liquidator, trustee or receiver is appointed for the Company or any Restricted Subsidiary or for the major part of the property of either and is not discharged within 30 days after such appointment; or (k) The Company or any Significant Restricted Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or the Company or any Restricted Subsidiary applies for or consents to the appointment of a custodian, liquidator, trustee or receiver for the Company or such Restricted Subsidiary or for the major part of the property of either; or (l) Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against the Company or any Restricted Subsidiary and, if instituted against the Company or any Restricted Subsidiary, are consented to or are not dismissed within 30 days after such institution. Section6.2.Notice to Holders. When any Default or Event of Default described in the foregoing 6.1 has occurred, or if the holder of any Note or of any other evidence of Indebtedness for borrowed money of the Company gives any notice or takes any other action with respect to a claimed default, the Company agrees to give notice within three Business Days of such event to all holders of the Notes then outstanding. Section6.3.Acceleration of Maturities. When any Event of Default described in paragraph (a), (b) or (c) of 6.1 has happened and is continuing, any holder of any Note may, by written notice to the Company in the manner provided in 9.6, declare the entire principal and all interest accrued on the Notes held by such holder to be, and such Notes shall five Business Days from the date of such written notice become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived and when any Event of Default described in paragraphs (a) through (i), inclusive, of said 6.1 has happened, the holder or holders of 66-2/3% or more of the principal amount of Notes at the time outstanding may, by written notice to the Company in the manner provided in 9.6, declare the entire principal and all interest accrued on all Notes to be, and all Notes shall five Business Days from the date of such written notice become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. Notwithstanding the foregoing, if at any time the Company or any Restricted Subsidiary shall have outstanding unsecured indebtedness for borrowed money which matures more than 365 days from the date of origin thereof (other than letters of credit for the benefit of the Company or any Restricted Subsidiary) that may become due and payable fewer than five Business Days from the date of notice of acceleration thereof, then the number of Business Days after which the Notes shall become due and payable after written notice of acceleration thereof, pursuant to this 6.3, shall be reduced to such fewer amount of Business Days. When any Event of Default described in paragraph (j), (k) or (l) of 6.1 has occurred, then all outstanding Notes shall immediately become due and payable without presentment, demand or notice of any kind. Upon the Notes becoming due and payable as a result of any Event of Default as aforesaid, the Company will forthwith pay to the holders of the Notes the entire principal and interest accrued on the Notes and, to the extent not prohibited by applicable law, an amount as liquidated damages for the loss of the bargain evidenced hereby (and not as a penalty) equal to the Make-Whole Amount, determined as of the date on which the Notes shall so become due and payable; provided, however, no Make- Whole Amount shall be due and payable if, within four Business Days after the Notes have been declared due and payable pursuant to this 6.3, the Company shall have satisfied the requirements of 6.4(a) through (c), inclusive, and shall have given notice thereof in the manner set forth in 59.6 to each of the holders of the Notes then outstanding. Anything contained in the proviso in the preceding sentence notwithstanding and provided that this sentence shall relate exclusively to said proviso, if the Notes shall be paid pursuant to this 6.3 without premium on or after the fifth Business Day after the Notes have been so declared due and payable and such payment shall for any reason whatsoever subsequently be set aside upon the bankruptcy, insolvency, dissolution or reorganization of the Company, the Company agrees that there shall then and thereupon become due and owing the principal, interest and Make-Whole Amount, if any, on the Notes heretofore so paid. No course of dealing on the part of the holder or holders of any Notes nor any delay or failure on the part of any holder of Notes to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. The Company further agrees, to the extent permitted by law, to pay to the holder or holders of the Notes all costs and expenses incurred by them in the collection of any Notes or in connection with any amendments, waivers or consents, including, without limitation, any amendments, waivers or consents resulting from any work-out, renegotiation or restructuring upon any Default hereunder or thereon, including reasonable compensation to such holder's or holders' attorneys for all services rendered in connection therewith. Section6.4.Rescission of Acceleration. The provisions of 6.3 are subject to the condition that if the principal of and accrued interest on any outstanding Note has been declared immediately due and payable by reason of the occurrence of any Event of Default described in paragraphs (a) through (c), inclusive, of 6.1, with respect to such Note, the holder of such Note may, and if the principal and accrued interest on all outstanding Notes have been declared immediately due and payable by reason of the occurrence of any Event of Default described in paragraphs (a) through (i), inclusive, of 6.1, the holders of 66-2/3% in aggregate principal amount of the Notes then outstanding may, by written instrument filed with the Company, rescind and annul such declaration and the consequences thereof, provided that at the time such declaration is annulled and rescinded: (a) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; (b) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal, interest or premium on the Notes which has become due and payable solely by reason of such declaration under 6.3) shall have been duly paid; and (c) each and every Default and Event of Default shall have been made good, cured or waived pursuant to 7.1; and provided further, that no such rescission and annulment shall (1) extend to or affect any subsequent Default or Event of Default or impair any right consequent thereto or (2) extend to or affect any declaration by any holder of any Note pursuant to the first sentence of 6.3 unless and to the extent such holder has rescinded and annulled such declaration. Section7.Amendments, Waivers and Consents. Section7.1.Consent Required. Any term, covenant, agreement or condition of this Agreement may, with the consent of the Company, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), if the Company shall have obtained the consent in writing of the holders of at least 66-2/3% in aggregate principal amount of outstanding Notes; provided that without the written consent of the holders of all of the Notes then outstanding, no such amendment or waiver shall be effective (a) which will change the time of payment (including any prepayment required by 2.1 or 2.3) of the principal of, premium, if any, or the interest on any Note or reduce the principal amount thereof or reduce the rate of interest thereon, or (b) which will change the method of calculating the Make-Whole Amount, or (c) which will change any of the provisions with respect to optional prepayments, or (d) which will change the percentage of holders of the Notes required to consent to any such amendment or waiver of any of the provisions of this 7 or 6 or 5.11. Section7.2.Solicitation of Holders. So long as there are any Notes outstanding, the Company will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement or the Notes unless each holder of Notes (irrespective of the amount of Notes then owned by it) shall be informed thereof by the Company and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto. The Company will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any holder of Notes as consideration for or as an inducement to entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions of this Agreement or the Notes unless such remuneration is concurrently offered, on the same terms, ratably to the holders of all Notes then outstanding. Promptly and in any event within 30 days of the date of execution and delivery of any such waiver or amendment, the Company shall provide a true, correct and complete copy thereof to each of the holders of the Notes. Section7.3.Effect of Amendment or Waiver; Scope of Consent. (a) Any such amendment or waiver shall apply equally to all of the holders of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Company, whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right consequent thereon. (b) Any consent to an amendment or waiver given pursuant to this 7.3 by a holder of a Note which has (1) transferred or agreed to transfer all or a portion of its Notes to the Company, any Subsidiary or any Affiliate of the Company and (2) provided such consent as a condition to such transfer, shall be valid and binding only upon such holder. Any amendment or waiver which becomes effective only with such consent (and the consents of all other holders of the Notes which were acquired under the same or similar conditions) shall be valid and binding only upon such holder or holders. Section8.Interpretation of Agreement; Definitions. Section8.1.Definitions. Unless the context otherwise requires, the terms hereinafter set forth when used herein shall have the following meanings and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: "Acquiring Person" shall have the meaning set forth in 2.3(c). "Affiliate" shall mean any Person (other than a Restricted Subsidiary) (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company, (b) which beneficially owns or holds 5% or more of any class of the Voting Stock of the Company or (c) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by the Company or a Subsidiary. The term "control" 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 Voting Stock, by contract or otherwise. "Agreements" shall have the meaning set forth in 1.3. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks in New York, New York or Salt Lake City, Utah are required by law to close. "Capitalized Lease" shall mean any lease the obligation for Rentals with respect to which is required to be capitalized on a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP. "Change of Control" shall have the meaning set forth in 2.3(c). "Change of Control Delayed Prepayment Date" shall have the meaning set forth in 2.3(b). "Change of Control Prepayment Date" shall have the meaning set forth in 2.3(a). "Closing Date" shall have the meaning set forth in 1.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations from time to time promulgated thereunder. "Company" shall mean Smith's Food & Drug Centers, Inc., a Delaware corporation, and any Person who succeeds to all, or substantially all, of the assets and business of Smith's Food & Drug Centers, Inc. pursuant to the provisions 5.9. "Company Notice" shall have the meaning set forth in 2.3(a). "Consolidated Free Fixed Assets" shall mean as of the date of any determination thereof (a) Consolidated Total Assets of the Company (valued at net book value) less (b) the sum of (1) the book value of all assets of the Company and its Restricted Subsidiaries properly classified as "current assets" or "intangible assets" in accordance with GAAP, (2) deferred assets and prepaid expenses and (3) the book value of all property and assets which are subject to Liens created, incurred, granted or assumed by the Company or any of its Restricted Subsidiaries other than (i) Liens upon assets described in the foregoing clause (b)(1) and (ii) Liens permitted by 5.8(a) through (e), inclusive. "Consolidated Funded Debt" shall mean all Funded Debt of the Company and its Restricted Subsidiaries, determined on a consolidated basis eliminating intercompany items. "Consolidated Net Income" for any period shall mean the gross revenues of the Company and its Restricted Subsidiaries for such period less all expenses and other proper charges (including taxes on income), determined on a consolidated basis after eliminating earnings or losses attributable to outstanding Minority Interests, but excluding in any event: (a) any gains or losses on the sale or other disposition of Investments or fixed or capital assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy; (c) net earnings and losses of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary; (d) net earnings and losses of any corporation (other than a Restricted Subsidiary), substantially all the assets of which have been acquired in any manner by the Company or any Restricted Subsidiary, realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation (other than a Restricted Subsidiary) with which the Company or a Restricted Subsidiary shall have consolidated or which shall have merged into or with the Company or a Restricted Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity (other than a Restricted Subsidiary) in which the Company or any Restricted Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Company or such Restricted Subsidiary in the form of cash distributions; (g) any portion of the net earnings of any Restricted Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Restricted Subsidiary; (h) earnings resulting from any reappraisal, revaluation or write-up of assets; (i) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (j) any gain arising from the acquisition of any Securities of the Company or any Restricted Subsidiary; (k) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall have been made from income arising during such period; and (l) any other extraordinary gain or loss. "Consolidated Net Worth" shall mean, as of the date of any determination thereof, the amount of the capital stock accounts (net of treasury stock, at cost) plus (or minus in the case of a deficit) the surplus and retained earnings of the Company and its Restricted Subsidiaries. "Consolidated Senior Funded Debt" shall mean all Senior Funded Debt of the Company and its Restricted Subsidiaries, determined on a consolidated basis after eliminating intercompany items. "Consolidated Tangible Capitalization" shall mean the sum of (a) Consolidated Funded Debt, plus (b) Consolidated Tangible Net Worth. "Consolidated Tangible Net Worth" shall mean, as of the date of any determination thereof, the sum of: (a) Consolidated Net Worth; Minus (b) the net book value, after deducting any reserves applicable thereto, of all items of the following character which are included in the assets of the Company and its Restricted Subsidiaries, to wit: (1) the incremental increase in an asset resulting from any reappraisal, revaluation or write-up of assets; and (2) (i) unamortized debt discount and expense and (ii) goodwill, organization or experimental expenses, patents, patent applications, permits, trademarks, trade names, copyrights, licenses, research and development expenses, franchises and other like intangibles acquired by the Company or any of its Restricted Subsidiaries after the Closing Date (other than existing intangibles described on Schedule II hereto); all determined in accordance with GAAP. "Consolidated Total Assets" shall mean as of the date of any determination thereof the total amount of all assets of the Company and its Restricted Subsidiaries determined, on a consolidated basis, in accordance with GAAP. "Default" shall mean any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default. "Environmental Law" shall mean any past, present or future Federal, state, local or foreign statutory or common law, and any regulation, code, plan, order, decree, judgment, court opinion, permit, grant, franchise, concession, restriction, agreement or injunction issued, entered, promulgated or approved under any thereof, in any such case relating to (a) the environment or human health or safety, including without limitation, any law relating to emissions, discharges, releases or threatened releases of Hazardous Substances into the environment (including, without limitation, air, surface water, groundwater or land) of polychlorinated biphenyls, asbestos, fractious petroleum, petroleum derivatives or by-products, or (b) the manufacture, generation, refining, processing, distribution, management, use, sale, treatment, receipt, storage, disposal, transport, arranging for transport, or handling of Hazardous Substances, including without limitation the following: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials Transportation Act, as amended, the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1976, the Safe Drinking Water Control Act, the Clean Air Act of 1966, as amended, the Toxic Substances Control Act of 1976, the Occupational Safety and Health Act of 1977, as amended, the Emergency Planning and Community Right-to-Know Act of 1986, the National Environmental Policy Act of 1975, the Oil Pollution Act of 1990 and any similar or implementing state law, and any state statute and any further amendments to these laws providing for financial responsibility for cleanup or other actions with respect to the release or threatened release of Hazardous Substances or crude oil, or any fraction thereof and all rules, regulations, guidance documents and publication promulgated thereunder. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. "ERISA Affiliate" shall mean any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in section 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA. "Event of Default" shall have the meaning set forth in 6.1. "Fixed Charges" for any period shall mean on a consolidated basis the sum of (a) all Rentals (other than Rentals on Capitalized Leases) payable during such period by the Company and its Restricted Subsidiaries, and (b) all Interest Charges on all Indebtedness (including the interest component of Rentals on Capitalized Leases) of the Company and its Restricted Subsidiaries payable during such period. "Funded Debt" of any Person shall mean, without duplication, (a) all Indebtedness of such Person for borrowed money or which has been incurred in connection with the acquisition of assets in each case having a final maturity of one or more than one year from the date of origin thereof (or which is renewable or extendible at the option of the obligor for a period or periods more than one year from the date of origin), including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not the obligation to make such payments shall constitute a current liability of the obligor under GAAP, (b) all Rentals payable in respect of Capitalized Leases of such Person, (c) all Guaranties by such Person and (d) all letters of credit by such Person (other than letters of credit used to finance purchases of inventory in the ordinary course of business or used to finance the cost of construction of improvements to property which property is otherwise subject to a construction contract). "Funding Subsidiary" shall have the meaning set forth in 9.8. "GAAP" shall mean generally accepted accounting principles applicable in the United States at the time in question. "Guaranties" by any Person shall mean all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (b) to advance or supply funds (1) for the purchase or payment of such Indebtedness or obligation, (2) to maintain working capital or other balance sheet conditions or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, (c) to lease property or to purchase Securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (d) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Hazardous Substance" shall mean any contaminant, pollutant or toxic or hazardous substance, and any substance that is defined or listed as a hazardous, toxic or dangerous substance under any Environmental Law or that is otherwise regulated or prohibited under any Environmental Law as a hazardous, toxic or dangerous substance, including any substance which is: (a) defined as a hazardous substance under Section 311 of the Federal Water Pollution Control Act (33 U.S.C. 1317) as amended; (b) regulated as a hazardous waste under Section 1004 or Section 3001 of the Federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.), as amended; (c) defined as a hazardous substance under Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.), as amended, or (d) defined or regulated as a hazardous substance or hazardous waste under any rules or regulations promulgated under any of the foregoing statutes. "Indebtedness" of any Person shall mean and include all obligations of such Person which in accordance with GAAP shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all (a) obligations of such Person for borrowed money evidenced by bonds, debentures, notes or similar Securities or which has been incurred in connection with the acquisition of property or assets, (b) obligations secured by any Lien upon property, assets or services owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (c) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (d) Rentals payable in respect of Capitalized Leases, (e) letters of credit by such Person (other than letters of credit used to finance purchases of inventory in the ordinary course of business or used to finance the cost of construction of improvements to property which property is otherwise subject to a construction contract), and (f) Guaranties of obligations of others of the character referred to in this definition. "Institutional Holder" shall mean any of the following Persons: (a) any bank, savings and loan association, savings institution, trust company or national banking association, acting for its own account or in a fiduciary capacity, (b) any charitable foundation, (c) any insurance company, (d) any fraternal benefit society, (e) any pension, retirement or profit sharing trust or fund within the meaning of Title I of ERISA or for which any bank, trust company, national banking association or investment adviser registered under the Investment Advisers Act of 1940, as amended, is acting as trustee or agent, (f) any investment company or business development company, as defined in the Investment Company Act of 1940, as amended, (g) any small business investment company licensed under the Small Business Investment Act of 1958, as amended, (h) any broker or dealer registered under the Securities Exchange Act of 1934, as amended, or any investment adviser registered under the Investment Adviser Act of 1940, as amended, (i) any government, any public employees' pension or retirement system, or any other government agency supervising the investment of public funds, (j) any venture capital operating company as defined in 29 CFR 2510.3-101(d), (k) any other entity all of the equity owners of which are Institutional Holders or (l) any other Person which may be within the definition of "qualified institutional buyer" as such term is used in Rule 144A, as from time to time in effect, promulgated under the Securities Act of 1933, as amended. "Interest Charges" for any period shall mean all interest and all amortization of debt discount and expense on any particular Indebtedness (including, without limitation, payment-in-kind, zero coupon and other like Securities) for which such calculations are being made. Computations of Interest Charges on a pro forma basis for Indebtedness having a variable interest rate shall be calculated at the rate in effect on the date of any determination. "Investments" shall mean all investments, in cash or by delivery of property made, directly or indirectly, in any Person, whether by acquisition of shares of capital stock, Indebtedness or other obligations or Securities or by loan, advance, capital contribution or otherwise. "Lease" shall mean any lease of real property (other than a Capitalized Lease and any lease between the Company and a Restricted Subsidiary or between any Restricted Subsidiaries) regardless of the duration of the term thereof and any lease of personal property (other than a Capitalized Lease and any lease between the Company and a Restricted Subsidiary or between any Restricted Subsidiaries) having an original term, including any period for which the lease may be renewed or extended at the option of the lessor, of more than three years. "Lien" shall mean 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 the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of- way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting property. For the purposes of this Agreement, the Company or a Restricted Subsidiary shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes and such retention or vesting shall constitute a Lien. "Make-Whole Amount" shall mean in connection with any prepayment or acceleration of the Notes the excess, if any, of (a) the aggregate present values as of the date of such prepayment of each dollar of principal being prepaid (taking into account the application of such prepayment required by 2.1, if any,) and the amount of interest (exclusive of interest accrued to the date of prepayment) that would have been payable in respect of such dollar if such prepayment had not been made, determined by discounting such amounts semiannually at the Reinvestment Rate from the respective dates on which they would have been payable, over (b) 100% of the principal amount of the Notes being prepaid at the date such Notes are to be prepaid. If the applicable Reinvestment Rate at the time of determination of the Make- Whole Amount is equal to or higher than 6.44% in the case of any payment or prepayment of the Series 1993-E Notes, 6.54% in the case of any payment or prepayment of the Series 1993-F Notes, 6.69% in the case of any payment or prepayment of the Series 1993-G Notes or 6.94% in the case of any payment or prepayment of the Series 1993-H Notes, the Make-Whole Amount for any payment or prepayment of Notes of such series is zero. For purposes of any determination of the Make-Whole Amount: "Reinvestment Rate" shall mean .50%, plus the yield reported, as of 10:00 a.m. (New York, New York time) on the Business Day next preceding the date of prepayment or payment of the Notes on the display designated as "Page 500" on the Telerate Service (or such other display as may replace "Page 500" on the Telerate Service) for actively traded U.S. Treasury Securities having a maturity corresponding to the series of Notes then being prepaid or paid as of the date of prepayment or payment or if such yield shall not be reported as of such time or if the yields reported as of such time are not ascertainable in accordance with the preceding clause, then the arithmetic mean of the yields for the two columns under the heading "Week Ending" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the Weighted Average Life to Maturity of the principal being prepaid (taking into account the application of such prepayment required by 2.1, if any). If no maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the published maturity next longer than the Weighted Average Life to Maturity and for the published maturity next shorter than the Weighted Average Life to Maturity shall be calculated pursuant to the Telerate Service or the Statistical Release, as the case may be, and the Reinvestment Rate shall be interpolated from such yields on a straight- line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used if required by the first sentence of the definition of Reinvestment Rate. "Statistical Release" shall mean the then most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. Government Securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination hereunder, then such other reasonably comparable index which shall be designated by the holders of 66-2/3% in aggregate principal amount of the outstanding Notes. "Weighted Average Life to Maturity" of the principal amount of the Notes being prepaid shall mean, as of the time of any determination thereof, the number of years obtained by dividing the then Remaining Dollar-Years of such principal by the aggregate amount of such principal. The term "Remaining Dollar-Years" of such principal shall mean the amount obtained by (1) multiplying (i) the remainder of (A) the amount of principal that would have become due on each scheduled payment date if such prepayment had not been made, less (B) the amount of principal on the Notes scheduled to become due on such date after giving effect to such prepayment and the application thereof in accordance with the provisions of 2.1, if any, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between the date of determination and such scheduled payment date, and (2) totalling the products obtained in (1). "Management" shall have the meaning set forth in 2.3(c). "Minority Interests" shall mean any shares of stock of any class of a Restricted Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Company and/or one or more of its Restricted Subsidiaries. Minority Interests shall be valued by valuing Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. "Multiemployer Plan" shall have the same meaning as in ERISA. "Net Income Available for Fixed Charges" for any period shall mean the sum of (a) Consolidated Net Income during such period plus (to the extent deducted in determining Consolidated Net Income), (b) all provisions for any Federal, state or other income taxes made by the Company and its Restricted Subsidiaries during such period and (c) Fixed Charges of the Company and its Restricted Subsidiaries during such period. "Notes" shall have the meaning set forth in 1.1. "Noteholder Notice" shall have the meaning set forth in 2.3(a). "Overdue Rate" shall mean (a) in the case of the Series 1993-E Notes 8.44%, (b) in the case of the Series 1993-F Notes 8.54% (c) in the case of the Series 1993-G Notes 8.69% and (d) in the case of the Series 1993-H Notes 8.94%. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" shall mean an individual, partnership, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof. "Plan" means a "pension plan," as such term is defined in ERISA, established or maintained by the Company or any ERISA Affiliate or as to which the Company or any ERISA Affiliate contributed or is a member or otherwise may have any liability. "Pro Forma Fixed Charges" for any period shall mean, as of the date of any determination thereof, the maximum aggregate amount of Fixed Charges which would have become payable by the Company and its Restricted Subsidiaries in such period determined on a pro forma basis giving effect as of the beginning of such period to the incurrence of any Funded Debt thereof (including Rentals on Capitalized Leases) and the concurrent retirement of outstanding Funded Debt or termination of any Capitalized Leases thereof. "Purchasers" shall have the meaning set forth in 1.1. "Rentals" shall mean and include as of the date of any determination thereof all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the Lease or Capitalized Lease or surrender of the property) payable by the Company or a Restricted Subsidiary, as lessee or sublessee under a Lease or Capitalized Lease of real or personal property (less, in the case of any determination of Fixed Charges, any rents received by the Company or such Restricted Subsidiary as sublessor under any sublease of the same such real or personal property). Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Reportable Event" shall have the same meaning as in ERISA. "Responsible Officer" shall mean the Chairman of the Board and Chief Executive Officer, the President and the Chief Operating Officer, the Executive Vice President and Chief Financial Officer or the Senior Vice President, Finance and Treasurer of the Company. "Restricted Subsidiary" shall mean each Subsidiary (a) 80% or more (by number of votes) of the Voting Stock of which is legally and beneficially owned by the Company, (b) which conducts substantially all of its business and has substantially all of its assets within the United States of America, (c) which is organized under the laws of the United States or any State thereof and (d) which has not been designated as an Unrestricted Subsidiary on Schedule III attached hereto or in accordance with 5.10 of this Agreement. "Security" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Senior Funded Debt" shall mean all Consolidated Funded Debt, other than Subordinated Funded Debt. "Significant Restricted Subsidiary" shall mean each Restricted Subsidiary which meets any of the following conditions: (a) the Company's and its other Restricted Subsidiaries' Investments in such Restricted Subsidiary exceed the lesser of 1% of the Consolidated Total Assets as of the end of the most recently completed fiscal year or $1,000,000; or (b) the Company's and its other Restricted Subsidiaries' proportionate share of the total assets (after eliminating intercompany items) of such Restricted Subsidiary determined in accordance with GAAP exceeds the lesser of 1% of the Consolidated Total Assets as of the end of the most recently completed fiscal year or $1,000,000; or (c) the Company's and its other Restricted Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of such Restricted Subsidiary exceeds the lesser of 1% of such income of the Company and its Restricted Subsidiaries for the most recently completed fiscal year or $1,000,000. "Smith Family" shall have the meaning set forth in 2.3(c). "Subordinated Funded Debt" shall mean all unsecured Funded Debt of the Company which (a) has a final maturity later than December 1, 2015, (b) is not subject to repayment prior to December 1, 2015, whether by means of a sinking fund, periodic maturities, required prepayments or other analogous payments or otherwise, (c) by its express terms prohibits optional prepayments in whole or in part prior to December 1, 2015 and (d) is at all times evidenced by a written instrument or instruments containing subordination provisions substantially in the form set forth in Exhibit F attached hereto providing for the subordination thereof to other Indebtedness of the Company, including, without limitation, the Notes, or such other provisions as may be approved in writing by the holders of not less than 100% in aggregate principal amount of the outstanding Notes. The term "subsidiary" shall mean as to any particular parent corporation any corporation of which more than 50% (by number of votes) of the Voting Stock shall be beneficially owned, directly or indirectly, by such parent corporation. The term "Subsidiary" shall mean a subsidiary of the Company. "Unrestricted Subsidiary" shall mean any Subsidiary or Restricted Subsidiary which is designated as an Unrestricted Subsidiary in Schedule III attached hereto or in accordance with 5.10 of this Agreement. "Voting Stock" shall mean Securities of any class or classes, 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). "Wholly-owned" when used in connection with any Subsidiary shall mean a Subsidiary of which all of the issued and outstanding shares of stock (except shares required as directors' qualifying shares) and all Indebtedness for borrowed money of such Subsidiary shall be owned by the Company and/or one or more of its Wholly-owned Subsidiaries. Section8.2.Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. Section8.3.Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person. Section9.Miscellaneous. Section9.1.Registered Notes. The Company shall cause to be kept at its principal office a register for the registration and transfer of the Notes, and the Company will register or transfer or cause to be registered or transferred, as hereinafter provided any Note issued pursuant to this Agreement. At any time and from time to time the holder of any Note which has been duly registered as hereinabove provided may transfer such Note upon surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or its attorney duly authorized in writing. The Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes of this Agreement. Payment of or on account of the principal, premium, if any, and interest on any Note shall be made to or upon the written order of such registered holder. Section9.2.Exchange of Notes. At any time and from time to time, upon not less than ten days' notice to that effect given by the holder of any Note initially delivered or of any Note substituted therefor pursuant to 9.1, this 9.2 or 9.3, and, upon surrender of such Note at its office, the Company will deliver in exchange therefor, without expense to such holder, except as set forth below, a Note for the same aggregate principal amount as the then unpaid principal amount of the Note so surrendered, or Notes in the denomination of $100,000 (or such lesser amount as shall constitute 100% of the Notes of such holder) or any amount in excess thereof as such holder shall specify, dated as of the date to which interest has been paid on the Note so surrendered or, if such surrender is prior to the payment of any interest thereon, then dated as of the date of issue, registered in the name of such Person or Persons as may be designated by such holder, and otherwise of the same form and tenor as the Notes so surrendered for exchange. The Company may require the payment of a sum sufficient to cover any stamp tax or governmental charge imposed upon such exchange or transfer. Section9.3.Loss, Theft, Etc. of Notes. Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Note, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Note, the Company will make and deliver without expense to the holder thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Note. If the Purchaser or any subsequent Institutional Holder is the owner of any such lost, stolen or destroyed Note, then the affidavit of an authorized officer of such owner, setting forth the fact of loss, theft or destruction and of its ownership of such Note at the time of such loss, theft or destruction shall be accepted as satisfactory evidence thereof and no further indemnity shall be required as a condition to the execution and delivery of a new Note other than the written agreement of such owner to indemnify the Company. Section9.4.Expenses, Stamp Tax Indemnity. Whether or not the transactions herein contemplated shall be consummated, the Company agrees to pay directly all of your out-of-pocket expenses in connection with the preparation, execution and delivery of this Agreement and the transactions contemplated hereby, including but not limited to the reasonable charges and disbursements of Chapman and Cutler, your special counsel, duplicating and printing costs and charges for shipping the Notes, adequately insured to you at your home office or at such other place as you may designate, and all such expenses relating to any amendments, waivers or consents pursuant to the provisions hereof (whether or not the same are actually executed and delivered), including, without limitation, any amendments, waivers, or consents resulting from any work-out, renegotiation or restructuring relating to the performance by the Company of its obligations under this Agreement and the Notes. The Company also agrees to pay reasonable attorney's fees incurred by a holder of the Notes in evaluating any controversy and enforcing such holders rights and remedies under this Agreement. The Company also agrees that it will pay and save you harmless against any and all liability with respect to stamp and other taxes, if any, which may be payable or which may be determined to be payable in connection with the execution and delivery of this Agreement or the Notes, whether or not any Notes are then outstanding. The Company agrees to protect and indemnify you against any liability for any and all brokerage fees and commissions payable or claimed to be payable to any Person in connection with the transactions contemplated by this Agreement. Without limiting the foregoing, the Company agrees to pay the cost of obtaining the private placement numbers for each series of Notes and authorizes the submission of such information as may be required by Standard & Poor's CUSIP Service Bureau for the purposes of obtaining such numbers. Section9.5.Powers and Rights Not Waived; Remedies Cumulative. No delay or failure on the part of the holder of any Note in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies of the holder of any Note are cumulative to, and are not exclusive of, any rights or remedies any such holder would otherwise have. Section9.6.Notices. All communications provided for hereunder shall be in writing and, if to you, delivered by facsimile communication and delivered or mailed prepaid by registered or certified mail or overnight air courier, in each case addressed to you at your address appearing on Schedule I to this Agreement or such other address as you or the subsequent holder of any Note initially issued to you may designate to the Company in writing, and if to the Company, delivered or mailed by registered or certified mail or overnight air courier, or by facsimile communication, to the Company at 1550 South Redwood Road, Salt Lake City, Utah 84104, Attention: Executive Vice President, Corporate Planning and Development or to such other address as the Company may in writing designate to you or to a subsequent holder of the Note initially issued to you; provided, however, that a notice to you by overnight air courier shall only be effective if delivered to you at a street address designated for such purpose in Schedule I, and a notice to you by facsimile communication shall only be effective if made by confirmed transmission to you at a telephone number designated for such purpose in Schedule I, or, in either case, as you or a subsequent holder of any Note initially issued to you may designate to the Company in writing. Section9.7.Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to your benefit and to the benefit of your successors and assigns, including each successive holder or holders of any Notes. Section9.8.Substitution of Purchaser. You shall have the right to substitute one of your wholly-owned subsidiaries (the "Funding Subsidiary") as the purchaser of the Notes to be purchased by you by written notice delivered to the Company, which notice shall be signed by you and the Funding Subsidiary, shall be accompanied by the Funding Subsidiary's agreement to be bound by this Agreement and by a confirmation by the Funding Subsidiary of the accuracy with respect to it of the representations set forth in 3.2 (subject to any exception necessary to reflect the intention, if any, of such Funding Subsidiary to transfer to you at a subsequent date all or any portion of the Notes to be purchased by it). The Company agrees that, upon receipt of such notice, wherever the words "you" or "Purchaser" are used in this Agreement, such words shall be deemed to refer to the Funding Subsidiary in lieu of you. The Company understands that in the event the Funding Subsidiary shall purchase the Notes, shortly after the purchase of the Notes and pursuant to a registration statement filed under the Securities Act of 1933, as amended, or in a transaction exempt from the registration requirements of such Act, the Funding Subsidiary may transfer the Notes to you or one of your affiliates, whereupon wherever the word "you" is used in this Agreement (other than this 9.8) such words shall be deemed to refer to you or such affiliate, as the case may be, in lieu of the Funding Subsidiary. Section9.9.Survival of Covenants and Representations. All covenants, representations and warranties made by the Company herein and in any certificates delivered pursuant hereto, whether or not in connection with the Closing Date, shall survive the closing and the delivery of this Agreement and the Notes. Section9.10.Severability. Should any part of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid or unenforceable portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. Section9.11.Governing Law. This Agreement and the Notes issued and sold hereunder shall be governed by and construed in accordance with internal laws of the State of New York law without regard to its conflict of laws. Section9.12.Submission to Jurisdiction. The Company hereby expressly waives all right to object to jurisdiction or execution in any legal action or proceeding relating to this Agreement or the Notes which it may now or hereafter have by reason of its domicile or by reason of any subsequent or other domicile. The Company agrees that any legal action or proceeding with respect to this Agreement or any Note, or any instrument, agreement or document mentioned or contemplated herein, or to enforce any judgment obtained against the Company in any such legal action or proceeding against it or any of its properties or revenues may be brought by the holder of any Note in the courts of the State of New York or of the United States of America located in New York, New York, as the holder of any Note may elect, and by execution and delivery of this Agreement, the Company irrevocably submits to each such jurisdiction for such purpose only. In addition, the Company hereby, to the extent not prohibited by applicable law, irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Agreement or the Notes brought in any of the aforesaid courts, and hereby, to the extent not prohibited by applicable law, further irrevocably and unconditionally waives and agrees not to plead or claim that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. Section9.13.Reproduction of Documents. This Agreement and all related documents, including (a) consents, waivers and modifications which may be subsequently be executed, (b) documents received by you at the closing of your purchase of the Notes (except the Notes themselves), and (c) financial statements, certificates and other information previously or subsequently furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that any such reproduction shall, to the extent permitted by applicable law, be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not the reproduction was made by you in the regular course of business) and that any enlargement, facsimile or further reproduction of the reproduction shall likewise be admissible in evidence. Section9.14.Captions. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. The execution hereof by you shall constitute a contract between us for the uses and purposes hereinabove set forth, and this Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. Smith's Food & Drug Centers, Inc. By Its Accepted as of December 3, 1993. [Variation] By Its [By Its] Smith's Food & Drug Centers, Inc. 6.44% Senior Note, Series 1993-E, Due December 1, 2005 No. 1993-ER- PPN 83205* BH 1 ____________, ____ $ Smith's Food & Drug Centers, Inc., a Delaware corporation (the "Company"), for value received, hereby promises to pay to or registered assigns on the first day of December, 2005 the principal amount of Dollars ($ ) and to pay interest (computed on the basis of a 360-day year of twelve 30- day months) on the principal amount from time to time remaining unpaid hereon at the rate of 6.44% per annum from the date hereof until maturity, payable semi-annually on the first day of each June and December in each year (commencing on the first such day after the date of issue) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the rate of 8.44% per annum after the due date, whether by acceleration or otherwise, until paid. Both the principal hereof and interest hereon are payable at the principal office of the Company in Salt Lake City, Utah in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in New York, New York or Salt Lake City, Utah are required by law to close. This Note is one of the Company's $81,000,000 aggregate principal amount 6.44% Senior Notes, Series 1993-E, due December 1, 2005 (the "Series 1993-E Notes") which together with the Company's $21,000,000 aggregate principal amount 6.54% Senior Notes, Series 1993-F, due December 1, 2007 (the "Series 1993-F Notes"), the Company's $35,000,000 aggregate principal amount 6.69% Senior Notes, Series 1993-G, due December 1, 2010 (the "Series 1993-G Notes") and the Company's $13,000,000 aggregate principal amount 6.94% Senior Notes, Series 1993-H, due December 1, 2015 (the "Series 1993-H Notes", said Series 1993-H Notes together with the Series 1993-E Notes the Series 1993-F Notes and the 1993-G Notes are hereinafter referred to collectively as the "Notes") issued or to be issued under and pursuant to the terms and provisions of the separate Note Agreements, each dated as of November 1, 1993 (collectively, the "Note Agreements"), entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits. This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreements are governed by and construed in accordance with the internal laws of the State of New York without regard to its conflict of laws. Smith's Food & Drug Centers, Inc. By Its Smith's Food & Drug Centers, Inc. 6.54% Senior Note, Series 1993-F, Due December 1, 2007 No. 1993-FR- PPN 83205* BJ 7 ____________, ____ $ Smith's Food & Drug Centers, Inc., a Delaware corporation (the "Company"), for value received, hereby promises to pay to or registered assigns on the first day of December, 2007 the principal amount of Dollars ($ ) and to pay interest (computed on the basis of a 360-day year of twelve 30- day months) on the principal amount from time to time remaining unpaid hereon at the rate of 6.54% per annum from the date hereof until maturity, payable semi-annually on the first day of each June and December in each year (commencing on the first such day after the date of issue) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the rate of 8.54% per annum after the due date, whether by acceleration or otherwise, until paid. Both the principal hereof and interest hereon are payable at the principal office of the Company in Salt Lake City, Utah in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in New York, New York or Salt Lake City, Utah are required by law to close. This Note is one of the Company's $21,000,000 aggregate principal amount 6.54% Senior Notes, Series 1993-F, due December 1, 2007 (the "Series 1993-F Notes") which together with the Company's $81,000,000 aggregate principal amount 6.44% Senior Notes, Series 1993-E, due December 1, 2005 (the "Series 1993-E Notes"), the Company's $35,000,000 aggregate principal amount 6.69% Senior Notes, Series 1993-G, due December 1, 2010 (the "Series 1993-G Notes") and the Company's $13,000,000 aggregate principal amount 6.94% Senior Notes, Series 1993-H, due December 1, 2015 (the "Series 1993-H Notes", said Series 1993-H Notes together with the Series 1993-E Notes, the Series 1993-F Notes and the Series 1993-G Notes are hereinafter referred to collectively as the "Notes") issued under and pursuant to the terms and provisions of the separate Note Agreements, each dated as of November 1, 1993 (collectively, the "Note Agreements"), entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits. This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreements are governed by and construed in accordance with the internal laws of the State of New York without regard to its conflict of laws. Smith's Food & Drug Centers, Inc. By Its Smith's Food & Drug Centers, Inc. 6.69% Senior Note, Series 1993-G, Due December 1, 2010 No. 1993-GR__ PPN 83205* BK 4 ____________, ____ $ Smith's Food & Drug Centers, Inc., a Delaware corporation (the "Company"), for value received, hereby promises to pay to or registered assigns on the first day of December, 2010 the principal amount of Dollars ($ ) and to pay interest (computed on the basis of a 360-day year of twelve 30- day months) on the principal amount from time to time remaining unpaid hereon at the rate of 6.69% per annum from the date hereof until maturity, payable semi-annually on the first day of each June and December in each year (commencing on the first such day after the date of issue) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the rate of 8.69% per annum after the due date, whether by acceleration or otherwise, until paid. Both the principal hereof and interest hereon are payable at the principal office of the Company in Salt Lake City, Utah in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in New York, New York or Salt Lake City, Utah are required by law to close. This Note is one of the Company's $35,000,000 aggregate principal amount 6.69% Senior Notes, Series 1993-G, due December 1, 2010 (the "Series 1993-G Notes") which together with the Company's $81,000,000 aggregate principal amount 6.44% Senior Notes, Series 1993-E, due December 1, 2005 (the "Series 1993-E Notes"), the Company's $21,000,000 aggregate principal amount 6.54% Senior Notes, Series 1993-F, due December 1, 2007 (the "Series 1993-F Notes") and the Company's $13,000,000 aggregate principal amount 6.94% Senior Notes, Series 1993-H, due December 1, 2015 (the "Series 1993-H Notes", said Series 1993-H Notes together with the Series 1993-E Notes, the Series 1993-F Notes and the Series 1993-G Notes are hereinafter referred to collectively as the "Notes") issued or to be issued under and pursuant to the terms and provisions of the separate Note Agreements, each dated as of November 1, 1993 (collectively, the "Note Agreements"), entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits. This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreements are governed by and construed in accordance with the internal laws of the State of New York without regard to its conflict of laws. Smith's Food & Drug Centers, Inc. By Its Smith's Food & Drug Centers, Inc. 6.94% Senior Note, Series 1993-H, Due December 1, 2015 No. 1993-1HR- PPN 83205* BL 2 ____________, ____ $ Smith's Food & Drug Centers, Inc., a Delaware corporation (the "Company"), for value received, hereby promises to pay to or registered assigns on the first day of December, 2015 the principal amount of Dollars ($ ) and to pay interest (computed on the basis of a 360-day year of twelve 30- day months) on the principal amount from time to time remaining unpaid hereon at the rate of 6.94% per annum from the date hereof until maturity, payable semi-annually on the first day of each June and December in each year (commencing on the first such day after the date of issue) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the rate of 8.94% per annum after the due date, whether by acceleration or otherwise, until paid. Both the principal hereof and interest hereon are payable at the principal office of the Company in Salt Lake City, Utah in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in New York, New York or Salt Lake City, Utah are required by law to close. This Note is one of the Company's $13,000,000 aggregate principal amount 6.94% Senior Notes, Series 1993-H, due December 1, 2015 (the "Series 1993-H Notes") which together with the Company's $81,000,000 aggregate principal amount 6.44% Senior Notes, Series 1993-E, due December 1, 2005 (the "Series 1993-E Notes"), the Company's $21,000,000 aggregate principal amount 6.54% Senior Notes, Series 1993-F, due December 1, 2007 (the "Series 1993-F Notes") and the Company's $35,000,000 aggregate principal amount 6.69% Senior Notes, Series 1993-G, due December 1, 2010 (the "Series 1993-G Notes", said Series 1993-G Notes together with the Series 1993-E Notes, the Series 1993-F Notes and the Series 1993-H Notes are hereinafter referred to collectively as the "Notes") issued or to be issued under and pursuant to the terms and provisions of the separate Note Agreements, each dated as of November 1, 1993 (collectively, the "Note Agreements"), entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits. This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreements are governed by and construed in accordance with the internal laws of the State of New York without regard to its conflict of laws. Smith's Food & Drug Centers, Inc. By Its EX-13.1 8 EXHIBIT 13.1 EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net Sales Net sales increased 5.9% in 1993, 19.5% in 1992 and 9.2% in 1991 compared with the respective prior years. Since 1992 included 53 weeks compared to 52 weeks in 1993 and 1991, the increase in net sales would have been 8% in 1993 and 18% in 1992 after adjusting for the extra week. New stores increased net sales by 6.6% in 1993, 18.8% in 1992 and 8.1% in 1991. The fluctuation in sales increases from new stores resulted primarily from the timing of store openings within the respective years. Same store sales decreased 0.7% in 1993 and increased 0.7% in 1992 and 1.1% in 1991 compared with the respective prior years. The decrease in same store sales in 1993 was caused primarily by the effect on sales in Southern California due to the continuing recession in this market, heavy price competition in Utah resulting from the Company's aggressive pricing program and new stores opened by competitors. To the extent these conditions persist, the weakness in same store sales may continue. The increases in same store sales in 1992 and 1991 were generated as new stores opened in previous years continued to mature in their markets and as volume increased as a result of the Company's everyday low price policy. The Company opened 11 stores during 1993, 12 stores during 1992 and 17 stores during 1991. Retail square footage increased to 8,501,000 square feet at the end of 1993 (129 stores) from 7,668,000 square feet at the end of 1992 (119 stores) and 6,773,000 square feet at the end of 1991 (109 stores). Due to market conditions and current recessionary pressures in its expansion area, the Company is moderating its expansion plans. In 1994 and 1995, the Company anticipates opening 10 to 12 stores each year with continuing emphasis in Southern California. New stores opened by the Company in recent years have averaged approximately 75,000 square feet. Stores expected to be opened during 1994 range from 45,000 to 82,000 square feet. Future stores primarily will range from 54,000 to 66,000 square feet, although a few larger stores will be opened where appropriate. Gross Margin Gross margins during 1993, 1992 and 1991 were 22.5%, 22.9% and 22.3%, respectively. The decrease in 1993 was caused primarily by the Company's aggressive Utah pricing program, which commenced in July 1993. To reinforce the Company's everyday low price program, prices in Utah stores were lowered on more than 10,000 grocery, meat and produce items. Management anticipates that this new pricing program will enhance long term earnings potential. However, in the near term, both gross margins and net income are expected to be under pressure as the Company continues to build sales volume. The improvements in gross margins in 1992 and 1991 were due to the further maturing of new and existing store marketing areas, a shift in product mix to private label and other higher margin products in the Company's specialty departments and continuing improvements in backstage efficiencies. Gross margins also have been and are expected to be affected by the Company's expansion program. The stores in Southern California tend to operate at higher gross margins to offset higher real estate, operating and labor costs. Additionally, the new 1,000,000 square foot distribution center in Riverside, California , including a dairy processing plant, was completed and began operations in late 1993. This new center is expected to increase gross margins in the Southern California region through backstage efficiencies and reduced shipping expenses. However, the Company anticipates that new stores recently opened and the planned new stores in Southern California will apply pressure on the Company's gross margins until the stores become established in their respective markets. In 1992 the Company adopted the last-in, first-out (LIFO) cost method for valuing inventories. The adoption of LIFO did not have a material effect on the 1992 financial statements. The pretax LIFO charge was $1.6 million in 1993. There were no LIFO charges or credits in 1992. Operating, Selling and Administrative Expenses Operating, selling and administrative expenses as a percent of net sales were 15.3% in 1993, 15.8% in 1992 and 15.5% in 1991. The decrease in 1993, resulting primarily from the Company's aggressive program to reduce operating costs, was somewhat offset by the higher operating costs associated with continued expansion into Southern California. The increase in 1992 was caused mainly by the higher operating costs incurred by the stores in the Southern California market. The Company anticipates that the new and planned stores in Southern California will increase operating, selling and administrative expenses as a percent of net sales until anticipated economies of scale are realized. Depreciation and Amortization Expenses Depreciation and amortization expenses increased 22.0% in 1993, 38.9% in 1992 and 19.1% in 1991 over the respective prior years due to the addition of new combination centers and distribution and processing facilities. Interest Expense Interest expense increased 23.5% in 1993, 19.2% in 1992 and 18.5% in 1991 compared with the respective prior years as a result of net increases in the average long-term debt amounts for each period. However, the increase in 1991 was partially offset by a reduction of debt from the proceeds of the Company's public offering of Class B Common Stock in July 1991. Income Taxes Income taxes as a percent of income before income taxes were 42.8% in 1993, 39.1% in 1992 and 38.5% in 1991. The Omnibus Budget Reconciliation Act of 1993 increased the Company's Federal Tax rate from 34% to 35%. As a result of the increased tax rate, net income for 1993 was reduced by $2.75 million or $.09 per common share. This reduction consisted of $.80 million or $.03 per common share for the rate increase on income earned in 1993 and $1.95 million or $.06 per common share for the increase in recorded deferred taxes. The effective tax rate, including state income taxes, for 1994 is expected to approximate 40.5%. The increase in 1992 was due primarily to the Company's increased presence in markets that have higher state tax rates. Net Income As the Company opens new stores and enters new markets, pressure on net income is created by normal start-up costs associated with new store openings and by the Company aggressively pursuing its everyday low price policy in order to establish market share within each store's trading area and build sufficient volume to effect anticipated economies of scale. Management believes that net income in 1994 will come under pressure as the Company continues its expansion into selected markets in Southern California. The Company operated 26 combination stores in Southern California at the end of 1993 and plans to open additional stores in that market. Net income may also be affected by the relatively higher real estate costs and operating and selling expenses (including preopening, startup and advertising expenses) typically associated with stores in the Southern California market. However these higher costs may be offset to some degree, depending upon competitive conditions, by the generally higher gross margins expected in that market. In addition, net income may continue to be affected by price competition in its Utah market as a result of the Company's aggressive pricing program. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased $46.4 million during 1993 and $1.1 million during 1992. The increase during 1993 primarily resulted from the receipt of $152.7 million from a sale/leaseback transaction completed at the end of 1993. The proceeds from the sale/leaseback transaction will be used to finance 1994 store expansion, cash management efforts, and normal cash activities. Working capital increased to $160.4 million at January 1, 1994 from $91.2 million at January 2, 1993, an increase of $69.2 million. The Company's current ratio at the end of 1993 was 1.5:1 compared to 1.3:1 in 1992 and 1.1:1 in 1991. The working capital is supplemented by unused revolving credit lines which aggregated $60 million at January 1, 1994. Cash provided by operating activities amounted to $118.6 million and $84.6 million for 1993 and 1992, respectively. Cash normally provided by operating activities in each of such years was partially offset by increases in inventory balances. The Company maintains levels of inventory necessary to support its highvolume, everyday low price merchandising strategy. Inventories increased $36.5 million and $51.0 million to $377.9 million and $341.4 million at the end of 1993 and 1992, respectively. These increases in inventories were caused mainly by warehouse and store expansion and forward buying. Cash used in investing activities totaled $164.4 million for 1993 and $286.6 million for 1992. Additions to property and equipment totaled $322.3 million in 1993 and $288.0 million in 1992 reflecting the Company's ongoing expansion program. In 1993 the Company completed the sale and leaseback of several recently constructed stores and its new Riverside distribution center totaling $152.7 million. There were no sale/leaseback transactions in 1992. The Company anticipates investing approximately $150 million during 1994 for the development and construction of new food and drug centers, remodeling of existing stores and replacing equipment. However, the actual timing and amount of capital expenditures will depend upon a number of factors. Cash provided by financing activities totaled $92.3 million for 1993 and $203.1 million for 1992. The Company obtained $262.0 million during 1993 and $252.7 million during 1992 in additional unsecured long-term borrowings to finance additions to property and equipment. In connection with the above referenced sale/leaseback transaction, the Company caused to be filed on November 18, 1993 a shelf registration statement with the Securities and Exchange Commission relating to the public offering of up to $300 million aggregate principal amount of Pass Through Certificates. The shelf registration was declared effective in January 1994. Quarterly cash dividends have been paid on the Company's Class A and Class B Common Stock since 1989. At January 1, 1994 and January 2, 1993, the Company had outstanding $704.0 million and $592.3 million, respectively, of long-term debt, principally borrowed from insurance companies and other institutional lenders. Of these amounts, $289.1 million and $325.1 million were secured by real estate assets at the end of each respective year. The Company has not experienced difficulty in obtaining financing at satisfactory interest rates. Management believes that the financial resources available to it, including proceeds from sale/leaseback transactions, amounts available under existing and future bank lines of credit, additional long-term financings and internally generated funds, will be sufficient to meet planned capital expansion and working capital requirements for the foreseeable future, including debt and lease servicing requirements. The Company may, however, use additional sources of funds for such purposes, including the issuance of debt or equity securities and leasing rather than owning real estate and equipment. INFLATION In recent years, the impact of inflation on the Company's operating results has been moderate, reflecting generally lower rates of inflation in the economy. Management does not believe that the Company will be adversely affected by any significant future inflation because of the large number of Company-owned stores which do not have contingent or volume- related rental obligations. While inflation has not had, and the Company does not expect it to have, a material impact upon operating results, there is no assurance that the Company's business will not be affected by inflation in the future. CONSOLIDATED STATEMENTS OF INCOME Dollar amounts in thousands, except per share data 1993 1992 1991 Net sales $2,807,165 $2,649,860 $2,217,437 Cost of goods sold 2,175,061 2,042,800 1,723,848 ---------- ---------- ---------- 632,104 607,060 493,589 Expenses: Operating, selling and administrative 430,258 419,664 344,363 Depreciation and amortization 77,099 63,216 45,510 Interest 44,627 36,130 30,319 ---------- ---------- ---------- 551,984 519,010 420,192 ---------- ---------- ---------- Income before income taxes 80,120 88,050 73,397 Income taxes 34,300 34,400 28,300 ---------- ---------- ---------- Net income $ 45,820 $ 53,650 $ 45,097 ========== ========== ========== Net income per share of Common Stock $1.52 $1.79 $1.65 See notes to consolidated financial statements CONSOLIDATED BALANCE SHEETS Dollar amounts in thousands 1993 1992 ASSETS Current Assets Cash and cash equivalents $ 61,921 $ 15,526 Rebates and accounts receivable 20,838 16,800 Inventories 377,939 341,416 Prepaid expenses and deposits 19,634 20,616 ---------- ---------- Total Current Assets 480,332 394,358 Property and Equipment Land 282,469 277,167 Buildings 582,775 549,935 Leasehold improvements 38,866 30,668 Fixtures and equipment 538,882 436,969 ---------- ---------- 1,442,992 1,294,739 Less allowances for depreciation and amortization 284,363 217,101 ---------- ---------- 1,158,629 1,077,638 Other Assets 15,347 14,089 ---------- ---------- $1,654,308 $1,486,085 ========== ========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 185,225 $ 184,106 Accrued sales and other taxes 38,763 32,138 Accrued payroll and related benefits 73,467 65,460 Current maturities of long-term debt 21,473 20,373 Current maturities of Redeemable Preferred Stock 1,046 1,046 ---------- ---------- Total Current Liabilities 319,974 303,123 Long-Term Debt, less current maturities 704,014 592,311 Deferred Income Taxes 82,700 68,800 Redeemable Preferred Stock, less current maturities 5,423 6,462 Common Stockholders' Equity Convertible Class A Common Stock (shares issued and outstanding, 12,617,445 in 1993 and 13,403,132 in 1992) 126 134 Class B Common Stock (shares issued, 17,344,566 in 1993 and 16,558,879 in 1992) 173 165 Additional paid-in capital 285,482 285,980 Retained earnings 259,400 229,110 ---------- ---------- 545,181 515,389 Less cost of Common Stock in the treasury (95,718 shares) 2,984 ---------- ---------- 542,197 515,389 ---------- ---------- $1,654,308 $1,486,085 ========== ========== See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY Class A Class B Common Stock Common Stock Additional Dollar amounts in thousands, Number of Par Number of Par Paid-in Retained Treasury except per share data Shares Value Shares Value Capital Earnings Stock Total Balance at December 30, 1990 15,843,764 $158 9,428,247 $ 94 $114,418 $153,488 $268,158 Net income for 1991 45,097 45,097 Issuance of Class B Common Stock 4,690,000 47 170,810 170,857 Conversion of shares from Class A to Class B (1,683,334) (17) 1,683,334 17 Cash dividends -- $.36 per share (9,942) (9,942) Other 216 216 ---------- ---- ---------- ---- -------- -------- -------- -------- Balance at December 28, 1991 14,160,430 141 15,801,581 158 285,444 188,643 474,386 Net income for 1992 53,650 53,650 Conversion of shares from Class A to Class B (757,298) (7) 757,298 7 Cash dividends -- $.44 per share (13,183) (13,183) Other 536 536 ---------- ---- ---------- ---- -------- -------- -------- -------- Balance at January 2, 1993 13,403,132 134 16,558,879 165 285,980 229,110 515,389 Net income for 1993 45,820 45,820 Conversion of shares from Class A to Class B (785,687) (8) 785,687 8 Purchase of Class B Common Stock for the treasury $(11,074) (11,074) Shares sold to the Employee Stock Profit Sharing Plan (212) 3,237 3,025 Shares sold under the Employee Stock Purchase Plan (771) 4,853 4,082 Cash dividends -- $.52 per share (15,530) (15,530) Other 485 485 ---------- ---- ---------- ---- -------- -------- -------- -------- Balance at January 1, 1994 12,617,445 $126 17,344,566 $173 $285,482 $259,400 $ (2,984) $542,197 ========== ==== ========== ==== ======== ======== ======== ========
See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS Dollar amounts in thousands 1993 1992 1991 Operating Activities Net income $ 45,820 $ 53,650 $ 45,097 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization (including amounts charged to cost of goods sold) 82,173 67,781 50,495 Deferred income taxes 15,400 16,000 8,500 Other 485 536 216 Changes in operating assets and liabilities: Rebates and accounts receivable (4,038) (1,726) 227 Inventories (36,523) (50,989) (80,796) Prepaid expenses and deposits (518) (10,161) (244) Trade accounts payable 1,119 3,723 18,051 Accrued sales and other taxes 6,625 1,296 2,535 Accrued payroll and related benefits 8,007 4,478 17,823 -------- -------- -------- Cash provided by operating activities 118,550 84,588 61,904 Investing Activities Additions to property and equipment (322,301) (287,989) (281,560) Sale/leaseback arrangements and other property and equipment sales 159,137 3,920 7,027 Other (1,258) (2,500) (2,885) -------- -------- -------- Cash used in investing activities (164,422) (286,569) (277,418) Financing Activities Additions to long-term debt 262,000 252,748 77,007 Payments on long-term debt (149,197) (35,513) (24,124) Redemptions of Redeemable Preferred Stock (1,039) (939) (1,047) Proceeds from sale of Class B Common Stock 170,857 Purchases of Treasury Stock (11,074) Proceeds from sales of Treasury Stock 7,107 Payment of dividends (15,530) (13,183) (9,942) -------- -------- -------- Cash provided by financing activities 92,267 203,113 212,751 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 46,395 1,132 (2,763) Cash and cash equivalents at beginning of year 15,526 14,394 17,157 -------- -------- -------- Cash and cash equivalents at end of year $ 61,921 $ 15,526 $ 14,394 ======== ======== ======== See notes to consolidated financial statements Notes to Consolidated Financial Statements NOTE A - Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Smith's Food & Drug Centers, Inc. and its wholly-owned subsidiaries (The Company), after the elimination of significant intercompany transactions and accounts. The Company operates a regional supermarket and drug store chain in the Intermountain, Southwestern, and Southern California regions of the United States. Definition of Accounting Period The Company's fiscal year ends on the Saturday nearest to December 31. Fiscal year operating results include 52 weeks for each year except 1992 which includes 53 weeks. Cash and Cash Equivalents Cash and cash equivalents consist of cash and short-term investments with maturities less than three months. The amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Inventories Inventories are valued at the lower of cost or market. In 1992 the last- in, first-out (LIFO) cost method was adopted for valuing inventories. The adoption of LIFO did not have a material effect on the financial statements. Approximately 95% of inventories in 1993 and 1992 were valued using LIFO. Other inventories were valued using the first-in, first-out method. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are provided by the straight-line method based upon estimated useful lives. Improvements to leased property are amortized over their estimated useful lives or the remaining terms of the leases, whichever is shorter. Pre-Operating and Closing Costs Costs incurred in connection with the opening of new stores and distribution facilities are expensed as incurred. The remaining net investment in stores closed, less salvage value, is charged against earnings in the period of closing and, for leased stores, a provision is made for the remaining lease liability, net of expected sublease rental. Interest Costs Interest costs are expensed as incurred, except for interest costs which have been capitalized as part of the cost of properties under development. The Company's cash payments for interest (net of capitalized interest of approximately $14.5 million in 1993, $8.8 million in 1992, and $8.0 million in 1991) amounted to $39.8 million in 1993, $33.6 million in 1992, and $27.9 million in 1991. Income Taxes The Company determines its deferred tax assets and liabilities based on differences between the financial reporting and tax basis of its assets and liabilities using the tax rates that will be in effect when the differences are expected to reverse. Deferred income taxes result primarily from temporary differences arising from accrued insurance claims and using different depreciation and amortization methods for book and tax purposes. Net Income Per Share of Common Stock Net income per share of Common Stock is computed by dividing the net income by the weighted average number of shares of Common Stock outstanding of 30,238,811 in 1993, 29,962,011 in 1992, and 27,397,973 in 1991. In 1993, the weighted average number of common shares includes common stock equivalents in the form of stock options. In 1992 and 1991, stock options were excluded from the calculation. Stock options did not have a material dilutive effect on the net income per share calculation in any period reported. Litigation The Company is a party to certain legal actions arising out of the ordinary course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial position. Reclassifications Certain reclassifications have been made to the 1992 financial statements to conform with the 1993 presentation. NOTE B - Property and Equipment The Company depreciates its buildings over 25 to 30 years and its fixtures and equipment over a period of 2 to 9 years and amortizes its leasehold improvements over their estimated useful lives or the life of the lease, whichever is shorter. Property and equipment consists of the following: Allowances for Net Current Year Depreciation and BookDepreciation and Dollar amounts in thousands Cost Amortization Value Amortization 1993 Land $282,469 $282,469 Buildings 582,775 $75,663 507,112 $17,902 Leasehold improvements 38,866 8,333 30,533 1,884 Fixtures and equipment 538,882 200,367 338,515 62,387 ---------- -------- ---------- ------- $1,442,992 $284,363 $1,158,629 $82,173 ========== ======== ========== ======= 1992 Land $ 277,167 $ 277,167 Buildings 549,935 $60,199 489,736 $15,675 Leasehold improvements 30,668 6,742 23,926 1,744 Fixtures and equipment 436,969 150,160 286,809 50,362 ---------- -------- ---------- ------- $1,294,739 $217,101 $1,077,638 $67,781 ========== ======== ========== ======= NOTE C - Long-Term Debt Long-term debt consists of the following: Dollar amounts in thousands 1993 1992 Mortgage notes, collateralized by property and equipment with a cost of $451.4 million in 1993 and $479.2 million in 1992, due through 2011 with interest at an average rate of 9.77% in 1993 and 9.92% in 1992 $ 301,740 $335,457 Unsecured notes, due in 2002 through 2015 with varying annual installments starting in 2000 which accrue interest at an average rate of 7.68% in 1993 and 8.49% in 1992 410,000 148,127 Revolving credit bank loans 70,000 Short-term bank loans refinanced in 1993 as unsecured notes 45,000 Industrial revenue bonds, collateralized by property and equipment with a cost of $21.0 million in 1993 and $18.8 million in 1992 due in 1994 through 2010 plus interest at an average rate of 6.68% in 1993 and 6.85% in 1992 8,847 9,847 Other 4,900 4,253 -------- -------- 725,487 612,684 Less current maturities 21,473 20,373 -------- -------- $704,014 $592,311 ======== ======== Interest rates on the revolving credit bank loans are generally lower than the prime rate. The agreements are reviewed annually with the banks, at which time the date each installment is due is generally extended one year. At January 1, 1994, the Company had unused lines of credit related to unsecured revolving credit bank loans of $60.0 million. The Company's loan agreements contain provisions which require the Company to maintain a specified level of consolidated net worth, fixed charge coverage and ratio of debt to net worth. Maturities of the Company's long-term debt for the five fiscal years succeeding January 1, 1994 are approximately $21.5 million in 1994, $24.3 million in 1995, $25.9 million in 1996, $23.6 million in 1997 and $24.3 million in 1998. The amounts classified as short-term bank loans and revolving credit bank loans approximate their fair value. The fair value of the Company's long- term debt was estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of debt arrangements. NOTE D - Redeemable Preferred Stock The Company has 85,000,000 shares of $.01 per share par value Preferred Stock authorized. The Company has designated 34,524,579 of these shares as Series I Preferred Stock, of which 19,406,694 shares and 22,523,691 shares were issued and outstanding in 1993 and 1992, respectively. The Preferred Stock has no dividend requirement. All shares of the Company's Series I Preferred Stock are subject to redemption at any time at the option of the Board of Directors, in such numbers as the Board may determine, and at a redemption price of $.33 1/3 per share. The scheduled redemptions of the Company's Redeemable Preferred Stock are approximately $1.0 million each year until all outstanding shares are redeemed. Upon liquidation of the Company, each share of Series I Preferred Stock is entitled to a liquidation preference of $.33 1/3, on a pro rata basis with any other series of Preferred Stock, before any distribution to the holders of Class A Common Stock or Class B Common Stock. Each Share of Series I Preferred Stock is entitled to ten votes per share. Redeemable Series I Preferred Stock is stated at redemption value in the balance sheets. The amount included in the balance sheet for Redeemable Preferred Stock approximates its fair value. NOTE E - Common Stockholders' Equity The voting powers, preferences and relative rights of Class A Common Stock and Class B Common Stock are identical in all respects, except that the holders of Class A Common Stock have ten votes per share and the holders of Class B Common Stock have one vote per share. Each share of Class A Common Stock is convertible at any time at the option of the holder into one share of Class B Common Stock. The Company's Certificate of Incorporation also provides that each share of Class A Common Stock will be converted automatically into one share of Class B Common Stock if at any time the number of shares of Class A Common Stock issued and outstanding shall be less than 2,910,885. Future sales or transfers of the Company's Class A Common Stock are restricted to the Company or immediate family members of the original Class A Common Stockholders unless first presented to the Company for conversion into an equal number of Class B Common Stock shares. The Class B Common Stock has no conversion rights. At January 1, 1994 there were 20,000,000 shares of $.01 per share par value Class A Common Stock and 100,000,000 shares of $.01 per share par value Class B Common Stock authorized. NOTE F - Income Taxes Income tax expense consists of the following: Dollar amounts in thousands 1993 1992 1991 Current: Federal $15,715 $15,493 $17,050 State 3,185 2,907 2,750 ------- ------- ------- 18,900 18,400 19,800 Deferred: Federal 13,012 13,819 7,057 State 2,388 2,181 1,443 ------- ------- ------- 15,400 16,000 8,500 ------- ------- ------- $34,300 $34,400 $28,300 ======= ======= ======= Income tax expense included a charge of $1.95 million in 1993 resulting from applying the increased federal tax rate to deferred tax items. Cash disbursements for income taxes were $17.3 million in 1993, $17.6 million in 1992, and $23.4 million in 1991. The difference between income tax expense and the tax computed by applying the statutory income tax rate to income before income taxes is as follows: 1993 1992 1991 Statutory federal income tax rate 35.0% 34.0% 34.0% State income tax rate, net of federal income tax effect 5.2 5.0 4.4 Job tax credits (.3) (.4) (.5) Effect of income tax rate increase on deferred taxes 2.4 Other .5 .5 .6 ---- ---- ---- 42.8% 39.1% 38.5% ==== ==== ==== Deferred income taxes arise because of differences in the treatment of income and expense items for financial reporting and income tax purposes. The effect of temporary differences that give rise to deferred tax balances are as follows: Dollar amounts in thousands 1993 1992 Deferred tax liabilities: Depreciation and amortization $85,078 $70,595 Other 7,203 4,218 ------- ------- 92,281 74,813 Deferred tax assets: Reserves (11,243) (10,045) Other (3,495) (2,568) ------- ------- (14,738) (12,613) ------- ------- Net current deferred tax assets (5,157) (6,600) ------- ------- Net non-current deferred tax liabilities $82,700 $68,800 ======= ======= NOTE G - Fair Value of Financial Instruments The carrying amounts and related fair values of the Company's financial instruments are as follows: 1993 1992 Dollar amounts in thousands Carrying Fair Carrying Fair Amount Value Amount Value Cash and cash equivalents $61,921 $61,921 $15,526 $15,526 Long-term debt 725,487 784,627 612,684 649,192 Redeemable Preferred Stock 6,469 6,469 7,508 7,508 NOTE H - Leases and Commitments The Company leases property and equipment under terms which include, in some cases, renewal options, escalation clauses or contingent rentals which are based on sales. Total rental expense for such leases amounted to the following: Dollar amounts in thousands 1993 1992 1991 Minimum rentals $19,539 $18,956 $15,650 Contingent rentals 281 161 1,041 ------- ------- ------- 19,820 19,117 16,691 Less sublease rental income 5,506 4,906 4,705 ------- ------- ------- $14,314 $14,211 $11,986 ======= ======= ======= At January 1, 1994, future minimum rental commitments and sublease rental income for all noncancellable leases with initial or remaining terms of one year or more consisted of the following: Less Minimum Sublease Rental Rental Dollar amounts in thousands Commitments Income Total 1994 $ 20,535 $ 6,167 $ 14,368 1995 20,780 5,964 14,816 1996 35,876 5,456 30,420 1997 32,275 5,116 27,159 1998 33,630 4,921 28,709 Thereafter 586,638 25,042 561,596 -------- ------- -------- $729,734 $52,666 $677,068 ======== ======= ======== At January 1, 1994 the Company had contract commitments of approximately $15.4 million for future construction. During 1993, the Company entered into a sale and leaseback agreement for several recently constructed stores and the new Riverside distribution center, the net proceeds from which totaled $152.7 million. The lease is for a period of 25 years with annual rentals. NOTE I - Employee Stock Plans In 1993 the Company established a stock profit sharing plan under which year end employees who are compensated for more than 1,000 hours during the year are participants. Eligible employees are allocated shares of stock based on hours of service up to 2,080 hours. Contributions are made at the sole discretion of the Company based on its profitability. The contribution expense in 1993 was $3.0 million. In 1993 the Company established a stock purchase plan which permits employees to purchase shares of the Company's Class B Common Stock through payroll deductions at 85% of fair market value at the time of purchase. Employees purchased 180,950 shares from the Treasury during 1993. The Company has a Stock Option Plan which authorizes the Compensation Committee of the Board of Directors to grant options to key employees for the purchase of Class B Common Stock. In April 1992, the aggregate number of shares available for grant under the plan was increased to equal 10% of the number of shares of Class B Common Stock authorized. However, the number of outstanding and unexercised options shall not exceed 10% of the number of shares of Class A and Class B Common Stock outstanding. The number of unoptioned shares of Class B Common Stock available for grant was 1,489,129 shares and 1,888,701 shares at the end of 1993 and 1992, respectively. The options may be either incentive stock options or non- qualified stock options. Stock options granted to key employees and options outstanding are as follows: Option Price Number of per Share Shares Balance at December 30, 1990 $19.00 813,000 Granted 19.00 191,000 Forfeited 19.00 (66,000) ----- --------- Balance at December 28, 1991 19.00 938,000 Granted 19.00 198,500 Forfeited 19.00 (29,000) ----- --------- Balance at January 2, 1993 19.00 1,107,500 Granted 19.00 622,000 Forfeited 19.00 (232,000) ----- --------- Balance at January 1, 1994 $19.00 1,497,500 ===== ========= The options are exercisable as follows: Number of Shares January 4, 1997 25,000 June 21, 1999 516,000 March 1, 2000 30,000 January 1, 2001 162,000 September 18, 2001 20,000 December 1, 2001 30,000 January 2, 2002 79,500 January 4, 2003 59,000 June 1, 2003 1,000 December 20, 2003 515,000 --------- 1,437,500 Options currently exercisable 60,000 --------- 1,497,500 ========= Compensation expense for the difference between the market value of the options on the grant date and the grant price is recognized on a straight- line basis over the life of the options. The amount charged to operations in 1993, 1992, and 1991 was immaterial. NOTE J - Pension Plans Employees whose terms of employment are determined by negotiations with recognized collective bargaining units are covered by their respective multi-employer defined benefit pension plans to which the Company contributes. The costs charged to operations for these plans amounted to approximately $3.3 million in 1993, $2.3 million in 1992, and $1.6 million in 1991. Other information for these multi-employer plans is not available to the Company. The Company maintains a defined benefit pension plan for all other permanent employees which provides for normal retirement at age 65. Employees are eligible to join when they complete at least one year of service and have reached age 21. The benefits are based on years of service and stated amounts associated with those years of service. The Company's funding policy is to contribute annually the maximum amount deductible for federal income tax purposes. Net pension cost includes the following components: Dollar amounts in thousands 1993 1992 1991 Service cost - present value of benefits earned during the period $1,869 $1,619 $1,364 Interest cost on projected benefit obligation 1,350 1,079 776 Actual return on plan assets (1,053) (339) (1,170) Net amortization and deferral (304) (628) 310 ------ ------ ------ $1,862 $1,731 $1,280 ====== ====== ====== The following table presents the plan's funded status and amounts recognized in the Company's consolidated balance sheets: Dollar amounts in thousands 1993 1992 Actuarial present value of accumulated benefits based on service rendered to date: Vested $14,623 $10,234 Non-vested 3,750 3,371 ------- ------- 18,373 13,605 Plan assets at fair value (primarily in equity and fixed income funds and real estate) 17,188 13,317 ------- ------- Projected benefit obligation in excess of fair value of plan assets (1,185) (288) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 5,616 3,431 Prior service cost not yet recognized in net periodic pension cost 188 391 Unrecognized net asset (1,304) (1,467) ------- ------- Net prepaid pension expense $3,315 $2,067 ====== ====== The weighted average discount rate used to determine the actuarial present value of the projected benefit obligation was 7.75% in 1993 and 8.5% 1992. The expected long-term rate of return on plan assets was 9.5% in 1993, 1992, and 1991. The Company provides a 401(k) plan for virtually all employees. The plan is entirely funded by employee contributions which are based on employee compensation not to exceed certain limits. REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS Board of Directors and Stockholders of Smith's Food & Drug Centers, Inc. We have audited the accompanying consolidated balance sheets of Smith's Food & Drug Centers, Inc. and subsidiaries as of January 1, 1994 and January 2, 1993, and the related consolidated statements of income, common stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 1, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Smith's Food & Drug Centers, Inc. and subsidiaries at January 1, 1994 and January 2, 1993, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 1, 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG Salt Lake City, Utah January 27, 1994
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND OPERATING DATA Dollar amounts in thousands, 1993 1992 1991 1990 1989 except per share data 52 Weeks 53 Weeks 52 Weeks 52 Weeks 52 Weeks Income Statement Data Net sales $2,807,165 $2,649,860 $2,217,437 $2,031,373 $1,731,559 Gross profit 632,104 607,060 493,589 442,318 376,816 Operating, selling and administrative expense 430,258 419,664 344,363 323,792 277,986 Depreciation and amortization expense 77,099 63,216 45,510 38,217 31,009 Interest expense 44,627 36,130 30,319 25,595 26,290 Income before income taxes 80,120 88,050 73,397 54,714 41,531 Net income 45,820 53,650 45,097 34,314 26,131 Common Stock Data Average number of common shares outstanding 30,238,811 29,962,011 27,397,973 25,272,011 22,479,281 Net income per common share $ 1.52 $ 1.79 $ 1.65 $ 1.36 $ 1.16 Dividends per common share .52 .44 .36 .28 .10 Book value per common share 18.15 17.20 15.83 10.61 9.53 Balance Sheet Data Net property and equipment $1,158,629 $1,077,638 $ 861,350 $ 637,312 $ 511,345 Total assets 1,654,308 1,486,085 1,196,689 891,716 728,482 Long-term debt,less current maturities 704,014 592,311 375,632 326,190 257,208 Redeemable Preferred Stock,less current maturities 5,423 6,462 7,401 8,448 9,542 Common stockholders' equity 542,197 515,389 474,386 268,158 240,920 Select Operating Data Number of stores 129 119 109 95 98 Total store square footage 8,501,000 7,668,000 6,773,000 5,580,000 5,235,000 Number of employees 18,759 19,310 18,303 15,208 15,289
QUARTERLY FINANCIAL DATA (unaudited) Dollar amounts in thousands, except per share data First Second Third Fourth Year Fiscal 1993 Net sales $688,239 $705,520 $686,747 $726,659 $2,807,165 Gross profit 160,350 162,538 151,226 157,990 632,104 Net income 14,007 13,999 7,911 9,903 45,820 Net income per common share .46 .46 .26 .34 1.52 NYSE price range High 37 1/4 33 1/4 26 1/2 22 1/2 Low 31 23 5/8 20 19 Fiscal 1992 Net sales $669,511 $640,096 $653,385 $686,868 $2,649,860 Gross profit 151,229 147,297 150,989 157,545 607,060 Net income 13,148 13,544 13,844 13,114 53,650 Net income per common share .44 .45 .46 .44 1.79 NYSE price range High 43 1/4 38 34 3/4 37 3/4 Low 33 3/8 27 7/8 25 3/4 32 3/4 Fiscal 1991 Net sales $532,922 $547,007 $544,026 $593,482 $2,217,437 Gross profit 116,855 120,285 121,925 134,524 493,589 Net income 10,406 10,844 12,228 11,619 45,097 Net income per common share .41 .43 .42 .39 1.65 NYSE price range High 41 1/2 43 3/4 42 3/8 39 Low 28 3/4 36 1/2 35 1/2 30 1/4 EX-22.1 9 EXHIBIT 22.1 EXHIBIT 22.1 SUBSIDIARIES OF THE COMPANY State of Incorporation Name and d/b/a or Organization Smith's Beverage of Wyoming, Inc. Wyoming Western Property Investment Group, Inc. California EX-23.1 10 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10- K) of Smith's Food & Drug Centers, Inc. of our report dated January 27, 1994, included in the 1993 Annual Report to Stockholders of Smith's Food & Drug Centers, Inc. Our audits also included the financial statement schedules of Smith's Food & Drug Centers, Inc. listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Forms S-8 No.33-48627 and No.33-56966 and Form S-3, No.33- 51097) pertaining to the Smith's Food & Drug Centers, Inc. Amended and Restated 1989 Stock Option Plan, the Smith's Food & Drug Centers, Inc. 1993 Employee Stock Purchase Plan, and the Smith's Food & Drug Centers, Inc. Pass Through Certificates of our report dated January 27, 1994, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) for the year ended January 1, 1994. ERNST & YOUNG Salt Lake City, Utah March 23, 1994 -----END PRIVACY-ENHANCED MESSAGE-----