Document:

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EXHIBIT 4.1

THORNBURG MORTGAGE, INC.

ISSUER

TRUSTEE

FORM OF INDENTURE

 

 

`

CROSS-REFERENCE TABLE

	 	 	 	 	 	 
	Trust Indenture	 	Indenture
	Act Section	 	Section
	
	 	

	310(a)(1)
	 	 	7.10	 
	 	(a)(2)
	 	 	7.10	 
	 	(a)(3)
	 	 	N.A.	 
	 	(a)(4)
	 	 	N.A.	 
	 	(a)(5)
	 	 	7.10	 
	 	(b)
	 	 	7.08; 7.10	 
	 	(c)
	 	 	N.A.	 
	311(a)
	 	 	7.11	 
	 	(b)
	 	 	7.11	 
	 	(c)
	 	 	N.A.	 
	312(a)
	 	 	2.07	 
	 	(b)
	 	 	12.04	 
	 	(c)
	 	 	12.04	 
	313(a)
	 	 	7.06	 
	 	(b)
	 	 	7.06	 
	 	(c)
	 	 	7.06; 12.03	 
	 	(d)
	 	 	7.06	 
	314(a)
	 	 	4.02; 12.05	 
	 	(b)
	 	 	N.A.	 
	 	(c)(1)
	 	 	12.05	 
	 	(c)(2)
	 	 	12.05	 
	 	(c)(3)
	 	 	N.A.	 
	 	(d)
	 	 	N.A.	 
	 	(e)
	 	 	12.05	 
	 	(f)
	 	 	12.05	 
	315(a)
	 	 	7.01(b)	 
	 	(b)
	 	 	7.05; 12.03	 
	 	(c)
	 	 	7.01(a)	 
	 	(d)
	 	 	7.01(c)	 
	 	(e)
	 	 	6.13	 
	316(a) (last sentence)
	 	 	12.06	 
	 	(a)(1)(A)
	 	 	6.05	 
	 	(a)(1)(B)
	 	 	6.04	 
	 	(a)(2)
	 	 	N.A.	 
	 	(b)
	 	 	6.08	 
	 	(c)
	 	 	12.03	 
	317(a)(1)
	 	 	6.09	 
	 	(a)(2)
	 	 	6.10	 
	 	(b)
	 	 	2.06	 
	318(a)
	 	 	12.01	 

N.A. means Not Applicable

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 
	ARTICLE ONE - DEFINITIONS AND INCORPORATION BY REFERENCE
	 	 	1	 
	 	SECTION 1.01. Definitions.
	 	 	1	 
	 	SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
	 	 	2	 
	 	SECTION 1.03. Rules of Construction.
	 	 	2	 
	ARTICLE TWO - THE SECURITIES
	 	 	3	 
	 	SECTION 2.01. Form and Dating
	 	 	3	 
	 	SECTION 2.02. Amount Unlimited; Issuable in Series.
	 	 	3	 
	 	SECTION 2.03. Denominations
	 	 	3	 
	 	SECTION 2.04. Execution and Authentication.
	 	 	3	 
	 	SECTION 2.05. Registrar and Paying Agent
	 	 	4	 
	 	SECTION 2.06. Paying Agent to Hold Money in Trust.
	 	 	4	 
	 	SECTION 2.07. Securityholder Lists.
	 	 	4	 
	 	SECTION 2.08. Transfer and Exchange.
	 	 	4	 
	 	SECTION 2.09. Replacement Securities.
	 	 	4	 
	 	SECTION 2.10. Outstanding Securities.
	 	 	5	 
	 	SECTION 2.11. Temporary Securities.
	 	 	5	 
	 	SECTION 2.12. Cancellation.
	 	 	5	 
	 	SECTION 2.13. Defaulted Interest.
	 	 	5	 
	ARTICLE THREE - REDEMPTION
	 	 	5	 
	 	SECTION 3.01. Company’s Option to Redeem.
	 	 	5	 
	 	SECTION 3.02. Notices to Trustee.
	 	 	5	 
	 	SECTION 3.03. Selection of Securities to be Redeemed.
	 	 	5	 
	 	SECTION 3.04. Notice of Redemption at the Company’s Option.
	 	 	6	 
	 	SECTION 3.05. Effect of Notice of Redemption.
	 	 	6	 
	 	SECTION 3.06. Deposit Of Redemption Price.
	 	 	6	 
	 	SECTION 3.07. Holder’s Right to Require Redemption.
	 	 	6	 
	 	SECTION 3.08. Procedure for Requiring Redemption.
	 	 	6	 
	 	SECTION 3.09. Securities Redeemed in Part.
	 	 	7	 
	ARTICLE FOUR - COVENANTS
	 	 	7	 
	 	SECTION 4.01. Payment of Securities.
	 	 	7	 
	 	SECTION 4.02. Reporting.
	 	 	7	 
	 	SECTION 4.03. Corporate Existence.
	 	 	7	 
	 	SECTION 4.04. Compliance Certificate.
	 	 	7	 
	 	SECTION 4.05. Further Instruments and Acts.
	 	 	7	 
	ARTICLE FIVE - SUCCESSOR CORPORATION
	 	 	8	 
	 	SECTION 5.01. Company May Consolidate, etc.,
	 	 	8	 
	 	SECTION 5.02. Successor Corporation Substituted.
	 	 	8	 

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	ARTICLE SIX - DEFAULTS AND REMEDIES
	 	 	8	 
	 	SECTION 6.01. Events of Default.
	 	 	8	 
	 	SECTION 6.02. Acceleration.
	 	 	9	 
	 	SECTION 6.03. Other Remedies.
	 	 	9	 
	 	SECTION 6.04. Waiver of Existing Defaults.
	 	 	9	 
	 	SECTION 6.05. Control by Majority.
	 	 	10	 
	 	SECTION 6.06. Payments of Securities on Default; Suit Therefor.
	 	 	10	 
	 	SECTION 6.07. Limitation on Suits.
	 	 	10	 
	 	SECTION 6.08. Rights of Holders to Receive Payment and to Demand Conversion.
	 	 	10	 
	 	SECTION 6.09. Collection Suit by Trustee.
	 	 	10	 
	 	SECTION 6.10. Trustee May File Proofs of Claim.
	 	 	10	 
	 	SECTION 6.11. Restoration of Positions.
	 	 	11	 
	 	SECTION 6.12. Priorities.
	 	 	11	 
	 	SECTION 6.13. Undertaking for Costs.
	 	 	11	 
	 	SECTION 6.14. Stay, Extension or Usury Laws.
	 	 	11	 
	 	SECTION 6.15. Liability of Stockholders, Officers, Directors and Incorporators.
	 	 	11	 
	ARTICLE SEVEN - TRUSTEE
	 	 	12	 
	 	SECTION 7.01. Duties of Trustee.
	 	 	12	 
	 	SECTION 7.02. Rights of Trustee.
	 	 	12	 
	 	SECTION 7.03. Individual Rights of Trustee.
	 	 	13	 
	 	SECTION 7.04. Trustee’s Disclaimer.
	 	 	13	 
	 	SECTION 7.05. Notice of Defaults.
	 	 	13	 
	 	SECTION 7.06. Reports by Trustee.
	 	 	13	 
	 	SECTION 7.07. Compensation and Indemnity.
	 	 	13	 
	 	SECTION 7.08. Replacement of Trustee.
	 	 	14	 
	 	SECTION 7.09. Successor Trustee by Merger, etc.
	 	 	15	 
	 	SECTION 7.10. Eligibility; Disqualification.
	 	 	15	 
	 	SECTION 7.11. Preferential Collection of Claims.
	 	 	15	 
	ARTICLE EIGHT - DISCHARGE OF INDENTURE
	 	 	15	 
	 	SECTION 8.01. Termination of the Company’s Obligations.
	 	 	15	 
	 	SECTION 8.02. Application of Trust Money.
	 	 	16	 
	 	SECTION 8.03. Repayment to the Company.
	 	 	16	 
	ARTICLE NINE - AMENDMENTS, SUPPLEMENTS AND WAIVERS
	 	 	16	 
	 	SECTION 9.01. Without Consent of Holders.
	 	 	16	 
	 	SECTION 9.02. With Consent of Holders.
	 	 	16	 
	 	SECTION 9.03. Compliance With Trust Indenture Act.
	 	 	17	 
	 	SECTION 9.04. Revocation and Effect of Consents.
	 	 	17	 
	 	SECTION 9.05. Notation on or Exchange of Securities.
	 	 	17	 
	 	SECTION 9.06. Trustee to Sign Amendments, etc.
	 	 	17	 

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	ARTICLE TEN - CONVERSION OR EXCHANGE OF SECURITIES
	 	 	17	 
	 	SECTION 10.01. Provisions Relating to Conversion or Exchange of Securities.
	 	 	17	 
	ARTICLE ELEVEN - SINKING OR PURCHASE FUNDS
	 	 	17	 
	 	SECTION 11.01. Provisions Relating to Sinking or Purchase Funds.
	 	 	17	 
	ARTICLE TWELVE - MISCELLANEOUS
	 	 	18	 
	 	SECTION 12.01. Trust Indenture Act Controls.
	 	 	18	 
	 	SECTION 12.02. Supplemental Indenture Controls.
	 	 	18	 
	 	SECTION 12.03. Notices.
	 	 	18	 
	 	SECTION 12.04. Communication by Holders With Other Holders.
	 	 	18	 
	 	SECTION 12.05. Certificate and Opinion as to Conditions Precedent.
	 	 	18	 
	 	SECTION 12.06. When Treasury Securities Disregarded.
	 	 	19	 
	 	SECTION 12.07. Rules by Trustee, Paying Agent, Registrar.
	 	 	19	 
	 	SECTION 12.08. Legal Holidays.
	 	 	19	 
	 	SECTION 12.09. Governing Law And Submission to Jurisdiction.
	 	 	19	 
	 	SECTION 12.10. Actions by the Company.
	 	 	19	 
	 	SECTION 12.11. No Adverse Interpretation of Other Agreements.
	 	 	19	 
	 	SECTION 12.12. Successors.
	 	 	19	 
	 	SECTION 12.13. Duplicate Originals.
	 	 	19	 
	 	SECTION 12.14. Table Of Contents, Headings, etc.
	 	 	20	 

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     This Indenture (this “Indenture”), dated as of      is by and
between Thornburg Mortgage, Inc. (the “Company”), a Maryland corporation having
its principal office at 150 Washington Avenue, Suite 302, Santa Fe, New Mexico
87501, and      (the “Trustee”), which has its corporate trust
office at      .

     Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company’s debentures, notes
or other evidences of unsecured indebtedness to be issued in one or more series
(“Securities”):

ARTICLE ONE

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01. DEFINITIONS.

     “Board Resolution” means a resolution by the Board of Directors of the
Company certified by its Secretary as being duly adopted and in full force and
effect.

     “Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a Legal Holiday.

     “Capital Stock” means common or preferred stock entitled to share in the
equity or profits of a corporation.

     “Common Stock” means the common stock, par value $0.01 per share, of the
Company, as that stock may be reconstituted from time to time.

     “Company” means the Person named as such in this Indenture until a
successor replaces it and after that means the successor.

     “Corporate Trust Office” means the principal office of the Trustee at
which at any particular time its corporate trust business is principally
administered (which at the date of this Indenture is at the location set forth
in the first paragraph of this Indenture).

     “Corporation” includes corporations, associations, companies and business
trusts.

     “Custodian” has the meaning provided in Section 6.01.

     “Default” means any event which, upon the giving of notice or passage of
time, or both, would be an Event of Default.

     “$” means the lawful currency of the United States.

     “Event of Default” has the meaning provided in Section 6.01.

     “Fiscal Year” means the period commencing on January 1st of a year and
ending on December 31st of that same year or such other period (not to exceed
12 months or 53 weeks) as the Company may from time to time adopt as its fiscal
year.

     “Holder” or “Securityholder” means a Person in whose name a Security is
registered on the Registrar’s books.

     “Indenture” means this Indenture as amended or supplemented from time to
time and will include the form and terms of the Securities of each series
established as contemplated by Section 2.01.

     “Interest Payment Date” means the date on which an installment of interest
on the Securities is due and payable.

     “Legal Holiday” has the meaning provided in Section 12.08.

     “Maturity Date” means the date the principal of Securities is due and
payable.

     “Officer” means the Chairman of the Board, any Vice Chairman, the
President, the Chief Financial Officer, the Treasurer, any Vice President, the
Secretary or any Assistant Secretary, or the Controller of a Person.

     “Officers’ Certificate” when used with respect to the Company means a
certificate signed by two Officers. Each such certificate will comply with
Section 314 of the TIA and include the statements described in Section 12.05.

     “Opinion of Counsel” means a written opinion from legal counsel who is
acceptable to the Trustee. That counsel may be an employee of or counsel to the
Company or the Trustee. Each such opinion will include the statements described
in Section 12.05 if and to the extent required by that Section.

     “Paying Agent” has the meaning provided in Section 2.05.

     “Person” means any individual, corporation, partnership, joint venture,
joint-stock company, trust, unincorporated organization or government or any
government agency or political subdivision.

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     “Registrar” has the meaning provided in Section 2.05.

     “SEC” means the Securities and Exchange Commission.

     “Securities” means the debentures, notes or other evidences of unsecured
indebtedness to be issued in one or more series by the Company under this
Indenture.

     “Securities Act of 1933” means the Securities Act of 1933, as amended.

     “Securities Exchange Act of 1934” means the Securities Exchange Act of
1934, as amended.

     “State” means any state of the United States or the District of Columbia.

     “Subsidiary” means a corporation of which a majority of the voting stock
is owned by the Company, by a Subsidiary of the Company or by the Company and
one or more Subsidiaries of the Company.

     “Supplemental Indenture” means an indenture between the Company and the
Trustee which supplements this Indenture.

     “TIA” means the Trust Indenture Act of 1939, as amended, as in effect on
the date of this Indenture.

     “Trustee” means the Person named as such in this Indenture and, subject to
the provisions of Article 7, any successor to that person.

     “Trust Officer” means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.

     “United States” means the United States of America.

SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this
Indenture refers to a provision of the TIA, the provision is incorporated by
reference in and made a part of this Indenture. In addition, the provisions of
Sections 310 to and including 317 of the TIA that impose duties on any person
are incorporated by reference in, and form a part of, this Indenture.

     The following TIA terms mean the following when used in this Indenture:

     “Commission” means the SEC;

     “indenture securities” means the Securities;

     “indenture securityholder” means a Holder;

     “indenture to be qualified” means this Indenture;

     “indenture trustee” or “institutional trustee” means the Trustee; and

     “obligor” on the indenture securities means the Company.

     All other TIA terms used in this Indenture that are defined in the TIA,
defined in the TIA by reference to another statute or defined by SEC rule have
the meanings assigned to them.

SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise requires:

		
	 	     (1) a term has the meaning assigned to it;

		
	 	     (2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles in the
United States;

		
	 	     (3) “or” is not exclusive; and

		
	 	     (4) words in the singular include the plural, and in the plural
include the singular.

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ARTICLE TWO

THE SECURITIES

SECTION 2.01. FORM AND DATING.

     (a)  The Securities of each series will be substantially in the form
established by a Supplemental Indenture relating to the Securities of that
series. The Securities may have notations, legends or endorsements required by
law, stock exchange rules or usage. The Company will approve the form of the
Securities and any notation, legend or endorsement on them. Each Security will
be dated the date of its authentication.

     (b)  The Trustee’s certificate of authentication will be substantially in
the form of Exhibit A.

SECTION 2.02. AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate principal
amount of the Securities which may be authenticated and delivered under this
Indenture is unlimited.

     The Securities may be issued in one or more series. Prior to the issuance
of Securities of a series, the Company and the Trustee will execute a
Supplemental Indenture which will set forth as to the Securities of that
series, to the extent applicable:

		
	 	     (1) the title of the Securities;

		
	 	     (2) any limit upon the aggregate principal amount of Securities which
may be issued;

		
	 	     (3) the date or dates on which the Securities will mature and the
amounts to be paid upon maturity of the Securities;

		
	 	     (4) the rate or rates (which may be fixed or variable) at which the
Securities will bear interest, if any, the dates from which interest will
accrue, the dates on which interest will be payable and the record date
for the interest payable on any interest payment date;

		
	 	     (5) the currency or currencies in which principal, premium, if any,
and interest, if any, on the Securities will be payable;

		
	 	     (6) the place or places where principal of, premium, if any, and
interest, if any, on the Securities will be payable;

		
	 	     (7) any provisions regarding the right of the Company to redeem
Securities or of Holders to require the Company to redeem Securities;

		
	 	     (8) the right, if any, of Holders of the Securities to convert them
into stock or other securities of the Company, including any provisions
intended to prevent dilution of those conversion rights;

		
	 	     (9) any provisions by which the Company will be required or permitted
to make payments to a sinking fund which will be used to redeem Securities
or a purchase fund which will be used to purchase Securities;

		
	 	     (10) the percentage of the principal amount of the Securities which
is payable if maturity of the Securities is accelerated because of a
default; and

		
	 	     (11) any other terms of the Securities.

SECTION 2.03. DENOMINATIONS. Unless otherwise provided in the supplemental
indenture relating to a series of Securities, the Securities of each series
will be issuable in registered form without coupons in denominations of $1,000
and multiples of $1,000.

SECTION 2.04. EXECUTION AND AUTHENTICATION. Two Officers will sign the
Securities of each series for the Company by manual or facsimile signature. The
Company’s seal will be reproduced on the Securities. The Trustee shall
authenticate the Securities at the written direction of the Company. In
connection with the authentication of the Securities by the Trustee, the
Company shall provide the Trustee with an incumbency certificate with respect
to the Officers whose signatures appear on the Securities.

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     A Security will not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. The signature
will be conclusive evidence that the Security has been authenticated under this
Indenture.

SECTION 2.05. REGISTRAR AND PAYING AGENT. The Company will maintain an office
or agency where Securities of each series may be presented for conversion,
registration of transfer or for exchange (the “Registrar”) and an office or
agency where Securities of each series may be presented for payment (“Paying
Agent”). The Registrar will keep a register of the Securities of each series
and of their transfer and exchange. The Company may have one or more
co-registrars and one or more additional paying agents. The term “Paying Agent”
includes any additional paying agent.

     The Company will enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture which
will incorporate the terms of the TIA. The agreement will implement the
provisions of this Indenture that relate to that agent. The Company will notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee will act as such. The Company
or any Subsidiary may act as Paying Agent, Registrar, co-registrar or transfer
agent.

     The Company initially appoints the Trustee to act as Registrar and Paying
Agent in connection with the Securities of each series, except in instances in
which the Supplemental Indenture relating to a series of Securities appoints a
different Registrar or Paying Agent.

SECTION 2.06. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due date of
the principal of, premium, if any, or interest, if any, on any Security, the
Company will deposit with the Paying Agent a sum sufficient to pay that
principal, premium or interest when due. The Paying Agent will hold in trust
for the benefit of the Holders of the Securities of a series, and if the Paying
Agent is not the Trustee, in trust for the benefit of the Trustee, all sums
held by the Paying Agent for the payment of principal, premium or interest on
the Securities of that series and, in the case of a Paying Agent other than the
Trustee, the Paying Agent will give the Trustee notice of any default by the
Company in making any such payment. If the Company or a Subsidiary acts as
Paying Agent, it will segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Company at any time may require a Paying Agent
to pay all money held by it to the Trustee and to account for any funds
disbursed by the Paying Agent. Upon complying with this Section, the Paying
Agent will have no further liability for the money.

SECTION 2.07. SECURITYHOLDER LISTS. The Trustee will preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of the Holders of the Securities of each series. If the
Trustee is not the Registrar, the Company will furnish to the Trustee in
writing (a) at least five Business Days before each Interest Payment Date and
(b) at such other times as the Trustee may request in writing, all information
in the possession or control of the Company or its Paying Agent as to the names
and addresses of Holders of the Securities of a series; PROVIDED, HOWEVER that
if the provisions of (a) and (b) do not provide for the furnishing of such
information at stated intervals of not more than six months, at least as
frequently as semiannually.

SECTION 2.08. TRANSFER AND EXCHANGE. Unless otherwise provided in the
Supplemental Indenture relating to Securities of a series, Securities which are
issued in registered form will be transferred only upon the surrender of the
Securities for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the
Registrar will register the transfer as requested if the requirements of
Article 8 of the New York Uniform Commercial Code are met. When Securities are
presented to the Registrar or a co-registrar with a request to exchange them
for an equal principal amount of Securities of the same series of other
denominations, the Registrar will make the exchange as requested if the same
requirements are met. To permit registration of transfers and exchanges, the
Company will execute and the Trustee will authenticate Securities at the
Registrar’s or co-registrar’s request. The Company will not charge a fee for
transfers or exchanges.

     The Company will not be required to make, and the Registrar need not
register, transfers or exchanges of (i) Securities selected for redemption
(except, in the case of Securities to be redeemed in part, transfers or
exchanges of the portion of the Securities not to be redeemed) or (ii) any
Securities of a series for a period of 15 days before the first mailing of a
notice of the Securities of that series which are to be redeemed.

     Prior to the due presentation for registration or transfer of any Security
which was issued in registered form, the Company, the Trustee, the Paying
Agent, the Registrar or any co-registrar may deem and treat the person in whose
name the Security is registered as the absolute owner of the Security for all
purposes, and none of the Company, the Trustee, the Paying Agent, the Registrar
or any co-registrar will be affected by notice to the contrary.

SECTION 2.09. REPLACEMENT SECURITIES. If a mutilated Security which had been
issued in registered form is surrendered to the Registrar or if the Holder
presents evidence to the satisfaction of the Company and the Trustee that a
Security which had been issued in registered form has been lost or destroyed,
the Company will issue and the Trustee will authenticate a replacement Security
of the same series if the requirements of If required by the Trustee or the
Company, the replacement Security will not be issued until the Holder furnishes
an indemnity bond sufficient in the judgment of the Company and the

4

 

Trustee to protect the Company, the Trustee, the Paying Agent and the Registrar
or any co-registrar from any loss which any of them may suffer if the Security
is replaced. The Company may charge the Holder for its expenses in replacing a
Security.

     Every replacement Security will be an obligation of the Company, even if
the replaced Security is subsequently found.

SECTION 2.10. OUTSTANDING SECURITIES. The Securities outstanding at any time
will be all the Securities authenticated by the Trustee, except those cancelled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or its affiliate holds the Security.

     If a Security is replaced pursuant to Section 2.09, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a protected purchaser (in which case
the replaced Security will be treated as outstanding to the extent permitted by
Section 8-210 of the New York Uniform Commercial Code).

     If the Paying Agent (other than the Company or a Subsidiary) segregates
and holds in trust, in accordance with this Indenture, on a redemption date or
Maturity Date money sufficient to pay all principal, premium, if any, and
interest, if any, payable on that date with respect to the Securities to be
redeemed or maturing, as the case may be, then on that date those Securities
will cease to be outstanding and interest on them will cease to accrue.

SECTION 2.11. TEMPORARY SECURITIES. Until definitive Securities of a series are
ready for delivery, the Company may prepare and the Trustee will authenticate
temporary Securities of that series. Temporary Securities will be substantially
in the form of definitive Securities but may have variations that the Company
considers appropriate for temporary Securities. Without unreasonable delay, the
Company will prepare and the Trustee will authenticate definitive Securities
and deliver them in exchange for temporary Securities.

SECTION 2.12. CANCELLATION. The Company at any time may deliver Securities of a
series to the Trustee for cancellation and the Trustee will reduce accordingly
the aggregate amount of the Securities of that series which are outstanding.
The Registrar and the Paying Agent will forward to the Trustee any Securities
surrendered to them for registration of transfer, exchange, payment, or
conversion. The Trustee and no one else will cancel and destroy (subject to the
record retention requirements of the Exchange Act) all Securities surrendered
for registration of transfer, exchange, payment, conversion or cancellation and
deliver certificates of such destruction to the Company unless the Company
directs the Trustee to deliver the cancelled Securities to the Company. Subject
to Section 2.09, the Company may not issue new Securities of a series to
replace Securities of the series it has redeemed, paid, converted or delivered
to the Trustee for cancellation.

SECTION 2.13. DEFAULTED INTEREST. If the Company defaults in a payment of
interest on the Securities of a series, it will pay defaulted interest (plus
interest on such defaulted interest to the extent lawful) to the persons who
are Holders of the Securities of that series on a subsequent special record
date, which date will be at least five Business Days prior to the payment date.
The Company will fix the special record date and payment date, and, at least 15
days before the special record date, the Company will mail to each Holder of
Securities of that series a notice that states the special record date, the
payment date and the amount of defaulted interest and any interest on that
defaulted interest which is to be paid. Notwithstanding the foregoing, the
Company may pay defaulted interest in any other lawful manner.

ARTICLE THREE

REDEMPTION

SECTION 3.01. COMPANY’S OPTION TO REDEEM. The Company will have the option to
redeem Securities of a series only to the extent, if any, and only on the
terms, set forth in the Supplemental Indenture relating to the Securities of
that series. If the Company has the option to redeem Securities of a series,
unless otherwise provided in the Supplemental Indenture relating to the series,
the terms of the redemption will include those set forth in Sections 3.02
through 3.06.

SECTION 3.02. NOTICES TO TRUSTEE. If the Company elects to redeem Securities of
a series, it will notify the Trustee in writing of the redemption date and the
principal amount and series of Securities to be redeemed. The Company will give
each notice provided for in this Section at least 45 days before the redemption
date. If fewer than all the Securities of a series are to be redeemed, the
record date for determining which Securities of the series are to be redeemed
will be selected by the Company, which will give notice of the record date to
the Trustee at least 15 days before the record date.

SECTION 3.03. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than all the
Securities of a series are to be redeemed at the Company’s option, the Trustee
will select the Securities of that series to be redeemed by lot or, in its sole
discretion, pro-rata. The Trustee will make the selection from outstanding
Securities of that series not previously called for redemption. The Trustee may
select for redemption portions of the principal of Securities that have
denominations larger than the

5

 

minimum denomination in which Securities of the applicable series may be
issued. Securities and portions of Securities the Trustee selects will be in
amounts equal to the minimum denomination in which Securities of the applicable
series may be issued and multiples of that amount. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption. The Trustee will notify the Company promptly
of the Securities or portions of Securities to be redeemed.

SECTION 3.04. NOTICE OF REDEMPTION AT THE COMPANY’S OPTION. At least 30 days
and not more than 60 days before a date set for redemption at the Company’s
option, the Company will mail a notice of redemption by first-class mail to
each Holder of Securities to be redeemed in whole or in part.

     The notice will identify the principal amount and series of each Security
to be redeemed and will state:

		
	 	     (1) the redemption date;

		
	 	     (2) the redemption price plus accrued interest, if any;

		
	 	     (3) the name and address of the Paying Agent;

		
	 	     (4) that Securities called for redemption in whole or in part must be
surrendered to the Paying Agent to collect the redemption price plus
accrued interest, if any;

		
	 	     (5) that, unless the Company defaults in making the redemption
payment, interest on Securities (or portions of Securities) called for
redemption will cease to accrue on the redemption date and, if applicable,
that those Securities (or the portions of then called for redemption) will
cease on the redemption date (or such other date as is provided in the
Supplemental Indenture relating to the Securities) to be convertible into,
or exchangeable for, other securities or assets; and

		
	 	     (6) if applicable, the current conversion or exchange price.

     At the Company’s written request, the Trustee will give the notice of
redemption in the Company’s name and at the Company’s expense. In such event,
the Company will provide the Trustee with the information required by clauses
(1) through (6).

SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is
mailed, Securities, or portions of Securities called for redemption will become
due and payable on the redemption date and at the redemption price. Upon
surrender to the Paying Agent, those Securities will be paid at the redemption
price, plus accrued and unpaid interest to the redemption date. On and after
the date fixed for redemption (unless the Company defaults in the payment of
the redemption price, together with interest accrued to the redemption date)
interest on the Securities, or portions of them, which are redeemed will cease
to accrue and any right to convert those Securities into, or exchange them for,
other securities or assets will terminate and those Securities will cease to be
convertible or exchangeable. Failure to give notice or any defect in the notice
to any Holder will not affect the validity of the notice to any other Holder.

SECTION 3.06. DEPOSIT OF REDEMPTION PRICE. No later than the Business Day prior
to the redemption date specified in a notice of redemption, the Company will
deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying
Agent, segregate and hold in trust) money sufficient to redeem on the
redemption date all the Securities called for redemption on that redemption
date at the appropriate redemption price, together with accrued interest to the
redemption date, other than Securities or portions of Securities called for
redemption which have been delivered by the Company to the Trustee for
cancellation or Securities which have been surrendered for conversion or
exchange. If any Securities called for redemption are converted or exchanged,
any money deposited with the Paying Agent for redemption of those Securities
will be paid to the Company upon its request, or, if the money is held in trust
by the Company or a Subsidiary as Paying Agent, the money will be discharged
from the trust.

SECTION 3.07. HOLDER’S RIGHT TO REQUIRE REDEMPTION. Holders of Securities of a
series will have the right to require the Company to redeem those Securities
only to the extent, and only on the terms, set forth in the Supplemental
Indenture relating to the Securities of that series. If Holders of Securities
of a series have the right to require the Company to redeem those Securities,
unless otherwise provided in the Supplemental Indenture relating to the
Securities of that series, the terms of the redemption will include those set
forth in Section 3.08.

SECTION 3.08. PROCEDURE FOR REQUIRING REDEMPTION. If a Holder has the right to
require the Company to redeem Securities, to exercise that right, the Holder
must deliver the Securities to the Paying Agent, endorsed for transfer and with
the

6

 

form on the reverse side entitled “Option to Require Redemption” completed.
Delivery of Securities to the Paying Agent as provided in this Section will
constitute an irrevocable election to cause the specified principal amount of
Securities to be redeemed. When Securities are delivered to the Paying Agent as
provided in this Section, unless the Company fails to make the payments due as
a result of the redemption within 20 days after the Securities are delivered to
the Paying Agent as provided in this Section interest on the Securities will
cease to accrue and, if the Securities are convertible or exchangeable, the
Holder’s right to convert or exchange the Securities will terminate.

     The Company’s determination of all questions regarding the validity,
eligibility (including time of receipt) and acceptance of any Security for
redemption will be final and binding.

SECTION 3.09. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is
redeemed in part, the Company will execute and the Trustee will authenticate
and deliver to the Holder (at the Company’s expense) a new Security equal of
the same series in principal amount equal to the unredeemed portion of the
Security which was surrendered.

ARTICLE FOUR

COVENANTS

SECTION 4.01. PAYMENT OF SECURITIES. The Company will promptly pay or cause to
be paid the principal of, premium, if any, and interest, if any, on each of the
Securities of a series at the places and time and in the manner provided in the
Securities and in the Supplemental Indenture relating to the series. An
installment of principal, premium or interest will be considered paid on the
date it is due if the Trustee or Paying Agent holds on that date in accordance
with this Indenture or the applicable Supplemental Indenture money designated
for and sufficient to pay the installment then due.

     The Company will pay or cause to be paid interest on overdue principal at
the rate specified in the Securities; it will also pay interest on overdue
installments of interest at the same rate (or such other rate as is provided in
the applicable Supplemental Indenture), to the extent lawful.

SECTION 4.02. REPORTING. The Company will file with the Trustee within 15 days
after filing with the SEC, copies of its annual reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) which the Company
is required to file with the SEC pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”). The Company also will
comply with the other provisions of TIA Section 314(a).

SECTION 4.03. CORPORATE EXISTENCE. Subject to Article 5, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights (charter and statutory) and franchises;
PROVIDED, HOWEVER, that the Company will not be required to preserve any such
right or franchise if the Board of Directors determines that the preservation
of the right or franchise is no longer desirable in the conduct of the business
of the Company and that its loss will not be disadvantageous in any material
respect to the Holders of Securities of any series.

SECTION 4.04. COMPLIANCE CERTIFICATE. The Company will deliver to the Trustee
within 120 days after the end of each fiscal year of the Company an Officers’
Certificate stating that in the course of the performance by the signers of
their duties as Officers of the Company they would normally have knowledge of
any default by the Company and whether or not the signers know of any default
that occurred during the fiscal year. If they do, the certificate will describe
the default, its status and what action the Company is taking or proposes to
take with respect thereto. The Company also will comply with TIA Section
314(a)(4).

SECTION 4.05. FURTHER INSTRUMENTS AND ACTS. Upon request of the Trustee, the
Company will execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
purpose of this Indenture.

7

 

ARTICLE FIVE

SUCCESSOR CORPORATION

SECTION 5.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Company
will not consolidate with or merge into any other corporation or convey,
transfer or lease its properties and assets substantially as an entirety to any
person, unless:

		
	 	     (1) the corporation formed by the consolidation or into which the
Company is merged or the person which acquires by conveyance or transfer,
or which leases, the properties and assets of the Company substantially as
an entirety will be a corporation organized and existing under the laws of
the United States of America, a State of the United States of America or
the District of Columbia and expressly assumes, by one or more
supplemental indentures, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal
of, premium, if any, and interest, if any, on all the Securities of each
series and the performance of every covenant of this Indenture and of all
Supplemental Indentures to be performed or observed by the Company;

		
	 	     (2) immediately after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, will have occurred and be continuing; and

		
	 	     (3) the Company has delivered to the Trustee an Officers’ Certificate
and an Opinion of Counsel, each stating that the consolidation, merger,
conveyance, transfer or lease and the supplemental indenture (or the
supplemental indentures together) comply with this Article and that all
the conditions precedent relating to the transaction set forth in this
Section have been fulfilled.

SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any event described in
Section 5.01, the successor corporation will succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture and all the Supplemental Indentures relating to outstanding series of
Securities, and the predecessor corporation will be relieved of all obligations
and covenants under this Indenture and each of those Supplemental Indentures.

ARTICLE SIX

DEFAULTS AND REMEDIES

SECTION 6.01. EVENTS OF DEFAULT.

     An “Event of Default” occurs if:

		
	 	     (1) The Company defaults in the payment of interest on any Security
of any series when it becomes due and payable and the default continues
for a period of 30 days (or such other period, which may be no period, as
is specified in the Supplemental Indenture relating to the series);

		
	 	     (2) The Company defaults in the payment of the principal of, or
premium, if any, on any Security of any series as and when it becomes due
and payable at its stated maturity or upon redemption, acceleration or
otherwise and, if provided in the Supplemental Indenture relating to a
series, the default continues for a period specified in the Supplemental
Indenture;

		
	 	     (3) The Company fails to comply with any of its other covenants or
agreements with regard to Securities of a series or this Indenture (other
than a covenant or agreement, a default in whose performance or whose
breach is dealt with specifically elsewhere in this Section) and that
failure continues for a period of 60 days after the date of the notice
specified below;

		
	 	     (4) the Company, pursuant to any Bankruptcy Law applicable to the
Company:

     (a)  commences a voluntary case;

     (b)  consents to the entry of an order for relief against it in an
involuntary case;

     (c) consents to the appointment of a Custodian of it or for any
substantial part of its property; or

8

 

     (d)  makes a general assignment for the benefit of its creditors; or

		
	 	     (5) a court of competent jurisdiction enters an order or decree under
any applicable Bankruptcy Law:

     (a)  for relief in an involuntary case;

     (b)  appointing a Custodian of the Company or for any substantial part of
its property; or

     (c)  ordering its winding up or liquidation; and the order or decree
remains unstayed and in effect for 90 days.

     Each of the occurrences described in clauses (1) through (5) will
constitute an Event of Default whatever the reason for the occurrence and
whether it is voluntary or involuntary or is effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body.

     The term “Bankruptcy Law” means Title 11 of the UNITED STATES CODE or any
similar United States Federal or State law for the relief of debtors. The term
“Custodian” means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.

     A Default under clause (3) of this Section is not an Event of Default
until the Company notifies the Trustee, or the Holders of at least 25% in
principal amount of the then outstanding Securities of a series with regard to
which the Company has failed to comply with a covenant or agreement notify the
Company and the Trustee, of the Default and the Company does not cure the
Default within 45 days after the giving of the notice. The notice must specify
the Default, demand that it be remedied and state that the notice is a “Notice
of Default.”

     A Default under clause (1), (2) or (3) with regard to Securities of a
series will not constitute a Default with regard to Securities of any other
series except to the extent, if any, provided in the Supplemental Indenture
relating to the other series.

     The Company will deliver to the Trustee, within 20 days after it occurs,
written notice in the form of an Officers’ Certificate of any event of which
the Company is aware which with the giving of notice and the lapse of time
would become an Event of Default under clause (3), its status and what action
the Company is taking or proposes to take with respect to it.

SECTION 6.02. ACCELERATION. If an Event of Default as to the Securities of a
series occurs and is continuing, unless the principal of all of the Securities
of the series has already become due and payable, the Trustee by notice to the
Company, or the Holders of at least 25% in aggregate principal amount of the
Securities of the series then outstanding by notice to the Company and the
Trustee, may declare the principal of and accrued interest, if any, on all the
Securities of the series to be due and payable. Upon such a declaration, that
principal and interest will be due and payable immediately. If an Event of
Default specified in Section 6.01(4) or (5) occurs, the principal of, premium,
if any, and accrued interest, if any, on all the Securities will automatically
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Securityholders. The Holders of a majority in
principal amount of the Securities of a series then outstanding, on behalf of
the Holders of all the Securities of the series, by notice to the Trustee may
rescind an acceleration and its consequences if all existing Events of Default
have been cured or waived except nonpayment of principal, premium, if any, or
interest, if any, that has become due solely because of acceleration, and if
the rescission would not conflict with any judgment or decree. No such
rescission will affect any subsequent default or impair any consequent right.

SECTION 6.03. OTHER REMEDIES. If an Event of Default as to a series occurs and
is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of, premium, if any, and interest, if any, on the
Securities of the series or to enforce the performance of any provision under
this Indenture or any applicable Supplemental Indenture.

     The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default will not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.

SECTION 6.04. WAIVER OF EXISTING DEFAULTS. The Holders of a majority in
aggregate principal amount of the Securities of a series then outstanding, on
behalf of the Holders of all the Securities of that series, by notice to the
Trustee may consent to the waiver of any past Default with regard to Securities
of the series and its consequences except (i) a default in the payment of
interest or premium, if any, on, or the principal of, Securities of the series,
or (ii) a default in respect of a covenant or a provision that under Section
9.02 cannot be modified or amended without the consent of the Holders of all
Securities of the series then outstanding. The defaults described in clauses
(i) and (ii) in the previous sentence may be waived with the consent of the
Holders of all Securities of the series then outstanding. When a Default or
Event of Default is waived, it is deemed cured and not continuing, but no
waiver will extend to any subsequent or other Default or impair any consequent
right.

9

 

SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in principal
amount of the Securities of a series then outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee with regard to the Securities of that series or of exercising any trust
or power conferred on the Trustee with regard to the Securities of that series.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.01, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or that would involve
the Trustee in personal liability PROVIDED, HOWEVER, that the Trustee may take
any other action deemed proper by the Trustee that is not inconsistent with
such direction. Prior to taking any action as a result of a direction given
under this Section, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking that action.

SECTION 6.06. PAYMENTS OF SECURITIES ON DEFAULT; SUIT THEREFOR. The Company
covenants that upon the occurrence of an Event of Default described in Section
6.01(1) or (2), then, upon demand of the Trustee, the Company will pay to the
Trustee, for the benefit of the holders of the Securities in all series, the
whole amount that will then have become due and payable on all such Securities
for principal, premium, if any, and interest, with interest on the overdue
principal and premium, if any, and (to the extent that payment of such interest
is enforceable under applicable law) on the overdue installments of interest at
the rate borne by the Securities in all series; and, in addition, such further
amount as will be sufficient to cover the costs and expenses of collection,
including a reasonable compensation to the Trustee, its agents, attorneys and
counsel, and any expenses or liabilities incurred by the Trustee hereunder
other than through its negligence or bad faith. Until such demand by the
Trustee, the Company may pay the principal of and premium, if any, and interest
on the Securities of all series to the registered Holders, whether or not the
Securities in that series are overdue.

SECTION 6.07. LIMITATION ON SUITS. A Securityholder may not pursue any remedy
with respect to this Indenture unless:

		
	 	     (1) the Holder gives to the Trustee written notice stating that an
Event of Default as to a series is continuing;

		
	 	     (2) the Holders of at least 25% in principal amount of the Securities
of the series then outstanding make a written request to the Trustee to
pursue the remedy;

		
	 	     (3) such Holder or Holders offer to the Trustee reasonable security
or indemnity satisfactory to the Trustee against any loss, liability or
expense;

		
	 	     (4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity, and the
Event of Default has not been waived; and

		
	 	     (5) the Trustee has received no contrary direction from the Holders
of a majority in principal amount of the Securities of the series then
outstanding during such 60-day period.

     A Securityholder may not use this Indenture to prejudice the rights of
another Holder of the same series of Securities or to obtain a preference or
priority over another Holder of the same series of Securities.

SECTION 6.08. RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO DEMAND CONVERSION.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Security of any series to receive payment of principal of, premium, if
any, and interest, if any, on the Security (and interest on overdue principal
and interest on overdue installments of interest, if any, as provided in
Section 4.01), on or after the respective due dates expressed in the Security
or, in the case of redemption, on or after the redemption date, or in the case
of conversion or exchange, to receive the security issuable upon conversion or
exchange or to institute suit for the enforcement of any such payment,
conversion or exchange on or after the applicable due date, redemption date or
conversion or exchange date, as the case may be, against the Company, will not
be impaired or affected without the consent of the Holder.

SECTION 6.09. COLLECTION SUIT BY TRUSTEE. If an Event of Default in payment of
principal, premium, if any, or interest, if any, specified in clause (1) or (2)
of Section 6.01 occurs and is continuing, the Trustee may recover judgment in
its own name and as trustee of an express trust against the Company for the
whole amount of principal, premium, if any, and interest remaining unpaid
(together with interest on that unpaid interest to the extent lawful) and the
amounts provided for in Section 7.07.

SECTION 6.10. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Holders of the Securities of
any or all series allowed in any judicial proceedings relative to the Company,
its creditors or its property and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the

10

 

Trustee and, if the Trustee consents to the making of such payments directly to
the Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.

SECTION 6.11. RESTORATION OF POSITIONS. If a judicial proceeding by the Trustee
or a Securityholder to enforce any right or remedy under this Indenture or any
Supplemental Indenture is dismissed or decided favorably to the Company, except
as otherwise provided in the judicial proceeding, the Company, the Trustee and
the Securityholders will be restored to the positions they would have been in
if the judicial proceeding had not been instituted.

SECTION 6.12. PRIORITIES. If the Trustee collects any money pursuant to this
Article 6 with respect to Securities of a series, it will pay out the money or
property in the following order:

     FIRST: to the Trustee for amounts due under Section 7.07;

     SECOND: to Securityholders for amounts due and unpaid on the Securities of
the series for principal and interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Securities of the
series for principal and interest, respectively; and

     THIRD: to the Company.

     The Trustee may fix a record date and payment date for any payment to
Holders of Securities of a series pursuant to this Section. At least 15 days
before the record date, the Company will mail to each Holder of Securities of
the series and the Trustee a notice that states the record date, the payment
date and the amount to be paid.

SECTION 6.13. UNDERTAKING FOR COSTS. In any suit for the enforcement of any
right or remedy under this Indenture or any Supplemental Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, a
court in its discretion may require the filing by any party litigant in the
suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys’ fees,
against any party litigant in the suit, having due regard to the merits and
good faith of the claims or defenses made by the party litigant. This Section
6.13 does not apply to a suit by the Trustee, a suit by a Holder pursuant to
Section 6.07, or a suit by Holders of in aggregate more than 10% in principal
amount of the Securities of a series then outstanding, or to any suit
instituted by any Holder for the enforcement of the payment of the principal
of, premium, if any, or interest on any Security held by that Holder on or
after the due date provided in the Security or to any suit for the enforcement
of the right to convert or exchange any Security in accordance with the
provisions of a Supplemental Indenture applicable to that Security.

SECTION 6.14. STAY, EXTENSION OR USURY LAWS. The Company agrees (to the extent
that it may lawfully do so) that it will not at any time insist upon, or plead,
or in any manner whatsoever claim, and will resist any and all efforts to be
compelled to take the benefit or advantage of, any stay or extension law or any
usury or other law, wherever enacted, now or at any subsequent time in force,
which would prohibit or forgive the Company from paying all or any portion of
the principal of, premium, if any, and/or interest on any of the Securities as
contemplated in this Indenture or a Supplemental Indenture, or which may affect
the covenants or performance of this Indenture, and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and agrees that it will not hinder, delay or impede the execution
of any power granted to the Trustee in this Indenture or any Supplemental
Indenture, but (to the extent that it may lawfully do so) will suffer and
permit the execution of any such power as though no such law had been enacted.

SECTION 6.15. LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS AND INCORPORATORS.
No stockholder, officer, director or incorporator, as such, past, present or
future, of the Company, or any of its successor corporations, will have any
personal liability in respect of the Company’s obligations under this Indenture
or any Securities by reason of his or its status as such stockholder, officer,
director or incorporator; PROVIDED, HOWEVER, that nothing in this Indenture or
in the Securities will prevent recourse to and enforcement of the liability of
any stockholder or subscriber to Capital Stock in respect of shares of Capital
Stock which have not been fully paid up.

11

 

ARTICLE SEVEN

TRUSTEE

SECTION 7.01. DUTIES OF TRUSTEE.

     (a)  If an Event of Default has occurred and is continuing, the Trustee
will exercise the rights and powers vested in it by this Indenture and any
applicable Supplemental Indenture and use the same degree of care and skill in
their exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.

     (b)  Except during the continuance of an Event of Default:

		
	 	     (i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and any
Supplemental Indentures and no implied covenants or obligations will be
read into this Indenture or any Supplemental Indenture against the
Trustee; and

		
	 	     (ii) the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed in them, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture in the absence of bad faith on the
Trustee’s part; PROVIDED, HOWEVER, that the Trustee will examine the
certificates and opinions to determine whether or not they substantially
conform to the requirements of this Indenture.

     (c)  The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:

		
	 	     (1) this paragraph does not limit the effect of paragraph (b) of this
Section 7.01;

		
	 	     (2) the Trustee will not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is conclusively determined by a
court of competent jurisdiction, such determination no longer subject to
appeal or review, that the Trustee was negligent in ascertaining the
pertinent facts;

		
	 	     (3) the Trustee will not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05; and

		
	 	     (4) the Trustee will not be required to expend or risk its own funds
or otherwise incur financial liability in the performance of any of its
duties under this Indenture or any Supplemental Indenture or in the
exercise of any of its rights or powers, if it has reasonable grounds to
believe repayment of the funds or indemnity satisfactory to it against the
risk or liability is not reasonably assured to it.

     (d)  Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee is subject to the
provisions of this Section 7.01 and to the provisions of the TIA.

     (e)  The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense.

     (f)  The Trustee will not be liable for interest on any money received by
it except as the Trustee may agree with the Company. Money and U.S. Government
Obligations held in trust by the Trustee need not be segregated from other
funds or items except to the extent required by law.

     (g)  The Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
holders of not less than a majority in principal amount of the Securities at
the time outstanding given pursuant to Section 6.05 of this Indenture, relating
to the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon the
Trustee under this Indenture or any Supplemental Indenture.

SECTION 7.02. RIGHTS OF TRUSTEE.

     (a)  The Trustee may conclusively rely, and shall be fully protected in
acting or refraining from acting upon, any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval or other
paper or document

12

 

believed by it to be genuine and to have been signed or presented by the
proper person. The Trustee need not investigate any fact or matter stated in
such documents.

     (b)  Before the Trustee acts or refrains from acting, it may require an
Officers’ Certificate or an Opinion of Counsel which conforms to Section 12.05.
The Trustee will not be liable for any action it takes or omits to take in good
faith in reliance on such an Officers’ Certificate or Opinion of Counsel.

     (c)  The Trustee may act through agents, attorneys, custodians or nominees,
and will not be responsible for the misconduct or negligence of any agent,
attorney, custodian or nominee appointed with due care.

     (d)  The Trustee will not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers, except conduct which constitutes willful misconduct, negligence or bad
faith.

     (e)  The Trustee may consult with counsel and the advice or any opinion of
counsel shall be full and complete authorization and protection in respect of
any action taken or omitted by it hereunder in good faith and in accordance
with such advice or opinion of counsel.

     (f)  The Trustee will not be required to investigate any facts or matters
stated in any document, but if it decides to investigate any matters or facts,
the Trustee or its agents or attorneys will be entitled to examine the books,
records and premises of the Company.

SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or
any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Company or any of its affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.

SECTION 7.04. TRUSTEE’S DISCLAIMER. The Trustee (i) is not responsible for and
makes no representation as to the validity or adequacy of this Indenture, (ii)
will not be responsible for and will not make any representation as to the
validity or adequacy of any Supplemental Indenture, (iii) will not be
accountable for the Company’s use of the proceeds from the Securities of any
series, and (iv) will not be responsible for any statement of the Company in
this Indenture or any Supplemental Indenture, other than the Trustee’s
certificate of authentication, or in any prospectus used in the sale of any of
the Securities, other than statements, if any, provided in writing by the
Trustee for use in such a prospectus.

SECTION 7.05. NOTICE OF DEFAULTS. The Trustee will give to the Holders of the
Securities of a series notice of any Default with regard to the Securities of
that series actually known to a Trust Officer, within 90 days after receipt of
such knowledge and in the manner and to the extent provided in TIA Section
313(c), and otherwise as provided in Section 12.03 of this Indenture; PROVIDED,
HOWEVER, that, except in the case of a Default in the payment of the principal
of, or premium, if any, or interest on any Security, the Trustee will be
protected in withholding notice of the Default if and so long as a committee of
its Trust Officers in good faith determines that the withholding of the notice
is in the interests of the Holders of the Securities of the series.

SECTION 7.06. REPORTS BY TRUSTEE. As specified in any Supplemental Indenture,
the Trustee will mail to each Securityholder, at the name and address which
appears on the registration books of the Company, and to each Securityholder
who has, within the two years preceding the mailing, filed that person’s name
and address with the Trustee for that purpose and each Securityholder whose
name and address have been furnished to the Trustee pursuant to Section 2.07, a
brief report dated as of the date specified in such Supplemental Indenture,
which complies with TIA Section 313(a). Reports to Securityholders pursuant to
this Section 7.06 shall be transmitted in the manner and to the extent provided
in TIA Section 313(c). The Trustee also will comply with TIA Section 313(b).

     A copy of each report will at the time of its mailing to Securityholders
be filed with each stock exchange on which Securities are listed and also with
the SEC. The Company will promptly notify the Trustee when the Securities of
any series are listed on any stock exchange and of any delisting of Securities
of any series.

SECTION 7.07. COMPENSATION AND INDEMNITY. The Company will pay to the Trustee
from time to time reasonable compensation for its services. The Trustee’s
compensation will not be limited by any law on compensation of a trustee of an
express trust. The Company will reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Those expenses
will include the reasonable compensation and expenses, disbursements and
advances of the Trustee’s agents, counsel, accountants and experts. The Company
shall indemnify, defend and hold harmless the Trustee and its officers,
directors, employees, representatives and agents, from and against and
reimburse the Trustee for any and all claims, expenses, obligations,
liabilities, losses, damages, injuries (to person,

13

 

property, or natural resources), penalties, stamp or other similar taxes,
actions, suits, judgments, reasonable costs and expenses (including reasonable
attorney’s and agent’s fees and expenses) of whatever kind or nature regardless
of their merit, demanded, asserted or claimed against the Trustee by reason of
its participation in the transactions contemplated hereby, including without
limitation all reasonable costs associated with such claims for damages to
persons or property, and reasonable attorneys’ and consultants’ fees and
expenses and court costs except to the extent caused by the Trustee’s gross
negligence or willful misconduct. The obligations of the Company to indemnify
the Trustee under this Section 7.07 shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee. The Trustee
will notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company will not relieve the Company of
its obligations under this Section. The Company will defend the claim and the
Trustee may have separate counsel and the Company will pay the fees and
expenses of such counsel. The Company need not pay for any settlement made
without its consent. The Company need not reimburse any expense or indemnify
against any loss, expense or liability incurred by the Trustee to the extent it
is due to the Trustee’s own willful misconduct, negligence or bad faith.

     To secure the Company’s obligation to make payments to the Trustee under
this Section 7.07, the Trustee will have a lien prior to the Securities on all
money or property held or collected by the Trustee, other than money or
property held in trust to pay principal or interest on particular Securities.
The obligations of the Company under this Section 7.07 to compensate the
Trustee and to pay or reimburse the Trustee for reasonable expenses,
disbursements and advances shall survive the satisfaction and discharge of this
Indenture or the earlier resignation or removal of the Trustee.

     When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (4) or (5) of Section 6.01 occurs, the expenses and
the compensation for the services of the Trustee are intended to constitute
expenses of administration under any Bankruptcy Law.

     For purposes of this Section 7.07, “Trustee” will include any predecessor
Trustee, but the willful misconduct, negligence or bad faith of any Trustee
will not affect the rights of any other Trustee under this Section 7.07.

SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any time by so
notifying the Company. The Holders of a majority in aggregate principal amount
of the Securities of all series then outstanding may remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee. The
Company may remove the Trustee if:

		
	 	     (1) the Trustee fails to comply with Section 7.10;

		
	 	     (2) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any bankruptcy law;

		
	 	     (3) a receiver or other public officer takes charge of the Trustee or
its property; or

		
	 	     (4) the Trustee becomes incapable of acting.

     If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company will promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of Securities of all series then
outstanding may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.

     No removal or appointment of a Trustee will be valid if that removal or
appointment would conflict with any law applicable to the Company.

     A successor Trustee will deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after that, the
retiring Trustee will, subject to the lien provided for in Section 7.07,
transfer all property held by it as a Trustee to the successor Trustee, the
resignation or removal of the retiring Trustee will become effective, and the
successor Trustee will have all the rights, powers and duties of the Trustee
under this Indenture and all Supplemental Indentures. A successor Trustee will
mail notice of its succession to each Securityholder.

     If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in aggregate principal amount of Securities of all
series then outstanding may petition any court of competent jurisdiction for
the appointment of a successor Trustee.

     If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.

     Notwithstanding the replacement of the Trustee pursuant to this Section,
the Company’s obligations under Section 7.07 will continue for the benefit of
the retiring Trustee.

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SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all of its
corporate trust assets to, another Person, the resulting, surviving or
transferee Person will, without any further act, be the successor Trustee.

     If at the time a successor by merger, conversion or consolidation to the
Trustee succeeds to the trusts created by this Indenture any of the Securities
have been authenticated but not delivered, the successor to the Trustee may
adopt the certificate of authentication of the predecessor Trustee, and deliver
the Securities which were authenticated by the predecessor Trustee; and if at
that time any of the Securities have not been authenticated, the successor to
the Trustee may authenticate those Securities in its own name as the successor
to the Trustee; and in either case the certificates of authentication will have
the full force provided in this Indenture for certificates of authentication.

SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee will at all times
satisfy the requirements of TIA Section 310(a). The Trustee will at all times
have (or shall be a member of a bank holding company system whose parent
corporation has) a combined capital and surplus of at least $50,000,000 as set
forth in its most recently published annual report of condition, which will be
deemed for this paragraph to be its combined capital and surplus. The Trustee
will comply with TIA Section 310(b).

SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS. The Trustee will comply with
TIA Section 311(a), excluding any creditor relationship listed in TIA Section
311(b). A Trustee who has resigned or been removed will be subject to TIA
Section 311(a) to the extent indicated.

ARTICLE EIGHT

DISCHARGE OF INDENTURE

SECTION 8.01. TERMINATION OF THE COMPANY’S OBLIGATIONS. When (i) the Company
delivers to the Trustee all outstanding Securities of all series (other than
Securities replaced pursuant to Section 2.09) for cancellation or (ii) all
outstanding Securities of all series have become due and payable, or are due
and payable within one year or are to be called for redemption within one year,
under arrangements satisfactory to the Trustee for giving the notice of
redemption, and the Company irrevocably deposits in trust with the Trustee
(subject to Article Eleven) money or U.S. Government Obligations sufficient to
pay the principal, premium, if any, and interest, if any, on the Securities of
all series to maturity or redemption, as the case may be, and if, in the case
of either (i) or (ii) above the Company also pays or causes to be paid all
other sums payable by the Company under this Indenture, then this Indenture
will cease to be of further effect.

     Notwithstanding the foregoing, the Company’s obligations to pay principal,
premium, if any, and interest, if any, on the Securities and the Company’s
obligations in Sections 2.05, 2.06, 2.07, 2.08, 2.09, 7.07, 7.08 and in Article
Ten will survive until all the Securities of all series are no longer
outstanding. Thereafter, the Company’s obligations in Section 7.07 will
survive.

     Before or after a deposit the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities of a series at a future date to
the extent the Securities are redeemable in accordance with Article Three and
the applicable Supplemental Indenture.

     After a deposit pursuant to this Section 8.01 or after all outstanding
Securities of all series have been delivered to the Trustee for cancellation,
the Trustee upon request from the Company, accompanied by an Officers’
Certificate and an Opinion of Counsel which complies with Section 12.05, and at
the cost of the Company, will acknowledge in writing the satisfaction and
discharge of the Company’s obligations under the Securities of all series and
this Indenture except for those surviving obligations specified above.

     In order to have money available on payment dates to pay principal,
premium, if any, or interest, if any, on the Securities of a series, the U.S.
Government Obligations will be payable as to principal, premium, if any, or
interest on or before those payment dates in amounts sufficient to provide the
necessary money. U.S. Government Obligations used for this purpose may not be
callable at the issuer’s option.

     “U.S. Government Obligations” means:

		
	 	     (1) direct obligations of the United States for the payment of which
its full faith and credit is pledged; or

		
	 	     (2) obligations of a person controlled or supervised by and acting as
an agency or instrumentality of the United States the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States.

15

 

SECTION 8.02. APPLICATION OF TRUST MONEY. Subject to Article Eleven and Section
8.03, the Trustee will hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It will apply the deposited money
and the money from the U.S. Government Obligations through the Paying Agent and
in accordance with this Indenture and any applicable Supplemental Indentures to
the payment of principal of, premium, if any, and interest, if any, on the
Securities with regard to which the money or U.S. Government Obligations were
deposited.

SECTION 8.03. REPAYMENT TO THE COMPANY. The Trustee and the Paying Agent will
promptly pay to the Company upon request any excess money or securities held by
them at any time. The Trustee and the Paying Agent will, subject to applicable
escheatment laws, pay to the Company upon request any money held by them for
the payment of principal, premium or interest that remains unclaimed for two
years. After such payment, the Holder of any Securities shall thereafter look
to the Company for any payment which such Holder may be entitled to collect,
and all liability of the Trustee and the Paying Agent with respect to that
money will cease.

ARTICLE NINE

AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee may amend
or supplement this Indenture or the Securities without notice to or consent of
any Securityholder:

		
	 	     (1) to cure any ambiguity, defect or inconsistency;

		
	 	     (2) to comply with Article 5;

		
	 	     (3) to establish the form and terms of the Securities of any series
as contemplated in Article Two of this Indenture;

		
	 	     (4) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or

		
	 	     (5) to make any change that does not materially adversely affect the
rights of any Securityholder.

     After an amendment under this Section becomes effective, the Company will
mail to the Securityholders a notice briefly describing the amendment. The
failure to give such notice to all Securityholders, or any defect in a notice,
will not impair or affect the validity of an amendment under this Section.

SECTION 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee may (i)
amend or supplement this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of a majority in
aggregate principal amount of the Securities of all series then outstanding or
(ii) supplement this Indenture with regard to a series of Securities, amend or
supplement a Supplemental Indenture relating to a series of Securities, or
amend the Securities of a series, without notice to any Securityholder but with
the written consent of the Holders of a majority in aggregate principal amount
of the Securities of that series then outstanding. The Holders of a majority in
principal amount of the Securities of all series then outstanding may waive
compliance by the Company with any provision of this Indenture or the
Securities without notice to any Securityholder. The Holders of a majority in
principal amount of the Securities of any series then outstanding may waive
compliance with any provision of this Indenture, any Supplemental Indenture or
the Securities of that series with regard to the Securities of that series
without notice to any Securityholder. However, without the consent of the
Holder so affected, no amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may:

		
	 	     (1) extend the fixed maturity of any Security, reduce the rate or
extend the time for payment of interest on any Security, reduce the
principal amount of any Security or premium, if any, on any Security;

		
	 	     (2) impair or affect the right of a Holder to institute suit for
the payment of interest, if any, principal or premium, if any, on the
Securities;

		
	 	     (3) change the currency in which the Securities are payable from that
specified in the Securities or in a Supplemental Indenture applicable to
the Securities;

		
	 	     (4) impair the right, if any, to convert the Securities into, or
exchange the Securities for, other securities or assets;

16

 

		
	 	     (5) reduce the percentage of Securities required to consent to an
amendment, supplement or waiver;

		
	 	     (6) reduce the amount payable upon the redemption of any Security or
change the time at which any Security may or will be redeemed;

		
	 	     (7) modify the provisions of any Supplemental Indenture with respect
to subordination of the Securities of a series in a manner adverse to the
Securityholders; or

		
	 	     (8) make any change in Section 6.04 or 6.08 or the fifth sentence of
this Section.

     It will not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, supplement or waiver,
but it will be sufficient if the consent approves the substance of the
amendment, supplement or waiver.

SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or
supplement to this Indenture, any Supplemental Indenture or the Securities will
comply with the TIA as then in effect.

SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. A consent to an amendment,
supplement or waiver by a Holder of a Security will bind the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder’s Security, even if notation of the consent
is not made on any Security. However, any such Holder or subsequent Holder may
revoke the consent as to the Holder’s Security or portion of a Security. For a
revocation to be effective, the Trustee must receive notice of the revocation
before the date the amendment, supplement or waiver becomes effective. After an
amendment, supplement or waiver becomes effective in accordance with its terms,
it will bind every Holder of every Security of every series to which it
applies.

SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment changes
the terms of a series of Securities, the Trustee may require the Holder of a
Security of the series to deliver the Holder’s Security to the Trustee, who
will place an appropriate notation about the amendment, supplement or waiver on
the Security and will return it to the Holder. Alternatively, the Company may,
in exchange for the Security, issue, and the Trustee will authenticate, a new
Security that reflects the amendment, supplement or waiver.

SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee will sign any
amendment, supplement or waiver authorized pursuant to Article Two or this
Article Nine if the amendment, supplement or waiver does not adversely affect
the rights, liabilities or immunities of the Trustee. If it does adversely
affect those rights, liabilities or immunities, the Trustee may but need not
sign it. The Company may not sign an amendment or supplement until the
amendment or supplement is approved by an appropriate Board Resolution. The
Trustee shall be entitled to receive an Officer’s Certificate and opinion of
counsel stating that such amendment, supplement or waiver is authorized and
that all conditions precedent to the execution of such document have been met.

ARTICLE TEN

CONVERSION OR EXCHANGE OF SECURITIES

SECTION 10.01. PROVISIONS RELATING TO CONVERSION OR EXCHANGE OF SECURITIES.
Any rights which Holders of Securities of a series will have to convert those
Securities into other securities of the Company or to exchange those Securities
for securities of other Persons or other assets, including but not limited to
the terms of the conversion or exchange and the circumstances, if any, under
which those terms will be adjusted to prevent dilution or otherwise, will be
set forth in a Supplemental Indenture relating to the series of Securities. In
the absence of provisions in a Supplemental Indenture relating to a series of
Securities setting forth rights to convert or exchange the Securities of that
series into or for other securities or assets, Holders of the Securities of
that series will not have any such rights.

ARTICLE ELEVEN

SINKING OR PURCHASE FUNDS

SECTION 11.01. PROVISIONS RELATING TO SINKING OR PURCHASE FUNDS. Any
requirements that the Company make, or rights of the Company to make at its
option, payments prior to maturity of the Securities of a series which will be
used as a fund with which to redeem or to purchase Securities of that series,
including but not limited to provisions regarding the

17

 

amount of the payments, when the Company will be required, or will have the
option, to make the payments and when the payments will be applied, will be set
forth in a Supplemental Indenture relating to the series of Securities. In the
absence of provisions in a Supplemental Indenture relating to a series of
Securities setting forth requirements that the Company make, or rights of the
Company to make at its option, payments to be used as a fund with which to
redeem or purchase Securities of the series, the Company will not be subject to
any such requirements and will not have any such rights. However, unless
otherwise specifically provided in a Supplemental Indenture relating to a
series of Securities, the Company will at all times have the right to purchase
Securities from Holders in market transactions or otherwise.

ARTICLE TWELVE

MISCELLANEOUS

SECTION 12.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture
or any Supplemental Indenture limits, qualifies or conflicts with the duties
imposed by Sections 310 through 317 of the TIA, the imposed duties will
control.

SECTION 12.02. SUPPLEMENTAL INDENTURE CONTROLS. If any provision of a
Supplemental Indenture relating to a series of Securities is inconsistent with
any provision of this Indenture, the provision of the Supplemental Indenture
will control with regard to the Securities of the series to which it relates.

SECTION 12.03. NOTICES. Any notice or communication under or relating to this
Indenture or any Supplemental Indenture will be sufficiently given if in
writing and delivered in person or mailed by first-class mail, certified or
registered, return receipt requested, addressed as follows:

	 	 	 
	if to the Company:	 	
Thornburg Mortgage, Inc.
	 	 	
150 Washington Avenue, Suite 302
	 	 	
Santa Fe, New Mexico 87501

if to the Trustee:

     Either the Company or the Trustee by a notice to the other may designate
additional or different addresses for subsequent notices or communications.

     Any notice or communication mailed to a Securityholder will be mailed to
the Securityholder at the Securityholder’s address as it appears on the
registration books of the Registrar and will be sufficiently given to the
Securityholder if so mailed within the time prescribed.

     Failure to mail a notice or communication to a Securityholder or any
defect in it will not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.

     If by reason of the suspension of regular mail service, or by reason of
any other cause, it is impossible to mail any notice as required by this
Indenture or any Supplemental Indenture, then any method of notification which
is approved by the Trustee will constitute a sufficient mailing of the notice.

     The Company may set a record date for purposes of determining the identity
of Securityholders entitled to vote or consent to any action by vote or consent
authorized or permitted by Sections 6.04 and 6.05. The record date will be the
later of 30 days prior to the first solicitation of consents or the date of the
most recent list of Holders furnished to the Trustee pursuant to Section 2.07
prior to the solicitation.

SECTION 12.04. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Securityholders may
communicate pursuant to TIA Section 312(b) with other Securityholders with
respect to their rights under this Indenture or the Securities. Each of the
Company, the Trustee, the Registrar and anyone else will have the protection of
TIA Section 312(c).

SECTION 12.05. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any
request or application by the Company to the Trustee to take any action under
this Indenture or any Supplemental Indenture, the Company will furnish to the
Trustee:

		
	 	     (1) an Officers’ Certificate stating that, in the opinion of the
signer, all conditions precedent, if any, provided for in this Indenture
or any Supplemental Indenture relating to the proposed action have been
complied with;

18

 

		
	 	     (2) an Opinion of Counsel stating that, in the opinion of such
counsel, all those conditions precedent have been complied with; and

		
	 	     (3) such other opinions and certificates as may be required by
applicable provisions of this Indenture or the Supplemental Indenture.

     Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture or a Supplemental Indenture will
include (i) a statement that the person making the certificate or opinion has
read the covenant or condition; (ii) a brief statement as to the nature and
scope of the examination or investigation upon which the statements or opinions
contained in the certificate or opinion are based; (iii) a statement that, in
the opinion of the person giving the certificate or opinion, that person has
made such examination or investigation as is necessary to enable that person to
express an informed opinion as to whether or not the covenant or condition has
been complied with; and (iv) a statement as to whether or not, in the opinion
of that person, the condition or covenant has been complied with. Nothing in
this Section 12.05 will be construed as requiring that the Company furnish to
the Trustee any evidence of compliance with the conditions and covenants
provided for in this Indenture or any Supplemental Indenture other than the
evidence specified in this Section 12.05.

SECTION 12.06. WHEN TREASURY SECURITIES DISREGARDED. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company, or anyone under
direct or indirect control or under direct or indirect common control with the
Company will be disregarded and deemed not to be outstanding, except that for
the purposes of determining whether the Trustee will be protected in relying on
any such direction, waiver or consent, only Securities which the Trustee knows
are so owned will be so disregarded. Securities so owned which have been
pledged in good faith will not be disregarded if the pledgee establishes to the
satisfaction of the Trustee the pledgee’s right to act with respect to the
Securities and that the pledgee is not the Company or a person directly or
indirectly controlling or controlled by, or under common control with, the
Company. Nothing in this Section 12.06 will be construed as requiring that the
Company furnish to the Trustee any evidence of compliance with the conditions
and covenants provided for in the Indenture other than the evidence specified
in this Section 12.06.

SECTION 12.07. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR. The Trustee may make
reasonable rules for action by or at a meeting of Securityholders. The Paying
Agent or Registrar may make reasonable rules for its functions.

SECTION 12.08. LEGAL HOLIDAYS. A “Legal Holiday” is a Saturday, a Sunday, or a
day on which banking institutions are not required to be open in the State of
New York. If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest on the sum being paid will accrue for the intervening
period.

SECTION 12.09. GOVERNING LAW AND SUBMISSION TO JURISDICTION. The laws of the
State of New York will govern this Indenture, each Supplemental Indenture and
the Securities. The Company submits to the jurisdiction of the courts of the
State of New York sitting in the Borough of Manhattan, City of New York, and of
the United States District Court for the Southern District of New York, in any
action or proceeding to enforce any of its obligations under this Indenture or
any Supplemental Indenture or with regard to the Securities, and agrees not to
seek a transfer of any such action or proceeding on the basis of inconvenience
of the forum or otherwise (but the Company will not be prevented from removing
any such action or proceeding from a state court to the United States District
Court for the Southern District of New York). The Company agrees that process
in any such action or proceeding may be served upon it by registered mail or in
any other manner permitted by the rules of the court in which the action or
proceeding is brought.

SECTION 12.10. ACTIONS BY THE COMPANY. Any action or proceeding brought by the
Company to enforce any right, assert any claim or obtain any relief in
connection with this Indenture, any Supplemental Indenture or the Securities
will be brought by the Company exclusively in the courts of the State of New
York sitting in the Borough of Manhattan, City of New York or in the United
States District Court for the Southern District of New York.

SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. Neither this
Indenture nor any Supplemental Indenture may be used to interpret another
indenture, loan or debt agreement of the Company or any Subsidiary. No such
indenture, loan or debt agreement may be used to interpret this Indenture or
any Supplemental Indenture.

SECTION 12.12. SUCCESSORS. All agreements of the Company in this Indenture, any
Supplemental Indentures and the Securities will bind its successors. All
agreements of the Trustee in this Indenture and any Supplemental Indentures
will bind its successors.

SECTION 12.13. DUPLICATE ORIGINALS. The parties may sign any number of copies
of this Indenture or any Supplemental Indenture. Each signed copy will be an
original, but all of them together will represent the same agreement.

19

 

SECTION 12.14. TABLE OF CONTENTS, HEADINGS, ETC. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only. They are not to
be considered a part of this Indenture, and will in no way modify or restrict
any of the terms or provisions of this Indenture.

20

 

     IN WITNESS WHEREOF, the parties to this Indenture have caused it to be
duly executed as of the day and year first above written.

	 	 	 
	 	 	
THORNBURG MORTGAGE, INC.
	 
	 	 	
By:
	 	 	 
	 	 	

	 	 	
Name:
	 	 	
Title:
	 	 	 
	 	 	
TRUSTEE
	 	 	 
	 	 	
By:
	 	 	 
	 	 	

	 	 	
Name:
	 	 	
Title:

21

 

EXHIBIT A

[FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION]

     This is one of the Securities of the series described in the
within-mentioned Indenture and Supplemental Indenture.

	 	 	
[TRUSTEE]
	 	 	
     as Trustee
	 	 	 
	 	 	
By:
	 	 	 
	 	 	

	 	 	
Authorized Signature

22<PAGE>

                                                                   EXHIBIT 4.1.1

                                                                  EXECUTION COPY

                    CONVERTIBLE DEBENTURE EXCHANGE AGREEMENT

         This CONVERTIBLE DEBENTURE EXCHANGE AGREEMENT ("Agreement") is made and
entered into as of this 2nd day of January, 2004, by and among Special
Situations Private Equity Fund, L.P., Special Situations Cayman Fund, L.P.,
Special Situations Fund III, L.P., Julian Edison, The Crown Advisors, LLC, Crown
Investment Partners, L.P., and SWB Holdings, Inc. (each of which may sometimes
be referred to herein as an "Exchangor" and all of which may sometimes be
referred to herein as the "Exchangors") and Bakers Footwear Group, Inc., a
Missouri corporation ("the Company").

                                    RECITALS

         WHEREAS, each Exchangor is the holder of a Subordinated Convertible
Debenture, dated April 2, 2002, of the Company (collectively, the "2002
Debentures") pursuant to a Debenture Purchase Agreement, dated as of April 4,
2002 among the Company and the Exchangors (the "Debenture Purchase Agreement");

         WHEREAS, the Debenture Purchase Agreement by its terms provides that it
may be amended only by a writing signed by the Company and the Required
Purchasers (as defined therein), and this Agreement is intended to modify,
effective as of the date hereof and without retroactive effect, the Company's
continued covenants and agreements under the Debenture Purchase Agreement so
that such covenants and agreements apply only to the New Debentures (as defined
below) without duplication and without affecting any rights, powers or
obligations of a Purchaser existing on the date hereof with respect to the 2002
Debentures;

         WHEREAS, in connection with entering into the Debenture Purchase
Agreement and the making and issuance of the 2002 Debentures by the Company, the
parties to the Debenture Purchase Agreement entered into a Registration Rights
Agreement, dated April 4, 2002 (the "2002 Registration Rights Agreement");

         WHEREAS, in connection with the foregoing, the Company, Fleet Retail
Finance Inc. ("Fleet") and each of the Purchasers entered into a separate
Intercreditor and Subordination Agreement, dated as of April 4, 2002
(collectively, the "2002 Intercreditor Agreements"), whereby each Purchaser, as
Subordinated Creditor, among other things, acknowledged that the 2002 Debenture
held by such Purchaser would be subordinate in order of priority of payment to
all loans made by Fleet to the Company pursuant to the Loan and Security
Agreement, dated as of January 18, 2000, between the Company and Fleet;

         WHEREAS, the Company will derive substantial benefits from exchanging
all of the 2002 Debentures for new convertible debentures, dated as of the date
hereof, in the form of Exhibit A hereto and having the terms described herein
(each, a "New Debenture") and from modifying or ratifying the terms, subject to
certain conditions, of the 2002 Registration Rights Agreement and the 2002
Intercreditor Agreements (collectively, the "2002 Agreements");

         WHEREAS, the Exchangors desire to exchange their 2002 Debentures for
New Debentures and to modify and restate the 2002 Agreements, subject to certain
conditions, on the terms and conditions set forth in this Agreement; and

<PAGE>

         WHEREAS, on December 4, 2003, the Company filed Pre-Effective Amendment
No. 2 to its Registration Statement on Form S-1 (No. 333-86322, the
"Registration Statement") with the Securities and Exchange Commission in
connection with the Company's planned firm commitment initial public offering of
shares of its common equity (but not including any of the Debenture Shares (as
defined below)).

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

         SECTION 1. EXCHANGE

         1.1.     The Exchange. Upon the terms and subject to the conditions of
this Agreement, at the Closing (as defined herein), each Exchangor shall
transfer and convey to the Company for cancellation the 2002 Debenture held by
such Exchangor, and the Company shall acquire from each Exchangor and cancel
such 2002 Debenture, and in exchange therefor shall issue a New Debenture equal
in aggregate principal amount to the unpaid principal amount of the 2002
Debenture so exchanged. No payment of accrued but unpaid interest to and
including the date of the Closing shall be paid on the 2002 Debentures so
exchanged at the Closing, but the New Debentures shall provide for the payment
without duplication of such interest for the entire quarterly period ended March
31, 2004.

         1.2.     Closing. The closing is anticipated to take place on the date
hereof, at the offices of Bryan Cave LLP, One Metropolitan Square, Suite 3600,
St. Louis, Missouri or on such other date and at such other place as the parties
may agree in writing ("Closing"). At Closing, each Exchangor shall deliver or
cause to be delivered to the Company the 2002 Debenture held by such Exchangor,
and the Company shall cancel such 2002 Debenture and issue in its place a New
Debenture equal in aggregate principal amount to the unpaid principal amount of
the 2002 Debenture so delivered, to the Exchangor.

         1.3.     Other Agreements. At Closing, the Company and the Exchangors
shall enter into the Second Registration Rights Agreement and the Amended and
Restated Intercreditor and Subordination Agreements, each substantially in the
form attached to this Agreement as Exhibit B and Exhibit C, respectively.

         1.4.     Closing Deliveries. At Closing, the following documents shall
be delivered:

                  (a)      The New Debentures;

                  (b)      The 2002 Debentures;

                  (c)      The Second Registration Rights Agreement;

                  (d)      The Amended and Restated Intercreditor and
                           Subordination Agreements;

                  (e)      The Lock-Up Agreements in the form attached as
                           Exhibit B to the Second Registration Rights
                           Agreement;

                                       2

<PAGE>

                  (f)      A Certificate, executed on behalf of the Company by
                           its Secretary, dated as of the Closing Date,
                           certifying the resolutions adopted by the Board of
                           Directors of the Company approving the transactions
                           contemplated by this Agreement and the other
                           Transaction Documents and the issuance and exchange
                           of the New Debentures for the 2002 Debentures,
                           certifying the current versions of the Articles of
                           Incorporation and Bylaws of the Company and
                           certifying as to the signatures and authority of
                           persons signing the Transaction Documents and related
                           documents on behalf of the Company; and

                  (g)      An opinion from Bryan Cave LLP, the Company's
                           counsel, dated as of the Closing Date, in
                           substantially the form of Exhibit D attached hereto.

         SECTION 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

         In order to induce the Exchangors to enter into this Agreement and to
exchange the 2002 Debentures for New Debentures, the Company hereby represents,
warrants and agrees that, except as disclosed in the Registration Statement.

         2.1.     Corporate Status. The Company (i) has been duly organized and
is a validly existing corporation in good standing under the laws of the State
of Missouri; (ii) has the power and authority (corporate and other) to own its
property and assets and to transact the business in which it is engaged; and
(iii) is duly qualified as a foreign corporation and in good standing in each
jurisdiction where the ownership, leasing or operation of property or the
conduct of its business requires such qualification. The Company does not own,
directly or indirectly, any equity interest in any other Person.

         2.2.     Power and Authority; Legal Capacity. The Company has the power
and authority (corporate and other) to execute, deliver and perform the terms
and provisions of the Transaction Documents and to issue and exchange the
Securities and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of each of this Agreement and the New
Debentures. The Company has duly executed and delivered the Transaction
Documents, and each Transaction Document constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.

         2.3.     Issuance of Securities. The Debenture Shares have been duly
authorized and reserved for issuance and, upon the due conversion of the New
Debentures, the Debenture Shares shall be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Debenture Shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed. The issuance and sale of the
Securities is not subject to any preemptive rights, rights of first refusal or
other similar rights.

         2.4.     Issuance. Assuming the accuracy of the representations and
warranties of the Exchangors contained in Section 3 hereof, the issuance and
exchange of the Securities is and will be exempt from the registration and
prospectus delivery requirements of the 1933 Act, and have been

                                        3

<PAGE>

registered or qualified (or are exempt from registration and qualification)
under the registration, permit, or qualification requirements of all applicable
state securities laws.

         2.5.     No Conflict or Violation. The execution and delivery of the
Transaction Documents by the Company, the performance by the Company of its
obligations thereunder (including the issuance and exchange of the Securities)
does not (i) conflict with or violate the Articles of Incorporation or By-laws
of the Company (both as in effect as of the date hereof, true and complete
copies of which have been delivered to the Exchangors), (ii) result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company is bound or to which any of
the properties or assets of the Company is subject, or (iii) violate any
statute, rule, regulation or other law, or any order or judgment, of any court
or governmental agency or body having jurisdiction over the Company or any of
its properties, except, in the case of clauses (ii) and (iii) only, to such
extent as, individually or in the aggregate, does not and could not reasonably
be expected to have a Material Adverse Effect, provided that the Company is
required to obtain, and has received, written consent to the exchange of the New
Debentures hereunder from the lender under the Company's revolving credit
facility. No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement, the
Second Registration Rights Agreement, or the New Debentures, or the issuance of
common stock pursuant to the New Debentures, or the consummation of the
transactions contemplated hereby or thereby, other than as referred to in
Sections 2.3 and 2.4.

         2.6.     Financial Statements. Included in the Registration Statement
are (i) the audited balance sheets of the Company as of January 5, 2002 and
January 4, 2003 and the related statements of operations, shareholders' equity
(deficit), and cash flows for the two fiscal years ended January 4, 2003, and
all notes and schedules thereto and (ii) the unaudited balance sheets of the
Company as of October 5, 2002 and October 4, 2003 and the related unaudited
statements of operations, shareholders' equity (deficit), and cash flows for the
nine-month periods then ended (collectively, the "Financial Statements"). The
Financial Statements for each of the two fiscal years in the period ended
January 4, 2003 have been audited by Ernst & Young, LLP. The Financial
Statements (i) are true, complete, and correct, (ii) present fairly, in all
material respects, the financial position, results of operations, and cash flows
of the Company at the dates and for the periods indicated, and (iii) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except that the unaudited financial statements omit notes
and certain customary year-end adjustments which should not be material in the
aggregate).

         2.7.     No Material Adverse Change. Since October 4, 2003, except as
identified and disclosed on Schedule 2.7, there has not been:

                  (a)      any change in the consolidated assets, liabilities,
                           financial condition or operating results of the
                           Company from that reflected in the Financial
                           Statements, except for changes in the ordinary course
                           of business and which have not and could not
                           reasonably be expected to have a Material Adverse
                           Effect, individually or in the aggregate;

                                       4

<PAGE>

                  (b)      any declaration or payment of any dividend, or any
                           authorization or payment of any distribution, on any
                           of the capital stock of the Company, or any
                           redemption or repurchase of any securities of the
                           Company;

                  (c)      any material damage, destruction or loss, whether or
                           not covered by insurance to any assets or properties
                           of the Company;

                  (d)      any waiver, not in the ordinary course of business,
                           by the Company of a material right or of a material
                           debt owed to it;

                  (e)      any satisfaction or discharge of any lien, claim or
                           encumbrance or payment of any obligation by the
                           Company, except for those done in the ordinary course
                           of business and which have not or could not
                           reasonably be expected to have a Material Adverse
                           Effect, individually or in the aggregate;

                  (f)      any change or amendment to the Company's Articles of
                           Incorporation or by-laws, or material change to any
                           material contract or arrangement by which the Company
                           is bound or to which any of its assets or properties
                           is subject;

                  (g)      any material labor difficulties or labor union
                           organizing activities with respect to employees of
                           the Company;

                  (h)      any material transaction entered into by the Company
                           other than in the ordinary course of business;

                  (i)      the loss of the services of any key employee, or
                           material change in the composition or duties of the
                           senior management of the Company;

                  (j)      the loss or threatened loss of any customer which has
                           had or could reasonably be expected to have a
                           Material Adverse Effect; or

                  (k)      any other event or condition of any character that
                           has had or could reasonably be expected to have a
                           Material Adverse Effect.

         2.8.     Broker and Finder. The Company has not engaged, and owes no
payment or success fee to, any broker or finder in connection with the issuance
and exchange of the New Debentures, including without limitation any commission
or other remuneration paid directly or indirectly for soliciting such exchange.

         2.9.     Capitalization. The authorized capital stock of the Company
consists solely of 3,000,000 shares of Class A common stock, par value $0.001
per share, 500,000 shares of Class B common stock, par value $0.001 per share,
and 1,500,000 shares of Class C common stock, par value $0.001 per share, of
which 1,693,244.92 shares of Class A common stock, 271,910 shares of Class B
common stock and no shares of Class C common stock are outstanding as of the
date hereof (collectively, the issued and outstanding Class A common stock,
Class B common stock and Class C common stock are referred to herein as the
"Shares"). All the Shares were duly authorized and validly issued and are fully
paid and nonassessable, and were issued in compliance with applicable law and
any preemptive, subscription or other similar rights which have not been waived.
Except as contemplated by this Agreement or on Schedule 2.9, there are no
outstanding warrants,

                                        5

<PAGE>

options, convertible securities or other rights, agreements or arrangements of
any character under which the Company is or may be obligated to issue any equity
securities of any kind and the Company is not currently in negotiations for the
issuance of any equity securities of any kind. Except as disclosed on Schedule
2.9 and except for the Second Registration Rights Agreement and the 2002
Registration Rights Agreement, there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the securityholders of the Company
relating to the securities of the Company held by them. Except as disclosed on
Schedule 2.9 and except for the Second Registration Rights Agreement and the
2002 Registration Rights Agreement, the Company has not granted any Person the
right to require the Company to register any securities of the Company under the
1933 Act, whether on a demand basis or in connection with the registration of
securities of the Company for its own account or for the account of any other
Person. The issuance and sale of the Securities will not result in any
antidilution or similar adjustment in any outstanding securities of the Company.
Except as disclosed on Schedule 2.9, the Company does not have outstanding
shareholder purchase rights or any similar arrangement in effect giving any
Person the right to purchase any equity interest in the Company upon the
occurrence of certain events.

         2.10.    S Election. The Company has made a valid election to be
treated as an S Corporation within the meaning of Section 1361 of the Internal
Revenue Code, and such election has been in effect for each taxable year of the
Company commencing January 1, 1984. The Company has qualified and will qualify
as an S Corporation at all times from the effective date of election up to and
including the date hereof.

         2.11.    Tax Matters. The Company has timely prepared and filed all tax
returns required to have been filed by the Company with all appropriate
governmental agencies and timely paid all taxes shown thereon or otherwise owed
by it, except to the extent that failure to do so would not have a Material
Adverse Effect, individually or in the aggregate. Except as disclosed on
Schedule 2.11, The charges, accruals and reserves on the books of the Company in
respect of taxes for all fiscal periods are adequate in all material respects,
and there are no material unpaid assessments against the Company nor, to the
Company's Knowledge, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any federal, state or
local taxing authority except for any assessment which is not material to the
Company. All taxes and other assessments and levies that the Company is required
to withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party when due. There are no tax
liens or claims pending or, to the Company's Knowledge, threatened against the
Company any of its assets or property. There are no outstanding tax sharing
agreements or other such arrangements between the Company and any Subsidiary or
other corporation or entity.

         2.12.    Title to Properties. Except as disclosed in Schedule 2.12, the
Company has good and marketable title to all real properties and all other
properties and assets owned by it, free from liens, encumbrances and defects
that would materially affect the value thereof or materially interfere with the
use made or currently planned to be made thereof by them; and except as
disclosed in Schedule 2.12, the Company holds any leased real or personal
property under valid and enforceable leases, except to the extent that such
failure to so hold would not have a Material Adverse Effect, individually or in
the aggregate.

         2.13.    Certificates, Authorities and Permits. The Company possesses
all required certificates, authorities, licenses or permits issued by
appropriate governmental agencies or bodies

                                        6

<PAGE>

necessary to conduct the business now operated by it, and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authority, license or permit that, if determined adversely
to the Company, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.

         2.14.    No Labor Disputes. No material labor dispute with the
employees of the Company exists or, to the Company's Knowledge, is imminent.

         2.15.    Intellectual Property. Except as disclosed in Schedule 2.15:

                  (a)      All Intellectual Property of the Company is currently
                           in compliance with all legal requirements (including
                           timely filings, proofs and payments of fees) and is
                           valid and enforceable. No Intellectual Property of
                           the Company which is necessary for the conduct of
                           Company's business as currently conducted or as
                           currently proposed to be conducted has been or is now
                           involved in any cancellation, dispute or litigation,
                           and, to the Company's Knowledge, no such action is
                           threatened. No patent of the Company has been or is
                           now involved in any interference, reissue,
                           re-examination or opposition proceeding.

                  (b)      All of the licenses and sublicenses and consent,
                           royalty or other agreements concerning Intellectual
                           Property which are necessary for the conduct of
                           Company's business as currently conducted or as
                           currently proposed to be conducted to which the
                           Company is a party or by which any of its assets or
                           properties are bound (other than generally
                           commercially available, non-custom, off-the-shelf
                           software application programs having a retail
                           acquisition price of less than $10,000 per license)
                           (collectively, "License Agreements") are valid and
                           binding obligations of the Company and, to the
                           Company's Knowledge, the other parties thereto,
                           enforceable in accordance with their terms, except to
                           the extent that enforcement thereof may be limited by
                           bankruptcy, insolvency, reorganization, moratorium,
                           fraudulent conveyance or other similar laws affecting
                           the enforcement of creditors' rights generally, and
                           there exists no event or condition which will result
                           in a material violation or breach of or constitute
                           (with or without due notice or lapse of time or both)
                           a default by the Company under any such License
                           Agreement.

                  (c)      The Company owns or has the valid right to use all of
                           the Intellectual Property that is necessary for the
                           conduct of Company's business as currently conducted
                           or as currently proposed to be conducted and for the
                           ownership, maintenance and operation of the Company's
                           properties and assets, free and clear of all liens,
                           encumbrances, adverse claims or obligations to
                           license all such owned Intellectual Property, other
                           than licenses entered into in the ordinary course of
                           the Company's business. The Company has a valid and
                           enforceable right to use all other Intellectual
                           Property used or held for use in the Company's
                           business. The Company has the right to use all of the
                           owned and licensed Intellectual Property which is
                           necessary for the conduct of Company's business as
                           currently conducted or as currently

                                        7

<PAGE>

                           proposed to be conducted in all jurisdictions in
                           which it conducts its business.

                  (d)      The Company has taken reasonable steps to maintain,
                           police and protect the Intellectual Property which it
                           owns and which is necessary for the conduct of its
                           business as currently conducted or as currently
                           proposed to be conducted, including the execution of
                           appropriate confidentiality agreements and
                           intellectual property and work product assignments
                           and releases. The conduct of the Company's business
                           as currently conducted does not infringe or otherwise
                           impair or conflict with (collectively, "Infringe")
                           any Intellectual Property rights of any third party,
                           and, to the Company's Knowledge, the Intellectual
                           Property rights of the Company which are necessary
                           for the conduct of Company's business as currently
                           conducted or as currently proposed to be conducted
                           are not being Infringed by any third party. There is
                           no litigation or order pending or outstanding or, to
                           the Company's Knowledge, threatened or imminent, that
                           seeks to limit or challenge or that concerns the
                           ownership, use, validity or enforceability of any
                           Intellectual Property of the Company or the Company's
                           use of any Intellectual Property owned by a third
                           party, and, to the Company's Knowledge, there is no
                           valid basis for the same.

                  (e)      The consummation of the transactions contemplated
                           hereby will not result in the alteration, loss,
                           impairment of or restriction on the Company's
                           ownership or right to use any of the Intellectual
                           Property which is necessary for the conduct of
                           Company's business as currently conducted or as
                           currently proposed to be conducted.

                  (f)      All software owned by the Company, and, to the
                           Company's Knowledge, all software licensed from third
                           parties by the Company, (i) is free from any material
                           defect, bug, virus, or programming, design or
                           documentation error; (ii) operates and runs in a
                           reasonable and efficient business manner; and (iii)
                           conforms in all material respects to the
                           specifications and purposes thereof.

                  (g)      The Company has taken reasonable steps to protect the
                           Company's rights in its confidential information and
                           trade secrets. Except under confidentiality
                           obligations, there has been no material disclosure of
                           any of the Company's confidential information or
                           trade secrets to any third party.

         2.16.    Environmental Matters. The Company is not in violation of any
statute, rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "Environmental Laws"), owns or operates any real property
contaminated with any substance that is subject to any Environmental Laws, is
liable for any off-site disposal or contamination pursuant to any Environmental
Laws, and is subject to any claim relating to any Environmental Laws, which
violation, contamination, liability or claim has had or could reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate;
and there is no pending or, to the Company's Knowledge, threatened investigation
that might lead to such a claim.

                                        8

<PAGE>

         2.17.    Litigation. Except as described on Schedule 2.17, there are no
pending actions, suits or proceedings against or affecting the Company or any of
its assets or properties; and to the Company's Knowledge, no such actions, suits
or proceedings are threatened or contemplated.

         2.18.    Insurance Coverage. The Company maintains in full force and
effect insurance coverage that is customary for comparably situated companies
for the business being conducted and properties owned or leased by the Company,
and the Company reasonably believes such insurance coverage to be adequate
against all liabilities, claims and risks against which it is customary for
comparably situated companies to insure.

         2.19.    No Registration. The issuance of the New Debentures to the
Exchangors as contemplated hereby is exempt from the registration requirements
of the 1933 Act pursuant to Section 3(a)(9) thereof.

         2.20.    Questionable Payments. Neither the Company nor, to the
Company's Knowledge, any of its current or former shareholders, directors,
officers, employees, agents or other Persons acting on behalf of the Company,
has on behalf of the Company or in connection with its business since June 23,
1999: (a) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; (b)
made any direct or indirect unlawful payments to any governmental officials or
employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company; or (e) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature.

         2.21.    Transactions with Affiliates. Except as disclosed on Schedule
2.21, to the Company's Knowledge, none of the officers or directors of the
Company and, to the Company's Knowledge, none of the employees of the Company is
presently a party to any transaction with the Company or to a presently
contemplated transaction (other than for services as employees, officers and
directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated under the 1933 Act.

         2.22.    Suppliers. Except as set forth in Schedule 2.22, since October
4, 2003, (i) the Company has not entered into or made any contract or commitment
for the purchase of merchandise other than in the ordinary course of business
consistent with past practice, and (ii) there has not been (A) any material
adverse change in the business relationship of the Company with any of its
suppliers or (B) any change in any material term (including credit terms) of the
supply agreements or related arrangements with any such suppliers.

         2.23.    Customers. Except as set forth in Schedule 2.23, since October
4, 2003, there has not been (i) any material adverse change in the business
relationship of the Company with any customer (ii) any change in any material
term (including credit terms) of the sales agreements or related agreements with
any customer, except for such changes as have not and could not reasonably be
expected to result in a Material Adverse Effect, individually or in the
aggregate.

         2.24.    Disclosure. Except as set forth on Schedule 2.24, no
representation or warranty of the Company contained in this Agreement or in any
other Transaction Document, and no statement contained in any document,
certificate or Schedule furnished or to be furnished by or on behalf of the
Company to the Exchangors or any of their representatives pursuant to this
Agreement

                                        9

<PAGE>

(excluding the forward-looking statements and assumptions set forth in "Recent
Corporate Action," "Revocation and Termination of Prior S Corporation Status,"
"Management" and "Underwriting" in the Registration Statement, which at the time
made were based upon good faith estimates but which contain affirmative
statements relating to events that have not occurred as of this date and will be
amended prior to the effectiveness of the Registration Statement due to passage
of time) contains any untrue statement of a material fact or omits to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading.

         SECTION 3. REPRESENTATIONS OF THE EXCHANGORS.

         Each Exchangor severally, and not jointly, hereby represents and
warrants to and agrees with Company as follows with respect only to such
Exchangor and its exchange of the 2002 Debenture held by it and acquisition of
the New Debentures:

         3.1.     Ownership of 2002 Debenture; Legal Power. Such Exchangor is
the lawful owner of the 2002 Debenture registered in its name, free and clear of
all liens, encumbrances, restrictions and claims of every kind, except those
created pursuant to the Debenture Purchase Agreement, the 2002 Registration
Rights Agreement and the 2002 Intercreditor Agreements and those arising under
applicable securities laws. Such Exchangor has the requisite legal right, power
and authority to enter into this Agreement, to exchange its 2002 Debenture
hereunder, and to carry out and perform the Exchangor's obligations under the
terms of this Agreement and the Transaction Documents.

         3.2.     Due Execution. This Agreement has been, and upon execution and
delivery thereof, the other Transaction Documents to which such Exchangor is a
party will be, duly authorized, executed and delivered by such Exchangor, and,
upon due execution and delivery by the Company, this Agreement will be a valid
and binding agreement of such Exchangor, enforceable against such Exchangor in
accordance with its terms.

         3.3.     Investment Representations.

                  (a)      This Agreement is made with such Exchangor in
                           reliance upon the representation of such Exchangor to
                           the Company, and by its execution and acceptance
                           hereof such Exchangor hereby confirms, that the
                           Securities are being and will be acquired for
                           investment for such Exchangor's own account, not as a
                           nominee or agent, and not with a view to the sale or
                           distribution of any part thereof in violation of the
                           1933 Act, and that it has no present intention of
                           selling, granting participation in, or otherwise
                           distributing the same in violation of the 1933 Act.
                           By executing this Agreement, such Exchangor further
                           represents that such Exchangor does not have any
                           contract, undertaking, agreement, or arrangement with
                           any person to sell, transfer, or grant participations
                           to such person, or to any third person, with respect
                           to any of the Securities in violation of the 1933
                           Act.

                  (b)      Such Exchangor understands that the issuance of the
                           Securities are not, and will not be, registered under
                           the 1933 Act on the ground that the acquisition
                           provided for in this Agreement and the issuance of
                           the Securities hereunder

                                       10
<PAGE>

                           is exempt from registration under the 1933 Act and
                           that the Company's reliance on such exemption is
                           predicated on the Exchangor's representations set
                           forth herein. The Exchangor realizes that the basis
                           for the exemption may not be present if,
                           notwithstanding such representations, the Exchangor
                           has in mind merely acquiring the Securities for a
                           fixed or determinable period in the future. The
                           Exchangor hereby confirms that it has no such
                           intention, subject to the right of the Exchangor to
                           dispose of its assets as it determines in its sole
                           discretion, subject to the provisions of applicable
                           law.

                  (c)      Such Exchangor represents that:

                           (1)      if such Exchangor is a corporation,
                                    Massachusetts or similar business trust, or
                                    partnership, that (X) it is not formed for
                                    the purpose of acquiring the Securities and
                                    that it has total assets in excess of
                                    $5,000,000, or (Y) all of the equity owners
                                    of such entity satisfy the criteria in
                                    Section 3.3(c)(1)(X) or Section 3.3(c)(2);
                                    or

                           (2)      if such Exchangor is a natural person:

                                    (A)      he or she has individual (or has
                                             jointly with such person's spouse)
                                             net worth that exceeds $1,000,000;
                                             or

                                    (B)      he or she had individual income in
                                             excess of $200,000 (or together
                                             with such person's spouse had joint
                                             income in excess of $300,000) in
                                             each of the two most recent years
                                             and has a reasonable expectation of
                                             reaching the same income level in
                                             the current year,

                  and therefore that such Exchangor is an "accredited investor"
                  within the meaning of Regulation D promulgated pursuant to the
                  1933 Act, and that such Exchangor is experienced in evaluating
                  and investing in companies such as the Company, is able to
                  fend for itself in the transactions contemplated by this
                  Agreement, has such knowledge and experience in financial and
                  business matters as to be capable of evaluating the merits and
                  risks of its investment and has the ability to bear the
                  economic risks of its investment. Such Exchangor further
                  represents that it has had, during the course of the
                  transaction and prior to its acquisition of the Securities,
                  the opportunity to ask questions of, and receive answers from,
                  the Company concerning the terms and conditions of the
                  offering and to obtain additional information necessary to
                  verify the accuracy of any information furnished to it or to
                  which it had access. Neither such inquiries nor any other due
                  diligence investigation conducted by such Exchangor shall
                  modify, amend or affect such Exchangor's right to rely on the
                  Company's representations and warranties contained in this
                  Agreement and in the other Transaction Documents.

                  (d)      Such Exchangor understands that the Securities may
                           not be sold, transferred or otherwise disposed of
                           without registration under the 1933 Act or an
                           exemption therefrom, and that in the absence of an
                           effective registration statement covering the
                           Securities or an available exemption from
                           registration

                                       11

<PAGE>

                           under the 1933 Act, the Securities must be held
                           indefinitely. In particular, such Exchangor is aware
                           that the Securities may not be sold pursuant to Rule
                           144 promulgated under the 1933 Act unless all of the
                           conditions of that Rule are met. Among the conditions
                           for use of Rule 144 is the availability of current
                           information to the public about the Company.

                  (e)      Such Exchangor understands that the New Debentures
                           may be treated for tax purposes as having been issued
                           with Original Issue Discount ("OID"), and that the
                           effect of OID treatment would require the Exchangor
                           to recognize income, for tax purposes, in excess of
                           cash paid as interest by the Company on the New
                           Debentures in early periods (including but not
                           limited to when no cash interest is paid at all), and
                           to receive cash interest payments in excess of income
                           recognized in later periods. Such Exchangor has
                           consulted such Exchangor's own tax counsel with
                           respect to this and all other implications under the
                           tax laws of an investment in the New Debentures.

                  (f)      Such Exchangor, if the Exchangor is domiciled in
                           Missouri, agrees and acknowledges that the Securities
                           are not registered and may be disposed of only
                           through a licensed broker-dealer. It is a felony to
                           sell securities in violation of the Missouri
                           Securities Act.

                  (g)      Such Exchangor's domicile is accurately set forth on
                           the signature page hereof.

                  (h)      Such Exchangor, if such Exchangor is domiciled in New
                           York, represents and warrants that such Exchangor is
                           an "institutional buyer" for purposes of Section
                           359-e.1(a) of the Martin Act, as amended, under
                           Article 23-A of Chapter 20 of the New York General
                           Business Law.

         3.4.     Legends; Stop Transfer.

                  (a)      All certificates evidencing the Securities shall bear
                           the following legend:

                           THE SECURITIES REPRESENTED HEREBY MAY NOT BE
                           TRANSFERRED UNLESS (i) SUCH SECURITIES HAVE BEEN
                           REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF
                           1933, AS AMENDED, (ii) SUCH SECURITIES MAY BE SOLD
                           PURSUANT TO RULE 144(k), OR (iii) THE COMPANY HAS
                           RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT
                           THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
                           REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR
                           QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

                  (b)      The certificates for the Securities shall also bear
                           any legend required by any applicable state
                           securities law.

                  (c)      In addition, the Company shall make a notation
                           regarding the restrictions on transfer of the
                           Securities in its stock books and the Securities
                           shall be transferred on the books of the Company only
                           if transferred or sold pursuant to an effective
                           registration statement under the 1933 Act covering
                           such

                                       12

<PAGE>

                           shares or pursuant to and in compliance with the
                           legend described in Section 3.4(a).

                  (d)      Upon the earlier of (i) registration for resale
                           pursuant to the Second Registration Rights Agreement
                           or 2002 Registration Rights Agreement, as applicable,
                           and receipt by the Company of the Exchangor's written
                           confirmation that such Securities will not be
                           disposed of except in compliance with the prospectus
                           delivery requirements of the 1933 Act or (ii) Rule
                           144(k) becoming available the Company shall, upon an
                           Exchangor's written request, revoke any stop transfer
                           instructions in effect with respect to such
                           Securities (except as provided in the Second
                           Registration Rights Agreement with respect to the
                           lock-up agreement) and shall promptly cause
                           certificates evidencing the Securities to be replaced
                           with certificates which do not bear such restrictive
                           legends, and Debenture Shares subsequently issued in
                           respect of the New Debentures shall not bear such
                           restrictive legends provided the provisions of either
                           clause (i) or clause (ii) above, as applicable, are
                           satisfied with respect to such Debenture Shares. When
                           the Company is required to cause unlegended
                           certificates to replace previously issued legended
                           certificates, if unlegended certificates are not
                           delivered to an Exchangor within three (3) Business
                           Days of submission by that Exchangor of legended
                           certificate(s) to the Company or its transfer agent,
                           as applicable, together with a representation letter
                           in customary form, the Company shall be liable to the
                           Exchangor for a penalty equal to 1% of the aggregate
                           purchase price of the Securities evidenced by such
                           certificate(s) for each thirty (30) day period (or
                           portion thereof) beyond such three (3) Business Day
                           period that the unlegended certificates have not been
                           so delivered; provided that the Company shall not be
                           subject to such penalty if, at least three (3)
                           Business Days prior to receiving the Exchangor's
                           written request to remove such legend, the Company
                           shall have notified the Exchangor that it would
                           voluntarily remove the legend and the Exchangor shall
                           have decided not to have such legend removed at that
                           earlier time.

         SECTION 4. DEBENTURE PURCHASE AGREEMENT.

         4.1.     Covenants. The Company hereby affirms its obligations under
and undertakes to perform each of the covenants and agreements set forth in
Section 4 of the Debenture Purchase Agreement, the entirety of which Section 4
is hereby incorporated herein by this reference, with full force and effect as
if set forth herein, except that all references therein to the "Purchasers" and
"Debentures" shall be to the Exchangors and the New Debentures, respectively,
and the terms "Agreement" and "Transaction Documents" as used therein shall have
the meanings herein that are ascribed to those terms in this Agreement.

         4.2.     Termination of Covenants under Debenture Purchase Agreement.
Upon the exchange contemplated by Section 1 of this Agreement, the Company and
the Exchangors agree and acknowledge that all ongoing obligations under Section
4 of the Debenture Purchase Agreement with respect to exchanged 2002 Debentures
are terminated. Except as otherwise provided herein, the Debenture Purchase
Agreement shall otherwise be unmodified hereby and shall remain in full

                                       13

<PAGE>

force and effect in accordance with its terms.

         SECTION 5. INDEMNIFICATION.

         5.1.     Survival. All representations, warranties, covenants and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants and agreements as of the date hereof and shall survive the
execution and delivery of this Agreement for a period of three (3) years from
the date of this Agreement; provided, however, that the provisions contained in
Section 4 hereof shall survive in accordance therewith.

         5.2.     Indemnification. The Company agrees to indemnify and hold
harmless, on an after-tax and after insurance recovery basis, each Exchangor and
its Affiliates and their respective directors, officers, employees and agents
from and against any and all losses, claims, damages, liabilities and expenses
(including without limitation reasonable attorney fees and disbursements and
other expenses incurred in connection with investigating, preparing or defending
any action, claim or proceeding, pending or threatened and the costs of
enforcement hereof) (collectively, "Losses") to which such Person may become
subject as a result of any breach of representation, warranty, covenant or
agreement made by or to be performed on the part of the Company under the
Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person.

         5.3.     Conduct of Indemnification Proceedings. Promptly after receipt
by any Person (the "Indemnified Person") of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 5.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.

                                       14

<PAGE>

         SECTION 6. MISCELLANEOUS.

         6.1.     Notices. All notices and other communications hereunder shall
be made in writing and shall be deemed given upon personal delivery during
regular business hours or three (3) days after mailing if mailed by first class
mail, postage prepaid, to the following addresses:

To Company:

         Bakers Footwear Group, Inc.
         2815 Scott Avenue
         St. Louis, Missouri 63103
           Attn: Peter A. Edison, Chairman of the Board and Chief Executive
           Officer

with copies to:

         Bryan Cave LLP
         One Metropolitan Square
         211 N. Broadway Ste. 3600
         St. Louis, Missouri 63102
           Attn: J. Mark Klamer

To Exchangor:

         See Exhibit D

with copies to:

         Lowenstein Sandler PC
         65 Livingston Avenue
         Roseland, New Jersey 07068
           Attn: John D. Hogoboom

         6.2.     Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by, and construed in accordance with, the internal laws of the State
of New York without regard to the choice of law principles thereof. Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of the courts
of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement. Each of the parties hereto irrevocably consents
to the jurisdiction of any such court in any such suit, action or proceeding and
to the laying of venue in such court. Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought
in such courts and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.

         6.3.     Counterparts. This Agreement may be executed in counterparts
each of which when so executed and delivered shall be in an original, but which
shall together constitute one and the same instrument.

                                       15

<PAGE>

         6.4.     Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

         6.5.     Amendment or Waiver. The terms of this Agreement may not be
changed, waived, discharged or terminated unless such change, waiver, discharge
or termination is in writing signed by the Company and the Required Exchangors.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such securities, and the Company.

         6.6.     Successors and Assigns. This Agreement may not be assigned by
a party hereto without the prior written consent of the Company or the Required
Exchangors, as applicable, provided, however, an Exchangor may assign its rights
and delegate its duties hereunder in whole or in part to an Affiliate or to a
third party (which affiliate or third party agrees to be bound hereby and by the
Debentures) acquiring some portion or all of its Securities in a transaction in
accordance with applicable law, without the prior written consent of the Company
or the other Exchangors, after notice duly given by such Exchangor to the
Company and the other Exchangors, provided, that no such assignment or
obligation shall affect the obligations of such Exchangor hereunder. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective permitted successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

         6.7.     Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of counsel to the Exchangors at the Closing, but
not in excess of Ten Thousand Dollars ($10,000) in the aggregate. The Company
shall reimburse the Exchangors upon demand for all reasonable out-of-pocket
expenses incurred by the Exchangors, including without limitation reimbursement
of attorneys' fees and disbursements, in connection with any amendment,
modification or waiver of this Agreement or the other Transaction Documents. In
the event that legal proceedings are commenced by any party to this Agreement
against another party to this Agreement in connection with this Agreement or the
other Transaction Documents, the party or parties which do not prevail in such
proceedings shall severally, but not jointly, pay their pro rata shares of the
reasonable attorneys' fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings.

         6.8.     Publicity. No public release or announcement concerning the
transactions contemplated hereby shall be issued by the Company or the
Exchangors without the prior consent of the Company (in the case of a release or
announcement by the Exchangors) or Special Situations Fund III, L.P. ("SSF") (in
the case of a release or announcement by the Company) (which consents shall not
be unreasonably withheld), except as such release or announcement may be
required by law or the applicable rules or regulations of any securities
exchange or securities market, in which case the Company or the Exchangors, as
the case may be, shall allow SSF or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance.

         6.9.     Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or

                                       16

<PAGE>

unenforceability without invalidating the remaining provisions hereof but shall
be interpreted as if it were written so as to be enforceable to the maximum
extent permitted by applicable law, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction. To the extent permitted by applicable law, the
parties hereby waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.

         6.10.    Entire Agreement. This Agreement and the other Transaction
Documents constitute the entire agreement among the parties hereof with respect
to the subject matter hereof and thereof and supersede (except as expressly
incorporated by reference herein) all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
and thereof.

         6.11.    Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

         6.12.    Word Meanings. The words such as "herein," "hereinafter,"
"hereof," and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural, and vice versa, unless the context
otherwise requires. The masculine shall include the feminine and neuter, and
vice versa, unless the context otherwise requires.

         SECTION 7. DEFINITIONS.

         In addition to those terms defined elsewhere in this Agreement, for the
purposes of this Agreement, the following terms shall have the meanings here set
forth:

         "Affiliate" means, with respect to any Person, any other Person which
directly or indirectly Controls, is controlled by, or is under common control
with, such Person.

         "Business Day" means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.

         "Common Stock" means the Class A common stock, par value $0.001 per
share, of the Company and any security into which the common stock may be
reclassified.

         "Company's Knowledge" means the actual knowledge of the executive
officers of the Company, after reasonable inquiry. The executive officers of the
Company shall be Peter A. Edison, Michele A. Bergerac and Lawrence L. Spanley,
Jr.

         "Control" means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.

         "Debenture Shares" means the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the New Debentures.

         "Intellectual Property" means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii)

                                       17

<PAGE>

trademarks, service marks, trade dress, trade names, corporate names, logos,
slogans and Internet domain names, together with all goodwill associated with
each of the foregoing; (iii) copyrights and copyrightable works; (iv)
registrations, applications and renewals for any of the foregoing; (v) trade
secrets, confidential information and know-how (including but not limited to
ideas, formulae, compositions, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, business and marketing plans, and customer and supplier lists and
related information); and (vi) proprietary computer software (including but not
limited to data, data bases and documentation).

         "Material Adverse Effect" means a material adverse effect on the
assets, liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company.

         "Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.

         "Required Exchangors" means the Exchangors agreeing to acquire a
majority of the New Debentures being issued pursuant to this Agreement.

         "Securities" means the New Debentures and the Debenture Shares.

         "Transaction Documents" means this Agreement, the New Debentures, the
Second Registration Rights Agreement and the Amended and Restated Intercreditor
and Subordination Agreements.

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

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

                          [Next Page is Signature Page]

                                       18

<PAGE>
         IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed as of the date first above written.

BAKERS FOOTWEAR GROUP, INC.

By: /s/ Peter A. Edison
    -----------------------------------
Name: Peter A. Edison
      ---------------------------------
Title: Chairman and CEO
       --------------------------------

EXCHANGORS:

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.

By: /s/ Austin Marxe
    ----------------------------------------
Name: Austin Marxe
Title (if applicable):
Address:
Principal Amount of New Debentures:

SPECIAL SITUATIONS CAYMAN FUND, L.P.

By: /s/ Austin Marxe
    ----------------------------------------
Name: Austin Marxe
Title (if applicable):
Address:
Principal Amount of New Debentures:
<PAGE>

SPECIAL SITUATIONS FUND III, L.P.

By: /s/ Austin Marxe
   -----------------------------------------
Name: Austin Marxe
Title (if applicable):
Address:
Principal Amount of New Debentures:

/s/ Julian Edison
--------------------------------------------
Name: Julian Edison
Address: 8 St. Andrews Dr., St. Louis, MO 63124
Principal Amount of New Debentures:

THE CROWN ADVISORS, LLC

By: /s/ Chris H. Pauli
   ------------------------------------------
Name: Chris H. Pauli
Title (if applicable): President
Address: 540 Maryville Centre Dr., Ste 120, St. Louis, MO 63141
Principal Amount of New Debentures:$400,000 = $150,000 for The Crown Advisors #2
                                              $150,000 for The Crown Advisors #3
                                              $100,000 for The Crown Advisors #4

CROWN INVESTMENT PARTNERS, LP

By: /s/ Chris H. Pauli
   ------------------------------------------
Name: Chris H. Pauli
Title (if applicable): Managing Member of the General Partner
Address: 540 Maryville Center Dr., Ste 120, St. Louis, MO 63141
Principal Amount of New Debentures: $500,000
<PAGE>

SWB HOLDINGS, INC.

By: /s/ Robert A. Nielsen
   -----------------------------------------
    Name: Robert A. Nielsen
    Title (if applicable):
    Address: 120 South Central Avenue, Clayton, MO 63105
    Principal Amount of New Debentures: $500,000

[Disclosure Schedules and Exhibits B, C and D omitted. The Registrant undertakes
to furnish supplementally a copy of such omitted schedules and exhibits to the
Commission upon request.]

<PAGE>

                                                                       EXHIBIT A

THIS SUBORDINATED CONVERTIBLE DEBENTURE AND THE INDEBTEDNESS EVIDENCED HEREBY
ARE SUBORDINATE, IN THE MANNER AND TO THE EXTENT SET FORTH IN THE AMENDED AND
RESTATED INTERCREDITOR AND SUBORDINATION AGREEMENT (AS AMENDED, SUPPLEMENTED OR
OTHERWISE MODIFIED FROM TIME TO TIME, THE "SUBORDINATION AGREEMENT") DATED AS OF
JANUARY __, 2004 BY AND AMONG BAKERS FOOTWEAR GROUP, INC. (THE "COMPANY"), THE
INITIAL HOLDER OF THIS DEBENTURE (THE "SUBORDINATED CREDITOR") AND THE SENIOR
LENDER NAMED THEREIN, TO ALL INDEBTEDNESS OWED BY THE MAKER OF THIS SUBORDINATED
CONVERTIBLE DEBENTURE TO THE SENIOR LENDER, AND THE HOLDER OF THIS SUBORDINATED
CONVERTIBLE DEBENTURE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE
PROVISIONS OF THE SUBORDINATION AGREEMENT.

THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. FURTHERMORE, THIS
DEBENTURE MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THE DEBENTURE PURCHASE AGREEMENT (AS HEREINAFTER
DEFINED), A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT
THE PRINCIPAL CORPORATE OFFICES OF THE SELLER AND WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER OF THIS DEBENTURE UPON WRITTEN REQUEST.

                       SUBORDINATED CONVERTIBLE DEBENTURE

$____                                                            January  , 2004

         SECTION 1. General.

         (a) Bakers Footwear Group, Inc., a Missouri corporation (the
"Company"), for value received, hereby promises to pay to the order of
________________, or its registered assigns (the initial "Holder") the principal
sum of _______________ Dollars ($_____________), on April 4, 2007 ("Maturity
Date"), in such coin or currency of the United States of America as at the time
of payment shall be legal tender therein for the payment of public and private
debt. Interest shall accrue on the unpaid principal amount, at the rate of seven
percent (7%) per annum, which rate shall increase to nine percent (9%) per annum
on January 1, 2004, and to eleven percent (11%) per annum on January 1, 2005.
Such interest shall be calculated on the basis of a 360-day year composed of
twelve months of 30 days each, and shall be payable quarterly, in arrears, on
March 31, June 30, September 30 and December 31, commencing March 31, 2004;
provided, however, that the interest payment which shall be due and payable on
March 31, 2004 shall be calculated as if this Debenture had been outstanding on
January 1, 2004, it being the intent of the Company that such interest payment
should include that interest accrued to the date hereof, but not yet paid, on a
note equal in aggregate principal amount and bearing interest at the same rate
and on the same terms as aforesaid, for which this Debenture was exchanged on
the date set forth above pursuant to the Exchange Agreement (as defined below).

<PAGE>

         (b) This Debenture is one of the "New Debentures" issued pursuant to
that certain Convertible Debenture Exchange Agreement dated as of the date of
this Debenture (the "Exchange Agreement"), by and among the Company and the
Exchangors named therein, including the initial Holder of this Debenture, each
of whom is both subject to, and entitled to the benefits of, the Exchange
Agreement. In addition, the Company and the initial Holder have entered into the
Subordination Agreement (as defined in Section 14) dated as of the date hereof
with the Senior Lender (as defined in Section 14) pursuant to which the Company
and the initial Holder have agreed to subordinate the Company's obligations
under this Debenture to those owed by the Company to Senior Lender as set forth
in the Subordination Agreement. Any subsequent Holder of the Debenture, by its
acceptance hereof, assumes the obligations of the initial Holder under the
Exchange Agreement with respect to the conditions and procedures for transfer of
this Debenture and agrees that this Debenture and all obligations hereunder
shall be subject to the terms of the Subordination Agreement. Reference to the
Exchange Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay the unpaid principal balance as provided
herein.

         SECTION 2. Terms of Payment.

         (a) The principal balance of this Debenture shall be due and payable on
the Maturity Date. The maturity of this Debenture may be accelerated following
an Event of Default (as defined in Section 3 hereof).

         (b) Seller shall have the right to prepay the Debentures, in whole but
not in part, with the consent of the holders of at least 50% of the then
outstanding aggregate principal amount of the Debentures (the "Requisite
Holders"). Seller shall have the right to prepay, subject to the Subordination
Agreement, any Debenture issued under the Exchange Agreement, in whole or in
part, if the holder thereof consents.

         SECTION 3. Events of Default. The following events shall constitute
"Events of Default" hereunder:

         (a)      Default in the payment of the principal of the Debenture when
due and payable, whether on the Maturity Date, upon acceleration or otherwise,
or the failure to make any payment of interest within 5 days of when due and
payable; or

         (b)      The Company shall fail to observe or perform any covenant or
obligation set forth herein, in the Exchange Agreement or in either the Second
Registration Rights Agreement or the 2002 Registration Rights Agreement (each,
as defined in the Exchange Agreement), as applicable, and such failure shall
continue for a period of 30 days after receipt of notice thereof; or

         (c)      The Company shall have failed to pay when due any amount due
and owing under any indebtedness of the Company for borrowed money, or any other
default or event of default shall have occurred (and shall have continued beyond
the expiration of any applicable grace period) under any indebtedness of the
Company for borrowed money which permitted the holder thereof to accelerate the
maturity thereof, and in either case, there shall have been an acceleration of
the stated maturity of such indebtedness; or

<PAGE>

         (d)      The institution by the Company of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the
federal Bankruptcy Act of 1978, as amended, or any other applicable federal or
state law, or the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other similar
official of the Company, or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the taking of
corporate action by the Company in furtherance of any such action; or

         (e)      If, within sixty (60) days after the commencement of an action
against the Company (and service of process in connection therewith on the
Company) seeking any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been resolved in favor of the Company or
all orders or proceedings thereunder affecting the operations or the business of
the Company stayed, or if the stay of any such order or proceeding shall
thereafter be set aside, or if, within sixty (60) days after the appointment
without the consent or acquiescence of the Company of any trustee, receiver or
liquidator of the Company or of all or any substantial part of the properties of
the Company, such appointment shall not have been vacated; or

         (f)      Any representation or warranty made by the Company in any
Transaction Document (as defined in the Exchange Agreement) or any other
certificate or instrument delivered in connection therewith shall have been
untrue in any material respect when made.

         If any Event of Default (other than the type described in clauses (d)
and (e)) has occurred, the Requisite Holders, may demand (by written notice
delivered to the Company), subject to the terms of the Subordination Agreement,
immediate payment of all or any portion of the outstanding principal amount of
this Debenture. Upon such demand, the Company will immediately pay to the Holder
the entire principal amount of this Debenture plus accrued and unpaid interest
hereon. If an Event of Default of the type described in clauses (e) or (f) above
has occurred, then subject to the terms of the Subordination Agreement all of
the outstanding principal amount of the Debenture shall automatically be
immediately due and payable without any action on the part of the Holder.

         SECTION 4. Subordination.

         (a)      By its acceptance of this Debenture, the Holder (including the
initial and any subsequent Holder) acknowledges and agrees that all its right,
title and interest in and to this Debenture, including but not limited to its
right to receive payment in respect of principal or interest, or the Mandatory
Redemption Amount (as defined in Section 8 hereof) as provided herein, shall be
subordinate to any and all Senior Indebtedness (as defined in Section 14 hereof)
of the Seller. The Holder agrees to execute any and all agreements, including
but not limited to an intercreditor and subordination agreement, which the
holders of Senior Indebtedness may require to reflect such subordination. The
Holder covenants and agrees for the benefit of the holders of Senior
Indebtedness that it will not take any security interest, lien or other
encumbrance on the assets of the Seller as collateral security for the Seller's
obligations under this Debenture without such holders' prior written consent.
The Holder acknowledges that the Seller will not make, and the Holder shall not
accept, any payments of principal, interest, or the Mandatory Redemption Amount,
on this Debenture after the holder's receipt of written notice of the occurrence
of and during the continuation of a default under a Senior Indebtedness
agreement. If the Holder shall at any time
<PAGE>

receive any payment which is prohibited by any Senior Indebtedness agreement and
receive notice of same from any holder of Senior Indebtedness, the Holder will
hold such payment in trust and immediately turn it (or an amount of money equal
to it) over to the holder of Senior Indebtedness for application in payment of
the outstanding Senior Indebtedness.

         (b)      This Debenture and all the obligations of the Company
hereunder are direct, unsecured obligations of the Company, without preference
or priority among the other Debentures (as defined in the Exchange Agreement)
and shall rank pari passu with all other existing and future unsecured
Indebtedness of the Company from time to time outstanding, other than Senior
Indebtedness.

         (c)      The provisions of this Section 4, and the Subordination
Agreement, are for the purpose of defining the relative rights of the Senior
Lender, on the one hand, and the Holder, on the other hand, with respect to the
enforcement of rights and remedies and priority of payment of the Senior
Indebtedness and the Debentures. Nothing herein shall impair, as between the
Company and the Holder, the obligations of the Company, which are unconditional
and absolute, to pay to the Holder the principal and interest hereon and any
other liabilities encompassed herein in accordance with the terms hereof,
subject to Section 4 and the Subordination Agreement.

         SECTION 5. Holder. The Company may deem and treat the registered holder
of this Debenture as the absolute owner of this Debenture for the purpose of
exchanging this Debenture for Conversion Shares (as described in Section 6
hereof) or receiving payment hereon and for all other purposes, and the Company
shall not be affected by any notice to the contrary.

         SECTION 6. Conversion of Debenture.

         (a)      This Debenture shall be convertible into the Company's Class A
common stock, par value $0.001 per share ("Conversion Shares"), under, and only
under, the circumstances set forth below in Sections 6(b) or 6(c), adjusted as
provided in Section 7 hereof. The conversion price for the Debentures shall be
equal to $7.50, adjusted as provided in Section 7 hereof ("Conversion Price").

         (b)      The entire principal amount of this Debenture shall be
automatically converted into the right to receive Conversion Shares, at the
Conversion Price, upon the consummation, prior to the Maturity Date, of a firm
commitment underwritten initial public offering of the Company's common equity
pursuant to a registration statement filed by the Company under the Act (other
than such an offering on Form S-4 or Form S-8, or any successor forms, an
"IPO").

         (c)      The entire principal amount of this Debenture may be
converted, in whole but not in part, at the option of the holder hereof, into
the right to receive Conversion Shares, at the Conversion Price then in effect,
at any time prior to the Maturity Date.

         (d)      To receive the Conversion Shares after the automatic
conversion provided in Section 6(b), or to elect conversion pursuant to Section
6(c), Holder shall surrender this Debenture at the office of the Company,
accompanied by a written instrument executed by the holder of this Debenture
requesting such conversion and stating the name and address of the person or
persons in whose name the certificate or certificates for Conversion Shares are
to be issued. At its expense, the Company shall, within three (3) Business Days
thereafter, issue and deliver to such Holder
<PAGE>

certificates for the number of Conversion Shares to which the Holder shall be
entitled (bearing such legends as are required by the Exchange Agreement and
applicable laws in the opinion of counsel to the Company), together with any
other securities and property to which the Holder is entitled upon such
conversion under the terms of this Debenture. Upon such surrender, the Holder
shall be treated as a shareholder of the Company for all purposes, including but
not limited to the right to vote or the right to receive dividends or
distributions, regardless of the actual date such certificates are issued.

         (e)      The Company shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of Conversion Shares pursuant
hereto; provided, however, that the Company shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.

         (f)      The Company shall keep reserved at all times the number and
type of Conversion Shares into which this Debenture would then be convertible.

         (g)      No fraction of a Conversion Share shall be issued upon the
conversion of this Debenture. All Conversion Shares (including fractions
thereof) issuable upon conversion of this Debenture by a Holder shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of a fraction of a Conversion Share,
the Company shall, in lieu of issuing any fractional share, pay the holder a sum
in cash equal to the public offering price in the IPO multiplied by such
fraction.

         SECTION 7. Adjustments to Conversion Price and Conversion Shares.
Subject and pursuant to the provisions of this Section 7, the Conversion Price
and number of Conversion Shares subject to this Debenture shall be subject to
adjustment from time to time as set forth hereinafter.

                  (a)      If the Company shall, at any time or from time to
time while this Debenture is outstanding, pay a dividend or make a distribution
on its Conversion Shares in shares of Conversion Shares, subdivide its
outstanding shares of Conversion Shares into a greater number of shares or
combine its outstanding shares of Conversion Shares into a smaller number of
shares or issue by reclassification of its outstanding shares of Conversion
Shares any shares of its capital stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation not otherwise covered by Section 8), then the number of Conversion
Shares purchasable upon conversion of the Debenture and the Conversion Price in
effect immediately prior to the date upon which such change shall become
effective, shall be adjusted by the Company so that the Holder thereafter
converting the Debenture shall be entitled to receive the number of Conversion
Shares or other capital stock which the Holder would have received if the
Debenture had been converted immediately prior to such event upon payment of a
Conversion Price that has been adjusted to reflect a fair allocation of the
economics of such event to the Holder. Such adjustments shall be made
successively whenever any event listed above shall occur.

                  (b)      If any capital reorganization, reclassification of
the capital stock of the Company, consolidation or merger of the Company with
another corporation in which the Company is not the survivor (not otherwise
covered by Section 8), or sale, transfer or other disposition of all or
substantially all of the Company's assets to another corporation shall be

<PAGE>

effected (not otherwise covered by Section 8), then, as a condition of such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition, lawful and adequate provision shall be made whereby each Holder
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions herein specified and in lieu of the Conversion Shares
immediately theretofore issuable upon conversion of the Debenture, such shares
of stock, securities or assets as would have been issuable or payable with
respect to or in exchange for a number of Conversion Shares equal to the number
of Conversion Shares immediately theretofore issuable upon conversion of the
Debenture, had such reorganization, reclassification, consolidation, merger,
sale, transfer or other disposition not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests of
each Holder to the end that the provisions hereof (including, without
limitation, provision for adjustment of the Conversion Price) shall thereafter
be applicable, as nearly equivalent as may be practicable in relation to any
shares of stock, securities or properties thereafter deliverable upon the
conversion thereof. The Company shall not effect any such consolidation, merger,
sale, transfer or other disposition without the consent or waiver of the Holder
unless prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing or otherwise acquiring such assets or
other appropriate corporation or entity shall assume the obligation to deliver
to the Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase, and the other
obligations under this Debenture. The provisions of this paragraph (b) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers or other dispositions.

                  (c)      In case the Company shall fix a payment date for the
making of a distribution to all holders of Conversion Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness or assets
(other than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus as such terms are computed for tax purposes, or
dividends or distributions referred to in Section 7(a)), or subscription rights
or warrants, the Conversion Price to be in effect after such payment date shall
be determined by multiplying the Conversion Price in effect immediately prior to
such payment date by a fraction, the numerator of which shall be the total
number of shares of Conversion Shares outstanding multiplied by the Market Price
(as defined below) per share of Conversion Shares immediately prior to such
payment date, less the fair market value (as determined by the Company's Board
of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Conversion Shares outstanding
multiplied by such Market Price per share of Conversion Shares immediately prior
to such payment date. "Market Price" as of a particular date (the "Valuation
Date") shall mean the following: (a) if the Conversion Shares are then listed on
a national stock exchange, the closing sale price (regular way) of one share of
Conversion Shares on such exchange on the last trading day prior to the
Valuation Date; (b) if the Conversion Shares are then quoted on The NASDAQ Stock
Market, Inc. ("Nasdaq"), the closing sale price of one share of Conversion
Shares on Nasdaq on the last trading day prior to the Valuation Date or, if no
such closing sale price is available, the average of the high bid and the low
asked price quoted on Nasdaq on the last trading day prior to the Valuation
Date; or (c) if the Conversion Shares are not then listed on a national stock
exchange or quoted on Nasdaq, the market value of one Conversion Share as of the
Valuation Date, shall

<PAGE>

be determined in good faith by the Board of Directors of the Company and the
Requisite Holders. The Board of Directors of the Company shall respond promptly,
in writing, to an inquiry by the Holder prior to the conversion of this
Debenture as to the market value of a Conversion Share as determined by the
Board of Directors of the Company. In the event that the Board of Directors of
the Company and the Requisite Holders are unable to agree upon the market value
in respect of subpart (c) hereof, the Company and the Requisite Holders shall
jointly select an appraiser, who is experienced in such matters. The decision of
such appraiser shall be final and conclusive, and the cost of such appraiser
shall be borne evenly by the Company and the Requisite Holders. Such adjustment
shall be made successively whenever such a payment date is fixed.

                  (d)      For the term of this Debenture, in addition to the
provisions contained above, the Conversion Price shall be subject to adjustment
as provided below. An adjustment to the Conversion Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.

                  (e)      In the event that, as a result of an adjustment made
pursuant to this Section 7, the Holder shall become entitled to receive any
shares of capital stock of the Company other than Conversion Shares, the number
of such other shares so receivable upon conversion of this Debenture shall be
subject thereafter to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Conversion Shares contained in this Debenture.

                  (f)      Except as provided in subsection (g) hereof, if and
whenever the Company shall issue or sell, or is, in accordance with any of
subsections (f)(1) through (f)(7) hereof, deemed to have issued or sold, any
Conversion Shares for a consideration per share less than the lesser of (x)
$5.00 per share or (y) the Conversion Price in effect immediately prior to the
time of such issue or sale, then and in each such case (a "Trigger Issuance")
the then-existing Conversion Price, shall be reduced, as of the close of
business on the effective date of the Trigger Issuance, to a price determined as
follows:

                  Adjusted Conversion Price = (A x B) + D
                                              -----------
                                               A+C

                                    where

                                    "A" equals the number of Conversion Shares
outstanding, including Additional Shares (as defined below) deemed to be issued
hereunder, immediately preceding such Trigger Issuance;

                                    "B" equals the Conversion Price in effect
immediately preceding such Trigger Issuance;

                                    "C" equals the number of Additional Shares
issued or deemed issued hereunder as a result of the Trigger Issuance; and

<PAGE>

                                    "D" equals the aggregate consideration, if
any, received or deemed to be received by the Company upon such Trigger
Issuance.

provided, however, that in no event shall the Conversion Price after giving
effect to such Trigger Issuance be greater than the Conversion Price in effect
prior to such Trigger Issuance.

                  For purposes of this subsection (f), "Additional Shares" shall
mean all Conversion Shares issued by the Company or deemed to be issued pursuant
to this subsection (f), other than Excluded Issuances (as defined in subsection
(g) hereof).

                  For purposes of this subsection (f), the following subsections
(f)(1) to (f)(6) shall also be applicable (subject, in each such case, to the
provisions of subsection (g) hereof) and to each other subsection contained in
this subsection (f):

                                    (f)(1) Issuance of Rights or Options. In
                  case at any time the Company shall in any manner grant
                  (directly and not by assumption in a merger or otherwise) any
                  warrants or other rights to subscribe for or to purchase, or
                  any options for the purchase of, Conversion Shares or any
                  stock or security convertible into or exchangeable for
                  Conversion Shares (such warrants, rights or options being
                  called "Options" and such convertible or exchangeable stock or
                  securities being called "Convertible Securities") whether or
                  not such Options or the right to convert or exchange any such
                  Convertible Securities are immediately exercisable, and the
                  price per share for which Conversion Shares are issuable upon
                  the exercise of such Options or upon the conversion or
                  exchange of such Convertible Securities (determined by
                  dividing (i) the sum (which sum shall constitute the
                  applicable consideration) of (x) the total amount, if any,
                  received or receivable by the Company as consideration for the
                  granting of such Options, plus (y) the aggregate amount of
                  additional consideration payable to the Company upon the
                  exercise of all such Options, plus (z), in the case of such
                  Options which relate to Convertible Securities, the aggregate
                  amount of additional consideration, if any, payable upon the
                  issue or sale of such Convertible Securities and upon the
                  conversion or exchange thereof, by (ii) the total maximum
                  number of Conversion Shares issuable upon the exercise of such
                  Options or upon the conversion or exchange of all such
                  Convertible Securities issuable upon the exercise of such
                  Options) shall be less than the Conversion Price in effect
                  immediately prior to the time of the granting of such Options,
                  then the total number of Conversion Shares issuable upon the
                  exercise of such Options or upon conversion or exchange of the
                  total amount of such Convertible Securities issuable upon the
                  exercise of such Options shall be deemed to have been issued
                  for such price per share as of the date of granting of such
                  Options or the issuance of such Convertible Securities and
                  thereafter shall be deemed to be outstanding for purposes of
                  adjusting the Conversion Price. Except as otherwise provided
                  in subsection 7(f)(3), no adjustment of the Conversion Price
                  shall be made upon the actual issue of such Conversion Shares
                  or of such Convertible Securities upon exercise of such
                  Options or upon the actual issue of such Conversion Shares
                  upon conversion or exchange of such Convertible Securities.

                                    (f)(2) Issuance of Convertible Securities.
                  In case the Company shall in any manner issue (directly and
                  not by assumption in a merger or otherwise) or sell

<PAGE>

                  any Convertible Securities, whether or not the rights to
                  exchange or convert any such Convertible Securities are
                  immediately exercisable, and the price per share for which
                  Conversion Shares are issuable upon such conversion or
                  exchange (determined by dividing (i) the sum (which sum shall
                  constitute the applicable consideration) of (x) the total
                  amount received or receivable by the Company as consideration
                  for the issue or sale of such Convertible Securities, plus (y)
                  the aggregate amount of additional consideration, if any,
                  payable to the Company upon the conversion or exchange
                  thereof, by (ii) the total number of Conversion Shares
                  issuable upon the conversion or exchange of all such
                  Convertible Securities) shall be less than the Conversion
                  Price in effect immediately prior to the time of such issue or
                  sale, then the total maximum number of shares of Conversion
                  Shares issuable upon conversion or exchange of all such
                  Convertible Securities shall be deemed to have been issued for
                  such price per share as of the date of the issue or sale of
                  such Convertible Securities and thereafter shall be deemed to
                  be outstanding for purposes of adjusting the Conversion Price,
                  provided that (a) except as otherwise provided in subsection
                  7(f)(3), no adjustment of the Conversion Price shall be made
                  upon the actual issuance of such Conversion Shares upon
                  conversion or exchange of such Convertible Securities and (b)
                  no further adjustment of the Conversion Price shall be made by
                  reason of the issue or sale of Convertible Securities upon
                  exercise of any Options to purchase any such Convertible
                  Securities for which adjustments of the Conversion Price have
                  been made pursuant to the other provisions of subsection 7(f).

                                    (f)(3) Change in Option Price or Conversion
                  Rate. Upon the happening of any of the following events,
                  namely, if the purchase price provided for in any Option
                  referred to in subsection 7(f)(1) hereof, the additional
                  consideration, if any, payable upon the conversion or exchange
                  of any Convertible Securities referred to in subsections
                  7(f)(1) or 7(f)(2), or the rate at which Convertible
                  Securities referred to in subsections 7(f)(1) or 7(f)(2) are
                  convertible into or exchangeable for Conversion Shares shall
                  change at any time (including, but not limited to, changes
                  under or by reason of provisions designed to protect against
                  dilution), the Conversion Price in effect at the time of such
                  event shall forthwith be readjusted to the Conversion Price
                  which would have been in effect at such time had such Options
                  or Convertible Securities still outstanding provided for such
                  changed purchase price, additional consideration or conversion
                  rate, as the case may be, at the time initially granted,
                  issued or sold. On the termination of any Option for which any
                  adjustment was made pursuant to this subsection 7(f) or any
                  right to convert or exchange Convertible Securities for which
                  any adjustment was made pursuant to this subsection 7(f)
                  (including without limitation upon the redemption or purchase
                  for consideration of Convertible Securities by the Company),
                  the Conversion Price then in effect hereunder shall forthwith
                  be changed to the Conversion Price which would have been in
                  effect at the time of such termination had such Option or
                  Convertible Securities, to the extent outstanding immediately
                  prior to such termination, never been issued.

                                    (f)(4) Stock Dividends. Subject to the
                  provisions hereof, in case the Company shall declare a
                  dividend or make any other distribution upon any stock of the
                  Company (other than the Conversion Shares) payable in
                  Conversion Shares,
<PAGE>

                  Options or Convertible Securities, then any Conversion Shares,
                  Options or Convertible Securities, as the case may be,
                  issuable in payment of such dividend or distribution shall be
                  deemed to have been issued or sold without consideration.

                                    (f)(5) Consideration for Stock. In case any
                  Conversion Shares, Options or Convertible Securities shall be
                  issued or sold for cash, the consideration received therefor
                  shall be deemed to be the net amount received by the Company
                  therefor, after deduction therefrom of any expenses incurred
                  or any underwriting commissions or concessions paid or allowed
                  by the Company in connection therewith. In case any Conversion
                  Shares, Options or Convertible Securities shall be issued or
                  sold for a consideration other than cash, the amount of the
                  consideration other than cash received by the Company shall be
                  deemed to be the fair value of such consideration as
                  determined in good faith by the Board of Directors of the
                  Company, after deduction of any expenses incurred or any
                  underwriting commissions or concessions paid or allowed by the
                  Company in connection therewith. In case any Options shall be
                  issued in connection with the issue and sale of other
                  securities of the Company, together comprising one integral
                  transaction in which no specific consideration is allocated to
                  such Options by the parties thereto, such Options shall be
                  deemed to have been issued for such consideration as
                  determined in good faith by the Board of Directors of the
                  Company. If Conversion Shares, Options or Convertible
                  Securities shall be issued or sold by the Company and, in
                  connection therewith, other Options or Convertible Securities
                  (the "Additional Rights") are issued, then the consideration
                  received or deemed to be received by the Company shall be
                  reduced by the fair market value of the Additional Rights (as
                  determined using the Black-Scholes option pricing model or
                  another method mutually agreed to by the Company and the
                  Holder). In the event that the Board of Directors of the
                  Company and the Holder are unable to agree upon the fair
                  market value of the Additional Rights, the Company and the
                  Holder shall jointly select an appraiser, who is experienced
                  in such matters. The decision of such appraiser shall be final
                  and conclusive, and the cost of such appraiser shall be borne
                  evenly by the Company and the Holder.

                                    (f)(6) Record Date. In case the Company
                  shall take a record of the holders of its Conversion Shares
                  for the purpose of entitling them (i) to receive a dividend or
                  other distribution payable in Conversion Shares, Options or
                  Convertible Securities or (ii) to subscribe for or purchase
                  Conversion Shares, Options or Convertible Securities, then
                  such record date shall be deemed to be the date of the issue
                  or sale of the Conversion Shares deemed to have been issued or
                  sold upon the declaration of such dividend or the making of
                  such other distribution or the date of the granting of such
                  right of subscription or purchase, as the case may be.

                                    (f)(7) Treasury Shares. The number of
                  Conversion Shares outstanding at any given time shall not
                  include shares owned or held by or for the account of the
                  Company or any of its wholly-owned subsidiaries, and the
                  disposition of any such shares (other than the cancellation or
                  retirement thereof) shall be considered an issue or sale of
                  Conversion Shares for the purpose of this subsection (f).

<PAGE>

                  (g)      Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment of the Conversion Price
pursuant to Section 7(f) in the case of the issuance of (A) capital stock,
Options or Convertible Securities issued to directors, officers, employees or
consultants of the Company in connection with their service as directors of the
Company, their employment by the Company or their retention as consultants by
the Company pursuant to an equity compensation program approved by the Board of
Directors or the shareholders of the Company, (B) Conversion Shares upon the
conversion or exercise of Options or Convertible Securities issued prior to the
date hereof, (C) capital stock, Options or Convertible Securities issued with
the approval of the Requisite Holders, (D) any capital stock, Options or
Convertible Securities which results in an adjustment pursuant to any section of
this Section 7 other than Section 7(f), or (E) any capital stock, Options or
Convertible Securities issued in connection with a Sale Transaction as defined
in Section 8(a) (collectively, "Excluded Issuances").

                  (h)      Upon any adjustment to the Conversion Price pursuant
to Section 7(f) above, the number of Conversion Shares purchasable hereunder
shall be adjusted by multiplying such number by a fraction, the numerator of
which shall be the Conversion Price in effect immediately prior to such
adjustment and the denominator of which shall be the Conversion Price in effect
immediately thereafter.

         SECTION 8. Mandatory Redemption.

         (a)      In the event that an IPO is not completed prior to the earlier
of (i) a Sale Date (as defined herein) or (ii) one month prior to the Maturity
Date (and the Holder shall have not exercised its option to convert this
Debenture pursuant to Section 6(c)), the Company shall pay, subject to the terms
of the Subordination Agreement, the Holder an amount of cash equal to the
Mandatory Redemption Amount, as calculated in accordance with paragraph (b) or
(c) of this Section 8, as applicable. For purposes of this Agreement, the Sale
Date shall be the date the Company consummates a merger, reorganization, stock
sale, sale of substantially all assets or similar transaction, or related series
thereof, following which holders of the common equity of the Company prior to
such transaction hold 50% or less of the common equity of the Company or any
successor entity following such transaction ("Sale Transaction"). It is
understood that no issuance of stock by the Company in a capital raising
transaction or pursuant to the exercise of any employee stock option, shall be
considered a Sale Transaction or any part thereof.

         (b)      In the event of a Sale Transaction, the Mandatory Redemption
Amount shall be, at the option of the Holder (i) the unpaid principal balance
hereof plus accrued but unpaid interest, or (ii) the cash, securities or other
property that the Holder would have been entitled to receive had the Holder
converted this Debenture into the Conversion Shares at the Conversion Price then
in effect immediately prior to the consummation of the Sale Transaction. This
obligation shall be assumed by any successor to the Company in a Sale
Transaction.

         (c)      Following the date that is one month prior to the Maturity
Date (and assuming a Sale Transaction does not occur prior to the Maturity
Date), the Mandatory Redemption Amount shall be the greater of (1) the unpaid
principal balance hereof plus accrued but unpaid interest to the date of payment
or (2) the Market Price of the Conversion Shares into which the Debenture would
be converted, but for the failure of an IPO to be completed prior to the
Maturity Date, at the Conversion Price then in effect.

<PAGE>

The Company shall pay the Market Price to the Holder one month following such
determination, and the Maturity Date shall be extended until such date.

         SECTION 9. Expenses. The Company shall pay the reasonable out-of-pocket
expenses of the Holder (including reasonable fees and disbursements of counsel)
incurred by the Holder in enforcing its rights hereunder, whether or not
litigation is initiated in connection therewith.

         SECTION 10. Waiver. The Company waives presentment, demand, notice of
protest and nonpayment and diligence in taking any action to collect sums owing
under this Debenture. Time is of the essence with respect to every provision
hereof.

         SECTION 11. Section Headings. The Section headings contained herein are
for the purpose of convenience of reference only and are not intended to define
or limit the contents of any such Section.

         SECTION 12. Severability. In the event that one or more of the
provisions of this Debenture shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Debenture, but this Debenture shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.

         SECTION 13. Governing Law; Consent to Jurisdiction. This Debenture
shall be governed by, and construed in accordance with, the internal laws of the
State of New York without regard to the choice of law principles thereof. The
Company and, by accepting this Debenture, the Holder each irrevocably submits to
the exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Debenture and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under the Exchange Agreement. The Company
and, by accepting this Debenture, the Holder each irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to the
laying of venue in such court. The Company and, by accepting this Debenture, the
Holder each irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.

         SECTION 14. Definitions.

         For purposes of this Debenture, the following terms have the meanings
set forth below.

                  "Business Day" means any day which is not a Saturday, Sunday
or other day on which banking institutions doing business in St. Louis, Missouri
and New York, New York, are authorized or obligated by law or required by
executive order to be closed.

                  "Indebtedness" means any indebtedness (including without
limitation, Senior Indebtedness), whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures, guarantees or similar
instruments or letters of credit (or reimbursement

<PAGE>

agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
and any financial hedging obligations, if and to the extent such indebtedness
(other than a financial hedging obligation) would appear as a liability upon a
balance sheet of such person prepared on a consolidated basis in accordance with
generally accepted accounting principles, other than a trade payable or accrued
expense.

                  "Senior Indebtedness" means the principal, interest, premium,
if any, fees (including without limitation, any commitment, agency, facility,
structuring, restructuring or other fee), costs, expenses, indemnities, and
other amounts due on or in connection with any Indebtedness of the Company to
banks, commercial finance lenders, insurance companies or other financial
institutions regularly engaged in the business of lending money, which is for
money borrowed by the Company (whether or not secured), and any amendments,
modifications, deferrals, renewals or extensions of such Indebtedness, and any
amounts owed in respect of any Indebtedness incurred in refinancing, replacing
or refunding the foregoing (including any refinancing, replacing or refunding
with new lenders), unless the terms of such Indebtedness expressly provide that
such Indebtedness is not Senior Indebtedness with respect to this Debenture.

                  "Senior Lender" shall mean, initially, Fleet Retail Finance
Inc., and subsequently, any lender of Senior Indebtedness to the Company.

                  "Subordination Agreement" shall mean, initially, the Amended
and Restated Intercreditor and Subordination Agreement dated the date hereof (as
amended, modified or replaced from time to time) between and among the Company,
the Holder, and Fleet Retail Finance Inc., and subsequently, any intercreditor
and subordination agreement the Holder is required to enter into by Section
4(a).

         SECTION 15. Amendment. This Debenture may be amended with the consent
of the Requisite Holders to cure any ambiguity, and to make any other change if
(X) all Debentures are treated equally, (Y) such amendment does not reduce the
principal amount hereof or interest rate hereon, or alter when payments of
principal or interest are due and payable and (Z) such amendment does not change
the calculation of the Conversion Price in a way that is materially adverse to
the Holder. Any Debenture issued under the Exchange Agreement may be amended
with the consent of its holder.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

BAKERS FOOTWEAR GROUP, INC.

BY: _______________________________________
      Peter Edison, Chief Executive Officer

Accepted and Agreed:

HOLDER

Name (if not an individual):

By: _______________________________________
Name:
Title (if applicable)

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