Document:

Exhibit 10.1

 

AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT

 

Dated as
of November 30, 2005

 

among

 

Pathmark Stores, Inc.

 

and

 

The
Investors Identified on the Signature Pages Hereto

 

 

Table of Contents

 

	
  ARTICLE 1

  CERTAIN DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01

  	
  Certain Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  CORPORATE GOVERNANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01

  	
  Composition of the Board

  	
   

  
	
  SECTION 2.02

  	
  Vacancies

  	
   

  
	
  SECTION 2.03

  	
  Committees

  	
   

  
	
  SECTION 2.04

  	
  Certificate of Incorporation and By-Laws to
  Be Consistent

  	
   

  
	
  SECTION 2.05

  	
  Approval of the Investor Group Required for
  Certain Actions

  	
   

  
	
  SECTION 2.06

  	
  Approval of Independent Directors Required
  for Certain Actions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  VOTING OF SHARES

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01

  	
  Agreement with Respect to Voting of Common
  Stock

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  STANDSTILL, ACQUISITIONS

  OF SECURITIES AND OTHER MATTERS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01

  	
  Acquisitions of Common Stock

  	
   

  
	
  SECTION 4.02

  	
  No Participation in a Group or Solicitation
  of Proxies

  	
   

  
	
  SECTION 4.03

  	
  Rights to Purchase New Securities

  	
   

  
	
  SECTION 4.04

  	
  Takeover Proposals by the Investor Group

  	
   

  
	
  SECTION 4.05

  	
  Affiliate Transactions

  	
   

  
	
  SECTION 4.06

  	
  Termination of Standstill Provisions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  RESTRICTIONS ON TRANSFERABILITY OF SECURITIES

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01

  	
  General

  	
   

  
	
  SECTION 5.02

  	
  Improper Sale or Encumbrance

  	
   

  
	
  SECTION 5.03

  	
  Restrictive Legends

  	
   

  
	
  SECTION 5.04

  	
  Sales of Significant Interests

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6

  CORPORATE OPPORTUNITIES AND RELATED MATTERS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01

  	
  Similar Activities or Lines of Business

  	
   

  

 

i

 

	
  ARTICLE 7

  REPRESENTATIONS AND WARRANTIES

  
	
   

  	
   

  	
   

  
	
  SECTION 7.01

  	
  Representations of the Company

  	
   

  
	
  SECTION 7.02

  	
  Representations of the Members of the
  Investor Group

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  CONFIDENTIALITY

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01

  	
  Confidentiality

  	
   

  
	
  SECTION 8.02

  	
  Furnishing of Information

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9

  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01

  	
  Termination

  	
   

  
	
  SECTION 9.02

  	
  Notices

  	
   

  
	
  SECTION 9.03

  	
  No Third Party Beneficiaries

  	
   

  
	
  SECTION 9.04

  	
  Expenses

  	
   

  
	
  SECTION 9.05

  	
  Governing Law

  	
   

  
	
  SECTION 9.06

  	
  Waiver of Jury Trial

  	
   

  
	
  SECTION 9.07

  	
  Specific Performance

  	
   

  
	
  SECTION 9.08

  	
  Counterparts

  	
   

  
	
  SECTION 9.09

  	
  Entire Agreement

  	
   

  
	
  SECTION 9.10

  	
  Assignment

  	
   

  
	
  SECTION 9.11

  	
  Amendment

  	
   

  
	
  SECTION 9.12

  	
  Waiver

  	
   

  
	
  SECTION 9.13

  	
  Severability

  	
   

  
	
  SECTION 9.14

  	
  No Partnership

  	
   

  
	
  SECTION 9.15

  	
  Public Announcements

  	
   

  
	
  SECTION 9.16

  	
  Cumulative Remedies

  	
   

  
	
  SECTION 9.17

  	
  Interpretation; Headings

  	
   

  
	
  SECTION 9.18

  	
  Construction

  	
   

  
	
  SECTION 9.19

  	
  Director Duties

  	
   

  
	
  SECTION 9.20

  	
  Investors Rights

  	
   

  

 

ii

 

STOCKHOLDERS’ AGREEMENT

 

This Amended and Restated Stockholders’ Agreement
(this “Agreement”) is made as of November 30, 2005, among Pathmark
Stores, Inc., a Delaware corporation (the “Company”), and the
Investors identified on the signature pages hereto (collectively, the “Investors”).

 

RECITALS

 

WHEREAS, the Company and the Investors previously
entered into the Securities Purchase Agreement dated as of March 23, 2005 (the
“Securities Purchase Agreement”) and, in connection therewith, entered
into the Stockholders’ Agreement dated as of June 9, 2005 and amended and
restated on August 23, 2005 (the “Amended Stockholders’ Agreement”);

 

WHEREAS, the consummation of the transactions
contemplated by the Securities Purchase Agreement has resulted in the Investors
owning an aggregate of 20,000,000 investment units (“Units”), consisting
of an aggregate of 20,000,000 shares (the “Shares”) of common stock, par
value $0.01 per share, of the Company (the “Common Stock”), 10,060,000 Series A
warrants (the “Series A Investor Warrants”) to purchase additional
shares of Common Stock and 15,046,350 Series B warrants (the “Series B
Investor Warrants”; together with the Series A Investor Warrants, the “Investor
Warrants”) to purchase additional shares of Common Stock (the Units, Shares
and the Investor Warrants are collectively referred to herein as the “Purchased
Securities”); and

 

WHEREAS, the Company and the Investors wish to amend
and restate the Amended Stockholders’ Agreement to, among other things, change
the authorized composition of the Company’s Board of Directors (the “Board”)
in order to allow the reduction in the size of the Board.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and
the mutual agreements and covenants hereinafter set forth, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE 1

CERTAIN DEFINITIONS

 

SECTION 1.01                    Certain Definitions.  As used in this Agreement, the following
terms shall have the following respective meanings:

 

“affiliate” means, with respect to a specified person,
a person that directly, or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, such specified person.

 

“beneficial owner” (and the related terms “beneficially
owned”, “beneficial owner” and “beneficial ownership”) has
the meaning ascribed to such term in Rule 13d-3 under the Exchange
Act.

 

 

“By-Laws” means the Amended and Restated By-Laws
of the Company, effective August 23, 2004, as they may hereafter be amended
from time to time.

 

“Cash Equivalents” means (a) marketable
direct obligations issued or unconditionally guaranteed by the United States
government or issued by any agency thereof and backed by the full faith and
credit of the United States, in each case maturing within one year from the
date of acquisition thereof, (b) marketable direct obligations issued by
any state of the United States or any political subdivision of any such state
or any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having the highest rating
obtainable from either Standard & Poor’s Ratings Services or Moody’s
Investors Service, Inc., (c) commercial paper maturing not more than
one year from the date of issuance thereof and, at the time of acquisition,
having the highest rating obtainable from either Standard & Poor’s
Ratings Services or Moody’s Investors Service, Inc., (d) certificates
of deposit or bankers’ acceptances maturing within one year from the date of
acquisition thereof issued by any bank organized under the Laws of the United
States or any state thereof having at the date of acquisition thereof combined
capital and surplus of not less than $250,000,000, (e) demand deposit
accounts maintained with any bank organized under the Laws of the United States
or any state thereof so long as the amount maintained with any individual bank
is less than or equal to $100,000 and is insured by the Federal Deposit
Insurance Corporation and (f) investments in money market funds
substantially all of whose assets are invested in the types of assets described
in clauses (a) through (e) above.

 

“Certificate of Incorporation” means the Amended
and Restated Certificate of Incorporation of the Company, dated as of September 19,
2000, as it may hereafter be amended from time to time.

 

“Closing” means the closing on June 9, 2005 of
the issuance, purchase and sale of the Units pursuant to the Securities
Purchase Agreement.

 

“Commission” means the Securities and Exchange
Commission.

 

“Confidentiality Agreement” means the
Confidentiality Agreement, dated as of January 7, 2005, between an affiliate
of the Investors and the Company.

 

“control” (including the terms “controlled
by” and “under common control with”) means the possession, directly
or indirectly, or as trustee or executor, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, as trustee or executor, by contract, credit
agreement or otherwise, including, without limitation, the ownership, directly
or indirectly, of securities having the power to elect a majority of the board
of directors or similar body governing the affairs of such person.

 

“Discriminatory Transaction”  means any corporate action that would (a )
impose material limitations on the legal rights of any member of the Investor
Group as a holder of a class of voting stock, including any action that would
impose material restrictions that are based on the size of security holding, any
business in which a security holder is engaged or any other considerations
applicable to any member of the

 

2

 

Investor Group and not to holders of the same class of
voting stock generally, or (b) deny any material benefit to any member of
the Investor Group proportionately as a holder of any class of voting stock
that is made available to other holders of that same class of voting stock
generally.

 

“Encumbrance” (including correlative terms such
as “Encumber”) means any security interest, pledge, mortgage, lien,
charge, adverse claim of ownership or use, hypothecation, violation, condition
or restriction of any kind or other encumbrance of any kind.

 

“Exchange Act” means the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated
thereunder.

 

“Fair Market Value” means, for any applicable
measurement date, the closing price of the Common Stock on Nasdaq or, in the
event that trading hours on Nasdaq are extended past 4:00 p.m. New York
Time, the last sale price at 4:00 p.m. New York Time.

 

“Fully Diluted Basis” means, in respect of the
Common Stock or warrants to purchase shares of Common Stock, the method of
calculating the number of shares of Common Stock outstanding on an applicable
measurement date, pursuant to which the following shares shall be deemed to be
outstanding:  (i) all shares of
Common Stock outstanding on such measurement date and (ii) all shares of
Common Stock issuable pursuant to any stock options of the Company or warrants
outstanding at such time which are or may become exercisable (assuming all
other conditions to or limitations on such exercise were satisfied) for shares
of Common Stock at an exercise price at or below the then current Fair Market
Value of the Common Stock.

 

“Geographic Region” means the States of Maine,
New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New
Jersey, Pennsylvania, Delaware, Maryland and Virginia and the District of
Columbia.

 

“group” means a “group” within the meaning of Section 13(d)(3) of
the Exchange Act.

 

“Independence Standard” means the standard of
independence necessary for a director to qualify as an “Independent Director”
as such term (or any replacement term) is used under the rules and listing
standards of Nasdaq as such rules and listing standards may be amended
from time to time.

 

“Independent Director” means such person who (a) complies
with the Independence Standards and (b) was designated by the Board prior
to the Closing to serve as a Continuing Independent Director (as defined in the
Securities Purchase Agreement) of the Board in accordance with Section 6.08
of the Securities Purchase Agreement.  “Independent
Director” shall also include any successor to such Independent Director who is
nominated and elected pursuant to Section 2.01 hereof or appointed or
elected pursuant to Section 2.02 hereof by the then current Independent
Directors after the Closing to serve as an Independent Director of the Board.

 

“Investor Designated Director” means such
person who is so designated by the Investors prior to the Closing, or the Investor
Group after the Closing, from time to time in accordance with this Agreement,
to serve as a member of the Board and who is nominated and elected pursuant to Section 2.01
hereof or appointed or elected pursuant to Section 2.02 hereof to serve as a
member of the Board.

 

“Investor Group” means the Investors and any
Permitted Transferee of the Investors that has become a party to this Agreement
in accordance with the provisions of Section 5.01(c) hereof.

 

“Law” means any statute, law, ordinance,
regulation, rule, code, executive order, injunction, judgment, decree or other
order issued or promulgated by any national, supranational, state, federal,
provincial, local or municipal government or any administrative or regulatory
body with authority therefrom with jurisdiction over the Company or any member
of the Investor Group, as the case may be (including any requirements under the
Exchange Act).

 

3

 

“Management Agreement” means the Management
Agreement dated as of March 23, 2005, between the Company and an affiliate
of the Investors, as it may hereafter be amended from time to time.

 

“Marketable Securities” means securities that
are (a) (i) securities of or other interests in any person that are
traded on a United States national securities exchange or quoted on the Nasdaq Stock
Market or (ii) debt securities on market terms of an issuer that has debt
or equity securities that are so traded or so reported on and in which
Marketable Securities a nationally recognized securities firm has agreed to
make a market, and (b) not subject to restrictions on transfer as a result
of any applicable contractual provisions or the provisions of the Securities
Act or, if subject to such restrictions under the Securities Act, are also
subject to registration rights reasonably acceptable to the person receiving
such Marketable Securities as consideration in a transaction pursuant to Section 4.03.

 

“Nasdaq” means The Nasdaq Stock Market, Inc.

 

“Nasdaq Regulation” means the rules and
regulations of Nasdaq or any other applicable securities exchange on which the
Common Stock is then listed.

 

“New Securities” means any capital stock of the
Company, whether now authorized or not, and rights, options or warrants to
purchase such capital stock, and securities of any type whatsoever (including,
without limitation, convertible debt securities) that are, or may become,
convertible into or exchangeable or exercisable for capital stock of the
Company; provided that the term “New Securities”
does not include (i) capital stock or rights, options or warrants to
acquire capital stock of the Company issued to the employees, consultants,
officers or directors of the Company, or which have been reserved for issuance,
pursuant to employee stock option, stock purchase, stock bonus plan, or other
similar compensation plan or arrangement approved by the Board, (ii) securities
of the Company issued to all then-existing stockholders in connection with any
stock split, stock dividend, reclassification or recapitalization of the
Company, (iii) securities of the Company issued upon the exercise of
warrants that are outstanding as of the date of this Agreement, (iv) securities
of the Company issued in connection with a transaction of the type described in
Rule 145 under the Securities Act, and (v) securities of the Company
issued pursuant to a bona fide underwritten public offering.

 

“Permitted Transferee” means, with respect to a
specified person, any affiliate of such person, provided
that such person is not a Restricted Person.

 

“person” means any individual, corporation, partnership,
limited partnership, limited liability company, syndicate, person (including,
without limitation, a “person” or “group” within the meaning of Section 13(d)(3) of
the Exchange Act), trust, association, or entity or government, political
subdivision, agency or instrumentality of government.

 

The terms “register,” “registered” and “registration”
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement by the Commission.

 

4

 

“Related Agreements” means the Securities
Purchase Agreement and the Management Agreement, together with that certain Registration
Rights Agreement and that certain Warrant Agreement among the parties hereto and
dated as of the date hereof.

 

“Representative” means, as to any person, such person’s
affiliates and its and their directors, officers, employees, agents, advisors
(including, without limitation, financial advisors, counsel and accountants)
and such person’s financing sources.

 

“Restricted Person” means any person that
derives at least 20% of its consolidated revenues from the operation by it of
retail supermarkets which are located in the Geographic Region.

 

“Rule 144” means Rule 144 (or any
successor provisions) under the Securities Act.

 

“Sale” means, in respect of any Common Stock,
Investor Warrants, or any other voting capital stock, any sale, assignment,
transfer, distribution or other disposition thereof or of a participation
therein, or other conveyance of legal or beneficial interest therein, or any
short position in a security or any other action or position otherwise reducing
risk related to ownership through hedging or other derivative instruments,
whether voluntarily or by operation of Law.

 

“Securities Act” means the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.

 

“Sell” and “Sold” means to complete a
Sale.

 

“subsidiary” or “subsidiaries” of any person
means any corporation, partnership, limited liability company, joint venture,
association or other legal entity of which such person (either alone or
together with any other subsidiary) owns, directly or indirectly, more than 50%
of the stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.

 

A “Substantial Portion” of any person means, as
of any date of determination, more than 10% of the total consolidated assets of
such person and its subsidiaries as of the end of its most recent fiscal
quarter ending prior to the date of such determination.

 

Each of the following terms is defined in the Section set
forth opposite such term:

 

	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  Board

  	
   

  	
  Recitals

  
	
  Change of Control
  Proposal

  	
   

  	
  4.04

  
	
  Common Stock

  	
   

  	
  Recitals

  

 

5

 

	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  Company

  	
   

  	
  Preamble

  
	
  Confidential Information

  	
   

  	
  8.01(b)

  
	
  Covered Securities

  	
   

  	
  5.01(a)

  
	
  Credit Facility

  	
   

  	
  2.05(f)

  
	
  Initial Restricted
  Period

  	
   

  	
  5.01(a)

  
	
  Investor Warrants

  	
   

  	
  Recitals

  
	
  Investors

  	
   

  	
  Preamble

  
	
  Notice of Issuance

  	
   

  	
  4.03(b)

  
	
  Original Stockholders’
  Agreement

  	
   

  	
  Recitals

  
	
  Purchased Securities

  	
   

  	
  Recitals

  
	
  Securities Purchase
  Agreement

  	
   

  	
  Recitals

  
	
  Series A Investor
  Warrants

  	
   

  	
  Recitals

  
	
  Series B Investor
  Warrants

  	
   

  	
  Recitals

  
	
  Shares

  	
   

  	
  Recitals

  
	
  Special Committee

  	
   

  	
  4.04(b)

  
	
  Subsidiary Board

  	
   

  	
  2.01(f)

  
	
  Units

  	
   

  	
  Recitals

  
	
   

  	
   

  	
   

  

 

ARTICLE 2

CORPORATE GOVERNANCE

 

SECTION 2.01                                Composition of the
Board.  (a)  The By-Laws shall
be amended to provide that the authorized number of directors comprising the
Board shall be not less than nine nor more than ten, unless changed in
accordance with the provisions of this Agreement and the By-Laws.  The Board shall initially be composed of (i) four
Investor Designated Directors, (ii) five Independent Directors and (iii) one
director, who shall be Chief Executive Officer of the Company.  In the event that, immediately after the
Closing, there are less than six Independent Directors, the vacancies shall be
filled in the manner set forth in Section 2.02, except that the individual(s)
selected shall be subject to the consent of the Investor Group, which consent shall
not be unreasonably withheld.  The Investor
Designated Directors and the Independent Directors shall serve in a manner
consistent with the terms of the Certificate of Incorporation and By-Laws.

 

(b) From and after the Closing, the
parties hereto shall use all reasonable efforts under applicable Law and Nasdaq
Regulations to cause there to be (i) so long as the Investor
Group beneficially owns 30% or more of the Common Stock, a number of Investor
Designated Directors that is one less than the authorized number of Independent
Directors; (ii) so long as the Investor Group beneficially
owns less than 30% but 20% or more of the Common Stock, a number of Investor
Designated Directors that is two less than the authorized number of Independent
Directors;

 

6

 

and
(iii) so long as the Investor Group beneficially
owns less than 20% but 10% or more of the Common Stock, a number of Investor
Designated Directors that is three less than the authorized number of
Independent Directors.  In the event that,
at any time, the number of Investor Designated Directors then in office exceeds
the number set forth in the preceding sentence, at the request of the majority
of the Independent Directors then in office, an appropriate number of Investor
Designated Directors shall resign from office. 
In the event the Investor Group beneficially
owns less than 10% of the Common Stock, the Investor
Group shall have no right to designate any Investor Designated Director, and,
at the request of a majority of the Independent Directors then in office, shall
cause any Investor Designated Directors then in office to resign immediately
upon such event.  For purposes of the
calculations of the percentages set forth in this Section 2.01(b), any
shares of voting equity securities issued after the date of this Agreement (other
than shares of Common Stock issued upon exercise of the Investor Warrants) shall
not be included in the computations of beneficial ownership for purposes of
this Section 2.01(b).

 

(c) At each stockholders’ meeting of the
Company at which directors will be elected, the Investor
Group shall be entitled, any time prior to the mailing of the applicable proxy
statement of the Company, to propose and nominate that number of Investor
Designated Directors as set forth in Section 2.01(b) as members of
the Board.  The Independent Directors to
be nominated and elected at any such stockholders’ meeting shall be nominated
by a majority of the Independent Directors then in office.  The Company and the Board will include the persons
so nominated by the members of the Investor Group and the
Independent Directors in each slate of directors proposed, recommended or
nominated for election by the Company or the Board and will recommend and use
all reasonable efforts to cause the election of such persons nominated.  The Company agrees to use all reasonable
efforts to solicit proxies for such nominees for director from all holders of
voting stock entitled to vote thereon. 
Such nominees shall serve in a manner consistent with the terms of the
Certificate of Incorporation and By-Laws.

 

(d) To the extent required by Nasdaq
Regulations (and without regard to the fact that one or more Investor
Designated Directors may also satisfy the Independence Standard), those members
of the Board that are neither Investor Designated Directors nor the Chief
Executive Officer of the Company shall at all times satisfy the Independence
Standard.

 

(e) The Board shall take all necessary
action, including amending the By-Laws, to provide that at every meeting of the
Board, five directors shall constitute a quorum.

 

(f) At any time after the Closing, upon
the request of the Investor Group, the
Company and the Board shall take all actions necessary so that the composition
of the board of directors, general partner, managing member (or controlling
committee thereof) or any other board or committee serving a similar function
with respect to each of the Company’s subsidiaries (each a “Subsidiary Board”)
and each committee of each Subsidiary Board shall be proportionate to the
composition requirements of the Board and of each committee thereof such that members
of the Investor Group shall have the same proportional
representation (rounded to the nearest whole number of directors, but in no
event less than one) on each Subsidiary Board and committee thereof as the members
of

 

7

 

the
Investor Group have the right to designate to the
Board and committees thereof.  The quorum
and action requirements of each Subsidiary Board and of each committee of each
Subsidiary Board shall, to the extent requested by the Investor
Group, be the same as the quorum and action requirements of the Board and each
committee thereof.

 

SECTION 2.02                    Vacancies.  In the event of any vacancy for any reason in
any Board seat reserved for Investor Designated Directors, the Investor Group
shall have the sole right to nominate another individual to serve as an
Investor Designated Director.  In the
event of any vacancy for any reason in any Board seat reserved for Independent
Directors, a majority vote of the Independent Directors then in office shall
have the sole right to nominate another individual to serve as an Independent
Director, so long as he or she complies with the Independence Standard, and
such new director, when appointed or elected, shall be an Independent Director
for purposes of this Agreement.  In the
event of any vacancy for any reason in any Board seat reserved for the Chief
Executive Officer of the Company, subject to Section 2.06 of this Agreement,
a vote of a majority of the directors then in office, plus one director, shall
have the sole right but shall not be obligated to nominate any replacement
Chief Executive Officer of the Company as a director of the Company.  In each case, to the extent permitted by the
Certificate of Incorporation and By-Laws, the Board shall elect each such person
so nominated as soon as possible after the occurrence of the nomination to fill
such vacancy.  No Investor Designated
Director shall be removed as a director of the Company without cause, without
the approval of a majority of the other Investor Designated Directors then in
office.  No Independent Director shall be
removed as a director of the Company without cause, without the approval of a
majority of the other Independent Directors then in office.  No Chief Executive Officer Director shall be
removed as a director of the Company without cause, without the approval of a
majority of the other directors then in office, plus one director.

 

SECTION 2.03                    Committees.  (a)  The Board shall have such
committees as may be required by Law or Nasdaq Regulation, and such other
committees as the Board may from time to time establish.  Each such committee and the Board shall take
all actions necessary so that each such committee shall be comprised of not
less than three directors.  To the extent
permitted by Nasdaq Regulation, and subject to Section 2.03(b), a number
of Investor Designated Directors equal to one less than a majority of all
directors serving on each committee shall be appointed to such committee.

 

(b) To the extent that no Investor
Designated Director is permitted under Nasdaq Regulations to serve on a
particular committee of the Board, the Company and the Board shall take all
necessary action to permit at least one Investor Designated Director to attend
each meeting of such committee as a non-voting observer, in each case to the
extent permitted by such Nasdaq Regulation, and such observer shall be provided
with such notice of the meeting and information regarding the meeting as is
provided to members of such committee.

 

SECTION 2.04                    Certificate of Incorporation and
By-Laws to Be Consistent.  The Board
shall take or cause to be taken all lawful action necessary or appropriate to
ensure that none of the Certificate of Incorporation or the By-Laws or any of
the corresponding constituent documents of the Company’s subsidiaries contain
any provisions inconsistent with this Agreement or which would in any way
nullify or impair the terms of this Agreement or the rights of the Company or
of the Investor Group hereunder.

 

SECTION 2.05                    Approval of the Investor Group Required
for Certain Actions.  In addition to
any approval by the Board required by the Certificate of Incorporation, the
By-Laws, applicable Law or Nasdaq Regulation, the prior written approval of the

 

8

 

Investor Group shall be
required in order for the Board to validly approve and authorize any of the
following:

 

(a) the entry by the Company or any of
its subsidiaries into any merger or consolidation, or the acquisition (whether
by merger, consolidation, purchase of assets or stock or otherwise) by the
Company or any of its subsidiaries of any business or assets, if the value of
the consideration to be paid or received by the Company and/or its stockholders
in any such individual transaction, or in such transaction when added to the
aggregate value of the consideration paid or received by the Company and/or its
stockholders in all other such transactions approved by the Board during the
preceding 12 months, exceeds a Substantial Portion of the Company;

 

(b) the authorization or issuance of any
equity securities or any securities convertible into or exercisable for equity
securities of the Company or any subsidiary of the Company (other than options
or warrants outstanding on the date of this Agreement or pursuant to employee
or director stock option or incentive compensation or similar plans approved by
the Board or a duly authorized committee of the Board after the date of this
Agreement, including by at least one of the Investor Designated Directors on
such Board or committee);

 

(c) any sale, asset exchange, lease,
exchange, mortgage, pledge, transfer or other disposition by merger or
otherwise by the Company or any of its subsidiaries (in one transaction or a
series of related transactions) of any securities or assets of the Company or
any subsidiary thereof which constitutes a Substantial Portion of the Company;

 

(d) any amendment to the Certificate of
Incorporation or By-Laws, or the adoption of or amendment to the certificate of
incorporation or by-laws of any subsidiary of the Company;

 

(e) any change in the authorized number
of directors of the Board of the Company or the establishment or abolition of
any Board Committee;

 

(f) any incurrence or repayment (prior
to scheduled maturity) of indebtedness (including capitalized leases) in an
aggregate amount greater than $10,000,000, except for borrowings under the
Company’s existing amended and restated credit facility dated as of October 1,
2004 (the “Credit Facility”) as such Credit Facility may be amended,
restated, refinanced or replaced, in whole or in part, from time to time with
the prior written approval of the Investor
Group;

 

(g) any action to repurchase, retire,
redeem or otherwise acquire any equity securities of the Company or any subsidiary
of the Company, pursuant to self-tender offers, stock repurchase programs, open
market transactions, privately-negotiated purchases or otherwise;

 

(h) the entry by the Company or any of
its subsidiaries into any Discriminatory Transaction;

 

9

 

(i) take any action to declare, set
aside, make or pay any dividend or other distribution, payable in cash, stock,
property or otherwise, with respect to any of its capital stock or enter into
any agreement with respect to the voting of its capital stock;

 

(j) any appointment or termination of any person
as the Chief Executive Officer, President or Chief Financial Officer of the Company;
or

 

(k) any action to adopt, propose to adopt, or
maintain any shareholders’ rights plan, “poison pill” or other similar plan or
agreement (or any other plan or arrangement that could reasonably be expected
to disadvantage any stockholder on the basis of the size or voting power of its
shareholding).

 

The Company shall not, and shall not permit any of its
subsidiaries to, take any of the actions specified above without the Investor
Group approvals required above. Notwithstanding the foregoing, no approval of
the Investor Group shall be required for the Board to approve or authorize (a) the
payment of any dividend or the making of any other distributions by any
subsidiary of the Company to the Company or another subsidiary of the Company, (b) the
payment by any subsidiary of the Company of any indebtedness owed to the
Company, (c) the making of any loans by, or advances from, any subsidiary
of the Company to the Company, or (d) the transfer by any subsidiary of
the Company of any of its property or assets to the Company.

 

SECTION 2.06                    Approval of Independent
Directors Required for Certain Actions. 
In addition to any approval by the Board required by the Certificate of
Incorporation, the By-Laws, applicable Law or Nasdaq Regulations, the vote of
at least one of the Independent Directors then in office shall be required in
order for the Board to approve and authorize any action; provided,
however,  that, at any time
when the number of Independent Directors then in office on the Board is five or
more, the vote of at least two of the Independent Directors then in office
shall be required in order for the Board to approve and authorize any of the
following actions:

 

(a) any amendment to the certificate of
incorporation or by-laws, or the adoption of or amendment to the certificate of
incorporation or by-laws of any subsidiary of the Company (other than to file any
amendment that would increase the amount of the Company’s authorized Common Stock or one or more certificates of designation to establish
one or more series of preferred stock);

 

(b) any change in the authorized number
of directors of the Board or the establishment or abolition of any Board committee;

 

(c) the entry by the Company or any of
its subsidiaries into any merger or consolidation, or the acquisition (whether
by merger, consolidation, purchase of assets or stock or otherwise) by the
Company or any of its subsidiaries of any business or assets, if the value of
the consideration to be paid or received by the Company and/or its subsidiaries
and/or the Company’s stockholders in any such transaction exceeds $100 million;

 

10

 

(d) take any action to declare, set
aside, make or pay any dividend or other distribution, payable in cash, stock,
property or otherwise, with respect to any of its capital stock or enter into
any agreement with respect to the voting of it’s capital stock;

 

(e) any incurrence of indebtedness
(including capitalized leases) which would, when combined with all other
indebtedness of the Company and its subsidiaries then outstanding, as reflected
on the most recent available consolidated balance sheet of the Company plus
indebtedness incurred after the date of such balance sheet, exceed $750 million
in the aggregate; and

 

(f) any action to repurchase, retire,
redeem or otherwise acquire any equity securities of the Company or any subsidiary
of the Company, pursuant to self- tender offers, stock repurchase programs,
open market transactions, privately negotiated purchases or otherwise to the
extent that the aggregate payments made by the Company therefor after the date
of this Agreement exceed $100 million.

 

Notwithstanding the foregoing, no approval of any
Independent Directors shall be required for the Board to approve or authorize (a) the
payment of any dividend or the making of any other distributions by any
subsidiary of the Company to the Company or another subsidiary of the Company, (b) the
payment by any subsidiary of the Company of any indebtedness owed to the
Company, (c) the making of any loans by, or advances from, any subsidiary
of the Company to the Company, or (d) the transfer by any subsidiary of
the Company of any of its property or assets to the Company.

 

ARTICLE 3

VOTING OF SHARES

 

SECTION 3.01                                Agreement with
Respect to Voting of Common Stock.  (a) 
In any election of directors at a meeting of the stockholders of the Company,
the Investor Group shall cause all shares of Common Stock held by them to be
represented at such meeting either in person or by proxy and shall vote their
shares of voting stock for all nominees nominated by the Independent Directors,
in proportion to the votes cast by the holders of Common Stock (other than the Investor
Group); provided, however, that, in their sole
and absolute discretion, the Investor Group shall be permitted to cast a
greater number of votes held by them in excess of such proportion in favor of the
nominees nominated by the Independent Directors.

 

(b) With respect to all matters
submitted to a vote of holders of Common Stock (except as provided in
Sections 3.01(a)), the Investor Group may vote,
or abstain from voting, or fail to vote, some or all shares of Common Stock
held by them, in their sole and absolute discretion.

 

(c) The Investor
Group shall not execute any written consent pursuant to Section 228 of the
Delaware General Corporation Law as to any shares beneficially owned by them,
except for any written consent approved by a majority of the Independent
Directors.

 

11

 

ARTICLE 4

STANDSTILL, ACQUISITIONS

OF SECURITIES AND OTHER MATTERS

 

SECTION 4.01                    Acquisitions of Common Stock.  After the Closing and until the fifth anniversary
thereof, without the prior approval of a majority of the Independent Directors
then in office, the Investor Group shall not purchase or otherwise acquire,
directly or indirectly, beneficial ownership of any shares of Common Stock such
that the aggregate beneficial ownership of the Investor Group, after giving
effect to any such acquisition, is in excess of 49.9% (or such greater percentage
as the Investor Group may beneficially own immediately following the exercise,
in whole or in part, of the Series B Investor Warrants) of the Common
Stock of the Company, except (i) by way of stock splits, stock dividends, reclassifications,
recapitalizations, or other distributions by the Company to holders of the Common
Stock, (ii) pursuant to the exercise of the Investor Warrants in
accordance with the terms thereof, (iii) by acquisition of any New
Securities pursuant to Section 4.03, or (iv) pursuant to Section 4.04.

 

SECTION 4.02                    No Participation in a Group or
Solicitation of Proxies.  Except for actions
permitted by, or taken in compliance with, Sections 4.01, 4.03 and 4.04
and its exercise of rights pursuant to the provisions of this Agreement, the Investor
Group agrees that, prior to the fifth anniversary of the Closing, it will not,
without the prior approval of a majority of the Independent Directors then in
office, directly or indirectly:

 

(a) acquire, offer to acquire, or agree
to acquire, directly or indirectly, by purchase or otherwise, any securities or
direct or indirect rights to acquire any securities of the Company or any subsidiary
thereof, or of any successor to or person in control of the Company, or any assets
of the Company or any division thereof or of any such successor or Controlling
Person;

 

(b) make or in any way participate,
directly or indirectly, in any “solicitation” of “proxies” (as such terms are
used in the rules of the Commission) to vote any voting securities of the
Company or any subsidiary thereof; provided, however, that
the prohibition in this Section 4.02(b) shall not apply to solicitations
exempted from the proxy solicitation rules by Rule 14a-2 under
the Exchange Act or any successor provision;

 

(c) submit to the Board a written proposal
for or offer of (with or without conditions), any merger, recapitalization,
reorganization, business combination or other extraordinary transaction
involving the Company or any subsidiary thereof or any of their securities or
assets, or make any public announcement with respect to such a proposal or
offer;

 

(d) enter into any discussions,
negotiations, arrangements or understandings with any third party (other than
any person that would be a Permitted Transferee) with respect to any of the
foregoing, or otherwise form, join or in any way engage in discussions relating
to the formation of, or participate in, a group with any third party (other
than any person that would be a Permitted Transferee), in connection with any
of the foregoing; or

 

12

 

(e) request the Company or any of its
Representatives, directly or indirectly, to amend or waive any provision of
this paragraph (including this sentence);

 

provided, however, that none of
the foregoing (i) shall prevent, restrict, Encumber or in any way limit
the exercise of the fiduciary rights and obligations of any Investor Designated
Director as a director or prevent, restrict, Encumber or in any way limit the
ability of any Investor Designated Director to vote on matters, influence officers,
employees, agents, management or the other directors of the Company, take any
action or make any statement at any meeting of the Board or any committee
thereof, or otherwise to act in their capacity as directors; (ii) shall
prevent any member of the Investor Group from Selling any Covered Securities
held by it or voting its Common Stock; (iii) shall apply to or restrict
any discussions or other communications between or among directors, members, officers,
employees or agents of any member of the Investor Group or any affiliate
thereof; (iv) shall prohibit any member of the Investor Group from
soliciting, offering, seeking to effect or negotiating with any person with
respect to transfers of Covered Securities otherwise permitted by Section 5.01
or (v) restrict any disclosure or statements required to be made by any Investor
Designated Director or the Investor Group under applicable Law or Nasdaq
Regulation.

 

SECTION 4.03                    Rights to Purchase New
Securities.  (a)  In the event
that the Company proposes to issue New Securities, each member of the Investor
Group shall have the right to purchase, in lieu of the person to whom the
Company proposed to issue such New Securities, in accordance with paragraph (b) below,
a number of New Securities equal to the product of (i) the total number or
amount of New Securities which the Company proposes to issue at such time and (ii) a
fraction, the numerator of which shall be the total number of shares of Common
Stock which such member owns at such time on a Fully Diluted Basis, and the
denominator of which shall be the total number of shares of Common Stock then
outstanding on a Fully Diluted Basis.

 

(b) In the event that the Company
proposes to undertake an issuance of New Securities, it shall give written
notice (a “Notice of Issuance”) of its intention to each of the members
of the Investor Group, describing the material terms of
the New Securities, including the price thereof, and the material terms upon
which the Company proposes to issue such New Securities.  The members of the Investor
Group shall have 30 days from the date of receipt of the Notice of Issuance to
agree to purchase all or a portion of such member’s pro rata share of such New
Securities (as determined pursuant to paragraph (a) above) for the same
consideration, if such proposed consideration shall consist solely of cash, or,
if such consideration consists of property or assets other than cash, for cash,
Cash Equivalents or Marketable Securities having an equivalent value (as
reasonably determined by a majority of the Independent Directors) to the
consideration payable by the person to whom the Company proposes to issue such
New Securities at the time of payment, and otherwise upon the terms specified
in the Notice of Issuance by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased by such member of the Investor
Group and the allocation of such New Securities among the members.  The rights given by the Company under this Section 4.03(b) shall
terminate if unexercised within 30 days after receipt of the Notice of Issuance
referred to in this paragraph (b).

 

13

 

(c) The Company and each member of the Investor
Group, if it elects to purchase the New Securities to be sold by the Company,
shall select a date not later than 20 days (or longer if required by Law) after
the expiration of the 30-day notice period referenced in Section 4.03(b) for
the closing of the purchase and sale of the New Securities.  In the event any purchase by the members of
the Investor Group is not consummated, other than as a
result of the fault of the Company, within the provided time period, the
Company may issue the New Securities subject to purchase by such member free
and clear from the restrictions under this Section 4.03.  Any New Securities not elected to be
purchased by such members may be sold by the Company to the person to which the
Company intended to sell such New Securities on terms and conditions no less
favorable to the Company than those offered to such members.

 

SECTION 4.04                    Takeover Proposals by the Investor
Group.  No member of the Investor
Group shall, without the prior approval of a majority of the Independent
Directors then in office, submit a proposal to acquire a majority of the Common
Stock owned by persons other than the Investor Group (a “Change of Control
Proposal”) to any person unless either of the following conditions are
satisfied:

 

(a) The Change of Control Proposal shall
contemplate either (i) a tender offer for all outstanding shares of Common
Stock not owned by the Investor Group and must
be conditioned upon a majority of such Common Stock not owned by the Investor
Group being tendered, or (ii) a merger, combination, asset sale or other
similar transaction which conditioned upon the holders of a majority of the
Common Stock not owned by the Investor Group present,
in person or by proxy, at a meeting of stockholders, voting in favor of such transaction.  In the case of either (i) or (ii), the same
consideration must be offered to all of the Company’s stockholders (other than
the Investor Group); or

 

(b) The Change of Control Proposal shall
contemplate that a special committee of the Board shall be created consisting only
of the Independent Directors (the “Special Committee”), the Special
Committee shall retain a nationally recognized investment banking firm to
advise the Special Committee with respect to the fairness of the Change of
Control Proposal to the stockholders of the Company (other than the Investor
Group), and the Change of Control Proposal shall be approved by the Special
Committee, which shall not give its approval unless it has received an opinion
from such investment banking firm that the Change of Control Proposal is fair,
from a financial point of view, to the stockholders of the Company other than any
member of the Investor Group.

 

SECTION 4.05                    Affiliate Transactions.  No member of the Investor Group shall engage
in any transaction with the Company without the prior approval of a majority of
the Independent Directors then in office;  provided, however, that the
foregoing provision shall not apply to any transactions contemplated by this
Agreement or any of the Related Agreements or to any transactions involving the
purchase or sale of goods or services in the ordinary course of business which
are consistent with guidelines adopted by the Board from time to time and
approved by a majority of the Independent Directors then in office.

 

14

 

SECTION 4.06                    Termination of Standstill
Provisions.  The provisions of
Sections 4.01, 4.02 and 4.04 of this Agreement shall terminate without any
further action by any party upon the earlier of:

 

(i)                                     180 days after such time as the Investor Group beneficially owns less than 10%
of the outstanding Common Stock of the Company;

 

(ii)                                  such date as the Board determines to
solicit, or publicly announces, whether by press release, filing with the
Commission or otherwise, its intention to solicit, an Acquisition Proposal (as
defined in the Securities Purchase Agreement);

 

(iii)                               such date as the Board publicly
approves, accepts, authorizes or recommends to the Company’s stockholders their
approval of, or their conveyance of any Common Stock or other securities
pursuant to, any Acquisition Proposal;

 

(iv)                              such date that the Company or any
affiliate thereof has entered into a letter of intent, agreement in principle,
definitive agreement, or any other agreement with any party, with respect to an
Acquisition Proposal for the Company;

 

(v)                                 such date that any person or group,
other than the Investor
Group or any of its affiliates, shall have acquired or announced its intention
to acquire, including by commencement of a tender offer or exchange offer) beneficial
ownership of 20% of the Company’s outstanding Common Stock;

 

(vi)                              such date as the Company, the Board
or any committee of the Board takes any action, or fails to take appropriate
action, which action, or failure to take action, results in a breach of any
provision of Section 2.05; and

 

(vii)                           such date as the Company breaches
this Agreement in that the number of Investor Designated Directors on the
Board, any committee thereof or on any subsidiary Board or any committee
thereof, is less than the number of directors to which the Investor Group is entitled at such time
pursuant to Article 2, subject to notice from the members of the Investor Group and the expiration of a 30-day
period in which to cure such action or failure to act (if such action or
failure to act is reasonably capable of being cured).

 

ARTICLE 5

RESTRICTIONS ON TRANSFERABILITY OF SECURITIES

 

SECTION 5.01                    General.  (a)  Each member of the Investor Group
understands and agrees that the shares of Common Stock acquired pursuant to the
Securities Purchase Agreement have not been registered and are restricted
securities under the Securities Act. 
During the period ending six months after the Closing (the “Initial
Restricted Period”), no member of the Investor Group shall make or solicit
any Sale of, or create, incur or assume any Encumbrance with respect to, the
Units, the Investor Warrants or any shares of Common Stock now owned or
hereafter acquired by it (collectively, the “Covered Securities”); provided, however, that members of the

 

15

 

Investor
Group may, during the Initial Restricted Period, make or solicit a Sale to a
Permitted Transferee or as described in clauses (v), (vii) and (viii) below.

 

(b) After the Initial Restricted Period
(other than with respect to clauses (v), (vii) and (viii) below which
may occur at any time), each member of the Investor Group agrees that neither
it nor any of its affiliates will make any Sale of, or create, incur or assume
any Encumbrance with respect to, any of the Covered Securities except for a
Sale:

 

(i)                                     in compliance with Rule 144
under the Securities Act;

 

(ii)                                  (x) 
pursuant to a bona fide public offering registered under the Securities
Act, or

 

(y) in one or more block trades or privately
negotiated transactions exempt from the registration requirements of the
Securities Act;

 

provided, however, that in each case no Sale under
this clause (ii) is made, to the actual knowledge of such member of the Investor
Group (without inquiry in the case of a Sale pursuant to the preceding clause
(x)) to any person or group that, after giving effect to such Sale, would have
beneficial ownership of Common Stock representing more than 5% of the voting
power of the Company’s outstanding capital stock (except that, in the case of a
transfer to a person specified in Rule 13d-1(b)(1)(ii) promulgated
under the Exchange Act that would be eligible based on such person’s status and
passive intent with respect to the ownership, holding and voting of such
Covered Securities to report such person’s ownership of Covered Securities on Schedule 13G
(assuming such person owned a sufficient number of such Covered Securities to
require such filing), no Sale under this clause (ii) is made to any such
person that, after giving effect to such Sale, would have beneficial ownership
of Covered Securities representing 10% or more of the voting power of the
Company’s outstanding capital stock); and, provided,
further, that in the case of any Sale in an underwritten public
offering pursuant to clause (x) above, the members of the Investor Group shall
be deemed to have fulfilled their obligations hereunder if they have instructed
the underwriter(s) of such offering to use their reasonable efforts to prevent
any purchase of Covered Securities in such offering by any person or group that
would, upon such purchase, exceed the foregoing thresholds, as applicable;

 

(iii)                               to Permitted Transferees in
accordance with Section 5.01(c) hereof;

 

(iv)                              of 15% or less of the Common Stock
on a Fully Diluted Basis to any person, other than any person which is a
Restricted Person in a Sale in which the certificates representing such Covered
Securities issued to the transferee (x) bear the legend provided in Section 5.03(a),
if required by such Section and (y) the transferee (if

 

16

 

not already a party hereto) has executed and
delivered to the Company, as a condition precedent to such Sale, an instrument
or instruments, reasonably acceptable to the Company, confirming that such
transferee agrees to be bound by the obligations of such member of the Investor
Group under this Agreement.

 

(v)                                 transfers (i) pursuant to any
business combination, tender or exchange offer to acquire Common Stock or other
extraordinary transaction that the Board has recommended, or (ii) pursuant
to a tender or exchange offer that the Board has not recommended but only after
such time as a majority of the shares of Common Stock outstanding (other than
those owned by the Investor Group) have been tendered into such offer and after
all material conditions with respect to such offer (including any financing
condition, any minimum condition with respect to number of shares tendered and
any condition with respect to removal of any anti-takeover protections) have
been satisfied or irrevocably waived by the offeror; provided,
however, that no Investor Group securities shall be tendered into
any tender offer or exchange offer not recommended by the Board prior to the
time all such material conditions (other than any such condition that can be
satisfied only at the closing of such offer) have been satisfied or irrevocably
waived by the offeror;

 

(vi)                              transfers to the Company or a
subsidiary of the Company;

 

(vii)                           swaps, exchanges, hedges or other
similar agreements or arrangements designed to protect against fluctuations in
the value of the equity securities of the Company and not entered into with the
purpose of circumventing the provisions of this Section 5.01;

 

(viii)                        pledges of Covered Securities in
connection with any margin loan or other extensions of credit from a
broker-dealer, bank or other financial institution and not entered into with
the purpose of circumventing the provisions of this Section 5.01; or

 

(ix)                                in accordance with and subject to Section 5.04.

 

(c) No Sale of Covered Securities to a
Permitted Transferee shall be effective until such time as such Permitted
Transferee has executed and delivered to the Company, as a condition precedent
to such Sale, an instrument or instruments, reasonably acceptable to the
Company, confirming that such Permitted Transferee agrees to be bound by all
obligations of the Investor Group hereunder. 
The Investor Group shall not transfer control of a Permitted Transferee
to any person that is not also a Permitted Transferee if a direct sale of
Covered Securities to such person would violate the provisions of Section 5.01
of this Agreement.

 

SECTION 5.02                    Improper Sale or Encumbrance.  Any attempt not in compliance with this
Agreement to make any Sale of, or create, incur or assume any Encumbrance with
respect to, any Covered Securities shall be null and void and of no force and
effect, the purported transferee shall have no rights or privileges in or with
respect to the Company, and the Company shall not give any effect in the
Company’s stock records to such attempted Sale or Encumbrance.

 

17

 

SECTION 5.03                    Restrictive Legends.  (a)  Each certificate evidencing the
Covered Securities shall be stamped or otherwise imprinted with legends in
substantially the following form (in addition to any legends required by
agreement or by applicable state securities Laws):

 

(i)            THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF.  SUCH SECURITIES
GENERALLY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

 

(ii)           THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO CERTAIN
RESTRICTIONS UNDER THE TERMS OF THE STOCKHOLDERS’ AGREEMENT DATED AS OF
JUNE 9, 2005, AS AMENDED FROM TIME TO TIME, BETWEEN THE ISSUER AND THE
HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF THAT AGREEMENT.

 

(b) Each certificate evidencing any
shares of Common Stock or other securities of the Company acquired by any
member of the Yellowstone Group other than the Covered Securities shall be
stamped or otherwise imprinted with legends in substantially the following form
(in addition to any legends required by agreement or by applicable state
securities Laws):

 

THE SECURITIES EVIDENCED HEREBY ARE SUBJECT
TO CERTAIN RESTRICTIONS UNDER THE TERMS OF THE STOCKHOLDERS’ AGREEMENT DATED AS
OF JUNE 9, 2005, AS AMENDED FROM TIME TO TIME, BETWEEN THE ISSUER AND THE
HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF THAT AGREEMENT.

 

(c) Each member of the Investor Group
consents to the Company making a notation on its records and giving
instructions to any transfer agent of its capital stock in order to implement
the restrictions on transfer established in this Agreement.

 

(d) The Company shall, at the request of
a holder of Purchased Securities, remove from each certificate evidencing
Purchased Securities transferred in compliance with the terms of Section 5.01
and with respect to which no rights or obligations under this Agreement shall
transfer, the legend described in Sections 5.03(a)(ii) and (b), and shall
remove from each certificate evidencing such Purchased Securities the legend
described in Section 5.03(a)(i) if, at the request of the Company,
such requesting holder provides, at its

 

18

 

expense,
an opinion of counsel satisfactory to the Company that the securities evidenced
thereby may be transferred without the imposition of such legend.

 

SECTION 5.04                    Sales of Significant Interests.  Each member of the Investor Group may Sell
Covered Securities to a person that would, following the consummation of such
Sale, beneficially own more than 20% of the Common Stock; provided,
however, that, in the event that such Sale is not otherwise
permitted to be made pursuant to Section 5.01 above, such member of the Investor
Group conditions such Sale by them to such person upon such person
contemporaneously therewith acquiring, or offering to acquire, on the same
price and other financial terms and conditions as are applicable to such member
of the Investor Group in such Sale, a number of shares of Common Stock owned by
stockholders of the Company other than the Investor Group equal to the product
of (A) the aggregate number of shares of Common Stock owned by
stockholders of the Company other than the Investor Group, multiplied by (B) a
fraction, the numerator of which is the number of shares of Common Stock
(including Common Stock issuable upon the exercise of warrants) proposed to be
Sold by such member of the Investor Group to such person, and the denominator
of which is the aggregate number of shares of Common Stock (including shares of
Common Stock issuable upon the exercise of warrants) owned by such member of
the Investor Group on a Fully Diluted Basis on the date of such Sale.  In order for the conditions in the preceding
proviso to be satisfied, (A) such person shall make such offer in
compliance with applicable Law, including, if applicable, Section 14(d)(1) of
the Exchange Act and Regulation 14D promulgated thereunder and (B) if as a
result of such Sale, such person would, following such Sale, beneficially own
shares of Common Stock representing in the aggregate more than 20% of the
Common Stock but less than 90% of the shares of Common Stock then outstanding,
such person must, in connection with the closing of such transaction, agree to
be bound by the obligations of the Investor Group under this Agreement.  The provisions of this Section 5.04
shall only apply for as long as the Investor Group beneficially owns at least
25% of the shares of Common Stock.

 

ARTICLE 6

CORPORATE OPPORTUNITIES AND RELATED MATTERS

 

SECTION 6.01                    Similar Activities or Lines of
Business.   

 

(a) The Company may from time to time
enter into and perform, one or more agreements (or modifications or supplements
to pre-existing agreements) with a member of the Investor Group pursuant to
which the Company, on the one hand, and such member, on the other hand, agree
to engage in transactions of any kind or nature with each other and/or agree to
compete, or to refrain from competing or to limit or restrict their
competition, with each other, including to allocate and to cause their
respective Representatives (including any who are directors, officers or
employees of both) to allocate opportunities between or to refer opportunities
to each other.  Subject to this Section 6.01, no such agreement, or
the performance thereof by the Company or the members of the Investor Group,
shall, to the fullest extent permitted by Law, be considered contrary to (i) any
fiduciary duty that a member of the Investor Group may owe to the Company or to
any stockholder of the Company by reason of the Investor Group being a
controlling or significant stockholder of the Company or participating in the
control of the

 

19

 

Company
or (ii) any fiduciary duty of any director or officer of the Company who
is also a director, officer, member or employee of a member of the Investor
Group to the Company or to any stockholder thereof.  Subject to this Section 6.01,
to the fullest extent permitted by Law, a member of the Investor Group, as a
stockholder of the Company, or as a participant in control of the Company,
shall not have or be under any fiduciary duty to refrain from entering into any
agreement or participating in any transaction referred to above and no
director, officer or employee of the Company who is also a director, officer or
employee of a member of the Investor Group shall have or be under any fiduciary
duty to the Company, to refrain from acting on behalf of the Company or of a
member of the Investor Group in respect of any such agreement or transaction or
performing any such agreement in accordance with its terms.

 

(b) Except as otherwise agreed in
writing between the Company and the Investor Group or as provided in paragraph (d) below,
each member of the Investor Group shall to the fullest extent permitted by Law
have no duty to refrain from serving as an officer or director of, or investing
in, any person which is (i) engaged in the same or similar business as the
Company or (ii) doing business with any client, customer or vendor of the
Company and such member of the Investor Group shall not, to the fullest extent
permitted by Law, be deemed to have breached its or his fiduciary duties, if
any, to the Company solely by reason of engaging in any such activity.  Except as otherwise agreed in writing between
the Company and the Investor Group or as provided in paragraph (d) below,
in the event that any member of the Investor Group acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both a
member of the Investor Group and the Company, such member of the Investor Group
shall to the fullest extent permitted by Law have no duty to communicate or
offer such corporate opportunity to the Company and shall not, to the fullest
extent permitted by Law, be liable to the Company or its stockholders for
breach of any fiduciary duty as a stockholder of the Company by reason of the
fact that such member of the Investor Group acquires or seeks such corporate
opportunity for itself, directs such corporate opportunity to another person or
entity, or otherwise does not communicate information regarding such corporate
opportunity to the Company, and the Company to the fullest extent permitted by
Law shall renounce any interest or expectancy in such business opportunity and
shall waive any claim that such business opportunity constituted a claim that
should have been presented to the Company.

 

(c) Except as otherwise agreed in
writing between the Company and the Investor Group or as provided in paragraph (d) below,
in the event that a director or officer of the Company who is also an officer,
director, member or employee of a member of the Investor Group acquires
knowledge of a potential transaction or matter which may be a corporate
opportunity for both the Company and a member of the Investor Group, such
director or officer shall to the fullest extent permitted by Law have fully
satisfied and fulfilled his or her fiduciary duty with respect to such
corporate opportunity, and the Company to the fullest extent permitted by Law
shall renounce any interest or expectancy in such business opportunity and
shall waive any claim that such business opportunity constituted a corporate
opportunity that should have been presented to the Company or any of its
affiliates, if such director or officer acts in a manner consistent with the
following policy: (i) a corporate opportunity offered to any person who is
an officer of

 

20

 

the
Company and who is also a director but not an officer of a member of the Investor
Group shall belong to the Company, unless such opportunity is expressly offered
to such person solely in his or her capacity as a director of a member of the Investor
Group, in which case such opportunity shall belong to such member of the Investor
Group; (ii) a corporate opportunity offered to any person who is a
director but not an officer of the Company and who is also a director or
officer of a member of the Investor Group shall belong to the Company only if
such opportunity is expressly offered to such person solely in his or her
capacity as a director of the Company and otherwise shall belong to such member
of the Investor Group; and (iii) a corporate opportunity offered to any
person who is an officer of both the Company and Investor Group shall belong to
the Company unless such opportunity is expressly offered to such person solely
in his or her capacity as an officer of a member of the Investor Group, in
which case such opportunity shall belong to such member of the Investor Group.

 

(d) No member of the Investor Group nor
any of their respective affiliates (other than the Company or their respective
subsidiaries) shall, directly or indirectly, enter into, or agree or commit to
enter into, any material investment, in or otherwise exploit any business
opportunity primarily related to, any Restricted Person (other than an
investment in the shares of any public company representing less than 20% of
such company’s fully diluted common equity) except with the approval of a
majority of the Independent Directors then in office.

 

(e) As used in this Section 6.01,
the term “Company” includes all of its subsidiaries, and the term “Investor
Group” includes all of its affiliates (other than the Company).

 

ARTICLE 7

REPRESENTATIONS AND WARRANTIES

 

SECTION 7.01                    Representations of the Company.  The Company hereby represents and warrants to
the Investor Group that:

 

(a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby are within the Company’s power
and authority and have been duly authorized by all necessary corporate
action.  This Agreement constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms.

 

(b) The execution, delivery and
performance by the Company of this Agreement requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority, other than (i) compliance with any applicable requirements of
the federal securities Laws; and (ii) compliance with any applicable
foreign or state securities or blue sky Laws.

 

(c) The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby do not and will not (i) contravene
or conflict with the Certificate of Incorporation or

 

21

 

the
By-Laws, and (ii) assuming compliance with the matters referred to in Section 7.01(b),
contravene or conflict with or constitute a violation of, provision of any Law
applicable to the Company.

 

SECTION 7.02                    Representations of the Members
of the Investor Group.  Each member
of the Investor Group hereby represents, jointly and severally, that:

 

(a) The execution, delivery and
performance by such member of the Investor Group of this Agreement and the
consummation by such member of the Investor Group of the transactions
contemplated hereby are within each such member’s power and authority and have
been duly authorized by all requisite action on the part of such member. This
Agreement constitutes a valid and binding agreement of each member of the Investor
Group, enforceable against such member of the Investor Group in accordance with
its terms.

 

(b) The execution, delivery and
performance by such member of the Investor Group of this Agreement require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority, other than (i) compliance with any applicable
requirements of the federal securities Laws; and (ii) compliance with any
applicable foreign or state securities or blue sky Laws.

 

(c) The execution, delivery and
performance by such member of the Investor Group of this Agreement and the
consummation by such member of the Investor Group of the transactions
contemplated hereby do not and will not (i) contravene or conflict with
the organizational documents of such member, and (ii) assuming compliance
with the matters referred to in Section 7.02(b), contravene or conflict
with or constitute a violation of, provision of any Law.

 

ARTICLE 8

CONFIDENTIALITY

 

SECTION 8.01                                Confidentiality.  (a)  Unless otherwise agreed to in
writing by the Company, each member of the Investor Group, on behalf of itself
and its Representatives, agrees (i) except as required by Law, to keep
confidential and not to disclose or reveal any Confidential Information (as
defined below) to any person (other than such member’s Representatives), (ii) not
to use Confidential Information for any purpose other than in connection with
its ownership of Company securities and not in any way detrimental to the
Company or its stockholders and (iii) except as required by Law, not to
disclose to any person (other than such member’s Representatives) any
Confidential Information.  In the event
that any member of the Investor Group or its Representatives are requested
pursuant to, or required by, Law to disclose any Confidential Information, such
member of the Investor Group agrees that it will provide the Company with
prompt notice of such request or requirement in order to enable the Company to
seek an appropriate protective order or other remedy (and if the Company seeks
such an order, such person will provide such cooperation as the Company shall
reasonably request) or to consult with such member with respect to the Company
taking steps to resist or narrow the scope of such request or legal process.

 

22

 

(b) “Confidential Information”
means all information about the Company furnished by the Company, whether
furnished before or after the date hereof, whether oral or written, and
regardless of the manner or form in which it is furnished, including, without
limitation, all notes, analyses, compilations, studies, forecasts, interpretations
or other documents prepared by any member of the Investor Group or its
Representatives which contain, reflect or are based upon, in whole or in part,
the information furnished to any member of the Investor Group or its
Representatives.  Confidential
Information does not include, however, information which (i) is or becomes
generally available to the public other than as a result of a disclosure by any
member of the Investor Group or its Representatives in violation of this
Agreement, the Confidentiality Agreement or other obligation of
confidentiality, (ii) was available to any member of the Investor Group on
a non-confidential basis prior to its disclosure by the Company to such member,
or (iii) becomes available to any member of the Investor Group on a
non-confidential basis from a person (other than the Company) who is not
prohibited from disclosing such information to any member of the Investor Group
by a legal, contractual or fiduciary obligation to the Company.

 

(c) Notwithstanding anything to the
contrary contained in this Agreement, any Investor Designated Director shall be
permitted to provide to members of the Investor Group and their Representatives
information concerning the Company that such individuals receive in their
capacity as directors;  provided, however, that with respect to any such information
provided, the Investor Group and its Representatives shall be bound by the same
restrictions on disclosure and use of confidential information as apply to such
Investor Designated Directors in their capacity as directors, in addition to
any applicable restrictions under this Article VIII.

 

(d) As used in this Article VIII,
the term “Company” includes the Company and all of its subsidiaries, and the
term “Investor Group” includes the members of the Investor Group and all of
their respective affiliates (other than the Company).

 

SECTION 8.02                    Furnishing of Information.  The Company shall furnish or make available
to each member of the Investor Group and its Representatives any documents
filed by the Company pursuant to each of Sections 13, 14 and 15(d) of the
Exchange Act and all annual, quarterly or other reports furnished to the
Company’s public security holders and all such other information concerning the
Company and its subsidiaries as such member of the Investor Group may
reasonably request.  The Company shall provide each member of the Investor
Group and its Representatives with reasonable access to the books and records
of the Company and its subsidiaries during normal business hours upon reasonable
notice, including without limitation, financial data (including projections)
and operating data covering each of such entities, their businesses, operations
and financial performance.

 

ARTICLE 9

MISCELLANEOUS

 

SECTION 9.01                    Termination.   This Agreement shall terminate upon the
earliest to occur of:

 

23

 

(i)                                     written agreement to that effect,
signed by all parties hereto or all parties then possessing any rights
hereunder;

 

(ii)                                  the Investor Group ceasing to
beneficially own at least 10% of the Common Stock on a Fully Diluted Basis; provided that prior to such termination the Investor
Designated Directors shall have resigned if required to do so under Section 2.01(b) of
this Agreement;

 

(iii)                               the Investor Group becoming the
beneficial owner of 90% or more of the Common Stock on a Fully Diluted Basis;
and

 

(iv)                              on the date that is the fifth
anniversary of the date of this Agreement;.

 

provided that no termination of
this Agreement pursuant to this Section 9.01 shall affect the right of any
party to recover damages for any breach of the representations, warranties or
covenants herein that occurred prior to such termination; and, provided, further, that the provisions of Article VIII
shall continue in effect for a period of 18 months following any such
termination.

 

SECTION 9.02                    Notices.  All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
telecopy or by recognized overnight courier service to the respective parties
at the following addresses (or at such other address for a party as shall be
specified by notice given in accordance with this Section 9.02):

 

(a) if to the Company:

 

Pathmark
Stores, Inc.

200 Milik Street

Carteret, New Jersey 07008

Attention:  Marc A. Strassler

 

with a copy to:

 

Shearman & Sterling LLP

599 Lexington Avenue

New York, New York  10022

Telecopy No.:  (212) 848-7179

Attention:  W. Jeffrey Lawrence

 

(b) if to any member of the Investor
Group:

 

9130 W. Sunset Boulevard

Los Angeles, California 90069

Attention:  Robert P. Bermingham

 

24

 

with a copy to:

 

Latham & Watkins LLP

633 West Fifth Street, Suite 4000

Los Angeles, CA  90071-2007

Telecopy No.:  (213) 891-8763

Attention:  Thomas C. Sadler

 

SECTION 9.03                    No Third Party Beneficiaries.  This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and, to the extent permitted
by this Agreement, their respective successors and permitted assigns, and
nothing herein, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.

 

SECTION 9.04                    Expenses.  Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such costs or expenses.

 

SECTION 9.05                    Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York, except as to
matters governed by the internal corporation Laws of the State of
Delaware.  All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined
exclusively in any New York state or federal court, in each case sitting in the
Borough of Manhattan.  The parties hereto
hereby (a) submit to the exclusive jurisdiction of any New York state or
federal court, in each case sitting in the Borough of Manhattan, for the
purpose of any action or proceeding arising out of or relating to this
Agreement brought by any party hereto, and (b) irrevocably waive, and
agree not to assert by way of motion, defense, or otherwise, in any such action
or proceeding, any claim that it is not subject personally to the jurisdiction
of the above-named courts, that its property is exempt or immune from
attachment or execution, that the action or proceeding is brought in an
inconvenient forum, that the venue of the action or proceeding is improper, or
that this Agreement or the transactions contemplated hereby may not be enforced
in or by any of the above-named courts.

 

SECTION 9.06                    Waiver of Jury Trial.  Each of the parties hereto hereby waives to
the fullest extent permitted by applicable Law any right it may have to a trial
by jury with respect to any litigation directly or indirectly arising out of,
under or in connection with this Agreement or the transactions contemplated
hereby.  Each of the parties hereto (a) certifies
that no representative, agent or attorney of any other party has represented,
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce that foregoing waiver and (b) acknowledges
that it and the other parties hereto have been induced to enter into this
Agreement and the transactions contemplated hereby, as applicable, by, among
other things, the mutual waivers and certifications in this Section 9.06.

 

SECTION 9.07                    Specific Performance.  The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties hereto shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at Law or in equity.

 

25

 

SECTION 9.08                    Counterparts.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

 

SECTION 9.09                    Entire Agreement.  This Agreement and the Related Agreements
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements and
understandings, both written and oral, (including, without limitation the
Confidentiality Agreement and that certain Exclusivity Agreement dated as of March 9,
2005), among the parties, or any of them, with respect to the subject matter
hereof and thereof.

 

SECTION 9.10                    Assignment.  This Agreement shall not be assigned by
operation of Law or otherwise without the express written consent of the
parties hereto (which consent may be granted or withheld in the sole discretion
of any party) and any such assignment or attempted assignment without such
consent shall be void.

 

SECTION 9.11                    Amendment.  This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the
Company and each member of the Investor Group or (b) by a waiver in
accordance with Section 9.12.

 

SECTION 9.12                    Waiver.  Any party to this Agreement may (a) extend
the time for the performance of any of the obligations or other acts of the
other party or (c) waive compliance with any of the agreements of the
other party or conditions to such party’s obligations contained herein.  Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby.  Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a
subsequent waiver of the same term or condition, or a waiver of any other term
or condition of this Agreement.  The
failure of any party hereto to assert any of its rights hereunder shall not
constitute a waiver of any of such rights. 
All rights and remedies existing under this Agreement are cumulative to,
and not exclusive of, any rights or remedies otherwise available.

 

SECTION 9.13                    Severability.  If any term or other provision of this
Agreement is held to be invalid, illegal or incapable of being enforced by any rule of
Law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect for so long as the economic
or legal substance of the transactions is not affected in any manner materially
adverse to any party.  Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest
extent possible.

 

SECTION 9.14                    No Partnership.  No partnership, joint venture or joint
undertaking is intended to be, or is, formed among the parties hereto or any of
them by reason of this Agreement or the transactions contemplated herein.

 

26

 

SECTION 9.15                    Public Announcements.  Except as required by Law, no party to this
Agreement shall make, or cause to be made, any press release or public
announcement in respect of this Agreement or otherwise communicate with any
news media without the prior written consent of the other parties, and the
parties shall cooperate as to the timing and contents of any such press release
or public announcement.

 

SECTION 9.16                    Cumulative Remedies.  The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive its right to use any or all other remedies.  Said rights and remedies are given in
addition to any other rights the parties may have by Law or otherwise.

 

SECTION 9.17                    Interpretation; Headings.  Throughout this Agreement, nouns, pronouns
and verbs shall be construed as masculine, feminine, neuter, singular or
plural, whichever shall be applicable. 
Unless otherwise specified, all references herein to “Articles”,
“Sections” and paragraphs shall refer to corresponding provisions of this
Agreement.  The descriptive headings and
subheadings in this Agreement are included for convenience of reference only
and shall not affect in any way the meaning or interpretation of this Agreement
or any provision hereto.

 

SECTION 9.18                    Construction.  Each party hereto acknowledges and agrees it
has had the opportunity to draft, review and edit the language of this
Agreement and that no presumption for or against any party arising out of
drafting all or any part of this Agreement will be applied in any controversy,
claim or dispute relating to, in connection with or involving this
Agreement.  Accordingly, the parties
hereto hereby waive the benefit of any rule of Law or any legal decision
that would require, in cases of uncertainty, that the language of a contract
should be interpreted most strongly against the party who drafted such
language.

 

SECTION 9.19                    Director Duties.  Notwithstanding anything to the contrary in
this Agreement, no provision hereof shall prevent, restrict, Encumber or in any
way limit the exercise of the fiduciary rights and obligations of any Investor
Designated Director as a director, or his or her ability to vote on matters,
influence management or the other directors or otherwise to discharge their
fiduciary or other duties as directors. 
The Company shall not approve or recommend to its stockholders any
transaction or resolution, or approve, recommend or take any other action
(other than those expressly contemplated by this Agreement) that would restrict
the right of any Investor Designated Director to vote on any matter as such
director believes appropriate in light of his or her duties as a director or
the manner in which an Investor Designated Director may participate in his or
her capacity as a director in deliberations or discussions at meetings of the
Board or any committee thereof.

 

SECTION 9.20                    Investors Rights.  For purposes of this Agreement, all actions
which the Investors or members of the Investor Group are permitted to take
shall be effected by the Investors or such members, as the case may be, holding
a majority of the Purchased Securities then held by all the Investors or such
members, as the case may be.  In
addition, the rights of the Investors under this Agreement shall be allocated
among them in such manner as they shall agree from time to time.  Notwithstanding the foregoing, the parties
hereto acknowledge and agree that, for so long as the Investor Group has the
right to nominate two or more Investor Designated Directors, Yucaipa American
Alliance Fund I, L.P. and Yucaipa

 

27

 

American Alliance
(Parallel) Fund I, L.P. shall each be entitled to designate one of such
Investor Designated Directors and to fill any vacancies created if such
director designated by it ceases to serve for any reason, and any additional
Investor Designated Directors shall be designated by the members of the Investor
Group holding a majority of the Purchased Securities then held by all of such
members.

 

(signature
page follows)

 

28

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  PATHMARK STORES, INC., a Delaware

  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Frank Vitrano

  	
   

  
	
   

  	
  Name: 

  	
  Frank Vitrano

  
	
   

  	
  Title: 

  	
  President and Chief Financial Officer

  

 

S-1

Stockholders’ Agreement

 

 

	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  YUCAIPA CORPORATE INITIATIVES FUND I, L.P., a 

  
	
   

  	
   

  	
  Delaware limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Yucaipa Corporate Initiatives Fund I, LLC

  
	
   

  	
  Its:

  	
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert P. Bermingham

  	
   

  
	
   

  	
  By: Robert P. Bermingham

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  YUCAIPA AMERICAN ALLIANCE

  
	
   

  	
   

  	
  (PARALLEL) FUND I, L.P., a Delaware

  
	
   

  	
   

  	
  limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Yucaipa American Alliance Fund I, LLC

  
	
   

  	
  Its:

  	
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert P. Bermingham

  	
   

  
	
   

  	
  By: Robert P. Bermingham

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  YUCAIPA AMERICAN ALLIANCE FUND I,

  
	
   

  	
   

  	
  L.P., a Delaware limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Yucaipa American Alliance Fund I, LLC

  
	
   

  	
  Its:

  	
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert P. Bermingham

  	
   

  
	
   

  	
  By: Robert P. Bermingham

  
	
   

  	
  Title: Vice President

  
							

 

S-2

Stockholders’ AgreementExhibit 10.2

 

PATHMARK STORES, INC.

 

[DATE]

 

Form of Stock Option Grant Notice

 

Dear [NAME]:

 

Pathmark Stores, Inc. (the “Company”), pursuant to the Company’s Amended
and Restated 2000 Non-Employee Directors Equity Plan (the “Plan”), hereby grants
to Participant a Stock Option to purchase the number of shares of Common Stock
set forth below.  This Stock Option is
subject to all of the terms and conditions as set forth herein, in the Plan and
in the attached Terms and Conditions. 
The attached Terms and Conditions, together with this Grant Notice, form
the Award Agreement.

 

	
  Participant:

  	
   

  	
  [NAME]

  
	
  Date
  of Award:

  	
   

  	
  [DATE]

  
	
  Number
  of Shares of Common Stock Subject to Stock Option:

  	
   

  	
  [NUMBER]

  
	
  Incentive
  or Nonqualified Stock Option:

  	
   

  	
  Nonqualified Stock Option

  
	
  Exercise
  Price Per Share:

  	
   

  	
  $[FMV]

  
	
  Expiration
  Date:

  	
   

  	
  [FIFTH ANNIVERSARY OF DATE OF AWARD]

  

 

	
  Vesting
  Schedule:

  	
   

  	
  Subject
  to the other terms and conditions of the Plan and the Award Agreement, the
  Stock Option will vest and become exercisable as to the number of shares of
  Common Stock on the dates indicated below; provided
  that the Participant continues to serve as a member of the Board on each such
  date:

   

  (1)   An initial 33% of the shares of Common Stock subject to the Stock Option on
  the first anniversary of the Date of Award (or, if earlier, the date of the
  annual meeting of the Company’s stockholders that occurs in the first
  calendar year following the Date of the Award);

   

  (2)   An additional 33% of the shares of Common Stock on the second anniversary of the
  Date of Award (or, if earlier, the date of the annual meeting of the Company’s
  stockholders that occurs in the second calendar year following the Date of
  the Award); and

   

  (3)   The remaining unvested shares of Common
  Stock on the third anniversary of the Date of Award (or, if earlier, the date
  of the annual meeting of the Company’s stockholders that occurs in the third
  calendar year following the Date of the Award).

  
	
   

  	
   

  	
   

  
	
  Payment of the Exercise Price:

  	
   

  	
  The
  exercise price of the Stock Option may be paid by the Participant to the
  Company (i) by cash or check, (ii) in previously owned shares held
  by the Participant for at least six months prior to exercise, or (iii) a
  combination of any of (i) and (ii).

  

 

 

Please indicate your acceptance of the foregoing by signing and dating
where indicated below.

 

 

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [NAME]

  
	
   

  	
  [TITLE]

  
	
   

  
	
   

  
	
  Accepted and Agreed:

  
	
   

  
	
   

  	
   

  
	
  [NAME]

  
	
   

  
	
   

  	
   

  
	
  Date

  
			

 

2

 

PATHMARK STORES, INC. AMENDED AND RESTATED

2000 NON-EMPLOYEE DIRECTORS EQUITY PLAN

STOCK OPTION TERMS AND CONDITIONS

 

Pursuant to the Stock Option Grant Notice (“Grant Notice”) and
these Terms and Conditions, Pathmark Stores, Inc. (the “Company”) has granted
you, as of the “Date of
Award” set forth in the Grant Notice, a Stock Option under its
Amended and Restated 2000 Non-Employee Directors Equity Plan (the “Plan”) to purchase
the number of shares of the Company’s Common Stock indicated in the Grant
Notice at the exercise price indicated in the Grant Notice.  The Stock Option is a Nonqualified Stock
Option.

 

The Grant Notice and these Terms and Conditions form the Award
Agreement and all references to the Award Agreement shall be considered to
include the Grant Notice and these Terms and Conditions.  Defined terms not explicitly defined in the
Award Agreement but defined in the Plan shall have the same definitions as in
the Plan.  As used in the Award
Agreement, the terms “you”
and “your”
refer to the Participant identified in the Grant Notice.

 

The details of your Stock Option are as follows:

 

1.                                      VESTING;
ACCELERATED VESTING.  Subject to the
other terms and conditions of the Plan and this Award Agreement, your Stock
Option will vest as provided in the Grant Notice.  Notwithstanding the preceding sentence, the
Stock Option shall be considered fully vested and exercisable upon the earlier
to occur of (a) termination of your service on the Board by reason of
death or Permanent Disability or (b) a Change in Control.

 

2.                                      METHOD
OF PAYMENT.  Payment of the exercise
price is due in full upon exercise of all or any part of your Stock
Option.  You may elect to make payment of
the exercise price in any manner that is permitted by the Grant Notice.

 

3.                                      SECURITIES
LAW COMPLIANCE.  If you are a citizen
or resident of the United States, then notwithstanding anything to the contrary
contained herein, your Stock Option may not be exercised unless the shares of
Common Stock issuable upon exercise of your Stock Option are then registered
under the United States Securities Act of 1933, as amended (the “Securities Act”) or,
if such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.  The exercise of your
Stock Option must also comply with other applicable laws and regulations
governing the Stock Option, and the Stock Option may not be exercised if the
Company determines that the exercise would not be in material compliance with
such laws and regulations.

 

4.                                      TERM.  Subject
to the other terms and conditions of this Award Agreement, the term of your
Stock Option commences on the Date of Award (as set forth in the Grant Notice) and shall expire on the
expiration date indicated in the Grant Notice (the “Expiration
Date”).

 

 

5.                                      TERMINATION
OF DIRECTORSHIP.  Following termination of your service on the
Board, you (or your estate, personal representative or beneficiary, as the case
may be) shall have the right, subject to the other terms and conditions of the
Plan and this Award Agreement, to exercise the vested portion of the Stock
Option (a) at any time within two years after the date of termination of
service, if such termination was by reason of death, Permanent Disability or
retirement from the Board in accordance with the retirement policy then in
effect for Board members, or (b) in all other cases, at any time within
one year after the date of termination of service, but in no event after the
Expiration Date.

 

6.                                      EXERCISE.  You
may exercise your Stock Option, to the extent vested, in whole or in part
during its term by delivering a written notice of exercise (in a form
designated by or otherwise acceptable to the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.  The Stock Option may be exercised for whole
shares of Common Stock only.

 

7.                                      TRANSFERABILITY.  Your Stock Option is not transferable, except
by will or by the laws of descent and distribution or pursuant to a domestic
relations order, and is exercisable during your life only by you; provided, however, that the Committee may,
in its discretion and subject to such terms and conditions as it shall specify,
permit the transfer of an Award for no consideration to your family members or
to one or more trusts or partnerships established in whole or in part for the
benefit of one or more of such family members (collectively, “Permitted Transferees”).
If the Stock Option is transferred to a Permitted Transferee, it shall be
further transferable only by will or the laws of descent and distribution or,
for no consideration, to another Permitted Transferee.  Notwithstanding the foregoing, by delivering
written notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise your Stock Option.

 

8.                                      STOCK
OPTION NOT A SERVICE CONTRACT.  Your
Stock Option is not an employment or service contract, and nothing in your
Stock Option shall be deemed to create in any way whatsoever any obligation on
your part to continue as a director of the Company or of the Company to
continue your directorship.  In addition,
nothing in your Stock Option shall obligate the Company or any of its
subsidiaries, their respective shareholders, the Board, officers or employees
to continue any relationship that you might have as a director, advisor or
consultant for the Company or subsidiary.

 

9.                                      WITHHOLDING
OBLIGATIONS.  You may satisfy any applicable tax withholding obligation relating to
the exercise or acquisition of
Common Stock under your Stock Option by any of the following means (in addition
to the right of the Company or any of subsidiaries to withhold from any
compensation it paid to you) or by a combination of such means:  (a) tendering a cash payment; (b) authorizing
the Company to withhold shares from the shares of Common Stock otherwise
deliverable to you as a result of the exercise of your Stock Option; or (c) delivering
to the Company owned and unencumbered shares of Common Stock that you have
owned for at least six months prior to such delivery.

 

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10.                               NOTICES.  Any
notices provided for you in your Stock Option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of notices sent by the
Company to you, if sent by registered or certified mail and addressed to you at
the last address you provided to the Company.

 

11.                               PLAN
DOCUMENT CONTROLS.  Your Stock Option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your Stock Option, and is further subject to
all interpretations, amendments, rules and regulations which may from time
to time be promulgated and adopted pursuant to the Plan.  In the event of any conflict between the
provisions of your Stock Option and those of the Plan, the provisions of the
Plan shall control.

 

12.                               SECTION 409A.  Your Stock Option is intended not to
provide for a “deferral of compensation” within the meaning of Section 409A
of the Code, and shall be interpreted and administered consistent with such
intent.  If any provision of the Plan or
the Award Agreement causes your Stock Option to be subject to the requirements
of Section 409A of the Code, or could otherwise cause you to be subject to
the interest and penalties under Section 409A of the Code, such provision
shall be modified to maintain, to the maximum extent practicable, the original
intent of the applicable provision without violating the requirements of Section 409A
of the Code and, notwithstanding any provision in the Plan or the Award
Agreement to the contrary, the Committee shall have broad authority to amend
the Award Agreement, without your approval, to the extent necessary or
desirable to ensure that an Award is not subject to interest and penalties
under Section 409A of the Code.

 

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