-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TBg44EimGTjnGe9W+4jo9HAGmTmCen8csLpY18qAoSkhTwhFG6PZV78EqeQL55EL LcGyu5ambVT+EzLCuCuA8w== 0000950150-96-001188.txt : 19961029 0000950150-96-001188.hdr.sgml : 19961029 ACCESSION NUMBER: 0000950150-96-001188 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19961028 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITHS FOOD & DRUG CENTERS INC CENTRAL INDEX KEY: 0000850309 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 870258768 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14953 FILM NUMBER: 96648767 BUSINESS ADDRESS: STREET 1: 1550 S REDWOOD RD CITY: SALT LAKE CITY STATE: UT ZIP: 84104 BUSINESS PHONE: 8019741400 S-3 1 FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1996 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- SMITH'S FOOD & DRUG CENTERS, INC. ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 87-0258768 - ------------------------------- -------------------------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 1550 SOUTH REDWOOD ROAD SALT LAKE CITY, UTAH 84104 (801) 974-1400 - -------------------------------------------------------------------------------- (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------------- MICHAEL C. FREI SENIOR VICE PRESIDENT AND GENERAL COUNSEL SMITH'S FOOD & DRUG CENTERS, INC. 1550 SOUTH REDWOOD ROAD SALT LAKE CITY, UTAH 84104 (801) 974-1400 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------------- COPIES TO: THOMAS C. SADLER, ESQ. LATHAM & WATKINS 633 WEST FIFTH STREET SUITE 4000 LOS ANGELES, CALIFORNIA 90071 (213) 485-1234 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------ PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE - ------------------------------------------------------------------------------------------------------------------------------ Class B Common Stock, par value $.01 per share . . . . . . . . . . . . . . . . . . . . . . . 3,201,470 $25.813 $82,639,545 $25,043 ==============================================================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED OCTOBER 28, 1996 PROSPECTUS 3,201,470 SHARES SMITH'S FOOD & DRUG CENTERS, INC. CLASS B COMMON STOCK --------------------- The shares of Class B Common Stock, par value $.01 per share (the "Class B Common Stock") of Smith's Food & Drug Centers, Inc. ("Smith's" or the "Company") which may be offered hereby are held by certain stockholders of the Company (the "Selling Stockholders") who received such shares in connection with the Company's recent acquisition of Smitty's Supermarkets, Inc. See "Selling Stockholders." The Company will not receive any of the proceeds from the sale of any shares offered hereby. The Selling Stockholders received such shares of Class B Common Stock in a private placement transaction and the Company has agreed to file and maintain a shelf registration statement relating to such shares in order to permit the Selling Stockholders to resell such securities from time-to-time in public transactions. In connection with this offering, the Company will bear expenses estimated at $______________. The Class B Common Stock is listed on the New York Stock Exchange under the symbol "SFD." On October 25, 1996, the last reported sales price for the Class B Common Stock was $26.00 per share. See "Price Range of Class B Common Stock." --------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Any distribution of the shares covered by this Prospectus may be effected from time to time in one or more transactions (which may involve block transactions) on the New York Stock Exchange in negotiated transactions or a combination of such methods of sale, at fixed prices, at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices. The Selling Stockholders will effect any such transactions with or through one or more broker-dealers which may act as agent or principal. Any such broker-dealer may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Stockholders and/or the purchaser of the shares for whom it may act as agent or to whom they may sell as principals or both. With respect to any shares sold by a Selling Stockholder, the Selling Stockholder and/or any broker-dealer affecting the sales may be deemed to be an "underwriter" within the meaning of Section 2(11) of the Securities Act of 1933, as amended, (the "Securities Act"), and any commissions received by the broker-dealer and any profit on the resale of shares as principal may be deemed to be underwriting discounts or commissions under the Securities Act. Additionally, the Selling Stockholders may pledge or make gifts of their shares and the shares may also be sold by the pledgees or transferees. See "Plan of Distribution." The date of this Prospectus is , 1996. 3 IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF CLASS B COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. AVAILABLE INFORMATION The Company has filed a Registration Statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") under the Securities Act, with respect to the Class B Common Stock. The Company is subject to the reporting and other informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder, and in accordance therewith files reports, and other information with the Commission. Such reports and other information filed by the Company with the Commission can be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, Suite 1300, New York, New York 10048; 500 West Madison Street, Chicago, Illinois 60601; and 5670 Wilshire Boulevard, Suite 500, Los Angeles, California 90036. Copies of such materials can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed rates. The Class B Common Stock of the Company is listed on the New York Stock Exchange and reports, proxy statements and other information concerning the Company can also be inspected at the office of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by Smith's with the Commission under the Exchange Act are incorporated herein by reference: (i) Smith's Annual Report on Form 10-K for its fiscal year ended December 30, 1995; (ii) Smith's current reports on Form 8-K dated February 20, 1996 and May 7, 1996, (iii) Smith's Quarterly Report on Form 10-Q for its fiscal quarter ended June 29, 1996, and (iv) Smith's 1996 Proxy Statement for its Annual Meeting of Stockholders. In addition, all documents filed by Smith's with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the termination of the offering made hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any other subsequently filed document that also is, or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Copies of documents incorporated herein by reference (excluding exhibits unless such exhibits are specifically incorporated herein by reference) may be obtained without charge upon request from Smith's Food & Drug Centers, Inc. at 1550 South Redwood Road, Salt Lake City, Utah 84104, telephone number (801) 974-1400, Attn: Michael C. Frei, General Counsel and Secretary. 1 4 5 THE COMPANY The Company is a leading supermarket company in the Intermountain and Southwestern regions of the United States, operating 150 stores located in Utah (36), Arizona (58), Nevada (23), New Mexico (19) and Idaho, Texas and Wyoming (collectively, 14). Substantially all of Smith's stores offer one-stop shopping convenience through a food and drug combination format which features a full-line supermarket with drug and pharmacy departments and some or all of the following specialty departments: delicatessens, hot prepared food sections, in-store bakeries, video rental shops, floral shops, one-hour photo processing labs, full-service banking and frozen yogurt shops. The Company's food and drug combination stores averaged approximately 63,000 square feet and $420,000 per week in sales volume in fiscal 1995. The Company has recently opened four price impact warehouse stores and also operates two conventional supermarkets. Through its 48 years of operations, the Company believes it has developed a valuable and strategically located store base, strong name recognition, customer loyalty and a reputation for quality and service. RECENT DEVELOPMENTS In May 1996, the Company consummated a series of transactions designed to enhance stockholder value and liquidity: o Acquisition of Smitty's Supermarkets, Inc. On May 23, 1996, the Company acquired Smitty's Supermarkets, Inc. ("Smitty's") a regional supermarket operator with 26 stores in the Phoenix and Tucson markets, in a stock-for-stock exchange (the "Merger"). The Merger significantly enhanced the Company's market position in Arizona. Smitty's was controlled by affiliates of The Yucaipa Companies ("Yucaipa"), a private investment group specializing in the supermarket industry. The consideration received by the stockholders of Smitty's in the Merger consisted of 3,038,877 shares of Class B Common Stock. At the time the Merger was consummated, the Company caused Smitty's and its subsidiaries to repay in full approximately $103 million of existing indebtedness. The foregoing debt refinancing transactions of Smitty's are referred to herein collectively as the "Smitty's Refinancing." o California Disposition. The Company has completed the sale or lease of 23 stores, five non-operating properties and its primary distribution facility in Southern California and has closed its remaining stores there (the "California Divestiture"). Management determined that because of the attractive growth prospects in the Company's principal markets and the competitive environment in Southern California, it would redeploy Company resources from California into other markets. The Company is also in the process of disposing of its remaining closed stores and excess land in California (the "California Asset Disposition," and together with the California Divestiture, the "California Disposition"). o New Senior Management. At the time of the Merger, the Company entered into a five-year management services agreement (the "Management Services Agreement") with Yucaipa. Ronald W. Burkle, the managing general partner of Yucaipa, was appointed as Chief Executive Officer of the Company. In addition, Allen R. Rowland recently joined Smith's as President and Chief Operating Officer. Mr. Rowland was employed by Albertson's, Inc. for 25 years and had senior executive responsibilities for all of the principal regions in which Smith's operates. o Recapitalization. The Company also consummated certain recapitalization transactions in May 1996, including, (i) the purchase of approximately 50% of its outstanding Class A Common Stock, par value $.01 per share ("Class A Common Stock" and, together with the Class B Common Stock, the "Common Stock") and its outstanding Class B Common Stock (excluding shares issued to the stockholders of Smitty's in the Merger) for $36.00 in cash per share (the "Tender Offer"), (ii) the funding of a new senior credit facility (the "New Credit Facility") with a group of lenders which 2 6 provided $805 million aggregate principal amount of new term loans (the "New Term Loans") and a $190 million revolving credit facility (the "New Revolving Facility") and (iii) the issuance of $575 million aggregate principal amount of the Company's 11 1/4% Senior Subordinated Notes due 2007 (the "Notes"). In connection with the Tender Offer, the Company also purchased a portion of certain outstanding stock options held by management and a portion of its outstanding Series I Preferred Stock. The Tender Offer, the purchase of certain management stock options and Series I Preferred Stock, the incurrence of indebtedness under the New Credit Facility and the Notes, and the refinancing of its existing indebtedness, are collectively referred to herein as the "Recapitalization." The Recapitalization, the Merger and the Smitty's Refinancing are collectively referred to herein as the "Transactions." The Company's executive offices are located at 1550 South Redwood Road, Salt Lake City, Utah 84104, and its telephone number is (801) 974-1400. 3 7 RISK FACTORS Prospective investors should carefully consider the following factors, in addition to the other matters described in this Prospectus, before purchasing the Class B Common Stock offered by this Prospectus. SUBSTANTIAL LEVEL OF INDEBTEDNESS The Company has a substantial amount of outstanding indebtedness. At June 29, 1996, the consolidated indebtedness of the Company was $1,427.6 million. The Company's level of indebtedness could have important consequences to the holders of Class B Common Stock, including the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of the principal of and interest on its indebtedness; (ii) the ability of the Company to obtain additional financing may be materially limited or impaired; and (iii) the Company's level of indebtedness may reduce the Company's flexibility to respond to changing business and economic conditions. However, the Company believes that to date its level of indebtedness has not impaired its ability to obtain needed capital nor has it reduced the Company's flexibility to respond to business or economic conditions. Subject to certain limitations contained in its outstanding debt instruments, the Company or its subsidiaries may incur additional indebtedness to (i) finance working capital, (ii) fund capital expenditures or acquisitions or (iii) provide funds for certain general corporate purposes. There can be no assurance, however, that in the future the Company will be able to satisfy its cash requirements from cash flow or borrowings. In such event, the Company could be required to adopt one or more alternatives, such as reducing or delaying capital expenditures, restructuring its indebtedness, selling assets, or selling additional shares of capital stock. There can be no assurance that any of such actions could be successfully accomplished. RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS The terms and conditions of the New Credit Facility and the indenture (the "Indenture") governing the Notes impose restrictions that limit or prohibit, among other things, the payment of cash dividends, incurrence of additional indebtedness, creation of liens, asset sales, and certain investments, acquisitions and capital expenditures. The terms of the New Credit Facility also require the Company to maintain or meet specified financial ratios and tests. The ability of the Company to comply with the terms of the New Credit Facility or the Indenture can be affected by events beyond the Company's control, including events such as prevailing economic conditions, changes in consumer preferences and changes in the competitive environment, which could have the effect of impairing the Company's operating performance. There can be no assurance that the Company will be able to comply with the provisions of the such debt instruments, including compliance with the financial ratios and tests contained in the New Credit Facility. Breach of any of these covenants or the failure to fulfill the obligations thereunder and the lapse of any applicable grace periods would result in an event of default under the applicable debt instruments, and the holders of such indebtedness could declare all amounts outstanding under their debt instruments to be due and payable immediately. There can be no assurance that the assets or cash flow of the Company would be sufficient to repay in full borrowings under its outstanding debt instruments whether upon maturity or if such indebtedness were to be accelerated upon an event of default or a change of control, or that the Company would be able to refinance or restructure its payments on such indebtedness. ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS Management of the Company has estimated that approximately $25 million of annualized net cost savings (as compared to such costs for the pro forma combined fiscal year ended December 30, 1995) can be achieved over a three-year period as a result of integrating the Arizona operations of Smith's and Smitty's. The estimates of potential cost savings contained in this Prospectus are forward looking statements that are 4 8 inherently uncertain. Actual cost savings, if any, could differ materially from those projected. All of these forward looking statements are based on estimates and assumptions made by management of the Company, which although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such estimates. There can be no assurance that the savings anticipated in these forward looking statements will be achieved. The following important factors, among others, could cause the Company not to achieve the cost savings contemplated or otherwise cause the Company's results of operations to be adversely affected in future periods: (i) continued or increased competitive pressures from existing competitors and new entrants, including price-cutting strategies; (ii) unanticipated costs related to the Transactions and the integration strategy; (iii) loss or retirement of key members of management or the termination of the Management Services Agreement with Yucaipa; (iv) inability to negotiate more favorable terms with suppliers, or to improve working capital management; (v) increases in interest rates or the Company's cost of borrowing or a default under any material debt agreement; (vi) inability to develop new stores in advantageous locations or to successfully convert existing stores; (vii) prolonged labor disruption; (viii) deterioration in general or regional economic conditions; (ix) adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; (x) loss of customers as a result of the conversion of store formats; (xi) adverse determinations in connection with pending or future litigations or other material claims against the Company; (xii) inability to achieve future sales levels or other operating results that support the cost savings, and (xiii) the unavailability of funds for capital expenditures. Many of such factors are beyond the control of the Company. In addition, there can be no assurance that unforeseen costs and expenses or other factors will not offset the projected cost savings in whole or in part. COMPETITION The supermarket industry is highly competitive and characterized by narrow profit margins. The Company's competitors include national and regional supermarket chains, independent and specialty grocers, drug and convenience stores and the newer "alternative format" food stores, including warehouse-style supermarkets, club stores, deep discount drug stores and "supercenters." The Company's competitors continue to open new stores in the Company's existing markets. In addition, new competitors have entered the Company's markets in the past and could do so in the future. Supermarket chains generally compete on the basis of price, location, quality of products, service, product variety and store condition. The Company regularly monitors its competitors' prices and adjusts its prices and marketing strategy as management deems appropriate in light of existing conditions. Some of the Company's competitors have greater financial resources than the Company and could use those resources to implement strategies which could adversely affect the Company's competitive position. The Company's ability to respond to competitive pressures could be adversely affected by its highly leveraged financial condition. CONTROL OF THE COMPANY The Company's Class A Common Stock and Series I Preferred Stock are each entitled to ten votes per share and the Company's Class B Common Stock is entitled to one vote per share. Members of the Smith Group (as defined below) have beneficial ownership, in the aggregate, of approximately 23.4% of the outstanding Common Stock and 32.7% of the outstanding Series I Preferred Stock of the Company, representing approximately 43.0% of the aggregate voting power of the Company's capital stock, and certain affiliates of Yucaipa have beneficial ownership of approximately 14.7% of the total outstanding Common Stock of the Company, representing approximately 1.4% of the aggregate voting power of the Company's outstanding capital stock. Pursuant to a standstill agreement (the "Standstill Agreement") entered into by certain Smith family members (the "Smith Group"), certain affiliates of Yucaipa (the "Yucaipa Group") and the Company, the Smith Group and the Yucaipa Group have the right to each nominate two directors so long as each holds at least 8% of the outstanding Common Stock and the right to nominate one director so long as each holds at least 5% of the outstanding Common Stock. As a result of the ownership structure of the Company and the contractual rights described above, the voting and management control of the Company is 5 9 highly concentrated. The Smith Group continues to have effective control of the Company and will effectively be able to direct the actions of the Company with respect to matters such as the payment of dividends, material acquisitions and dispositions and other significant corporate transactions. NEW SENIOR MANAGEMENT AND BOARD OF DIRECTORS Pursuant to the Recapitalization, the Company's 12 person Board of Directors was reduced to seven members, five of which are newly elected. Jeffrey P. Smith remains as Chairman of the Board but resigned as Chief Executive Officer of the Company. Ronald W. Burkle, the managing general partner of Yucaipa, was appointed Chief Executive Officer of the Company and Allen R. Rowland continues his recent appointment as President and Chief Operating Officer. As a result, the Company's senior executive officers and a majority of the members of the Board of Directors are new appointees. There can be no assurance that the changes in the Company's Board of Directors or senior management will not adversely affect the Company's operating performance. Mr. Burkle provides his services as Chief Executive Officer pursuant to the Management Services Agreement between the Company and Yucaipa; however, such agreement does not require Mr. Burkle to spend any specified amount of time on Company affairs. Yucaipa receives an annual fee of $1 million for providing the services of Mr. Burkle and the other partners and employees of Yucaipa. The Management Services Agreement may be terminated by the Company's Board of Directors on 90 days' notice or by either party upon the occurrence of certain events. If the Company seeks to terminate the Management Services Agreement, subject to limited exceptions, it is required to pay Yucaipa a termination fee of between $5 million and $10 million, depending on the time of termination. Yucaipa also received certain fees in connection with the consummation of the Recapitalization. CONTINGENT LIABILITIES RELATING TO CALIFORNIA DIVESTITURE In connection with closing stores in California and otherwise redeploying assets, the Company has assigned leases and subleased stores and other facilities to third parties, including (i) a sublease to Ralphs Grocery Company, an affiliate of Yucaipa, of the Company's Riverside, California distribution center and dairy plant and (ii) the assignment or sublease of 10 stores to various supermarket companies (including nine to Ralphs) in connection with the California Divestiture. Since the Company will generally remain either primarily or secondarily liable for the underlying lease obligations with respect to these stores and other facilities, the Company has a contingent liability to the extent the Company's sublessees or assignees default in the performance of their obligations under their respective sublease or underlying lease. 6 10 PRICE RANGE OF CLASS B COMMON STOCK The Company's Class B Common Stock is listed on the New York Stock Exchange under the symbol "SFD." The following table sets forth the high and low closing sale prices for the Company's Class B Common Stock for the calendar quarters indicated as reported by the New York Stock Exchange Composite Tape.
YEAR HIGH LOW ---- ---------- ----------- FISCAL 1994 ----------- First Quarter . . . . . . . . . . . . . . . . . $ 24 1/8 $ 20 1/8 Second Quarter . . . . . . . . . . . . . . . . . 22 18 1/8 Third Quarter . . . . . . . . . . . . . . . . . 24 3/4 18 1/2 Fourth Quarter . . . . . . . . . . . . . . . . . 26 3/4 22 5/8 FISCAL 1995 ----------- First Quarter . . . . . . . . . . . . . . . . . $ 27 5/8 $23 Second Quarter . . . . . . . . . . . . . . . . . 24 19 1/4 Third Quarter . . . . . . . . . . . . . . . . . 20 1/4 18 1/8 Fourth Quarter . . . . . . . . . . . . . . . . . 27 3/4 19 3/8 FISCAL 1996 ----------- First Quarter . . . . . . . . . . . . . . . . . $31 $ 23 1/4 Second Quarter . . . . . . . . . . . . . . . . . 28 3/8 21 7/8 Third Quarter . . . . . . . . . . . . . . . . . 29 1/2 23 3/4 Fourth Quarter (through October 25) . . . . . . 28 1/2 25 3/4
The last reported sale price of the Class B Common Stock on the New York Stock Exchange Composite Tape as of a recent date is set forth on the cover page of this Prospectus. DIVIDEND POLICY The Company currently intends to retain any future earnings for reinvestment in the development of its business and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The payment of dividends in the future will be dependent on various factors which the Board of Directors will evaluate from time to time, principally including whether the Company, after paying any proposed dividend, will have sufficient cash for its operating needs, servicing debt and reserving an appropriate amount of funds for the Company's expansion opportunities. There can be no assurance when or whether the Board might decide to resume paying dividends on its Common Stock. Such a decision would be dependent upon the Company's financial condition, results of operations, capital requirements and such other factors as the Company's Board of Directors deems relevant. The Company is severely restricted by the terms of its New Credit Facility and Indenture from paying cash dividends or other distributions. USE OF PROCEEDS The Company will not receive any proceeds from the sale of Class B Common Stock by the Selling Stockholders in the offering. 7 11 UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS The following unaudited pro forma combined statements of operations of the Company for the 52 weeks ended December 30, 1995 and the 26 weeks ended June 29, 1996 give effect to (a) the Transactions and the application of the proceeds therefrom and (b) the California Disposition, in each case as if such transactions occurred on January 1, 1995 with respect to the pro forma operating and other data for the 52 weeks ended December 30, 1995 and as of December 31, 1995 with respect to the pro forma operating and other data for the 26 weeks ended June 29, 1996. Such pro forma information: (i) eliminates the results of operations of the Company's California retail division for the 52 weeks ended December 30, 1995 and for the 26 weeks ended June 29, 1996 from Smith's results of operations for such periods and (ii) combines the operating results of Smith's for the 52 weeks ended December 30, 1995 and the operating results of Smith's as of and for the 26 weeks ended June 29, 1996, in each case pro forma for the elimination of the Company's California retail division, with the operating results of Smitty's for the 52 weeks ended January 14, 1996 and the operating results of Smitty's for the 24 weeks ended April 7, 1996, respectively. As indicated above, the Unaudited Pro Forma Combined Statements of Operations give effect to the California Divestiture and the California Asset Disposition. In connection with the California Divestiture, Smith's entered into agreements to sell or lease 23 stores and related equipment and five non-operating properties. These transactions generated net cash proceeds of $99.8 million. The remaining stores in California have been closed. In connection with the California Divestiture, the Company recorded a $140 million (pre-tax) California divestiture charge (the "California Divestiture Charge") for the year ended December 30, 1995. The California Divestiture Charge reflected (i) a provision for anticipated future lease obligations, (ii) the anticipated cost to the Company of closing its California stores and distribution center (primarily termination payments and inventory), and (iii) certain asset valuation adjustments. The asset valuation adjustments included in the California Divestiture Charge reflected the reduction in net realizable values for the equipment in all of the Company's California stores and distribution center and for the land and buildings associated with those properties being sold or leased. Pursuant to the California Asset Disposition, the Company intends to accelerate the disposition of its non-operating stores and excess land in California. As a result of the adoption of this strategy, the Company recorded pre-tax restructuring charges of approximately $201.6 million (the "California Asset Disposition Charge") to reflect (i) the difference between the anticipated cash proceeds from the accelerated dispositions (based on appraisals obtained following the completion of the Merger and Recapitalization) and the Company's existing book values for such assets and (ii) other charges in connection with the Company's decision to close the California region. INVESTORS ARE CAUTIONED THAT ALTHOUGH THE COMPANY HAS ENTERED INTO AGREEMENTS TO DISPOSE OF AN ADDITIONAL TWO NONOPERATING STORES AND TWO PARCELS OF EXCESS LAND IN CALIFORNIA, SUBJECT TO CERTAIN CONDITIONS, FOR APPROXIMATELY $14.1 MILLION AND THE ASSUMPTION OF CERTAIN LEASE LIABILITIES, IT HAS NOT ENTERED INTO ANY OTHER CONTRACTS TO SELL ASSETS IN CONNECTION WITH THE CALIFORNIA ASSET DISPOSITION AND THAT THERE CAN BE NO ASSURANCE AS TO THE TIMING OR THE AMOUNT OF NET PROCEEDS, IF ANY, WHICH THE COMPANY WILL ACTUALLY RECEIVE FROM SUCH DISPOSITIONS. The pro forma adjustments to give effect to the California Disposition and the Transactions are based upon currently available information and upon certain assumptions that management believes are reasonable. The statement of results of operations used to derive the adjustments to eliminate the California results of operations differs from a complete statement in that allocations for interest expense and certain services provided by the Company, including, but not limited to, portions of legal assistance, employee benefits administration, treasury, accounting, auditing, tax functions and real estate, have not been made. The Merger was accounted for by the Company as a purchase of Smitty's by Smith's and Smitty's assets and liabilities were recorded at their estimated fair market values at the date of the Merger. The adjustments included in the Unaudited Pro Forma Combined Statements of Operations represent the Company's preliminary determination of these adjustments based upon available information. There can be no assurance that the actual adjustments will not differ significantly from the pro forma adjustments reflected in the pro forma 8 12 financial information. The Unaudited Pro Forma Combined Statements of Operations are not necessarily indicative of either future results of operations or results that might have been achieved if the foregoing transactions had been consummated as of the indicated dates. The Unaudited Pro Forma Combined Statements of Operations should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of Smith's and Smitty's, together with the related notes thereto, incorporated by reference herein. The Unaudited Pro Forma Combined Statements of Operations do not reflect (i) any of the net annual cost savings which management believes are achievable by the end of the third full year of operations following the Merger, (ii) expenses of $12.3 million incurred in connection with the purchase of certain management stock options as part of the Recapitalization, (iii) the anticipated costs to be incurred in connection with the integration of operations in Arizona following the Merger, (iv) a $3.1 million severance payment to the Company's Chairman and former Chief Executive Officer or (v) an extraordinary charge of $41.8 million ($69.6 million charge net of a $27.8 income tax benefit) incurred in conjunction with the extinguishment of debt. The Unaudited Pro Forma Combined Statements of Operations included herein also do not reflect the California Divestiture Charge or the California Asset Disposition Charge. 9 13 UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
52 WEEKS ENDED ------------------------------------------------------------ JANUARY 14, DECEMBER 30, 1995 1996 PRO FORMA ------------------------------------------------------------ COMBINED FOR SMITH'S ADJUSTMENTS PRO FORMA SMITTY'S ADJUSTMENTS CALIFORNIA HISTORICAL CALIFORNIA FOR CALIFORNIA (HISTORICAL) FOR DISPOSITION AUDITED DISPOSITION(A) DISPOSITION (UNAUDITED) TRANSACTIONS AND TRANSACTIONS ---------- -------------- -------------- ------------ ------------ ---------------- Net sales . . . . . . . . $ 3,083.7 $ (674.6) $ 2,409.1 $ 584.3 $ $ 2,993.4 Cost of goods sold . . . 2,386.7 (516.2) 1,870.5 419.6 2,290.1 ----------- ---------- ------------ ---------- -------- ---------- 697.0 (158.4) 538.6 164.7 703.3 Expenses: Operating, selling and administrative . . . 461.4 (145.6) 315.8 136.0 .4(b) 452.2 Depreciation and amortization . . . . 105.0 (27.0) 78.0 12.3 1.8(c) 1.7(d) 93.8 Restructuring charges . 140.0 (140.0) Interest . . . . . . . 60.0 60.0 18.4 64.7(e) 143.1 Amortization of debt issuance costs . . . .4 .4 1.0 7.9(e) 9.3 ----------- ---------- ------------ ---------- -------- ---------- Income (loss) before income taxes . . . . . (69.8) 154.2 84.4 (3.0) (76.5) 4.9 Income tax expense (benefit) . . . . . . . (29.3) 63.2 33.9 (0.7) (29.5)(f) 3.7 ----------- ---------- ------------ ---------- -------- ---------- Net income (loss)(i) . . $ (40.5) $ 91.0 $ 50.5 $ (2.3) $ (47.0) $ 1.2 =========== ========== ============ ========== ======== ========== Net income (loss) per common share(i)(j) . . $ (1.62) $ 2.00 $ (2.30) $ .08 =========== =========== ========== ========= Weighted average common shares outstanding . . 25,031,000 25,284,000 1,001,000 15,730,000 =========== =========== ========== ========== Ratio of earnings to fixed charges(k)(l) . . . -- 2.27x 1.03x
See Notes to Unaudited Pro Forma Combined Statement of Operations. 10 14 UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
24 WEEKS ENDED 29 WEEKS ENDED APRIL 7, JUNE 29, 1996 1996 PRO FORMA ------------------------------------------------------------ COMBINED FOR SMITH'S ADJUSTMENTS FOR PRO FORMA SMITTY'S ADJUSTMENTS CALIFORNIA HISTORICAL CALIFORNIA FOR CALIFORNIA (HISTORICAL) FOR DISPOSITION AUDITED DISPOSITION(A) DISPOSITION (UNAUDITED) TRANSACTIONS AND TRANSACTIONS ---------- -------------- -------------- ------------ ------------ ---------------- Net sales . . . . . . . . $ 1,383.2 $ (73.1) $1,310.1 $ 289.3 $ $ 1,599.4 Cost of goods sold . . . 1079.9 (62.9) 1,017.0 207.5 1,224.5 ----------- -------- -------- ---------- ------ ---------- 303.3 (10.2) 293.1 81.8 374.9 Expenses: Operating, selling and administrative . . . 241.7 (37.4) 204.3 64.7 .2 (b) (17.7)(g) 251.5 Depreciation and amortization . . . . 44.1 (2.3) 41.8 6.2 .9 (c) .9 (d) 49.8 Restructuring charges . 201.6 (201.6) Interest . . . . . . . 37.1 37.1 7.9 25.7 (e) 70.7 Amortization of debt issuance costs . . . .9 .9 0.4 3.3 (e) 4.6 ----------- -------- -------- ---------- ------ ---------- Income (loss) before income taxes and extraordinary charge . (222.1) 231.1 9.0 2.6 (13.3) (1.7) Income tax expense (benefit) . . . . . . . (88.0) 91.7 3.7 (4.8)(f) (1.1) ----------- -------- -------- ---------- ------ ---------- Income (loss) before extraordinary charge(i) (134.1) $ 139.4 $ 5.3 $ 2.6 $ (8.5) $ (0.6) Extraordinary charge, net of tax benefit . . 41.8 41.8 (41.8)(h) ----------- -------- -------- ---------- ------ ---------- Net income (loss)(i) . . $ (175.9) $ 139.4 $ (36.5) $ 2.6 $ 33.3 $ (0.6) =========== ======== ======== ========== ====== ========== Income (loss) per common share: Income (loss) before extraordinary charges(i)(j) . . . $ (5.78) $ 0.22 $ 2.60 $ (0.04) Extraordinary charge . (1.80) (1.77) -- -- ----------- -------- ---------- ---------- Net income (loss)(i)(j) $ (7.58) $ (1.55) $ 2.60 $ (0.04) =========== ======== ========== ========== Weighted average common shares outstanding . . . . . . 23,184,000 23,596,000 1,009,000 15,777,000 =========== ========== ========= ========== Ratio of earnings to fixed charges(k)(l) . . -- 1.22x --
See Notes to Unaudited Pro Forma Combined Statement of Operations. 11 15 NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (a) Reflects the elimination of the 1995 and the 26 weeks ended June 29, 1996 operating results for the California stores, excess real estate and distribution center which were sold, leased or closed, and the reversal of the restructuring charges recorded, in connection with the California Divestiture and California Asset Disposition (collectively the "California Disposition"). (b) Represents fees payable to Yucaipa pursuant to the Management Services Agreement ($1.0 million for the 52 weeks ended December 30, 1995 and $.5 million for the 26 weeks ended June 29, 1996) and the elimination of the historical Yucaipa management fees ($.6 million for the 52 weeks ended December 30, 1995 and $.3 million for the 26 weeks ended June 29, 1996) paid by Smitty's. (c) Represents an increase in depreciation expense associated with the $5.4 million write-up of Smitty's property and equipment to adjust net book value to estimated fair market value. (d) Reflects the amortization of excess costs over net assets acquired in the Merger ($2.8 million for the 52 weeks ended December 30, 1995 and $1.4 million for the 26 weeks ended June 29, 1996) and the elimination of Smitty's historical amortization ($1.1 million for the 52 weeks ended December 30, 1995 and $.5 million for the 26 weeks ended June 29, 1996). Amortization has been allocated on the straight line basis over a period of 40 years. (e) The following table presents a reconciliation of pro forma interest expense and amortization of debt issuance costs:
52 WEEKS 26 WEEKS ENDED ENDED DECEMBER 30, 1995 JUNE 29, 1996 ------------------ -------------- (dollars in millions) Interest expense: Smitty's . . . . . . . . . . . . . . . . . . . . $ 18.4 $ 7.9 Pro forma Smith's . . . . . . . . . . . . . . . . 60.0 37.1 ------- -------- 78.4 45.0 ------- -------- Plus: Interest on: New Term Loans . . . . . . . . . . . . . . . . 71.5 35.4 Bank fees . . . . . . . . . . . . . . . . . . . 0.3 0.3 Notes . . . . . . . . . . . . . . . . . . . . . 64.7 32.3 Less: Interest on: Old bank term loans: Pro forma Smith's . . . . . . . . . . . . . . (59.5) (21.6) Smitty's . . . . . . . . . . . . . . . . . . (3.1) (1.9) Bank fees . . . . . . . . . . . . . . . . . . . (0.4) (0.1) Smitty's Notes . . . . . . . . . . . . . . . . (6.5) (3.0) Accretion of Smitty's Debentures . . . . . . . (2.3) (1.1) Interest on new debt since Recapitalization and Merger . . . . . . . . . . . . . . . . . - (14.6) ------- -------- Pro forma adjustment . . . . . . . . . . . . . . 64.7 25.7 ------- -------- Pro forma interest expense . . . . . . . . . . . . $ 143.1 $ 70.7 ======= ======== Historical amortization of debt issuance costs . . $ 1.4 $ 1.3 Plus: Financing fees . . . . . . . . . . . . . . . . 9.3 3.7 Less: Historical financing costs: . . . . . . . . . . (1.4) (.4) ------- -------- Pro forma adjustment . . . . . . . . . . . . . . 7.9 3.3 ------- -------- Pro forma amortization of debt issuance costs . . . $ 9.3 $ 4.6 ======= ========
(f) The pro forma adjustment to income tax benefit is based upon an assumed blended rate of 39% applied to the pro forma net loss adjusted for permanent differences between book and tax income. The tax benefits recognized in the Unaudited Pro Forma Combined Statements of Operations are more likely than not to be realized due to the expected future reversal of taxable temporary differences and the existence of taxable income in each of the prior three carryback years available. (g) Reflects the elimination of (i) expenses of $12.3 million incurred in connection with the purchase of certain management stock options as part of the Recapitalization, (ii) expenses of $2.3 million related to the integration of Smitty's into the Company's operations and (iii) a severance payment to the Company's Chairman and former Chief Executive Officer of $3.1 million. (h) Reflects the elimination of the extraordinary charge of $69.6 million for costs incurred in connection with the extinguishment of debt, net of a $27.8 million income tax benefit. 12 16 (i) The Unaudited Pro Forma Statements of Operations for the 52 weeks ended December 30, 1995 and 26 weeks ended June 29, 1996 do not reflect (i) the California Divestiture Charge of $140.0 million, (ii) the California Asset Disposition Charge of $201.6 million, (iii) expenses of $12.3 million incurred in connection with the purchase of certain management stock options as part of the Recapitalization, (iv) expenses of $2.3 million related to the integration of Smitty's into the Company's operations, (v) a severance payment to the Company's Chairman and former Chief Executive Officer of $3.1 million, and (vi) the extraordinary charge of $69.6 million for costs incurred in connection with the extinguishment of debt, net of a $27.8 million income tax benefit. (j) Net income (loss) per common share has been computed using the weighted average number of shares of Smith's Common Stock outstanding after giving effect to the issuance of 3,038,877 shares of Class B Common Stock of the Company to the stockholders of Smitty's as consideration in the Merger and the purchase of 50% of the outstanding Smith's Common Stock (excluding shares issuable in the Merger) in the Tender Offer. Common stock equivalents in the form of stock options do not have an impact on the weighted average number of common shares, with the exception of the weighted average common shares outstanding for the 26 weeks ended June 29, 1996 after giving effect to the California Disposition. (k) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before income taxes and fixed charges. "Fixed charges" consist of interest on all indebtedness, amortization of deferred financing costs, and one-third of rental expense (the portion of annual rental expense deemed by the Company to be representative of the interest factor). For the 52 weeks ended December 30, 1995 (historical), the Company's earnings were inadequate to cover fixed charges by $69.8 million. For the 26 weeks ended June 29, 1996 (historical), the Company's earnings were inadequate to cover fixed charges by $222.1 million. See "Selected Historical Financial Data of Smith's" and the notes thereto. 13 17 SELECTED HISTORICAL FINANCIAL DATA OF SMITH'S The following table sets forth selected historical financial data of Smith's for the five fiscal years ended December 30, 1995 which have been derived from the financial statements of Smith's audited by Ernst & Young LLP, independent auditors. The selected historical financial data of Smith's for the 26 weeks ended July 1, 1995 and June 29, 1996 have been derived from unaudited interim financial statements of Smith's which, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. The following information should be read in conjunction with the Unaudited Pro Forma Combined Statements of Operations, included herein, and the historical consolidated financial statements of Smith's and related notes thereto, incorporated by reference herein.
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 26 WEEKS 26 WEEKS ENDED ENDED ENDED ENDED ENDED ENDED ENDED DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29, 1991 1993 1994 1994 1995 1995 1996 ------------ ---------- ---------- ----------- ----------- -------- -------- OPERATING DATA: (DOLLARS IN MILLIONS) Net sales . . . . . . . . . . $2,217.4 $2,649.9 $2,807.2 $2,981.4 $3,083.7 $1,517.1 $1,383.2 Gross profit . . . . . . . . 498.6 611.6 637.2 669.1 697.0 340.8 303.3 Operating, selling and administrative expenses . . 344.4 419.7 430.3 440.8 461.4 229.5 241.7 Depreciation and amortization 50.5 67.8 82.2 94.5 105.0 50.4 44.1 Interest expense . . . . . . 30.3 36.1 44.6 53.7 60.5 30.1 37.1 Restructuring charges(a) . . -- -- -- -- 140.0 -- 201.6 Net income (loss) . . . . . . $ 45.1 $ 53.7 $ 45.8 $ 48.8 $ (40.5) $ 18.5 $ (175.9) Ratio of earnings to fixed charges(b) . . . . . . . . 3.02x 3.06x 2.55x 2.18x -- 1.8x -- BALANCE SHEET DATA (END OF PERIOD): Working capital . . . . . . . $ 30.7 $ 91.2 $ 160.4 $ 62.3 $ 162.7 $ 75.8 $ 188.3 Total assets . . . . . . . . 1,196.7 1,486.1 1,654.3 1,653.5 1,686.2 1,657.4 1,854.3 Total debt(c) . . . . . . . . 395.4 612.7 725.5 718.9 746.2 729.6 1,427.6 Redeemable preferred stock . 8.5 7.5 6.5 5.4 4.3 5.0 3.3 Common stockholders' equity . $ 474.4 $ 515.4 $ 542.2 $ 475.3 $ 416.7 $ 481.9 $ (139.8) OTHER DATA: Stores open at end of period 109 119 129 137 154 145 147 Capital expenditures . . . . $ 281.6 $ 288.0 $ 322.3 $ 146.7 $ 149.0 $ 65.7 $ 65.0 Cash provided by (used in) operating activities . . . 61.9 84.6 118.6 203.6 140.6 58.9 (33.9) Cash used in investing activities . . . . . . . . (277.4) (286.6) (164.4) (127.4) (146.3) (63.1) (30.3) Cash provided by (used in) financing activities . . . $ 212.8 $ 203.1 $ 92.3 $ (123.9) $ 7.5 $ 3.4 $ 93.5
(a) Reflects charges in connection with the California Disposition. (b) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before income taxes and fixed charges. "Fixed charges" consist of interest on all indebtedness, amortization of deferred financing costs, and one-third of rental expense (the portion of annual rental expense deemed by the Company to be representative of the interest factor). For the 52 weeks ended December 30, 1995, the Company's earnings were inadequate to cover fixed charges by $69.8 million. However, such earnings include non-cash charges of $105.4 million, primarily consisting of depreciation and amortization, and restructuring charges of $140.0 million. For the 26 weeks ended June 29, 1996, the Company's earnings were inadequate to cover fixed charges by $222.1 million. However, such earnings include non-cash charges of $45.0 million, primarily consisting of depreciation and amortization, and restructuring charges of $201.6 million. (c) Total debt includes long-term debt, current maturities of long-term debt and obligations under capital leases. 14 18 SELLING STOCKHOLDERS An aggregate of 3,201,470 of the shares of Class B Common Stock may be offered by the Selling Stockholders from time-to-time. The following table sets forth, as of October 28, 1996, the name of each Selling Stockholder, and for each, the number of shares of Class B Common Stock owned beneficially at the commencement of this offering, the maximum number of shares which may be offered for sale and, unless otherwise indicated, the number of shares to be owned beneficially after the offering (assuming all shares available for offer have been sold). Each share of Class B Common Stock is entitled to one vote per share on all matters to be voted upon by stockholders of the Company.
CLASS B COMMON STOCK NUMBER OF SHARES OF BENEFICIALLY OWNED CLASS B COMMON STOCK NUMBER OF SHARES AFTER THE OFFERING BENEFICIALLY OWNED OF CLASS B COMMON -------------------------- NAME BEFORE THE OFFERING(a) STOCK OFFERED NUMBER OF SHARES PERCENT ------------------------------------- ------------------- ----------------- ---------------- ------- Yucaipa Smitty's Partners, L.P.(b) 300,667 300,667 300,667(c) 2.8% Yucaipa Smitty's Partners II, L.P.(b) 136,793 136,793 136,793(c) 1.3 Yucaipa Arizona Partners, L.P.(b) 547,130 547,130 547,130(c) 5.1 Yucaipa SSV Partners L.P.(b) 1,140,816 1,140,816 1,140,816(c) 10.7 The Yucaipa Companies(b) 200,000 200,000 200,000(c) 1.9 Bahrain International Bank (E.C.) 50,206 50,206 -- * BT Securities Corporation(d) 530,198 7,529 522,669 5.0 Crescent Mach I, L.P. 9,035 9,035 -- * CS First Boston Corporation(e) 155,924 155,924 -- * CS First Boston Fund Investments 1994, L.P.(e) 476,738 476,738 -- * Franklin Age High Income Fund 45,177 45,177 -- * New England High Income Fund 752 752 -- * Prestwick Capital Partners, L.P. 4,862 4,862 -- * Prospect Street High Income Portfolio, Inc. 1,505 1,505 -- * Prudential High Yield Fund, Inc.(f) 13,553 13,553 -- * State Street Research and Management Company 752 752 -- * SunAmerica Income Funds - SunAmerica High Income Fund(g) 1,505 1,505 -- * SunAmerica Series Trust - High-Yield Bond Portfolio(g) 1,505 1,505 -- * Transamerica Life Companies 55,534 55,534 -- * Turnberry Capital Partners, L.P. 34,832 34,832 -- * Turnberry Offshore Capital Partners, L.P. 2,119 2,119 -- * United Congregation Mesorah Corporation 14,536 14,536 -- *
* Less than one percent. (a) Except as otherwise indicated, each beneficial owner has the sole power to vote, as applicable, and to dispose of all shares of Class B Common Stock owned by such beneficial owner. (b) Yucaipa is the general partner of Yucaipa Smitty's Partners, L.P., Yucaipa Smitty's Partners II, L.P., Yucaipa Arizona, L.P. and Yucaipa SSV Partners, L.P. Ronald W. Burkle is the Chief Executive Officer and a director of the Company, the controlling general partner of Yucaipa and a limited partner in Yucaipa Arizona Partners, L.P. and Yucaipa SSV Partners, L.P. Linda McLoughlin Figel is a director of the Company, a general partner of Yucaipa and a limited partner in Yucaipa SSV Partners, L.P. Share amounts and percentages for Yucaipa do not include shares issuable upon exercise of the Yucaipa Warrants issued to Yucaipa at the time of the Merger, which entitles Yucaipa to purchase 1,842,505 shares of non-voting Class C Common Stock, par value $.01 per share ("Class C Common Stock"), at an initial exercise price of $50.00 per share, subject to certain adjustments as set forth in the Warrant Agreement between the Company and Yucaipa. Such shares of Class C Common Stock will be convertible into an equal number of shares of Class B Common Stock following the transfer of such shares by Yucaipa to any person or entity not affiliated with Yucaipa. (c) Yucaipa and its affiliated partnerships have included shares in this Prospectus pursuant to the terms of a registration rights agreement with the Company. Yucaipa has advised the Company that it does not currently intend to sell its shares of Class B Common Stock but that, it may, from time-to-time, pledge such shares in the ordinary course of business. (d) BT Securities Corporation and its affiliates have from time to time provided financial advisory, investment banking or banking services to the Company and its affiliates. In addition, affiliates of BT Securities Corporation are administrative agent, co-arranger and lenders under the New Credit Facility. (e) CS First Boston Corporation ("CSFB") has from time to time provided financial advisory and/or financial intermediary services to the Company and its affiliates. CS First Boston Fund Investments 1994, L.P. is an affiliate of CSFB. CSFB has sole voting power with respect to 618,895 shares of Class B Common Stock held by it and CS First Boston Fund Investments 1994, LP and shares voting power with an affiliate, CS Holding, with respect to 13,767 shares of Class B Common Stock. 15 19 (f) The Prudential Investment Corporation ("Prudential") is the investment adviser to the Prudential High Yield Income Fund, Inc. ("Prudential High Yield") and as such has sole voting power with respect to the 13,553 shares of Class B Common Stock. Prudential disclaims beneficial ownership of the shares held by Prudential High Yield. (g) SunAmerica Asset Management Corp. is the investment advisor to the SunAmerica Income Funds - SunAmerica High Income Funds and the SunAmerica Series Trust - High-Yield Bond Portfolio and as such has sole voting power with respect to the 3,010 shares of Class B Common Stock. 16 20 PLAN OF DISTRIBUTION Any distribution of the shares covered by this Prospectus may be effected from time to time in one or more transactions (which may involve block transactions) on the New York Stock Exchange, in negotiated transactions or a combination of such methods of sale, at fixed prices, at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices. The Selling Stockholders will effect any such transactions with or through one or more broker-dealers which may act as agent or principal. Any such broker-dealer may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Stockholders and/or the purchaser of the shares for whom it may act as agent or to whom they may sell as principals or both. With respect to any shares sold by a Selling Stockholder, the Selling Stockholder and/or any broker-dealer affecting the sales may be deemed to be an "underwriter" within the meaning of Section 2(11) of the Securities Act, and any commissions received by the broker-dealer and any profit on the resale of shares as principal may be deemed to be underwriting discounts or commissions under the Securities Act. Additionally, the Selling Stockholders may pledge or make gifts of their shares and the shares may also be sold by the pledgee or transferees. As contemplated by the registration rights agreement executed concurrently with the consummation of the Merger, the Company shall (i) pay substantially all of the expenses incurred by the Selling Stockholders and the Company incident to the sale of the shares, but excluding any underwriting discounts, commissions or transfer taxes, (ii) provide customary indemnification to each Selling Stockholder and (iii) keep the Registration Statement continuously effective for at least two years from the date of the consummation of the Merger. In order to comply with the securities laws of certain states, if applicable, the Class B Common Stock may be sold in such jurisdiction only through registered or licensed brokers or dealers. In addition, in certain states the Class B Common Stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with. LEGAL MATTERS The validity of the shares of Class B Common Stock offered hereby will be passed upon for the Company by Latham & Watkins, Los Angeles, California. EXPERTS The consolidated financial statements of Smith's Food & Drug Centers, Inc. at December 30, 1995 and December 31, 1994 and for each of three years in the period ended December 30, 1995 incorporated by reference in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated by reference therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 17 21 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF CLASS B COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF CLASS B COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. _________________ TABLE OF CONTENTS
PAGE ---- Available Information . . . . . . . . . . . . 1 Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . 1 The Company . . . . . . . . . . . . . . . . . 2 Risk Factors . . . . . . . . . . . . . . . . 4 Price Range of Class B Common Stock . . . . . 7 Dividend Policy . . . . . . . . . . . . . . . 7 Use of Proceeds . . . . . . . . . . . . . . . 7 Unaudited Pro Forma Combined Statements of Operations . . . . . . . . . . . . . . 8 Selected Historical Financial Data of Smith's 14 Selling Stockholders . . . . . . . . . . . . 15 Plan of Distribution . . . . . . . . . . . . 17 Legal Matters . . . . . . . . . . . . . . . . 17 Experts . . . . . . . . . . . . . . . . . . . 17
---------- PROSPECTUS ---------- 3,201,470 SHARES SMITH'S FOOD & DRUG CENTERS, INC. CLASS B COMMON STOCK , 1996 22 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated expenses in connection with the issuance and distribution of the shares of Class B Common Stock. SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . $ NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . . . . . . Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . Printing and engraving expenses . . . . . . . . . . . . . . . . . . . . . Transfer Agent fees and expenses . . . . . . . . . . . . . . . . . . . . Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Smith's is a Delaware corporation and its Certificate of Incorporation and Bylaws provide for indemnification of its officers and directors to the fullest extent permitted by law. Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") the Certificate of Incorporation of Smith's eliminates the personal liability of its directors to Smith's or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liabilities related to breach of duty of loyalty, actions not in good faith, and certain other liabilities. Section 145 of the DGCL permits the indemnification by a Delaware corporation of its directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against liabilities and expenses incurred in any such action, suit or proceeding. The directors and officers of Smith's are insured against certain liabilities under directors' and officers' liability insurance. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits A list of exhibits filed with this Registration Statement on Form S-3 is set forth in the Index to Exhibits on page E-1, and is incorporated herein by reference. (b) Financial Statement Schedules Not Applicable. II-1 23 ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. II-2 24 (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 25 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Salt Lake City, State of Utah, on October 28, 1996. SMITH'S FOOD & DRUG CENTERS, INC. By /s/ ALLEN R. ROWLAND ------------------------------------- Allen R. Rowland PRESIDENT AND CHIEF OPERATING OFFICER We, the undersigned officers and directors of Smith's Food & Drug Centers, Inc. and each of us, do hereby constitute and appoint each and any of Allen R. Rowland and Matthew G. Tezak, our true and lawful attorney and agent, with full power of substitution and resubstitution, to do any and all acts and things in our name and behalf in any and all capacities and to execute any and all instruments for us in our names in any and all the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto; and we hereby ratify and confirm all that said attorney and agent, or his substitute, shall do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ JEFFREY P. SMITH Chairman of the Board October 28, 1996 - ------------------------------------------------ Jeffrey P. Smith /s/ RONALD W. BURKLE Chief Executive Officer October 28, 1996 - ------------------------------------------------ Ronald W. Burkle /s/ ALLEN R. ROWLAND President and Chief October 28, 1996 - ------------------------------------------------ Operating Officer Allen R. Rowland
II-4 26
SIGNATURES TITLE DATE ---------- ----- ---- /s/ MATTHEW G. TEZAK Senior Vice President and October 28, 1996 - ------------------------------------------------ Chief Financial Officer Matthew G. Tezak (Principal Financial and Accounting Officer) /s/ FRED L. SMITH Director October 28, 1996 - ------------------------------------------------ Fred L. Smith /s/ LINDA MCLOUGHLIN FIGEL Director October 28, 1996 - ------------------------------------------------ Linda McLoughlin Figel /s/ BRUCE KARATZ Director October 28, 1996 - ------------------------------------------------ Bruce Karatz /s/ BERTRAM R. ZWEIG Director October 28, 1996 - ------------------------------------------------ Bertram R. Zweig
II-5 27 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION PAGE - ------- ----------- ---- 1.1 Form of Underwriting Agreement (to be incorporated by reference at the time of an offering). 2.1 Recapitalization Agreement and Plan of Merger dated as of January 29, 1996 by and among the Company, Cactus Acquisition, Inc., Smitty's Supermarkets, Inc. and The Yucaipa Companies (incorporated by reference to Exhibit 2.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995). 3.1 Amended and Restated Certificate of Incorporation. 3.2 Amended and Restated Bylaws. 4.1 Indenture dated as of May 23, 1996 by and between the Company and Fleet National Bank of Connecticut, as Trustee, with respect to the Notes. *5.1 Opinion of Latham & Watkins regarding the legality of the Class B Common Stock, including consent. 10.1 Registration Rights Agreement by and among the Company and the holders of the Company's Common Stock named therein. 10.2 Management Services Agreement by and between the Company and The Yucaipa Companies. 10.3 Warrant Agreement by and between the Company and The Yucaipa Companies. *23.1 Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1 to the Registration Statement). 23.2 Consent of Ernst & Young LLP, independent auditors. 24.1 Power of Attorney (included on signature page to the Registration Statement). 27.1 Financial Data Schedule.
- --------------------------- * To be filed by amendment Index to Exhibits -1- EX-3.1 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SMITH'S FOOD & DRUG CENTERS, INC. We, the President and Secretary of Smith's Food & Drug Centers, Inc., a Delaware corporation (the "Corporation"), do hereby certify as follows: First: That the name of the Corporation is Smith's Food & Drug Centers, Inc. Second: That its certificate of incorporation was originally filed with the Secretary of State of the State of Delaware on January 18, 1989. Third: That the amendment and the restatement of the certificate of incorporation have been duly adopted in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law by the Corporation. Fourth: That the text of the certificate of incorporation of the Corporation, as amended, is hereby restated as further amended by this certificate, to read in full, as follows: ARTICLE I Name The name of the Corporation is Smith's Food & Drug Centers, Inc. ARTICLE II Registered Office The registered office of the Corporation in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent in the State of Delaware at such address is The Corporation Trust Company. ARTICLE III Purpose The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 1 2 ARTICLE IV Capital Stock Section 4.1. Number of Shares Authorized; Par Value. The Corporation shall be authorized to issue two classes of shares of stock to be designated, respectively, "Common Stock" and "Preferred Stock"; the total number of shares which the Corporation shall have authority to issue is Two Hundred and Twenty-Five Million (225,000,000), divided as follows: (a) Common Stock. The total number of shares of Common Stock shall be One Hundred and Forty Million (140,000,000), divided into three classes designated as Class A Common Stock, Class B Common Stock and Class C Common Stock, as follows: the total number of authorized shares of Class A Common Stock shall be Twenty Million (20,000,000), and each share of Class A Common Stock shall have a par value of one cent ($0.01); the total number of authorized shares of Class B Common Stock shall be One Hundred Million (100,000,000), and each share of Class B Common Stock shall have a par value of one cent ($0.01) and the total number of authorized shares of Class C Common Stock shall be Twenty Million (20,000,000), and each share of Class C Common Stock shall have a par value of one cent ($0.01). (b) Preferred Stock. The total number of shares of Preferred Stock shall be Eighty-Five Million (85,000,000), and each share of Preferred Stock shall have a par value of one cent ($0.01). Section 4.2. Voting Rights. (a) Class A Common Stock. Each share of Class A Common Stock shall carry the right to ten (10) votes for the election of directors of the Corporation and to ten (10) votes upon any matter presented to the stockholders for their vote or approval, subject to conversion upon transfer as provided for below. (b) Class B Common Stock. Each share of Class B Common Stock shall carry the right to one (1) vote for the election of directors of the Corporation and to one (1) vote upon any matter presented to the stockholders for their vote or approval. (c) Class C Common Stock. Each share of Class C Common Stock shall carry the right to no votes for the election of directors of the Corporation and to no votes upon any matter presented to the stockholders for their vote or approval, subject to conversion upon transfer as provided for below. (d) Preferred Stock. Shares of Preferred Stock shall have such voting rights as shall be fixed by the Corporation's Board of Directors from time to time as provided in Section 4.5(b) below; provided that no share of Preferred Stock other than shares designated as Series I Preferred Stock under Section 4.5(c) below shall be entitled to more than one (1) vote for the election of directors of the Corporation and one (1) vote upon any other matter presented to the stockholders for their vote or approval. Section 4.3. Sales or Transfer of Shares of Class A Common Stock; Conversion of Shares of Class A Common Stock. (a) "Original Class A Stockholder" Defined. For purposes of this Section 4.3, an "Original Class A Stockholder" shall mean, with respect to any given share of Class A Common Stock, 2 3 the person to whom such share was originally issued; provided that in the event that a share of Class A Common Stock is issued to a person that is a corporation, partnership, association or trust (hereafter an "Entity Holder") in a merger from which the Corporation is the surviving corporation, and if such Entity Holder obtained the securities which were in such merger converted into Class A Common Stock (for purposes of this subsection, the "Securities") from a natural person, the Original Class A Stockholder with respect to such share of Class A Common Stock shall be deemed to be the natural person from whom such Entity Holder obtained the Securities, as shown on the records of the merged corporation. (b) Restrictions Upon Sale or Transfer of Shares of Class A Common Stock. No share of Class A Common Stock may be sold, assigned, pledged (subject to the provisions of Section 4.3(f), below), hypothecated, transferred (by gift, will, laws of intestacy or otherwise) or exchanged or otherwise disposed of (herein all these actions are referred to as a "transfer" or to be "transferred") by the holder thereof except only to the following persons (each a "Permitted Transferee"): (1) a spouse, child, grandchild, sibling, parent or other lineal descendant of such share's Original Class A Stockholder (a "Family Member"); and (2) an Entity Holder, all of the equity and/or beneficial interests in which are owned beneficially and of record by such share's Original Class A Stockholder and/or such Original Class A Stockholder's Family Members (a "Family Entity"). (c) Requirement to Convert to Class B Common Stock. Upon the occurrence of any of the events listed below in this Section 4.3(c) with respect to any share of Class A Common Stock, the holder and, if applicable, the transferee of such Class A Common Stock shall promptly present such share(s) to the Corporation for conversion into an equal number of shares of Class B Common Stock: (1) the transfer of Class A Common Stock by the holder thereof to other than a Permitted Transferee of such shares; (2) the transfer of any equity or beneficial interest in a Family Entity which is a holder of Class A Common Stock to other than a Permitted Transferee of the Original Class A Shareholder of the shares of Class A Common Stock held by the Family Entity, as determined under Section 4.3(a), above; (3) foreclosure upon Class A Common Stock by a bona fide pledgee thereof; or (4) the agreement to transfer Class A Common Stock by a trustee in the bankruptcy of the estate of the holder thereof. (d) Enforcement of Requirement to Convert. The Corporation shall be entitled to seek specific enforcement of the requirements of Section 4.3(c) upon the failure of any holder and/or transferee of shares of Class A Common Stock to comply with the requirements thereof. In such event the Corporation shall be entitled to recover from the holder and the transferee who failed to comply with Section 4.3(c), jointly and severally, the court costs, reasonable attorneys' fees and other costs and expenses incurred by it in connection with the obtaining of such specific enforcement. The Corporation shall further be entitled to actual and consequential damages incurred as a result of a willful violation of the requirements of Section 4.3(c), including without limitation court costs and reasonable attorneys' fees. 3 4 (e) Annual Report to Corporation by Entity Holders. In order to enable the Corporation to enforce the provisions of Section 4.3(c), each Entity Holder shall report in writing to the Corporation no later than the last day of December each year the names and addresses of every person who, during the year then concluded, owned a beneficial or equity interest in such Entity Holder, as well as a list of the officers, trustees, general partners, etc. of such Entity Holder who held office during the year. (f) Pledge of Shares of Class A Common Stock. Shares of Class A Common Stock may be pledged or otherwise encumbered to secure a bona fide loan or other obligation without violating the restrictions set forth in Section 4.3(b) or invoking the requirements of Section 4.3(c); provided that a foreclosure upon any pledged shares by the pledgee for the purpose of selling such pledged shares other than to a Permitted Transferee of the Original Class A Stockholder of such pledged or encumbered shares shall invoke upon the pledgee the requirements of Section 4.3(c) to present such shares to the Corporation for conversion to shares of Class B Common Stock prior to any transfer by the pledgee. (g) Optional Conversion into Shares of Class B Common Stock. Any Class A Stockholder shall have the right at any time to convert any share of Class A Common Stock into one (1) share of Class B Common Stock, by presenting the necessary certificates to the Corporation for transfer. (h) Mandatory Conversion of Class A Common Stock into shares of Class B Common Stock. If at any time the total number of shares of Class A Common Stock issued and outstanding shall be less than 2,910,885, as reflected upon the stock records of the Corporation, then each share of Class A Common Stock issued and outstanding at such time shall automatically convert into one (1) share of Class B Common Stock, each outstanding warrant, option or other right to receive or purchase shares of Class A Common Stock outstanding at such time shall automatically convert to a right to receive or purchase an equal number of shares of Class B Common Stock, all without the need for the Corporation or any stockholder to take any action, and no further shares of Class A Common Stock may thereafter be issued by the Corporation. After such automatic conversion, each owner of an outstanding certificate or certificates theretofore representing shares of Class A Common Stock shall be entitled, upon surrendering such certificate or certificates to the Corporation, to receive in exchange therefor a certificate or certificates representing the number of shares of Class B Common Stock into which the shares of Class A Common Stock theretofore represented by the surrendered certificate or certificates shall have been converted as herein provided. Until so surrendered, each outstanding certificate which, prior to such automatic conversion represented shares of Class A Common Stock, shall be deemed, for all corporate purposes, to represent the ownership of the shares of Class B Common Stock into which such shares of Class A Common Stock were converted on the basis herein provided. Section 4.4. Sales or Transfer of Shares of Class C Common Stock; Conversion of Shares of Class C Common Stock. (a) "Original Class C Stockholder" Defined. For purposes of this Section 4.4, an "Original Class C Stockholder" shall mean, with respect to any given share of Class C Common Stock, any person or entity deemed to be a member of the "Investor Group" pursuant to that certain Standstill Agreement dated as of January 29, 1996 (as amended, the "Standstill Agreement"), among the Corporation, The Yucaipa Companies, Yucaipa SSV Partners, L.P., Yucaipa Smitty's Partners, L.P., Yucaipa Smitty's Partners II, L.P., Yucaipa Arizona Partners, L.P., and the stockholders of the Corporation named therein, as it may be amended from time to time. (b) Permitted Conversion to Class B Common Stock. Upon the transfer of Class C Common Stock by an Original Class C Stockholder to a third party other than another Original Class C 4 5 Stockholder, the transferee of such Class C Common Stock may present such share(s) to the Corporation for conversion into an equal number of shares of Class B Common Stock. No conversion of Class C Common Stock into Class B Common Stock shall be permitted for shares of Class C Common Stock held by an Original Class C Stockholder or any party bound by the terms of the Standstill Agreement as a member of the Investor Group, as in effect from time to time. Section 4.5. Other Rights and Preferences. (a) Common Stock. Except as otherwise specifically set forth herein as to voting powers, all shares of Common Stock shall have the same rights and preferences. (b) Preferred Stock. Except as set forth below in Section 4.5(c), the rights and privileges of the Preferred Stock shall be fixed by the Corporation's Board of Directors from time to time by resolution. By such resolution the Board of Directors may establish a series of such Preferred Stock and fix and determine the relative voting powers, preferences, rights and qualifications, limitations and restrictions of the shares of any series so determined in respect to the Common Stock and in respect to the other series of Preferred Stock; provided that no series so designated shall have rights or preferences superior to the rights and preferences of Series I Preferred Stock, as set forth in Section 4.5(c) below; and provided further that no share of Preferred Stock other than shares designated as Series I under Section 4.5(c) shall be entitled to more than one (1) vote for the election of directors of the Corporation and one (1) vote upon any other matter presented to the stockholders for their vote or approval. (c) Series I Preferred Stock. Thirty-Four Million Five Hundred Twenty-Four Thousand Five Hundred Seventy-Nine (34,524,579) shares of Preferred Stock are hereby designated as Series I Preferred Stock, which shall have the following rights and preferences: (1) Preference. If the Corporation shall be dissolved or liquidated; if it shall sell all or substantially all of its assets, whether voluntary or involuntary, or whether required or ordered by any federal or state authority, agency, court, or body; if it shall become insolvent; or distribute its capital in a winding-up of the Corporation, the holders of the issued and outstanding shares of Series I Preferred Stock shall be entitled to receive the amount of Thirty-Three and One-Third Cents ($0.33-1/3) per share on a pro-rata basis with the holders of other series of Preferred Stock before any sum shall be paid or any assets distributed to the holders of shares of Common Stock. (2) Redemption (i) Redemption Price. The redemption price for all redemptions of Series I Preferred Stock made in accordance with this Section 4.5(c)(2) shall be Thirty-Three and One-Third Cents ($0.33-1/3) per share. (ii) Optional Redemption. All shares of Series I Preferred Stock shall be subject to redemption by the Corporation at any time after May 1, 1998 by order of the Board of Directors. If less than the whole amount of the outstanding Series I Preferred Stock shall be redeemed, each holder of Series I Preferred Stock shall be entitled to have a portion of his, her or its shares redeemed on a pro rata basis. In the case of such a redemption, the Corporation shall send written notice thereof to each of the registered holders of Series I Preferred Stock at least sixty (60) days prior to the date designated in such notice for such redemption. Such notice shall set forth the manner in which the 5 6 certificates shall be surrendered in order to receive payments of the redemption price. Upon presentation of any certificate representing the shares to be redeemed, properly endorsed, the Corporation shall deliver its check to the holder thereof in payment of the redemption price for those shares. In the event all of the Series I Preferred Stock represented by the surrendered certificate are not redeemed, the Corporation shall promptly deliver to the holder of such certificate a new certificate representing the shares of the Series I Preferred Stock represented by such surrendered certificate which are not being redeemed. (iii) Mandatory Redemption. Shares of Series I Preferred Stock shall be redeemed as follows: (A) On the 1st day of each December, beginning December 1, 1989, the Corporation shall, to the extent permitted by the laws of the State of Delaware, redeem from the holder or the holder's successor, one-eleventh (1/11th) of the number of authorized shares of Series I Preferred Stock; provided that for the five year period between December 1, 1996 through December 1, 2001 the Company shall not redeem any portion of its Series I Preferred Stock. (B) The redemption price of Thirty-Three and One-Third Cents ($0.33-1/3) per share of Series I Preferred Stock shall be paid by check upon presentation by the holders of such shares to the Secretary of the Corporation of a certificate or certificates for the appropriate number of shares then to be redeemed, properly endorsed by such holders. In the event that such certificate or certificates represent a greater number of shares than the number of shares to be redeemed pursuant to this Section 4.5(c)(2)(iii), the Corporation shall promptly deliver to the holders of such certificate or certificates a new certificate representing the shares of Series I Preferred Stock represented by such surrendered certificate or certificates which are not being so redeemed. (iv) Remedy upon Failure to Redeem. In the event of the failure of the Corporation to redeem any of the shares of Series I Preferred Stock as required by Section 4.5(c)(2)(iii) above, each holder of Series I Preferred Stock shall be entitled, at his, her or its option, to require the Corporation to redeem all of the then outstanding shares of Series I Preferred Stock held by such holder, provided that the Corporation's default has not been cured within thirty (30) days after a delivery to the Corporation of written notice of default by such holder. In the event of the exercise of such option by any holder of Series I Preferred Stock, the Corporation shall, to the extent permitted by the laws of the State of Delaware, pay a redemption price of Thirty-Three and One-Third Cents ($0.33-1/3) per each share of Series I Preferred Stock by check upon presentation by such holder of the certificate or certificates representing all shares of Series I Preferred Stock to be redeemed, properly endorsed by such holder. (v) Retirement and Cancellation. All shares of Series I Preferred Stock which shall have been redeemed as herein provided shall be cancelled and shall not be reissued as Series I Preferred Stock, and the Corporation shall from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of Series I Preferred Stock accordingly. 6 7 (3) Voting Rights. (i) General Voting Rights. Except as otherwise set forth in Section 4.5(b)(3)(ii) below, each share of Series I Preferred Stock shall be entitled to ten (10) votes for the election of directors of the Corporation and to ten (10) votes upon any matter that comes to a vote before the stockholders of the Corporation on which the holders of any series of Common Stock are entitled to vote; provided that the holders of shares of Series I Preferred Stock shall be entitled to vote as a class upon any amendment to the Corporation's Certificate of Incorporation adversely affecting the rights of the holders of Series I Preferred Stock. The affirmative vote of the holders of a majority of the issued and outstanding shares of Series I Preferred Stock shall be required to approve any such amendment. (ii) Reduction of Voting Rights Following Certain Transfers. (A) If, on or after June 1, 1996, any share of Series I Preferred Stock is sold, assigned, pledged, hypothecated, transferred (by gift, will, laws of intestacy or otherwise) or exchanged or otherwise disposed of, other than to a Permitted Series I Transferee (as defined below), then, without any action required by the Corporation or the transferor or the transferee of such share, such share of Series I Preferred Stock shall automatically have the number of votes allocated to such share reduced from ten (10) votes per share to one (1) vote per share. (B) For purposes of this Section 4.5(b), a "Permitted Series I Transferee" shall mean, with respect to any given share of Series I Preferred Stock, (1) a spouse, child, grandchild, sibling, parent or other lineal descendant of (or, with respect to any shares held by a person that is not a natural person, any affiliate (as defined in Rule 12b-2 under the rules and regulations of the Securities Exchange Act of 1934, as amended) of) such share's Original Series I Preferred Stockholder (as defined below), (2) any other Original Series I Preferred Stockholder or (3) any person which is a party to the Standstill Agreement referred to in Section 4.4(a). An "Original Series I Preferred Stockholder" shall mean, with respect to any given share of Series I Preferred Stock, the person to whom such share was originally issued. ARTICLE V Bylaws In furtherance and not in limitation of the power conferred upon the Board of Directors by law, the Board of Directors shall have power to make, adopt, alter, amend and repeal, from time to time, the Bylaws of the Corporation, subject to the right of the stockholders entitled to vote with respect thereto to alter and repeal Bylaws made by the Directors. 7 8 ARTICLE VI Directors Section 6.1. The number of directors which shall constitute the full Board of Directors shall be determined by resolution of the Board of Directors from time to time, provided that such resolution shall not designate a number of directors other than seven (7) without the unanimous approval of the directors then in office. Section 6.2. The board of directors, other than those directors elected by the holders of any series of Preferred Stock as may be entitled to the election of directors, shall be divided into three classes, as nearly equal in number as possible, with the term of office of one class expiring each year and with each director serving for a term ending at the third annual meeting of stockholders of the Corporation following the annual meeting at which such director was elected. Section 6.3. Except as otherwise provided for or fixed pursuant to this Restated Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock to elect additional directors, and subject to the provisions hereof, newly created directorships resulting from any increase in the authorized number of directors, and any vacancies on the Board resulting from death, resignation, disqualification, removal, or other cause, may be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified, subject to his earlier death, disqualification, resignation or removal. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director. Section 6.4. Notwithstanding the provisions of Sections 6.2 and 6.3 of this Article VI, each director shall serve until his successor is elected and qualified or until his or her death, retirement, resignation or removal. ARTICLE VII Written Ballot Elections of directors need not be by written ballot unless the bylaws of the Corporation shall so provide. ARTICLE VIII Personal Liability of Directors Section 8.1. To the fullest extent that the laws of the State of Delaware, as the same exist or may hereafter be amended, permit elimination of the personal liability of directors, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. 8 9 Section 8.2. Any amendment or repeal of this Article VIII or adoption of any Bylaw of the Corporation or other provision of the Certificate of Incorporation of the Corporation which has the effect of increasing director liability shall operate prospectively only and shall not affect any action taken, or any failure to act, by a director of the Corporation prior to such amendment, repeal, Bylaw or other provision becoming effective. ARTICLE IX Indemnification of, and Advancement of Expenses to, Directors, Officers and Other The Corporation shall indemnify its officers, directors, employees and agents as provided in its Bylaws. 9 10 IN WITNESS WHEREOF, Smith's Food & Drug Centers, Inc. has caused this certificate to be signed by Matthew G. Tezak, its Senior Vice President, and Michael C. Frei, its Secretary, this 23rd day of May, 1996. SMITH'S FOOD & DRUG CENTERS, INC. By: /s/ Matthew G. Tezak -------------------------------- Matthew G. Tezak Senior Vice President, and Chief Financial Officer Attest: By: /s/ Michael C. Frei -------------------------------- Michael C. Frei Senior Vice President, General Counsel and Secretary 10 EX-3.2 3 AMENDED AND RESTATED BYLAWS 1 Exhibit 3.2 SMITH'S FOOD & DRUG CENTERS, INC. (a Delaware corporation) BY-LAWS ARTICLE I OFFICES Section 1.01. Registered Office. The registered office of Smith's Food & Drug Centers, Inc. (the "Corporation") in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle, and the name of the registered agent in charge thereof shall be The Corporation Trust Company. Section 1.02. Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors (the "Board") may from time to time determine or as the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 2.01. Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. Section 2.02. Special Meetings. Special meetings of the stockholders may be called at any time, for the purpose or purposes set forth in the call, by the Chairman of the Board, the Chief Executive Officer, the President or the Board of Directors by delivering a written request to the Secretary. At any time, upon the written request of any person or persons who have duly called a special meeting, it shall be the duty of the Secretary to give due notice thereof. Special meetings shall be held at such place, either within or without the State of Delaware, and at such time and date as may from time to time be designated by the person or persons calling the meeting and as specified in the notice of the meeting. 2 Section 2.03. Notice of Annual and Special Meetings. Except as otherwise expressly required by law, notice of each meeting of stockholders, whether annual or special, shall be given at least ten (10) and not more than sixty (60) days prior to the date on which the meeting is to be held to each stockholder of record entitled to vote thereat by delivery of a notice thereof to him personally or by sending a copy thereof through the United States mail or by telegram, charges prepaid, to his address appearing on the records of the Corporation. Each such notice shall specify the place, day and hour of the meeting and, in the case of a special meeting, shall briefly state the purpose or purposes for which the meeting is called. A written waiver of notice, signed by the person or persons entitled to such notice, whether before or after the date and time fixed for the meeting shall be deemed the equivalent of such notice. Neither the business to be transacted at nor the purpose of the meeting need be specified in a waiver of notice of such meeting. Section 2.04. Quorum. A stockholders' meeting duly called shall not be organized for the transaction of business unless a quorum is present. At any meeting the presence in person or by proxy of stockholders entitled to cast at least a majority of the votes which all stockholders are entitled to be cast on the particular matter shall constitute a quorum for the purpose of considering such matter, except as otherwise expressly provided by law or by the Certificate of Incorporation or By-Laws of the Corporation. The stockholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, those present may adjourn the meeting from time to time to such time (not more than thirty (30) days after the next previous adjourned meeting) and place as they may determine, without notice other than by announcement at the meeting of the time and place of the adjourned meeting. Section 2.05. Voting. (a) At every meeting of stockholders, each holder of record of issued and outstanding stock of the Corporation entitled to vote at such meeting shall be entitled to vote in person or by proxy and, except where a date has been fixed as the record of date for the determination of stockholders entitled to notice of or to vote at such meeting, no holder of record of a share of stock which has been transferred on the books of the Corporation within ten (10) days next preceding the date of such meeting shall be entitled to notice of or to vote at such meeting in respect of such share so transferred. 2 3 (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants in common, tenants by entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meetings; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may therefore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. (d) Except with respect to the election of directors, resolutions of the stockholders shall be adopted, and any action of the stockholders at a meeting upon any matter shall be taken and be valid, only if at least a majority of the votes cast with respect to such resolutions or matter are cast in favor thereof, except as otherwise expressly provided by law or by the Certificate of Incorporation or By-Laws of the Corporation. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. (e) The Chairman of the Board (if one has been elected and is present) shall be chairman, and the Secretary (if present) shall act as secretary, at all meetings of the stockholders. In the absence of the Chairman of the Board, the Chief Executive Officer shall be chairman; in the absence of the Chief Executive Officer, the President shall be chairman; and in the absence of all of them, the 3 4 chairman shall be designated by the Board of Directors or if not so designated shall be elected by the stockholders present; and in the absence of the Secretary, an Assistant Secretary shall act as secretary of the meeting. Section 2.06. List of Stockholders. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at a meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.07. Judges. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest. Section 2.08. Procedure at Stockholders' Meetings. The organization of each meeting of the stockholders, the order of the business thereat and all matters relating to the manner of conducting the meetings shall be determined by the chairman of the meeting, whose decisions may be overruled only by majority vote (which shall not be by ballot) of the stockholders present and entitled to vote at the meeting in person or by proxy. Meetings shall be conducted in a manner designated to accomplish the business of the meeting in a prompt and orderly fashion and to be fair and equitable to all stockholders, 4 5 but it shall not be necessary to follow Roberts Rules of Order or any other manual of parliamentary procedure. Section 2.09. Action Without Meeting. Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote therein were present and voted, and such written consent is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. ARTICLE III DIRECTORS Section 3.01. General Powers. The property, business and affairs of the Corporation shall be managed by, or under the direction of, the Board. Section 3.02. Number, Election and Term of Office. The number of directors which shall constitute the full Board of Directors shall be determined by resolution of the Board or by the stockholders at the annual meeting. Each director shall hold office for the term for which he is elected and thereafter until his successor is duly elected or until his prior death, resignation or removal in the manner hereinafter provided. Directors need not be stockholders. Section 3.03. Annual Meetings. Annual meetings of the Board of Directors shall be held each year at the same place as and immediately after the annual meeting of stockholders, or at such other place and time as shall theretofore have been determined by the Board. At its regular annual meeting, the Board of Directors shall organize itself and elect the officers of the Corporation for the ensuing year, and may transact any other business. Section 3.04. Regular Meetings. Regular meetings of the Board of Directors may be held at such intervals and at such time and place as shall from time to time be determined by the Board. 5 6 After there has been such determination and notice thereof has been once given to each person then a member of the Board of Directors, regular meetings may be held at such intervals and time and place without further notice being given. Section 3.05. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Board, by the Chairman of the Board, by the Chief Executive Officer, by the President or by any two directors to be held on such day and at such time and place as shall be specified by the person or persons calling the meeting. Section 3.06. Notice of Annual and Special Meetings. Except as otherwise expressly required by law, notice of the annual meeting of the Board of Directors need not be given. Except as otherwise expressly required by law, notice of every special meeting of the Board of Directors specifying the place, date and time thereof shall be given to each director in writing either by being mailed on at least the fifth day prior to the date of the meeting or by being delivered by telegraph, confirmed air courier or personally at least 48 hours prior to the time of the meeting. A written waiver of notice of a special meeting, signed by the person or persons entitled to such notice, whether before or after the date and time stated therein fixed for the meeting, shall be deemed the equivalent of such notice, and attendance of a director at a meeting shall constitute a waiver of notice of such meeting except when the director attends the meeting for the express purpose of objecting, when he enters the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 3.07. Quorum and Manner of Acting. At all meetings of the Board of Directors, except as otherwise expressly provided by law or by the Certificate of Incorporation or By-Laws of the Corporation, the presence of a majority of the full Board shall be necessary and sufficient to constitute a quorum for the transaction of business. If a quorum is not present at any meeting, the meeting may be adjourned from time to time by a majority of the directors present until a quorum as aforesaid shall be present, but notice of the time and place to which such a meeting is adjourned shall be given to any directors not present until a quorum as aforesaid shall be present, but notice of the time and place to which such a meeting is adjourned shall be given to any directors not present either by being by telegraph or given personally or by telephone at least eight hours prior to the date of reconvening. Resolutions of the Board of Directors shall be adopted, and any action of the Board at a meeting upon any matter shall be taken and be valid, only with the affirmative vote of at least a majority of the directors present at the meeting, except as otherwise provided herein. The Chairman of the Board (if one 6 7 has been elected and is present) shall be chairman, and the Secretary (if present) shall act as secretary, at all meetings of the Board. In the absence of the Chairman of the Board, the Chief Executive Officer shall be chairman; in the absence of the Chief Executive Officer, the President shall be chairman; and in the absence of all of them, the directors present shall select a member of the Board of Directors to be chairman; and in the absence of the Secretary, the chairman of the meeting shall designate any person to act as secretary of the meeting. Section 3.08. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a consent in writing, setting forth the actions so taken, shall be signed by all members of the Board or such committee, as they case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. Section 3.9. Participation by Conference Telephone. Members of the Board of Directors of the Corporation, or any committee designated by the Board, may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. Section 3.10. Resignations. A director may resign by submitting his written resignation to the Chairman of the Board (if one has been elected) or the Secretary. Unless otherwise specified therein, the resignation of a director need not be accepted to make it effective and shall be effective immediately upon its receipt by such officer or as otherwise specified therein. If the resignation of a director specifies that it shall be effective at some time later than receipt, until that time the resignation director shall be competent to act on all matters before the Board of Directors, including filling the vacancy caused by such resignation. Section 3.11. Removal of Directors. The entire Board of Directors or any individual director may be removed at any time for cause by the holders of a majority of the shares then entitled to vote at an election of directors. The vacancy or vacancies caused in the Board of Directors by such removal may only be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board. 7 8 Section 3.12. Vacancies. Any vacancy that shall occur in the Board of Directors by reason of death, resignation, removal, increase in the number of directors or any other cause whatever shall be filled by a majority of the then members of the Board, whether or not a quorum, and each person so elected shall be a director until he or his successor is elected by the stockholders at a meeting called for the purpose of electing directors, or until his prior death, resignation or removal. Section 3.13. Compensation of Directors. The Corporation may allow compensation to its directors for their services, as determined from time to time by resolution adopted by the Board of Directors. The Board may also provide that the Corporation shall reimburse each such director for any expense incurred by him on account of his attendance at any meetings of the Board or Committees of the Board. Neither the payment of such compensation nor the reimbursement of such expenses shall be construed to preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving compensation therefor. Section 3.14. Committees. The Board of Directors may, by resolution, designate one or more committees consisting of directors to have and exercise such authority of the Board in the management of the business and affairs of the Corporation as the resolution of the Board creating such committee may specify and as is otherwise permitted by law. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of such absent or disqualified member. Section 3.15. Personal Liability of Directors. (a) To the fullest extent that the laws of the State of Delaware, as the same exist or may hereafter be amended, permit elimination of the personal liability of directors, no director of this Corporation shall be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. (b) Any amendment or repeal of this Section 3.15 or adoption of any By-Law of this Corporation or other provision of the Certificate of Incorporation of this Corporation which has the effect 8 9 of increasing director liability shall operate prospectively only and shall not affect any action taken, or any failure to act, by a director of this Corporation prior to such amendment, repeal, By-Law or other provision becoming effective. ARTICLE IV OFFICERS AND EMPLOYEES Section 4.01. Executive Officers. The Executive Officers of the Corporation shall be the Chief Executive Officer, the President, a Secretary and a Treasurer, and may include a Chairman of the Board, one or more Vice Presidents, and one or more Assistant Secretaries as the Board of Directors may from time to time determine, all of whom shall be elected by the Board of Directors. Any two or more offices may be held by the same person. Each Executive Officer shall hold office until the next succeeding annual meeting of the Board of Directors and thereafter until his successor is duly elected and qualifies, or until his earlier death, resignation or removal. Section 4.02. Additional Officers: Other Agents and Employees. The Board of Directors may from time to time appoint or hire such additional officers, assistant officers, agents, employees and independent contractors as the Board deems advisable; and the Board or the Chief Executive Officer shall prescribe their duties, conditions of employment and compensation. Subject to the power of the Board of Directors, the Chief Executive Officer may employ from time to time such other agents, employees, and independent contractors as he may deem advisable for the prompt and orderly transaction of the business of the Corporation, and he may prescribe their duties and the conditions of their employment, fix their compensation and dismiss them, without prejudice to their contract rights, if any. The Board may delegate to any officer of the Corporation or any committee of the Board the power to appoint, remove and prescribe the duties of any assistant officers, agents or employees. Section 4.03. Removal. Any officer, assistant, agent or employee of the Corporation may be removed, with or without cause, at any time: (i) in the case of an officer, assistant, agent or employee appointed by the Board, only by resolution of the Board; and (ii) in the case of an officer, assistant, agent or employee, by any officer of the Corporation or committee of the Board upon whom or which such power of removal may be conferred by the Board. 9 10 Section 4.04. The Chairman. If there shall be a Chairman of the Board, he shall be elected from among the directors, and shall preside at all meetings of the stockholders and of the Board at which he shall be present. He shall have such other powers and duties as from time to time may be prescribed by the Board or these By-Laws. Section 4.04. The Chief Executive Officer. The Chief Executive Officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation. He shall have such other powers and duties as from time to time may be prescribed by the Board or these By-Laws. Section 4.05. The President. The President shall be the chief operating officer of the Corporation, unless otherwise specified by the Board by resolution. Subject to the control of the Board of Directors and the Chief Executive Officer, the President shall have general policy supervision of and general management and executive powers over all the property, business, operations and affairs of the Corporation, and shall see that the policies and programs adopted or approved by the Board are carried out. The President shall exercise such further powers and duties as from time to time may be prescribed by the Board of Directors, the Chief Executive Officer or these By-Laws. Section 4.06. The Vice Presidents. The Vice Presidents may be given by resolution of the Board of Directors general executive powers, subject to the control of the President, concerning one or more or all segments of the operations of the Corporation. The Vice Presidents shall exercise such further powers and duties as from time to time may be prescribed in these By-Laws or by the Board of Directors, by the Chief Executive Officer or by the President. At the request of the President or in his absence or disability, the senior Vice President shall exercise all the powers and duties of the President. Section 4.07. The Secretary and Assistant Secretaries. It shall be the duty of the Secretary (a) to keep or cause to be kept an original or duplicate record of the proceedings of the stockholders and the Board of Directors, and a copy of the Certificate of Incorporation and of the By-Laws; (b) to attend to the giving of notices of the Corporation as may be required by law or these By-Laws; (c) to be custodian of the corporate records and of the seal of the Corporation and see that the seal is affixed to such documents as may be necessary or advisable; (d) to have charge of the stock books of the Corporation, and a share register, giving the names of the stockholders in alphabetical order, and 10 11 showing their respective addresses, the number and classes of shares held by each, the number and date of certificates issued for the shares, and the date of cancellation of every certificate surrendered for cancellation; and (e) to exercise all powers and duties incident to the office of Secretary, and such other powers and duties as may be prescribed by the Board of Directors, the Chief Executive Officer or the President from time to time. The Secretary by virtue of his office shall be an Assistant Treasurer. The Assistant Secretaries shall assist the Secretary in the performance of his duties and shall also exercise such further powers and duties as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President or the Secretary. At the direction of the Secretary or in his absence or disability, an Assistant Secretary shall perform the duties of the Secretary. Section 4.08. The Treasurer and Assistant Treasurers. The Treasurer shall have custody of all the funds and securities of the Corporation. He shall collect all moneys due the Corporation. He shall collect all moneys due the Corporation and deposit such moneys to the credit of the Corporation in such banks, trust companies, or other depositories as may have been duly designated by the Board of Directors. He shall endorse for collection on behalf of the Corporation, checks, notes, drafts and other documents, and may sign and deliver receipts, vouchers and releases of liens evidencing payments made to the Corporation. Subject to Section 5.01 of these By-Laws, he shall cause to be disbursed the funds of the Corporation by payment in cash or by checks or drafts upon the authorized depositories of the Corporation. He shall have charge of the books and accounts of the Corporation. He shall perform all acts incident to the office of Treasurer and such other duties as may be assigned to him by the Board of Directors or the Chief Executive Officer. The Treasurer by virtue of his office shall be an Assistant Secretary. The Assistant Treasurers shall assist the Treasurer in the performance of his duties and shall also exercise such further powers and duties as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President or the Treasurer. At the direction of the Treasurer or in his absence or disability, an Assistant Treasurer shall perform the duties of the Treasurer. Section 4.09. Vacancies. Vacancy in any office or position by reason of death, resignation, removal, disqualification, disability or other cause, shall be filled in the manner provided in this Article IV for regular election or appointment to such office. Section 4.10. Delegation of Duties. The Board of Directors may in its discretion delegate for the time being the powers and duties, or any of them, of any officer to any other person whom it may select. 11 12 ARTICLE V SHARES OF CAPITAL STOCK Section 5.01. Share Certificates. Every holder of stock in the Corporation shall be entitled to a certificate or certificates, to be in such form as the Board of Directors may from time to time prescribe, signed by the Chairman of the Board, the Chief Executive Officer, the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary. The signatures of such officers may be facsimiles. Each such certificate shall set forth the name of the registered holder thereof, the number and class of shares and the designation of the series, if any, which the certificate represents. The Board of Directors may, if it so determines, direct that certificates for shares of stock of the Corporation be signed by a transfer agent or registered by a registrar or both, in which case such certificates shall not be valid until so signed or registered. In case any officer of the Corporation who shall have signed, or whose facsimile signature shall have been used on, any certificate for shares of stock of the Corporation shall cease to be such officer, whether because of death, resignation, removal or otherwise, before such certificate shall have been delivered by the Corporation, such certificate shall nevertheless be deemed to have been adopted by the Corporation and may be issued and delivered as though the person who signed such certificate or whose facsimile signature shall have been used thereon had not ceased to be such officer. Section 5.02. Transfer of Shares. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof or by his attorney thereunto authorized by an instrument duly executed and filed with the Corporation, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by properly executed stock powers and evidence of the payment of all taxes imposed upon such transfer. Except as provided in Section 5.04 of this Article V, every certificate surrendered for transfer shall be cancelled and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled. Section 5.03. Transfer Agents and Registrars. The Board of Directors may appoint any one or more qualified banks, trust companies or other corporations organized under any law of any state of the United States or under the laws of the United States as agent or agents for the Corporation in the 12 13 transfer of the stock of the Corporation and likewise may appoint any one or more such qualified banks, trust companies or other corporations as registrar or registrars of the stock of the Corporation. Section 5.04. Lost, Stolen, Destroyed or Mutilated Certificates. New certificates for shares of stock may be issued to replace certificates lost, stolen, destroyed or mutilated upon such terms and conditions, which may but need not include the giving of a satisfactory bond or other indemnity, as the Board of Directors may from time to time determine. Section 5.05. Regulations Relating to Shares. The Board of Directors shall have power and authority to make such rules and regulations not inconsistent with these By-Laws or with law as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of stock of the Corporation. Section 5.06. Holders of Record. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder and owner in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Delaware. Section 5.07. Fixing of Record Date. The Board of Directors may fix a record date which does not precede the date on which the resolution fixing such record date is adopted, (a) in order to determine the stockholders entitled to notice of or to vote at any meeting of stockholders, provided such record date is not less than ten (10) or more than sixty (60) days prior to the date of any such meeting; (b) in order to determine the stockholders entitled to consent to corporate action in writing without a meeting, provided such record date is not more than ten (10) days after the date on which the resolution fixing such record date is adopted; and (c) in order to determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in 13 14 respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, provided such record date is not more than sixty (60) days prior to such action. In such case, only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to notice of, or to vote at, such meeting or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any record date fixed as aforesaid. ARTICLE VI LOANS, NOTES, CHECKS, CONTRACTS AND OTHER INSTRUMENTS Section 6.01. Notes, Checks, etc. All notes, drafts, acceptances, checks, endorsements (other than for deposit) and all evidences of indebtedness of the Corporation whatsoever shall be signed by such officers or agents and shall be subject to such requirements as to countersignature or other conditions as the Board of Directors from time to time may designate. Facsimile signatures on checks may be used unless prohibited by the Board of Directors. Section 6.02. Execution of Instruments Generally. Except as provided in Section 6.01 of this Article VI, all contracts and other instruments requiring execution by the Corporation may be executed and delivered by the Chief Executive Officer, the President or any Vice President, and authority to sign any such contracts or instruments, which may be general or confined to specific instances, may be conferred by the Board of Directors upon any other person or persons. Any person having authority to sign on behalf of the Corporation may delegate, from time to time, by instrument in writing, all or any part of such authority to any person or persons if authorized so to do by the Board of Directors. Section 6.03. Proxies in Respect of Stock or Other Securities of Other Corporations. Unless otherwise provided by the Board of Directors, the President may from time to time appoint an attorney or attorneys or an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation to vote or consent in respect of such stock or other securities, may instruct the person or persons so appointed as to the manner of exercising such powers and rights and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate 14 15 seal or otherwise all such written proxies or other instruments as he may deem necessary or proper in order that the Corporation may exercise its said powers and rights. ARTICLE VII GENERAL PROVISIONS Section 7.01. Corporate Seal. The Board of Directors may prescribe the form of a suitable corporate seal, which shall contain the full name of the Corporation and the year and state of incorporation. Such seal may be used by causing it or a facsimile or reproduction thereof to be affixed to or placed upon the document to be sealed. Section 7.02. Fiscal Year. Unless otherwise determined by the Board of Directors, the Corporation shall have a 52/53 week fiscal year ending on the Saturday closest to December 31 each year. ARTICLE VIII VALIDATION OF CERTAIN CONTRACTS Section 8.01. Validation of Certain Contracts. No contract or other transaction between the Corporation and another person shall be invalidated or otherwise adversely affected by the fact that any one or more stockholders, directors or officers of the Corporation (i) is pecuniarily or otherwise interested in, or is a stockholder, director, officer, or member of, such other person, or (ii) is a party to, or is in any other way pecuniarily or otherwise interested in, the contract or other transaction, or (iii) is in any way connected with any person pecuniarily or otherwise interested in such contract or other transaction, provided the fact of such interest shall be disclosed or known to the Board of Directors or the stockholders, as the case may be, and in any action of the stockholders or of the Board authorizing or approving any such contract or other transaction, any and every stockholder or director may be counted in determining the existence of a quorum with like force 15 16 and effect as though he were not so interested, or were not such a stockholder, director, member or officer, or were not such a party, or were not so connected. As used herein, the term "person" includes a corporation, partnership, firm, association or other legal entity. ARTICLE IX AMENDMENTS Section 9.01. Amendments. These By-Laws, or any of them, may be altered, amended or repealed, and new By-Laws may be made, (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board, or (ii) by the stockholders, at any meeting of the Board, or (ii) by the stockholders, at any annual meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting. Any By-Laws made or altered by the stockholders may be altered or repealed by either the Board or the stockholders. ARTICLE X INDEMNIFICATION OF, AND ADVANCEMENT OF EXPENSES TO, DIRECTORS, OFFICERS AND OTHERS Section 10.01. Rights Indemnification. Except as prohibited by law, every director and officer of the Corporation shall be entitled as of right to be indemnified by the Corporation against all expenses and liability (as those terms are defined below in this Section 10.01) incurred by such person in connection with any actual or threatened claim, action, suit or proceeding, whether civil, criminal, administrative, investigative or other, or whether brought by or against such persons or by or in the right of the Corporation or otherwise, by reason of such person being or having been a director or officer of the Corporation or a subsidiary of the Corporation or by reason of the fact that such person is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other entity (such claim, action, suit or proceeding hereinafter being referred to as an "Action"); provided, however, that no such right to indemnification shall exist with respect to an Action brought by an Indemnitee (as defined below) against the Corporation (an "Indemnitee Action") except as provided in the last sentence of this Section 10.01. Persons who are not directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or a subsidiary of the Corporation or to another such entity at 16 17 the request for the corporation to the extent the Board of Directors of the Corporation at any time designates any of such persons as entitled to the benefits of this Article X. As used in this Article X, "Indemnitee" includes each director and officer of the Corporation and each other person designated by the Board of Directors of the Corporation as entitled to the benefits of this Article X; "expenses" means all expenses actually and reasonably incurred, including fees and expenses of counsel selected by an Indemnitee; and "liability" means all liability incurred, including the amounts of any judgments, excise taxes, fines or penalties and any amounts paid in settlement. An Indemnitee shall be entitled to be indemnified pursuant to this Article X against expenses incurred in connection with an Indemnitee Action if (i) the Indemnitee Action is instituted under Section 10.03 of this Article X and the indemnitee is successful in whole or in part in such Indemnitee Action, (ii) the Indemnitee is successful in whole or in part in another Indemnitee Action for which expenses are claimed or (iii) the indemnification for expenses is included in a settlement of, or is awarded by a court in, such other Indemnitee Action. Section 10.02. Right to Advancement of Expenses. Every Indemnitee shall be entitled as of right to have the expenses of the Indemnitee in defending any Action or in bringing and pursuing any Indemnitee Action under Section 10.03 of this Article X paid in advance by the Corporation prior to final disposition of the Action or Indemnitee Action, provided that the Corporation receives a written undertaking by or on behalf of the Indemnitee to repay the amount advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified for the expenses. Section 10.03. Right of Indemnitee to Bring Action. If a written claim for indemnification under Section 10.01 of this Article X or for advancement of expenses under Section 10.02 of this Article X is not paid in full by the Corporation within thirty (30) days after the claim has been received by the Corporation, the Indemnitee may at any time thereafter bring an Indemnitee Action to recover the unpaid amount of the claim and, if successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of bringing and pursuing such Indemnitee Action. The only defense to an Indemnitee Action to recover on a claim for indemnification under Section 10.01 of this Article X shall be that the conduct of the Indemnitee was such that under Delaware law the Corporation is prohibited from indemnifying the Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel and stockholders) to have made a determination prior to the commencement of such Indemnitee Action that indemnification of the Indemnitee is proper in the circumstances, not an actual determination by the Corporation (including its Board of Directors, 17 18 independent legal counsel or stockholders) that the conduct of the Indemnitee was such that indemnification is prohibited by Delaware law, shall be a defense to such Indemnitee Action or create a presumption that the conduct of the Indemnitee was such that indemnification is prohibited by Delaware law. The only defense to an Indemnitee Action to recover on a claim for advancement of expenses under Section 10.02 of this Article X shall be failure by the Indemnitee to provide the undertaking required by Section 10.02 of this Article X. Section 10.04. Funding and Insurance. The Corporation may create a trust fund, grant a security interest, cause a letter of credit to be issued or use other means (whether or not similar to the foregoing) to ensure the payment of all sums required to be paid by the Corporation to effect indemnification as provided in this Article X. The Corporation may purchase and maintain insurance to protect itself and any Indemnitee against any expenses or liability incurred by the Indemnitee in connection with any Action, whether or not the Corporation would have the power to indemnify the Indemnitee against the expenses or liability by law or under the provisions of this Article X. Section 10.05. Non-Exclusivity; Nature and Extent of Rights. The rights to indemnification and advancement of expenses provided for in this Article X shall (i) not be deemed exclusive of any other rights, whether now existing or hereafter created, to which any Indemnitee may be entitled under any agreement, provision in the Certificate of Incorporation or By-Laws of the Corporation, vote of stockholders or disinterested directors or otherwise; (ii) be deemed to create contractual rights in favor of each Indemnitee who serves at any time while this Article X is in effect (and each such Indemnitee shall be deemed to be serving in reliance on the provisions of this Article X); (iii) continue as to each Indemnitee who has ceased to have the status pursuant to which the Indemnitee was entitled or was designated as entitled to indemnification under this Article X and inure to the benefit of the heirs and legal representatives of each Indemnitee; and (iv) be applicable to Actions commenced after this Article X becomes effective, whether arising from acts or omissions occurring before or after this Article X becomes effective. Any amendment or repeal of this Article X or adoption of any By-Law of the Corporation or other provision of the Certificate of Incorporation of the Corporation which has the effect of limiting in any way the rights to indemnification or advancement of expenses provided for in this Article X shall operate prospectively only and shall not affect any action take, or any failure to act, by an Indemnitee prior to such amendment, repeal, By-Law or other provision becoming effective. 18 19 Section 10.06. Partial Indemnity. If an Indemnitee is entitled under any provision of this Article X to indemnification by the Corporation for some or a portion of the expenses or liability incurred by the Indemnitee in the preparation, investigation, defense, appeal or settlement of any Action or Indemnitee Action but not, however, for the total amount thereof, the Corporation shall indemnify the Indemnitee for the portion of such expenses or liability to which the Indemnitee is entitled. 19 20 CERTIFICATE OF ADOPTION OF BY-LAWS By Resolution dated the 17th day of May, 1996, a majority of the Directors of Smith's Food & Drug Centers, Inc., approved and adopted the foregoing By-Laws as the By-Laws of said Corporation effective as of May 23, 1996. This Certificate is dated May 23, 1996. SMITH'S FOOD & DRUG CENTERS, INC. By /s/ Michael C. Frei -------------------------------- Michael C. Frei Secretary 20 EX-4.1 4 INDENTURE DATED MAY 23, 1996 1 EXHIBIT 4.1 _______________________________________________________________________________ SMITH'S FOOD & DRUG CENTERS, INC. AND FLEET NATIONAL BANK, as Trustee ____________________________ INDENTURE Dated as of May 23, 1996 ____________________________ $575,000,000 11 1/4% Senior Subordinated Notes due 2007 _______________________________________________________________________________ 2 CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- ------- 310(a)(1)................................... 8.10 (a)(2)................................... 8.10 (a)(3)................................... N.A. (a)(4)................................... N.A. (a)(5)................................... 8.10; 8.11 (b)...................................... 8.08; 8.10; 13.02 (c)...................................... N.A. 311(a)...................................... 8.11 (b)...................................... 8.11 (c)...................................... N.A. 312(a)...................................... 2.05 (b)...................................... 13.03 (c)...................................... 13.03 313(a)...................................... 8.06 (b)(1)................................... N.A. (b)(2)................................... 8.06 (c)...................................... 8.06; 13.02 (d)...................................... 8.06 314(a)...................................... 5.07; 5.09; 13.02 (b)...................................... N.A. (c)(1)................................... 8.02; 13.04 (c)(2)................................... 8.02; 13.04 (c)(3)................................... N.A. (d)...................................... N.A. (e)...................................... 13.05 (f)...................................... N.A. 315(a)...................................... 8.01(b) (b)...................................... 8.05; 13.02 (c)...................................... 8.01(a) (d)...................................... 8.01(c) (e)...................................... 7.11 316(a)(last sentence)....................... 2.09 (a)(1)(A)................................ 7.05 (a)(1)(B)................................ 7.04 (a)(2)................................... N.A. (b)...................................... 7.07 (c)...................................... 317(a)(1)................................... 7.08 (a)(2)................................... 7.09 (b)...................................... 2.04 318(a)...................................... 13.01 (c)...................................... 13.01 - ---------------------- N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. -i- 3 TABLE OF CONTENTS ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Page Section 1.01 Definitions............................. 1 Section 1.02 Incorporation by Reference of TIA....... 31 Section 1.03 Rules of Construction................... 32 ARTICLE TWO THE SECURITIES Section 2.01 Form and Dating......................... 32 Section 2.02 Execution and Authentication............ 33 Section 2.03 Registrar and Paying Agent.............. 34 Section 2.04 Paying Agent To Hold Assets in Trust................................. 35 Section 2.05 Holder Lists............................ 35 Section 2.06 Transfer and Exchange................... 36 Section 2.07 Replacement Securities.................. 38 Section 2.08 Outstanding Securities.................. 38 Section 2.09 Treasury Securities..................... 39 Section 2.10 Temporary Securities.................... 39 Section 2.11 Cancellation............................ 39 Section 2.12 Defaulted Interest...................... 40 Section 2.13 CUSIP Number............................ 40 ARTICLE THREE REDEMPTION Section 3.01 Notices to Trustee...................... 40 Section 3.02 Selection of Securities To Be Redeemed.............................. 41 Section 3.03 Notice of Redemption.................... 41 Section 3.04 Effect of Notice of Redemption.......... 42 Section 3.05 Deposit of Redemption Price............. 42 Section 3.06 Securities Redeemed in Part............. 43 -ii- 4 Page ARTICLE FOUR SUBORDINATION Section 4.01 Securities Subordinated to Senior Indebtedness.......................... 43 Section 4.02 Suspension of Payment When Senior Indebtedness in Default............... 44 Section 4.03 Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company............................... 46 Section 4.04 Holders To Be Subrogated to Rights of Holders of Senior Indebtedness.......................... 48 Section 4.05 Obligations of the Company Unconditional......................... 48 Section 4.06 Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice..................... 49 Section 4.07 Application by Trustee of Assets Deposited with It..................... 49 Section 4.08 No Waiver of Subordination Provisions............................ 50 Section 4.09 Holders Authorize Trustee To Effectuate Subordination of Securities............................ 51 Section 4.10 Right of Trustee To Hold Senior Indebtedness.......................... 52 Section 4.11 No Suspension of Remedies............... 52 Section 4.12 No Fiduciary Duty of Trustee to Holders of Senior Indebtedness........ 52 ARTICLE FIVE COVENANTS Section 5.01 Payment of Securities................... 53 Section 5.02 Maintenance of Office or Agency......... 53 Section 5.03 Limitation on Restricted Payments....... 54 Section 5.04 Corporate Existence..................... 55 Section 5.05 Payment of Taxes and Other Claims....... 55 Section 5.06 Maintenance of Properties and Insurance............................. 56 Section 5.07 Compliance Certificate; Notice of Default............................... 57 -iii- 5 Page Section 5.08 Compliance with Laws.................... 58 Section 5.09 SEC Reports............................. 58 Section 5.10 Waiver of Stay, Extension or Usury Laws.................................. 58 Section 5.11 Limitation on Transactions with Affiliates............................ 59 Section 5.12 Limitation on Incurrences of Additional Indebtedness............... 61 Section 5.13 Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries.......................... 61 Section 5.14 Limitation on Liens..................... 62 Section 5.15 Limitation on Change of Control......... 63 Section 5.16 Limitation on Asset Sales............... 65 Section 5.17 Limitation on Subsidiary Assets and Indebtedness...................... 68 Section 5.18 Limitation on Preferred Stock of Restricted Subsidiaries............... 70 Section 5.19 Limitation on Other Senior Subordinated Indebtedness............. 70 Section 5.20 Limitation on Restricted and Unrestricted Subsidiaries............. 71 ARTICLE SIX SUCCESSOR CORPORATION Section 6.01 Limitation on Mergers and Certain Other Transactions.................... 72 Section 6.02 Successor Corporation Substituted....... 73 ARTICLE SEVEN DEFAULT AND REMEDIES Section 7.01 Events of Default....................... 73 Section 7.02 Acceleration............................ 75 Section 7.03 Other Remedies.......................... 76 Section 7.04 Waiver of Past Defaults................. 76 Section 7.05 Control by Majority..................... 76 Section 7.06 Limitation on Suits..................... 77 Section 7.07 Rights of Holders To Receive Payment............................... 77 Section 7.08 Collection Suit by Trustee.............. 77 Section 7.09 Trustee May File Proofs of Claim........ 78 -iv- 6 Page Section 7.10 Priorities.............................. 78 Section 7.11 Rights and Remedies Cumulative.......... 79 Section 7.12 Delay or Omission Not Waiver............ 79 Section 7.13 Undertaking for Costs................... 79 ARTICLE EIGHT TRUSTEE Section 8.01 Duties of Trustee....................... 80 Section 8.02 Rights of Trustee....................... 81 Section 8.03 Individual Rights of Trustee............ 82 Section 8.04 Trustee's Disclaimer.................... 82 Section 8.05 Notice of Default....................... 83 Section 8.06 Reports by Trustee to Holders........... 83 Section 8.07 Compensation and Indemnity.............. 83 Section 8.08 Replacement of Trustee.................. 84 Section 8.09 Successor Trustee by Merger, Etc........ 85 Section 8.10 Eligibility; Disqualification........... 86 Section 8.11 Preferential Collection of Claims Against Company....................... 86 ARTICLE NINE SATISFACTION AND DISCHARGE OF INDENTURE Section 9.01 Termination of the Company's Obligations........................... 86 Section 9.02 Legal Defeasance and Covenant Defeasance............................ 88 Section 9.03 Application of Trust Money.............. 92 Section 9.04 Repayment to the Company or the Guarantors............................ 92 Section 9.05 Reinstatement........................... 93 ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 10.01 Without Consent of Holders.............. 93 Section 10.02 With Consent of Holders................. 94 Section 10.03 Compliance with TIA..................... 95 Section 10.04 Revocation and Effect of Consents....... 96 -v- 7 Page Section 10.05 Notation on or Exchange of Securities............................ 96 Section 10.06 Trustee To Sign Amendments, Etc......... 97 ARTICLE ELEVEN GUARANTEE Section 11.01 Unconditional Guarantee................. 97 Section 11.02 Subordination of Guarantee.............. 98 Section 11.03 Severability............................ 99 Section 11.04 Release of a Guarantor.................. 99 Section 11.05 Limitation of Guarantor's Liability............................. 99 Section 11.06 Guarantors May Consolidate, etc., on Certain Terms...................... 100 Section 11.07 Contribution............................ 100 Section 11.08 Waiver of Subrogation................... 100 Section 11.09 Execution of Guarantee.................. 101 Section 11.10 Waiver of Stay, Extension or Usury Laws.................................. 102 ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS Section 12.01 Guarantee Obligations Subordinated to Guarantor Senior Indebtedness...... 102 Section 12.02 Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default........ 103 Section 12.03 Guarantee Obligations Subordinated to Prior Payment of All Guarantor Senior Indebtedness on Dissolution, Liquidation or Reorganization of Such Guarantor...... 105 Section 12.04 Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of Guarantor Senior Indebtedness.......................... 107 Section 12.05 Obligations of the Guarantors Unconditional......................... 107 Section 12.06 Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice..................... 108 -vi- 8 Page Section 12.07 Application by Trustee of Assets Deposited with It..................... 108 Section 12.08 No Waiver of Subordination Provisions............................ 109 Section 12.09 Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations................. 110 Section 12.10 Right of Trustee To Hold Guarantor Senior Indebtedness................... 111 Section 12.11 No Suspension of Remedies............... 111 Section 12.12 No Fiduciary Duty of Trustee to Holders of Guarantor Senior Indebtedness.......................... 111 ARTICLE THIRTEEN MISCELLANEOUS Section 13.01 TIA Controls............................ 112 Section 13.02 Notices................................. 112 Section 13.03 Communications by Holders with Other Holders......................... 114 Section 13.04 Certificate and Opinion as to Conditions Precedent.................. 114 Section 13.05 Statements Required in Certificate or Opinion............................ 114 Section 13.06 Rules by Trustee, Paying Agent, Registrar............................. 115 Section 13.07 Legal Holidays.......................... 115 Section 13.08 Governing Law........................... 115 Section 13.09 No Adverse Interpretation of Other Agreements............................ 115 Section 13.10 No Recourse Against Others.............. 115 Section 13.11 Successors.............................. 116 Section 13.12 Duplicate Originals..................... 116 Section 13.13 Severability............................ 116 Section 13.14 No Violation............................ 116 Signatures............................................. S-1 Exhibit A - Form of Security Exhibit B - Guarantee Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -vii- 9 INDENTURE dated as of May 23, 1996, between SMITH'S FOOD & DRUG CENTERS, INC., a Delaware corporation, and FLEET NATIONAL BANK, a national banking association, as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 11-1/4% Senior Subordinated Notes due 2007 (the "Securities"): ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acquisition" means Cactus Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing; provided that Bankers Trust New York Corporation and The Chase Manhattan Bank, N.A. and their respective Affiliates shall not be considered to be Affiliates of the Company or any of its Subsidiaries. So long as the Management Services Agreement is in effect or Yucaipa (together with its Affiliates) owns voting securities representing more than 10% of the total voting power of the then outstanding voting securities entitled to vote on a regular basis for the Board of Directors of the Company, Yucaipa and its Affiliates shall be deemed Affiliates of the Company. "Affiliate Transaction" shall have the meaning provided in Section 5.11(a). "Agent" means any Registrar, Paying Agent or co-Registrar. "Alternate Offer" shall have the meaning provided in Section 5.15(e). 10 -2- "Asset Sale" means any sale, transfer or other disposition or series of sales, transfers or other dispositions by the Company or any Restricted Subsidiary (including, without limitation, any merger or consolidation of any Restricted Subsidiary with or into another Person (other than the Company or any wholly owned Restricted Subsidiary) whereby such Restricted Subsidiary shall cease to be a Restricted Subsidiary) to any Person (other than to the Company or a wholly owned Restricted Subsidiary) of any assets of the Company or any Restricted Subsidiary, including, without limitation, assets consisting of any Capital Stock or other securities held by the Company or any Restricted Subsidiary, and any Capital Stock issued by any Restricted Subsidiary, in each case, outside of the ordinary course of business, excluding, however, any sale, transfer or other disposition, or series of related sales, transfers or other dispositions (i) resulting in Net Proceeds to the Company and the Restricted Subsidiaries of $500,000 or less, (ii) pursuant to any foreclosure of assets or other remedy provided by applicable law to a creditor of the Company or any Subsidiary with a Lien on such assets, which Lien is permitted under the Indenture; provided that such foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with any Bankruptcy Law, (iii) involving only Cash Equivalents or inventory in the ordinary course of business or obsolete equipment in the ordinary course of business consistent with past practices of the Company, (iv) involving only the lease or sublease of any real or personal property in the ordinary course of business, (v) pursuant to the California Disposition or involving the assets described in Schedule 1.01 hereto or (vi) resulting from (a) the designation of any Restricted Subsidiary as an Unrestricted Subsidiary, or contribution to the capital of any Unrestricted Subsidiary, in accordance with the applicable provisions hereof or (b) the sale of the Capital Stock of any Unrestricted Subsidiary or the sale of all or substantially all of the assets of any Unrestricted Subsidiary. "Average Life" means, as of any date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payments of such debt security multiplied by the amount of each such principal payment by (ii) the sum of all such principal payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. 11 -3- "Board of Directors" means, with respect to any Person, the Board of Directors of such Person or of a subsidiary of such Person or any duly authorized committee of that Board. "Board Resolution" means, with respect to any Person, a duly adopted resolution of the Board of Directors of such Person. "Business Day" means a day that is not a Legal Holiday. "California Asset Disposition" means the disposition by the Company of its real and personal property remaining in California following the California Divestiture, as described in the Prospectus. "California Disposition" means the California Divestiture and the California Asset Disposition. "California Divestiture" means the divestiture by the Company of its Southern California operations as described in the Prospectus. "Capital Stock" means, with respect to any Person, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock of such Person. "Capitalized Lease Obligation" means obligations under a lease that is required to be capitalized for financial repurcreporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and maturing not more than one year from the date of creation thereof, (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any bank having capital surplus and undivided profits aggregating at least $500 million and maturing not more than one year from the date of creation thereof, (iv) repurchase 12 -4- agreements that are secured by a perfected security interest in an obligation described in clause (i) and are with any bank described in clause (iii), (v) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500 million, and (c) has the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc. and (vi) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. "Change of Control" means the acquisition after the Issue Date, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any Person (other than any Permitted Holder) or (ii) any group (within the meaning of Section 13(d)(3) of the Exchange Act) of Persons (excluding any Permitted Holders), in either case, of any securities of the Company such that, as a result of such acquisition, such Person or group beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, voting securities representing 40% or more of the total voting power of the then outstanding voting securities entitled to vote on a regular basis for the Board of Directors of the Company (but only to the extent that such beneficial ownership is not shared with any Permitted Holder who has the power to direct the vote thereof); provided, however, that no such Change of Control shall be deemed to have occurred if (A) the Permitted Holders beneficially own, in the aggregate, at such time, voting securities representing a greater percentage of such voting power than such other Person or group or (B) at the time of such acquisition, the Permitted Holders (or any of them) possess the ability (by contract or otherwise) to elect, or cause the election, of a majority of the members of the Company's Board of Directors. "Change of Control Offer" shall have the meaning provided in Section 5.15(a). "Change of Control Offer Price" shall have the meaning provided in Section 5.15(a). "Change of Control Payment Date" shall have the meaning provided in Section 5.15(b). 13 -5- "Commission" means the Securities and Exchange Commission. "Common Stock" means, with respect to any Person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of, such Person's common stock, whether outstanding at the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means Smith's Food & Drug Centers, Inc., a Delaware corporation until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consent Solicitations" means the consents solicited from holders of the Smitty's Securities to certain amendments to the respective indentures under which the Smitty's Securities were issued. "Consolidated Interest Expense" means for any period, the aggregate amount of interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of the Company and the Restricted Subsidiaries (including (a) original issue discount on any Indebtedness (including (without duplication), in the case of the Company, any original issue discount on the Securities but excluding amortization of debt issuance costs) and (b) the interest portion of all deferred payment obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period but excluding the amortization of debt issuance costs). For purposes of this definition, (a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (b) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the date Consolidated Interest Expense is being calculated, (c) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company may designate, and (d) Consolidated Interest Expense shall be increased or reduced by the net cost 14 -6- (including amortization of discount) or benefit associated with Interest Swap Obligations attributable to such period. "Consolidated Net Income" means for any period, the aggregate of the net income (or loss) of the Company and the Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that (a) the net income of any other Person in which the Company or any Restricted Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Company and the Restricted Subsidiaries in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions actually paid to the Company or such Restricted Subsidiary by such other Person in such period; (b) the net income of any Restricted Subsidiary that is subject to any Payment Restriction shall be excluded to the extent such Payment Restriction would actually prevent the payment of an amount that otherwise could have been paid to, or received by, the Company or a Restricted Subsidiary not subject to any Payment Restriction; and (c)(i) the net income (or loss) of any other Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any Asset Sale or any other sale of assets that would constitute an "Asset Sale" but for the exceptions set forth in clauses (i), (ii), (v), or (vi) of the definition thereof; (iii) all gains realized upon or in connection with or as a consequence of the issuance of the Capital Stock of the Company or any Restricted Subsidiary and any gains on pension reversions received by the Company or any Restricted Subsidiary, (iv) all gains and losses realized on the purchase or other acquisition by the Company or any Restricted Subsidiary of any securities of the Company or any Restricted Subsidiary, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, or Statement of Financial Accounting Standards No. 121, (vi) all other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) all severance, deferred compensation or other employee termination costs, (C) up to $20 million of compensation expenses resulting from the repurchase or amendment of certain management stock options, (D) all debt refinancing premiums and (E) any other reserves or charges (provided, however, that any net cash payments actually made (after-tax) with respect to the liabilities for which such reserves or charges were created shall be deducted from Consolidated Net Income in the period when made), in each case under this clause (vii), recorded by the Company or any Restricted 15 -7- Subsidiary in connection with the Transactions and the California Disposition, including, without limitation, the integration of operations in the State of Arizona, (viii) losses incurred by the Company and the Restricted Subsidiaries resulting from earthquakes and (ix) with respect to the Company and the Restricted Subsidiaries, all deferred financing costs written off in connection with the early extinguishment of any Indebtedness, shall each be excluded. "Consolidated Net Worth" means, with respect to any Person, the total stockholders' equity (exclusive of any Disqualified Capital Stock) of such Person and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP. "Credit Agent" means, at any time, the then-acting Administrative Agent as defined in and under the Credit Agreement, which initially shall be Bankers Trust Company. The Company shall promptly notify the Trustee of any change in the Credit Agent. "Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among the Company as borrower, its subsidiaries as guarantors, the Lenders referred to therein, Bankers Trust Company and The Chase Manhattan Bank, as arrangers, and Bankers Trust Company, as administrative agent, as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement governing Indebtedness Incurred to refund, replace or refinance any borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or any such prior agreement as the same may be amended, extended, renewed, restated, supplemented or otherwise modified (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). The term "Credit Agreement" shall include all related or ancillary documents, including, without limitation, any guarantee agreements and security documents. The Company shall promptly notify the Trustee of any such refunding or refinancing of the Credit Agreement. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. 16 -8- "Default" means any event or condition that is, or after notice or passage of time or both would be, an Event of Default. "Depository" shall mean the Depository Trust Company, New York, New York, or a successor thereto registered under the Exchange Act or other applicable statute or regulation. "Designated Senior Indebtedness" means (i) in the event any Indebtedness is outstanding under the Credit Agreement, all Senior Indebtedness under the Credit Agreement and (ii) if no Indebtedness is outstanding under the Credit Agreement, any other issue of Senior Indebtedness which (a) at the time of the determination is equal to or greater than $50 million in aggregate principal amount and (b) is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company. For purposes of this definition, the term "Credit Agreement" shall not include any agreement governing Indebtedness Incurred to refund, replace or refinance borrowings or commitments under the Credit Agreement other than any such agreements governing Indebtedness Incurred to refund, replace or refinance the entirety of the borrowings and commitments then outstanding or permitted to be outstanding thereunder. "Disqualified Capital Stock" means, with respect to any Person, any Capital Stock of such Person or its subsidiaries that, by its terms, by the terms of any agreement related thereto or by the terms of any security into which it is convertible, puttable or exchangeable, is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased by such Person or its subsidiaries, including at the option of the holder thereof, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due on or prior to the Maturity Date, or any other Capital Stock of such Person or its subsidiaries designated as Disqualified Capital Stock by such Person at the time of issuance; provided, however, that if such Capital Stock is either (i) redeemable or repurchasable solely at the option of such Person or (ii) issued to employees of the Company or the Subsidiaries or to any plan for the benefit of such employees, such Capital Stock shall not constitute Disqualified Capital Stock unless so designated. "EBITDA" means, for any period, the Consolidated Net Income for such period, plus, in each case to the extent 17 -9- deducted in computing Consolidated Net Income for such period (without duplication) (i) provisions for income taxes or similar charges recognized by the Company and the Restricted Subsidiaries accrued during such period, (ii) depreciation and amortization expense of the Company and the Restricted Subsidiaries accrued during such period (but only to the extent not included in Consolidated Interest Expense), (iii) Consolidated Interest Expense of the Company and the Restricted Subsidiaries for such period, (iv) LIFO charges (credits) of the Company and the Restricted Subsidiaries for such period, (v) the amount of any restructuring reserve or charge recorded during such period in accordance with GAAP, including any such reserve or charge related to the Transactions or the California Disposition, less, without duplication, the amount of all net cash payments made by the Company and the Restricted Subsidiaries during such period to the extent that such cash payments have been provided for in a restructuring reserve or charge referred to in clause (v) above (and were not otherwise deducted in the computation of EBITDA for such period). "Event of Default" shall have the meaning provided in Section 7.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Existing Indebtedness" means all indebtedness of the Company and the Restricted Subsidiaries to the extent outstanding on the Issue Date after giving effect to the Transactions (other than Indebtedness under the Credit Agreement and this Indenture), including operating leases outstanding on the Issue Date that are, or may be, required under GAAP to be reported or reclassified after the Issue Date as Capitalized Lease Obligations. "Foreign Exchange Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in currency values. "GAAP" means generally accepted accounting principles in effect in the United States of America as of the date of this Indenture. "Global Security" shall mean a Security which is executed by the Company and authenticated and delivered by the 18 -10- Trustee to the Depository or pursuant to the Depository's instruction, all in accordance with this Indenture and pursuant to a written order, which shall be registered in the name of the Depository or its nominee and which, together with any other Global Security representing Securities hereunder, shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the outstanding Securities. "Guarantee" shall have the meaning set forth in Section 5.17. "Guarantee Condition" shall have the meaning provided in Section 5.17. "Guarantee Obligations" shall have the meaning provided in Section 12.01. "Guarantor" means each Person that becomes a guarantor of the Securities in compliance with the provisions set forth in Section 5.17, until such Person is released or is deemed released from its Guarantee in accordance with the provisions hereof. "Guarantor Payment Blockage Period" shall have the meaning provided in Section 12.02. "Guarantor Senior Indebtedness" means, with respect to any Guarantor, the principal of, premium, if any, and interest on, and all other Obligations with respect to, any Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter Incurred, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of such Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Indebtedness" shall include (x) the principal of, premium, if any, and interest on all Obligations of every nature of such Guarantor from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal and interest, and all fees, indemnities and expenses payable under the Credit Agreement, and (y) interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (vi) or (vii) in Section 7.01 relating to the Company or such Guarantor, whether or not the claim for such interest is allowed under any applicable 19 -11- Bankruptcy Law. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Guarantee of such Guarantor, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of such Guarantor, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor (other than Capitalized Lease Obligations), (d) Indebtedness which is represented by Disqualified Capital Stock, (e) obligations for goods, materials or services purchased in the ordinary course of business or obligations consisting of trade payables, (f) Indebtedness of or amounts owed by such Guarantor for compensation to employees or for services rendered to such Guarantor, (g) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (h) Indebtedness of such Guarantor representing a guarantee of Subordinated Indebtedness or Pari Passu Indebtedness (in each case, with respect to the Securities or any Guarantee) of the Company or any other Guarantor, (i) Indebtedness of such Guarantor to a Subsidiary of the Company and (j) that portion of any Indebtedness which is incurred by such Guarantor in violation of this Indenture. "Holder" means the Person in whose name a Security is registered on the Registrar's books. "Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligations or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings correlative to the foregoing). "Indebtedness" means with respect to any Person, without duplication, (i) all liabilities, contingent or otherwise, of such Person (a) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (b) evidenced by bonds, notes, debentures, drafts accepted or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property (other than any such balance that represents an account payable or any other monetary obligation to a trade creditor (whether or not an Affiliate) Incurred by such Person in the ordinary course of business of such Person in connection with obtaining goods, 20 -12- materials or services and due within twelve months (or such longer period for payment as is customarily extended by such trade creditor) of the Incurrence thereof, which account is not overdue by more than 90 days, according to the original terms of sale, unless such account payable is being contested in good faith), or (c) for the payment of money relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital Stock of such Person; (iii) reimbursement obligations of such Person with respect to letters of credit; (iv) obligations of such Person with respect to Interest Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others of the kind described in the preceding clause (i), (ii), (iii) or (iv) that such Person has guaranteed or that is otherwise its legal liability; and (vi) all obligations of others secured by a Lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of such Person are subject, whether or not the obligations secured thereby shall have been assumed by such Person or shall otherwise be such Person's legal liability (provided that if the obligations so secured have not been assumed by such Person or are not otherwise such Person's legal liability, such obligations shall be deemed to be in an amount equal to the fair market value of such properties or assets, as determined in good faith by the Board of Directors of such Person, which determination shall be evidenced by a Board Resolution). For purposes of the preceding sentence, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such Person, which determination shall be evidenced by a Board Resolution. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or nationally recognized investment banking or consulting firm that is, in the reasonable judgment of the Board of Directors of the Company, qualified to perform the 21 -13- tasks for which such firm has been engaged and independent with respect to the Company and its Affiliates. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. "Interest Swap Obligation" means any obligation of any Person pursuant to any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or floating rate of interest on the same notional amount; provided that the term "Interest Swap Obligation" shall also include interest rate exchange, collar, cap, swap option or similar agreements providing interest rate protection. "Investment" by any Person in any other Person means any investment by such Person in such other Person, whether by share purchase, capital contribution, loan, advance (other than reasonable loans and advances to employees for moving and travel expenses, as salary advances or to permit the purchase of Qualified Capital Stock of the Company and other similar customary expenses incurred, in each case in the ordinary course of business consistent with past practice) or similar credit extension constituting Indebtedness of such other Person, and any guarantee of Indebtedness of any other Person. In addition, for purposes of Section 5.03, (i) an "Investment" shall be deemed to have been made at the time any Restricted Subsidiary is designated as an Unrestricted Subsidiary in an amount (proportionate to the Company's equity interest in such Subsidiary) equal to the net worth of such Restricted Subsidiary at the time that such Restricted Subsidiary is designated as an Unrestricted Subsidiary; and (ii) at any date the aggregate of all Restricted Payments made as Investments since the Issue Date shall exclude and be reduced by an amount (proportionate to the Company's equity interest in such Subsidiary) equal to the net worth of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary (in each case "net worth" to be calculated based upon the fair market value of the assets and liabilities of such Subsidiary as of any such date of designation, as determined by the Company's Board of Directors). "Issue Date" means May 23, 1996, the date of original issuance of the Securities under the Indenture. 22 -14- "Legal Holiday" shall have the meaning provided in Section 13.07. "Letter of Credit Obligations" means Indebtedness of the Company or any of the Subsidiaries with respect to letters of credit issued pursuant to the Credit Agreement, and for purposes of determining the aggregate amount of Indebtedness at any time, shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means, with respect to any asset or property, any mortgage, pledge, lien, encumbrance, charge or security interest of any kind in respect of such asset or property, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided, however, that in no event shall an operating lease be deemed to constitute a Lien. "Management Services Agreement" means that certain Management Services Agreement dated as of the Issue Date, between the Company and Yucaipa (as such Management Services Agreement may be amended or replaced, so long as such amendment or replacement has been approved by a majority of the Independent Directors (as defined in the Standstill Agreement) and is not disadvantageous to the Holders in any material respect). "Maturity Date" means May 15, 2007. "Merger" means the merger of Acquisition with and into Smitty's pursuant to the Recapitalization Agreement. "Net Cash Proceeds" means Net Proceeds received in the form of cash or Cash Equivalents. "Net Proceeds" means (a) in the case of any Asset Sale or any issuance and sale by any Person of Qualified Capital Stock, the aggregate net proceeds received by such Person after payment of expenses, taxes, commissions and the like incurred in connection therewith (and, in the case of any Asset 23 -15- Sale, net of the amount of cash applied to repay Indebtedness secured by the asset involved in such Asset Sale), whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt as determined with respect to any Asset Sale resulting in Net Proceeds in excess of $10 million in good faith by the Board of Directors of such Person, which determination shall be evidenced by a Board Resolution) and (b) in the case of any conversion or exchange of any outstanding Indebtedness or Disqualified Capital Stock of such Person for or into shares of Qualified Capital Stock of the Company, the sum of (i) the fair market value of the proceeds received by the Company in connection with the issuance of such Indebtedness or Disqualified Capital Stock on the date of such issuance and (ii) any additional amount paid by the holder thereof to the Company upon such conversion or exchange. "Net Proceeds Offer" shall have the meaning provided in Section 5.16(a). "Obligations" means all obligations of every nature whether for principal, reimbursements, premium, interest, fees, expenses, indemnities or otherwise, and whether primary, secondary, direct, indirect, contingent, fixed or otherwise (including obligations of performance) under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Controller, or the Secretary of such Person. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 13.04 and 13.05. "Operating Coverage Ratio" means the ratio of (1) EBITDA for the period (the "Pro Forma Period") consisting of the most recent four full fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Operating Coverage Ratio (the "Transaction Date") to (2) the Consolidated Interest Expense for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter (the "Forward Period") reasonably anticipated by the Board of Directors 24 -16- of the Company to become due from time to time during such period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Transactions, "EBITDA" for the Pro Forma Period shall be calculated after giving effect on a pro forma basis to the Transactions and the California Disposition as if they had occurred on the first day of the Pro Forma Period. In addition to, but without duplication of, the foregoing, for purposes of this definition, "EBITDA" shall be calculated after giving effect (without duplication), on a pro forma basis for the Pro Forma Period (but no longer), to (a) any Investment, during the period commencing on the first day of the Pro Forma Period to and including the Transaction Date (the "Reference Period"), in any other Person that, as a result of such Investment, becomes a Restricted Subsidiary, (b) the acquisition, during the Reference Period (by merger, consolidation or purchase of stock or assets) of any business or assets, which acquisition is not prohibited by this Indenture, and (c) any sales or other dispositions of any Restricted Subsidiary or any line of business (or geographical area thereof) of the Company or any Restricted Subsidiary occurring during the Reference Period, in each case as if such incurrence, Investment, repayment, acquisition or asset sale had occurred on the first day of the Reference Period. In addition, for purposes of this definition, "Consolidated Interest Expense" shall be calculated after giving effect (without duplication), on a pro forma basis for the Forward Period, to any Indebtedness Incurred or repaid on or after the first day of the Forward Period and prior to the Transaction Date. If the Company or any Restricted Subsidiary directly or indirectly guarantees any Indebtedness of a third Person, the Operating Coverage Ratio shall give effect to the Incurrence of such Indebtedness as if the Company or such Restricted Subsidiary had directly Incurred such guaranteed Indebtedness. "operating lease" means any lease the obligations under which do not constitute Capitalized Lease Obligations. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 13.04 and 13.05. Unless otherwise required by the Trustee, the legal counsel may be an employee of or counsel to the Company or the Trustee. "Pari Passu Indebtedness" means the Securities and any Indebtedness of the Company which ranks pari passu in right of payment with the Securities. 25 -17- "Paying Agent" shall have the meaning provided in Section 2.03, except that for the purposes of Articles Three and Nine and Sections 5.15 and 5.16 hereof, the Paying Agent shall not be the Company or an Affiliate of the Company. "Payment Restriction" means, with respect to a subsidiary of any Person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such Person or any other subsidiary of such Person, (b) make loans or advances to such Person or any other subsidiary of such Person or (c) transfer any of its properties or assets to such Person or any other subsidiary of such Person, or (ii) such Person or any other subsidiary of such Person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances or (c) transfer of properties or assets. "Permitted Holder" means (i) Yucaipa, or any entity controlled thereby or any of the partners thereof, (ii) Jeffrey P. Smith, Richard D. Smith, Fred L. Smith, Ida Smith, the Dee Glen Smith Marital Trust I, Trust for the Children of Jeffrey Paul Smith, Trust for the Children of Richard Dee Smith, and Trust for the Children of Fred Lorenzo Smith, (iii) an employee benefit plan of the Company, or any of its subsidiaries or any participant therein, (iv) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or (v) any Permitted Transferee of any of the foregoing Persons. "Permitted Indebtedness" means: a. Indebtedness of the Company and the Restricted Subsidiaries (and the Company and each Restricted Subsidiary (to the extent it is not the primary obligor thereof) may guarantee such Indebtedness) (i) under the Credit Agreement (including the Letter of Credit Obligations) in an aggregate principal amount at any time outstanding not to exceed $1,025.0 million, less all principal repayments of Term Loans and all permanent commitment reductions under the revolving credit facility, in each case, pursuant to and in accordance with Section 5.16 hereof or (ii) Incurred under the Credit Agreement pursuant to and in compliance with (x) clause (n) of this definition and (y) the proviso of Section 5.12 hereof; 26 -18- b. Indebtedness of a Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary; or Indebtedness of the Company owed to and held by a Restricted Subsidiary; c. Indebtedness Incurred by the Company or any Restricted Subsidiary in connection with the purchase or improvement of property (real or personal) or equipment or other capital expenditures in the ordinary course of business (including for the purchase of assets or stock of any retail grocery store or business) or consisting of Capitalized Lease Obligations, provided that (i) at the time of the Incurrence thereof, such Indebtedness, together with any other Indebtedness Incurred during the most recently completed four fiscal quarter period in reliance upon this clause (c) does not exceed, in the aggregate, 3% of net sales of the Company and the Restricted Subsidiaries during the most recently completed four fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of Incurrence is prior to the end of the fourth fiscal quarter following the Issue Date) and (ii) such Indebtedness, together with all then outstanding Indebtedness Incurred in reliance upon this clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of the Company and the Restricted Subsidiaries during the most recently completed twelve fiscal quarter period on a consolidated basis (calculated on a pro forma basis if the date of Incurrence is prior to the end of the twelfth fiscal quarter following the Issue Date); d. Indebtedness Incurred by the Company or any Restricted Subsidiary in connection with expenditures in an aggregate principal amount not to exceed $25.0 million; provided that such expenditures relate solely to the integration of the operations of the Company, Smitty's and their respective subsidiaries as described in the Prospectus; e. Indebtedness of the Company Incurred under Foreign Exchange Agreements and Interest Swap Obligations entered into with respect to Indebtedness otherwise permitted to be Incurred under Section 5.12 hereof, including this definition of "Permitted Indebtedness" (other than this clause (e)), in a notional amount not exceeding the aggregate principal amount of such Indebtedness; f. guarantees Incurred in the ordinary course of business by the Company or a Restricted Subsidiary of 27 -19- Indebtedness of any other Person in aggregate not to exceed $20.0 million at any time outstanding; g. Refinancing Indebtedness; h. Indebtedness of the Company or any Restricted Subsidiary for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; i. Existing Indebtedness; j. Indebtedness arising from guarantees of Indebtedness of the Company or any Restricted Subsidiary or other agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, Incurred in connection with the disposition of any business, assets or Restricted Subsidiary, other than guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; provided, however, that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and the Restricted Subsidiary in connection with such disposition; k. obligations in respect of performance bonds and completion guarantees provided by the Company or any Restricted Subsidiary in the ordinary course of business; l. guarantees by the Company or a Restricted Subsidiary of Indebtedness Incurred by the Company or a Restricted Subsidiary so long as the Incurrence of such Indebtedness by the Company or any such Restricted Subsidiary is otherwise permitted by the terms of this Indenture; m. Indebtedness Incurred by the Company in connection with the termination of a lease of, or the transfer to the Company or a third party of, the California assets leased by the Company from certain trusts and securing such trusts' obligations to the Smith's Food & Drug Centers Inc. 1994-A Pass Through Trusts (the "Related Assets"); provided, however, that (i) if the Related Assets are transferred to the Company, the Company shall consummate an Asset Sale with respect to such Related Assets within 90 days after the Incurrence of such Indebtedness and shall apply the Net Proceeds of such Asset Sale to permanently reduce Pari Passu Indebtedness, 28 -20- Indebtedness of any Restricted Subsidiary or Senior Indebtedness, and (ii) if the Related Assets are transferred to any Person other than the Company or any Subsidiary, the Company shall, within 90 days after the Incurrence of such Indebtedness, apply any proceeds received from the owner trust in respect of such transfer of the Related Assets to permanently reduce Pari Passu Indebtedness, Indebtedness of any Restricted Subsidiary or Senior Indebtedness; provided, further, however, that up to $5.0 million in aggregate amount of Net Proceeds under clause (i) or proceeds under clause (ii) may be applied to repay outstanding borrowings under the revolving credit facility pursuant to the Credit Agreement without a corresponding reduction in commitments; and n. additional Indebtedness of the Company or any Restricted Subsidiary (together with the Indebtedness Incurred pursuant to clause (a)(ii) above) in an aggregate amount not to exceed $140.0 million at any time outstanding. "Permitted Investment" by any Person means (i) any Related Business Investment, (ii) Investments in securities not constituting cash or Cash Equivalents and received in connection with an Asset Sale made pursuant to Section 5.16 hereof or any other disposition of assets not constituting an Asset Sale by reason of the exceptions contained in the definition thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v) Investments specifically permitted by and made in accordance with Section 5.11(b), (vi) Investments in the Company or the wholly owned Restricted Subsidiaries, (vii) guarantees by the Company or any Restricted Subsidiary of Indebtedness under the Credit Agreement and (viii) additional Investments in an aggregate amount not exceeding $15.0 million. "Permitted Liens" shall mean (i) Liens for taxes, assessments and governmental charges or claims not yet due or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, 29 -21- as shall be required in conformity with GAAP shall have been made therefor; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other like Liens arising in the ordinary course of business, deposits made to obtain the release of such Liens, and with respect to amounts not yet delinquent for a period of more than 60 days or being contested in good faith by an appropriate process of law, and for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (iii) Liens incurred or pledges or deposits made in the ordinary course of business to secure obligations under workers' compensation, unemployment insurance and other types of social security or similar legislation; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, zoning or other restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any of the Restricted Subsidiaries incurred in the ordinary course of business; (vi) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business; (vii) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of nondelinquent customs duties in connection with the importation of goods; (ix) judgment and attachment Liens not giving rise to a Default or Event of Default; (x) leases or subleases granted to others not interfering in any material respect with the business of the Company or any Restricted Subsidiary; (xi) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Swap Obligations and Foreign Exchange Agreements and forward contracts, option futures contracts, futures options or similar agreements or arrangements designed to protect the Company or any Restricted Subsidiary from fluctuations in the price of commodities; (xii) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or the Restricted Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; (xiii) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Restricted Subsidiary in the ordinary course of business in 30 -22- accordance with past practices; (xiv) any interest or title of a lessor in the property subject to any lease, whether characterized as capitalized or operating other than any such interest or title resulting from or arising out of a default by the Company or any Restricted Subsidiary of its obligations under such lease; (xv) Liens arising from filing UCC financing statements for precautionary purposes in connection with true leases of personal property that are otherwise permitted under this Indenture and under which the Company or any Restricted Subsidiary is lessee; (xvi) Liens in favor of the Trustee and any substantially equivalent Lien granted to any trustee or similar institution under any indenture governing Indebtedness permitted to be Incurred or outstanding under this Indenture; (xvii) Liens securing Indebtedness permitted to be Incurred pursuant to clause (m) of the definition of Permitted Indebtedness; provided that such Liens extend only to the Related Assets. "Permitted Payments" means (i) the consummation of the Transactions as described in the Prospectus; (ii) payments by the Company to effect the mandatory redemption of its Series I Preferred Stock; provided, however, that such payments shall not be made on any date earlier, or in any amount greater, than the dates and amounts provided for in the Company's Certificate of Incorporation as in effect on the Issue Date; (iii) any payment by the Company or any Subsidiary to Yucaipa or the principals or any Affiliates thereof for consulting, management, investment banking or similar services, or for reimbursement of costs and expenses (x) pursuant to the Management Services Agreement or (y) as approved by a majority of the Independent Directors (as defined in the Standstill Agreement); (iv) any payment to pay for the purchase, retirement or other acquisition for value of any Capital Stock of the Company held by any future, present or former employee or director of the Company or any Subsidiary pursuant to any management equity plan or stock option plan or any other agreement, provided that the aggregate amount of Restricted Payments made under this clause does not exceed $3.0 million in any fiscal year (provided that any unused amounts may be carried over 31 -23- to any subsequent fiscal year subject to a maximum amount of $6.0 million in any fiscal year); (v) pro rata dividends paid by any Restricted Subsidiary that is not wholly owned by the Company or another wholly owned Restricted Subsidiary; (vi) Investments in Unrestricted Subsidiaries in an aggregate amount not to exceed $10.0 million; and (vii) other Restricted Payments in an aggregate amount not to exceed $20.0 million. "Permitted Subordinated Reorganization Securities" means securities of the Company issued in a plan of reorganization in a case under Bankruptcy Law relating to the Company which constitutes either (x) Capital Stock (other than Disqualified Capital Stock with the reference to "Maturity Date" in the definition of such term modified to relate to the final stated maturity of any debt securities issued in such plan of reorganization to the holders of Designated Senior Indebtedness ("Senior Reorganization Securities")) or (y) debt securities of the Company which (i) are unsecured, (ii) have no scheduled mandatory amortization thereon prior to the final stated maturity of the Senior Reorganization Securities and (iii) are subordinated in right of payment to the Senior Reorganization Securities to at least the same extent as the Securities are subordinated to Designated Senior Indebtedness. "Permitted Transferees" means, with respect to any Person, (i) any Affiliate of such Person, (ii) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any such Person, (iii) a trust the beneficiaries of which, or a corporation or partnership the stockholders or general or limited partners of which, include only such Person or his or her parents, spouse or lineal descendants, in each case to whom such Person has transferred the beneficial ownership of any securities of the Company, (iv) any investment account whose investment managers and investment advisors consist solely of such Person and/or Permitted Transferees of such Person and (v) any investment fund or investment entity that is a subsidiary of such Person or a Permitted Transferee of such Person. "Person" means any individual, corporation, limited or general partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated 32 -24- organization or government or any agency or political subdivision thereof. "Plan of Liquidation" means, with respect to any Person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such Person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such Person to holders of Capital Stock of such Person. "Preferred Stock" means, with respect to any Person, Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as interpreted by the Company's chief financial officer or Board of Directors in consultation with its independent certified public accountants. "Prospectus" means the prospectus of the Company dated May 16, 1996 relating to the Securities. "Public Equity Offering" means an underwritten public offering of Common Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act. "Qualified Capital Stock" means, with respect to any Person, any Capital Stock of such Person that is not Disqualified Capital Stock. "Recapitalization" means the offering of the Securities, the Tender Offer, the Repayments and the closing under the Credit Agreement. "Recapitalization Agreement" means the Recapitalization Agreement and Plan of Merger, dated as of January 29, 33 -25- 1996, among the Company, Acquisition, Smitty's and Yucaipa, as amended through the date hereof. "Record Date" means the record dates specified in the Securities; provided, however, that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and Paragraph 5 of the Securities. "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture and Paragraph 5 of the Securities. "Refinancing Indebtedness" means, with respect to any Person, Indebtedness of such Person issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used to substantially concurrently repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to, or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of such Person existing on the Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted Indebtedness Incurred pursuant to clauses (c), (d), (g), (i) and (m) of the definition thereof) Incurred in accordance with this Indenture (a) in a principal amount (or, if such Refinancing Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon the acceleration thereof, with an original issue price) not in excess of (without duplication) (i) the principal amount or the original issue price, as the case may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit facility or other agreement providing a commitment for subsequent borrowings, with a maximum commitment not to exceed the maximum commitment under such revolving credit facility or other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually incurred by such Person in connection with the repayment or amendment thereof and (b) with respect to Refinancing Indebtedness that repays or constitutes an amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed mandatory redemption 34 -26- or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in such repaid or amended Subordinated Indebtedness, except to the extent that any such requirement applies on a date after the Maturity Date and (y) shall contain subordination and default provisions no less favorable in any material respect to the Holders than those contained in such repaid or amended Subordinated Indebtedness. "Registrar" shall have the meaning provided in Section 2.03. "Related Assets" shall have the meaning provided in clause (m) of the definition of Permitted Indebtedness. "Related Business Investment" means (i) any Investment by a Person in any other Person a majority of whose revenues are derived from the operation of one or more retail grocery stores or supermarkets or any other line of business engaged in by the Company or any of the Subsidiaries as of the Issue Date; (ii) any Investment by such Person in any cooperative or other supplier, including, without limitation, any joint venture which is intended to supply any product or service useful to the business of the Company and the Restricted Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change; and (iii) any capital expenditure or Investment, in each case reasonably related to the business of the Company and the Restricted Subsidiaries as it is conducted as of the Issue Date and as such business may thereafter evolve or change. "Repayments" means the Company's purchase of $1.0 million of its Series I Preferred Stock, repayment of $717.6 million of its outstanding indebtedness and purchase of $13.7 million of employee stock options, all as described in the Prospectus. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Indebtedness or any Guarantor Senior Indebtedness; provided, however, that in no event shall Fleet National Bank, in its capacity as Trustee, Registrar, co-Registrar or Paying Agent, serve as Representative. "Restricted Payment" means (i) any Stock Payment or (ii) Investment (other than a Permitted Investment). 35 -27- "Restricted Subsidiary" means any Subsidiary that, as of the date of determination, is not an Unrestricted Subsidiary. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Senior Indebtedness" means the principal of, premium, if any, and interest on, and all other Obligations with respect to, any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter Incurred, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without limiting the generality of the foregoing, "Senior Indebtedness" shall include (x) the principal of, premium, if any, and interest on all obligations of every nature of the Company from time to time owed to the lenders under the Credit Agreement, including, without limitation, the Letter of Credit Obligations and principal of and interest on, all fees and expenses payable under the Credit Agreement and (y) interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (vi) or (vii) in Section 7.01 relating to the Company, whether or not the claim for such interest is allowed under any applicable Bankruptcy Law. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Securities, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of the Company, (c) Indebtedness which, when Incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company (other than Capitalized Lease Obligations), (d) Indebtedness which is represented by Disqualified Capital Stock, (e) obligations for goods, materials or services purchased in the ordinary course of business or obligations consisting of trade payables, (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services rendered to the Company, (g) any liability for federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the Company, and (i) that portion of any Indebtedness which is Incurred by the Company in violation of this Indenture. "Series I Preferred Stock" means the Series I Preferred Stock of the Company, par value $.01 per share. 36 -28- "Significant Senior Indebtedness" shall have the meaning provided in Section 4.02(a). "Significant Stockholder" means, with respect to any Person, any other Person who is the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 10% of any class of equity securities of such Person that are entitled to vote on a regular basis for the election of directors of such Person. "Significant Subsidiary" means each Restricted Subsidiary that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the Issue Date) or (b) material to the financial condition or results of operations of the Company and the Restricted Subsidiaries taken as a whole. "Smitty's" means Smitty's Supermarkets, Inc., a Delaware corporation. "Smitty's Offers to Purchase" means the offers to purchase the Smitty's Securities from the holders thereof. "Smitty's Refinancing" means the repayment of Smitty's Securities, including pursuant to the Smitty's Offers to Purchase and the repayment of all outstanding Indebtedness under the Credit Agreement dated as of June 29, 1994 among SSV, the subsidiary guarantors and the lenders named therein and The Chase Manhattan Bank, N.A., as administrative agent. "Smitty's Securities" means the 13.75% Senior Discount Debentures due 2006 of Smitty's and the 12.75% Senior Subordinated Notes due 2004 of SSV. "SSV" means Smitty's Super Valu, Inc., a Delaware corporation and a wholly owned subsidiary of Smitty's. "Standstill Agreement" means the Standstill Agreement dated as of January 29, 1996 among the Company, Yucaipa and each of the limited partnerships that owns shares in Smitty's for which Yucaipa acts as the general partner (as such Standstill Agreement may be amended or replaced, so long as such amendment or replacement has been approved by a majority of the Independent Directors (as defined in the Standstill Agreement as in effect prior to such amendment or replacement) and is not 37 -29- disadvantageous to the Holders of the Securities in any material respect). "Stock Payment" means, with respect to any Person, (a) the declaration or payment by such Person, either in cash or in property, of any dividend on (except, in the case of the Company, dividends payable solely in Qualified Capital Stock of the Company), or the making by such Person or any of its subsidiaries of any other distribution in respect of, such Person's Qualified Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such Person), or (b) the redemption, repurchase, retirement or other acquisition for value by such Person or any of its subsidiaries, directly or indirectly, of such Person's Qualified Capital Stock (and, in the case of a Subsidiary, Qualified Capital Stock of the Company) or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than exchangeable or convertible Indebtedness of such Person), other than, in the case of the Company, through the issuance in exchange therefor solely of Qualified Capital Stock of the Company; provided, however, that in the case of a Restricted Subsidiary, the term "Stock Payment" shall not include any such payment with respect to its Capital Stock or warrants, rights or options to purchase or acquire shares of any class of its Capital Stock that are owned solely by the Company or a wholly owned Restricted Subsidiary. "Subordinated Indebtedness" means Indebtedness of the Company which is subordinated in right of payment to the Securities. "subsidiary" of any Person means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly, owned by such Person, by one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person or (ii) a partnership in which such Person or a subsidiary of such Person is, at the date of determination, a general partner of such partnership, but only if such Person or its subsidiary is entitled to receive more than fifty percent of the assets of such partnership upon its dissolution, or (iii) any other Person (other than a corporation or a partnership) in which such Person, a subsidiary of such Person or such Person and one or more subsidiaries of such Person, directly or indirectly, at the date of determination, has (x) at least a majority ownership 38 -30- interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such Person. "Subsidiary" means any subsidiary of the Company. "Surviving Person" shall have the meaning provided in Section 6.01(a)(1). "Tender Offer" means the Company's offer to purchase 50% of the outstanding shares (excluding shares issuable in the Merger) of Common Stock from the holders thereof for $36.00 in cash per share. "Term Loans" means the term loan facility under the Credit Agreement and any agreement governing Indebtedness Incurred to refund, replace or refinance any borrowings outstanding under such facility or under any prior refunding, replacement or refinancing thereof (in each case, in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions). "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as amended, as in effect on the date this Indenture is qualified under the TIA, except as otherwise provided in Section 10.03. "Transactions" means the Recapitalization, the Merger and the Smitty's Refinancing. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Unrestricted Subsidiary" means any Subsidiary (including its subsidiaries) so designated by a Board Resolution adopted by the Board of Directors of the Company in accordance with Section 5.20 hereof. Notwithstanding the foregoing, an Unrestricted Subsidiary shall be deemed to be redesignated a Restricted Subsidiary at any time if (a) the Company or any other Restricted Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness of such Unrestricted 39 -31- Subsidiary or any of its subsidiaries (including any undertaking, agreement or instrument evidencing such Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of such Unrestricted Subsidiary or any of its subsidiaries, (b) a default with respect to any Indebtedness of such Unrestricted Subsidiary or any of its subsidiaries (including any right which the holders thereof may have to take enforcement action against any of them) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity or (c) such Unrestricted Subsidiary or any of its subsidiaries Incurs Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any Restricted Subsidiary. "U.S. Government Obligations" means direct non- callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Yucaipa" means The Yucaipa Companies, a California general partnership, or any successor thereto which is an affiliate of Ronald W. Burkle or his Permitted Transferees. SECTION 1.02. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. 40 -32- "obligor" on the indenture securities means the Company, any Guarantor or any other obligor on the Securities or Guarantees. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating. The Securities, the notation thereon relating to the Guarantees (if and when delivered) and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication. 41 -33- The terms and provisions contained in the Securities and the Guarantees (if and when delivered) shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. SECTION 2.02. Execution and Authentication. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Securities for the Company by manual or facsimile signature. If a Guarantee Condition shall exist pursuant to Section 5.17, each Guarantor shall execute the Guarantee in the manner set forth in Section 11.09. If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue in the aggregate principal amount of $575,000,000 upon a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated. Such Securities shall be in the form of one or more Global Securities, which (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, the outstanding Securities, (ii) shall be registered in the name of the Depository for such Global Security or Securities or its nominee, (iii) shall be delivered by the Trustee to the Depository or pursuant to the Depository's instruction and (iv) shall bear a legend substantially to the following effect: "Unless and until this Global Security is exchanged in whole or in part for the individual Securities represented hereby, this Global Security may not be transferred except as a whole by the Depository to a nominee of the 42 -34- Depository or by a nominee of the Depository to the Depository or by a Depository or any such nominee to a successor Depository or a nominee of a successor Depository." The aggregate principal amount of Securities outstanding at any time may not exceed $575,000,000 (or such lesser amount as is requested authenticated by the Trustee and issued by the Company on the Issue Date), except as provided in Section 2.07. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company may act as its own Registrar or Paying Agent except that for the purposes of Articles Three and Nine and Sections 5.15 and 5.16, neither the Company nor any Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company, upon notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional paying agent. The Company initially appoints the Trustee as Registrar and Paying Agent until such 43 -35- time as the Trustee has resigned or a successor has been appointed. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. SECTION 2.04. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that, subject to Article Four and Article Twelve, each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any Default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate such assets and hold them as a separate trust fund, subject to Article Four and Article Twelve. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. 44 -36- SECTION 2.06. Transfer and Exchange. (a) When Securities are presented to the Registrar or a co-Registrar with a request to register the transfer of such Securities or to exchange such Securities for an equal principal amount of Securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.02, 2.07, 2.10, 3.06, 5.15, 5.16 or 10.05). The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Security (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Security being redeemed in part. A Global Security may be transferred, in whole but not in part, in the manner provided in this Section 2.06(a), only to a nominee of the Depository for such Global Security, or to the Depository, or a successor Depository for such Global Security selected or approved by the Company, or to a nominee of such successor Depository. (b) If at any time the Depository for the Global Security or Securities notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or Securities or the Company becomes aware that the Depository has ceased to be a clearing agency registered under the Exchange Act, the Company shall appoint a successor Depository with respect to such Global Security or Securities. If a successor Depository for such Global Security or Securities has not been appointed within 120 days after the Company receives such notice or becomes aware of such ineligibility, the Company 45 -37- shall execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Securities, shall authenticate and deliver, Securities in definitive form, in an aggregate principal amount at maturity equal to the principal amount at maturity of the Global Security representing such Securities, in exchange for such Global Security. The Company shall reimburse the Registrar, the Depository and the Trustee for expenses they incur in documenting such exchanges and issuances of Securities in definitive form. The Company may at any time and in its sole discretion determine that the Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a written order for the authentication and delivery of individual Securities in exchange in whole or in part for such Global Security or Securities, will authenticate and deliver individual Securities in definitive form in an aggregate principal amount equal to the principal amount of such Global Security or Securities in exchange for such Global Security or Securities. In any exchange provided for in any of the preceding two paragraphs, the Company will execute and the Trustee will authenticate and deliver individual Securities in definitive registered form in authorized denominations. Upon the exchange of a Global Security for individual Securities, such Global Security shall be cancelled by the Trustee. Securities issued in exchange for a Global Security pursuant to this Section 2.06(b) shall be registered in such names and in such authorized denominations as the Depository for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Securities to the persons in whose names such Securities are so registered. None of the Company, the Trustee, any Paying Agent or the Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall 46 -38- issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. The Company may charge such Holder for its reasonable out-of-pocket expenses in replacing a Security pursuant to this Section 2.07, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company, the Guarantors or any of their respective Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date the Paying Agent (other than the Company or a Subsidiary) holds U.S. Legal Tender or U.S. Government obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue unless, pursuant to the provisions of Article Four and Article Twelve, the Paying Agent is unable to make payments on the Securities to the Holders thereof. SECTION 2.09. Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company, the 47 -39- Subsidiaries or any of their respective Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows or has reason to know are so owned shall be disregarded. SECTION 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. Notwithstanding the foregoing, so long as the Securities are represented by a Global Security, such Global Security may be in typewritten form. SECTION 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than the Company or a Subsidiary), and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If the Company or any Guarantor shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall, unless the Trustee fixes another record date pursuant to Section 7.10, pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the persons who are Holders on a 48 -40- subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13. CUSIP Number. The Company in issuing the Securities may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to Paragraph 5 of the Securities, it shall notify the Trustee, with a copy to the Credit Agent, of the Redemption Date and the principal amount of Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders at least 45 days (unless a shorter notice shall be satisfactory to the Trustee) but not more than 60 days before the Redemption Date. Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata by lot or by any other method that the Trustee considers fair and appropriate and, if such Securities are listed on any securities exchange, by a method that complies 49 -41- with the requirements of such exchange; provided, however, that any redemption pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering shall be made on a pro rata basis unless such method is otherwise prohibited. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or integral multiples thereof) of the principal amount of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed at such Holder's registered address, with a copy to the Trustee and the Credit Agent. In order to effect a redemption pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) that, unless (a) the Company defaults in making the redemption payment on the Redemption Date or (b) such redemption payment is prohibited pursuant to Article Four or Article Twelve hereof or otherwise, interest on 50 -42- Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price unless prohibited pursuant to Article Four or Article Twelve or otherwise pursuant to this Indenture. Securities that are redeemed by the Company or that are purchased by the Company pursuant to a Net Proceeds Offer as described in Section 5.16 or pursuant to a Change of Control Offer as described in Section 5.15 or that are otherwise acquired by the Company will be surrendered to the Trustee for cancellation. SECTION 3.05. Deposit of Redemption Price. On or before 11:00 a.m. New York City time on the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date (other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose upon the written request of the 51 -43- Company, except with respect to monies owed as obligations to the Trustee pursuant to Article Eight hereof. If the Company complies with the preceding paragraph and payment of the Securities called for redemption is not prohibited under Article Four or Article Twelve or otherwise, then, unless the Company defaults in the payment of such Redemption Price, interest on the Securities or portions thereof to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE FOUR SUBORDINATION SECTION 4.01. Securities Subordinated to Senior Indebtedness. Anything herein to the contrary notwithstanding, the Company, for itself and its successors, and each Holder, by his acceptance of Securities, agrees that the payment of the Obligations on the Securities is subordinated, to the extent and in the manner provided in this Article Four, to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness, whether outstanding on the Issue Date or thereafter Incurred, including with respect to Designated Senior Indebtedness, any interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (vi) or (vii) of Section 7.01 relating to the Company, whether or not such interest is an allowed claim enforceable against the Company under any Bankruptcy Law. This Article Four shall constitute a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. 52 -44- The obligations of the Company to the Trustee under Section 8.07 shall not be subject to the provisions of this Article Four. SECTION 4.02. Suspension of Payment When Senior Indebtedness in Default. (a) Unless Section 4.03 shall be applicable, no direct or indirect payment (other than payments by a trust previously established pursuant to Article Nine hereof) or distribution of any asset of the Company of any kind or character by or on behalf of the Company of Obligations on the Securities or on account of the purchase or redemption or other acquisition of the Securities whether pursuant to the terms of the Securities or upon acceleration or otherwise shall be made if, at the time of such payment or distribution, there exists a default in the payment of all or any portion of principal of, premium, if any, or interest on (i) any Designated Senior Indebtedness or (ii) any other Senior Indebtedness which, at the time of determination, is equal to or greater than $50 million in aggregate principal amount ("Significant Senior Indebtedness") (and the Trustee has received written notice thereof), and such default shall not have been cured or waived by or on behalf of the holders of such Designated Senior Indebtedness or Significant Senior Indebtedness, as the case may be, or shall have ceased to exist, until such default shall have been cured or waived or shall have ceased to exist or such Designated Senior Indebtedness or Significant Senior Indebtedness, as the case may be, shall have been discharged or paid in full in cash or Cash Equivalents, after which the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. (b) Unless Section 4.03 shall be applicable, during the continuance of any other event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated, upon the earlier to occur of (a) receipt by the Trustee of written notice from the holders of a majority of the outstanding principal amount of the Designated Senior Indebtedness or their Representative stating that such notice is a notice pursuant to Section 4.02 of this Indenture, or (b) if such event of default results from the acceleration of the Securities, the date of such acceleration, no such payment (other than payments by a trust previously established pursuant to Article Nine hereof) or distribution of any asset of the Company of any kind or character shall be made by the Company upon or in respect of the Securities (including without 53 -45- limitation on account of any principal of, premium, if any, or interest on the Securities) or on account of the purchase or redemption or other acquisition of Securities for a period ("Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 179 days thereafter (provided such Designated Senior Indebtedness shall theretofore not have been accelerated) (unless (x) such Payment Blockage Period shall be terminated by written notice to the Trustee from the holders of a majority of the outstanding principal amount of such Designated Senior Indebtedness or their Representative who delivered such notice or (y) such default is cured or waived, or ceases to exist or such Designated Senior Indebtedness is discharged or paid in full in cash or Cash Equivalents), after which the Company shall promptly notify the Trustee of such cure or waiver and resume making any and all required payments in respect of the Securities, including any missed payments. Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 179 days from the date on which such Payment Blockage Period was commenced. Not more than one Payment Blockage Period may be commenced with respect to the Securities during any period of 365 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the holders of such Designated Senior Indebtedness or their Representative whether or not within a period of 365 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Security shall have received any payment prohibited by the foregoing provisions of this Section 4.02, then and in such event such payment shall be paid over and delivered forthwith to the Representative or as a court of competent jurisdiction shall direct. SECTION 4.03. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, upon any dissolution, winding-up, total or partial liquidation or reorganization of the Company (including, 54 -46- without limitation, in bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of the Company's assets and liabilities and whether voluntary or involuntary): (a) the holders of Senior Indebtedness shall first be entitled to receive payments in full in cash or Cash Equivalents of all amounts payable under Senior Indebtedness (including, with respect to Designated Senior Indebtedness, any interest accruing after the commencement of any such proceeding at the rate specified in the applicable Designated Senior Indebtedness whether or not interest is an allowed claim enforceable against the Company in any such proceeding) before the Holders will be entitled to receive any payment with respect to the Securities (excluding Permitted Subordinated Reorganization Securities), and until all Obligations with respect to Senior Indebtedness are paid in full in cash or Cash Equivalents, any payment or distribution to which the Holders would be entitled (excluding Permitted Subordinated Reorganization Securities) shall be made to the holders of Senior Indebtedness; provided, however, that no payment on any Guarantee shall constitute payment on behalf of the Company for purposes of this Section 4.03(a); (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled (excluding Permitted Subordinated Reorganization Securities) except for the provisions of this Article Four, shall be paid by the liquidating trustee or agent or other person making such a payment or distribution, directly to the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness remaining unpaid held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent on account of principal of, premium, if any, or interest on the Securities (excluding 55 -47- Permitted Subordinated Reorganization Securities) before all Senior Indebtedness is paid in full in cash or Cash Equivalents, such payment or distribution (subject to the provisions of Sections 4.06 and 4.07) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over to, the holders of Senior Indebtedness or their Representative, ratably according to the respective amounts of Senior Indebtedness held or represented by each, until all Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or wilful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided, however, that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay over such payment over to, the holders of Senior Indebtedness or their Representative. The consolidation of the Company with, or the merger of the Company with or into, another person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another person upon the terms and conditions set forth in Article Six hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Article Four if the person formed by such consolidation or the surviving entity of such merger or the person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article Six. The Company shall give prompt notice to the Trustee prior to any dissolution, winding-up, total or partial liquidation or reorganization (including, without limitation, in bankruptcy, insolvency, or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of the Company's assets and liabilities). 56 -48- SECTION 4.04. Holders To Be Subrogated to Rights of Holders of Senior Indebtedness. Subject to the payment in full in cash or Cash Equivalents of all Senior Indebtedness, the Holders of Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until all amounts owing on the Securities shall be paid in full in cash, and for the purpose of such subrogation no payments or distributions to the holders of Senior Indebtedness by or on behalf of the Company, or by or on behalf of the Holders by virtue of this Article Four, which otherwise would have been made to the Holders, shall, as between the Company and the Holders, be deemed to be payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Article Four are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Four shall have been applied, pursuant to the provisions of this Article Four, to the payment of all amounts payable under the Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of the Senior Indebtedness in full in cash or Cash Equivalents. SECTION 4.05. Obligations of the Company Unconditional. Nothing contained in this Article Four or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Four, of the holders of Senior Indebtedness 57 -49- in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets or securities of the Company referred to in this Article Four, the Trustee, subject to the provisions of Sections 8.01 and 8.02, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Four. Nothing in this Section 4.05 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 8.07. SECTION 4.06. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received written notice thereof from the Company or from one or more holders of Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 8.01 and 8.02, shall be entitled in all respects conclusively to assume that no such fact exists. SECTION 4.07. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Section 9.02 shall be for the sole benefit of Holders and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Four. Otherwise, any deposit of assets or securities by or on behalf of the Company with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on any Securities shall be subject to the provisions of this Article Four; provided, however, that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become 58 -50- distributable for any purpose (including, without limitation, the payment of principal of or premium or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 4.06, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date; provided, further, however, that no payment on any Guarantee shall constitute payment on behalf of the Company for purposes of this Section 4.07. The foregoing shall not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent. Nothing contained in this Section 4.07 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Four. SECTION 4.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 4.08, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Four or the obligations hereunder of the Holders to the holders of Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any person liable in any manner for the collection or payment of Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Company and any other person; provided, however, that in no event shall any such actions limit the right of the Holders to take any action to accelerate the maturity 59 -51- of the Securities pursuant to Article Seven hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. (c) Each Holder by accepting a Security agrees that the Representative of any Senior Indebtedness (including, without limitation, the Credit Agent), in its discretion, without notice or demand and without affecting any rights of any holder of Senior Indebtedness under this Article Four, may foreclose any mortgage or deed of trust covering interests in real property secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives any defense to the enforcement by the Representative of any Senior Indebtedness (including, without limitation, the Credit Agent) or by any holder of any Senior Indebtedness against such Holder of this Article Four after a judicial or nonjudicial sale or other disposition of its interests in real property secured by such mortgage or deed of trust; and such Holder expressly waives any defense or benefits that may be derived from California Civil Code {{ 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil Procedure {{580a, 580d or 726, or comparable provisions of the laws of any other jurisdiction or any similar statute in effect in any other jurisdiction. SECTION 4.09. Holders Authorize Trustee To Effectuate Subordination of Securities.___________ Each Holder of the Securities by his acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Four, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company) tending towards liquidation or reorganization of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of such Holder's Securities in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on 60 -52- behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 4.10. Right of Trustee To Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Four in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 4.11. No Suspension of Remedies. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article Four shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 7.01. Nothing contained in this Article Four shall limit the right of the Trustee or the Holders to take any action to accelerate the maturity of the Securities pursuant to Article Seven or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Four of the holders, from time to time, of Senior Indebtedness. SECTION 4.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall in good faith mistakenly pay over or deliver to the Holders or the Company or any other person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Four or otherwise. Nothing in this Section 4.12 shall affect the obligation of any person other than the Trustee to hold such 61 -53- payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. ARTICLE FIVE COVENANTS SECTION 5.01. Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities. An installment of principal of or interest on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or a Subsidiary) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment; provided, however, that U.S. Legal Tender held by the Trustee for the benefit of holders of Senior Indebtedness or Guarantor Senior Indebtedness or the payment of which to the Holders is prohibited pursuant to the provisions of Article Four or Article Twelve hereof or otherwise shall not be considered to be designated for the payment of any installment of principal or interest on the Securities within the meaning of this Section 5.01. The Company shall pay interest on overdue principal at the rate borne by the Securities and it shall pay interest on overdue installments of interest at the same rate, to the extent lawful. SECTION 5.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.03 hereof. The Company shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.02. SECTION 5.03. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, make any 62 -54- Restricted Payment if, at the time of such proposed Restricted Payment, or after giving effect thereto, (1) a Default or an Event of Default shall have occurred and be continuing, (2) the Company could not Incur $1.00 of additional Indebtedness pursuant to the proviso in Section 5.12 hereof or (3) the aggregate amount expended for all Restricted Payments, including such proposed Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment as determined in good faith by the Board of Directors of the Company as evidenced by a Board Resolution), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income is a loss, minus 100% of such loss) earned during the period beginning on the Issue Date and ending on the date of the proposed Restricted Payment (the "Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the Company from any Person (other than a Subsidiary) from the issuance and sale (including upon exchange or conversion for other securities of the Company) subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Subsidiary, until and to the extent such borrowing is repaid), plus (iii) 100% of the Net Proceeds from (x) the sale or other disposition of Investments (other than Permitted Investments described in clauses (i)-(vii) inclusive of the definition thereof) made by the Company or any Restricted Subsidiary after the Issue Date or (y) the sale of the Capital Stock of any Unrestricted Subsidiary by the Company or any Restricted Subsidiary or the sale of all or substantially all of the assets of any Unrestricted Subsidiary to the extent that a liquidating dividend or similar distribution is paid to the Company or any Restricted Subsidiary from the proceeds of such asset sale. (b) The provisions set forth in the immediately preceding paragraph will not prevent (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration, (2) the acquisition of any shares of Capital Stock of the Company, in exchange for or solely out of the Net Cash Proceeds of the substantially concurrent sale (other than to a Subsidiary) of shares of Qualified Capital Stock of the Company; provided, however, that no proceeds of such sale of Qualified Capital Stock shall be included in clause (ii) of the preceding 63 -55- paragraph, and (3) Permitted Payments; provided, however, that, at the time of, and after giving effect to, any Restricted Payment made under clause (3), no Default or Event of Default shall have occurred and be continuing; provided, further, however, that the declaration of each dividend paid in accordance with clause (1) above and each payment under clause (iv) of the definition of "Permitted Payments" shall each be counted for purposes of computing amounts expended pursuant to subclause (3) in the immediately preceding paragraph, and no amounts expended pursuant to clause (2) above or clause (i), (ii), (iii), (v), (vi) or (vii) of the definition of "Permitted Payments" shall be so counted. SECTION 5.04. Corporate Existence. Except as otherwise permitted by Article Six, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each such Significant Subsidiary and the rights (charter and statutory) and franchises of the Company and each such Significant Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Significant Subsidiaries, any such existence, right or franchise, if the Board of Directors of the Company or such Significant Subsidiary, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any such Significant Subsidiary. SECTION 5.05. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of the Restricted Subsidiaries or properties of it or any of the Restricted Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of the Restricted Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim if either (a) the amount, applicability or validity thereof is being contested in good faith by 64 -56- appropriate proceedings and an adequate reserve has been established therefor to the extent required by GAAP or (b) the failure to make such payment or effect such discharge (together with all other such failures) would not have a material adverse effect on the financial condition or results or operations of the Company and the Restricted Subsidiaries taken as a whole. SECTION 5.06. Maintenance of Properties and Insurance. (a) The Company shall cause all properties used or useful to the conduct of its business or the business of any of the Restricted Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times unless the failure to so maintain such properties (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and the Restricted Subsidiaries taken as a whole; provided, however, that nothing in this Section 5.06 shall prevent the Company or any Restricted Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is either (i) in the ordinary course of business, (ii) in the good faith judgment of the Board of Directors of the Company or the Restricted Subsidiary concerned, or of the senior officers of the Company or such Restricted Subsidiary, as the case may be, desirable in the conduct of the business of the Company or such Restricted Subsidiary, as the case may be, or (iii) is otherwise permitted by this Indenture. (b) The Company shall provide or cause to be provided, for itself and each of the Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company are adequate and appropriate for the conduct of the business of the Company and the Restricted Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of the Company or the applicable Restricted Subsidiary or (ii) customary, in the reasonable, good faith opinion of the Company, for corporations 65 -57- similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and the Restricted Subsidiaries, taken as a whole. SECTION 5.07. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee within 120 days after the end of the Company's fiscal year an Officers' Certificate stating that a review of its activities and the activities of the Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no event of default in respect of any payment obligation under the Credit Agreement and no Default or Event of Default occurred during such year or, if such signers do know of such an event of default, Default or Event of Default, the certificate shall describe the event of default, Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) So long as, and to the extent, not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the Company shall deliver to the Trustee within 120 days after the end of each fiscal year a written statement by the Company's independent certified public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof. (c) The Company shall deliver to the Trustee, forthwith upon becoming aware, and in any event within 5 days after the occurrence, of (i) any Default or Event of Default; (ii) any event of default in respect of any payment obligation under the Credit Agreement or any event of default under any bond, debenture, note, or other evidence of Indebtedness of the 66 -58- Company or any of the Subsidiaries, or under any mortgage, indenture or other instrument if such event of default related to Indebtedness at any time in an aggregate principal amount exceeding $20.0 million, an Officers' Certificate specifying with particularity such event. SECTION 5.08. Compliance with Laws. The Company shall comply, and shall cause each of the Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of the Company and the Restricted Subsidiaries taken as a whole. SECTION 5.09. SEC Reports. The Company will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the Trustee and the Holders with such quarterly and annual reports and other reports specified in Section 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA Section 314(a). SECTION 5.10. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or 67 -59- the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.11. Limitation on Transactions with Affiliates. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, in a single transaction or series of related transactions, (i) sell, lease, transfer or otherwise dispose of any of its properties or assets or issue securities (other than equity securities which do not constitute Disqualified Capital Stock) to, (ii) purchase any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Significant Stockholder (or any Affiliate of such Significant Stockholder) of the Company or any Subsidiary (any of the foregoing, an "Affiliate Transaction"), unless (I) (A) such Affiliate Transaction is in the ordinary course of business or otherwise on terms that are at least as favorable to the Company or such Restricted Subsidiary, as the case may be, as might reasonably have been obtainable at such time from an unaffiliated party; (B) in the case of an Affiliate Transaction involving aggregate payments in excess of $2.0 million and less than or equal to $5.0 million, the Company or such Restricted Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying that such Affiliate Transaction is on terms that are at least as favorable to the Company or such Restricted Subsidiary, as the case may be, as might reasonably have been obtainable at such time from an unaffiliated party; (C) in the case of an Affiliate Transaction involving aggregate payments in excess of $5.0 million and less than or equal to $15.0 million, the Company or such Restricted Subsidiary, as the case may be, shall have delivered an Officers' Certificate to the Trustee certifying to the same effect as specified in clause (B) above and also that such Affiliate Transaction has received the approval of a majority of the disinterested members of the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, or, in the absence of any such approval, that an Independent Financial Advisor has provided the Board of Directors with written confirmation to the effect specified in clause (II) below; and (D) in the case of an Affiliate Transaction involving aggregate payments in excess of 68 -60- $15.0 million, the Company or such Restricted Subsidiary, as the case may be, shall have delivered to the Trustee a written opinion of an Independent Financial Advisor to the effect specified in clause (II) below or (II) the Company or such Restricted Subsidiary, as the case may be, shall have delivered to the Trustee a written opinion of an Independent Financial Advisor to the effect that such transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view or that the terms of such Affiliate Transaction are at least as favorable to the Company or such Restricted Subsidiary, as the case may be, as those that might reasonably have been obtainable at such time from a Person that is not an Affiliate of the Company or such Restricted Subsidiary, as the case may be. (b) The provisions of the foregoing paragraph shall not apply to (i) any Permitted Payment, (ii) any Restricted Payment that is made in compliance with Section 5.03 hereof, (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, consultants or employees of the Company or any Restricted Subsidiary, as determined in good faith by the Board of Directors of the Company or such Restricted Subsidiary or the senior management thereof, (iv) transactions exclusively between or among the Company and any of its wholly owned Restricted Subsidiaries or exclusively between or among such wholly owned Restricted Subsidiaries; provided such transactions are not otherwise prohibited by this Indenture, (v) the Standstill Agreement and any other agreement in effect on the Issue Date as in effect on such date (or any transaction contemplated thereby) or as amended thereafter (including transactions contemplated pursuant to such amendment) so long as any such amendment is not disadvantageous to the Holders of the Securities in any material respect, (vi) the existence of, or the performance by the Company or any of the Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any Restricted Subsidiary of obligations under any future amendment to, any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vi) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the Securities in any material respect, (vii) transactions permitted by, and complying 69 -61- with, Article Six hereof and (viii) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which are fair to the Company, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. SECTION 5.12. Limitation on Incurrences of Additional Indebtedness. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness other than Permitted Indebtedness; provided, however, that if no Default with respect to payment of principal of, or interest on, the Securities or Event of Default shall have occurred and be continuing at the time or as a consequence of the Incurrence of any such Indebtedness, the Company or any Restricted Subsidiary may Incur Indebtedness if immediately after giving effect to the Incurrence of such Indebtedness the Operating Coverage Ratio would be greater than 2.0 to 1.0. SECTION 5.13. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or suffer to exist, or allow to become effective any consensual Payment Restriction with respect to any of the Restricted Subsidiaries, except for (a) any such restrictions contained in (i) the Credit Agreement and related documents as any such Payment Restriction may apply to any present or future Subsidiary, (ii) this Indenture, (iii) any agreement in effect at or entered into on the Issue Date, as each of the agreements referred to in the foregoing clauses (i), (ii) or (iii) is in effect on the Issue Date or as thereafter amended, supplemented or amended and restated in a manner, as it relates to such restrictions, not materially adverse to the Holders and (iv) Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary (provided that (x) such Indebtedness is not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary, (y) such restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired and (z) such Indebtedness is otherwise permitted to be Incurred 70 -62- pursuant to Section 5.12 hereof); (b) limitations contained in agreements governing secured Indebtedness otherwise permitted to be Incurred pursuant to Sections 5.12 and 5.14 hereof on the right of the debtor to dispose of the assets securing such Indebtedness; (c) customary non-assignment provisions restricting subletting or assignment of any lease or other agreement entered into by a Restricted Subsidiary; (d) customary net worth or similar provisions contained in leases and other agreements entered into by a Restricted Subsidiary in the ordinary course of business; (e) customary restrictions with respect to a Restricted Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary; (f) customary provisions in joint venture agreements and other similar agreements; (g) restrictions contained in Indebtedness Incurred to refinance, refund, extend or renew Indebtedness referred to in clauses (a) and (b) above; provided that the restrictions contained therein are not materially more restrictive taken as a whole than those provided for in such Indebtedness being refinanced, refunded, extended or renewed; and (h) Payment Restrictions contained in any other Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant to Section 5.12 hereof; provided that any such Payment Restrictions are ordinary and customary with respect to the type of Indebtedness being Incurred (under the relevant circumstances). SECTION 5.14. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien (other than Permitted Liens) that secures any Indebtedness of the Company which is expressly by its terms subordinated in right of payment to any other Indebtedness of the Company on any asset or property of the Company or any Restricted Subsidiary, unless the Securities are secured by a Lien on such asset or property that is (x) pari passu with such other Indebtedness if such other Indebtedness is pari passu with the Securities or (y) if such other Indebtedness is subordinated to the Securities, senior in priority to the Lien securing such other Indebtedness, in each case, until such time as such obligations are no longer secured by a Lien. 71 -63- SECTION 5.15. Limitation on Change of Control. (a) Upon the occurrence of a Change of Control, each Holder will have the right to require the repurchase of such Holder's Securities pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase (the "Change of Control Offer Price"). (b) No later than 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Notice of an event giving rise to a Change of Control shall be given on the same date and in the same manner to all Holders. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 5.15 and that all Securities tendered will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless (i) the Company defaults in making payment therefor or (ii) such payment is prohibited pursuant to Article Four, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; 72 -64- (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portions of the Securities surrendered; provided that each Security purchased and each Security issued shall be in an original principal amount of $1,000 or integral multiples thereof; (8) that each Change of Control Offer is required to remain open for at least 20 Business Days or such longer period as may be required by law and until 5:00 p.m. New York City time on the applicable Change of Control Payment Date; and (9) the circumstances and relevant facts regarding such Change of Control. (c) On or before the Change of Control Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price (and the Trustee shall promptly authenticate and mail to such Holders new Securities equal in principal amount to any unpurchased portion of the Securities surrendered provided that each such new Security shall be in the principal amount of $1,000 or integral multiples thereof) unless such payment is prohibited pursuant to Article Four or otherwise. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 5.15, the Trustee shall act as the Paying Agent. 73 -65- (d) Notwithstanding the foregoing, prior to the mailing of the notice of a Change of Control Offer referred to above, within 30 days following a Change of Control, the Company shall either (i) repay in full all Indebtedness, and terminate all commitments, under the Credit Agreement (or offer to repay in full all such Indebtedness and terminate all such commitments and repay all such Indebtedness owed to each lender which has accepted such offer and terminate all such commitments of each such lender), or (ii) obtain the requisite consents under the Credit Agreement, to permit the repurchase of the Securities as provided above. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Securities pursuant to the provisions described above. The Company's failure to comply with the covenants described in this paragraph shall constitute an Event of Default hereunder. (e) Notwithstanding the foregoing, the Company shall not be required to make a Change of Control Offer, as provided above, if, in connection with any Change of Control, it has made an offer to purchase (an "Alternate Offer") any and all Securities validly tendered at a cash price equal to or higher than the Change of Control Offer Price and has purchased all Securities properly tendered in accordance with the terms of such Alternate Offer. (f) The Company must comply with Rule 14e-1 under the Exchange Act and other provisions of state and federal securities laws to the extent applicable in connection with a Change of Control Offer or an Alternate Offer. SECTION 5.16. Limitation on Asset Sales. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, consummate an Asset Sale unless (a) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company) and (b) upon consummation of such Asset Sale, the Company will within 365 days of the receipt of the proceeds therefrom: (i) apply or cause such Restricted Subsidiary to apply the Net Cash Proceeds of such Asset Sale to (A) a Related Business Investment, (B) an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale or (C) an investment in properties and assets that will be used in the business of the Company and the Restricted 74 -66- Subsidiaries existing on the Issue Date or in businesses reasonably related thereto; (ii) in the case of a sale of a store or stores, deem such Net Cash Proceeds to have been applied to the extent of any capital expenditures made to acquire or construct a replacement store in the general vicinity of the store sold within 365 days preceding the date of such Asset Sale; (iii) apply such Net Cash Proceeds (or cause such Net Cash Proceeds to be applied) to the permanent repayment of Pari Passu Indebtedness, any Indebtedness of any Restricted Subsidiary or any Senior Indebtedness; provided, however, that the repayment of any revolving loan (under the Credit Agreement or otherwise) shall result in a permanent reduction in the commitment thereunder; (iv) use such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the related letters of credit have not been drawn upon or returned undrawn; or (v) after such time as the accumulated Net Cash Proceeds not applied pursuant to the foregoing clauses (i) through (iv) equals or exceeds $15.0 million, apply such Net Cash Proceeds (or cause such Net Cash Proceeds to be applied) to the purchase of Securities tendered to the Company for purchase at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase pursuant to an offer to purchase made by the Company as set forth below (a "Net Proceeds Offer"); provided, however, that the Company shall have the right to exclude from the foregoing provisions Asset Sales subsequent to the Issue Date, the proceeds of which are derived from the sale and substantially concurrent lease-back of a supermarket and/or related assets or equipment which are acquired or constructed by the Company or a Restricted Subsidiary subsequent to the date that is six months prior to the Issue Date, provided that such sale and substantially concurrent lease-back occurs within 365 days following such acquisition or the completion of such construction, as the case may be. Pending the utilization of any Net Cash Proceeds in the manner (and within the time period) described above, the Company may use any such Net Cash Proceeds to repay revolving loans (under the Credit Agreement or otherwise) without a permanent reduction of the commitment thereunder. (b) Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders of such Securities not less than 325 nor more than 365 days after the relevant Asset Sale, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: 75 -67- (1) that the Net Proceeds Offer is being made pursuant to Section 5.16 hereof and that all Securities tendered will be accepted for payment, provided, however, that if the aggregate principal amount of Securities tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or multiples thereof shall be purchased); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed, other than as may be required by law) (the "Proceeds Purchase Date"); (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless (i) the Company defaults in making payment therefor or (ii) such payment is prohibited pursuant to Article Four hereof or otherwise, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities were purchased only in part will be issued new Securities equal in 76 -68- principal amount to the unpurchased portion of the Securities surrendered; provided, however, that each Security purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof; and (8) that the Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. (c) On or before the Proceeds Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price (and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered provided that each such new Security shall be in the principal amount of $1,000 or integral multiples thereof) unless such payment is prohibited pursuant to Article Four hereof or otherwise. The Company will publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Proceeds Purchase Date. For purposes of this Section 5.16, the Trustee shall act as the Paying Agent. (d) Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer shall be returned by the Trustee to the Company. (e) The Company must comply with Rule 14e-1 under the Exchange Act and other provisions of State and federal securities laws to the extent applicable in connection with a Net Proceeds Offer. SECTION 5.17. Limitation on Subsidiary Assets and Indebtedness. (a) If at any time subsequent to the Issue Date (i)(a) the Company transfers any of its property, plant or equipment to one or more of the Restricted Subsidiaries (other 77 -69- than Guarantors) and (b) as a result of such transfer or transfers, the book value of all such transferred property, plant and equipment of the Company and the Guarantors, as reflected on a balance sheet prepared in accordance with GAAP in any filing made with the Commission, is greater than 35% of the then book value of the total property, plant and equipment of the Company and the Restricted Subsidiaries, on a consolidated basis; or (ii) any Restricted Subsidiary (other than a Guarantor) incurs Indebtedness (other than Permitted Indebtedness pursuant to clause (a) (to the extent such Indebtedness represents a guarantee of obligations under the Credit Agreement or a revolving loan thereunder), (b), (c), (d), (g), (h), (i), (j), (k) or (l) of the definition thereof) that, together with any other Indebtedness (including Permitted Indebtedness) Incurred subsequent to the Issue Date by all Restricted Subsidiaries (other than those that are then Guarantors) then outstanding, would represent more than 35% of the consolidated total long-term Indebtedness of the Company and the Restricted Subsidiaries as reflected on a balance sheet prepared in accordance with GAAP in any filing made with the Commission (each of the foregoing clauses (i) and (ii) being referred to herein as a "Guarantee Condition"), then the Company shall, promptly following any such filing with the Commission, cause one or more of the Restricted Subsidiaries to unconditionally guarantee, jointly and severally, the Company's obligations under the Securities on a senior subordinated unsecured basis (each such guarantee, a "Guarantee"), pursuant to a supplemental indenture satisfactory in form to the Trustee, so that following the issuance of such Guarantee, neither of the Guarantee Conditions shall exist. The Indebtedness represented by each Guarantee (including the payment of Obligations on the Securities) will be subordinated on the same basis to senior indebtedness of the Guarantors as the Securities are subordinated to Senior Indebtedness in accordance with the provisions of Article Twelve of this Indenture. So long as no Default or Event of Default shall have occurred and be continuing, one or more Guarantors may be released within 10 Business Days following any filing with the Commission from their Guarantees pursuant to a supplemental indenture or such other instrument satisfactory in form to the Trustee if after giving effect to such release neither of the Guarantee Conditions shall exist. Notwithstanding the foregoing, neither of the Guarantee Conditions shall be deemed to exist during any period when the Company's Operating Coverage Ratio is greater than 3.0 to 1.0. (b) Upon the sale or disposition (whether by merger, stock sale, asset sale or otherwise) to any Person which is not 78 -70- a Restricted Subsidiary of all of the Company's or any Subsidiary's Capital Stock in, or all or substantially all of the assets of, any Guarantor, which sale or disposition is otherwise in compliance with this Indenture, such Guarantor shall be deemed released from all its obligations under its Guarantee without any further action required on the part of the Trustee or any Holder. (c) The obligations of each Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee, or pursuant to its contribution obligations under this Indenture, result in the obligations of such Guarantor under such Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the relative net assets of each Guarantor. SECTION 5.18. Limitation on Preferred Stock of Restricted Subsidiaries.__ The Company shall not permit any of the Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a wholly owned Restricted Subsidiary) or permit any Person (other than the Company or a wholly owned Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary. SECTION 5.19. Limitation on Other Senior Subordinated Indebtedness. The Company shall not, directly or indirectly, incur any Indebtedness that by its terms (or by the terms of the agreement governing such Indebtedness) is subordinate in right of payment to any other Indebtedness of the Company unless such Indebtedness is also by its terms (or the terms of the agreement governing such Indebtedness) made expressly either (a) pari passu in right of payment with the Securities or (b) subordinate in right of payment to the Securities in the same manner and at least to the same extent as the Securities are subordinate to Senior Indebtedness. 79 -71- SECTION 5.20. Limitation on Restricted and Unrestricted Subsidiaries. (a) The Board of Directors of the Company may, if no Default or Event of Default shall have occurred and be continuing or would result therefrom, designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation is at that time permitted under Section 5.03 hereof. The Board of Directors of the Company may, if no Default or Event of Default shall have occurred and be continuing or would result therefrom, designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that (i) any such redesignation shall be deemed to be an Incurrence as of the date of such redesignation by the Company and the Restricted Subsidiaries of the Indebtedness (if any) of such redesignated Subsidiary for purposes of Section 5.12 hereof; and (ii) unless such redesignated Subsidiary shall not have any Indebtedness outstanding (other than Indebtedness which would be Permitted Indebtedness), no such designation shall be permitted if immediately after giving effect to such redesignation and the Incurrence of any such Indebtedness, the Company could not incur $1.00 of additional Indebtedness pursuant to the proviso of Section 5.12 hereof. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by the filing with the Trustee of a certified copy of the Board Resolution of the Company's Board of Directors giving effect to such designation or redesignation and an Officers' Certificate certifying that such designation or redesignation complied with the foregoing conditions and setting forth in reasonable detail the underlying calculations. (b) Subsidiaries that are not designated by the Board of Directors as Restricted or Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries. The designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed to include a designation of all of the subsidiaries of such Unrestricted Subsidiary as Unrestricted Subsidiaries. 80 -72- ARTICLE SIX SUCCESSOR CORPORATION SECTION 6.01. Limitations on Mergers and Certain Other Transactions. (a) The Company, in a single transaction or through a series of related transactions, shall not (i) consolidate with or merge with or into any other Person, or transfer (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets as an entirety or substantially as an entirety to another Person or group of affiliated Persons or (ii) adopt a Plan of Liquidation, unless, in either case: (1) either the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company as an entirety or substantially as an entirety are transferred (or, in the case of a Plan of Liquidation, any Person to which assets are transferred) (the Company or such other Person being hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States, any state thereof or the District of Columbia, and shall expressly assume, by supplemental indenture, all the obligations of the Company hereunder and the Securities issued hereunder; (2) immediately after and giving effect to such transaction and the assumption contemplated by clause (1) above and the Incurrence or anticipated Incurrence of any Indebtedness to be Incurred in connection therewith, the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and (3) immediately before and immediately after giving effect to such transaction and the assumption of the obligations as set forth in clause (1) above and the Incurrence or anticipated Incurrence of any Indebtedness to be Incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing. 81 -73- (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 6.02. Successor Corporation Substituted. Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company or any adoption of a Plan of Liquidation by the Company in accordance with Section 6.01 hereof, the Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if the Surviving Person had been named as the Company herein; provided, however, that solely for purposes of computing amounts described in subclause (3) of Section 5.03(a), the Surviving Person shall be deemed to have succeeded to and be substituted for the Company only with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. When a successor assumes all of the obligations of its predecessor under this Indenture and the Securities, the predecessor shall be released from those obligations; provided, however, that in the case of a transfer by lease, the predecessor shall not be released from the payment of principal, premium, if any, and interest on the Securities. ARTICLE SEVEN DEFAULT AND REMEDIES SECTION 7.01. Events of Default. Each of the following events constitutes an "Event of Default": (i) failure to make any interest payment on the Securities when due and the continuance of such default for a period of 30 days (whether or not prohibited by Article Four); (ii) failure to pay principal of, or premium, if any, on the Securities when due, whether at maturity, upon 82 -74- acceleration, redemption, required repurchase or otherwise (whether or not prohibited by Article Four); (iii) failure by the Company to comply with any of its other agreements contained in the Securities or this Indenture, if such failure continues unremedied for 30 days after written notice given by the Trustee or the Holders of at least 25% in principal amount of the Securities then outstanding (except in the case of a failure to comply with Section 5.03, Section 5.15, Section 5.16 or Section 6.01, which shall constitute Events of Default with notice but without passage of time); (iv) there shall be a default under any Indebtedness of the Company or any Restricted Subsidiary, whether such Indebtedness now exists or shall hereinafter be created, if both (A) such default either (1) results from the failure to pay any such Indebtedness at its stated final maturity or (2) relates to an obligation other than the obligation to pay such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated final maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, aggregates $20 million or more at any one time outstanding; (v) any final judgment, order or decree of any court, regulatory agency, administrative agency, or other body of competent jurisdiction for payment of money in excess of $20 million shall be entered against the Company or any Significant Subsidiary or any of their respective properties and shall not be discharged and there shall have been a period of 60 days after the date on which any period for appeal has expired; (vi) either the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (d) makes a general assignment for the benefit of its creditors; 83 -75- (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary in an involuntary case or proceeding; (b) appoints a Custodian of the Company or any Significant Subsidiary, or for all or any substantial part of their respective properties; or (c) orders the liquidation of the Company or any Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 days; or (viii) the lenders under the Credit Agreement shall commence judicial proceedings to foreclose upon any material portion of the assets of the Company and the Subsidiaries. SECTION 7.02. Acceleration. (a) If an Event of Default (other than an Event of Default under clause (vi) or (vii) above with respect to the Company or a Significant Subsidiary) occurs and is continuing hereunder, the Trustee hereunder or the Holders of at least 25% in principal amount of the then outstanding Securities may declare due and payable all unpaid principal and interest accrued and unpaid on the then outstanding Securities issued hereunder by notice in writing to the Company, the Credit Agent and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there is any Indebtedness outstanding under the Credit Agreement, shall become due and payable upon the first to occur of an acceleration under the Credit Agreement, or five business days after receipt by the Company and the Credit Agent of such Acceleration Notice. If an Event of Default under clause (vi) or (vii) above with respect to the Company or a Significant Subsidiary shall occur hereunder, all unpaid principal of and accrued interest on all then outstanding Securities issued hereunder shall be immediately due and payable without any declaration or other act on the part of the Trustee or any of the Holders. Upon payment of such principal amount, interest and premium, if any, all of the Company's obligations under the Securities and this Indenture, other than obligations under Section 8.07, shall terminate. After a declaration of acceleration, the Holders of a majority in principal amount of the Securities then outstanding, by notice to the Trustee, may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the non-payment of the principal of the Securities which has become due solely 84 -76- by such declaration of acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal which has become due otherwise than by such declaration of acceleration has been paid, (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iv) the Company has paid or deposited with the Trustee a sum sufficient to pay all sums paid or advanced by the Trustee under this Indendure and the compensation, expenses, disbursements and advances of the Trustee and its agents and counsel. (b) In the event of a declaration of acceleration because an Event of Default set forth in clause (iv) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if either (x) the holders of the Indebtedness which is the subject of such Event of Default have waived such failure to pay at maturity or have rescinded the acceleration in respect of such Indebtedness within 90 days of such maturity or declaration of acceleration, as the case may be, and no other Event of Default has occurred during such 90-day period which has not been cured or waived, or (y) such Indebtedness shall have been discharged or the maturity thereof shall have been extended such that it is not then due and payable, or the underlying default has been cured (and any acceleration based thereon of such other Indebtedness has been rescinded), within 90 days of such maturity or declaration of acceleration, as the case may be. SECTION 7.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. 85 -77- SECTION 7.04. Waiver of Past Defaults. Subject to Sections 7.07 and 10.02, the Holders of a majority in principal amount of the outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (i) and (ii) of Section 7.01 (other than any such Default arising solely by reason of acceleration of the Securities). When a Default or Event of Default is waived, it is cured and ceases. SECTION 7.05. Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 7.03. Subject to Section 8.01, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 7.06. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holder or Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; 86 -78- (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holder or Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 7.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 7.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (i) or (ii) of Section 7.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 7.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to the Company or any 87 -79- other obligor upon the Securities, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 8.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 7.10. Priorities. If the Trustee collects any money pursuant to this Article Seven, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 8.07; Second: subject to Article Four and Article Twelve, to Holders for interest accrued on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for interest; Third: subject to Article Four and Article Twelve, to Holders for principal amounts due and unpaid on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal; and Fourth: subject to Article Four and Article Twelve, to the Company or, if applicable, the Guarantors, as their respective interests may appear. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 7.10. 88 -80- SECTION 7.11. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 7.12. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Seven or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 7.13. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 7.13 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 7.07, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Securities. 89 -81- ARTICLE EIGHT TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. SECTION 8.01. Duties of Trustee. (a) If a Default or an Event of Default of which a Trust Officer of the Trustee is aware has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default of which the Trust Officer of the Trustee is aware: (1) The Trustee need undertake to perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee shall have no liability except for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 8.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it 90 -82- is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 7.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 8.01. (f) The Trustee shall not be liable for interest on any assets received by it. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 8.02. Rights of Trustee. Subject to Section 8.01: (a) The Trustee may rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person, including, without limitation, any Person purporting to be a holder of Senior Indebtedness or Guarantor Senior Indebtedness or a Representative. The Trustee need not investigate any fact or matter stated in the document or the status of any such Person delivering such document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require in addition to written direction from the Company an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 13.04 and 13.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. 91 -83- (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. SECTION 8.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 8.10 and 8.11. SECTION 8.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than the Trustee's certificate of authentication. SECTION 8.05. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to a Trust Officer of the Trustee, the Trustee shall mail to each Holder of Securities notice 92 -84- of the Default or Event of Default within 90 days after such Default or Event of Default occurs or if such Default or Event of Default is known to a Trust Officer of the Trustee during such 90-day period, promptly after such Default or Event of Default becomes known to a Trust Officer of the Trustee; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of or interest on any Security, including the failure to make payment on a Change of Control Payment Date pursuant to a Change of Control Offer or payment when due pursuant to a Net Proceeds Offer, the Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders. SECTION 8.06. Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the first May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA { 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such May 15 that complies with TIA { 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee if the Securities become listed on any stock exchange. SECTION 8.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it except for such actions to the extent caused by any negligence or bad faith on its part, arising out of or in connection with the administration of this trust and its rights or duties 93 -85- hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel; provided, however, that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 8.07, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal of or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 7.01(vi) or (vii) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 8.08. Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee and appoint a successor trustee with the Company's consent, by so notifying the Company and the Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 8.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. 94 -86- If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 8.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 8.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 8.08, the Company's obligations under Section 8.07 shall continue for the benefit of the retiring Trustee. SECTION 8.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. 95 -87- SECTION 8.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA {{ 310(a)(1) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA { 310(b); provided, however, that there shall be excluded from the operation of TIA { 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. SECTION 8.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. ARTICLE NINE SATISFACTION AND DISCHARGE OF INDENTURE SECTION 9.01. Termination of the Company's Obligations. The Company may terminate its obligations under the Securities and this Indenture, and the obligations of any Guarantor shall terminate, except those obligations referred to in the penultimate paragraph of this Section 9.01, if all Securities previously authenticated and delivered (other than lost, stolen or destroyed Securities which have been replaced or paid or Securities for whose payment money has theretofore been deposited with the Trustee or the Paying Agent in trust and thereafter repaid to the Company, as provided in Section 9.04) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (1) all Securities not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption pursuant to Article Three or otherwise; 96 -88- (2) the Company shall have irrevocably deposited or caused to be deposited with the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, money in such amount as is sufficient without consideration of reinvestment of such interest, to pay and discharge the entire indebtedness on the Securities not theretofore delivered to the Trustee for cancellation for principal of, premium, if any, and accrued interest to the date of maturity or redemption; provided, however, that the Trustee shall have been irrevocably instructed to apply such money to the payment of said principal, premium, if any, and interest with respect to the Securities; provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Indebtedness pursuant to the provisions of Article Four and Article Twelve; (3) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (4) the Company shall have paid all other sums payable by it hereunder; and (5) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for the termination of the Company's and any Guarantor's obligation under the Securities and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under the Credit Agreement (if then in effect) or any other agreement or instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 5.01, 5.02 and 8.07 and any Guarantors's obligations in respect thereof shall survive until the Securities are no longer outstanding pursuant to the last paragraph of Section 2.08. After the Securities are no longer outstanding, the Company's obligations 97 -89- in Sections 8.07, 9.04 and 9.05 and any Guarantor's obligations in respect thereof shall survive. After such delivery or irrevocable deposit the Trustee upon request shall acknowledge in writing the discharge of the Company's and any Guarantor's obligations under the Securities and this Indenture except for those surviving obligations specified above. SECTION 9.02. Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option by Board Resolution of the Board of Directors of the Company, at any time, with respect to the Securities, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Securities upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company and any Guarantor shall be deemed to have been released and discharged from its obligations with respect to the outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "legal defeasance"). For this purpose, legal defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of paragraph (e) below and the other Sections of and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), and Holders of the Securities and the Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness or Guarantor Senior Indebtedness under Article Four or Article Twelve or otherwise, except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the funds held by the Trustee in the trust fund described in paragraph (d) below and as more fully set forth in such paragraph, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.06, 2.07 and 5.02, 98 -90- and, with respect to the Trustee, under Section 8.07 and any Guarantor's obligations in respect thereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (iv) this Section 9.02 and Section 9.05. Subject to compliance with this Section 9.02, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to the Securities. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its obligations under any covenant contained in Article Four and Article Six and in Sections 5.03, 5.05 through 5.09 and 5.11 through 5.20 with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder and Holders of the Securities and the Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness or Guarantor Senior Indebtedness under Article Four, Article Twelve or otherwise. For this purpose, covenant defeasance means that, with respect to the outstanding Securities, the Company and any Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant listed above, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 7.01(iii), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Securities: (i) the Company must have irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 8.10 who shall agree to comply with the 99 -91- provisions of this Section 9.02 applicable to it) in trust, for the benefit of the Holders, cash in U.S. dollars, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Securities to redemption or maturity provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities on the Maturity Date or such Redemption Date, as the case may be; (ii) the Company shall have delivered to the Trustee one or more Opinions of independent Counsel to the effect that (A) the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance or covenant defeasance, as the case may be, and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance or covenant defeasance, as the case may be, had not occurred (which opinion, in the case of legal defeasance, shall be based upon a change in the applicable federal income tax law since the Issue Date or a ruling received from or published by the Internal Revenue Service), (B) after the 91st day following the deposit the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and will not be subject to any rights of holders of Senior Indebtedness and (C) the deposit will not cause the Trustee or the trust so created to be subject to the Investment Company Act of 1940; (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as clauses (vi) and (vii) of Section 7.01 are concerned, at any time in the period ending on the 91st day after the date of deposit; (iv) such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to the Securities; (v) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material 100 -92- agreement or instrument to which the Company is a party or by which it is bound (and in that connection, the Trustee shall have received a certificate from the Credit Agent to that effect with respect to the Credit Agreement if then in effect); (vi) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (vii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the legal defeasance or covenant defeasance, have been complied with. (e) All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d) above in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company or any Affiliate of the Company), to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to paragraph (d) above or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. The Company's obligations to pay and indemnify the Trustee as set forth in this paragraph shall survive the termination of this Indenture and the Securities. Anything in this Section 9.02 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request, in writing, by the Company 101 -93- any money or U.S. Government Obligations held by it as provided in paragraph (d) above which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance. SECTION 9.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Sections 9.01 and 9.02, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal of, premium, if any, and interest on the Securities. SECTION 9.04. Repayment to the Company or Subsidiary Guarantors. Subject to Sections 8.07, 9.01 and 9.02, the Trustee shall promptly pay to the Company, or if deposited with the Trustee by any Guarantor, to each Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess money, determined in accordance with Section 9.02, held by it at any time. The Trustee and the Paying Agent shall pay to the Company or any Guarantor, as the case may be, upon receipt by the Trustee or the Paying Agent, as the case may be, of an Officers' Certificate, any money held by it for the payment of principal, premium, if any, or interest that remains unclaimed for two years after payment to the Holders is required; provided, however, that the Trustee and the Paying Agent before being required to make any payment may, but need not, at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company or the Guarantor, as the case may be, Holders entitled to money must look solely to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. 102 -94- SECTION 9.05. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then and only then the Company's and each Guarantor's, if any, obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had been made pursuant to this Indenture until such time as the Trustee is permitted to apply all such money or U.S. Government Obligations in accordance with this Indenture; provided, however, that if the Company or the Guarantors, as the case may be, have made any payment of principal of, premium, if any, or interest on any Securities because of the reinstatement of its obligations, the Company or the Guarantors, as the case may be, shall be, subrogated to the rights of the holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 10.01. Without Consent of Holders. The Company and the Guarantors (if any), when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture, the Securities or the Guarantees without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder; (2) to comply with Section 5.17 or Article Six; (3) to make any other change that does not adversely affect the rights of any Holder in any material respect; or (4) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; 103 -95- provided, however, that the Company shall have delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 10.01. SECTION 10.02. With Consent of Holders. Subject to Section 7.07, the Company and the Guarantors (if any), when authorized by a Board Resolution, the Trustee and the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding, may amend or supplement (or waive compliance with any provision of) this Indenture, the Securities or any Guarantee (if any) without any notice to any other Holder, except that (i) without the consent of each Holder of the Securities affected, no such amendment, supplement or waiver may: (1) change the principal amount of the Securities the Holders of which must consent to an amendment, supplement or waiver of any provision of this Indenture or the Securities or the Guarantees (if any); (2) reduce the rate or extend the time for payment of interest on any Securities; (3) reduce the principal amount of any Securities; (4) change the Maturity Date or alter the redemption provisions in this Indenture or the Securities in a manner adverse to any Holder; (5) make any changes in the provisions concerning waivers of Defaults or Events of Default by Holders or the rights of Holders to recover the principal of, interest on or redemption payment with respect to any Securities or the Guarantees (if any); (6) make the principal of, or interest on, any Securities payable with anything or in any manner other than as provided for in this Indenture and the Securities; or (7) modify the subordination provisions of this Indenture (including the definitions of "Senior Indebtedness" and "Guarantor Senior Indebtedness") so as to adversely affect the ranking of any Security or any Guarantee (if any); provided, however, that it is understood that any amend- ment the purpose of which is to permit the Incurrence of additional Indebtedness under this Indenture shall not be 104 -96- construed as adversely affecting the ranking of any Security or any Guarantee (if any); and (ii) without the consent of Holders of not less than 66 2/3% in aggregate principal amount of the Securities then outstanding, no such amendment, supplement or waiver may change the Change of Control Payment Date or the Change of Control Offer price in a manner adverse to any Holder or waive a Default or Event of Default resulting from a failure to comply with Section 5.15 hereof. The Company and each Guarantor (if any) agree that no amendment, supplement or waiver under this Article Ten may make any change that adversely affects the rights under Article Four or Twelve of any holders of any Senior Indebtedness or any Guarantor Senior Indebtedness unless the holders of such Senior Indebtedness or Guarantor Senior Indebtedness consent to the change. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. In connection with any amendment, supplement or waiver under this Article Ten, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. SECTION 10.03. Compliance with TIA. From the date on which the Indenture is qualified under the TIA, every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. 105 -97- SECTION 10.04. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in clause (i) of Section 10.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided, however, that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 10.05. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place 106 -98- an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. SECTION 10.06. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Ten; provided, however, that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Ten is authorized or permitted by this Indenture. ARTICLE ELEVEN GUARANTEE SECTION 11.01. Unconditional Guarantee. Each Guarantor shall guarantee, subject to Article Twelve, to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Securities or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Securities will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Securities and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Securities or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.05. Each Guarantor's obligations 107 -99- hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor shall waive diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and in this Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder, the Guarantee (if any), to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor shall further agree that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Seven for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Seven, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. SECTION 11.02. Subordination of Guarantee. The obligations of each Guarantor to the Holders of Securities pursuant to the Guarantee and this Indenture are expressly subordinate and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Guarantor, to the extent and in the manner provided in Article Twelve. SECTION 11.03. Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and 108 -100- enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.04. Release of a Guarantor. Upon the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Guarantor (or all or substantially all its assets) to any Person which is not a Restricted Subsidiary of all the Company's or any Subsidiary's Capital Stock in, or all or substantially all of the assets of, any Guarantor, and which sale or disposition is otherwise in compliance with the terms of this Indenture, in each case, such Guarantor shall be deemed released from all obligations under this Article Eleven and under its Guarantee without any further action required on the part of the Trustee or any Holder. The Trustee shall deliver an appropriate instrument evidencing any release pursuant to Section 5.17 or this Section 11.04 upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with Section 5.17 or this Section 11.04, as applicable. Any Guarantor not so released remains liable for the full amount of principal of and interest on, and all other obligations under, the Securities as provided in this Article Eleven. SECTION 11.05. Limitation of Guarantor's Liability. Each Guarantor and by its acceptance hereof each Holder shall confirm that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to Section 11.07, result in the obligations of such Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. 109 -101- SECTION 11.06. Guarantors May Consolidate, etc., on Certain Terms. Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to the Company or another Guarantor. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Guarantor shall no longer have any force or effect. SECTION 11.07. Contribution. In order to provide for just and equitable contribution among the Guarantors, the Guarantors shall agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under the Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the relative net assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Guarantor's obligations with respect to the Guarantee. SECTION 11.08. Waiver of Subrogation. Each Guarantor shall irrevocably waive any claim or other rights which it may at any time acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders, and shall, subject to the provisions of Section 11.02, Article Four and Article Twelve, forthwith be 110 -102- paid to the Trustee for the benefit of the Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor shall acknowledge that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.08 is knowingly made in contemplation of such benefits. SECTION 11.09. Execution of Guarantee. To further evidence the Guarantee set forth in this Article Eleven, each Guarantor hereby agrees that a notation of such Guarantee, substantially in the form included in Exhibit B hereto, shall be endorsed on each Security authenticated and delivered by the Trustee after this Article Eleven with respect to such Guarantor becomes effective in accordance with Section 5.17 and such Guarantee shall be executed by either manual or facsimile signature of an Officer of each Guarantor. The validity and enforceability of any Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Failure to endorse on any Security a notation of a Guarantee shall not affect the validity, enforceability or effectiveness of such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Guarantee. The delivery of any Security by the Trustee, after the authentication thereof hereunder, with the notation of a Guarantee substantially in the form of Exhibit B hereto duly executed by the applicable Guarantor, shall constitute due delivery of such Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantee, and in case any such officer who shall have signed the Guarantee shall cease to be such officer before the Security on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Security nevertheless may be authenticated and delivered or disposed of as though the person who signed the Guarantee had not ceased to be such officer of the Guarantor. 111 -103- SECTION 11.10. Waiver of Stay, Extension or Usury Laws. Each Guarantor shall covenant (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each such Guarantor shall expressly waive all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness. Anything herein to the contrary notwithstanding, each of the Guarantors, for itself and its successors, and each Holder, by his acceptance of Guarantees, agrees, that any payment of Obligations by a Guarantor in respect of its Guarantee (collectively, as to any Guarantor, its "Guarantee Obligations") is subordinated, to the extent and in the manner provided in this Article Twelve, to the prior payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter Incurred, including with respect to Guarantor Senior Indebtedness, any interest accruing thereon subsequent to the occurrence of an Event of Default specified in clause (vi) or (vii) of Section 7.01 relating to the Company or any Guarantor, subsequent to a bankruptcy or other similar proceeding whether or not such interest is an allowed claim enforceable against the Company under any Bankruptcy Law. This Article Twelve shall constitute a continuing offer to all Persons who become holders of, or continue to hold, Guarantor Senior Indebtedness, and such provisions are made for the benefit of the holders of Guarantor Senior 112 -104- Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. The obligations of the Guarantors to the Trustee under Section 8.07 shall not be subject to the provisions of this Article Twelve. SECTION 12.02. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default. (a) Unless Section 12.03 shall be applicable, no direct or indirect payment (other than payments by a trust previously established pursuant to Article Nine hereof) or distribution of any assets of any Guarantor of any kind or character by such Guarantor on account of Obligations on the Securities or on account of the purchase, redemption or other acquisition of Securities or on account of Guarantee Obligations on the Securities whether pursuant to the terms of the Securities or upon acceleration or otherwise shall be made if, at the time of such payment or distribution, there exists a default in the payment of all or any portion of principal of, premium, if any, or interest on (i) any Designated Senior Indebtedness or (ii) Significant Senior Indebtedness (and the Trustee has received written notice thereof) and such Designated Senior Indebtedness or Significant Senior Indebtedness is guaranteed by such Guarantor (which guarantee constitutes Guarantor Senior Indebtedness of such Guarantor), and such default shall not have been cured or waived by or on behalf of the holders of such Guarantor Senior Indebtedness or shall have ceased to exist, until such default shall have been cured or waived or shall have ceased to exist or such Guarantor Senior Indebtedness shall have been discharged or paid in full in cash or Cash Equivalents, after which such Guarantor shall resume making any and all required payments in respect of the obligations under its Guarantee. (b) Unless Section 12.03 shall be applicable, during the continuance of any other event of default with respect to any Designated Senior Indebtedness and such Designated Senior Indebtedness is guaranteed by a Guarantor (which guarantee constitutes Guarantor Senior Indebtedness of such Guarantor) pursuant to which the maturity thereof may be accelerated, upon the earlier to occur of (a) receipt by the Trustee of written notice from the holders of a majority of the outstanding principal amount of the Guarantor Senior Indebtedness or their Representative stating that such notice is a notice pursuant to Section 12.02(b) of this Indenture, or (b) if such event of 113 -105- default results from the acceleration of the Securities, the date of such acceleration, no such payment (other than payments by a trust previously established pursuant to Article Nine hereof) or distribution of any asset of such Guarantor of any kind or character shall be made by such Guarantor upon or in respect of the Securities (including without limitation on account of any principal of, premium, if any, or interest on, the Securities) or on account of the purchase, redemption or other acquisition of Securities or on account of Guarantee Obligations on the Securities for a period ("Guarantor Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 179 days thereafter (provided such Guarantor Senior Indebtedness shall theretofore not have been accelerated) (unless (x) such Guarantor Payment Blockage Period shall be terminated by written notice to the Trustee from the holders of a majority of the outstanding principal amount of such Guarantor Senior Indebtedness or their Representative who delivered such notice or (y) such default is cured or waived, or ceases to exist or such Guarantor Senior Indebtedness is discharged or paid in full in cash or Cash Equivalents), after which such Guarantor shall promptly notify the Trustee of such cure or waiver and resume making any and all required payments in respect of the obligations under its Guarantee. Notwithstanding anything herein to the contrary, in no event will a Guarantor Payment Blockage Period extend beyond 179 days from the date on which such Guarantor Payment Blockage Period was commenced. Not more than one Guarantor Payment Blockage Period may be commenced with respect to the Securities during any period of 365 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Guarantor Payment Blockage Period with respect to the Guarantor Senior Indebtedness initiating such Guarantor Payment Blockage Period shall be, or be made, the basis for the commencement of a second Guarantor Payment Blockage Period by the holders of such Guarantor Senior Indebtedness or their Representative whether or not within a period of 365 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder shall have received any payment prohibited by the foregoing provisions of this Section 12.02, then and in such event such payment shall be paid over and delivered forthwith to the Representatives or as a court of competent jurisdiction shall direct. 114 -106- SECTION 12.03. Guarantee Obligations Subordinated to Prior Payment of All Guarantor Senior Indebtedness on Dissolution, Liquidation or Reorganization of Such Guarantor. Upon any payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, upon any dissolution, winding up, total or partial liquidation or reorganization of such Guarantor and whether voluntary or involuntary (including, without limitation, in bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of assets and liabilities of such Guarantor and whether voluntary or involuntary): (a) the holders of all Guarantor Senior Indebtedness of such Guarantor shall first be entitled to receive payments in full in cash or Cash Equivalents of all amounts payable under Guarantor Senior Indebtedness (including, with respect to Designated Senior Indebtedness guaranteed by such Guarantor, any interest accruing after the commencement of any such proceeding at the rate specified in the applicable Designated Senior Indebtedness whether or not interest is an allowed claim enforceable against the Company in any such proceeding) before the Holders will be entitled to receive any payment with respect to the Guarantee (excluding Permitted Subordinated Reorganization Securities), and until all Obligations with respect to the Guarantor Senior Indebtedness are paid in full in cash or Cash Equivalents, any distribution to which the Holders would be entitled (excluding Permitted Subordinated Reorganization Securities) shall be made to the holders of Guarantor Senior Indebtedness; provided, however, that no payment by any other Guarantor or the Company shall constitute payment on behalf of such Guarantee for purposes of this Section 12.03(a); (b) any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled (excluding Permitted Subordinated Reorganization Securities) except for the provisions of this Article Twelve, shall be paid by the liquidating trustee or agent or other person making such a payment or distribution, directly to the holders of Guarantor Senior Indebtedness of such Guarantor or their Representative, ratably according to the respective amounts 115 -107- of such Guarantor Senior Indebtedness remaining unpaid held or represented by each, until all such Guarantor Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment or distribution to the holders of such Guarantor Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders or any Paying Agent in respect of payment of the Guarantee before all Guarantor Senior Indebtedness of such Guarantor is paid in full in cash or Cash Equivalents, such payment or distribution (subject to the provisions of Sections 12.06 and 12.07) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over to, the holders of such Guarantor Senior Indebtedness or their Representative, ratably according to the respective amounts of such Guarantor Senior Indebtedness held or represented by each, until all such Guarantor Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment or distribution to the holders of Guarantor Senior Indebtedness. Notwithstanding anything to the contrary contained herein, in the absence of its gross negligence or wilful misconduct, the Trustee shall have no duty to collect or retrieve monies previously paid by it in good faith; provided that this sentence shall not affect the obligation of any other party receiving such payment to hold such payment for the benefit of, and to pay over such payment over to, the holders of such Guarantor Senior Indebtedness or their Representative. Each Guarantor shall give prompt notice to the Trustee prior to any dissolution, winding up, total or partial liquidation or total or reorganization (including, without limitation, in bankruptcy, insolvency, or receivership proceedings or upon any assignment for the benefit of creditors or any other marshalling of such Guarantor's assets and liabilities). 116 -108- SECTION 12.04. Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of Guarantor Senior Indebtedness. Subject to the payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness, the Holders of Guarantee Obligations of a Guarantor shall be subrogated to the rights of the holders of Guarantor Senior Indebtedness of such Guarantor to receive payments or distributions of assets of such Guarantor applicable to such Guarantor Senior Indebtedness until all amounts owing on or in respect of the Guarantee Obligations shall be paid in full in cash, and for the purpose of such subrogation no payments or distributions to the holders of such Guarantor Senior Indebtedness by or on behalf of such Guarantor, or by or on behalf of the Holders by virtue of this Article Twelve, which otherwise would have been made to the Holders, shall, as between such Guarantor and the Holders, be deemed to be payment by such Guarantor to or on account of such Guarantor Senior Indebtedness, it being understood that the provisions of this Article Twelve are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of such Guarantor Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Twelve shall have been applied, pursuant to the provisions of this Article Twelve, to the payment of all amounts payable under such Guarantor Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Guarantor Senior Indebtedness any payments or distributions received by such holders of such Guarantor Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Guarantor Senior Indebtedness in full in cash or Cash Equivalents. SECTION 12.05. Obligations of the Guarantors Unconditional. Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Guarantees is intended to or shall impair, as between the Guarantors and the Holders, the obligation of the Guarantors, which is absolute and unconditional, to pay to the Holders all amounts due and payable under the Guarantees as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Guarantors other than the holders of the Guarantor Senior 117 -109- Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Twelve, of the holders of Guarantor Senior Indebtedness in respect of cash, property or securities of the Guarantors received upon the exercise of any such remedy. Upon any payment or distribution of assets of any Guarantor referred to in this Article Twelve, the Trustee, subject to the provisions of Sections 8.01 and 8.02, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Guarantor Senior Indebtedness and other Indebtedness of any Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve. Nothing in this Section 12.05 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 8.07. SECTION 12.06. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice thereof from the Company or any Guarantor or from one or more holders of Guarantor Senior Indebtedness or from any Representative therefor and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 8.01 and 8.02, shall be entitled in all respects conclusively to assume that no such fact exists. SECTION 12.07. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Sections 9.01 and 9.02 shall be for the sole benefit of Holders and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Twelve. Otherwise, any deposit of assets or securities by or on behalf of a Guarantor with the Trustee 118 -110- or any Paying Agent (whether or not in trust) for payment of the Guarantee shall be subject to the provisions of this Article Twelve; provided that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 12.06, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent. Nothing contained in this Section 12.07 shall limit the right of the holders of Guarantor Senior Indebtedness to recover payments as contemplated by this Article Twelve. SECTION 12.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Guarantor Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Guarantor or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by any Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 12.08, the holders of Guarantor Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Securities to the holders of Guarantor Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Guarantor Senior Indebtedness or any instrument evidencing the same or any agreement under which Guarantor Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Senior Indebtedness; (3) release any person liable in any manner for 119 -111- the collection or payment of Guarantor Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Company and any other person; provided, however, that in no event shall any such actions limit the right of the Holders of the Securities to take any action to accelerate the maturity of the Securities pursuant to Article Seven hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. (c) Each Holder by accepting a Security agrees that the Representative of any Guarantor Senior Indebtedness (including, without limitation, the Credit Agent), in its discretion, without notice or demand and without affecting any rights of any holder of Guarantor Senior Indebtedness under this Article Twelve, may foreclose any mortgage or deed of trust covering interests in real property secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives any defense to the enforcement by the Representative of any Guarantor Senior Indebtedness (including, without limitation, the Credit Agent) or by any holder of any Guarantor Senior Indebtedness against such Holder of this Article Twelve after a judicial or nonjudicial sale or other disposition of its interests in real property secured by such mortgage or deed of trust; and such Holder expressly waives any defense or benefits that may be derived from California Civil Code Sections 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil Procedure Sections 580a, 580d or 726, or comparable provisions of the laws of any other jurisdiction or any similar statute in effect in any other jurisdiction. SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations. Each Holder of the Guarantee Obligations by his acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Twelve, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of any Guarantor (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Guarantor) tending towards liquidation or reorganization of the business and assets of any Guarantor, the immediate filing of a claim for the unpaid balance under its or his Guarantee Obligations in 120 -112- the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Guarantor Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Guarantee Obligations. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any holder of Guarantee Obligations any plan of reorganization, arrangement, adjustment or composition affecting the Guarantee Obligations or the rights of any Holder thereof, or to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to vote in respect of the claim of any holder of Guarantee Obligations in any such proceeding. SECTION 12.10. Right of Trustee To Hold Guarantor Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Twelve in respect of any Guarantor Senior Indebtedness at any time held by it to the same extent as any other holder of Guarantor Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 12.11. No Suspension of Remedies. The failure to make a payment in respect of the Guarantees by reason of any provision of this Article Twelve shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 7.01. Nothing contained in this Article Twelve shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article Seven or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Twelve of the holders, from time to time, of Guarantor Senior Indebtedness. 121 -113- SECTION 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall in good faith mistakenly pay over or deliver to the holders of Guarantee Obligations or the Company or any other person, money or assets to which any holders of Guarantor Senior Indebtedness shall be entitled by virtue of this Article Twelve or otherwise. Nothing in this Section 12.12 shall affect the obligation of any person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Guarantor Senior Indebtedness or their Representative. ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.01. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed duties shall control. SECTION 13.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or any Guarantor: Smith's Food & Drug Centers, Inc. 1550 S. Redwood Road Salt Lake City, UT 84104 Attention: w/a copy to: c/o The Yucaipa Companies 10000 Santa Monica Boulevard 122 -114- Fifth Floor Los Angeles, California 90067 Attention: Larry Kalantari if to the Trustee: Fleet National Bank 777 Main Street Hartford, CT 06115 Attention: Corporate Trust Administration if to the Credit Agent: Bankers Trust Company 130 Liberty Street, 14th Floor New York, NY 10006 Attention: Gerry McConnell w/a copy to: Bankers Trust Company 308 S. Grand Avenue, 41st Floor Los Angeles, CA 90071 Attention: Eric Swanson Each of the Company, the Trustee, the Guarantors and the Credit Agent by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to the Company, the Trustee, the Guarantors and the Credit Agent shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is 123 -115- mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Guarantors, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c). SECTION 13.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company, upon request, shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 13.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 5.07, shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and 124 -116- (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 13.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 13.07. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, in the city in which the principal corporate trust office of the Trustee is located or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 13.08. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. SECTION 13.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 13.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason 125 -117- of such obligations or their creations. Each Holder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. SECTION 13.11. Successors. All agreements of the Company and each Guarantor in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 13.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 13.13. Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 13.14. No Violation. Notwithstanding the provisions of this Indenture, in no event shall any transaction, agreement, payment or other event to be consummated, entered into or made in connection with the Merger or any financing thereof be considered a violation of any provision of this Indenture or constitute a Change of Control hereunder. 126 S-1 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the date first written above. SMITH'S FOOD & DRUG CENTERS, INC. By: /s/ MATTHEW G. TEZAK ------------------------------------- Name: Matthew G. Tezak Title: Senior Vice President and Chief Financial Officer Attest: /s/ MICHAEL C. FREI ---------------------- Michael C. Frei Senior Vice President and Secretary FLEET NATIONAL BANK, as Trustee By: /s/ FRANK McDONALD ------------------------------------ Name: Frank McDonald Title: Vice President Attest: /s/ MICHAEL M. HOPKINS ----------------------- Michael M. Hopkins Vice President 127 EXHIBIT A FORM OF SECURITY [FACE OF SECURITY] Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. Unless and until this Global Security is exchanged in whole or in part for the individual Securities represented hereby, this Global Security may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or by a Depository or any such nominee to a successor Depository or a nominee of a successor Depository. SMITH'S FOOD & DRUG CENTERS, INC. 11 1/4% Senior Subordinated Note due 2007 No. $ Cusip No. 832388AA0 SMITH'S FOOD & DRUG CENTERS, INC., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to or registered assigns, the principal sum of Dollars, on May 15, 2007. Interest Payment Dates: May 15 and November 15 commencing on November 15, 1996. Record Dates: May 1 and November 1. A-1 128 Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-2 129 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: SMITH'S FOOD & DRUG CENTERS, INC. By:________________________________ Name: Title: By:________________________________ Name: Title: Trustee's Certification of Authentication This is one of the 11 l/4% Senior Subordinated Notes Due 2007 described in the within-mentioned Indenture FLEET NATIONAL BANK, as Trustee By:____________________________________ Authorized Signatory A-3 130 [REVERSE SIDE OF SECURITY] SMITH'S FOOD & DRUG CENTERS, INC. 11 1/4% Senior Subordinated Note due 2007 1. Interest. SMITH'S FOOD & DRUG CENTERS, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually on each May 15 and November 15 of each year (the "Interest Payment Date"), commencing on November 15, 1996, to the Holders of record on the immediately preceding May 1 and November 1. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance of the Securities. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Company shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at a rate equal to the rate of interest otherwise payable on the Securities. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. Notwithstanding the foregoing, the Company shall pay or cause to be paid all amounts payable with respect to non-DTC eligible Securities by wire transfer of Federal funds to the account of the Holders of such Securities. 3. Paying Agent and Registrar. Initially, Fleet National Bank (the "Trustee") will act as Paying Agent and Registrar. The Company may change any A-4 131 Paying Agent, Registrar or co-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Securities under an Indenture, dated as of May 23, 1996 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of the Company limited in aggregate principal amount to $575,000,000. 5. Optional Redemption. The Securities will be redeemable, at the option of the Company, in whole at any time or in part from time to time, on and after May 15, 2001, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on May 15 of the year set forth below, plus, in each case, accrued and unpaid interest to the date of redemption:
Redemption Year Price 2001............................... 104.219% 2002............................... 102.813% 2003............................... 101.406% 2004 and thereafter................ 100.000%
In addition, on or prior to May 15, 1999, the Company may, at its option, use the Net Cash Proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Securities originally issued, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the 12 months commencing on May 15 of the year set forth below, plus, in each case, accrued and unpaid interest, if any, to the date of redemption A-5 132 (provided that the redemption notice shall have been sent not later than 60 days after the consummation of such Public Equity Offering):
Redemption Year Price 1996............................... 111.250% 1997............................... 109.844% 1998............................... 108.438%
The documents evidencing Senior Indebtedness will restrict the Company's ability to optionally redeem the Securities. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. In order to effect a redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date and payment of the Securities called for redemption is not prohibited under Article Four or Article Twelve of the Indenture, then, unless the Company defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. The Company shall not be required to repurchase Securities until it has complied with its covenants to repay in full all Indebtedness of the Company and its Subsidiaries under the Credit Agreement or offer to repay in full all such Indebtedness and repay the Indebtedness of each lender who has accepted its offer to repay such Indebtedness or to obtain the requisite A-6 133 consent under the Credit Agreement to permit the repurchase of the Securities pursuant to a Change of Control Offer. 8. Limitation on Asset Sales. Under certain circumstances the Company is required to apply the net proceeds from Asset Sales to the repayment of Pari Passu Indebtedness, Indebtedness of Restricted Subsidiaries or Senior Indebtedness, to make Related Business Investments, an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, an investment in properties and assets that will be used in the business of the Company and the Restricted Subsidiaries existing on the Issue Date or in a business reasonably related thereto or to purchase in a Net Proceeds Offer (at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase) such aggregate principal amount of Securities which, when added to the accrued interest thereon, shall be equal to the net proceeds required to be applied thereto. 9. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agents will pay the money back to the Company at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to A-7 134 pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture, the Securities and, if applicable, the Guarantees may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, comply with Article Six or Section 11.06 of the Indenture, or comply with any requirements of the Commission in connection with the qualification of the Indenture under the TIA, or make any other change that does not adversely affect the rights of any Holder in any material respect. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and the Restricted Subsidiaries to, among other things, incur additional Indebtedness or Liens, make payments in respect of its Capital Stock and merge or consolidate with any other person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Subordination. The Securities will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture) of the Company. The Guarantees, if applicable, will be subordinated in right to payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of Guarantor Senior Indebtedness (as defined in the Indenture). To the extent and in the manner provided in the Indenture, Senior Indebtedness, and in the case of payment by a Guarantor, Guarantor Senior Indebtedness, must be paid before any payment may be made to any Holder of this A-8 135 Security. Any Holder by accepting this Security agrees to the subordination and authorizes the Trustee to give it effect. 16. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. A-9 136 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. Guarantees. This Security may after the date hereof be entitled to certain Guarantees made for the benefit of the Holders. Reference is hereby made to Section 5.17 and Articles Eleven and Twelve of the Indenture and to Exhibit B to the Indenture for the terms of any Guarantee. 23. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: Smith's Food & Drug Centers, Inc. 1550 S. Redwood Road Salt Lake City, UT 84104 Attention: Corporate Secretary A-10 137 [FORM OF ASSIGNMENT] To assign this Security, fill in the form below: I or we assign and transfer this Security to ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ (Print or type assignee's name, address and zip code) Please insert Social Security or other identifying number of assignee _______________________________________ and irrevocably appoint _______________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:____________________ Signature:_________________________ ______________________________________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:__________________________________________ A-11 138 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 5.15 or Section 5.16 of the Indenture, as the case may be, check the appropriate box below: Section 5.15 [ ] Section 5.16 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 5.15 or Section 5.16 of the Indenture, as the case may be, state the amount you want to be purchased: $ Date:__________ Signature:____________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:______________________________________ A-12 139 Exhibit B GUARANTEE The Guarantors (as defined in the Indenture (the "Indenture") referred to in the Security upon which this notation is endorsed and each hereinafter referred to as a "Guarantor," which term includes any successor person under the Indenture) have unconditionally guaranteed on a senior subordinated basis (such guarantee by each Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Eleven and Article Twelve of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of each Guarantor to the Holders of Securities and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth and are expressly subordinated and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Guarantor, to the extent and in the manner provided, in Article Eleven and Article Twelve of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Guarantee therein made. No stockholder, officer, director or incorporator, as such, past, present or future, of any Guarantor shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. The internal laws of the State of New York shall govern this Guarantee without regard to principles of conflict of laws. This Guarantee is subject to release upon the terms set forth in the Indenture. [NAME OF GUARANTOR] B-1 140 By:_______________________________ Name: Title: By:_______________________________ Name: Title: B-2 EX-10.1 5 REGISTRATION RIGHTS AGREEMENT 1 Exhibit 10.1 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of May 23, 1996 by and among Smith's Food & Drug Centers, Inc., a Delaware corporation (the "Company"), and each of the holders of the Company's Common Stock (the "Common Stock") executing this Agreement (each a "Holder" and collectively, the "Holders"). WHEREAS, pursuant to that certain Recapitalization Agreement and Plan of Merger dated as of January 29, 1996 (the "Recapitalization Agreement"), by and among the Company, Smitty's Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of the Company ("Acquisition"), Smitty's Supermarkets, Inc., a Delaware corporation ("Smitty's"), and The Yucaipa Companies, a California general partnership ("Yucaipa"), the Company will acquire Smitty's through the merger of Acquisition with and into Smitty's, and in connection therewith the existing stockholders of Smitty's will receive shares of Class B Common Stock, $.01 par value ("Class B Common Stock") of the Company, and Yucaipa will be issued warrants (the "Warrants") to purchase shares of Class C Common Stock, $.01 par value ("Class C Common Stock") of the Company; and WHEREAS, the Company has agreed to provide the registration rights set forth in this Agreement and the execution and delivery of this Agreement by the Company is a condition to the obligations of Smitty's and Yucaipa under the Recapitalization Agreement. NOW THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Recapitalization Agreement. In addition, the following capitalized terms shall have the meanings ascribed to them below: "Affiliate," as applied to any specified Person, shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person and, in the case of a Person who is an individual, shall include (i) members of such specified Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (ii) trusts, the trustee and all beneficiaries of which are such specified Person or members of such Person's immediate family as determined in accordance with the foregoing clause (i). For the purposes of this definition, "control", when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Associated Holder" means any Holder who received Company Common Stock pursuant to the Recapitalization Agreement upon the conversion of such Holder's shares of Class B Common Stock, $.01 par value, of Smitty's in the Merger. 2 "Business Day" means any day that is not a Saturday, Sunday or a day on which banking institutions in New York, New York or Los Angeles, California are not required to be open. "Company Common Stock" means the Class B Common Stock and the Class C Common Stock. "Deferral Period" is defined in Section 2.1. "Demand Notice" is defined in Section 2.1. "Demand Registration" is defined in Section 2.1. "Demanding Holder" means any Holder initiating a registration request in compliance with Section 2.1(a); provided that any action required or permitted to be taken under this Agreement by any Demanding Holders shall be taken by action of the holders of a majority of the Registrable Securities held by such Demanding Holders. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Holders" means the holders of Company Common Stock and of the Warrants who have executed this Agreement, and the transferees of each of them. "Person" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Piggyback Registration" is defined in Section 2.2. "Piggyback Holder" is defined in Section 2.2. "Prospectus" means the prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. "Public Distribution" shall mean any bona fide underwritten public distribution of Stock pursuant to an effective registration statement under the Securities Act or any other applicable law, or any bona fide public sale in an open market transaction under Rule 144 of the Securities Act (or any successor rule) if such sale is in compliance with the requirements of paragraphs (c), (d), (e), (f) and (g) of such Rule (notwithstanding the provisions of paragraph (k) of such Rule). "Public Offering" shall mean any bona fide underwritten public distribution of Stock pursuant to an effective registration statement under the Securities Act or any other applicable law. "Registrable Securities" means each share of Stock held by the Holders, or acquired by the Holders after the date hereof, until (i) it has been effectively registered under the Securities Act and disposed of by such Holders pursuant to an effective registration statement, or (ii) it is sold by such Holders pursuant to Rule 144 (or any similar provisions then in force) under the Securities Act. "Registrable Securities" shall include all shares of Company Common Stock issued or issuable upon exercise of the Warrants. 2 3 "Registration Statement" means any registration statement of the Company relating to a Demand Registration pursuant to Section 2.1, a Piggyback Registration pursuant to Section 2.2, or a Shelf Registration pursuant to Section 2.3, in each case, including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. "Restricted Registration" means any public offering of Registrable Securities pursuant to a Registration Statement in which the aggregate number of shares proposed to be offered by the Smith Group and the Yucaipa Group is restricted by the managing underwriter(s) as contemplated by Sections 2.1(e) and 2.2(b) hereof. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Selling Holder" means a Holder who sells or proposes to sell Registrable Securities pursuant to a Registration Statement under the Securities Act. "Shelf Registration" or "Shelf Registration Statement" is defined in Section 2.3. "Smith Group" is defined in Section 2.1(a). "Smith Group Priority Amount" means up to an aggregate amount of 850,000 shares of Company Common Stock which may be sold by the Smith Group pursuant to one or more Registration Statements. "Stock" means the following securities: (i) the Company Common Stock or (ii) any security or other instrument (a) received as a dividend on, or other payment made to the holders of, the Company Common Stock (or any other security or instrument referred to in this definition) or (b) issued in connection with a split of the Company Common Stock (or any other security or instrument referred to in this definition) or as a result of any exchange or reclassification of the Company Common Stock (or any other security or instrument referred to in this definition), reorganization, consolidation, merger or recapitalization. "Underwritten Registration" or "Underwritten Offering" means a registration in which Stock of the Company is sold to an underwriter for re-offering to the public. "Yucaipa Group" is defined in Section 2.1(a). ARTICLE II REGISTRATION RIGHTS SECTION 2.1 DEMAND REGISTRATIONS. (a) Request for Registration. At any time and from time to time on or after the Closing Date (as defined in the Recapitalization Agreement), each of (i) the holders of a majority of the Registrable Securities held by Yucaipa and its Affiliates, Associated Holders and transferees of any of 3 4 the foregoing, as a group (the "Yucaipa Group"), and (ii) the holders of a majority of the Registrable Securities held by Jeffrey P. Smith and his Affiliates and transferees of any of the foregoing, as a group (the "Smith Group"), may make two written requests of the Company for registration with the SEC, under and in accordance with the provisions of the Securities Act, of all or part (but not less than 20% of Registrable Securities originally held by the Holders requesting such Demand Registration) of their Registrable Securities (a "Demand Registration") by giving written notice to the Company of such demand (a "Demand Notice"), provided that the Company shall be required to effect only one Demand Registration during any six-month period. Each such Demand Notice will specify the number of Registrable Securities proposed to be sold pursuant to such Demand Registration and will also specify the intended method of disposition thereof. Promptly after receipt of any Demand Notice, but in no event later than 60 days after receipt of such Demand Notice, the Company shall file a Registration Statement with the SEC with respect to the Registrable Securities included in the Demand Notice and shall use its best efforts to have such Registration Statement declared effective as promptly as practicable; provided, however, that the Company may postpone the filing of such Registration Statement for a period of up to 90 days (the "Deferral Period") if the Board of Directors reasonable determines that (i) such a filing would adversely affect any proposed financing, acquisition, divestiture or other material transaction by the Company or (ii) such a filing would otherwise represent an undue hardship for the Company. The Company shall not be entitled to request more than one such deferral with respect to any group of Holders requesting a Demand Registration within any 365-day period. If the Company does elect to defer any such Demand Registration, the Holders requesting such Demand Registration may, at their election by written notice to the Company, (i) confirm their request to proceed with such Demand Registration upon the expiration of the Deferral Period or (ii) withdraw their request for such Demand Registration in which case no such request for a Demand Registration shall be deemed to have occurred for purposes of this Agreement. The Company shall give written notice of any Demand Notice by any Holder, which request complies with this Section 2.1(a), within 5 days after the receipt thereof, to each Holder who did not initially join in such request. Within 10 days after receipt of such notice, any such Holder may request in writing that its Registrable Securities be included in such registration, and the Company shall include in the Demand Registration the Registrable Securities of each such Holder requested to be so included, subject to the provisions of Section 2.1(e). Each such request shall specify the number of shares of Registrable Securities proposed to be sold and the intended method of disposition thereof. (b) Effective Registration. Except as provided in subsection (c) below, a registration will not be deemed to have been effected as a Demand Registration unless it has been declared effective by the SEC; provided that if, after it has become effective, the offering of Registrable Securities pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the SEC or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of Registrable Securities pursuant to the registration (for any reason other than the acts or omissions of the Holders), such registration will be deemed not to have been effected. If (i) a registration requested pursuant to this Section 2.1 is deemed not to have been effected in accordance with the provisions of the preceding sentence or (ii) the registration requested pursuant to this Section 2.1 does not remain continuously effective for a period of at least 90 days beyond the effective date thereof or until the consummation of the distribution by the Holders of the Registrable Securities included in such registration statement (the "Demand Registration Statement"), then such Demand Registration Statement shall not count as a Demand Registration that may be requested by the Demanding Holder(s) in question and the Company shall continue to be obligated to effect a registration pursuant to this Section 2.1. 4 5 (c) Withdrawal. The Demanding Holders may withdraw all or any part of the Registrable Securities from a Demand Registration at any time (whether before or after the filing or effective date of the Demand Registration Statement), and if all such Registrable Securities are withdrawn, to withdraw the demand related thereto. If at any time a registration statement is filed pursuant to a Demand Registration, and subsequently a sufficient number of Registrable Securities are withdrawn from the Demand Registration so that such Demand Registration Statement does not cover at least the required amounts specified by Section 2.1(a), and an additional number of Registrable Securities is not so included, the Company may (or shall, if requested by the Demanding Holders) withdraw such Demand Registration Statement; provided that such withdrawn registration statement will count as a Demand Registration unless the Demanding Holders elect to bear the expenses associated with such withdrawn registration statement. If the Demanding Holders elect to bear such expenses, such expenses shall be borne by the Demanding Holder(s) whose withdrawal of Registrable Securities resulted in such Demand Registration Statement not covering the specified required amounts. (d) Selection of Underwriter. If the Demanding Holders so elect, the offering of Registrable Securities pursuant to a Demand Registration shall be in the form of an Underwritten Offering. The Demanding Holders shall select one or more nationally recognized firms of investment bankers to act as the managing Underwriter or Underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with such offering; provided that such investment bankers and managers must be reasonably satisfactory to the Company. The Company shall (together with all Holders of Registrable Securities proposing to distribute such Registrable Securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting in the manner set forth above. (e) Priority on Demand Registrations. If, in any Demand Registration involving an Underwritten Offering the managing underwriter or underwriters thereof advise the Demanding Holders or the Company in writing that in its or their reasonable opinion the number of Registrable Securities proposed to be sold in such Demand Registration exceeds the number that can be sold in such offering or will adversely affect the success of such offering (including, without limitation, an impact on the selling price or the number of Registrable Securities that any participant may sell), the Company shall include in such registration only the number of Registrable Securities, if any, which in the opinion of such underwriter or underwriters can be sold without having an adverse effect on the success of the offering and in accordance with the following priority: (i) first, Registrable Securities held by Demanding Holders in the group initially requesting such registration, allocated pro rata among such group (based upon the number of Registrable Securities requested to be included in such Demand Registration) and (ii) second, pro rata (based upon the number of Registrable Securities requested to be included in such registration by such Holders) among the other Holders of Registrable Securities who have requested to include Registrable Securities in such registration. If all Registrable Securities requested to be sold in the Underwritten Offering are included therein, the Company may include other shares of Stock in such offering in accordance with the following priority, but not to exceed the number recommended by the managing underwriter or underwriters: (x) first, pro rata among any other stockholders of the Company having piggyback or other similar registration rights and (y) second, shares of Stock proposed to be sold by or for the account of the Company. Notwithstanding the foregoing, if prior to the filing of any Demand Registration Statement, the Company has received Demand Notices from both the Smith Group and the Yucaipa Group, then the Smith Group shall have priority until such time as the Smith Group Priority Amount of Registrable Securities (including all Registrable Securities sold by the Smith Group under any prior Restricted Registration after the date hereof) has been included and thereafter the Smith Group and the Yucaipa Group shall be permitted to include their Registrable Securities in any such Demand Registration on an equal basis (i.e. each group will be entitled to 50% of the remaining share 5 6 allocation, or such greater percentage as may be available if the other group elects not to fill its entire 50% allocation). SECTION 2.2 PIGGYBACK REGISTRATIONS. (a) Right to Participate in Registration. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any holders of any class of common equity securities (other than (i) a registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC) or (ii) a registration statement filed in connection with a Demand Registration or a Shelf Registration or (iii) a registration statement filed in connection with an offering of securities solely to the Company's existing securityholders), then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event less than 20 days before the anticipated filing date), and such notice shall offer such Holder the opportunity to register such number of shares of Registrable Securities as each such Holder may request, which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof (or, if the offering is a proposed Underwritten Offering, that such Holder elects to have the number of Registrable Securities so specified included in such Underwritten Offering) (a "Piggyback Registration"). The Company shall use its best efforts to cause the managing Underwriter or Underwriters of a proposed Underwritten Offering to permit the Registrable Securities requested by the Holders thereof to be included in a Piggyback Registration (the "Piggyback Holders") to be included on the same terms and conditions as any similar securities of the Company or any other securityholder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. No registration effected under this Section 2.2 and no failure to effect a registration under this Section 2.2(a), shall relieve the Company of its obligations pursuant to Section 2.1, and no failure to effect a registration under this Section 2.2(a) and complete the sale of shares in connection therewith shall relieve the Company of any other obligation under this Agreement (including, without limitation, the Company's obligations under Sections 3.2 and 4.1). (b) Priority on Piggyback Registrations. Unless the registration statement is being filed pursuant to a Demand Registration (in which case the priority of piggyback rights shall be as provided in Section 2.1(e) above), if the managing underwriter or underwriters advise the Company in writing that in its or their reasonable opinion the number of equity securities of the Company proposed to be sold in such registration (including Registrable Securities to be included pursuant to subsection (a) above) will adversely affect the success of such offering (including, without limitation, an impact on the selling price or the number of equity securities of the Company that any participant may sell), the Company shall include in such registration the number of equity securities of the Company, if any, which in the opinion of such underwriter or underwriters can be sold without having an adverse effect on the offering and in accordance with the following priority: (i) first, the securities the Company proposes to sell for its own account, (ii) second, any Registrable Securities proposed to be sold by the Smith Group until such time as the Smith Group Priority Amount of Registrable Securities (including all Registrable Securities sold by the Smith Group under any prior Restricted Registration after the date hereof) have been included, (iii) third, any other Registrable Securities of the Smith Group and any Registrable Securities of the Yucaipa Group, on an equal basis (as specified in Section 2.1(e) above), and (iv) fourth, pro rata based on the number of Registrable Securities that each Holder or other Person having similar rights shall have requested to be included therein. 6 7 (c) Withdrawal. The Piggyback Holders may withdraw all or any part of the Registrable Securities from a Piggyback Registration at any time (before but not after the effective date of such registration statement), by delivering written notice of such withdrawal request to the Company, unless such Piggyback Registration is underwritten, in which case Registrable Securities may not be withdrawn after the effective date of the Registration Statement. (d) Termination of Registration by the Company. If the Company shall determine for any reason (x) not to register or (y) to delay a registration which includes Registrable Securities pursuant to this Section 2.2, the Company may, at its election, give written notice of such determination to the Holders of the Registrable Securities and, thereupon (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses (as defined below) in connection therewith), without prejudice, however, to the rights, if any, of any Holder or Holders of Registrable Securities to request that such registration be effected as a Demand Registration under Section 2.1, and (ii) in the case of a delay in registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other shares. SECTION 2.3 SHELF REGISTRATION. (a) Filing and Effectiveness. Upon the request of the Demanding Holders in the Yucaipa Group at any time prior to the second anniversary of the Closing Date, the Company shall cause to be filed with the SEC as promptly as practicable after such request, but in no event later than 60 days thereafter, a shelf registration statement pursuant to Rule 415 under the Securities Act (a "Shelf Registration" or a "Shelf Registration Statement"), which Shelf Registration Statement shall provide for resales of all Registrable Securities held by members of the Yucaipa Group who shall have provided the information required pursuant to Section 3.1(b). The Company shall use its best efforts to have such Shelf Registration declared effective and to keep such Shelf Registration Statement continuously effective, supplemented and amended to the extent necessary to ensure that it is available for resales of Registrable Securities by such Holders, and to ensure that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the SEC as announced from time to time, for a period of at least 120 days following the date on which such Shelf Registration Statement becomes effective under the Securities Act; provided, however, that if the Registrable Securities received by the Yucaipa Group are "restricted securities" within the meaning of Rule 144 under the Securities Act, any Shelf Registration Statement shall be kept continuously effective until such Registrable Securities are no longer subject to the two-year holding period imposed under Rule 144(c) (but in no event shall such Shelf Registration Statement be required to be kept continuously effective after the second anniversary of the Closing Date). (b) Effective Registration. A registration will not be deemed to have been effected as a Shelf Registration unless it has been declared effective by the SEC and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided that if, after it has become effective, the offering of Registrable Securities pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the SEC or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of Registrable Securities pursuant to the registration (for any reason other than the acts or omissions of the Holders), such registration will be deemed not to have been effected. If (i) the Shelf Registration is deemed not to have been effected in accordance with the provisions of the preceding sentence or (ii) the Shelf Registration does not remain continuously effective for the period described in subsection (a) above, then such Shelf Registration Statement shall not count as a Shelf Registration and the Company shall continue to be obligated to effect a registration pursuant to this Section 2.3. 7 8 ARTICLE III REGISTRATION PROCEDURES SECTION 3.1 REGISTRATION PROCEDURES. (a) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement to permit the sale or resale of Registrable Securities, the Company shall: (1) prepare and file with the SEC a registration statement with respect to such Registrable Securities within the time periods specified herein, make all required filings with the NASD and use its best efforts to cause such registration statement to become effective as promptly as practicable (subject to the Company's right to withdraw the registration statement under the circumstances described in Sections 2.1(c) or 2.2(d)); (2) promptly prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Sections 2.1, 2.2 or 2.3, as applicable, or such shorter period as will terminate when all Registrable Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by a required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provision of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (3) use its best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Sections 2.1, 2.2 or 2.3, as applicable; upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Registrable Securities during the period required by this Agreement, the Company shall file promptly an appropriate amendment to such Registration Statement, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its best efforts to cause such amendment to declared effective and such Registration Statement and related Prospectus to become usable for their intended purposes(s) as soon as practicable thereafter; (4) provide (A) the Holders of Registrable Securities participating in the registration, (B) the underwriters (which term, for purposes of this Agreement, shall include a Person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, of the Registrable Securities to be registered, (C) the sale or placement agent therefor, if any, (D) counsel for such underwriters or agent, and (E) counsel for the Holders thereof, as selected by Holders of a majority of the Registrable Securities covered by such registration statement, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and each amendment or supplement thereto, and for a reasonable period prior to the filing of such registration statement, and throughout the period specified in Section 3.4(b) hereof, make available for inspection by the parties referred to in (A) through (E) above such financial and other information and books and records of the 8 9 Company, provide access to properties of the Company and cause the officers, directors, employees, counsel and independent certified public accountants of the Company to respond to such inquiries as shall be reasonably necessary to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; (5) advise the underwriters, if any, and Selling Holders promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the SEC for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Registrable Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the SEC shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Registrable Securities under state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (6) furnish to each Selling Holder named in any Registration Statement or Prospectus and each of the underwriter(s) in connection with such sale, if any, such number of copies of any Registration Statement or Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement and all exhibits filed therewith), reasonably requested by such Person; (7) if requested by any selling Holders or the underwriter(s) in connection with such sale, if any, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and such underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Registrable Securities, information with respect to the principal amount of Registrable Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering, and make all required filing of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (8) deliver to each Selling Holder and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the Selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; 9 10 (9) in connection with any Underwritten Offering pursuant to a Demand Registration, enter into an underwriting agreement with one or more underwriters designated in accordance with this Agreement, such agreement to be of the form, scope and substance as is customary in underwritten offerings, and take all such other actions as are reasonably requested by the managing underwriter(s) in order to expedite or facilitate the disposition of such Registrable Securities and in such connection: (i) make such representations and warranties to the underwriters in form, scope and substance as are customarily made by issuers to underwriters in underwritten offerings with respect to the business of the Company; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter(s)) addressed to the managing underwriter(s) covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by the underwriters; (iii) obtain "comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the underwriters, such "comfort" letters to be in customary form and covering matters of the type customarily covered in "comfort" letters in connection with underwritten offerings; (iv) deliver such documents and certificates as may be reasonably requested by the managing underwriter(s) to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement. (10) prior to any public offering of Registrable Securities, cooperate with the Selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Registrable Securities under the securities or Blue Sky laws of such jurisdictions as the Selling Holders or underwriter(s), if any, may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions or the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, except as is required as a result of the Registration Statement, in any jurisdiction where it is not now so subject; (11) in connection with any sale of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with the Selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and to register such Registrable Securities in such denominations and such names as the Selling Holders or the underwriter(s), if any, may request at least two Business Days prior to such sale of Registrable Securities; (12) if requested by the Selling Holders, provide a CUSIP number for all Registrable Securities not later than the effective date of the Registration Statement covering such Registrable Securities and provide the Company's transfer agent(s) and registrar(s) for the Registrable Securities with printed certificates for the Registrable Securities; (13) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter") that is required to be retained in accordance with the rules and regulations of the NASD, and use their best efforts to cause such Registration Statement to become effective and approved by such governmental agencies or authorities as may be necessary 10 11 to enable the Selling Holders or underwriters, if any, to consummate the disposition of such Registrable Securities; (14) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 under the Securities Act (which need not be audited) covering a period of at least twelve month periods, but not more than eighteen months, beginning with the first month of the Company's first quarter commencing after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; and (15) cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which securities of the same class issued by the Company are then listed if requested by the Selling Holders holding a majority of the Registered Securities or the managing underwriter(s), if any. (b) Provision by Holders of Certain Information. No Holder of Registrable Securities may include any of its Registrable Securities in any Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, such information as the Company may reasonably request specified in item 507 of Regulation S-K under the Securities Act for use in connection with any Registration Statement or Prospectus or preliminary Prospectus included therein. Each Holder as to which any Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 3.2 REGISTRATION EXPENSES. (a) All expenses incident to the Company's performance of or compliance with this Section 3.2 will be paid by the Company, regardless of whether any registration statement required hereunder becomes effective, including, without limitation: (1) all registration and filing fees; (2) fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters or selling Holders in connection with blue sky qualifications of the Registrable Securities and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters or Holders of Registrable Securities being sold may designate); (3) printing (including, without limitation, expenses of printing or engraving certificates for the Registrable Securities in a form eligible for trading on the New York Stock Exchange or for deposit with the Depository Trust Company and of printing prospectuses), messenger, telephone and delivery expenses; (4) reasonable fees and disbursements of counsel for the Company, for the underwriters and for the Selling Holders (subject to the provisions of Section 3.2(c) hereof); (5) reasonable fees and disbursements of all independent certified public accountants of the Company (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance); and 11 12 (6) reasonable fees and disbursements of underwriters (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registrable Securities or legal expenses of any Person other than the Company, the underwriters or the Selling Holders); (7) fees and expenses of other Persons retained by the Company; and (8) fees and expenses associated with any NASD filing required to be made in connection with the registration of the Registrable Securities, including, if applicable, the reasonable fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained in accordance with the rules and regulations of the NASD (all such expenses being herein called "Registration Expenses"). (b) The Company will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities to be registered on NASDAQ or on each national securities exchange on which similar securities issued by the Company are then listed, rating agency fees and the fees and expenses of any Person, including special experts, retained by the Company. (c) In connection with each Demand Registration or Piggyback Registration required hereunder, the Company will reimburse the Holders of Registrable Securities being registered pursuant to a registration statement required hereunder for the reasonable fees and disbursements of not more than one counsel chosen by the holders of a majority in number of such Registrable Securities. SECTION 3.3 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may participate in any Underwritten Registration hereunder unless such Holder (i) agrees to sell its Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, underwriting agreements, hold-back agreements letters and other documents customarily required under the terms of such underwriting arrangements. Notwithstanding the foregoing, (x) no Selling Holder shall be required to make any representations or warranties except those which relate solely to such Holder and its intended method of distribution, and (y) the liability of each such Holder to any underwriter under such underwriting agreement will be limited to liability arising from misstatements or omissions regarding such Holder and its intended method of distribution and any such liability shall not exceed an amount equal to the amount of net proceeds such Holder derives from such registration; provided, however, that in an offering by the Company in which any Holder requests to be included in a Piggyback Registration, the Company shall use its best efforts to arrange the terms of the offering such that the provisions set forth in clauses (x) and (y) of this Section 3.3 are true. Nothing in this Section 3.3 shall be construed to create any additional rights regarding the registration of Registrable Securities in any Person otherwise than as set forth herein. SECTION 3.4 HOLD-BACK AGREEMENTS. (a) Restrictions on Public Distribution by Holder of Registrable Securities. Upon the written request of the managing underwriter or underwriters of a Public Offering, each Holder of Registrable Securities shall not effect any Public Distribution of such securities, or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the Securities Act (except as part of such Public Offering), during the 14-day period prior to, and 12 13 during the 90-day period following, the offering date for each Public Offering made pursuant to such registration statement (as identified by such underwriter or underwriters or the Company in good faith). The foregoing provisions shall not apply to any Holder that is prevented by applicable statute or regulation from entering into any such agreement; provided, however, that any such Holder shall undertake not to effect any Public Distribution of the class of securities covered by such registration statement (except as part of such Underwritten Offering) during such period unless it has provided 60 days' prior written notice of such Public Distribution to the managing underwriter. (b) Restrictions on Public Distribution by the Company and Others. The Company agrees and it shall use its best efforts to cause its Affiliates (other than Persons who are Holders hereunder) to agree: (1) not to effect any Public Distribution of any securities being registered in accordance with Article II hereof, or any securities convertible into or exchangeable or exercisable for such securities, during the 14-day period prior to, and during the 90-day period following, the offering date for each Public Offering made pursuant to a registration statement filed under Article II hereof, if requested in writing by the managing underwriters (except as part of such Public Offering or pursuant to registrations in connection with mergers, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock options or other employee benefit plans); and (2) to use its best efforts to cause each Holder of its privately placed Registrable Securities that are issued by the Company at any time on or after the date of this Agreement to agree not to effect any Public Distribution, including a sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities during the period set forth in clause (1) above (except as part of such Public Offering, if and to the extent permitted). ARTICLE IV INDEMNIFICATION AND CONTRIBUTION SECTION 4.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Selling Holder, each person, if any, who controls such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (hereinafter referred to as a "controlling person"), the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (each an "Indemnified Holder"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Holder) directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any of the Holders furnished in writing to the Company by any of the Holders expressly for use therein. SECTION 4.2 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. Each Selling Holder agrees, severally and not jointly, to indemnify and hold harmless the Company and its directors, officers and any person controlling (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company and its respective officers, directors, partners, employees, representatives and agents of each such person, to the same extent as the foregoing indemnity from the Company to each 13 14 of the Indemnified Holders, but only with respect to losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to the Company) directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement or Prospectus. In case any action or proceeding shall be brought against the Company or its directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder of Registrable Securities, such Holder shall have the rights and duties given the Company, and the Company or its directors or officers or such controlling person shall have the rights and duties given to each Holder by the preceding paragraph. Each Selling Holder also agrees to indemnify and hold harmless each other Selling Holder or underwriters participating in the distribution on substantially the same basis as that of the indemnification of the Company provided in this section 4.2. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Registration Statement or Prospectus. SECTION 4.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnification hereunder (an "Indemnified Party") will (i) promptly give notice of any claim, action or proceeding (including any governmental or regulatory investigation or proceeding) or the commencement of any such action or proceeding to the Person against whom such indemnity may be sought (an "Indemnifying Party"); provided that the failure to give such notice shall not relieve the Indemnifying Party of its obligations pursuant to this Agreement except to the extent that such Indemnifying Party has been prejudiced in any material respect by such failure, and (ii) permit the Indemnifying Party to assume the defense of such claim with counsel reasonably satisfactory to such Indemnified Party; provided that the Indemnified Party shall have the right to employ separate counsel and participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (a) the Indemnifying Party has agreed to pay for such fees and expenses, or (b) the Indemnifying Party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Indemnified Party or (c) in the reasonable judgment of such Indemnified Party, based upon advice of its counsel, a conflict of interest may exist between such Indemnified Party and the Indemnifying Party with respect to such claims. If such defense is not assumed by the Indemnifying Party, the Indemnifying Party will not be subject to any liability for any settlement of any such claim effected without the Indemnifying Party's prior written consent, which consent shall not be unreasonably withheld. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify and hold harmless any Indemnified Party from and against any loss, claim damage, liability or expense by reason of any settlement of any such claim or action. No Indemnifying Party shall, without the prior written consent of each Indemnified Party, settle or compromise or consent to the entry of judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Party from all liability arising out 14 15 of such action, claim, litigation or proceeding. An Indemnifying Party who is not entitled to, or elects not to, assume the defense of the claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such Indemnifying Party with respect to such claim, unless in the reasonable judgement of any Indemnified Party a conflict of interest may exist between such Indemnified Party and any other such Indemnified Parties with respect to such Claim, in which event the Indemnifying Party shall be obligated to pay the fees and expenses of such additional counsel or counsels. SECTION 4.4 CONTRIBUTION. If the indemnification provided for in this Article IV is unavailable to an Indemnified Party (other than by reason of exceptions provided in those Sections) in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall have a joint and severable obligation to contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and of the Indemnified Party, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party, on the one hand, and of the Indemnified Party, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 4.1, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, none of the Indemnified Holders shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds received by such Holder with respect to the Registrable Securities exceeds the greater of (A) the amount paid by such Holder for its Registrable Securities and (B) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligation to contribute pursuant to this Section 4.4 are several in proportion to the respective number of Registrable Securities held by each of the Holders hereunder and not joint. For purposes of this Article IV, each controlling person of a Holder shall have the same rights to contribution as such Holder, and each officer, director, and person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as the Company, subject in each case to the limitations set forth in the immediately preceding paragraph. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Article IV, notify such 15 16 party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from who contribution may be sought from any obligation it or they may have under this Article IV or otherwise except to the extent that it has been prejudiced in any material respect by such failure. No party shall be liable for contribution with respect to any action or claim settled without its written consent; provided, however, that such written consent was not unreasonably withheld. SECTION 4.5 ADDITIONAL INDEMNITY. The indemnity, contribution and expense reimbursement obligations under this Article IV shall be in addition to any liability each Indemnifying Party may otherwise have; provided, however, that any payment made by the Company which results in an Indemnified Party receiving from any source(s) indemnification, contribution or reimbursement for an amount in excess of the actual loss, liability or expense incurred by such Indemnified Party, shall be refunded to the Company by the Indemnified Party receiving such excess payment. ARTICLE V MISCELLANEOUS SECTION 5.1 RULE 144. The Company agrees it will file in a timely manner all reports required to be filed by it pursuant to the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder and will take such further action as any Holder of Registrable Securities may reasonably request in order that such Holder may affect sales of Registrable Securities without registration within the limitations of the exemptions provided by Rule 144, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. At any reasonable time and upon the request of a Holder of Registrable Securities, the Company will furnish such Holder with such information as may be necessary to enable the Holder to effect sales of Registrable Securities pursuant to Rule 144 under the Securities Act and will deliver to such Holder a written statement as to whether it has compiled with such information and requirements. SECTION 5.2 SPECIFIC PERFORMANCE. Each Holder, in addition to being entitled to exercise all rights provided herein or granted by law, including recovery of liquidated or other damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. SECTION 5.3 NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. SECTION 5.4 CHARTER AMENDMENTS AFFECTING THE COMPANY'S COMMON STOCK. The Company will not amend its Certificate of Incorporation in any respect that would materially and adversely affect the rights of the Holders hereunder. 16 17 SECTION 5.5 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of a majority of the outstanding shares of Registrable Securities held by each of the Smith Group and the Yucaipa Group, respectively. SECTION 5.6 NOTICES. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to the others shall be made in writing, by hand-delivery, telegraph, telex, telecopier, registered first-class mail or air courier guaranteeing overnight deliver as follows: if to the Company, to: Smith's Food & Drug Centers, Inc. 1550 South Redwood Road Salt Lake City, Utah 84104 Attention: General Counsel Fax: (801) 974-1676 if to any Holder: to the address specified below such Holder's name on the signature pages hereto; or to such other place and with such other copies as any party hereto may designate as to itself by written notice to the others. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied: and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. SECTION 5.7 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent holders of Registrable Securities or of the Warrants, provided that the Company may not assign its rights or obligations under this Agreement to any other person or entity without the written consent of a majority of the outstanding shares of Registrable Securities held by each of the Smith Group and the Yucaipa Group, respectively. SECTION 5.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 5.9 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit o otherwise affect the meaning hereof. SECTION 5.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the choice of law provisions thereof. SECTION 5.11 SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, 17 18 the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. SECTION 5.12 ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. SECTION 5.13 PRONOUNS. Whenever the context may require, any pronouns used herein shall be deemed also to include the corresponding neuter, masculine or feminine forms. SECTION 5.14 ATTORNEY'S FEES. In any action or proceeding brought to enforce any provision of this Agreement, the successful party shall be entitled to recover reasonable attorney's fees in addition to its costs and expenses and any other available remedy. SECTION 5.15 SECURITIES HELD BY THE COMPANY OR ITS SUBSIDIARIES. Whenever the consent or approval of Holders of a specified percentage or Registrable Securities is required hereunder, Registrable Securities held by the Company or its Subsidiaries shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. SECTION 5.16 FURTHER ASSURANCES. Each party shall cooperate and take such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. SECTION 5.17 TERMINATION. Unless sooner terminated in accordance with its terms or as otherwise herein provided, this Agreement shall terminate upon the earlier to occur of (i) the mutual agreement by the parties hereto, (ii) with respect to any Holder, such Holder ceasing to own any Registrable Securities, (iii) the fifteenth anniversary of the Effective Date, or (iv) with respect to the Yucaipa Group or the Smith Group, the date on which the aggregate number of shares of outstanding Registrable Securities held by the Yucaipa Group or the Smith Group, as applicable, is less than 20% of the Registrable Shares originally held by the Yucaipa Group or the Smith Group, as applicable, following the consummation of the transactions contemplated by the Recapitalization Agreement; provided, that the foregoing clause (iv) shall not apply as to any member of the Yucaipa Group or the Smith Group, as applicable, if, as of such date, such member of the Yucaipa Group or the Smith Group, as applicable, is an "affiliate" of the Company within the meaning of the Securities Act. (signature page follows) 18 19 IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above. SMITH'S FOOD & DRUG CENTERS, INC. By: /s/ Matthew G. Tezak -------------------------------- Name: Matthew G. Tezak Title: Senior Vice President and Chief Financial Officer /s/ Jeffrey P. Smith ----------------------------------- JEFFREY P. SMITH Address: 32 Burningtree Court Las Vegas, Nevada 89117 THE YUCAIPA COMPANIES By: /s/ Mark A. Resnik -------------------------------- Name: Mark A. Resnik Title: General Partner Address: 10000 Santa Monica Boulevard, Fifth Floor Los Angeles, California 90067 FAX: (310) 798-7201 YUCAIPA SSV PARTNERS, L.P. By: The Yucaipa Companies Its: General Partner By: /s/ Mark A. Resnik -------------------------------- Name: Mark A. Resnik Title: General Partner Address: 10000 Santa Monica Boulevard, Fifth Floor Los Angeles, California 90067 FAX: (310) 798-7201 S-1 20 YUCAIPA SMITTY'S PARTNERS, L.P. By: The Yucaipa Companies Its: General Partner By: /s/ Mark A. Resnik -------------------------------- Name: Mark A. Resnik Title: General Partner Address: 10000 Santa Monica Boulevard, Fifth Floor Los Angeles, California 90067 FAX: (310) 798-7201 YUCAIPA SMITTY'S PARTNERS II, L.P. By: The Yucaipa Companies Its: General Partner By: /s/ Mark A. Resnik -------------------------------- Name: Mark A. Resnik Title: General Partner Address: 10000 Santa Monica Boulevard, Fifth Floor Los Angeles, California 90067 FAX: (310) 798-7201 YUCAIPA ARIZONA PARTNERS, L.P. By: The Yucaipa Companies Its: General Partner By: /s/ Mark A. Resnik -------------------------------- Name: Mark A. Resnik Title: General Partner Address: 10000 Santa Monica Boulevard, Fifth Floor Los Angeles, California 90067 FAX: (310) 798-7201 S-2 EX-10.2 6 MANAGEMENT SERVICES AGREEMENT 1 Exhibit 10.2 MANAGEMENT SERVICES AGREEMENT THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made and entered into as of May 23, 1996 by and between THE YUCAIPA COMPANIES, a California general partnership ("Yucaipa"), and SMITH'S FOOD & DRUG CENTERS, INC., a Delaware corporation (the "Company"). RECITALS A. The Company is in the business of operating supermarkets in Arizona, Idaho, Nevada, New Mexico, Texas, Utah and Wyoming and has elected to discontinue its supermarket operations in California; B. The Company has entered into a Recapitalization Agreement and Plan of Merger dated as of January 29, 1996 (the "Recapitalization Agreement") pursuant to which the Company will acquire certain additional supermarket operations in the State of Arizona through the merger of a wholly-owned subsidiary of the Company with and into an affiliate of Yucaipa (the "Merger") and consummate certain recapitalization transactions (the "Recapitalization") described therein; C. In connection with the consummation of the Merger and Recapitalization, the Company wishes to supplement the resources available to its senior management; and D. Yucaipa is experienced in the management of supermarket companies and has the ability to provide certain general business and financial advice and management services to the Company in connection with the operation of its business following the consummation of the Merger and the Recapitalization and the Company wishes to obtain the benefits of such advice and services. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned parties agree as follows: SECTION 1. MANAGEMENT SERVICES. Subject to the provisions of this Agreement, and subject to the supervision of the Board of Directors of the Company (the "Board of Directors"), Yucaipa, through its partners, employees or other designated representatives or agents, shall provide the Company with management consultation and advice regarding strategic planning and development, budgeting, future financing plans, selection and retention of management employees, general business management and legal matters, and such other similar management services as may be requested by the Board of Directors from time to time. As used herein, the Company refers to the Company and its subsidiaries, as the context requires. Without limitation of the foregoing, Yucaipa's services pursuant to this Agreement shall include the following: (a) Strategic Planning and Development. Yucaipa will review management plans and provide advice with respect to (i) the formulation, implementation and maintenance of the Company's 1 2 marketing, operating and competitive strategies in its existing market areas (as of the date of this Agreement) and (ii) any plans to enter new market areas. (b) Budgeting and Finance. Yucaipa will review, and provide advice with respect to, (i) management's annual operating and capital budgets and financial projections and any revisions or supplements thereto; (ii) any proposals for material capital expenditures; and (iii) the evaluation of any proposals regarding the sale or purchase of assets or additional debt or equity financing for the Company and any retirement or redemption of existing debt or equity of the Company. (c) Management Personnel. Yucaipa will advise the Board of Directors and management regarding the hiring, promotion, discharge, terms of employment and compensation of the Company's senior management and other key employees. (d) Integration Strategy. Yucaipa will assist management with the development, implementation and maintenance of a strategy concerning the integration of the Company's supermarket operations in the State of Arizona following the consummation of the Merger. (e) Legal and Governmental Affairs. Yucaipa will advise the Board of Directors and management, as requested, on legal and governmental affairs related to the conduct of the Company's business. (f) Board Presentations. Yucaipa will work with management to develop and deliver presentations and recommendations for matters to be considered by the Board of Directors. In the event that any material management recommendation is made to the Board of Directors which is contrary to Yucaipa's recommendations, Yucaipa will be provided with an opportunity to present its views concerning such matter to the Board of Directors. (g) Chief Executive Officer. Ronald W. Burkle shall, if he so elects, have the right to serve as Chief Executive Officer of the Company during the term of this Agreement, and shall have all rights and responsibilities customarily vested in a Chief Executive Officer, provided that he shall not receive any compensation for serving in such capacity beyond the compensation paid to Yucaipa under this Agreement. SECTION 2. MANAGEMENT FEES. (a) Commencing on the date hereof (the "Effective Date"), the Company shall pay to Yucaipa an annual management fee, in consideration of the services rendered by Yucaipa pursuant to Section 1 above, equal to $1,000,000, one-twelfth (1/12th) of which shall be payable in advance on the first day of each calendar month; provided that a prorated portion of such fee will be payable in advance on the Effective Date for the partial month beginning on the Effective Date and ending on the last day of the then current month. (b) The Company may, if it so elects, prepay a portion of the fee provided for in Section 2(a) above through the issuance concurrently with the execution of this Agreement of up to 200,000 shares of the Company's Class B Common Stock. Such prepayment shall offset the fees otherwise payable under Section 2(a) above in an amount equal to the product of (i) the number of shares of Class B Common Stock issued multiplied by (ii) a price per share equal to $16.50. The amount of the prepayment, as calculated in accordance with the preceding sentence, is referred to herein as the "Prepayment Amount." Any shares issued to Yucaipa pursuant to this Section 2(b) shall be deemed to 2 3 be "Registrable Securities" for all purposes under that certain Registration Rights Agreement dated as of May 23, 1996 among the Company, Jeffrey P. Smith, Yucaipa and certain other holders of Class B Common Stock named therein (the "Registration Rights Agreement"). SECTION 3. REIMBURSEMENT OF EXPENSES. The Company shall reimburse Yucaipa for all of its reasonable out-of-pocket costs and expenses incurred in connection with the performance of its obligations under this Agreement. Yucaipa shall bill the Company for the amount of all such costs and expenses monthly, and shall provide the Company with a reasonable itemization of such costs and expenses. SECTION 4. ADDITIONAL SERVICES. In the event that, during the term of this Agreement, the Board of Directors requests Yucaipa to provide (i) consulting services in connection with any proposed acquisition or divestiture transaction or any debt or equity financing or (ii) any other services not contemplated by Section 1 above, Yucaipa shall be entitled to such additional compensation for such services as may be agreed upon by Yucaipa and the Company (and approved by a majority of the Company's disinterested directors). SECTION 5. TERM OF AGREEMENT. The term of this Agreement shall commence on the Effective Date and continue for a period of five (5) years ending on the fifth anniversary of the Effective Date. SECTION 6. TERMINATION. 6.1 Termination by the Company. The Company may elect to terminate this Agreement: (a) at any time following a determination of the Board of Directors of the Company to effect such a termination by giving Yucaipa at least ninety (90) days' written notice of such termination; (b) if Yucaipa shall fail to reasonably perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by it (other than any failure or alleged failure occasioned by or resulting from force majeure, directly or indirectly) and such failure shall continue for a period of sixty (60) days after written notice from the Company, which notice shall describe the alleged failure with particularity; (c) at any time if, in connection with the performance of its duties hereunder, Yucaipa or any of its partners commits (or is grossly negligent in its supervision or hiring of any employee or agent of Yucaipa who commits) any act of fraud, dishonesty or gross negligence which is materially detrimental to the business or reputation of the Company as reasonably determined by the Board of Directors; (d) if an event of default shall have occurred under the Company's bank credit facility or senior or senior subordinated debt indentures entered into in connection with the Recapitalization or any other material debt agreements entered into to refinance such indebtedness (the "Specified Indebtedness") and such event of default (i) results from the failure to pay principal or interest on any 3 4 Specified Indebtedness when due (after the expiration of any grace periods), (ii) results from a default in any financial covenant in such bank credit facility or any other material covenant contained in the instruments governing such Specified Indebtedness (after the expiration of any grace periods) and, in the case of the foregoing clauses (i) and (ii), such event of default has not been cured or waived within 90 days after the date on which the Company is required to notify the applicable lenders of the occurrence of such event of default in accordance with the terms of the applicable instrument; provided, however, that in no event shall such 90-day period commence prior to the time that the Chief Financial Officer of the Company has actual knowledge of such default or event of default, or (iii) is not cured or waived within 90 days following the disclosure of the same in any periodic report filed by the Company with the Securities and Exchange Commission; (e) if Yucaipa or any person in the "Yucaipa Group" (as defined in the Standstill Agreement, dated as of January 29, 1996, by and among the Company, Yucaipa and the other parties thereto (the "Standstill Agreement")), is in material default under the Standstill Agreement, which default shall not have been cured or waived within 90 days thereafter; or (f) if, at any time, the Yucaipa Group shall own less than 50% of the shares of Class B Common Stock of the Company originally acquired by them on the closing of the Merger. 6.2 Termination by Yucaipa. Yucaipa may elect to terminate this Agreement: (a) if the Company shall fail to reasonably perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by it (other than any failure or alleged failure occasioned by or resulting from force majeure, directly or indirectly) and such failure shall continue for a period of sixty (60) days after written notice from Yucaipa, which notice shall describe the alleged failure with particularity; (b) if the Company shall fail to make any payment due to Yucaipa hereunder, if such payment is not made in full within thirty (30) days after written notice of such failure; or (c) if the designees of the Yucaipa Group cease to be members of the Board of Directors of the Company following the Effective Date, as required by the Standstill Agreement; (d) if the Board of Directors fails to approve two or more recommendations by Yucaipa to the Board of Directors pursuant to Section 1 hereof, which recommendations relate to matters of corporate strategy or management which have been designated in writing by Yucaipa as material (provided that Yucaipa may not designate more than four (4) such matters during any calendar year as "material" for purposes of the foregoing), or if the Board of Directors otherwise takes action which materially interferes with the ability of Yucaipa to perform its responsibilities under this Agreement and such interference shall continue for sixty (60) days after written notice from Yucaipa; or (e) if Ronald W. Burkle ceases to be Chief Executive Officer of the Company, other than by reason of his death, disability, termination for Cause or voluntary resignation. For purposes of the foregoing, "Cause" shall mean the commission by Ronald W. Burkle of any act described in Section 6.1(c) or any felony conviction. 6.3 Termination for Change of Control. This Agreement may be terminated, at the election of either Yucaipa or the Company, if during the term hereof there shall have been a change in control of the Company, which for purposes of this Agreement shall be deemed to have occurred upon 4 5 any of the following events: (a) the acquisition after the Effective Date, in one or more transactions, of "beneficial ownership" (within the meaning of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by any person (other than Yucaipa or any of its partners or affiliates or any Qualified Smith Holder) or any group of persons (excluding any group which includes Yucaipa or any of its partners or affiliates or any Qualified Smith Holder) who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act) of any securities of the Company such that, as a result of such acquisition, such person or group beneficially owns (within the meaning of Rule 13d-3(a)(1) under the Exchange Act) 40% or more of the Company's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of the Company; or (b) the sale of all or substantially all of the assets or capital stock of the Company (including, without limitation, by way of merger, consolidation, lease or transfer) in a transaction or series of related transactions (excluding any sale to Yucaipa or any of its partners or affiliates or any Qualified Smith Holder). For purposes of this Section, "Qualified Smith Holder" shall mean any member of the Smith Group (as defined in the Standstill Agreement) or any "Family Member" or "Family Entity" (as such terms are defined in the Company's Certificate of Incorporation) of any such member of the Smith Group. 6.4 Payments upon Termination. (a) In the event of any termination pursuant to Section 6.1(a), Section 6.2 or Section 6.3, the Company shall pay, or cause to be paid, to Yucaipa a cash termination payment in an amount equal to the greater of (i) $5,000,000, and (ii) twice the total consulting fees that would have been earned by Yucaipa under Section 2 hereof during the remaining term of this Agreement as if the Agreement had not been terminated, without regard to any sums previously paid by the Company to Yucaipa pursuant to Section 2 above. (b) Such amount, if any, which shall be due Yucaipa pursuant to this Section 6.4 in the event of any such termination shall be due and payable to Yucaipa, in full, as of the date of such termination. The parties intend that should the foregoing payments be determined to constitute liquidated damages, such payments shall in all events be deemed reasonable. (c) In the event that the Company has elected to prepay a portion of Yucaipa's consulting fees in accordance with Section 2(b) of this Agreement, Yucaipa shall repay the unearned portion of the Prepayment Amount (the "Unearned Amount"). Such repayment by Yucaipa shall be made through an offset against the amount payable to Yucaipa pursuant to Section 6.4(a) above, or, in the event that no payment is required to be made under Section 6.4(a), Yucaipa shall repay the Unearned Amount by making a cash payment to the Company no later than 90 days after the termination date (provided, however, that such date shall be extended during any time in which the Company is in default of the obligations under the Registration Rights Agreement). 6.5 Effect of Termination. Upon any such termination of this agreement the obligations of the parties hereunder shall also terminate, except (i) the Company shall continue to be obligated to Yucaipa for any payments to be received pursuant to Section 6.4(a), and for any unpaid fees or expenses incurred prior to any such termination, (ii) the Company's obligations under Section 9 hereof shall survive any such termination; and (iii) the provisions of Sections 8 and 10 shall survive any such termination. 5 6 SECTION 7. NON-COMPETITION. As an inducement for the Company and Yucaipa to enter into this Agreement, Yucaipa agrees that during the term of this Agreement, Yucaipa shall not, without the Company's prior written consent, provide management or consulting services to, or make investments in, any Significant Competitor. Notwithstanding the foregoing, Yucaipa may, without the Company's prior written consent, acquire or hold equity securities of any Significant Competitor, which class of equity securities is registered under Section 12 of the Exchange Act, provided that the securities so acquired or held by Yucaipa do not exceed 5% of the total number of outstanding equity securities of such Significant Competitor. For purposes of this Section, "Significant Competitor" shall mean any business which operates in excess of five retail supermarket stores in any market in which the Company operates in excess of five retail supermarket stores. Nothing in this Section shall be deemed to prevent Yucaipa from performing services under, or renewing, any management or consulting agreement to which it is a party on the date hereof (which agreements have been identified to the Company). SECTION 8. CONFIDENTIALITY. The parties hereto agree to be bound by the confidentiality provisions of Section 3.9 of the Standstill Agreement during the entire term of this Agreement, regardless of whether the Standstill Agreement is earlier terminated. SECTION 9. INDEMNIFICATION. (a) The Company (the "Indemnifying Party") agrees to indemnify and hold harmless Yucaipa and each of its affiliates, partners, officers, agents and the employees of each of them (each an "Indemnified Party" and collectively, the "Indemnified Parties"), from and against all losses, claims, damages or liabilities resulting from any claim, lawsuit or other proceeding by any person to which any Indemnified Party may become subject which is related to or arises out of the performance of the services to be provided hereunder (or under the Recapitalization Agreement), and will reimburse any Indemnified Party for all reasonable out-of-pocket expenses (including reasonable counsel fees and disbursements) incurred by such Indemnified Party in connection with investigating or defending any such claim. Each Indemnifying Party further agrees that the indemnification and reimbursement commitments herein shall apply whether or not such Indemnified Party is a formal party to any such lawsuit, claim or other proceedings. The foregoing provision is expressly intended to cover reimbursement of reasonable legal and other expenses incurred in a deposition or other discovery proceeding. Notwithstanding the foregoing, the Indemnifying Party shall not be liable to any Indemnified Party (a) in respect of any loss, claim, damage, liability or expense to an Indemnified Party to the extent the same is determined, in a final judgment by a court having jurisdiction, to have resulted from the gross negligence or willful misconduct of such Indemnified Party or any intentional, material breach by such Indemnified Party of its obligations under this Agreement or (b) for any settlement effected by such Indemnified Party without the written consent of such Indemnifying Party, which consent shall not be unreasonably withheld. In the event of the assertion against any Indemnified Party of any such claim or the commencement of any such action or proceeding, each Indemnifying Party shall be entitled to participate in such action or proceeding and in the investigation of such claim and, after written notice from such Indemnifying Party to such Indemnified Party, to assume the investigation or defense of such claim, action or proceeding with counsel of the Indemnifying Party's choice at the Indemnifying Party's expense; 6 7 provided, however, that such counsel shall be reasonably satisfactory to the Indemnified Party. Notwithstanding anything to the contrary contained herein, the Indemnifying Party may retain one firm of counsel to represent all Indemnified Parties in such claim, action or proceeding; provided that the Indemnified Party shall have the right to employ a single firm of separate counsel (and any necessary local counsel) and to participate in the defense or investigation of such claim, action or proceeding, and the Indemnifying Party shall bear the expense of such separate counsel (and local counsel, if applicable), if (i) in the written opinion of counsel to the Indemnified Party use of counsel of the Indemnifying Party's choice could reasonably be expected to give rise to a conflict of interest, (ii) the Indemnifying Party shall not have employed counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party within a reasonable time after notice of the assertion of any such claim or institution of any such action or proceeding or (iii) the Indemnifying Party shall authorize the Indemnified Party to employ separate counsel at the Indemnifying Party's expense. (b) If for any reason (other than the gross negligence or willful misconduct of an Indemnified Party referred to above) the foregoing indemnification is unavailable to any Indemnified Party or insufficient to hold it harmless as and to the extent contemplated by the preceding paragraph (a), then the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party and its affiliates, on the one hand, and the Indemnified Party, as the case may be, on the other hand, as well as any other relevant equitable considerations. SECTION 10. NOTICES. All notices, demands, requests, consents or approvals required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be personally served and mailed, registered or certified, return receipt requested, postage prepaid (or by a substantially similar method), or delivered by a reputable overnight courier service with charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile, addressed as set forth below, or such other address as such party shall have specified most recently by written notice. Notice shall be deemed given or delivered on the date of service or transmission if personally served or transmitted by telegram, telex or facsimile. Notice otherwise sent as provided herein shall be deemed given or delivered on the third business day following the date mailed or on the next business day following the delivery of such notice to a reputable overnight courier service. If to Yucaipa: The Yucaipa Companies 10000 Santa Monica Boulevard Fifth Floor Los Angeles, California 90067 Attention: Mark A. Resnik If to the Company: Smith's Food & Drug Centers, Inc. 1550 South Redwood Road Salt Lake City, Utah 84104 Attention: Chairman of the Board with a copy to the General Counsel of the Company at the same address. 7 8 SECTION 11. MISCELLANEOUS. 11.1 Entire Agreement; Amendments. This Agreement contains all of the terms and conditions agreed upon by the parties hereto in connection with the subject matter hereof. This Agreement may not be amended, modified or changed except by written instrument signed by all of the parties hereto. 11.2 Assignment; Successors. This Agreement shall not be assigned and is not assignable by any party without the prior written consent of each of the other parties hereto; provided, however, that Yucaipa may assign, without the prior consent of the Company, its rights and obligations under this Agreement to any partnership or limited liability company controlled by Ronald W. Burkle, and provided further, that Yucaipa may assign the right to receive any payment hereunder (but not its duties and obligations hereunder) to any other person or entity. Subject to the preceding sentence, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted successors and assigns. 11.3 Governing Law. This Agreement shall be governed by and construed in accordance with the internal domestic laws of the State of New York, without regard to the choice of law provisions thereof. 11.4 Attorneys' Fees. If any legal action is brought concerning any matter relating to this Agreement, or by reason of any breach of any covenant, condition or agreement referred to herein, the prevailing party shall be entitled to have and recover from the other party to the action all costs and expenses of suit, including attorneys' fees. 11.5 Relationship. Nothing in this Agreement shall constitute or be construed to be a partnership or joint venture between the Company and Yucaipa. To the extent appropriate to the duties and obligations hereunder, Yucaipa shall be an independent contractor and none of its employees shall be deemed employees of the Company by reason of this Agreement or the performance of its duties hereunder. This Agreement is for the benefit of the Company and Yucaipa and shall not create third party beneficiary rights. 11.6 Construction and Interpretation. This Agreement shall not be construed for or against either party by reason of the authorship or alleged authorship of any provision hereof or by reason of the status of the respective parties. This Agreement shall be construed reasonably to carry out its intent without presumption against or in favor of either party. The natural persons executing this Agreement on behalf of each party have the full right, power and authority to do and affirm the foregoing warranty on behalf of each party and on their own behalf. The captions on sections are provided for purposes of convenience and are not intended to limit, define the scope of or aid in interpretation of any of the provisions hereof. References to a party or parties shall refer to the Company or Yucaipa, or both, as the context may require. All pronouns and singular or plural references as used herein shall be deemed to have interchangeably (where the sense of the sentence requires) a masculine, feminine or neuter, and/or singular or plural meaning, as the case may be. 11.7 Severability. If any term, provision or condition of this Agreement is determined by a court or other judicial or administrative tribunal to be illegal, void or otherwise ineffective or not in accordance with public policy, the remainder of this Agreement shall not be affected thereby and shall remain in full force and effect and shall be construed in such manner so as to preserve the validity hereof and the substance of the transactions herein contemplated to the extent possible. 8 9 11.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 9 10 IN WITNESS WHEREOF, the parties hereto have caused this Management Services Agreement to be duly executed as of the date first above written. THE YUCAIPA COMPANIES By: /s/ Mark A. Resnik -------------------------------- Name: Mark A. Resnik Title: General Partner SMITH'S FOOD & DRUG CENTERS, INC. By: /s/ Matthew G. Tezak -------------------------------- Name: Matthew G. Tezak Title: Senior Vice President and Chief Financial Officer S-1 EX-10.3 7 WARRANT AGREEMENT 1 EXHIBIT 10.3 WARRANT AGREEMENT WARRANT AGREEMENT dated as of May 23, 1996 among SMITH'S FOOD & DRUG CENTERS, INC., a Delaware corporation (the "Company"), and THE YUCAIPA COMPANIES, a California general partnership, or its registered permitted assigns (the "Consultant"). WHEREAS, the Company proposes to issue to the Consultant 1,842,555 Warrants, as hereinafter described (the "Warrants"), to purchase an aggregate of 1,842,555 shares (subject to adjustment) of the Class C Common Stock, $.01 par value per share (the "Class C Common Stock"), of the Company (the Class C Common Stock issuable on exercise of the Warrants being referred to herein as the "Warrant Shares"), pursuant to that certain Recapitalization Agreement and Plan of Merger of even date herewith by and among the Company, Cactus Acquisition, Inc., the Consultant and Smitty's Supermarkets, Inc. (the "Recapitalization Agreement"). The Company, the Consultant, certain affiliates of the Consultant and certain stockholders of the Company are party to a Standstill Agreement of even date herewith (the "Standstill Agreement") which governs certain transfers of the Warrant Shares. All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Recapitalization Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: SECTION 1. WARRANT CERTIFICATES. The Company will issue and deliver certificates evidencing the Warrants (the "Warrant Certificates") to the Consultant pursuant to the terms of the Recapitalization Agreement. Fifty percent (50%) of the aggregate number of Warrants to be issued hereunder will be issued as "Series A Warrants" in the form of Exhibit A hereto and the remaining fifty percent (50%) of the aggregate number of Warrants to be issued hereunder will be issued as "Series B Warrants" in the form of Exhibit B hereto. Such certificates shall be in registered form only and shall be substantially in the applicable forms set forth as Exhibits A and B attached hereto. Warrant Certificates shall be dated the date of issuance by the Company. SECTION 2. EXECUTION OF WARRANT CERTIFICATES. Warrant Certificates shall be signed on behalf of the Company by its Chairman of the Board or its Chief Executive Officer, President or a Vice President. Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of the present or any future Chairman of the Board, Chief Executive Officer, President or Vice President, and may be imprinted or otherwise reproduced on the Warrant Certificates and for that purpose the Company may adopt and use the facsimile signature of any person who shall have been Chairman of the Board, Chief Executive Officer, President or Vice President, notwithstanding the fact that at the time the Warrant Certificates shall be delivered or disposed of he shall have ceased to hold such office. Each Warrant Certificate shall also be manually signed on behalf of the Company by its Secretary or an Assistant Secretary under its corporate seal. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Warrant Certificates. SECTION 3. REGISTRATION. The Company shall number and register the Warrant Certificates in a register as they are issued. The Company may deem and treat the registered holder(s) of the Warrant Certificates (the "Holders") as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes and shall not be affected by any notice to the contrary. The Warrants shall be registered initially in such name or names as the Consultant shall designate. 2 SECTION 4. RESTRICTIONS ON TRANSFER; REGISTRATION OF TRANSFERS AND EXCHANGES. The Warrants (and any Warrant Shares issued upon the exercise of the Warrants) shall not be transferable except in accordance with the terms of this Agreement and the Standstill Agreement. Prior to any proposed transfer of the Warrants or the Warrant Shares, unless such transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), the transferring Holder will deliver to the Company, if so requested by the Company, an opinion of counsel reasonably satisfactory in form and substance to the Company, to the effect that the Warrants or Warrant Shares, as applicable, may be sold or otherwise transferred without registration under the Securities Act. Upon original issuance thereof, and until such time as the same shall have been registered under the Securities Act or sold pursuant to Rule 144 promulgated thereunder (or any similar rule or regulation) each Warrant Certificate and any certificates evidencing Warrant Shares shall bear any legend required pursuant to the Recapitalization Agreement or the Standstill Agreement unless in the opinion of such counsel, such legend required pursuant to the Recapitalization Agreement is no longer required by the Securities Act or such legend required by the Standstill Agreement is no longer required thereunder. The Company shall from time to time register the transfer of any outstanding Warrant Certificates in a Warrant register to be maintained by the Company upon surrender thereof accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, duly executed by the registered Holder or Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Upon any such registration of transfer, a new Warrant Certificate shall be issued to the transferee(s) and the surrendered Warrant Certificate shall be canceled and disposed of by the Company. Warrant Certificates may be exchanged at the option of the Holder(s) thereof, when surrendered to the Company at its office for another Warrant Certificate or other Warrant Certificates of like series and tenor and representing in the aggregate a like number of Warrants. Warrant Certificates surrendered for exchange shall be canceled and disposed of by the Company. SECTION 5. WARRANTS; EXERCISE OF WARRANTS. Subject to the terms of this Agreement, each Holder shall have the right, which may be exercised at any time or from time to time during the applicable Exercise Period (as defined below) to receive from the Company the number of fully paid and nonassessable Warrant Shares (and such other consideration) which the Holder may at the time be entitled to receive on exercise of such Warrants and payment of the Exercise Price then in effect for such Warrant Shares. In the alternative, each Holder may exercise its right, during the Exercise Period, to receive Warrant Shares on a net basis, such that, without the exchange of any funds, the Holder receives that number of Warrant Shares (and such other consideration) otherwise issuable (or payable) upon exercise of its Warrants less that number of Warrant Shares having an aggregate Current Market Value (as defined in Section 9) at the time of exercise equal to the aggregate Exercise Price that would otherwise have been paid by the Holder for the Warrant Shares. Each Warrant not exercised during the Exercise Period shall become void and all rights thereunder and all rights in respect thereof under this agreement shall cease as of such time. No adjustments as to dividends will be made upon exercise of the Warrants, except as otherwise expressly provided herein. Any Holder of Warrants, other than The Yucaipa Companies and its Affiliates, may elect by written notice to the Company to have the right to receive shares of Class B Common Stock, par value $.01 per share (the "Class B Common Stock"), upon exercise of its Warrants and in such case, references 2 3 herein to "Warrant Shares" (as applied to such Holder's Warrants) shall be deemed to mean shares of Class B Common Stock. As used herein, "Common Stock" shall mean either Class B Common Stock or Class C Common Stock, as the context requires. For purposes of Section 9 hereof, any action taken by the Company with respect to any of its Class A Common Stock, its Class B Common Stock or its Class C Common Stock shall be deemed to be action taken with respect to all of its Common Stock and shall result in an adjustment to the Exercise Price and the Warrant Number to the extent specified therein. The periods during which a Warrant shall be exercisable (an "Exercise Period") shall commence on the date hereof and expire, in the case of the Series A Warrants, at 5:00 p.m., Los Angeles time, on May 23, 2000 and, in the case of the Series B Warrants, at 5:00 p.m., Los Angeles time, on May 23, 2001; provided, however, that each Exercise Period shall be extended by five years in the event that, prior to the foregoing expiration dates, the Market Price of the Company's Class B Common Stock equals or exceeds the Exercise Price (as adjusted from time to time) for a period of not less than 60 consecutive trading days (excluding from such period any day on which no Market Price is available). The price at which each Warrant shall be exercisable (the "Exercise Price") shall initially be $50.00 per share, subject to adjustment pursuant to the terms hereof. A Warrant may be exercised upon surrender to the Company at its office address set forth in Section 12 hereof) of the Warrant Certificate or Certificates to be exercised with the form of election to purchase attached thereto duly filled in and signed, and upon payment to the Company of the Exercise Price for the number of Warrant Shares in respect of which such Warrants are then exercised. Payment of the aggregate Exercise Price shall be made in cash or by certified or official bank check payable to the order of the Company or by wire transfer of immediately available funds to an account designated by the Company or in the manner provided in the first paragraph of this Section 5. Subject to the provisions of Section 6 hereof, upon such surrender of Warrants and payment of the Exercise Price the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Holder and in such name or names as such Holder may designate a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of such Warrants (and such other consideration as may be deliverable upon exercise of such Warrants) together with cash for fractional Warrant Shares as provided in Section 10. Such certificate or certificates shall be deemed to have been issued and the person so named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Exercise Price, irrespective of the date of delivery of such certificate or certificates for Warrant Shares. Each Warrant shall be exercisable during the Exercise Period, at the election of the Holder thereof, either in full or from time to time in part and, in the event that a Warrant Certificate is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued and delivered pursuant to the provisions of this Section and of Section 2 hereof. All Warrant Certificates surrendered upon exercise of Warrants shall be cancelled and disposed of by the Company. The Company shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the Holders during normal business hours at its office. SECTION 6. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes and other governmental charges (excluding all foreign, federal or state income, franchise, property, 3 4 estate, inheritance, gift or similar taxes) in connection with the issuance or delivery of the Warrants hereunder, as well as all such taxes attributable to the initial issuance or delivery of Warrant Shares upon the exercise of Warrants and payment of the Exercise Price. The Company shall not, however, be required to pay any tax that may be payable in respect of any subsequent transfer of the Warrants or any transfer involved in the issuance and delivery of Warrant Shares in a name other than that in which the Warrants to which such issuance relates were registered, and, if any such tax would otherwise be payable by the Company, no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Company the amount of any such tax, or it is established to the reasonable satisfaction of the Company that any such tax has been paid. SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant Certificate or certificate evidencing Warrant Shares shall be mutilated, lost, stolen or destroyed, the Company shall issue, in exchange and substitution therefor and upon cancellation of the mutilated Warrant Certificate or other certificate, or in lieu of and substitution for the Warrant Certificate or other certificate lost, stolen or destroyed, a new Warrant Certificate or other certificate of like tenor and representing an equivalent number of Warrants or Warrant Shares. SECTION 8. RESERVATION OF WARRANT SHARES. The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Class C Common Stock or its authorized and issued Class C Common Stock held in its treasury, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the maximum number of shares of Class C Common Stock which may then be deliverable upon the exercise of all outstanding Warrants. The Company shall also at all times reserve and keep available sufficient shares of Class B Common Stock for issuance upon conversion of shares of Class C Common Stock or, if applicable pursuant to Section 5, for issuance upon exercise of Warrants. The Company or, if appointed, the transfer agent for the Class C Common Stock and each transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the Warrants (collectively, the "Transfer Agent") will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company shall keep a copy of this Agreement on file with the Transfer Agent. The Company will supply the Transfer Agent with duly executed certificates for such purposes and will provide or otherwise make available all other consideration that may be deliverable upon exercise of the Warrants. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto, transmitted to each Holder pursuant to Section 11 hereof. Before taking any action which would cause an adjustment pursuant to Section 9 hereof to reduce the Exercise Price below the then par value of the Warrant Shares, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. The Company covenants that all Warrant Shares and other capital stock issued upon exercise of Warrants will, upon payment of the Exercise Price therefor and issue, be validly authorized and issued, fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. The Company shall from time to time take all action which may be necessary or appropriate so that the Class B Common Stock issuable upon conversion of Warrant Shares following an exercise of Warrants, will be listed on the principal securities exchanges and markets within the United 4 5 States of America, if any, on which other shares of the same class of Common Stock of the Company are then listed. SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES ISSUABLE. The Exercise Price and the number of shares of Common Stock issuable upon the exercise of each Warrant (the "Warrant Number") are subject to adjustment from time to time upon the occurrence of the events enumerated in, or as otherwise provided in, this Section 9. The Warrant Number is initially one. (a) Adjustment for Change in Capital Stock If the Company: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides or reclassifies its outstanding shares of Common Stock into a greater number of shares; (3) combines or reclassifies its outstanding shares of Common Stock into a smaller number of shares; (4) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (5) issues by reclassification of its Common Stock any shares of its capital stock; then the Exercise Price in effect immediately prior to such action shall be proportionately adjusted so that the holder of any Warrant thereafter exercised may receive the aggregate number and kind of shares of capital stock of the Company which he or it would have owned immediately following such action if such Warrant had been exercised immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment a holder of a Warrant upon exercise of it may receive shares of two or more classes of capital stock of the Company, the Company shall determine the allocation of the adjusted Exercise Price between the classes of capital stock. After such allocation, the exercise privilege and the Exercise Price of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section. Such adjustment shall be made successively whenever any event listed above shall occur. If the occurrence of any event listed above results in an adjustment under subsections (b) or (c) below, no further adjustment shall be made under this subsection (a). 5 6 (b) Adjustment for Rights Issue If the Company distributes any rights, options or warrants (whether or not immediately exercisable) to all holders of its Common Stock entitling them to purchase shares of Common Stock at a price per share less than the Current Market Value per share on the record date relating to such distribution, the Exercise Price shall be adjusted in accordance with the formula: O + N x P ----- E' = E x M --------- O + N where: E' = the adjusted Exercise Price. E = the then current Exercise Price. O = the number of Fully Diluted Shares outstanding on the record date for any such distribution. N = the number of additional shares of Common Stock issuable upon exercise of such rights, options or warrants. P = the exercise price per share of such rights, options or warrants. M = the Current Market Value per share of Common Stock on the record date for any such distribution. The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such rights, options or warrants are exercisable, not all rights, options or warrants shall have been exercised, the Exercise Price shall be immediately readjusted to what it would have been if "N" in the above formula had been the number of shares actually issued. (c) Adjustment for Other Distributions If the Company distributes to all holders of its Common Stock (i) any evidences of indebtedness of the Company or any of its subsidiaries, (ii) any assets of the Company or any of its subsidiaries (other than cash dividends which are paid out of retained earnings of the Company in the ordinary course of business), or (iii) any rights, options or warrants to acquire any of the foregoing or to acquire any other securities of the Company, the Exercise Price shall be adjusted in accordance with the formula: 6 7 E' = E x M - F ----- M where: E' = the adjusted Exercise Price. E = the then current Exercise Price. M = the Current Market Value per share of Common Stock on the record date mentioned below. F = the fair market value on the record date mentioned below of the indebtedness, assets, rights, options or warrants distributable to the holder of one share of Common Stock. The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. If an adjustment is made pursuant to this subsection (c) as a result of the issuance of rights, options or warrants and at the end of the period during which any such rights, options or warrants are exercisable, not all such rights, options or warrants shall have been exercised, the Exercise Price shall be immediately readjusted as if "F" in the above formula was the fair market value on the record date of the indebtedness or assets actually distributed upon exercise of such rights, options or warrants divided by the number of shares of Common Stock outstanding on the record date. This subsection does not apply to rights, options or warrants referred to in subsection (b) of this Section 9. (d) Adjustment for Common Stock Issue If the Company issues shares of Common Stock for a consideration per share less than the Current Market Value per share on the date the Company fixes the offering price of such additional shares, the Exercise Price shall be adjusted in accordance with the formula: O + P --- E' = E x M -------- A where: E' = the adjusted Exercise Price. E = the then current Exercise Price. O = the number of Fully Diluted Shares outstanding immediately prior to the issuance of such additional shares of Common Stock. P = the aggregate consideration received for the issuance of such additional shares of Common Stock. 7 8 M = the Current Market Value per share of Common Stock on the date of issuance of such additional shares. A = the number of Fully Diluted Shares outstanding immediately after the issuance of such additional shares of Common Stock. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This subsection (d) does not apply to: (1) any of the transactions described in subsection (a) of this Section 9; or (2) Common Stock issued to the Company's employees under bona fide employee benefit plans adopted by the Board of Directors and approved by the holders of Common Stock when required by law, if such Common Stock would otherwise be covered by this subsection (d) (but only to the extent that the aggregate number of shares excluded hereby and issued after the date of this Warrant shall not exceed 5% of the Common Stock outstanding at the time of the adoption of each such plan, exclusive of anti-dilution adjustments thereunder), or (3) the issuance of Common Stock in connection with (i) the exercise of Warrants, or (ii) the conversion, exchange or exercise of any options, warrants, or other securities convertible into or exchangeable or exercisable for Common Stock. (e) Adjustment for Convertible Securities Issue If the Company issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than securities issued in transactions described in subsection (b) or (c) of this Section 9) for a consideration per share of Common Stock initially deliverable upon conversion, exchange or exercise of such securities less than the Current Market Value per share on the date of issuance of such securities, the Exercise Price shall be adjusted in accordance with this formula: O + P --- E' = E x M ------- O + D where: E' = the adjusted Exercise Price. E = the then current Exercise Price. O = the number of Fully Diluted Shares outstanding immediately prior to the issuance of such securities. P = the aggregate consideration received for the issuance of such securities. 8 9 M = the Current Market Value per share of Common Stock on the date of issuance of such securities. D = the maximum number of shares of Common Stock deliverable upon conversion or in exchange for or upon exercise of such securities at the initial conversion, exchange or exercise rate. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion, exchange or exercise of such securities has not been issued when such securities are no longer outstanding, then the Exercise Price shall promptly be readjusted to the Exercise Price which would then be in effect had the adjustment upon the issuance of such securities been made on the basis of the actual number of shares of Common Stock issued upon conversion, exchange or exercise of such securities. This subsection (e) does not apply to: (1) any transaction described in subsection (b) of this Section 9, (2) the issuance of the Warrants, or (3) any such options, warrants or other securities issued to the Company's employees under bona fide employee benefit plans adopted by the Board of Directors and approved by the holders of such options, warrants or other securities when required by law, if such Common Stock would otherwise be covered by this subsection (e) (but only to the extent that the aggregate number of shares excluded hereby and issued after the date of this Warrant Agreement shall not exceed 5% of the Common Stock outstanding at the time of the adoption of each such plan, exclusive of anti-dilution adjustments thereunder). (f) Current Market Value "Current Market Value" per share of Common Stock or of any other security (herein collectively referred to as a "Security") at any date shall be: (1) if the Security is registered under the Exchange Act, the average of the daily Market Prices for each business day during the period commencing 30 business days before such date and ending on the date one day prior to such date or, if the Security has been registered under the Exchange Act for less than 30 consecutive business days before such date, then the average of the daily Market Prices for all of the business days before such date for which daily Market Prices are available. If the Market Price is not determinable for at least 15 business days in such period, the Current Market Value of the Security shall be determined as if the Security was not registered under the Exchange Act; or (2) if the Security is not registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (i) the value of the Security determined in good faith by the Board of Directors of the Company and certified in a board resolution, based on the most recently completed arm's length transaction between the Company and a person other than an 9 10 Affiliate of the Company in which such determination is necessary and the closing of which occurs on such date or shall have occurred within the six months preceding such date, (ii) if no such transaction shall have occurred on such date or within such six-month period, the value of the Security most recently determined as of a date within the six months preceding such date by an Independent Financial Expert or (iii) if neither clause (i) nor (ii) is applicable, the value of the Security determined as of such date by an Independent Financial Expert; provided, however, that notwithstanding the foregoing, the "Current Market Value" per share of Class C Common Stock shall at all times be deemed to be equal to the Current Market Value per share of the Class B Common Stock. The "Market Price" for any Security on each business day means: (A) if such Security is listed or admitted to trading on any securities exchange, the closing price, regular way, on such day on the principal exchange on which such Security is traded, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) if such Security is not then listed or admitted to trading on any securities exchange, the last reported sale price on such day, or if there is no such last reported sale price on such day, the average of the closing bid and the asked prices on such day, as reported by a reputable quotation source designated by the Company, or (C) if neither clause (A) nor (B) is applicable, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City of New York, customarily published on each business day, designated by the Company. If there are no such prices on a business day, then the Market Price shall not be determinable for such business day. "Independent Financial Expert" shall mean a nationally recognized investment banking firm designated by the Company and reasonably acceptable to the Holders of a majority of the Warrants (i) that does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in the Company, (ii) that has not been, and, at the time it is called upon to serve as an Independent Financial Expert under this Agreement is not (and none of whose directors, officers, employees or Affiliates is) a promoter, director or officer of the Company, (iii) that has not been retained by the Company or any Holder or Affiliate of a Holder for any purpose, other than to perform an equity valuation, within the preceding twelve months, and (iv) that, in the reasonable judgment of the Board of Directors of the Company, is otherwise qualified to serve as an independent financial advisor. Any such person may receive customary compensation and indemnification by the Company for opinions or services it provides as an Independent Financial Expert. "Affiliate" shall mean, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such person. For the purposes of this definition, "control," when used with respect to any person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (g) Consideration Received For purposes of any computation respecting consideration received pursuant to subsections (d) and (e) of this Section 9, the following shall apply: (1) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be 10 11 made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith; (2) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof (irrespective of the accounting treatment thereof) as determined in good faith by the Board of Directors; and (3) in the case of the issuance of options, warrants or other securities convertible into or exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion, exchange or exercise thereof (the consideration in each case to be determined in the same manner as provided in clauses (1) and (2) of this subsection). (h) When De Minimis Adjustment May Be Deferred No adjustment in the Exercise Price need be made unless the adjustment would require an increase or decrease of at least 1% in the Exercise Price. No adjustment in the Warrant Number need be made unless the adjustment would require an increase or decrease of at least 0.5% in the Warrant Number. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment, provided that no such adjustment shall be deferred beyond the date on which a Warrant is exercised. All calculations under this Section 9 shall be made to the nearest 1/1000th of a share. (i) When No Adjustment Required If an adjustment is made upon the establishment of a record date or issuance date for a distribution or issuance subject to subsections (a), (b) or (c) or (d) hereof and such distribution or issuance is subsequently cancelled, the Warrant Number then in effect shall be readjusted, effective as of the date when the Board of Directors determines to cancel such distribution, to that which would have been in effect if such record date had not been fixed. To the extent the Warrants become convertible into cash, no adjustment need be made thereafter as to the amount of cash into which such Warrants are exercisable. Interest will not accrue on the cash. (j) Notice of Adjustment Whenever the Exercise Price or the Warrant Number is adjusted, the Company shall provide the notices required by Section 11 hereof. (k) When Issuance or Payment May Be Deferred In any case in which this Section 9 shall require that an adjustment in the Exercise Price and Warrant Number be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event (i) issuing to the Holder of any Warrant exercised after such 11 12 record date the Warrant Shares and other capital stock of the Company, if any, issuable upon such exercise over and above the Warrant Shares and other capital stock of the Company, if any, issuable upon such exercise on the basis of the Warrant Number prior to such adjustment, and (ii) paying to such Holder any amount in cash in lieu of a fractional share pursuant to Section 10; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's right to receive such additional Warrant Shares, other capital stock and cash upon the occurrence of the event requiring such adjustment. (l) Reorganizations In case of any capital reorganization, other than in the cases referred to in Sections 9(a), (b), (c), (d) or (e) hereof, or the consolidation or merger of the Company with or into another corporation (other than a merger or consolidation which does not result in any reclassification of the outstanding shares of Common Stock into shares of other stock or other securities or property), or the sale of the property of the Company as an entirety or substantially as an entirety (collectively such actions being hereinafter referred to as "Reorganizations"), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of shares of Common Stock theretofore deliverable) the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock that would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant had been exercised in full immediately prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a duly adopted resolution certified by the Company's Secretary or Assistant Secretary, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants. The Company shall not effect any such Reorganization unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Reorganization or the corporation purchasing or leasing such assets or other appropriate corporation or entity shall expressly assume, by a supplemental Warrant Agreement or other acknowledgement executed and delivered to the Holder(s), the obligation to deliver to each such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase, and all other obligations and liabilities under this Agreement. (m) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to this Section 9, each Warrant outstanding prior to the making of the adjustment in the Exercise Price shall thereafter evidence the right to receive upon payment of the adjusted Exercise Price that number of shares of Common Stock (calculated to the nearest thousandth) obtained from the following formula: N' = N x E -- E' where: N' = the adjustment number of Warrant Shares issuable upon exercise of a Warrant by payment of the adjusted Exercise Price. 12 13 N = the number of Warrant Shares previously issuable upon exercise of a Warrant by payment of the Exercise Price prior to adjustment. E' = the adjusted Exercise Price. E = the Exercise Price prior to adjustment. (n) Form of Warrants Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. (o) Adjustments in Other Securities If as a result of any event or for any other reason, any adjustment is made which increases the number of shares of Common Stock issuable upon conversion, exercise or exchange of, or in the conversion or exercise price or exchange ratio applicable to, any outstanding securities of the Company that are convertible into, or exercisable or exchangeable for, Common Stock of the Company, then a corresponding adjustment shall be made hereunder to increase the number of shares of Common Stock issuable upon exercise of the Warrants, but only to the extent that no such adjustment has been made pursuant to Sections 9(a), (b), (c) or (d) hereof with respect to such event or for such other reason. (p) Miscellaneous For purpose of this Section 9 the term "shares of Common Stock" shall mean (i) shares of any class of stock designated as Common Stock of the Company at the date of this Agreement, and (ii) shares of any other class of stock resulting from successive changes or reclassification of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. For purposes of this Section 9 the term "Fully Diluted Shares" shall mean (i) shares of Common Stock outstanding as of a specified date, and (ii) shares of Common Stock into or for which rights, options, warrants or other securities outstanding as of such date are exercisable or convertible (other than the Warrants), provided that either: (a) such rights, options, warrants or other securities are issued and outstanding as of the date of this Agreement, or (b) the conversion or exercise price of such rights, options, warrants or other securities is not greater than 120% of the Current Market Value, as of their issue date, of the Common Stock issuable upon conversion or exercise thereof. In the event that at any time, as a result of an adjustment made pursuant to this Section 9, the holders of Warrants shall become entitled to purchase any securities of the Company other than, or in addition to, shares of Common Stock, thereafter the number or amount of such other securities so purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in subsections (a) through (o) of this Section 9, inclusive, and the provisions of Sections 5, 6, 8 and 10 with respect to the Warrant Shares or the Common Stock shall apply on like terms to any such other securities. SECTION 10. FRACTIONAL INTERESTS. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant 13 14 Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 10, be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the fair market value of the Warrant Share so issuable (as determined in good faith by the Board of Directors), multiplied by such fraction. SECTION 11. NOTICES TO WARRANT HOLDERS. Upon any adjustment pursuant to Section 9 hereof, the Company shall promptly thereafter (i) cause to be filed with the Company a certificate of an officer of the Company setting forth the Warrant Number and Exercise Price after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based, and (ii) cause to be given to each of the registered holders of the Warrant Certificates at his or its address appearing on the Warrant register written notice of such adjustments by first class mail, postage prepaid. Where appropriate, such notice may be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 11. In case: (a) the Company shall authorize the issuance to all holders of shares of Common Stock of rights, options or warrants to subscribe for or purchase shares of Common Stock or of any other subscription rights or warrants; or (b) the Company shall authorize the distribution to all holders of shares of Common Stock of assets, including cash, evidences of its indebtedness, or other securities; or (c) of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance or transfer of the properties and assets of the Company substantially as an entirety, or of any reclassification or change of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company proposes to take any action that would require an adjustment to the Warrant Number or the Exercise Price pursuant to Section 9 hereof; then the Company shall cause to be given to each of the registered holders of the Warrant Certificates at his or its address appearing on the Warrant register, at least 20 days prior to the applicable record date hereinafter specified, or 20 days prior to the date of the event in the case of events for which there is no record date, by first-class mail, postage prepaid, a written notice stating (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such rights, options, warrants or distribution are to be determined, or (ii) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock, or (iii) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the notice required by this Section 11 or any defect therein shall not affect the legality or 14 15 validity of any distribution, right, option, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action. Nothing contained in this Agreement or in any Warrant Certificate shall be construed as conferring upon the Holders of Warrants (prior to the exercise of such Warrants) the right to vote or to consent or to receive notice as shareholder in respect of the meetings of shareholders or the election of Directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company; provided that nothing in the foregoing provision is intended to detract from any rights explicitly granted to any Holder hereunder. SECTION 12. NOTICES TO THE COMPANY AND WARRANT HOLDERS. All notices and other communications provided for or permitted hereunder shall be made by hand delivery, first-class mail, telex, telecopier, or overnight air courier guaranteeing next day delivery: (a) if to the Consultant, at 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles, California 90067, with a copy to Latham & Watkins, 633 W. Fifth Street, Suite 4000, Los Angeles, California 90071, Attention: Thomas C. Sadler, Esq.; and (b) if to the Company, at 1550 South Redwood Road, Salt Lake City, Utah 84104, Attention: Chairman of the Board, with a copy to the General Counsel. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back if telexed; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. The parties may change the addresses to which notices are to be given by giving five days' prior notice of such change in accordance herewith. SECTION 13. ADJUSTMENTS AFFECTING COMMON STOCK. During the term of this Agreement, the Company shall not make any adjustment, or permit any adjustment to occur, with respect to either the Class B Common Stock or the Class C Common Stock, including, without limitation, any adjustments described in Section 9, without making a corresponding equivalent adjustment to the other class of Common Stock. SECTION 14. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company may deem necessary or desirable and which shall not in any way adversely affect the interests of the Holders of Warrant Certificates. SECTION 15. SUCCESSORS AND ASSIGNS. All the covenants and provisions of this Agreement by or for the benefit of the Company shall bind and inure to the benefit of its respective successors and assigns hereunder. SECTION 16. TERMINATION. This Agreement shall terminate when all Warrants have been exercised or have expired pursuant to this Agreement. 15 16 SECTION 17. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained herein shall be construed as conferring upon any Holder any rights as a stockholder of the Company or as imposing any obligation on such holder to purchase any securities or as imposing any liabilities on such holder as a stockholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company. SECTION 18. GOVERNING LAW. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the internal laws of said State. SECTION 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the registered Holders of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company and the registered Holders of the Warrant Certificates. SECTION 20. AMENDMENTS AND WAIVERS. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the party sought to be bound or except as provided pursuant to Section 14 hereof; provided that any amendment or waiver sought from the Holders of any provision of this Agreement which affects Holders generally shall be given by Holders of at least a majority of the Warrants outstanding and any amendment or waiver so given shall be binding on all Holders. No failure or delay by any party in exercising any right or remedy hereunder shall operate as a waiver thereof, and a waiver of a particular right or remedy on one occasion shall not be deemed a waiver of any other right or remedy or a waiver of the same right or remedy on any subsequent occasion. SECTION 21. CONSTRUCTION; INTERPRETATION. This Agreement shall not be construed for or against any party by reason of the authorship or alleged authorship of any provision hereof or by reason of the status of the respective parties. This Agreement shall be construed reasonably to carry out its intent without presumption against or in favor of any party. The natural persons executing this Agreement on behalf of each party have the full right, power and authority to do and affirm the foregoing warranty on behalf of each party and on their own behalf. The captions on sections are provided for purposes of convenience and are not intended to limit, define the scope of or aid in interpretation of any of the provisions hereof. All pronouns and singular or plural references as used herein shall be deemed to have interchangeably (where the sense of the sentence requires) a masculine, feminine or neuter, and/or singular or plural meaning, as the case may be. SECTION 22. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 16 17 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. SMITH'S FOOD & DRUG CENTERS, INC. By: /s/ MICHAEL C. FREI --------------------------------- Name: Michael C. Frei Title: Senior Vice President THE YUCAIPA COMPANIES By: /s/ MARK A. RESNIK -------------------------------- Name: Mark A. Resnik Title: General Partner S-1 18 EXHIBIT A [Form of Series A Warrant Certificate] THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SAID ACT EXCEPT PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. [THE SHARES ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON VOTING AND TRANSFER AS SET FORTH IN A STANDSTILL AGREEMENT BETWEEN THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS. THE COMPANY WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.] No. _______ _____ Series A Warrants Series A Warrant Certificate SMITH'S FOOD & DRUG CENTERS, INC. This Warrant Certificate certifies that THE YUCAIPA COMPANIES, or registered assigns, is the registered holder of the number of Warrants (the "Warrants") set forth above to purchase Class C Common Stock, $.01 par value (the "Class C Common Stock"), or, at the election of any holder other than The Yucaipa Companies and its Affiliates, Class B Common Stock, $.01 par value (the "Class B Common Stock") of SMITH'S FOOD & DRUG CENTERS, INC., a Delaware corporation (the "Company"). Each Warrant entitles the holder upon exercise to receive from the Company one fully paid and nonassessable share of Class C Common Stock or Class B Common Stock (a "Warrant Share") at the initial exercise price (the "Exercise Price") of $50.00 payable in lawful money of the United States of America, upon surrender of this Warrant Certificate and payment of the Exercise Price at the office of the Company designated for such purpose, but only subject to the conditions set forth herein and in the Warrant Agreement referred to hereinafter. The Warrants may be exercised only during the period commencing on the date hereof and expiring at 5:00 p.m., Los Angeles time, on May 23, 2000 (the "Exercise Period"); provided, however, that the Exercise Period shall be extended by five years in the event that, prior to the foregoing expiration dates, the Market Price of the Company's Class B Common Stock equals or exceeds the Exercise Price (as adjusted from time to time) for a period of not less than 60 consecutive trading days (excluding from such period any day on which no Market Price, as defined in the Warrant Agreement, is available). Furthermore, Warrants may be exercised during the Exercise Period without the exchange of funds pursuant to the net exercise provisions of Section 5 of the Warrant Agreement. The Exercise Price and number of Warrant Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events, as set forth in the Warrant Agreement. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants, and are issued or to be issued pursuant to a Warrant Agreement dated as of May 23, 1996 (the "Warrant Agreement"), duly executed and delivered by the Company, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for A-1 19 a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company. The holder of Warrants evidenced by this Warrant Certificate may exercise such Warrants during the Exercise Period under and pursuant to the terms and conditions of the Warrant Agreement by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon (and by this reference made a part hereof) properly completed and executed, together with payment of the Exercise Price in cash or by certified or bank check at the office of the Company designated for such purpose or by wire transfer of immediately available funds to an account designated by the Company. In the event that upon any exercise of warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued by the Company to the holder hereof or his or its registered assignee a new Warrant Certificate evidencing the number of Warrants not exercised. The Warrant Agreement provides that upon the occurrence of certain events the number of Warrants and the Exercise Price set forth on the face hereof may, subject to certain conditions, be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement. Upon exercise of the Warrants, the holder of Common Stock issued upon such exercise, if The Yucaipa Companies or any of its Affiliates, will be bound by and subject to the terms of that certain Standstill Agreement dated as of January 29, 1996, by and between the Company, The Yucaipa Companies and the stockholder parties listed therein (the "Standstill Agreement"). The holders of the Warrants are entitled to certain registration rights with respect to the Common Stock issuable upon the exercise thereof. Said registration rights are set forth in a Registration Rights Agreement dated as of May 23, 1996, by and among the Company, The Yucaipa Companies, and certain stockholders of the Company named therein (the "Registration Rights Agreement"). By acceptance of this Warrant Certificate, the holder hereof agrees that upon exercise of some or all of the Warrants evidenced hereby, he or it will be bound by the Registration Rights Agreement as a holder of Registrable Securities thereunder. A copy of the Registration Rights Agreement may be obtained by the holder hereof upon written request to the Company. Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Subject to the terms and conditions of the Warrant Agreement, upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon A-2 20 made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company. IN WITNESS WHEREOF, Smith's Food & Drug Centers, Inc. has caused this Warrant Certificate to be signed by its Chairman of the Board, Chief Executive Officer, President or Vice President and by its Secretary or Assistant Secretary and has caused its corporate seal to be affixed hereunto or imprinted hereon. Dated: May 23, 1996 SMITH'S FOOD & DRUG CENTERS, INC. By: ----------------------------- Name: Title: By: ----------------------------- Name: Title: A-3 21 FORM OF ELECTION TO PURCHASE (To Be Executed Upon Exercise Of Warrant) The undersigned holder hereby represents that he or it is the registered holder of this Warrant Certificate, and hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to receive __________ shares of Class _____ Common Stock, $.01 par value, of SMITH'S FOOD & DRUG CENTERS, INC. and herewith tenders payment for such shares to the order of SMITH'S FOOD & DRUG CENTERS, INC. the amount of $_____ in accordance with the terms hereof (unless the holder is exercising Warrants pursuant to the net exercise provisions of Section 5 of the Warrant Agreement). The undersigned requests that a certificate for such shares be registered in the name of the undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the undersigned at the address hereinafter set forth or to such other person or entity as is hereinafter set forth. If said number of shares is less than all of the shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant Certificate representing the remaining balance of such shares be registered in the name of the undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the undersigned at the address hereinafter set forth or to such other person or entity as is hereinafter set forth. Certificate to be registered as follows: ---------------------------------------- Name: ----------------------------------------------- Address: ----------------------------------------------- ----------------------------------------------- ----------------------------------------------- Social Security or Taxpayer Identification No. ---------------------------------- Certificate to be delivered as follows: --------------------------------------- Name: ----------------------------------------------- Address: ----------------------------------------------- ----------------------------------------------- ----------------------------------------------- Date: Signature: --------- -------------------------------- A-4 22 ASSIGNMENT FORM To assign this Warrant, fill in the form below: (I) or (we) assign and transfer this Warrant to: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) - ------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) and irrevocably appoint ------------------------------------------------------- agent to transfer - ------------------------------------------------------------- this Warrant on the books of the Company. The agent may substitute another to act for him. Date: _________ Your Signature: ---------------------------- (Sign exactly as your name appears on the other side of this Warrant) Signature Guarantee: A-5 23 EXHIBIT B [Form of Series B Warrant Certificate] THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SAID ACT EXCEPT PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. [THE SHARES ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON VOTING AND TRANSFER AS SET FORTH IN A STANDSTILL AGREEMENT BETWEEN THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS. THE COMPANY WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.] No. ______ _____ Series B Warrants Series B Warrant Certificate SMITH'S FOOD & DRUG CENTERS, INC. This Warrant Certificate certifies that THE YUCAIPA COMPANIES, or registered assigns, is the registered holder of the number of Warrants (the "Warrants") set forth above to purchase Class C Common Stock, $.01 par value (the "Class C Common Stock"), or, at the election of any holder other than The Yucaipa Companies and its Affiliates, Class B Common Stock, $.01 par value (the "Class B Common Stock") of SMITH'S FOOD & DRUG CENTERS, INC., a Delaware corporation (the "Company"). Each Warrant entitles the holder upon exercise to receive from the Company one fully paid and nonassessable share of Class C Common Stock or Class B Common Stock (a "Warrant Share") at the initial exercise price (the "Exercise Price") of $50.00 payable in lawful money of the United States of America, upon surrender of this Warrant Certificate and payment of the Exercise Price at the office of the Company designated for such purpose, but only subject to the conditions set forth herein and in the Warrant Agreement referred to hereinafter. The Warrants may be exercised only during the period. period commencing on the date hereof and expiring at 5:00 p.m., Los Angeles time, on May 23, 2001 (the "Exercise Period"); provided, however, that the Exercise Period shall be extended by five years in the event that, prior to the foregoing expiration dates, the Market Price of the Company's Class B Common Stock equals or exceeds the Exercise Price (as adjusted from time to time) for a period of not less than 60 consecutive trading days (excluding from such period any day on which no Market Price, as defined in the Warrant Agreement, is available). Furthermore, Warrants may be exercised during the Exercise Period without the exchange of funds pursuant to the net exercise provisions of Section 5 of the Warrant Agreement. The Exercise Price and number of Warrant Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events, as set forth in the Warrant Agreement. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants, and are issued or to be issued pursuant to a Warrant Agreement dated as of May 23, 1996 (the "Warrant Agreement"), duly executed and delivered by the Company, which Warrant Agreement B-1 24 is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company. The holder of Warrants evidenced by this Warrant Certificate may exercise such Warrants during the Exercise Period under and pursuant to the terms and conditions of the Warrant Agreement by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon (and by this reference made a part hereof) properly completed and executed, together with payment of the Exercise Price in cash or by certified or bank check at the office of the Company designated for such purpose or by wire transfer of immediately available funds to an account designated by the Company. In the event that upon any exercise of warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued by the Company to the holder hereof or his or its registered assignee a new Warrant Certificate evidencing the number of Warrants not exercised. The Warrant Agreement provides that upon the occurrence of certain events the number of Warrants and the Exercise Price set forth on the face hereof may, subject to certain conditions, be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement. Upon exercise of the Warrants, the holder of Common Stock issued upon such exercise, if The Yucaipa Companies or any of its Affiliates, will be bound by and subject to the terms of that certain Standstill Agreement dated as of January 29, 1996, by and between the Company, The Yucaipa Companies and the stockholder parties listed therein (the "Standstill Agreement"). The holders of the Warrants are entitled to certain registration rights with respect to the Common Stock issuable upon the exercise thereof. Said registration rights are set forth in a Registration Rights Agreement dated as of May 23, 1996, by and among the Company, The Yucaipa Companies and certain stockholders of the Company named therein (the "Registration Rights Agreement"). By acceptance of this Warrant Certificate, the holder hereof agrees that upon exercise of some or all of the Warrants evidenced hereby, he or it will be bound by the Registration Rights Agreement as a holder of Registrable Securities thereunder. A copy of the Registration Rights Agreement may be obtained by the holder hereof upon written request to the Company. Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Subject to the terms and conditions of the Warrant Agreement, upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. B-2 25 The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company. IN WITNESS WHEREOF, Smith's Food & Drug Centers, Inc. has caused this Warrant Certificate to be signed by its Chairman of the Board, Chief Executive Officer, President or Vice President and by its Secretary or Assistant Secretary and has caused its corporate seal to be affixed hereunto or imprinted hereon. Dated: May 23, 1996 SMITH'S FOOD & DRUG CENTERS, INC. By: ---------------------------- Name: Title: By: ---------------------------- Name: Title: B-3 26 FORM OF ELECTION TO PURCHASE (To Be Executed Upon Exercise Of Warrant) The undersigned holder hereby represents that he or it is the registered holder of this Warrant Certificate, and hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to receive __________ shares of Class _____ Common Stock, $.01 par value, of SMITH'S FOOD & DRUG CENTERS, INC. and herewith tenders payment for such shares to the order of SMITH'S FOOD & DRUG CENTERS, INC. the amount of $_____ in accordance with the terms hereof (unless the holder is exercising Warrants pursuant to the net exercise provisions of Section 5 of the Warrant Agreement). The undersigned requests that a certificate for such shares be registered in the name of the undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the undersigned at the address hereinafter set forth or to such other person or entity as is hereinafter set forth. If said number of shares is less than all of the shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant Certificate representing the remaining balance of such shares be registered in the name of the undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the undersigned at the address hereinafter set forth or to such other person or entity as is hereinafter set forth. Certificate to be registered as follows: ---------------------------------------- Name: ------------------------------------------------ Address: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Social Security or Taxpayer Identification No.: ---------------------------------- Certificate to be delivered as follows: --------------------------------------- Name: ------------------------------------------------ Address: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Date: Signature: ----------- ---------------------------------- B-4 27 ASSIGNMENT FORM To assign this Warrant, fill in the form below: (I) or (we) assign and transfer this Warrant to: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) - ------------------------------------------------------------------------------- (Insert assignee's WP. sec. or tax I.D. no.) and irrevocably appoint ------------------------------------------------------- agent to transfer this - -------------------------------------------------------- Warrant on the books of the Company. The agent may substitute another to act for him. Date: _________ Your Signature: ---------------------------- (Sign exactly as your name appears on the other side of this Warrant) Signature Guarantee: B-5 EX-23.2 8 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and in the headnote to the Selected Historical Financial Data of Smith's Food & Drug Centers, Inc. in the Registration Statement (Form S-3) and related Prospectus of Smith's Food & Drug Centers, Inc. for the registration of 3,201,470 shares of its Class B Common Stock and to the incorporation by reference therein of our report dated January 29, 1996, with respect to the consolidated financial statements of Smith's Food & Drug Centers, Inc. included in its Annual Report (Form 10-K) for the year ended December 30, 1995, filed with the Securities and Exchange Commission. Salt Lake City, Utah October 24, 1996 ERNST & YOUNG LLP EX-27.1 9 FINANCIAL DATA SCHEDULE
5 ARTICLE 5 FDS FOR 2ND QUARTER 1996 1,000 6-MOS DEC-28-1996 JUN-29-1996 45,379 0 27,419 0 328,674 683,646 1,364,657 394,346 1,854,313 495,339 1,374,206 3,319 0 158 (139,972) 1,854,313 1,383,188 1,383,188 1,079,918 1,079,918 0 0 37,092 (222,098) (88,045) 0 0 41,782 0 (175,835) (7.58) (7.58)
-----END PRIVACY-ENHANCED MESSAGE-----