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                                                                     EXHIBIT 3.1


                     RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                              BIG 5 HOLDINGS CORP.
                             a Delaware corporation

                 (originally incorporated on October 31, 1997)


     FIRST: The name of the corporation is Big 5 Holdings Corp.

     SECOND: The address of the corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, in the City of Dover, County of Kent. The name
of the corporation's registered agent at such address is CorpAmerica, Inc.

     THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law ("DGCL").

     FOURTH: (A) The total number of shares of all classes of stock which the
corporation shall have authority to issue is Six Million Five Hundred Thousand
(6,500,000), consisting of:

          1. Five Million (5,000,000) shares of Common Stock of the par value of
one cent ($.01) each (hereinafter referred to as "COMMON STOCK"); and

          2. One Million Five Hundred Thousand (1,500,000) shares of Preferred
Stock of the par value of one cent ($.01) each (hereinafter referred to as
"PREFERRED STOCK").

     (B) Common Stock

          1. Except where otherwise provided by law, by this Certificate of
Incorporation, or by resolution of the Board of Directors pursuant to this
Article FOURTH, the holders of the Common Stock issued and outstanding shall
have and possess the exclusive right to notice of stockholders' meetings and the
exclusive voting rights and powers.

          2. Subject to all of the rights of the Preferred Stock, dividends may
be paid on the Common Stock, as and when declared by the Board of Directors, out
of any funds of the corporation legally available for the payment of such
dividends.

     (C) Preferred Stock.

          The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in one or
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more series, and by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing the series of Preferred Stock.

     (D) Designation of Rights, Preference, Privileges and Restrictions with
Respect to Series A 9% Cumulative Redeemable Preferred Stock.

          1. Authorization, Issuance and Face Amount. Upon the effectiveness of
a merger of the parent corporation of the corporation with and into the
corporation, the corporation shall issue a series of Preferred Stock designated
"Series A 9% Cumulative Redeemable Preferred Stock" (hereinafter "SERIES A
PREFERRED"). The Series A Preferred shall be issued in exchange for any
preferred stock of such predecessor corporation having substantially similar
terms as the Series A Preferred (the "EXCHANGED PREFERRED") on a share-for-share
basis. The number of shares which constitutes such series is 250,000, which
number may be decreased (but not below the number thereof then outstanding) from
time to time by the corporation's Board of Directors. The shares of Series A
Preferred shall be issued by the corporation for their Face Amount (as herein
defined), equal to the face amount of such Exchanged Preferred at such time and
to such persons as provided in the instruments governing such merger with the
corporation's parent. For purposes of this paragraph (D) the Series A Preferred
shall be deemed to have been issued at the time of the issue of the Exchanged
Preferred. For the purposes hereof, the "FACE AMOUNT" of each share of Series A
Preferred (regardless of its par value) shall be $100 (as the Series A Preferred
is presently constituted, such amount to be proportionately adjusted to reflect
any combination, consolidation, reclassification or like adjustment to the
Series A Preferred).

          2. Rank. The Series A Preferred shall, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank junior to all
classes and series of stock of the corporation now or hereafter authorized,
issued or outstanding (collectively, the "SENIOR SECURITIES") other than the
corporation's "Junior Securities". For the purposes hereof, "JUNIOR SECURITIES"
shall mean the corporation's Common Stock, any other class or series of the
corporation's common equity, and such other classes or series of stock of the
corporation as shall be designated as junior to the Series A Preferred with
respect to dividend rights and rights on liquidation, winding up and dissolution
by (i) the Board of Directors pursuant to the authority granted to it under
Article FOURTH, Section (C) of the Certificate of Incorporation, or (ii) by
amendment to the Certificate of Incorporation, duly adopted by the corporation
and its stockholders as provided pursuant to the DGCL.


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          3. Dividends.

               (a) Amount. The holders of shares of the Series A Preferred shall
be entitled to receive, when, as and if declared by the Board of Directors of
the corporation, out of funds legally available therefor, cash dividends at the
rate of 9% per annum of the Face Amount per share, and no more. Dividends shall
be paid pro rata to the holders entitled thereto.

               (b) Cumulation And Time Of Payment. The dividends indicated in
subparagraph (a) of this Section 3 shall be cumulative and shall accrue from day
to day, whether or not earned or declared, commencing with the date of issue of
the particular shares of Series A Preferred or from the most recent preceding
Dividend Payment Date (as defined below) through which all dividends have been
paid, whichever is later. Dividends, as and if declared by the Board of
Directors of the corporation, shall be payable quarterly at a date to be
designated by the Board of Directors of the corporation which falls within the
last fifteen days (or, if the Board of Directors has not designated a day, the
last day) of March, June, September and December in each year (each of such
dates being a "DIVIDEND PAYMENT DATE"). No undeclared or unpaid dividend shall
bear or accrue interest. For purposes of determining the accrual of dividends on
the Series A Preferred, the date of issue of the Series A Preferred shall be the
date of issue of the Exchanged Preferred and dividends shall be deemed to have
accrued on the Series A Preferred from the later of the issue date of the
Exchanged Preferred or the most recent preceding dividend payment date of the
Exchanged Preferred through which all dividends have been paid on the Exchanged
Preferred.

               (c) Payment Of Accumulated Dividends. Accumulated dividends not
paid on prior Dividend Payment Dates may be declared by the Board of Directors
and paid to the holders of record of outstanding shares of Series A Preferred as
their names shall appear on the stock register of the corporation on a record
date to be established by the Board of Directors, which record date shall be not
more than sixty (60) nor less than thirty (30) days preceding the date of
payment, whether or not such date is a Dividend Payment Date. Holders of
outstanding shares of Series A Preferred shall not be entitled to receive any
dividends in excess of the full cumulative dividends to which such holders are
entitled as herein provided. Any payment of accumulated dividends pursuant to
this provision shall be applied first to accumulated dividends relating to the
earliest Dividend Payment Date for which dividends were not paid, then to the
next such Dividend Payment Date, and so on, up to and including the most recent
Dividend Payment Date for which dividends were not paid.

               (d) Priority Of Cumulative Dividends. In addition to certain
other restrictions contained herein, so long as any shares of Series A Preferred
are outstanding, the corporation shall not (i) declare, pay or set apart for
payment any dividend on, or make any distribution in respect of, the Junior
Securities or any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Securities, either directly or indirectly,
whether in cash, obligations or shares of the corporation or other property
(other than distributions or dividends of a particular class or series of Junior
Securities, or warrants, rights or options exercisable for such Junior

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Securities, to holders of such Junior Securities), or (ii) make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption, retirement or other acquisition for value of any
of, or redeem, purchase, retire or otherwise acquire for value any of, the
Junior Securities (other than as a result of a reclassification of Junior
Securities into other Junior Securities or the exchange or conversion of one
class or series of Junior Securities for or into another class or series of
Junior Securities) or any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Securities, or (iii) permit any corporation
or other entity directly or indirectly controlled by the corporation to
purchase, redeem, retire or otherwise acquire for value any of the Junior
Securities or any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Securities, unless, and in each such case,
prior to or concurrently with such declaration, payment, setting apart for
payment, purchase, redemption, retirement or other acquisition for value or
distribution in respect of Junior Securities, all accrued and unpaid dividends
(including accrued dividends, if any, not paid by reason of the terms and
conditions of Section 3(e) hereof), if any, on shares of Series A Preferred
shall have been paid through the next preceding Dividend Payment Date or, if
such declaration, payment, setting apart for payment, purchase, redemption,
retirement, other acquisition for value or distribution occurs on a Dividend
Payment Date, through such Dividend Payment Date; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock held by
employees or consultants of the corporation or any of its subsidiaries (or their
permitted transferees) that are subject to restrictive stock purchase agreements
or similar contractual provisions under which the corporation has the option or
obligation to repurchase such shares upon the occurrence of certain events, such
as termination of employment.

               (e) Restrictions On Payment Of Dividends. Notwithstanding
anything contained herein to the contrary, no cash dividends on shares of Series
A Preferred shall be declared by the Board of Directors or paid or set apart for
payment by the corporation: (i) unless, prior to or concurrently with such
declaration, payment or setting apart, all accrued and unpaid dividends, if any,
on shares of Senior Securities shall have been paid or declared and set apart
for payment through the dividend payment period with respect to such Senior
Securities which next precedes or coincides with the date of declaration,
payment or setting apart for payment by the corporation of such cash dividends;
or (ii) at such time as such declaration, payment or setting apart is prohibited
by the DGCL; or (iii) at such time as the terms and provisions of any contract
or other agreement of the corporation or any of its subsidiaries entered into or
assumed providing financing (including acquisition financing) or working capital
to the corporation or any of its subsidiaries (whether or not entered into prior
to, at or after the issuance of the Series A Preferred), specifically prohibits
such declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder.

          4. Liquidation Preference.

               (a) The Liquidation Preference. If the corporation voluntarily or
involuntarily liquidates, dissolves or winds up its affairs, then, before any


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distribution or payment shall be made to the holders of any Junior Securities,
the holders of shares of Series A Preferred then outstanding shall be entitled
to be paid out of the assets of the corporation available for distribution to
its stockholders an amount in cash equal to the Face Amount of each share
outstanding together with an amount in cash equal to all accrued and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding up
(the "LIQUIDATION PREFERENCE"). If the assets of the corporation are not
sufficient to pay in full the Liquidation Preference payable to the holders of
outstanding shares of Series A Preferred, then holders of all such shares shall
share ratably in any distribution of assets in proportion to the amount that
would be payable on such distribution if the amounts to which the holders of
outstanding shares of Series A Preferred are entitled were paid in full. After
payment of the full amount of the Liquidation Preference to which each holder is
entitled, such holders of shares of Series A Preferred will not be entitled to
any further participation in any distribution of the assets of the corporation.

               (b) Events Not Constituting Liquidation, Etc. For the purposes of
this Section 4, neither the voluntary sale, conveyance, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the corporation nor the
consolidation or merger of the corporation with or into any other corporation
shall be deemed to be a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the corporation.

          5. Redemption.

               (a) Optional Redemption. Subject to the restrictions set forth in
Section 5(e) hereof, the corporation may, at the option of the Board of
Directors, at any time or from time to time, in whole or in part, redeem the
shares of Series A Preferred at the time outstanding, upon notice given as
hereinafter specified and on a date as specified in such notice (the "OPTIONAL
REDEMPTION DATE"), at a redemption price equal to the Face Amount per share,
together with accrued and unpaid dividends thereon to the Optional Redemption
Date (the "OPTIONAL REDEMPTION PRICE").

               (b) Mandatory Redemption. Subject to the restrictions set forth
in Section 5(d) hereof, prior to the payment of any required mandatory
redemption payment then due with respect to outstanding Junior Securities, the
corporation shall redeem in full the Series A Preferred on the date of the
earliest to occur of any of the following circumstances (each a "MANDATORY
REDEMPTION DATE"): (i) September 24, 2003; (ii) upon the sale, lease or transfer
of all or substantially all of the assets of the corporation and its
subsidiaries, taken as a whole, to any person other than an affiliate (as
defined in Section 8(b) of this paragraph (D)) of the corporation; (iii) upon
the consolidation or merger of the corporation with or into any other
corporation, in which the corporation is not the surviving entity, with the
effect that the Common Stock holders of the corporation immediately prior to
such transaction hold, directly or indirectly, 50% or less of the total voting
power entitled to vote in the election of directors, managers or trustees of the
surviving corporation of such merger; (iv) on the date that Green Equity
Investors, L.P. and its affiliates, considered as one entity, cease to be the
largest single holder of Common Stock of the corporation or cease to


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beneficially own at least thirty percent (30%) of the voting stock of the
corporation; or (v) upon a recapitalization or refinancing of the corporation
substantially all of the proceeds of which are used to pay a dividend or
distribution on, or to redeem, Junior Securities. The price at which outstanding
shares of Series A Preferred shall be redeemed pursuant to this subparagraph (b)
of Section 5 shall be the Face Amount per share, together with all accrued but
unpaid dividends on such shares to the date fixed for such redemption (the
"MANDATORY REDEMPTION PRICE").

               (c) Additional Mandatory Redemption. If at any time (i) the
corporation delivers its written offer or written notice of an offer by a third
party approved by the Board of Directors of the corporation (in either case, an
"EXCHANGE OFFER NOTICE") to the holders of all outstanding shares of Series A
Preferred (and provided that the Exchange Offer Notice specifically refers to
this Section 5(c)) to exchange such Series A Preferred for other property
(including cash, property or rights, including securities of the corporation or
another corporation) (for each share of Series A Preferred, the "EXCHANGE
CONSIDERATION"), and (ii) within thirty (30) days after the giving of such
Exchange Offer Notice, the holders of at least two-thirds in interest of the
Series A Preferred issued and outstanding as of the date of the Exchange Offer
Notice (the "TENDERING HOLDERS") accept such exchange offer and complete the
exchange of all of their Series A Preferred as described in the Exchange Offer
Notice or become contractually obligated to do so, then the shares of Series A
Preferred issued and outstanding immediately prior to the completion of the
exchange with the Tendering Holders as described in the Exchange Offer Notice
(the date of such completion being the "EXCHANGE DATE") that are not held by
Tendering Holders (such shares being the "NON-TENDERED SHARES") shall, without
further notice to any holder of Series A Preferred, be redeemed as of the
Exchange Date (in the case of an exchange offer by a person or entity other than
the corporation, provided that such person or entity deposits with the
corporation within ten days following the Exchange Date the aggregate Exchange
Consideration for all Non-Tendered Shares so redeemed). The rate of redemption
for each Non-Tendered Share shall be the Exchange Consideration (the "MANDATORY
REDEMPTION PRICE"). Notwithstanding the foregoing, in the event that the holders
of two-thirds or more in interest of the Series A Preferred issued and
outstanding as of the date of the Exchange Offer Notice, within the thirty-day
period referred to above, accept such exchange offer and become contractually
obligated to complete the exchange of their Series A Preferred as described in
the Exchange Offer Notice, but less than two-thirds of the Series A Preferred is
actually exchanged as described in the Exchange Offer Notice within ninety (90)
days following the termination of such thirty-day period, then the Series A
Preferred otherwise redeemed pursuant to this Section 5(c) shall be
automatically reinstated for all purposes of this paragraph (D) as if the
redemption described herein had not occurred.

               (d) Manner of Redemption. Notice of redemption of outstanding
shares of Series A Preferred pursuant to Sections 5(a) and 5(b) shall be sent by
or on behalf of the corporation to the holders of record of outstanding shares
of Series A Preferred selected for redemption in the manner provided in Section
5(h) hereof. If, as a result of a redemption, a holder would be left with
fractions of a share of Series A Preferred ("FRACTIONAL SHARES"), the
corporation shall redeem the number of


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shares of such holder that it otherwise would redeem rounded up or down, in the
corporation's sole discretion, to the nearest whole number.

               (e) Restrictions on Redemptions. No shares of Series A Preferred
shall be redeemed in whole or part under Sections 5(a) or 5(b) or 5(c) hereof:
(i) at any time that such redemption is prohibited by the DGCL; (ii) at any time
that the terms and provisions of any contract or other agreement of the
corporation or any of its subsidiaries entered into or assumed providing
financing (including acquisition financing) or working capital to the
corporation or any of its subsidiaries (whether or not entered into prior to, at
or after the issuance of the Series A Preferred), specifically prohibits such
redemption or provides that such redemption would constitute a breach thereof or
a default thereunder; (iii) unless, prior to or concurrently with such
redemption, all unpaid and accrued dividends on Series A Preferred and on Senior
Securities for dividend periods preceding or ending on the redemption date have
been paid in full or have been declared and set aside for payment in full; or
(iv) at any time that the corporation shall be in default in respect of any of
its redemption obligations on or under Senior Securities.

               (f) Priority As To Junior Securities. If and for so long as the
corporation fails to discharge its obligation to redeem any outstanding shares
of Series A Preferred required to be redeemed pursuant to Section 5(b) or 5(c)
hereof (a "MANDATORY REDEMPTION OBLIGATION"), (i) the corporation shall take all
reasonable efforts to remove any impediments to its ability to redeem the Series
A Preferred, and the Mandatory Redemption Obligation shall be discharged as soon
as the corporation is able to discharge such Mandatory Redemption Obligation,
and (ii) the corporation shall not (x) declare, pay or set apart for payment any
dividend on, or make any distribution in respect of, the Junior Securities or
any warrants, rights, calls or options exercisable or convertible into any of
the Junior Securities, either directly or indirectly, whether in cash,
obligations or shares of the corporation or other property (other than
distributions or dividends of a particular class or series of Junior Securities,
or warrants, rights or options exercisable for such Junior Securities, to
holders of such Junior Securities), or (y) make any payment on account of, or
set apart for payment money for a sinking or other similar fund for, the
purchase, redemption, retirement or other acquisition for value of any of, or
redeem, purchase, retire or otherwise acquire for value any of, the Junior
Securities (other than as a result of a reclassification of Junior Securities or
the exchange or conversion of one class or series of Junior Securities for or
into another class or series of Junior Securities) or any warrants, rights,
calls or options exercisable for or convertible into any of the Junior
Securities, or (z) permit any corporation or other entity directly or indirectly
controlled by the corporation to purchase, redeem, retire or otherwise acquire
for value any of the Junior Securities or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior Securities; provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock held by employees or consultants of the corporation or any of its
subsidiaries (or their permitted transferees) that are subject to restrictive
stock purchase agreements or similar contractual provisions under which the
corporation has the option or obligation to repurchase such shares upon the
occurrence of certain events, such as termination of employment.



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               (g) Selection Of Shares For Redemption. In the event that fewer
than all of the outstanding shares of Series A Preferred are to be redeemed, the
number of shares to be redeemed shall be determined by the Board of Directors at
its sole option (except in the case of a redemption under Section 5(b) or
Section 5(c)) and the shares to be redeemed shall be selected by lot or pro rata
as may be determined by the Board of Directors except that (i) in any redemption
of fewer than all of the outstanding shares of Series A Preferred, the
corporation may redeem all shares held by any holders of a number of shares of
Series A Preferred, not to exceed 100, as may be specified by the corporation
and (ii) to the extent practicable, redemptions shall be made ratably among the
holders of outstanding shares of Series A Preferred in proportion to the number
of shares of Series A Preferred held by each such holder.

               (h) Notice. If the corporation redeems shares of Series A
Preferred (except for a redemption pursuant to Section 5(c)), notice of every
redemption of shares of Series A Preferred shall be mailed by first class mail,
postage prepaid, not less than thirty (30) days nor more than sixty (60) days
prior to the redemption date addressed to the holders of record of the shares to
be redeemed at their respective last addresses as they shall appear on the books
of the corporation; provided, however, that the failure to give such notice or
any defect therein or in the mailing thereof shall not affect the validity of
the redemption of any shares so to be redeemed except as to the holder to whom
the corporation has failed to give such notice or except as to the holder to
whom such notice was defective. Each such notice shall state: (i) the redemption
date; (ii) that shares of Series A Preferred are to be redeemed and, if less
than all the shares held by such holder are to be redeemed, the number of such
shares to be redeemed; (iii) the redemption price; (iv) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will cease
to accrue on such redemption date. Any notice given by a predecessor corporation
of the corporation with respect to the Exchanged Preferred in exchange for which
the Series A Preferred is issued by the corporation shall be deemed to be notice
given by the corporation.

               (i) Effect Of Redemption. If notice of redemption is duly mailed
as aforesaid or automatic redemption pursuant to Section 5(c) is effective and
all funds or property necessary for such redemption shall have been set aside by
the corporation, separate and apart from its other funds (whether by deposit
with a bank or trust company or otherwise), in trust for the pro rata benefit of
the holders of the shares so called for or subject to redemption, so as to be
and to continue to be available therefor, then, notwithstanding that any
certificate for shares so called for or subject to redemption shall not have
been surrendered for cancellation, from and after the redemption date, dividends
on the shares of Series A Preferred so called for or subject to redemption shall
cease to accrue, said shares shall no longer be deemed to be outstanding or have
the status of shares of Series A Preferred, such shares shall no longer be
transferable on the books of the corporation and all rights of the holders
thereof as stockholders of the corporation shall cease except for the right to
receive from the corporation or exchange agent or other agent selected by the
corporation the Optional Redemption Price or Mandatory Redemption Price, as the
case may be (the "REDEMPTION PRICE"). Upon surrender of the certificates for any
shares so redeemed


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(properly endorsed or assigned for transfer, if the Board of
Directors of the corporation shall so require), such shares shall be redeemed by
the corporation at the Redemption Price aforesaid. In case fewer than all of the
shares represented by any such certificates are redeemed, a new certificate or
certificates shall be issued representing the unredeemed shares without cost to
the holder thereof. Any funds deposited with a bank or trust company and
unclaimed at the end of a period (not less than six months) specified by the
corporation's Board of Directors following the date fixed for redemption shall
be repaid to the corporation upon its request, after which repayment the holders
of shares called for redemption shall look only to the corporation for payment
of the Redemption Price.

          6. Voting Rights. Except as specifically set forth in the DGCL or
provided in the balance of this Section 6, the holders of shares of Series A
Preferred shall not be entitled to any voting rights with respect to any matters
voted upon by stockholders. So long as any shares of Series A Preferred shall be
outstanding and unless the consent or approval of a greater number of shares
shall then be required by law, without first obtaining the approval of the
holders of at least a majority of the number of shares of the Series A Preferred
at the time outstanding, given in person or by proxy either by written consent
or at a meeting at which the holders of such shares shall be entitled to vote
separately as a class, the corporation shall not (i) amend, alter or repeal any
of the provisions of the Certificate of Incorporation or By-Laws of the
corporation or of any certificate amendatory thereof or supplemental thereto so
as to affect adversely any of the preferences, rights, powers or privileges of
the Series A Preferred or the holders thereof as such; or (ii) authorize, effect
or validate the merger or consolidation of the corporation into or with any
other corporation if such merger or consolidation would adversely affect the
powers, preferences or rights of the Series A Preferred or the holders thereof
as such; provided, however, that if any of the foregoing actions would result in
(a) a reduction in the rate of or change the time for payment of dividends on
the Series A Preferred, (b) reduce the Liquidation Preference, (c) change the
redemption or exchange provisions so as to affect adversely any of the
preferences, rights, powers or privileges of the Series A Preferred or the
holders thereof as such, or (d) modify this Section 6 in any manner, the
approval of the holders of at least seventy five percent (75%) of the number of
shares of Series A Preferred at the time outstanding shall be obtained.

          7. Retirement of Shares. Any shares of Series A Preferred redeemed,
repurchased or otherwise acquired by the corporation shall be retired and
returned to the status of authorized and unissued Preferred Stock, undesignated
as to series, subject to reissuance by the corporation as shares of Preferred
Stock of one or more series, as may be determined from time to time by the Board
of Directors.

          8. Definitions.

               (a) As used herein with respect to Series A Preferred, "ACCRUED
DIVIDENDS" and "ACCUMULATED DIVIDENDS" shall mean an amount computed at the
annual dividend rate from the date on which dividends on such share became


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cumulative to and including the date to which such dividends are to be accrued,
less the aggregate amount of all dividends theretofore paid thereon.

               (b) "AFFILIATE" of any specified person shall mean any other
person directly or indirectly controlling or controlled by or under common
control with such specified person. For purpose of this definition, "CONTROL,"
when used with respect to any specified person, means the ownership, directly or
indirectly, of voting securities representing more than 50% of the total voting
power entitled to vote in the election of directors, managers or trustees of
such person; and the terms "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.

          9. Section Headings. Section headings are for convenience of reference
only and shall not constitute a part of this paragraph (D) or be referred to in
connection with the interpretation or construction hereof.

     FIFTH: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors, and the directors need not be
elected by ballot unless required by the bylaws of the corporation.

     SIXTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
make, amend and repeal the bylaws of the corporation.

     SEVENTH: A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended. Any repeal or modification of this provision shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.

     EIGHTH: (A) Right to Indemnification. Each person who was or is made a
party to or is threatened to be made a party to or is involuntarily involved in
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "PROCEEDING"), by reason of the
fact that he or she is or was a director or officer of the corporation, or is or
was serving (during his or her tenure as director and/or officer) at the request
of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
whether the basis of such Proceeding is an alleged action or inaction in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the DGCL (or other applicable
law), as the same exists or


                                      -10-
<PAGE>   11
may hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection with such Proceeding. Such director or officer shall have the
right to be paid by the corporation for expenses incurred in defending any such
Proceeding in advance of its final disposition; provided, however, that, if the
DGCL (or other applicable law) requires, the payment of such expenses in advance
of the final disposition of any such Proceeding shall be made only upon receipt
by the corporation of an undertaking by or on behalf of such director or officer
to repay all amounts so advanced if it should be determined ultimately that he
or she is not entitled to be indemnified under this Article EIGHTH or otherwise.

     (B) Right of Claimant to Bring Suit. If a claim under paragraph (A) of this
Article EIGHTH is not paid in full by the corporation within ninety (90) days
after a written claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim, together with interest thereon, and, if successful in whole
or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim, including reasonable attorneys' fees incurred in
connection therewith. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the DGCL (or
other applicable law) for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (or of its full Board of
Directors, its directors who are not parties to the Proceeding with respect to
which indemnification is claimed, its stockholders, or independent legal
counsel) to have made a determination prior to the commencement of such action
that indemnification of the claimant is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in the DGCL (or
other applicable law), nor an actual determination by any such person or persons
that such claimant has not met such applicable standard of conduct, shall be a
defense to such action or create a presumption that the claimant has not met the
applicable standard of conduct.

     (C) Non-Exclusivity of Rights. The rights conferred by this Article EIGHTH
shall not be exclusive of any other right which any director, officer,
representative, employee or other agent may have or hereafter acquire under the
DGCL or any other statute, or any provision contained in the corporation's
Certificate of Incorporation or bylaws, or any agreement, or pursuant to a vote
of stockholders or disinterested directors, or otherwise.

     (D) Insurance and Trust Fund. In furtherance and not in limitation of the
powers conferred by statute:

          1. The corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or
                                      -11-
<PAGE>   12
is serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or her and incurred by
him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of law; and

          2. The corporation may create a trust fund, grant a security interest
and/or use other means (including, without limitation, letters of credit, surety
bonds and/or other similar arrangements), as well as enter into contracts
providing indemnification to the fullest extent permitted by law and including
as part thereof provisions with respect to any or all of the foregoing, to
ensure the payment of such amount as may become necessary to effect
indemnification as provided therein, or elsewhere.

     (E) Indemnification of Employees and Agents of the Corporation. The
corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, including the right to be paid by
the corporation the expenses incurred in defending any Proceeding in advance of
its final disposition, to any employee or agent of the corporation to the
fullest extent of the provisions of this Article EIGHTH or otherwise with
respect to the indemnification and advancement of expenses of directors and
officers of the corporation.

     (F) Amendment. This Article EIGHTH is also contained in Article VIII,
Sections 2 through 7, of the corporation's Bylaws. Any repeal or modification of
this Article EIGHTH shall not change the rights of any officer or director to
indemnification with respect to any action or omission occurring prior to such
repeal or modification.

     NINTH: The number of directors of the corporation shall be five (5).

     TENTH: (A) The approval of the following actions shall require a vote
of at least eighty percent (80%) of the authorized number of directors of the
corporation (which such number of authorized directors shall include such number
of directors as may at that time be entitled to be elected by holders of any
series of Preferred Stock of the corporation):

          1. A sale, assignment, lease, transfer, conveyance or other
disposition involving all or substantially all of the assets or capital stock of
the corporation or any of its subsidiaries; a merger, consolidation or other
business combination, or a transaction in which all stockholders of the
corporation are not treated equally;

          2. Adoption of a plan of dissolution or liquidation of the corporation
or any of its subsidiaries;

          3. Any increase in the compensation to the person acting as chief
executive officer or president of the corporation, or any affiliates of either
of such officers, except any increase in compensation in the ordinary course of
business not
                                      -12-
<PAGE>   13

materially different from past practices (including the practices of any
predecessor by merger);

          4. The issuance of any shares of capital stock, or any options,
warrants or rights (including convertible or exchangeable securities) to acquire
shares of capital stock of the corporation, except shares of capital stock
issued for cash in connection with the exercise of compensatory employee options
issued by the corporation in the ordinary course of business not materially
different from past practices of the corporation (including the practices of any
predecessor by merger);

          5. The corporation entering into, or permitting any subsidiary to
enter into, any arrangement or contract with any person which, together with its
affiliates, beneficially owns or has any options, warrants or rights (including
convertible or exchangeable securities) to acquire, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of stock of the
corporation or with any affiliate of such person, except for any arrangement or
contract that exists as of the date of this Restated Certificate of
Incorporation and any extensions and non-material modifications and amendments
thereof;

          6. The (a) redemption, retirement, purchase or other acquisition for
value of any shares of the corporation, (b) assignment to any person of the
corporation's right to purchase or acquire shares of the corporation pursuant to
Article ELEVENTH, or (c) making of any determination with respect to any shares
of the corporation pursuant to Article ELEVENTH, other than the redemption or
repurchase of Common Stock in the ordinary course of business (i) constituting
(in a transaction or series of related transactions) less than one (1) percent
of the outstanding Common Stock of the corporation on the date or dates of
purchase pursuant (x) to Article ELEVENTH or (y) to a contractual obligation to
the holder of any such security, or (ii) in amounts that are not material
pursuant to any management stock purchase agreement consistent with past
practices (including the practices of any predecessor by merger);

          7. The determination to have the corporation or any of its
subsidiaries enter into any lines of business other than retail merchandising of
sporting goods and other business activities ancillary thereto;

          8. The transfer, disposition or issuance of any shares of capital
stock, or any options, warrants or rights (including convertible or exchangeable
securities) to acquire shares of capital stock, of or by any subsidiary of the
corporation, or by any other person that is a wholly-owned subsidiary of such
subsidiary, other than issuances by such a wholly-owned subsidiary to its
immediate parent; and

          9. Any amendment of the Certificate of Incorporation or bylaws of the
corporation that would alter or affect in any way the foregoing supermajority
director voting requirements.

     (B) This Article TENTH which sets forth the supermajority director voting
requirements may be amended only by the vote or written consent of the holders


                                      -13-
<PAGE>   14
of at least sixty-six and two thirds (66-2/3%) of the outstanding stock of the
corporation entitled to vote.

     ELEVENTH: (A) No stockholder may transfer (other than in a public offering
pursuant to an effective registration statement under the Securities Act of
1933) any Common Stock (or any interest therein) except in accordance with the
following: If such stockholder shall have received a bona fide arms' length
written offer (a "BONA FIDE OFFER") which such stockholder desires to accept
from an independent party unrelated to such stockholder (the "OUTSIDE PARTY")
for the purchase of such Common Stock, such stockholder shall give a notice in
writing (the "OPTION NOTICE") to the corporation stating such stockholder's
desire to sell Common Stock, which notice shall set forth at least the name and
address of the Outside Party and the price and terms of the Bona Fide Offer and
be accompanied by a copy of the Bona Fide Offer. Upon the giving of such Option
Notice, the corporation shall have an option (transferable, in the sole
discretion of the Board of Directors of the corporation, to a person or persons
selected by the corporation (the "ASSIGNEE")) to purchase all of the Common
Stock specified in the Option Notice, said option to be exercised within the
later of thirty (30) business days after the giving of such Option Notice or
fifteen (15) days after the determination of the fair market value (as defined
below) of the consideration offered by the Outside Party, if applicable, by
giving a counter-notice to such stockholder. If the corporation (or the
Assignee) elects to purchase all of such Common Stock, it shall be obligated to
purchase, and such stockholder shall be obligated to sell, such Common Stock at
the price and terms indicated in the Bona Fide Offer, except that (i) the
closing of the purchase by the corporation (or the Assignee, if applicable)
shall be held on the forty-fifth (45th) business day after the giving of the
Option Notice (or if such day is not a business day, on the next following
business day) at 10:30 a.m., Los Angeles time, at the principal executive office
of the corporation, or at such other time and place as may be mutually agreed to
by the corporation (or the Assignee) and such stockholder, and (ii) if the
consideration offered by the Outside Party in the Bona Fide Offer consists of
property other than cash, then the corporation (or the Assignee, if applicable)
shall pay for the Common Stock in cash in an amount equal to the fair market
value of such consideration.

          1. For purposes of this Article ELEVENTH, "FAIR MARKET VALUE" means
the amount determined by the Board of Directors of the corporation. Upon
delivery of notice of such fair market value to the stockholder (and to the
Assignee, if applicable), such stockholder (and the Assignee, if applicable)
each shall have ten (10) business days in which to notify the corporation in
writing of any disagreement. If written notice is given of a disagreement, the
corporation (or the Assignee, if applicable) and such stockholder shall mutually
agree upon an independent appraiser experienced in making valuations of such
sort which shall make a determination of the fair market value. Such
determination shall be final, binding and non-appealable upon the corporation
(and the Assignee, if applicable) and such stockholder. The corporation (and the
Assignee, if applicable) and the stockholder shall share the cost and expenses
incurred in connection with the determination made by the independent appraiser.
If the corporation (or the Assignee, if applicable) does not elect to purchase
all of such Common Stock as aforesaid, such stockholder thereafter, at any time
within a period of


                                      -14-
<PAGE>   15
three (3) months from the giving of said Option Notice, may transfer all (but
not less than all) of such Common Stock to the Outside Party at the price and
terms contained in the Bona Fide Offer, and the Common Stock transferred to the
Outside Party shall thereafter be subject to and bound by all of the
restrictions contained in this Article ELEVENTH; provided, however, that in the
event such stockholder has not so transferred said Common Stock to the Outside
Party at the price and terms contained in the Option Notice within said three
(3)-month period, then the rights of the stockholder to transfer such Common
Stock pursuant to the Option Notice shall terminate and be of no further effect
at the end of such three (3)-month period and the Common Stock of such
stockholder shall continue to be subject to and bound by all of the restrictions
contained in this Article ELEVENTH.

          2. Notwithstanding anything to the contrary contained in this Article
ELEVENTH, any stockholder may transfer such stockholder's Common Stock without
complying with the procedures set forth in paragraph (A) of this Article
ELEVENTH to his Related Transferees (as defined below) provided that the Common
Stock so transferred to each such Related Transferee shall continue to be
subject to and bound by all of the restrictions contained in this Article
ELEVENTH. The "RELATED TRANSFEREES" of the stockholder shall consist of (a) for
individuals, such stockholder's spouse, such stockholder's adult lineal
descendants, the adult spouses of his lineal descendants, trusts solely for the
benefit of such stockholder's spouse or such stockholder's minor or adult lineal
descendants, and in the event of death, his personal representatives (in their
capacities as such), estate and named beneficiaries, (b) for corporations,
partnerships, or limited liability companies, to another entity that directly or
indirectly controls, is controlled by, or is under common control with, such
stockholder (provided that such control was not obtained for the purposes of
circumventing the provisions of this Article ELEVENTH) or (c) for partnerships,
limited liability companies, trusts, nominee arrangements, and other
pass-through entities and arrangements for income tax purposes (a "PASS-THROUGH
ENTITY"), to the persons who reported the income, gain or loss in respect of
such Common Stock held by the Pass-through Entity (or would have reported such
items had there been any) in the prior tax year or their successors in interest.
In the event of any transfer by the stockholder to his Related Transferees of
all or any part of such stockholder's Common Stock (or in the event of any
subsequent transfer by any such Related Transferee to another Related Transferee
of such stockholder), such Related Transferees shall receive and hold said
Common Stock, and said Common Stock shall be, subject to and bound by all of the
restrictions contained in this Article ELEVENTH. There shall be no further
transfer of such Common Stock by a Related Transferee except between and among
such Related Transferee, the stockholder to whom such Related Transferee is
related and the other Related Transferees of such stockholder, or except as
otherwise permitted by this Article ELEVENTH.

          3. Nothing in this Certificate of Incorporation shall be construed as
limiting or vitiating any more restrictive transfer restrictions as may be
agreed upon by any particular stockholder and the corporation with respect to
the shares of Common Stock owned by any such stockholder.



                                      -15-

<PAGE>   16

     (B) The restrictions upon transfer set forth in this Article ELEVENTH shall
lapse and be of no further effect with respect to shares of the Common Stock of
the corporation upon the earlier to occur of: (i) December 1, 2000; (ii) the
completion of the first underwritten, registered public offering of Common Stock
by the corporation for its account; (iii) the consummation of the sale of
substantially all of the assets or capital stock of the corporation; or (iv) the
Common Stock of the corporation being listed or admitted to trading on a
national securities exchange or quoted on The Nasdaq Stock Market, Inc.'s
National Market or SmallCap systems.

     (C) In the event any capital stock of the corporation or any other
corporation shall be distributed on, with respect to, or in exchange for shares
of Common Stock of the corporation as a stock dividend, stock split,
reclassification or recapitalization or in connection with any merger or
reorganization, the restrictions set forth in this Article ELEVENTH shall apply
with respect to such other capital stock to the same extent as they are, or
would have been applicable, to the Common Stock on or with respect to which such
other capital stock was distributed.

     TWELFTH: The corporation reserves the right to amend and repeal any
provision contained in this Certificate of Incorporation in the manner from time
to time prescribed by the laws of the State of Delaware and all rights herein
conferred upon stockholders are granted subject to this reservation.


                                      -16-
<PAGE>   17


     IN WITNESS WHEREOF, this Restated Certificate of Incorporation which
restates and integrates and further amends the provisions of the Certificate of
Incorporation of the corporation, and which has been duly adopted in accordance
with Sections 242 and 245 of the Delaware General Corporation Law, has been
executed by its duly authorized officer this 8th day of November, 1997.


                                 BIG 5 HOLDINGS CORP.



                                 By: /s/ Charles P. Kirk
                                     ------------------------------------------
                                     Charles P. Kirk,
                                     Senior Vice President




                                      -17-

<PAGE>   18

                              BIG 5 HOLDINGS CORP.

           CERTIFICATE OF DESIGNATIONS OF THE POWERS, PREFERENCES AND

          OTHER SPECIAL RIGHTS OF SERIES A 13.45% SENIOR EXCHANGEABLE
              PREFERRED STOCK, AND QUALIFICATIONS, LIMITATIONS AND
                              RESTRICTIONS THEREOF

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

                         PURSUANT TO SECTION 151 OF THE
                GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

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


     Big 5 Holdings Corp. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the board of directors of the Company
(the "Board of Directors") by its Restated Certificate of Incorporation (the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors,
by unanimous written consent dated November 12, 1997, duly approved and adopted
the following resolution (the "Resolution"):

          RESOLVED, that, pursuant to the authority vested in the Board of
     Directors by its Certificate of Incorporation, the Board of Directors does
     hereby create, authorize and provide for the issue of the following series
     of Preferred Stock: Series A 13.45% Senior Exchangeable Preferred Stock
     (the "Series A Preferred Stock"), par value $0.01 per share, with a
     liquidation preference of $100.00 per share as of the date of issue,
     consisting of 350,000 shares; which series of preferred stock shall have
     the designations, preferences, relative, participating, optional and other
     special rights and the qualifications, limitations and restrictions thereof
     that are set forth in the Certificate of Incorporation and in this
     Resolution as follows:

1.   DESIGNATION OF THE COMPANY'S SERIES A 13.45% SENIOR EXCHANGEABLE PREFERRED
     STOCK

     (a)  Designation.

          There is hereby created out of the authorized and unissued shares of
     preferred stock of the Company a series of preferred stock designated as
     the "Series A 13.45% Senior Exchangeable Preferred Stock". The number of
     shares constituting such series shall be 350,000 shares of Series A
     Preferred Stock, consisting of an initial issuance of 350,000 shares of
     Series A Preferred Stock. The liquidation preference of the Series A
     Preferred Stock shall be $100.00 per share as of the date of issue.

<PAGE>   19

     (b)  Rank.


          The Series A Preferred Stock shall, with respect to dividend
     distributions and distributions upon the liquidation, winding up and
     dissolution of the Company, rank senior to all classes of common stock,
     $0.01 par value, of the Company (the "Common Stock"), and to each other
     class of capital stock or series of preferred stock hereafter created by
     the Board of Directors the terms of which do not expressly provide that it
     ranks senior to or on a parity with the Series A Preferred Stock as to
     dividend distributions and distributions upon the liquidation, winding up
     and dissolution of the Company (collectively referred to with the Common
     Stock as "Junior Securities"). The Series A Preferred Stock shall, with
     respect to dividend distributions and distributions upon the liquidation,
     winding up and dissolution of the Company, rank on a parity with any class
     of capital stock or series of preferred stock hereafter created which has
     been approved by the Holders of Series A Preferred Stock in accordance with
     paragraph (f)(ii)(A) hereof and which expressly provides that it ranks on a
     parity with the Series A Preferred Stock as to dividend distributions and
     distributions upon the liquidation, winding up and dissolution of the
     Company ("Parity Securities"). The Series A Preferred Stock shall, with
     respect to dividend distributions and distributions upon the liquidation,
     winding up and dissolution of the Company, rank junior to each class of
     capital stock or series of preferred stock hereafter created which has been
     approved by the Holders of Series A Preferred Stock in accordance with
     paragraph (f)(ii)(B) hereof and which expressly provides that it ranks
     senior to the Series A Preferred Stock as to dividend distributions or
     distributions upon the liquidation, winding up and dissolution of the
     Company ("Senior Securities").

     (c)  Dividends.

          (i) Beginning on the date of issuance of shares of the Series A
     Preferred Stock, Holders of the outstanding shares of Series A Preferred
     Stock shall be entitled to receive dividends on each share of Series A
     Preferred Stock, at a rate per annum equal to thirteen and forty-five one
     hundredths percent (13.45%) of the liquidation preference (as Stock, the
     Holders of the outstanding shares of Series A Preferred Stock shall be
     entitled to adjusted from time to time as hereinafter provided) per share
     of the Series A Preferred Stock, payable semiannually. All dividends shall
     be cumulative, whether or not earned or declared, on a daily basis from the
     Preferred Stock Issue Date and shall be payable semiannually in arrears on
     each Dividend Payment Date, commencing on the first Dividend Payment Date
     after the date of issuance of the Series A Preferred Stock, provided that
     with respect to any dividend payable on any Dividend Payment Date on or
     before December 15, 2004, the amount payable as dividends on such Dividend
     Payment Date may, at the option of the Company, be paid in cash or by
     increasing the then liquidation preference per share of the Series A
     Preferred Stock by the amount of such dividends (rounded to the nearest
     whole cent). Such increase in the liquidation preference shall constitute
     full payment of such dividend. In the event the Board of Directors does not
     declare and the Company does not pay, a cash dividend on the shares of the
     Series A Preferred Stock on any Dividend Payment Date on or before December
     15, 2004, the Company shall be deemed to have satisfied such dividends on
     the Series A Preferred Stock by increase in the liquidation preference.
     Dividends payable on any

                                      -2-
<PAGE>   20



     Dividend Payment Date after December 15, 2004 shall be paid only in cash.
     With respect to any cash dividend payable on any Dividend Payment Date
     after December 15, 2004 which is not paid in cash on the Dividend Payment
     Date, the amount so payable in cash on such Dividend Payment Date shall
     conditionally increase the then liquidation preference per share of the
     Series A Preferred Stock by the amount of such unpaid cash dividends
     (rounded to the nearest whole cent) on the Dividend Payment Date. Such
     conditional increase in the liquidation preference shall not constitute a
     payment of such dividend, but all subsequent cash dividends, all
     distributions upon the liquidation, winding up and dissolution of the
     Company, all payments in redemption and any other amounts referred to
     herein that are determined by reference to the liquidation preference shall
     be calculated with reference to the amount of the liquidation preference as
     conditionally increased, reduced from time to time by the amount of the
     cumulative unpaid cash dividends that are subsequently paid in cash to the
     Holders of the Series A Preferred Stock, until such time as the cumulative
     unpaid cash dividends are paid in full or the Series A Preferred Stock is
     redeemed. Each distribution in the form of a dividend in cash shall be
     payable to the Holders of Series A Preferred Stock of record as they appear
     on the stock books of the Company on such record dates, not less than 10
     nor more than 45 days preceding the related Dividend Payment Date, as shall
     be fixed by the Board of Directors or, in the event no record date is fixed
     by the Board of Directors, to the Holders of record of the Series A
     Preferred Stock on the Dividend Payment Date. Any increase in the then
     liquidation preference of the Series A Preferred Stock as set forth in this
     paragraph (c) shall occur automatically, without the need for any action on
     the part of the Company, on the applicable Dividend Payment Date. Dividends
     shall cease to accumulate in respect of shares of the Series A Preferred
     Stock on the Exchange Date or on the date of their earlier redemption
     unless the Company shall have failed to issue the appropriate aggregate
     principal amount of Exchange Notes (as defined in paragraph (g)(i)(A)
     hereof) in respect of the Series A Preferred Stock on the Exchange Date or
     shall have failed to pay, or irrevocably set apart in trust for payment,
     the relevant redemption price on the date fixed for redemption. Not more
     than 30 days after a Dividend Payment Date, written notice of the amount of
     the dividend per share paid, or in the event of a failure of the Board of
     Directors to declare and the Company to pay a cash dividend on or prior to
     December 15, 2004, the resulting increase in the liquidation preference of
     each share, or in the event of a failure of the Board of Directors to
     declare and the Company to pay a cash dividend after December 15, 2004, the
     resulting conditional increase in the liquidation preference, and in any
     case the resulting liquidation preference (permanent and conditional) of
     each share of Series A Preferred Stock (the "Liquidation Preference
     Notice") shall be given by first-class mail, postage prepaid, to each
     Holder of Series A Preferred Stock of record, on the record date fixed by
     the Board of Directors for payment of such dividend or, if no record date
     was fixed, the Dividend Payment Date, of the Series A Preferred Stock at
     such Holder's address as the same appears on the stock register of the
     Company, provided that no failure to give such notice nor any deficiency
     therein shall affect any increase or conditional increase in the
     liquidation preference of each share of Series A Preferred Stock.

          (ii) All dividends paid with respect to shares of the Series A
     Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the
     Holders thereof entitled thereto.




                                      -3-
<PAGE>   21


               (iii) Nothing herein contained shall in any way or under any
     circumstances be construed or deemed to require the Board of Directors to
     declare, or the Company to pay or set apart for payment, in cash any
     dividends on shares of the Series A Preferred Stock at any time.

          (iv) Dividends on account of arrears for any past Dividend Period and
     dividends in connection with any optional redemption pursuant to paragraph
     (e)(i) may be declared and paid at any time, without reference to any
     regular Dividend Payment Date, to Holders of Series A Preferred Stock of
     record on such date, not more than 45 days prior to the payment thereof, as
     may be fixed by the Board of Directors, provided that a Liquidation
     Preference Notice (setting forth the decrease in the conditional amount of
     the liquidation preference as a result of such dividend payment) shall be
     given by first-class mail, postage prepaid, to each Holder of Series A
     Preferred Stock of record, on the record date fixed by the Board of
     Directors for payment of such dividend on the Series A Preferred Stock at
     such Holder's address as the same appears on the stock register of the
     Company, provided, further, that no failure to give such notice nor any
     deficiency therein shall affect the decrease in the conditional amount of
     the liquidation preference of each share of Series A Preferred Stock on
     account of the payment in cash of the dividends in arrears.

          (v) No full dividends shall be declared by the Board of Directors or
     paid or funds set apart in trust for payment of dividends by the Company on
     any Parity Securities for any period unless full cumulative dividends shall
     have been or contemporaneously are declared and paid in full, or declared
     and (in the case of dividends payable in cash) a sum in cash set apart
     irrevocably in trust sufficient for such payment, on the Series A Preferred
     Stock for all Dividend Periods terminating on or prior to the date of
     payment of such full dividends on such Parity Securities. If any dividends
     are not paid in full, as aforesaid, upon the shares of the Series A
     Preferred Stock and any other Parity Securities, all dividends declared
     upon shares of the Series A Preferred Stock and any other Parity Securities
     shall be declared pro rata based on the then relative liquidation
     preferences (permanent and conditional as then in effect) of the Series A
     Preferred Stock and such Parity Securities. So long as any shares of the
     Series A Preferred Stock are outstanding, the Company shall not make any
     payment on account of, or set apart for payment, money for a sinking or
     other similar fund for, the purchase, redemption or other retirement of,
     any of the Parity Securities or any warrants, rights, calls or options
     exercisable for or convertible into any of the Parity Securities, and shall
     not permit any corporation or other entity directly or indirectly
     controlled by the Company to purchase or redeem any of the Parity
     Securities or any such warrants, rights, calls or options unless full
     dividends determined in accordance herewith on the Series A Preferred Stock
     shall have been paid or contemporaneously are declared and paid in full (or
     a sum sufficient to pay such dividends is irrevocably set apart in trust
     for payment).

          (vi) (A) Except as permitted by paragraph subclause (B) hereof,
     Holders of shares of the Series A Preferred Stock shall be entitled to
     receive the dividends provided for in paragraph (c)(i) hereof in preference
     to and in priority over any dividends upon any of the Junior Securities.



                                      -4-
<PAGE>   22





                (B) So long as any shares of Series A Preferred Stock are
     outstanding, the Company shall not, and shall not permit any of the
     Company's Subsidiaries to, (1) declare, pay or set apart for payment any
     dividend on any of the Junior Securities or on any equity interests of the
     Subsidiaries (other than dividends or distributions in Junior Securities or
     to the Company or to another Wholly Owned Subsidiary) or make any payment
     on account of, or set apart for payment money for a sinking or other
     similar fund for, the purchase, redemption or other retirement of, any of
     the Junior Securities or any warrants, rights, calls or options exercisable
     for or convertible into any of the Junior Securities (other than the
     repurchase, redemption or other acquisition or retirement for value of
     Junior Securities (and any warrants, rights, calls or options exercisable
     for or convertible into such Junior Securities) either pursuant to
     agreements entered into on or prior to the Preferred Stock Issue Date or
     held by employees of or consultants or advisors to the Company or any of
     its Subsidiaries, which repurchase, redemption or other acquisition or
     retirement shall have been approved by a majority of the Board of Directors
     or shall be made pursuant to the repurchase provisions under employee stock
     option, stock purchase or stock subscription agreements or other agreements
     to compensate employees, consultants or advisors and which such
     repurchases, redemptions or other acquisitions or retirements for value
     would otherwise be permitted by the documents governing the Company's
     indebtedness from time to time), or (2) make any distribution in respect
     thereof, either directly or indirectly, and whether in cash, obligations or
     shares of the Company or other property (other than distributions or
     dividends in Junior Securities to the holders of Junior Securities), or (3)
     permit any corporation or other entity directly or indirectly controlled by
     the Company to purchase or redeem any of the Junior Securities or any such
     warrants, rights, calls or options, unless in either case full cumulative
     dividends determined in accordance herewith have been paid in full in cash
     (if so required at that time) on the Senior Preferred Stock, including the
     payment of any accumulated and unpaid dividends as to which a conditional
     increase of the liquidation preference of the Series A Preferred Stock has
     been made.

          (vii) Dividends payable on shares of the Series A Preferred Stock for
     any period less than a year shall be computed on the basis of a 360-day
     year of twelve 30-day months and the actual number of days elapsed in the
     period for which payable. If any Dividend Payment Date occurs on a day that
     is not a Business Day, any accrued dividends otherwise payable on such
     Dividend Payment Date shall be paid on the next succeeding Business Day.

     (d)  Liquidation Preference.

          (i) Upon any voluntary or involuntary liquidation, dissolution or
     winding up of the affairs of the Company, the Holders of shares of Series A
     Preferred Stock then outstanding shall be entitled to be paid, out of the
     assets of the Company available for distribution to its stockholders,
     $100.00 per share of Series A Preferred Stock, plus an amount in cash equal
     to the sum of (x) the amounts, if any, added (permanently and

                                      -5-
<PAGE>   23


     conditionally as then in effect) to the liquidation preference pursuant to
     paragraph (c)(i) and (y) the accumulated and unpaid dividends thereon to
     the date fixed for liquidation, dissolution or winding up (including an
     amount equal to a prorated dividend for the period from the last Dividend
     Payment Date to the date fixed for liquidation, dissolution or winding up),
     before any payment shall be made or any assets distributed to the holders
     of any of the Junior Securities, including, without limitation, Common
     Stock of the Company. Except as provided in the preceding sentence, Holders
     of shares of Series A Preferred Stock shall not be entitled to any
     distribution in the event of liquidation, dissolution or winding up of the
     affairs of the Company. If the assets of the Company are not sufficient to
     pay in full the liquidation payments payable to the Holders of outstanding
     shares of the Series A Preferred Stock and all Parity Securities, then the
     holders of all such shares shall share equally and ratably in such
     distribution of assets of the Company in accordance with the amounts which
     would be payable on such distribution if the amount to which the Holders of
     outstanding shares of Series A Preferred Stock and the holders of
     outstanding shares of all Parity Securities are entitled were paid in full.

          (ii) For the purposes of this paragraph (d), neither the sale,
     conveyance, exchange or transfer (for cash, shares of stock, securities or
     other consideration) of all or substantially all of the property or assets
     of the Company nor the consolidation or merger of the Company with or into
     one or more corporations or other entities shall be deemed to be a
     liquidation, dissolution or winding up of the affairs of the Company
     (unless such sale, conveyance, exchange or transfer is in connection with a
     dissolution or winding up of the business of the Company).

     (e)  Redemption.

          (i)  Optional Redemption.

               (A) The Company may (subject to contractual and other
          restrictions with respect thereto and the legal availability of funds
          therefor), at the option of the Company, redeem at any time on or
          after November 13, 2002, from any source of funds legally available
          therefor, in whole or in part, in the manner provided in paragraph
          (e)(iii) hereof, any or all of the shares of the Series A Preferred
          Stock, at the redemption prices (expressed as a percentage of the then
          liquidation preference (both permanent and conditional as then in
          effect) thereof) set forth below plus, without duplication, an amount
          in cash equal to all accumulated and unpaid dividends per share
          (including an amount in cash equal to a prorated dividend for the
          period from the Dividend Payment Date immediately prior to the
          Redemption Date to the Redemption Date) (the "Optional

                                      -6-
<PAGE>   24
          Redemption Price"), if redeemed during the 12-month period beginning
          on November 13 of each of the years indicated below:

<TABLE>
<CAPTION>

          Year                                        Percentage
          ----                                        ----------
          <S>                                         <C>
          2002....................................    106.725%
          2003....................................    105.380%
          2004....................................    104.035%
          2005....................................    102.690%
          2006....................................    101.345%
          2007 and thereafter.....................    100.000%;

</TABLE>

          provided that no optional redemption pursuant to this paragraph
          (e)(i)(A) shall be authorized or made at less than 101% of the then
          liquidation preference (both permanent and conditional as then in
          effect) of the Series A Preferred Stock at any time when the Company
          is making or purchasing shares of Series A Preferred Stock under a
          Change of Control Offer in accordance with the provisions of paragraph
          (h)(i) hereof.

               (B) In addition, on or prior to November 13, 2002, the Company
          may, at its option, on one or more occasions redeem, in the manner
          provided in paragraph (e)(iii) hereof, any or all of the shares of the
          Series A Preferred Stock then outstanding, at a redemption price equal
          to 110% of the then liquidation preference (both permanent and
          conditional as then in effect) thereof, plus, without duplication, an
          amount in cash equal to all accumulated and unpaid dividends per share
          (including an amount in cash equal to a prorated dividend for the
          period from the Dividend Payment Date immediately prior to the
          Redemption Date to the Redemption Date) (the "Contingent Redemption
          Price"), with the proceeds of any underwritten public offering of its
          Common Stock.

               (C) In the event of a redemption pursuant to paragraph (e)(i)(A)
          or (e)(i)(B) hereof of only a portion of the then outstanding shares
          of the Series A Preferred Stock, the Company shall effect such
          redemption as it determines, pro rata according to the number of
          shares held by each Holder of Series A Preferred Stock or by lot, as
          may be determined by the Company in its sole discretion.

          (ii) Mandatory Redemption. On November 13, 2009, the Company shall
     redeem, subject to contractual and other restrictions thereupon, from any
     source of funds legally available therefor, in the manner provided in
     paragraph (e)(iii) hereof, all of the shares of the Series A Preferred
     Stock then outstanding at a redemption price equal to 100% of the then
     liquidation preference (both permanent and conditional as then in effect)
     per share, plus, without duplication, an amount in cash equal to all
     accumulated and unpaid dividends per share (including an amount equal to a
     prorated dividend for the period from the Dividend Payment Date immediately
     prior to the Redemption Date to the Redemption Date) (the "Mandatory
     Redemption Price").


                                      -7-
<PAGE>   25


          (iii) Procedures for Redemption.

               (A) At least 30 days and not more than 60 days prior to the date
          fixed for any redemption of the Series A Preferred Stock, written
          notice (the "Redemption Notice") shall be given by first-class mail,
          postage prepaid, to each Holder of Series A Preferred Stock of record
          on the record date fixed for such redemption of the Series A Preferred
          Stock at such Holder's address as the same appears on the stock
          register of the Company, provided that no failure to give such notice
          nor any deficiency therein shall affect the validity of the procedure
          for the redemption of any shares of Series A Preferred Stock to be
          redeemed except as to the Holder or Holders to whom the Company has
          failed to give said notice or except as to the Holder or Holders whose
          notice was defective. The Redemption Notice shall state: (1) whether
          the redemption is pursuant to paragraph (e)(i)(A), (e)(i)(B) or
          (e)(ii) hereof; (2) the Optional Redemption Price, the Contingent
          Redemption Price or the Mandatory Redemption Price, as the case may
          be; (3) whether all or less than all the outstanding shares of the
          Series A Preferred Stock are to be redeemed and the total number of
          shares of the Series A Preferred Stock being redeemed; (4) the number
          of shares of Series A Preferred Stock held, as of the appropriate
          record date, by the Holder that the Company intends to redeem; (5) the
          date fixed for redemption; (6) that the Holder is to surrender to the
          Company, at the place or places where certificates for shares of
          Series A Preferred Stock are to be surrendered for redemption, in the
          manner and at the price designated, such Holder's certificate or
          certificates representing the shares of Series A Preferred Stock to be
          redeemed; and (7) that dividends on the shares of the Series A
          Preferred Stock to be redeemed shall cease to accrue on such
          Redemption Date unless the Company defaults in the payment of the
          Optional Redemption Price, the Contingent Redemption Price or the
          Mandatory Redemption Price, as the case may be.

               (B) Each Holder of Series A Preferred Stock shall surrender the
          certificate or certificates representing such shares of Series A
          Preferred Stock to the Company, duly endorsed, in the manner and at
          the place designated in the Redemption Notice, and on the Redemption
          Date the full Optional Redemption Price, Contingent Redemption Price
          or Mandatory Redemption Price, as the case may be, for such shares
          shall be payable in cash to the Person whose name appears on such
          certificate or certificates as the owner thereof, and each surrendered
          certificate shall be canceled and retired. In the event that less than
          all of the shares represented by any such certificate are redeemed, a
          new certificate shall be issued representing the unredeemed shares.

               (C) If (i) the Redemption Notice is duly mailed as described in
          subparagraph (iii)(a) and (ii) either (x) a sum in cash is set apart
          irrevocably in trust sufficient to pay the applicable redemption price
          on the shares of Series A Preferred Stock called for redemption
          (whether before or on the Redemption Date) or (y) the Company pays in
          full the applicable redemption price, then, notwithstanding that any
          certificate for shares so called for or subject to


                                      -8-
<PAGE>   26


          redemption shall not have been surrendered for cancellation, (1)
          dividends on the Series A Preferred Stock called for redemption shall
          cease to accumulate on the Redemption Date, (2) such shares shall no
          longer be deemed to be outstanding or have the status of shares of
          Series A Preferred Stock, (4) such shares shall no longer be
          transferable on the books of the Company and (5) all rights of the
          Holders of such redemption shares as stockholders of the Company shall
          cease, other than the right to receive from the Company or exchange
          agent or other agent selected by the Company the Optional Redemption
          Price, the Contingent Redemption Price or the Mandatory Redemption
          Price, as the case may be, without interest.

     (f)  Voting Rights.

          (i) The Holders of shares of the Series A Preferred Stock, except as
     otherwise required under the General Corporation Law of the State of
     Delaware law or as set forth in paragraphs (ii), (iii) and (iv) below,
     shall not be entitled or permitted to vote on any matter required or
     permitted to be voted upon by the stockholders of the Company.

          (ii) (A) So long as any shares of the Series A Preferred Stock are
          outstanding, the Company shall not authorize any class of Parity
          Securities without the affirmative vote or consent of Holders of at
          least a majority of the outstanding shares of Series A Preferred
          Stock, voting or consenting, as the case may be, separately as one
          class, given in person or by proxy, either in writing or by resolution
          adopted at an annual or special meeting, except that without the
          approval of Holders of Series A Preferred Stock, the Company may issue
          shares of Parity Securities in exchange for, or the proceeds of which
          are used to redeem or repurchase, any or all shares of Series A
          Preferred Stock then outstanding, provided that, in the case of Parity
          Securities issued in exchange for, or the proceeds of which are used
          to redeem or repurchase, less than all shares of Series A Preferred
          Stock then outstanding, the aggregate liquidation preference (both
          permanent and conditional as then in effect) of such Parity Securities
          shall not exceed the aggregate liquidation preference (both permanent
          and conditional as then in effect) of, premium, if any, and accrued
          and unpaid dividends on, and expenses in connection with the
          refinancing of, the Series A Preferred Stock so exchanged, redeemed or
          repurchased.

               (B) So long as any shares of the Series A Preferred Stock are
          outstanding, the Company shall not authorize any class of Senior
          Securities without the affirmative vote or consent of Holders of at
          least a majority of the outstanding shares of Series A Preferred
          Stock, voting or consenting, as the case may be, separately as one
          class, given in person or by proxy, either in writing or by resolution
          adopted at an annual or special meeting.

               (C) So long as any shares of the Series A Preferred Stock are
          outstanding, the Company shall not amend this Certificate of
          Designation or its Certificate of Incorporation so as to affect
          adversely the specified rights,


                                      -9-
<PAGE>   27


          preferences, privileges or voting rights of Holders of shares of
          Series A Preferred Stock or to authorize the issuance of any
          additional shares of Series A Preferred Stock without the affirmative
          vote or consent of Holders of at least a majority of the outstanding
          shares of Series A Preferred Stock, voting or consenting, as the case
          may be, separately as one class, given in person or by proxy, either
          in writing or by resolution adopted at an annual or special meeting.
          The affirmative vote or consent of Holders of at least a majority of
          the outstanding shares of Series A Preferred Stock, voting or
          consenting, as the case may be, separately as one class, whether
          voting in person or by proxy, either in writing or by resolution
          adopted at an annual or special meeting, may waive compliance with any
          provision of this Certificate of Designation or its Certificate of
          Incorporation.

               (D) Prior to the exchange of Series A Preferred Stock for
          Exchange Notes, the Company may amend or modify the indenture for the
          Exchange Notes, including, without limitation, in a manner so as to
          affect adversely the specified rights, preferences and privileges of
          the Holders of outstanding shares of Series A Preferred Stock who may
          receive Exchange Notes as described herein, with the affirmative vote
          or consent of Holders of at least a majority of the outstanding shares
          of Series A Preferred Stock, voting or consenting, as the case may be,
          separately as one class, given in person or by proxy, either in
          writing or by resolution adopted at an annual or special meeting. In
          addition, without such an affirmative vote or consent, the Company may
          amend or modify such indenture as expressly provided therein in
          respect of amendments without the consent of holders of Exchange
          Notes. Such indenture, as it may be amended or modified pursuant to
          this provision, is referred to as the "Exchange Indenture," and a copy
          of the form of Exchange Indenture is attached hereto as Exhibit A.

               (E) Except as set forth in paragraphs (f)(ii)(A) and (f)(ii)(B)
          above, (1) the creation, authorization or issuance of any shares of
          any Junior Securities, Parity Securities or Senior Securities, or (2)
          the increase or decrease in the amount of authorized capital stock of
          any class, including any preferred stock, shall not require the
          consent of Holders of Series A Preferred Stock and shall not, unless
          not complying with paragraphs (f)(ii)(A) and (f)(ii)(B) above, be
          deemed to affect adversely the rights, preferences, privileges or
          voting rights of Holders of shares of Series A Preferred Stock.

          (iii) (A) If (1) after December 15, 2004, dividends on the Series A
          Preferred Stock are not paid in cash for six consecutive Dividend
          Payment Dates (a "Dividend Default"); or (2) the Company fails to make
          a mandatory redemption of the Series A Preferred Stock when required
          (whether or not any contractual or other restrictions apply to such
          redemption) pursuant to paragraph (e)(ii) hereof (a "Redemption
          Default"); or (3) the Company fails to make an offer to repurchase all
          of the outstanding shares of Series A Preferred Stock within thirty
          (30) days following a Change of Control, if such offer to repurchase
          is required to be made pursuant to paragraph (h)(i) hereof, (whether
          or not any contractual or other restrictions apply to such redemption)
          (a "Repurchase


                                      -10-
<PAGE>   28


          Default"); or (4) the Company breaches or violates one of the
          provisions set forth in this Certificate of Designation and the breach
          or violation continues for a period of 30 days or more (a "Restriction
          Default"), then the number of directors constituting the Board of
          Directors shall be increased to permit the Holders of the majority of
          the then outstanding Series A Preferred Stock, voting separately as
          one class, to elect one director. Holders of a majority of the issued
          and outstanding shares of the Series A Preferred Stock, voting
          separately as one class, shall have the exclusive right to elect a
          maximum of one member of the Board of Directors at a meeting therefor
          called upon occurrence of any one or more of a Dividend Default,
          Redemption Default, Repurchase Default or Restriction Default, as the
          case may be, and at every subsequent meeting at which the term of
          office of the director so elected by the Holders of Series A Preferred
          Stock expires (other than as described in (f)(iii)(B) below). Each
          such event described in clauses (1), (2), (3) and (4) is a "Voting
          Rights Triggering Event." Irrespective of the number of Voting Rights
          Triggering Events, in no event shall the Holders of Series A Preferred
          Stock have the right to elect and have serve more than one member of
          the Board of Directors at any time.

               (B) The right of the Holders of Series A Preferred Stock voting
          separately as one class to elect a maximum of one member of the Board
          of Directors as set forth in paragraph (f)(iii)(A) above shall
          continue until such time as (1) in the event such right arises due to
          a Dividend Default, all accumulated dividends that are in arrears on
          the Series A Preferred Stock are paid in full in cash; and (2) in the
          event such right arises due to a Redemption Default or a Repurchase
          Default, a Restriction Default, the Company remedies any such failure,
          breach or default, at which time the term of the director elected
          pursuant to paragraph (f)(iii)(A) shall terminate, subject always to
          the same provisions for the renewal and divestment of such special
          voting rights in the case of any future Voting Rights Triggering
          Event. At any time after voting power to elect a director shall have
          become vested and be continuing in the Holders of shares of Series A
          Preferred Stock pursuant to paragraph (f)(iii) hereof, or if a vacancy
          shall exist in the office of the director elected by the Holders of
          shares of the Series A Preferred Stock, a proper officer of the
          Company may, and upon the written request of the Holders of record of
          at least 10% of the shares of Series A Preferred Stock then
          outstanding addressed to the Secretary of the Company shall, call a
          special meeting of the Holders of Series A Preferred Stock, for the
          purpose of electing the director which such Holders are entitled to
          elect. If such meeting shall not be called by the proper officer of
          the Company within 10 days after personal service of said written
          request upon the Secretary of the Company, or within 10 days after
          mailing the same within the United States by certified mail, addressed
          to the Secretary of the Company at its principal executive offices,
          then the Holders of record of at least 20% of the outstanding shares
          of the Series A Preferred Stock may designate in writing one of their
          number to call such meeting at the expense of the Company, and such
          meeting may be called by the Person so designated upon the notice
          required for the annual meetings of stockholders of the Company and
          shall be held at the place for holding the annual


                                      -11-
<PAGE>   29


          meetings of stockholders or such other place in the United States as
          shall be designated in such notice. Notwithstanding the provisions of
          this paragraph (f)(iii)(B), no such special meeting shall be called if
          any such request is received less than 20 days before the date fixed
          for the next ensuing annual or special meeting of stockholders of the
          Company. Any Holder of shares of the Series A Preferred Stock so
          designated shall have, and the Company shall provide, access to the
          lists of Holders of shares of the Series A Preferred Stock for
          purposes of calling a meeting pursuant to the provisions of this
          paragraph (f)(iii)(B).

               (C) At any meeting held for the purpose of electing directors at
          which the Holders of Series A Preferred Stock shall have the right,
          voting separately as one class, to elect a director as aforesaid, the
          presence in person or by proxy of the Holders of at least a majority
          of the outstanding Series A Preferred Stock shall be required to
          constitute a quorum of such Series A Preferred Stock.

          (iv) In any case in which the Holders of shares of the Series A
     Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or
     pursuant to the General Corporation Law of the State of Delaware, each
     Holder of shares of the Series A Preferred Stock shall be entitled to one
     vote for each share of Series A Preferred Stock held.

     (g)  Optional Exchange.

          (i)  Conditions.

               (A) The Company may, at its option on any date (herein the
          "Exchange Date"), exchange all, but not less than all, of the then
          outstanding shares of Series A Preferred Stock into the Company's
          13.45% Subordinated Exchange Debenture due 2009 (the "Exchange Notes")
          if such exchange is then permitted by the documents governing the
          Company's indebtedness from time to time. To exchange Series A
          Preferred Stock into Exchange Notes, the Company shall send a written
          notice (the "Exchange Notice") of exchange by mail to each Holder of
          Series A Preferred Stock, which notice shall state: (v) that the
          Company has elected to exchange the Series A Preferred Stock into
          Exchange Notes pursuant to this paragraph (g); (w) the Exchange Date,
          which shall be no sooner than 30 days nor later than 60 days from the
          date on which the Exchange Notice is mailed; (x) that the Holder is to
          surrender to the Company, at the place or places where certificates
          for shares of Series A Preferred Stock are to be surrendered for
          exchange, in the manner designated in the Exchange Notice, his
          certificate or certificates representing the shares of Series A
          Preferred Stock to be exchanged (properly endorsed or assigned for
          transfer); (y) that dividends on the shares of Series A Preferred
          Stock to be exchanged shall cease to accrue, and the Holders of such
          shares shall cease to have any further rights with respect to such
          shares (other than the right to receive Exchange Notes), on the
          Exchange Date whether or not certificates for shares of Series A
          Preferred Stock are surrendered for exchange on the Exchange Date
          unless the Company shall default in the delivery


                                      -12-
<PAGE>   30


          of Exchange Notes; and (z) that interest on the Exchange Notes shall
          accrue from the Exchange Date whether or not certificates for shares
          of Series A Preferred Stock are surrendered for exchange on the
          Exchange Date. On the Exchange Date, if the conditions set forth in
          clauses (I) through (IV) below are satisfied and if the exchange is
          then permitted by the documents governing the Company's indebtedness
          from time to time, the Company shall issue Exchange Notes in exchange
          for the Series A Preferred Stock as provided in the next paragraph,
          provided that on the Exchange Date: (I) there shall be legally
          available funds sufficient therefor (including, without limitation,
          legally available funds sufficient therefor under Sections 160 and 170
          (or any successor provisions) of the Delaware General Corporation Law
          of the State of Delaware); (II) either (a) a registration statement
          relating to the Exchange Notes shall have been declared effective
          under the Securities Act of 1933, as amended (the "Securities Act"),
          prior to such exchange and shall continue to be in effect on the
          Exchange Date or (b)(i) the Company shall have obtained a written
          opinion of counsel that an exemption from the registration
          requirements of the Securities Act is available for such exchange and
          (ii) such exemption is relied upon by the Company for such exchange;
          (III) the Exchange Indenture and the trustee thereunder (the
          "Trustee") shall have been qualified under the Trust Indenture Act of
          1939, as amended, if such qualification is required; and (IV)
          immediately after giving effect to such exchange, no Default or Event
          of Default (each as defined in the Exchange Indenture) would exist
          under the Exchange Indenture.

          In the event that the issuance of the Exchange Notes is not permitted
          on the Exchange Date set forth in the Exchange Notice, or any of the
          conditions set forth in clauses (I) through (IV) of the preceding
          sentence are not satisfied on the Exchange Date set forth in the
          Exchange Notice, the Exchange Date shall be deemed to be the first
          Business Day thereafter, if any, upon which all of such conditions are
          satisfied.

               (B) Upon any exchange pursuant to paragraph (g)(i)(A), each
          Holder of outstanding shares of Series A Preferred Stock shall be
          entitled to receive Exchange Notes in a principal amount equal to the
          sum of (i) the then liquidation preference (both permanent and
          conditional as then in effect) of such Holder's shares of Series A
          Preferred Stock and (ii) the amount of accumulated and unpaid
          dividends, if any, thereon.

          (ii) Procedure for Exchange.

               (A) On or before the Exchange Date, each Holder of Series A
          Preferred Stock shall surrender the certificate or certificates
          representing such shares of Series A Preferred Stock, in the manner
          and at the place designated in the Exchange Notice. The Company shall
          cause the Exchange Notes to be executed on the Exchange Date and, upon
          surrender in accordance with the Exchange Notice of the certificates
          for any shares of Series A Preferred Stock so exchanged (properly
          endorsed or assigned for transfer), such shares shall be

                                      -13-
<PAGE>   31


          exchanged by the Company into Exchange Notes. The Company shall pay
          interest on the Exchange Notes at the rate and on the dates specified
          therein from the Exchange Date.

                (B) Subject to the conditions set forth in paragraph (g)(i), if
          notice has been mailed as aforesaid, and if before the Exchange Date
          (1) the Exchange Indenture shall have been duly executed and delivered
          by the Company and the Trustee and (2) all Exchange Notes necessary
          for such exchange shall have been duly executed by the Company and
          delivered to the Trustee with irrevocable instructions to authenticate
          the Exchange Notes necessary for such exchange, then the rights of the
          Holders of shares of the Series A Preferred Stock as stockholders of
          the Company shall cease (except the right to receive Exchange Notes),
          and the Person or Persons entitled to receive the Exchange Notes
          issuable upon exchange shall be treated for all purposes as the
          registered Holder or Holders of such Exchange Notes as of the date of
          exchange without any further action of the Holders of Series A
          Preferred Stock.

     (h)  Option of Holders to Elect Repurchase.

          (i) Change of Control Offer. Subject to the last paragraph of
     subclause (B) below, upon the occurrence of a Change of Control, the
     Company shall make an offer (a "Change of Control Offer") to each Holder of
     Series A Preferred Stock to repurchase any or all of such Holder's shares
     of Series A Preferred Stock at a purchase price in cash equal to 101.0% of
     the aggregate liquidation preference (both permanent and conditional as
     then in effect) thereof plus cumulated and unpaid dividends thereon, if
     any, to the date of repurchase (the "Change of Control Payment").

               (A) Within 30 days following any Change of Control, the Company
          shall mail a notice to each Holder of Series A Preferred Stock
          stating: (1) that the Change of Control Offer is being made pursuant
          to this paragraph (h)(i) and that all shares of Series A Preferred
          Stock tendered will be accepted for payment; (2) the purchase price
          and the purchase date, which shall be no sooner than 30 nor later than
          60 days from the date such notice is mailed (the "Change of Control
          Payment Date"); (3) that any shares not tendered will continue to
          accumulate dividends; (4) that, unless the Company defaults in the
          payment of the Change of Control Payment, all shares of Series A
          Preferred Stock accepted for payment pursuant to the Change of Control
          Offer shall cease to accumulate dividends after the Change of Control
          Payment Date; (5) that Holders electing to have any shares of Series A
          Preferred Stock repurchased pursuant to a Change of Control Offer will
          be required to surrender such shares, with the form entitled "Option
          of Holder to Elect Purchase" on the reverse of the shares of Series A
          Preferred Stock, completed, or transfer by book-entry transfer, to the
          Company or its transfer agent at the address specified in the notice
          prior to the close of business on the third Business Day preceding the
          Change of Control Payment Date; (6) that Holders will be entitled to
          withdraw their election if the Company or the transfer agent, as the
          case may be, receives, not later than the close of business

                                      -14-
<PAGE>   32


          on the third Business Day preceding the Change of Control Payment
          Date, a telegram, telex, facsimile transmission or letter setting
          forth the name of the Holder, the number of shares of Series A
          Preferred Stock delivered for repurchase, and a statement that such
          Holder is withdrawing his election to have such shares repurchased;
          and (7) that Holders whose shares of Series A Preferred Stock are
          being repurchased only in part will be issued new shares of Series A
          Preferred Stock equal in liquidation preference to the then
          liquidation preference (both permanent and conditional as then in
          effect) of the unpurchased portion of the shares of Series A Preferred
          Stock surrendered (or transferred by book-entry transfer).

               (B) On the Change of Control Payment Date, the Company shall, to
          the extent lawful, (1) accept for payment all shares of Series A
          Preferred Stock or portions thereof properly tendered pursuant to the
          Change of Control Offer, (2) deposit with the Company or its transfer
          agent an amount equal to the Change of Control Payment in respect of
          all shares of Series A Preferred Stock or portions thereof so
          tendered, and (3) deliver or cause to be delivered to the Trustee the
          shares of Series A Preferred Stock so accepted together with an
          Officers' Certificate stating the aggregate liquidation preference
          (both permanent and conditional as then in effect) of such Series A
          Preferred Stock or portions thereof being repurchased by the Company.
          The Company or its transfer agent, as the case may be, shall promptly
          mail to each Holder of shares of Series A Preferred Stock so tendered
          the Change of Control Payment for such shares or portions thereof. The
          Company shall promptly issue a certificate representing shares of
          Series A Preferred Stock and mail (or cause to be transferred by book
          entry) to each Holder a new certificate representing shares of Series
          A Preferred Stock equal in liquidation preference (both permanent and
          conditional as then in effect) to the then liquidation preference
          (both permanent and conditional as then in effect) of any unpurchased
          portion of such shares surrendered by such Holder, if any.

               If the Change of Control Payment would be prohibited or
          restricted by the documents governing the Company's indebtedness as in
          effect immediately prior to the Change of Control or by applicable
          requirements of the Delaware General Corporation Law, the Company's
          obligation to consummate the Change of Control Offer shall be delayed
          until such time as such prohibition or restriction is no longer
          applicable or in effect; provided, however, that any prohibition or
          restriction contained in the documents governing the Company's
          indebtedness incurred or agreed to in anticipation of the Change of
          Control shall have no effect on the Company's obligation to consummate
          the Change of Control Offer. The Company shall publicly announce the
          results of the Change of Control Offer on or as soon as practicable
          after the Change of Control Payment Date.

               (C) The Company shall comply with the requirements of Rule 14e-1
          under the Exchange Act and any other securities laws and regulations
          thereunder to the extent such laws and regulations are applicable in
          connection with the


                                      -15-
<PAGE>   33


          repurchase of shares of Series A Preferred Stock in connection with a
          Change of Control.

     (i)  Conversion or Exchange.

          The Holders of shares of Series A Preferred Stock shall not have any
     rights hereunder to convert such shares into or exchange such shares for
     shares of any other class or classes or of any other series of any class or
     classes of Capital Stock of the Company.


     (j)  Preemptive Rights.

          No shares of Series A Preferred Stock shall have any rights of
     preemption whatsoever as to any securities of the Company, or any warrants,
     rights or options issued or granted with respect thereto, regardless of how
     such securities or such warrants, rights or options may be designated,
     issued or granted.

     (k)  Reissuance of Series A Preferred Stock.

          Shares of Series A Preferred Stock that have been issued and
     reacquired in any manner, including shares purchased or redeemed or
     exchanged, shall (upon compliance with any applicable provisions of the
     General Corporation Law of the State of Delaware) have the status of
     authorized but unissued shares of preferred stock of the Company
     undesignated as to series and may be designated or redesignated and issued
     or reissued, as the case may be, as part of any series of preferred stock
     of the Company, provided that such shares may not in any event be reissued
     as Series A Preferred Stock.

     (l)  Business Day.

          If any payment, redemption or exchange shall be required by the terms
     hereof to be made on a day that is not a Business Day, such payment,
     redemption or exchange shall be made on the immediately succeeding Business
     Day.

     (m)  Reports.

          So long as any shares of Series A Preferred Stock are outstanding, the
     Company shall furnish to each Holder of Series A Preferred Stock (at such
     Holder's address listed in the register of Holders maintained by the
     transfer agent and registrar of the Series A Preferred Stock): (i)
     beginning at the end of the Company's first fiscal year ending after the
     Preferred Stock Issue Date, all quarterly and annual financial information
     that would be required to be contained in a filing with the SEC on Forms
     10-Q and 10-K if the Company were required to file such forms, including a
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations" and, with respect to the annual information only, a report
     thereon by the Company's certified independent accountants, and (ii) all
     current reports that would be required to be filed with the SEC on Form 8-K
     if the Company were required to file such reports.


                                      -16-
<PAGE>   34

     (n)  Definitions.

          As used in this Section 1, the following terms shall have the
     following meanings (with terms defined in the singular having comparable
     meanings when used in the plural and vice versa), unless the context
     otherwise requires:

          "Beneficial Owner" for purposes of the definition of Change of Control
     has the meaning attributed to it in Rules 13d-3 and 13d-5 under the
     Exchange Act (as in effect on the Preferred Stock Issue Date), whether or
     not applicable.

          "Board of Directors" means, with respect to any person, the board of
     directors of such person or any committee of the board of directors of such
     person authorized, with respect to any particular matter, to exercise the
     power of the board of directors of such person.

          "Business Day" means any day other than a Legal Holiday.

          "Capital Stock" means (i) in the case of a corporation, corporate
     stock, (ii) in the case of an association or business entity, any and all
     shares, interests, participations, rights or other equivalents (however
     designated) of corporate stock, (iii) in the case of a partnership,
     partnership interests (whether general or limited) and (iv) any other
     interest or participation that confers on a Person the right to receive a
     share of the profits and losses of, or distributions of assets of, the
     issuing Person.

          "Change of Control" means (i) any merger or consolidation of the
     Company or Principal Subsidiary with or into any person or any sale,
     transfer or other conveyance, whether direct or indirect, of all or
     substantially all of the assets of the Company or Principal Subsidiary on a
     consolidated basis, in one transaction or a series of related transactions,
     if, immediately after giving effect to such transaction(s), any "person" or
     "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of
     the Exchange Act, whether or not applicable), other than any Excluded
     Person or Excluded Persons or (in the case of Principal Subsidiary) the
     Company, is or becomes the Beneficial Owner, directly or indirectly, of
     more than 50% of the total voting power in the aggregate normally entitled
     to vote in the election of directors, managers, or trustees, as applicable,
     of the transferee(s) or surviving entity or entities, (ii) any "person" or
     "group," other than any Excluded Person or Excluded Persons or (in the case
     of Principal Subsidiary) the Company, is or becomes the Beneficial Owner,
     directly or indirectly, of more than 50% of the total voting power in the
     aggregate of all classes of Capital Stock of Principal Subsidiary then
     outstanding normally entitled to vote in elections of directors; provided,
     however, that any "person" or "group" will be deemed to be the Beneficial
     Owner of any Capital Stock of Principal Subsidiary held by the Company so
     long as such person or group is the Beneficial Owner of, directly or
     indirectly, in the aggregate a majority of the Capital Stock of the Company
     then outstanding normally entitled to vote in elections of directors, (iii)
     during any period of 12 consecutive months after the Preferred Stock Issue
     Date, individuals who at the beginning of any such 12-month period
     constituted the Board of Directors of either the

                                      -17-
<PAGE>   35


     Company or Principal Subsidiary (together, in each case, with any new
     directors whose election by such Board of Directors or whose nomination for
     election by the shareholders of the Company or Principal Subsidiary was
     approved by LGP or a Related Party of LGP or by the Excluded Persons or by
     a vote of a majority of the directors then still in office who were either
     directors at the beginning of such period or whose election or nomination
     for election was previously so approved) cease for any reason to constitute
     a majority of the Board of Directors of the Company or Principal Subsidiary
     then in office, as applicable, or (iv) at any time after the Preferred
     Stock Issue Date, Principal Subsidiary no longer continues, for Federal
     income tax purposes, to be a member of the affiliated group of the Company
     under circumstances that would accelerate the unrealized gain in respect of
     the Company's investment account in Principal Subsidiary.

          "Certificate of Incorporation" means the Company's Restated
     Certificate of Incorporation.

          "CIT Credit Facility" means the financing agreement, dated March 8,
     1996, between Principal Subsidiary, as borrower, the CIT Group/Business
     Credit, Inc., as agent and lender, and the other lenders thereunder, as
     amended through the date hereof.

          "Company" means this corporation.

          "Dividend Payment Date" means the fifteenth day of June and December.

          "Dividend Period" means the Initial Dividend Period and, thereafter,
     each Semiannual Dividend Period.

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

          "Exchange Date" means a date on which shares of Series A Preferred
     Stock are exchanged by the Company for Exchange Notes.

          "Exchange Notes" means the 13.45% Subordinated Exchange Debentures due
     2009 of the Company to be issued at the option of the Company in exchange
     for the Series A Preferred Stock.

          "Excluded Person" means GEI, Robert W. Miller, Steven G. Miller,
     Michael D. Miller and their respective Related Parties.

          "GEI" means Green Equity Investors, L.P., a Delaware limited
     partnership.

          "Holder" means a Person in whose name a share of Series A Preferred
     Stock is registered.

          "Initial Dividend Period" means the dividend period commencing on the
     Preferred Stock Issue Date and ending on June 14, 1998.



                                      -18-
<PAGE>   36


          "Legal Holiday" means a Saturday, a Sunday or a day on which banking
     institutions in the Company's principal place of business, the City of New
     York or at a place of payment are authorized by law, regulation or
     executive order to remain closed. 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 shall accrue for the
     intervening period.

          "LGP" means Leonard Green & Partners, L.P., a Delaware limited
     partnership.

          "Person" means any individual, corporation, partnership, joint
     venture, association, limited liability company, joint-stock company,
     trust, unincorporated organization or government or agency or political
     subdivision thereof (including any subdivision or ongoing business of any
     such entity or substantially all of the assets of any such entity,
     subdivision or business).

          "Preferred Stock Issue Date" means the date on which the Series A
     Preferred Stock is originally issued by the Company under this Certificate
     of Designation.

          "Principal Subsidiary" means Big 5 Corp., a Delaware corporation.

          "Redemption Date" with respect to any shares of Series A Preferred
     Stock means the date on which such shares of Series A Preferred Stock are
     redeemed by the Company.

          "Related Party" means (i) with respect to any Excluded Person, (A) any
     controlling stockholder, 80% or more owned Subsidiary, partner or spouse or
     immediate family member (in the case of an individual) of such Excluded
     Person or (B) any trust, corporation, partnership or other entity, the
     beneficiaries, stockholders, partners, owners or persons beneficially
     holding an 80% or more controlling interest of which consist of such
     Excluded Person and/or such other persons referred to in the immediately
     preceding clause (A), and (ii) only with respect to GEI (and in addition to
     the persons described in the foregoing clause (i)) any partnership or
     corporation which is managed by or controlled by LGP or any affiliate
     thereof.

          "SEC" means the Securities and Exchange Commission.

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

          "Semiannual Dividend Period" shall mean the semiannual period
     commencing on each June 15 and December 15 and ending on the day before the
     following Dividend Payment Date.

          "Series A Preferred Stock" means the Company's Series A 13.45% Senior
     Exchangeable Preferred Stock, par value $0.01 per share, with an initial
     liquidation preference of $100.00 per share, consisting of 350,000 shares.


                                      -19-
<PAGE>   37

          "Subsidiary" means, with respect to any Person, (i) any corporation,
     association or other business entity of which more than 50.0% of the total
     voting power of shares of Capital Stock entitled (without regard to the
     occurrence of any contingency) to vote in the election of directors,
     managers or trustees thereof is at the time owned or controlled, directly
     or indirectly, by such Person or one or more of the other Subsidiaries of
     that Person (or a combination thereof) and (ii) any partnership (a) the
     sole general partner or the managing general partner of which is such
     Person or a Subsidiary of such Person or (b) the only general partners of
     which are such Person or of one or more Subsidiaries of such Person (or any
     combination thereof).

          "Wholly Owned Subsidiary" of any Person means a Subsidiary of such
     Person all of the outstanding Capital Stock or other ownership interests of
     which shall at the time be owned (i) by such Person, (ii) by one or more
     Wholly Owned Subsidiaries of such Person or (iii) by such Person and one or
     more Wholly Owned Subsidiaries of such Person.

                                      -20-
<PAGE>   38
     IN WITNESS WHEREOF, Big 5 Holdings Corp. has caused this Certificate to be
signed by Robert W. Miller, its Chief Executive Officer, this 12th day of
November, 1997.



                                   BIG 5 HOLDINGS CORP.



                                   By: /s/ Robert W. Miller
                                       ----------------------------------------
                                       Robert W. Miller
                                       Chief Executive Officer





                                      -21-


<PAGE>   39
================================================================================





                              BIG 5 HOLDINGS CORP.


                13.45% SUBORDINATED EXCHANGE DEBENTURES DUE 2009




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



                                    INDENTURE


                      DATED AS OF ________________________




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



                                     [NAME]

                                   AS TRUSTEE



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





               THE FORM OF THIS INDENTURE IS SUBJECT TO CHANGES (1)
               AS REQUESTED IN GOOD FAITH BY THE TRUSTEE IN ORDER
               TO MEET ITS REQUIREMENTS GENERALLY APPLICABLE TO
               THE PERFORMANCE OF ITS DUTIES AS TRUSTEE, AND (2) AS
               REQUIRED TO REFLECT THE EXCHANGE OF SERIES A PREFERRED
               SHARES WHICH MAY BE TRANSFER RESTRICTED.





<PAGE>   40



                             CROSS-REFERENCE TABLE*

<TABLE>
<CAPTION>

Trust Indenture
   Act Section                                                                                   Indenture Section
- ---------------                                                                                  -----------------
<S>                                                                                              <C>
310(a)(1)................................................................................                       7.10
     (a)(2).............................................................................                        7.10
     (a)(3).............................................................................                        N.A.
     (a)(4).............................................................................                        N.A.
     (a)(5).............................................................................                        7.10
     (b)................................................................................                        7.10
     (c)................................................................................                        N.A.
311(a)..................................................................................                        7.11
     (b)................................................................................                        7.11
     (c)................................................................................                        N.A.
312(a)..................................................................................                        2.05
     (b)................................................................................                       11.03
     (c)................................................................................                       11.03
313(a)..................................................................................                        7.06
     (b)(1).............................................................................                       10.03
     (b)(2).............................................................................                        7.07
     (c)................................................................................                 7.06, 11.02
     (d)................................................................................                        7.06
314(a)..................................................................................                 4.03, 11.02
     (b)................................................................................                       10.02
     (c)(1).............................................................................                        1.04
     (c)(2).............................................................................                       11.04
     (c)(3).............................................................................                        N.A.
     (d)................................................................................         10.03, 10.04, 10.05
     (e)................................................................................                       11.05
     (f)................................................................................                        N.A.
315(a)..................................................................................                        7.01
     (b)................................................................................                 7.05, 11.02
     (c)................................................................................                        7.01
     (d)................................................................................                        7.01
     (e)................................................................................                        6.11
316(a)(last sentence)...................................................................                        2.09
     (a)(1)(A)..........................................................................                        6.05
     (a)(1)(B)..........................................................................                        6.04
     (a)(2).............................................................................                        N.A.
     (b)................................................................................                        6.07
     (c)................................................................................                        2.12
317(a)(1)...............................................................................                        6.08
     (a)(2).............................................................................                        6.09
     (b)................................................................................                        2.04
318(a)..................................................................................                       11.01
     (b)................................................................................                        N.A.
     (c)................................................................................                       11.01
N.A. means not applicable.
</TABLE>


                                       i

<PAGE>   41



*This Cross-Reference Table is not part of the Indenture.










                                       ii
<PAGE>   42




SCHEDULES

<TABLE>

<S>                                                   <C>                                                     <C>
     Schedule I ..................................... Existing Indebtedness  ...................................I-1

EXHIBITS

     Exhibit A                                                                            FORM OF
                                                                                          NOTE .................A-1

</TABLE>




                                      iii

<PAGE>   43



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

<S>                                                                                                          <C>
ARTICLE 1         DEFINITIONS AND INCORPORATION BY REFERENCE....................................................1

         Section 1.01               Definitions.................................................................1

         Section 1.02               Other Definitions...........................................................6

         Section 1.03               Incorporation by Reference of Trust Indenture Act...........................6

         Section 1.04               Rules of Construction.......................................................6

ARTICLE 2         THE NOTES.....................................................................................7

         Section 2.01               Form and Dating.............................................................7

         Section 2.02               Execution and Authentication................................................7

         Section 2.03               Registrar and Paying Agent..................................................8

         Section 2.04               Paying Agent to Hold Money in Trust.........................................8

         Section 2.05               Holder Lists................................................................8

         Section 2.06               Transfer and Exchange.......................................................9

         Section 2.07               Replacement Notes..........................................................10

         Section 2.08               Outstanding Notes..........................................................10

         Section 2.09               Treasury Notes.............................................................10

         Section 2.10               Temporary Notes............................................................10

         Section 2.11               Cancellation...............................................................11

         Section 2.12               Defaulted Interest.........................................................11

         Section 2.13               Persons Deemed Owners......................................................11

ARTICLE 3         REDEMPTION AND PREPAYMENT....................................................................12

         Section 3.01               Notices to Trustee.........................................................12

         Section 3.02               Selection of Notes to Be Redeemed..........................................12

         Section 3.03               Notice of Redemption.......................................................12

</TABLE>




                                      -i-
<PAGE>   44

<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

<S>                                                                                                         <C>
         Section 3.04               Effect of Notice of Redemption.............................................13

         Section 3.05               Deposit of Redemption Price................................................13

         Section 3.06               Notes Redeemed in Part.....................................................14

         Section 3.07               Optional Redemption........................................................14

         Section 3.08               Mandatory Redemption.......................................................14

ARTICLE 4         COVENANTS....................................................................................15

         Section 4.01               Payment of Notes...........................................................15

         Section 4.02               Maintenance of Office or Agency............................................16

         Section 4.03               Reports and Other Information..............................................16

         Section 4.04               Compliance Certificate.....................................................16

         Section 4.05               Restricted Payments........................................................17

         Section 4.06               Offer to Repurchase upon Change of Control.................................18

ARTICLE 5         SUCCESSORS...................................................................................19

         Section 5.01               Successor Company Substituted..............................................19

ARTICLE 6         DEFAULTS AND REMEDIES........................................................................19

         Section 6.01               Events of Default..........................................................19

         Section 6.02               Acceleration...............................................................20

         Section 6.03               Other Remedies.............................................................20

         Section 6.04               Waiver of Past Defaults....................................................21

         Section 6.05               Control by Majority........................................................21

         Section 6.06               Limitation on Suits........................................................21

         Section 6.07               Rights of Holders of Notes to Receive Payment..............................22

         Section 6.08               Collection Suit by Trustee.................................................22

         Section 6.09               Trustee May File Proofs of Claim...........................................22

</TABLE>


                                      -ii-


<PAGE>   45


<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

<S>                                                                                                          <C>
         Section 6.10               Priorities.................................................................23

         Section 6.11               Undertaking for Costs......................................................23

ARTICLE 7         TRUSTEE......................................................................................23

         Section 7.01               Duties of Trustee..........................................................23

         Section 7.02               Rights of Trustee..........................................................24

         Section 7.03               Individual Rights of Trustee...............................................25

         Section 7.04               Trustee's Disclaimer.......................................................25

         Section 7.05               Notice of Defaults.........................................................25

         Section 7.06               Reports by Trustee to Holders of the Notes.................................26

         Section 7.07               Compensation and Indemnity.................................................26

         Section 7.08               Replacement of Trustee.....................................................27

         Section 7.09               Successor Trustee by Merger, Etc...........................................28

         Section 7.10               Eligibility; Disqualification..............................................28

         Section 7.11               Preferential Collection of Claims Against Company..........................28

ARTICLE 8         LEGAL DEFEASANCE.............................................................................28

         Section 8.01               Option to Effect Legal Defeasance..........................................28

         Section 8.02               Legal Defeasance and Discharge.............................................29

         Section 8.03               RESERVED...................................................................29

         Section 8.04               Conditions to Legal Defeasance.............................................29

         Section 8.05               Deposited Money and Government Securities to Be Held in
                                    Trust; Other Miscellaneous Provisions......................................30

         Section 8.06               Repayment to Company.......................................................31

         Section 8.07               Reinstatement..............................................................31

ARTICLE 9         AMENDMENT, SUPPLEMENT AND WAIVER.............................................................32

</TABLE>

                                     -iii-


<PAGE>   46



<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

<S>                                                                                                         <C>
         Section 9.01               Without Consent of Holders of Notes........................................32

         Section 9.02               With Consent of Holders of Notes...........................................32

         Section 9.03               Compliance with Trust Indenture Act........................................34

         Section 9.04               Revocation and Effect of Consents..........................................34

         Section 9.05               Notation on or Exchange of Notes...........................................34

         Section 9.06               Trustee to Sign Amendments, etc............................................35

ARTICLE 10        SUBORDINATION................................................................................35

         Section 10.01              Agreement to Subordinate...................................................35

         Section 10.02              Liquidation; Dissolution; Bankruptcy.......................................35

         Section 10.03              Default on Designated Senior Indebtedness..................................36

         Section 10.04              Acceleration of Notes......................................................37

         Section 10.05              When Distribution Must Be Paid Over........................................37

         Section 10.06              Notice by Company..........................................................37

         Section 10.07              Subrogation................................................................37

         Section 10.08              Relative Rights............................................................38

         Section 10.09              Subordination May Not Be Impaired by Company...............................38

         Section 10.10              Distribution or Notice to Representative...................................38

         Section 10.11              Rights of Trustee and Paying Agent.........................................39

         Section 10.12              Authorization to Effect Subordination......................................39

         Section 10.13              Payment....................................................................39

         Section 10.14              Reinstatement..............................................................39

         Section 10.15              Amendments.................................................................40

ARTICLE 11        MISCELLANEOUS................................................................................40

         Section 11.01              Trust Indenture Act Controls...............................................40

</TABLE>



                                      -iv-

<PAGE>   47


<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

<S>                                                                                                         <C>
         Section 11.02              Notices....................................................................40

         Section 11.03              Communication by Holders of Notes with Other Holders of Notes..............41

         Section 11.04              Rules by Trustee and Agents................................................41

         Section 11.05              No Personal Liability of Directors, Officers, Employees and
                                    Others.....................................................................41

         Section 11.06              Governing Law..............................................................42

         Section 11.07              No Adverse Interpretation of Other Agreements..............................42

         Section 11.08              Successors.................................................................42

         Section 11.09              Severability...............................................................42

         Section 11.10              Counterpart Originals......................................................42

         Section 11.11              Table of Contents, Headings, etc...........................................42

</TABLE>



                                      -v-
<PAGE>   48






     This INDENTURE dated as of _____________, ___ is by and among Big 5
Holdings Corp. (the "Company"), a Delaware corporation, and [NAME], as trustee
(the "Trustee").

     The parties listed above agree as follows for the benefit of each other and
for the equal and ratable benefit of the Holders of the 13.45% Subordinated
Exchange Debentures due 2009 (the "Notes").

                                   ARTICLE 1
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

SECTION 1.01 DEFINITIONS

     "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10.0% or more of the voting securities of a Person shall
be deemed to be control.

     "Agent" means any Registrar or Paying Agent.

     "Bankruptcy Law" means Title 11, U.S. Code or any similar foreign or U.S.
federal or state law for the relief of debtors.

     "Beneficial Owner" for purposes of the definition of Change of Control has
the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act,
whether or not applicable.

     "Board of Directors" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.

     "Business Day" means any day other than a Legal Holiday.

     "Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interests or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.

     "Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit with maturities
of not more than one year from the date of acquisition, bankers' acceptances
(or, with respect to foreign banks, similar instruments) with maturities not
exceeding one year and bank deposits in each case with any bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia, or any United States branch of a foreign bank



<PAGE>   49

having at the date of acquisition thereof combined capital and surplus of not
less than $100.0 million, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within one year after the date of
acquisition, and (vi) investments in money market funds which invest
substantially all their assets in securities of the types described in the
foregoing clauses (i) through (v).

     "Change of Control" means (i) any merger or consolidation of the Company or
Principal Subsidiary with or into any person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company or Principal Subsidiary on a consolidated basis, in one
transaction or a series of related transactions, if, immediately after giving
effect to such transaction(s), any "person" or "group" (as such terms are used
for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), other than any Excluded Person or Excluded Persons or (in the case
of Principal Subsidiary) the Company, is or becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the total voting power in the
aggregate normally entitled to vote in the election of directors, managers, or
trustees, as applicable, of the transferee(s) or surviving entity or entities,
(ii) any "person" or "group," other than any Excluded Person or Excluded Persons
or (in the case of Principal Subsidiary) the Company, is or becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the total voting
power in the aggregate of all classes of Capital Stock of the Principal
Subsidiary then outstanding normally entitled to vote in elections of directors;
provided, however, that any "person" or "group" will be deemed to be the
Beneficial Owner of any Capital Stock of the Principal Subsidiary held by the
Company so long as such person or group is the Beneficial Owner of, directly or
indirectly, in the aggregate a majority of the Capital Stock of the Company then
outstanding normally entitled to vote in elections of directors, (iii) during
any period of 12 consecutive months after the Preferred Stock Issue Date,
individuals who at the beginning of any such 12-month period constituted the
Board of Directors of either the Company or Principal Subsidiary (together, in
each case, with any new directors whose election by such Board of Directors or
whose nominations for election by the shareholders of the Company or Principal
Subsidiary was approved by LGP or a Related Party of LGP or by the Excluded
Persons or by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company or Principal
Subsidiary then in office, as applicable, or (iv) at any time after the
Preferred Stock Issue Date, Principal Subsidiary no longer continues, for
Federal income tax purposes, to be a member of the affiliated group of the
Company under circumstances that would accelerate the unrealized gain in respect
of the Company's investment account in Principal Subsidiary.

     "Company" means Big 5 Holdings Corp. or any successor thereto permitted in
accordance with the provisions of Article 5 hereof.

     "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.




                                      -2-
<PAGE>   50



     "Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.

     "Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.

     "Designated Senior Indebtedness" means (i) so long as the Senior Discount
Notes are outstanding, the Senior Discount Notes and (ii) after the Senior
Discount Notes cease to be outstanding, any other Senior Indebtedness permitted
under this Indenture and that has been designated by the Company as "Designated
Senior Indebtedness."

     "Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

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

     "Excluded Person" means GEI, Robert W. Miller, Steven G. Miller, Michael D.
Miller and their respective Related Parties.

     "GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.

     "Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America or any agency or instrumentality
thereof for the payment of which guarantee or obligations the full faith and
credit of the United States is pledged.

     "Holder" means a Person in whose name a Note is registered.

     "Indebtedness" means, with respect to any Person and as of any date of
determination, (i) any indebtedness of such Person, whether or not contingent,
in respect of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing capital lease obligations or
the balance deferred and unpaid of the purchase price of any property (except
any such balance that constitutes an accrued expense or trade payable, but only
to the extent that such trade payable is not more than 90 days past due), if and
to the extent any of the foregoing indebtedness (other than letters of credit)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, and (ii) to the extent not otherwise included, all
indebtedness of others secured by a lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person).

     "Indenture" means this Indenture, as amended or supplemented from time to
time.


                                      -3-
<PAGE>   51

     "Interest Payment Date" means the fifteenth day of June and December.

     "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the Company's principal place of business, the City of New York,
the city in which the Trustee's principal offices are located, or at a place of
payment are authorized by law, regulation or executive order to remain closed.
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 shall accrue for the intervening period.

     "LGP" means Leonard Green & Partners, L.P., a Delaware limited partnership.

     "Note Issue Date" means the date on which the Notes are originally issued
by the Company.

     "Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

     "Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary, any Assistant Secretary, or any Vice-President of such Person.

     "Officer's Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company.

     "Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company, any Subsidiary of the Company or the Trustee.

     "Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).

     "Principal Subsidiary" means Big 5 Corp., a Delaware corporation.

     "Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Indebtedness.

     "Responsible Officer," when used with respect to the Trustee, means any
vice president, assistant vice president or corporate trust officer within the
Corporate Trust Department of the Trustee (or any successor group of the
Trustee) or any other officer of any successor Trustee customarily performing
functions similar to those performed by any of the above designated officers.

     "SEC" means the Securities and Exchange Commission.




                                      -4-
<PAGE>   52

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

     "Senior Discount Notes" means the Company's Senior Discount Notes due 2008
issued pursuant to the Senior Discount Note Indenture.

     "Senior Discount Note Indenture" means the Indenture dated as of November
13, 1997, pursuant to which the Senior Discount Notes will have been issued, by
and between the Company and First Trustee National Association, as Trustee.

     "Senior Indebtedness" means (i) the Senior Discount Notes and (ii) any
other Indebtedness permitted to be incurred by the Company under the terms of
this Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the foregoing,
Senior Indebtedness shall not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (y) any trade payables
or (z) any Indebtedness that is incurred in violation of this Indenture.

     "Series A Preferred Stock" means the Series A 13.45% Senior Exchangeable
Preferred Stock of the Company.

     "Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50.0% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).

     "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) and the rules and regulations thereunder, as in effect on the date
on which this Indenture is qualified under the TIA (except as provided in
Section 9.01(e) hereof).

     "Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.

     "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares and shares in non-U.S. companies
required by local law to be owned by local residents) shall at the time be owned
(i) by such Person, (ii) by one or more Wholly Owned Subsidiaries of such Person
or (iii) by such Person and one or more Wholly Owned Subsidiaries of such
Person.



                                      -5-
<PAGE>   53

SECTION 1.02 OTHER DEFINITIONS.

<TABLE>
<CAPTION>

                                                                                  Defined in
          Term                                                                     Section
          ----                                                                     -------
          <S>                                                                   <C>
          "Change of Control Offer"..................................................4.06
          "Change of Control Payment"................................................4.06
          "Change of Control Payment Date" ..........................................4.06
          "Event of Default" ........................................................6.01
          "Legal Defeasance".........................................................8.02
          "Notes" ...............................................................Introduction
          "Paying Agent" ............................................................2.03
          "Payment Blockage Notice" ................................................10.03
          "Payment Default" .........................................................6.01
          "Registrar" ...............................................................2.03
          "Restricted Payments" .....................................................4.05

</TABLE>

SECTION 1.03 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.

     The following TIA terms used in this Indenture have the following meanings:

     "indenture securities" means the Notes;

     "indenture security Holder" means a Holder of a Note;

     "indenture to be qualified" means this Indenture;

     "indenture trustee" or "institutional trustee" means the Trustee;

     "obligor" on the Notes means the Company and any successor obligor upon the
Notes.

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

SECTION 1.04 RULES OF CONSTRUCTION.

     Unless the context otherwise requires:

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

     (b) an accounting term not otherwise defined has the meaning assigned to it
in accordance with GAAP;

     (c) "or" is not exclusive;



                                      -6-
<PAGE>   54



     (d) words in the singular include the plural, and in the plural include the
singular;

     (e) provisions apply to successive events and transactions;

     (f) references to sections of or rules under the Exchange Act or the
Securities Act shall be deemed to include substitute, replacement of successor
sections or rules adopted by the SEC from time to time; and

     (g) "herein," "hereof" and other words or similar import refer to this
Indenture as a whole (as amended or supplemented from time to time) and not to
any particular Article, Section or other subdivision.

                                   ARTICLE 2
                                   THE NOTES

SECTION 2.01 FORM AND DATING

     (a) The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each Note
shall be dated the date of its authentication. The Notes shall be in
denominations of $100 and integral multiples thereof; provided, however, that in
connection with the original issuance of Notes hereunder in exchange for shares
of the Series A Preferred Stock or the transfer of Notes with respect to which
the principal amount thereof has been increased in accordance with the
provisions of this Indenture, the Company may elect to issue Notes in
denominations that are not integral multiples of $100 or that are less than
$100. The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agrees to such
terms and provisions and to be bound thereby.

SECTION 2.02 EXECUTION AND AUTHENTICATION

     An Officer shall sign the Notes for the Company by manual or facsimile
signature. The Company's seal shall be reproduced on the Notes and may be in
facsimile form.

     If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.

     A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.

     The Trustee shall, upon the delivery to the Trustee of a written order of
the Company signed by two Officers, from time to time, authenticate Notes for
original issue up to an aggregate principal amount of $_____________ (the amount
stated in paragraph 4 of the Notes). The aggregate principal amount of Notes
outstanding at any time may not exceed such amount except as provided in Section
2.07 hereof.




                                      -7-
<PAGE>   55

     The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference to this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.

SECTION 2.03 REGISTRAR AND PAYING AGENT

     The Company shall maintain an office or agency where Notes may be presented
for registration or transfer or for exchange ("Registrar") and an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
shall keep a registrar of the Notes and of their transfer and exchange. The
Company may also from time to time appoint one or more co-registrars and one or
more additional paying agents. The term "Registrar" includes any co-registrar
and the term "Paying Agent" includes any additional paying agent. The Company
may change any Paying Agent or Registrar without notice to any Holder. The
Company shall notify the Trustee in writing of the name and address of any Agent
not a party to this Indenture. If the Company fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as such. The
Company or any of its Subsidiaries may act as Paying Agent or Registrar;
provided, however, if a Default or Event of Default has occurred and is
continuing, none of the Company, its Subsidiaries nor any Affiliates of the
foregoing shall act as Paying Agent or Registrar.

     The Company initially appoints the Trustee to act as the Registrar and
Paying Agent.

SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST

     The Company shall require each Paying Agent other than the Trustee to agree
in writing that, subject to Article 10 hereof, the Paying Agent will hold in
trust for the benefit of Holders or the Trustee all money held by the Paying
Agent for the payment of principal, premium, if any, or interest on the Notes,
and shall notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. Upon payment over to the
Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have
no further liability for the money. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders, subject to Article 10 hereof, all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee shall serve as Paying Agent for the Notes.

SECTION 2.05 HOLDER LISTS

     The Trustee shall preserve in as current a form as is reasonably
practicable to it the most recent list available to it of the names and
addresses of all Holders and, after this Indenture is required to be qualified
under the TIA, shall otherwise strictly comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business days before each Interest Payment Date and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may require of the names and addresses of the




                                      -8-
<PAGE>   56

Holders of the Notes and, after this Indenture is required to be qualified under
the TIA, the Company shall otherwise strictly comply with TIA Section 312(a).

SECTION 2.06 TRANSFER AND EXCHANGE

     When Notes are presented by a Holder to the Registrar with a request:

          (x)  to register the transfer of the Notes, or

          (y)  to exchange such Notes for an equal then principal amount of
               Notes of other authorized denominations,

the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Notes presented or surrendered for register of transfer or exchange shall be
duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar duly executed by such Holder or by such Holder's
attorney, duly authorized in writing. To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate Notes at
the Registrar's request.

     No service charge shall be made to a Holder for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charges payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchange or transfer pursuant to Sections 2.02, 2.10, 3.06, 3.07,
4.06 and 9.05 hereto).

     All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.

     Neither the Registrar nor the Company shall be required:

          (A)  to issue, to register the transfer of or to exchange Notes during
               a period beginning at the opening of business 15 Business Days
               before the day of any selection of Notes for redemption under
               Section 3.02 hereof and ending at the close of business on the
               day of selection; or

          (B)  to register the transfer of or to exchange any Note so selected
               for redemption in whole or in part, except the unredeemed portion
               of any Note being redeemed in part; or

          (C)  to register the transfer of or to exchange a Note between a
               record date and the next succeeding Interest Payment Date.

     The Trustee shall authenticate Notes in accordance with the provisions of
Section 2.02 hereof.



                                      -9-
<PAGE>   57

SECTION 2.07 REPLACEMENT NOTES

     If any mutilated Note is surrendered to the Trustee, or the Company and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, the Company shall, upon the written request of the Holder thereof,
issue and the Trustee, upon the written order of the Company signed by two
Officers of the Company, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by such Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company and the Trustee may charge for its expenses in replacing a
Note.

     Every replacement Note is an additional obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.

SECTION 2.08 OUTSTANDING NOTES

     The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it (or its agent), those delivered to it
(or its agent) for cancellation, and those described in this Section as not
outstanding. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note (other than a mutilated Note surrendered for replacement) is held
by a bona fide purchaser (as such term is defined in Section 8-302 of the
Uniform Commercial Code as in effect in the State of New York).

     If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue. Except
as set forth in Section 2.09 hereof, a Note does not cease to be outstanding
because the Company or an Affiliate holds the Note.

     If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money or Cash
Equivalents sufficient to pay Notes payable on that date, then on and after that
date such Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.

SECTION 2.09 TREASURY NOTES

     In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or by any Subsidiary shall be considered as though not outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes that a
Responsible Officer of the Trustee has actual knowledge are so owned shall be so
disregarded.

SECTION 2.10 TEMPORARY NOTES

     Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by two Officers of




                                      -10-
<PAGE>   58

the Company. Temporary Notes shall be substantially in the form of definitive
Notes but may have variations that the Company considers appropriate for
temporary Notes and as shall be reasonably acceptable to the Trustee. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
definitive Notes in exchange for temporary Notes.

     Until such exchange, Holders of temporary Notes shall be entitled to all of
the benefits of this Indenture.

SECTION 2.11 CANCELLATION

     The Company at any time may deliver Notes to the Trustee or its agent for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee (or its agent) and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall destroy cancelled Notes (subject to the record retention requirement of
the Exchange Act). Certification of the destruction of all cancelled Notes shall
be delivered to the Company. The Company may not issue new Notes to replace
Notes that it has paid or that have been delivered to the Trustee (or its agent)
for cancellation. If the Company acquires any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee (or its agent) for cancellation pursuant to this Section 2.11.

SECTION 2.12 DEFAULTED INTEREST

     If the Company defaults in a payment of interest on the Notes with respect
to any Interest Payment Date after December 15, 2004, it shall pay the defaulted
interest in any lawful manner permitted under the terms of the Notes plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders on a subsequent special record date, in each case at the rate
provided in the Notes and in Section 4.01 hereof. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Note and the date of the proposed payment. The Company shall fix or cause
to be fixed each such special record date and payment date, provided that no
such special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.

SECTION 2.13 PERSONS DEEMED OWNERS

     Prior to due presentment for the registration of a transfer of any Note,
the Trustee, any Agent, the Company and any agent of the foregoing may deem and
treat the Person in whose name any Note is registered as the absolute owner of
such Note for all purposes (including the purpose of receiving payment of
principal of and interest on such Notes; provided that defaulted interest shall
be paid as set forth in Section 2.12), and none of the Trustee, any Agent, the
Company or any agent of the foregoing shall be affected by notice to the
contrary.


                                      -11-
<PAGE>   59

                                    ARTICLE 3
                            REDEMPTION AND PREPAYMENT

SECTION 3.01 NOTICES TO TRUSTEE

     If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, kit shall furnish to the Trustee, at least 30
days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the then principal
amount of Notes to be redeemed and (iv) the redemption price.

SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED

     If less than all of the Notes are to be redeemed at any time, the Trustee
shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate. In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 25 nor more than 60 days prior to the redemption date by
the Trustee form the outstanding Notes not previously called for redemption.

     The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $100 or whole multiples of $100; except
that (i) if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of $100,
shall be redeemed and (ii) Notes with a then principal amount that is less than
$100 shall not be redeemed in part. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption.

SECTION 3.03 NOTICE OF REDEMPTION

     At least 30 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address.

     The notice shall identify the Notes to be redeemed and shall state:

     (a) the redemption date;

     (b) the redemption price;

     (c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;



                                      -12-
<PAGE>   60




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

     (e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;

     (f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;

     (g) the paragraph of the Notes and/or Section of this Indenture pursuant to
which the Notes called for redemption are being redeemed; and

     (h) that no representation is made as to the correctness or accuracy of the
CUSIP number, if any, listed in such notice or printed on the Notes.

     At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date (unless a shorter period is acceptable to the Trustee), an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.

SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION

     Once notice of redemption is mailed in accordance with Section 3.03 hereof,
Notes called for redemption become irrevocably due and payable on the redemption
date at the redemption price. A notice of redemption may not be conditional.

SECTION 3.05 DEPOSIT OF REDEMPTION PRICE

     One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money in next day funds sufficient to
pay the redemption price of and accrued interest on all Notes to be redeemed on
that date. The Trustee or the Paying Agent shall promptly return to the Company
any money deposited with the Trustee or the Paying Agent by the Company in
excess of the amounts necessary to pay the redemption price of, and accrued
interest on, all Notes to be redeemed.

     If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related Interest Payment Date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.


                                      -13-
<PAGE>   61

SECTION 3.06 NOTES REDEEMED IN PART

     Upon surrender of a Note that is redeemed in part, the Company shall issue
and, upon the Company's written request, the Trustee shall authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.

SECTION 3.07 OPTIONAL REDEMPTION

     (a) Except as set forth in clause (b) of this Section 3.07, the Company
shall not have the option to redeem the Notes pursuant to this Section 3.07
prior to November 13, 2002. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part, at the redemption prices (expressed as
percentages of the then principal amount) set forth below plus accrued and
unpaid interest, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on November 13 of the years indicated below:

<TABLE>
<CAPTION>

         YEAR                                            PERCENTAGE
         ----                                            ----------
         <S>                                             <C>
         2002..........................................  106.725%
         2003..........................................  105.380%
         2004..........................................  104.035%
         2005..........................................  102.690%
         2006..........................................  101.345%
         2007 and thereafter...........................  100.000%

</TABLE>

provided that no optional redemption pursuant to this Section shall be
authorized or made at less than 101% of the then principal amount, plus accrued
and unpaid interest thereon, of the Notes at any time when the Company is
redeeming the Notes under a Change of Control Offer in accordance with the
provisions of Section 4.06 hereof.

     (b) Notwithstanding the provisions of clause (a) of this Section 3.07, at
any time on or prior to November 13, 2002, the Company may, at its option on one
or more occasions, redeem any or all of the Notes originally outstanding at a
redemption price equal to 110% of the then principal amount, plus accrued and
unpaid interest thereon, to the redemption date, with the net proceeds of any
underwritten public offering of its common stock.

     (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Section 3.01 through 3.06 hereof.

SECTION 3.08 MANDATORY REDEMPTION

     Except as set forth under Sections 4.06, the Company shall not be required
to make mandatory redemption payments with respect to the Notes.



                                      -14-
<PAGE>   62

                                   ARTICLE 4
                                   COVENANTS

SECTION 4.01 PAYMENT OF NOTES

     The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Interest on the Notes shall accrue on a daily basis from the Note Issue
Date and shall be payable semi-annually in arrears on each Interest Payment
Date, commencing on the first Interest Payment Date after the Note Issue Date,
provided that with respect to any interest payable on any Interest Payment Date
on or before December 15, 2004, the amount payable as interest on such Interest
Payment Date may, at the option of the Company, be paid in cash or by increasing
the then principal amount of the Notes by the amount of such interest payment
(rounded to the nearest whole cent). Such increase in the then stated principal
amount of the Notes shall constitute full payment of such interest. In the event
the Company does not make an interest payment in cash on any Interest Payment
Date on or before December 15, 2004, the Company shall be deemed to have
satisfied such payment by increase in the then stated principal amount of the
Notes. With respect to interest payments on or prior to December 15, 2004, the
company shall give the Trustee notice at least three (3) Business Days prior to
a payment indicating the extent to which such payment will be paid in cash
(provided, that the Trustee may, in its sole and absolute discretion, waive such
notice). Any increase in the then stated principal amount of the Notes as set
forth in this Section shall occur automatically, without the need for any action
on the part of the Company, on the applicable Interest Payment Date.

     Principal and interest shall be considered paid in cash on the date due if
the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of
10:00 a.m. Eastern Time on the due date money deposited by the Company in next
day funds and designated for and sufficient to pay all principal, premium, if
any, and interest then due; provided, however, that any such money held by the
Paying Agent for the benefit of the holders of Senior Indebtedness or the
payment of which to Holders of the Notes is prohibited by Article 10 shall not
be considered to be designated for the payment of any amounts owing on the Notes
within the meaning of this Section 4.01. The Paying Agent shall return to the
Company, no later than three Business Days following the date of payment, any
money (including accrued interest) in excess of the amounts paid on the Notes.

     Interest payable on any Interest Payment Date after December 15, 2004 shall
be paid only in cash. With respect to interest payable on any Interest Payment
Date after December 15, 2004 which is not paid in cash on the Interest Payment
Date, the amount so payable in cash on such Interest Payment Date shall accrue
interest at the rate and in the manner provided in the Notes, compounded, if not
paid, on each succeeding Interest Payment Date.

     Not more than 30 days after an Interest Payment Date, written notice of the
amount of interest per Note paid, or in the event of a failure of the Company to
pay such interest in cash on or prior to December 15, 2004, the resulting
increase in the then stated principal amount of each Note, shall be given by
first-class mail, postage prepaid, to each Holder of Notes of record, on the
record date fixed by the Board of Directors for payment of such interest or, if
no record date was fixed, the Interest Payment Date, of the Notes at such
Holder's address as the same appears on the Trustee's register, provided that no
failure to give such notice nor any deficiency therein shall affect any increase
in the then stated principal amount of each Note.


                                      -15-


<PAGE>   63

SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY.

     The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.

     The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designations or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.

     The Company hereby designates the Corporate Trust Office of the Trustee
(for the initial Trustee, located at [ADDRESS], New York, NY [ZIP CODE] as one
such office or agency of the Company in accordance with Section 2.03.

SECTION 4.03 REPORTS AND OTHER INFORMATION.

     So long as Notes are outstanding, the Company shall furnish to the Trustee
and to all Holders: (i) beginning at the end of the Company's first fiscal year
ending after the Note Issue Date, all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants, and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports.

SECTION 4.04 COMPLIANCE CERTIFICATE.

     (a) The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, per-formed and fulfilled each and every covenant contained
in this Indenture and is not in default in the performance or observance of any
of the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Defaults of which he




                                      -16-
<PAGE>   64


or she may have knowledge and what action the Company is taking or proposes to
take with respect thereto) and that to the best of his or her knowledge no event
has occurred and remains in existence by reason of which payments on accounts of
the principal of or interest, if any, on the Notes is prohibited or if such
event has occurred, a description of the event and what action the Company is
taking or proposes to take with respect thereto.

     (b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.

     (c) The Company shall, so long as any of the Notes are outstanding, deliver
to the Trustee, forthwith upon any Officer becoming aware of any Default or
Event of Default, an Officers' Certificate specifying such Default or Event of
Default and what action the Company is taking or proposes to take with respect
thereto.

SECTION 4.05 RESTRICTED PAYMENTS

     The Company shall not, and shall not permit any of the Company's
Subsidiaries to, (1) declare, pay or set apart for payment any dividend n any of
the Equity Interests of the Company or any of its Subsidiaries (other than
dividends or distributions in Equity Interests or to the Company or to another
Wholly Owned Subsidiary) or make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the purchase, redemption
or other retirement of, any of the Equity Interests or any warrants, rights,
calls or options exercisable for or convertible into any of the Equity Interests
(other than the repurchase, redemption or other acquisition or retirement for
value of Equity Interests (and any warrants, rights, calls or options
exercisable for or convertible into such Equity Interests) either pursuant to
agreements entered into on or prior to November 13, 1997, or held by employees
of or consultants or advisors to the Company or any of its Subsidiaries, which
repurchase, redemption or other acquisition or retirement shall have been
approved by a majority of the Board of Directors or shall be made pursuant to
the repurchase provisions under employee stock option, stock purchase or stock
subscription agreements or other agreements to compensate employees, consultants
or advisors and which such repurchases, redemptions or other acquisitions or
retirements for value would otherwise be permitted by the documents governing
the Company's Indebtedness from time to time), or (2) make any distribution in
respect thereof, either directly or indirectly, and whether in cash, obligations
or shares of the Company or other property (other than distributions or
dividends in Equity Interests to the holders of Equity Interests), or (3) permit
any corporation or other entity directly or indirectly controlled by the Company
to purchase or redeem any of the Junior Securities or any such warrants, rights,
calls or options, unless in either case cumulative interest determined in
accordance herewith has been paid in full in cash (if so required at that time)
on the Notes.


                                      -17-
<PAGE>   65

SECTION 4.06 OFFER TO REPURCHASE UPON CHANGE OF CONTROL.

     Subject to contractual restrictions thereon, upon the occurrence of a
Change of Control, the Company shall make an offer (a "Change of Control Offer")
to each Holder to repurchase all or any part of such Holder's Notes at a
purchase price in cash equal to 101.0% of the then stated principal amount of
the Notes, plus accrued and unpaid interest thereon, if any, to the date of
repurchase (the "Change of Control Payment").

     Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder and the Trustee stating: (1) that the Change of Control
Offer is being made pursuant to this Section 4.06 and that all Notes tendered
will be accepted for payment; (2) the purchase price and the purchase date,
which shall be no sooner than 30 nor later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"); (3) that any Note not
tendered will continue to accrue interest; (4) that, unless the Company defaults
in the payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date; (5) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, or transfer by book-entry transfer, to the
Company, the depositary (if appointed by the Company), or the Paying Agent at
the address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (6) that Holders will
be entitled to withdraw their election if the Company, the depositary or the
Paying Agent, as the case may be, receives, not later than the close of business
on the third Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Notes delivered for purchase, and a statement
that such Holder is withdrawing his election to have the Notes purchase; and (7)
that Holders whose Notes are being purchase only in part will be issued new
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer). The Company shall comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes in
connection with a Change of Control Offer.

     On the Change of Control Payment Date, the Company shall, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) prior to 10:00 a.m. Eastern Time,
deposit with the Paying Agent an amount in next day funds equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered and (3)
deliver or cause to be delivered to the Trustee the Notes so accepted together
with a Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being purchased by the Company. The Company, the depositary or
the Paying Agent (at the expense of the Company), as the case may be, unless
prohibited by Article 10 hereof, shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes or portions thereof. The
Company shall promptly issue a new Note and the Trustee, upon written request
from the Company, shall promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered by such Holder, if any.




                                      -18-
<PAGE>   66


     If the Change of Control Payment would be prohibited or restricted by the
documents governing the Company's Indebtedness as in effect immediately prior to
the Change of Control, the Company's obligation to consummate the Change of
Control Offer shall be delayed until such time as such prohibition or
restriction is no longer applicable or in effect; provided, however, that any
prohibition or restriction contained in the documents governing the Company's
Indebtedness incurred or agreed to in anticipation of the Change of Control
shall have no effect on the Company's obligation to consummate the Change of
Control Offer. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.

                                   ARTICLE 5
                                   SUCCESSORS

SECTION 5.01 SUCCESSOR COMPANY SUBSTITUTED

     Upon any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company, the successor corporation, Person or other entity formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation, Person or other entity and not to the Company), and
may exercise every right and power of the Company under this Indenture with the
same effect as if such successor corporation, Person or other entity had been
named as the Company herein.

                                   ARTICLE 6
                              DEFAULTS AND REMEDIES

SECTION 6.01 EVENTS OF DEFAULT.

     An "Event of Default" occurs if:

     (a) the Company defaults in the payment of interest on any Note when the
same becomes due and payable and such Default continues for a period of 30 days,
whether or not such payment is prohibited by the provisions of Article 10
hereof;

     (b) the Company defaults in the payment of the principal of or premium, if
any, on any Note when the same becomes due and payable at maturity, upon
redemption in the event of repurchase pursuant to Section 4.06 hereof, or
otherwise, whether or not such payment is prohibited by the provisions of
Article 10 hereof;




                                      -19-
<PAGE>   67


     (c) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, the Notes, or this Indenture and the Default
continues for the period and after the notice specified below;

     (d) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries),
whether such Indebtedness now exists or shall be created hereafter, which
default (1) is caused by a failure to pay at stated final maturity principal on
such Indebtedness when due (after giving effect to any extension thereof) (a
"Payment Default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and, in the case of each of (i) and (ii), the
principal amount of such Indebtedness, together with the principal amount of any
other Indebtedness as to which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more;

     (e) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company or
the Principal Subsidiary and such judgment or judgments remain unpaid and
undischarged for a period (during which execution shall not be effectively
stayed) of 60 days, provided that the aggregate of all such unpaid and
undischarged judgments exceeds $5.0 million at any one time with respect to the
Company or the Principal Subsidiary;

     (f) the Company or the Principal Subsidiary shall, pursuant to or within
the meaning of any Bankruptcy Law:

          (i) commence a voluntary case;

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

          (iii) consent to the appointment of a Custodian of it or for all or
     substantially all of its property;

          (iv) make a general assignment for the benefit of its creditors;

          (v) admit in writing its inability to pay its debts generally as they
     become due;

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

          (i) is for relief against the Company or the Principal Subsidiary, or

          (ii) appoint a Custodian of the Company or the Principal Subsidiary
     for all or substantially all of the property of the Company or the
     Principal Subsidiary, or

          (iii) orders the liquidation of the Company or the Principal
     Subsidiary,






                                      -20-
<PAGE>   68


     and in the event of any of (i), (ii) or (iii), the order or decree remains
     unstayed and in effect for at least 60 consecutive days.

     A Default under clause (c) is not an Event of Default until the Trustee
notifies the Company, or the Holders of at least 25.0% in then principal amount
of the then outstanding Notes notify the Company and the Trustee, of the Default
and the Company does not, with respect to a Default under clause (c), cure such
Default within 30 days after receipt of such notice. Such notice must specify
the Default, demand that it be remedied and state that the notice is a "Notice
of Default." An Event of Default shall not be deemed to have occurred under
clause (d) or (e) until the Trustee shall have received written notice from the
Company or any of the Holders or unless a Responsible Officer shall have
knowledge of such Event of Default. All other Events of Default specified under
this Section are immediate Events of Default without the necessity of any
written notice or other act by the Company, the Trustee, any Holder or any
Responsible Officer or without the passage of time. Notwithstanding the
foregoing, in the event of any Event of Default specified in clause (d), such
Event of Default and all consequences thereof (including without limitation any
acceleration pursuant to Section 6.02 hereof or resulting payment default) shall
be annulled, waived and rescinded, automatically and without any action by the
Trustee or any Holder, if within 30 days after such Event of Default arose (x)
the Indebtedness or guaranty that is the basis for such Event of Default has
been discharged, or (y) the holders thereof have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise to such Event of
Default, or (z) if the default that is the basis for such Event of Default has
been cured.

SECTION 6.02 ACCELERATION

     If an Event of Default (other than an Event of Default specified in clause
(f) or (g) of Section 6.01) occurs and is continuing, the Trustee by notice to
the Company, or the Holders of at least 25.0% in principal amount of the then
outstanding Notes by written notice to the Company and the Trustee (with a copy
to the Senior Discount Note Trustee), may declare the unpaid principal of and
any accrued interest on all the Notes to be due and payable immediately;
provided that, so long as any Senior Discount Notes are outstanding, such
acceleration shall not be effective until the earlier of (i) acceleration of any
such Indebtedness under the Senior Discount Notes or (ii) five Business Days
after receipt by the Company and the Senior Discount Trustee of written notice
of such acceleration. Upon the effectiveness of such acceleration the principal
and interest shall be due and payable immediately. If an Event of Default with
respect to the Company specified in clause (f) or (g) of Section 6.01 hereof
occurs, all outstanding Notes shall be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in then principal amount of the then outstanding Notes by written
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or interest that has become
due solely because of the acceleration) have been cured or waived.

SECTION 6.03 OTHER REMEDIES

     If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of the then principal amount, premium,
if any, and interest on the Notes or to enforce the performance of any provision
of the Notes or this Indenture.




                                      -21-
<PAGE>   69

     The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.

SECTION 6.04 WAIVER OF PAST DEFAULTS.

     Holders of a majority in the then aggregate principal amount of the then
outstanding Notes by notice to the Trustee may, on behalf of the Holders of all
of the Notes, waive an existing Default or Event of Default and its consequences
hereunder (including without limitation acceleration and its consequences,
including any related payment default that resulted from such acceleration),
except a continuing Default of Event of Default in the payment of the then
principal of, or premium or interest on, the Notes (including in connection with
an offer to purchase). Upon any such waiver, such Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.

SECTION 6.05 CONTROL BY MAJORITY

     Holders of a majority in principal amount of the then outstanding Notes may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on it; provided, however, that (i) the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability, and (ii) the Trustee may take any
other action it deems proper that is not inconsistent with such direction.

SECTION 6.06 LIMITATION ON SUITS

     A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes (including without limitation the institution of any proceeding,
judicial or otherwise, with respect to the Notes or this Indenture or for the
appointment of a receiver or trustee for the Company and/or any of its
Subsidiaries) only if:

     (a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;

     (b) the Holders of at least 25.0% in then principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;

     (c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;

     (d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and


                                      -22-
<PAGE>   70

     (e) during such 60-day period the Holders of a majority in principal amount
of the then outstanding Notes do not give the Trustee a direction inconsistent
with the request.

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

SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT

     The right of any Holder of a Note to receive payment of then principal,
premium and interest on the Note, on or after the respective due dates expressed
in the Note (including in connection with an offer to purchase), or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.

SECTION 6.08 COLLECTION SUIT BY TRUSTEE

     If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the then principal amount
of, premium and interest remaining unpaid on the Notes and interest on overdue
principal and, to the extent lawful, interest and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.

SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM

     The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceeding relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.



                                      -23-
<PAGE>   71


SECTION 6.10 PRIORITIES

     If the Trustee collects any money pursuant to this Article 6, it shall pay
out the money in the following order:

     First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;

     Second: to the holders of Senior Indebtedness tot he extent required by
Article 10 hereof;

     Third: to the Holders of Notes for amounts due and unpaid on the Notes for
the then principal amount, premium and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes for
the then principal amount, premium and interest, respectively; and

     Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.

     The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

SECTION 6.11 UNDERTAKING FOR COSTS

     In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
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 does
not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to
Section 6.06 hereof, or a suit by Holders of more than 10.0% in then principal
amount of the then outstanding Notes.

                                    ARTICLE 7
                                     TRUSTEE

SECTION 7.01 DUTIES OF TRUSTEE

     (a) If an Event of Default has occurred and is continuing and known to a
Responsible Officer of the Trustee, the Trustee shall exercise such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in its exercise, 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 shall not be liable hereunder except for such duties
     of the Trustee which shall be determined solely by the express provision of
     this Indenture and the


                                      -24-
<PAGE>   72


     Trustee need perform only those duties that are specifically set forth in
     this Indenture and no others, and no implied covenants or obligations shall
     be read into this 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 therein, upon
     certificates or opinions furnished to the Trustee and conforming to the
     requirements of this Indenture. However, the Trustee shall examine the
     certificates and opinions to determine whether or not such documents
     conform to the requirements of this Indenture.

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

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

          (ii) the Trustee shall not be liable for any error of judgment made in
     good faith by a Responsible Officer, unless it is proved that the Trustee
     was negligent in ascertaining the pertinent facts; and

          (iii) the Trustee shall not be liable with respect to any action it
     takes or omits to take in good faith in accordance with a direction
     received by it pursuant to Sections 6.05 or 6.06 hereof.

     (d) Whether or not therein expressly so provided, every provision of this
Indenture that in any relates to the Trustee is subject to paragraphs (a), (b),
(c), (e) and (f) of this Section 7.01 and Section 7.02.

     (e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability whatsoever in the performance of any
of its duties hereunder or in the exercise of any of its rights or powers
hereunder. The Trustee shall be under no obligation to exercise any of its
rights and powers under this Indenture at the request of any Holders, unless
such Holder shall have offered to the Trustee security and indemnity
satisfactory to it in its sole subjective discretion (which discretion shall be
exercised in good faith) against any loss, liability or expense.

     (f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.

SECTION 7.02 RIGHTS OF TRUSTEE

     (a) The Trustee may conclusively rely upon any document 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 the document.

     (b) Before the Trustee acts or refrains from acting pursuant to any
provision of this Indenture or otherwise, it may require an Officers'
Certificate or an Opinion of Counsel or both. The Trustee shall not be liable
for any action it takes or omits to take in its sole subjective discretion




                                      -25-
<PAGE>   73


(which discretion shall be exercised in good faith) in reliance on such
Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.

     (c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.

     (d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes in its sole subjective discretion (which
discretion shall be exercised in good faith) to be authorized or within the
rights or powers conferred upon it by this Indenture.

     (e) The permissive right of the Trustee to act hereunder shall not be
construed as a duty.

     (f) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.

     (g) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee security of
indemnify satisfactory to the Trustee in its sole subjective discretion (which
discretion shall be exercised in good faith) against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.

SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE

     The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
trustee or resign. Any Agent may do the same with like rights and duties. The
Trustee is also subject to Sections 7.10 and 7.11 hereof.

SECTION 7.04 TRUSTEE'S DISCLAIMER

     The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

SECTION 7.05 NOTICE OF DEFAULTS

     If a Default or Event of Default occurs and is continuing and if it is
actually known to the principal account officer of the Trustee responsible for
this Indenture, the Trustee shall mail to Holders of Notes (with a copy of the
Senior Credit Agreement Agent and the Senior Subordinated




                                      -26-
<PAGE>   74



Note Trustee) a notice of the Default or Event of Default within 90 days after
such event occurs. Except in the case of a Default or Event of Default in
payment of the then principal amount of, premium, if any, or interest on any
Note, the Trustee may withhold such notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.

SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES

     Within 60 days after each September 30 beginning with the September 30
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).

     A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the SEC and each stock exchange on
which the Notes are listed in accordance with TIA Section 313(d). The Company
shall promptly notify the Trustee when the Notes are listed on any stock
exchange.

SECTION 7.07 COMPENSATION AND INDEMNITY

     Absent any other agreement to the contrary, the Company shall pay to the
Trustee from time to time upon demand reasonable compensation for its acceptance
of this Indenture and services hereunder (including acting as Paying Agent
and/or depositary). The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Company shall reimburse
the Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.

     The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall promptly notify the Company of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Trustee
shall control the defense of any claims against itself and, with respect to the
defense of all other claims, shall cooperate with the Company in such defense to
the extent reasonable. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.




                                      -27-
<PAGE>   75


     The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.

     To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal and interest on
particular Notes. Such Lien shall survive the satisfaction and discharge of this
Indenture.

     When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(f) or (g) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

     The Trustee shall comply with the provisions of TIA Section 313(b)(2) to
the extent applicable.

SECTION 7.08 REPLACEMENT OF TRUSTEE.

     A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.

     The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company (with a copy to the Senior
Credit Agreement Agent and the Senior Subordinated Note Trustee). The Holders of
Notes of a majority in then principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing (with
a copy to the Senior Credit Agreement Agent and the Senior Subordinated Note
Trustee). The Company may remove the Trustee if:

     (a) the Trustee fails to comply with Section 7.10 hereof;

     (b) the Trustee is adjusted a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;

     (c) a Custodian or public officer takes charge of the Trustee or its
property; or

     (d) 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 shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in then principal amount of the then outstanding Notes may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.

     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 Notes of at least 10.0% in then principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.




                                      -28-
<PAGE>   76


     If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10,
such Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.

     A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company (with a copy to the Senior Discount
Note Trustee). Thereupon, the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. The successor Trustee
shall mail a notice of its succession to Holders of the Notes (with a copy to
the Senior Discount Note Trustee. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.

SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.

     If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.

SECTION 7.10 ELIGIBILITY; DISQUALIFICATION

     There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.

     This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).

SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY

     The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.

                                   ARTICLE 8
                                LEGAL DEFEASANCE

SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE



                                      -29-
<PAGE>   77


     The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
Section 8.02 hereof be applied to all outstanding Notes upon compliance with the
conditions set forth below in this Article 8.

SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE

     Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.05 hereof, and as more fully set forth in such Section, payments in respect of
the then principal amount of, premium, if any, and interest on such Notes when
such payments are due, (b) the Company's obligations with respect to such Notes
under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (d) this Article 8.

SECTION 8.03 RESERVED

SECTION 8.04 CONDITIONS TO LEGAL DEFEASANCE

     The following shall be the conditions to the application of Section 8.02
hereof to the outstanding Notes:

     In order to exercise Legal Defeasance:

          (a) if there are Senior Discount Notes outstanding, the Company shall
     have obtained the prior written consent of the Senior Discount Note Trustee
     or the holders of a majority in the then aggregate principal amount of
     outstanding Senior Discount Notes, or shall have exercised its option to
     defease Senior Discount Notes under the applicable provisions of the Senior
     Discount Note Indenture;

          (b) the Company must irrevocably deposit with the Trustee, in trust,
     for the benefit of the Holders, cash in United States dollars, non-callable
     Government Securities, or a combination thereof, in such amounts as will be
     sufficient, in the opinion of a nationally recognized firm of independent
     public accountants, to pay the then principal amount of, premium, if any,
     and interest on the outstanding Notes on the stated date for payment
     thereof or on the applicable redemption date, as the case may be;



                                      -30-
<PAGE>   78

          (c) the Company shall have delivered to the Trustee an Opinion of
     Counsel reasonably acceptable to the Trustee confirming that (A) the
     Company has received from, or there has been published by, the Internal
     Revenue Service a ruling or (B) since November 13, 1997, there has been a
     change in the applicable federal income tax law, in either case to the
     effect that, and based thereon such Opinion of Counsel shall confirm that,
     the Holders of the outstanding Notes will not recognize income, gain or
     loss for federal income tax purposes as a result of such Legal Defeasance
     and will be subject to federal income tax on the same amounts, in the same
     manner and at the same times as would have been the case if such Legal
     Defeasance had not occurred;

          (d) no Default or Event of Default shall have occurred and be
     continuing on the date of such deposit (ocher than a Default or Event of
     Default resulting from the incurrence of Indebtedness all or a portion of
     the proceeds of which will be used to defease the Notes pursuant to this
     Article 8 concurrently with such incurrence);

          (e) such Legal Defeasance or Covenant Defeasance shall not result in a
     breach or violation of, or constitute a default under, any material
     agreement or instrument (other than this Indenture) to which the Company or
     any of its Subsidiaries is a party or by which the Company or any of its
     Subsidiaries is bound;

          (f) the Company shall have delivered to the Trustee an Officers'
     Certificate stating that the deposit was not made by the Company with the
     intent of preferring the Holders over any other creditors of the Company or
     with the intent of defeating, hindering, delaying or defrauding any other
     creditors of the Company; and

          (g) the Company shall have delivered to the Trustee an Officers'
     Certificate and an Opinion of Counsel, each stating that all conditions
     precedent provided for or relating to the Legal Defeasance have bean
     complied with.

SECTION 8.05   DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
               OTHER MISCELLANEOUS PROVISIONS

     Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company or any of its Subsidiaries or
Affiliates acting as Paying Agent) as the Trustee may determine, to the Holders
of such Notes of all sums due and to become due thereon in respect of the then
principal amount, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.

     The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to this Section 8.05 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Notes.




                                      -31-
<PAGE>   79


     Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in this Section 8.05 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(b) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.

SECTION 8.06 REPAYMENT TO COMPANY

     Any money deposited with the Trustee or any Paying Agent, or then held by
the Company or any of its Subsidiaries or Affiliates, in trust for the payment
of the then principal amount of, premium, if any, or interest on any Note and
remaining unclaimed for one year after such principal, and premium, if any, or
interest has become due and payable shall be paid to the Company on its request
or (if then held by the Company or any of its Subsidiaries or Affiliates) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
a secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company or any of in Subsidiaries or Affiliates as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.

SECTION 8.07 REINSTATEMENT

     If the Trustee or Paying Agent is unable to apply any United States dollars
or non-callable Government Securities in accordance with Section 8.02 hereof, by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, or if a
Default from a bankruptcy or insolvency event occurs at any time during the
period ending on the 91st day after the date of a deposit by the Company
hereunder, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.02 hereof; provided,
however, that, if the Company makes any payment of principal of, premium, if
any, or interest on any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.



                                      -32-
<PAGE>   80

                                   ARTICLE 9
                        AMENDMENT, SUPPLEMENT AND WAIVER

SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES

     Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee
may amend or supplement this Indenture or the Notes without the consent of any
Holder of a Note:

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

     (b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;

     (c) to provide for assumption of the Company's obligations to the Holders
of the Notes in the case of a merger or consolidation pursuant to Article 5
hereof;

     (d) to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
hereunder of any Holder of the Note; or

     (e) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA as then in effect.

     Upon the request of the Company accompanied by a resolution of its Board of
Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.

SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES.

     Except as provided below in this Section 9.02, the Company and the Trustee
may amend or supplement this Indenture (including Section 4.06 hereof), and the
Notes may be amended or supplemented, with the consent of the Holders of at
least a majority in the then aggregate principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes). Subject to Sections 6.04 and 6.07 and the last
sentence of Section 6.01 hereof, any existing Default or Event of Default (other
than a Default or Event of Default in the payment of the principal of, premium,
if any, or interest on the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture or the Notes may be waived with the consent of the Holders of a
majority in the then principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Notes.)

     Upon the request of the Company accompanied by a resolution of its Board of
Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as




                                      -33-
<PAGE>   81



aforesaid, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of such
amended or supplemental Indenture unless such amended or supplemental Indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.

     It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.

     After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby (with
a copy to the Senior Credit Agreement Agent and the Senior Subordinated Note
Trustee) a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in the then aggregate principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture of the Notes. However, without the consent of
each Holder affected, an amendment or waiver may not (with respect to any Notes
held by a non-consenting Holder):

     (a) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;

     (b) reduce the then principal amount of or change the fixed maturity of any
Note or alter or waiver any of the provisions with respect to the redemption of
the Notes (other than in Section 4.06 hereof);

     (c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;

     (d) waive a default or Event of Default in the payment of principal or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in the then aggregate
principal amount of the then outstanding Notes and a waiver of the payment
default that resulted from such acceleration) (provided, however, that an Event
of Default arising under clause (d) of the first paragraph of Section 6.01 shall
be annulled, waived and rescinded automatically as set forth in Section 6.01);

     (e) make any Note payable in money other than that stated in the Notes;

     (f) make any change in the provisions of this Indenture relating to waivers
of past Defaults or the rights of Holders of Notes to receive payments of
principal of or interest on the Notes;

     (g) waive a redemption or payment with respect to any Note (other than a
payment required under Section 4.06); or



                                      -34-
<PAGE>   82

     (h) make any changes in Article 10, Section 6.04 or 6.07 hereof or in this
Section 9.02 (provided, however, that no change that adversely affects the
rights of holders of Senior Indebtedness under Article 10 hereof shall be made
unless the holders of such Senior Indebtedness consent to such change as
provided in Section 10.13 hereof).

SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT

     Every amendment or supplement to the Indenture or the Notes shall be set
forth in a amended or supplemental Indenture that complies with the TIA as then
in effect.

SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS

     Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is an continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment has been approved
by the requisite Holders. An amendment, supplement or waiver becomes effective
when approved by the requisite Holders and executed by the Trustee (or, if
otherwise provided in such waiver, supplement or amendment, in accordance with
its terms) and thereafter binds every Holder.

     The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those persons who were Holders
at such record date (or their duly designated proxies), and only those persons,
shall be entitled to consent to such amendment or waiver or revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date except to the extent that the requisite number of consents to
the amendment, supplement or waiver have been obtained within such 90-day period
or as set forth in the next paragraph of this Section 9.04.

     After an amendment, supplement or waiver becomes effective, it shall bind
every Holder, unless it makes a change described in any of clauses (a) through
(h) of Section 9.02, in which case, the amendment, supplement or waiver shall
bind only each Holder of a Note who has consented to it and every subsequent
Holder of a Note or portion of a Note that evidences the same indebtedness as
the consenting Holder's Note.

SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES

     The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.

     Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.



                                      -35-
<PAGE>   83

SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC.

     The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustees. The
Company may not sign an amendment or supplemental Indenture until the Board of
Directors approves it. In executing any amended or supplemental indenture, the
Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel stating that the execution of such amendment or supplemental indenture
is authorized or permitted by this Indenture.

                                   ARTICLE 10
                                  SUBORDINATION

SECTION 10.01 AGREEMENT TO SUBORDINATE

     The Company agrees, and each holder of a Note by accepting a Note agrees,
that any Obligation evidenced by the note is subordinated in right of payment,
to the extent and in the manner provided in this Article, to the prior payment
in full, in cash or United States dollar-denominated Cash Equivalents, of all
Senior Indebtedness (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for the
benefit of the holders of Senior Indebtedness.

     This Article 10 shall constitute a continuing offer to all persons who are
or become holders of Senior Indebtedness, and such provisions are made for the
benefit of such holders, any one or more of whom may enforce such provisions.

SECTION 10.02 LIQUIDATION; DISSOLUTION; BANKRUPTCY

     Upon any distribution to creditors of the Company in a liquidation of
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership, or similar proceeding relating to the Company or its property, or
upon an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities:

     (a) holders of Senior Indebtedness shall be entitled to receive payment in
full, in cash or United Stated dollar-denominated Cash Equivalents, of all
Obligations due in respect of such Senior Indebtedness (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before holders of Notes shall be entitled to receive any
payment of any kind or character with respect to the Notes (except that Holders
of Notes may receive (i) securities that are subordinated to at least the same
extent as the Notes to (A) Senior Indebtedness and (B) any securities issued in
exchange for Senior Indebtedness and (ii) payments and other distributions made
from any defeasance trust created pursuant to Section 8.01 hereof); and

     (b) until all Obligations with respect to Senior Indebtedness (as provided
in subsection (a) above) are paid in full in cash or United States
dollar-denominated Cash Equivalents, any such distribution to which Holders of
Notes would be entitled but for this Article shall be made to




                                      -36-
<PAGE>   84


holders of Senior Indebtedness (except that Holders of Notes may receive
securities that are subordinated to at least the same extent as the Notes to (i)
Senior Indebtedness and (ii) any securities issued in exchange for Senior
Indebtedness), as their interests may appear.

SECTION 10.03 DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS.

     The Company may not make any payment of any kind or character or
distribution to the Trustee of any Holder of Notes in respect of Obligations
with respect to the Notes and may not acquire from the Trustee of any Holder of
Noted any Notes for cash or property (other than (i) securities that are
subordinated to at least the same extent as the Notes to (A) Senior Indebtedness
and (B) any securities issued in exchange for Senior Indebtedness and (ii)
payments and other distributions made from any defeasance trust created pursuant
to Section 8.01 hereof) until all principal and other Obligations with respect
to the Senior Indebtedness have been paid in full in cash or United Stated
dollar-denominated Cash Equivalents if:

     (a) a default in the payment of any principal or other Obligations with
respect to Designated Senior Indebtedness occurs and is continuing, or

     (b) a default, other than a payment default, on Designated Senior
Indebtedness occurs and is continuing that then permits holders of the
Designated Senior Indebtedness as to which such default relates to accelerate
its maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from (x) the Company or another Person who may give it
pursuant to Section 10.10 hereof, or (y) so long as the Senior Discount Notes
are outstanding, the holders of a majority of the principal amount of any Senior
Discount Notes. No nonpayment default that existed or was continuing on the date
of receipt of any Payment Blockage Notice by the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 90 days (it being
acknowledged that any subsequent action, or any breach of financial covenants
for a period commencing after the date of the Trustee's receipt of the
applicable Payment Blockage Notice that, in either case, would give rise to a
default pursuant to any provision under which a default previously existed or
was continuing shall constitute a new event of default for this purpose).
Following a Payment Blockage Notice, the Company may resume payments on and
distributions in respect of the Notes and may acquire them upon the earlier of:
(x) the date upon which all defaults constituting the basis for such Payment
Blockage Notice are cured or waived, or (y) 179 days pass after the date on
which the applicable Payment Blockage Notice is received by the Trustee (unless
the maturity of such Designated Senior Indebtedness has been accelerated, or
unless this Article otherwise does not permit the payment, distribution or
acquisition at the time of such payment or acquisition). In no event shall more
than one period of payment blockage pursuant to this Section 10.03(b) be made in
any 360 consecutive day period. Following the expiration of any period during
which the Company is prohibited from making payments on the Notes pursuant to a
Payment Blockage Notice, the Company may resume making any and all required
payments in respect of the Notes, including without limitation any missed
payments.



                                      -37-
<PAGE>   85

SECTION 10.04 ACCELERATION OF NOTES

     If payment of the Notes is accelerated because of an Event of Default, the
Company and (if a Responsible Officer of the Trustee has knowledge thereof) the
Trustee shall promptly notify holders of Senior Indebtedness of the
acceleration.

SECTION 10.05 WHEN DISTRIBUTION MUST BE PAID OVER

     In the event that the Trustee, the Paying Agent or any Holder of Notes
receives any payment of any Obligations with respect to the Notes at a time when
the Trustee, the Payment Agent or such Holder of Notes, as applicable, has
actual knowledge that such payment is prohibited by Section 10.03 hereof, such
payment shall be held by the Trustee, the Paying Agent or such Holder of Notes,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the holders of Senior Indebtedness as their interests
may appear or their Representative under the indenture or other agreement (if
any) pursuant to which Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations in cash or United States dollar-denominated Cash Equivalents with
respect to Senior Indebtedness remaining unpaid to the extent necessary to pay
such Obligations in full in accordance with their terms, after giving effect to
any concurrent payment or distribution to the holders of Senior Indebtedness.

     With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform only such obligations on the part of the Trustee as are specifically
set forth in this Article 10, and no implied covenants or obligations with
respect to the holders of Senior Indebtedness shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to own any fiduciary duty
to the holders of Senior Indebtedness, and shall not be liable to any such
holders if the Trustee shall pay over or distribute to or on behalf of Holder of
Notes or the Company or any other Person money or assets to which any holders of
Senior Indebtedness shall be entitled by virtue of this Article 10, except if
such payment is made as a result of the willful misconduct or gross negligence
of the Trustee.

SECTION 10.06 NOTICE BY COMPANY

     The Company shall promptly notify the Trustee and the Paying Agent (with a
copy of the Senior Discount Note Trustee) of any facts known to the Company that
would cause a payment of any Obligations with respect to the Notes to violate
this Article, but failure to give such notice shall not affect the subordination
of the Notes to the Senior Indebtedness as provided in this Article.

SECTION 10.07 SUBROGATION

     After all Senior Indebtedness is paid in full in cash or United States
dollar-denominated Cash Equivalents, and until the Notes are paid in full,
Holders of Notes shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holder of Notes have been
applied to the payment of Senior Indebtedness. A distribution made under this
Article to holders of Senior Indebtedness that otherwise would have




                                      -38-
<PAGE>   86



been made to Holders of Notes is not, as between the Company and Holder of
Notes, a payment by the Company on the Notes.

SECTION 10.08 RELATIVE RIGHTS

     This Article defines the relative rights of Holders of Notes and holders of
Senior Indebtedness. Nothing in this Indenture shall:

     (a) impair, as between the Company and Holders of Notes, the obligation of
the Company, which is absolute and unconditional, to pay principal of and
interest on the Notes in accordance with their terms;

     (b) affect the relative rights of Holders of Notes and creditors of the
Company other than their rights in relation to holders of Senior Indebtedness;
or

     (c) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Indebtedness to receive distributions and payments
otherwise payable to Holders of Notes, and subject to Article 6.

SECTION 10.09 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.

     No right of any holder of Senior Indebtedness to enforce the subordination
of the Indebtedness evidenced by the Notes shall be prejudiced or impaired by
any act or failure to act by the Company or any such holder or by the failure of
the Company or any such holder to comply with this Indenture regardless of any
knowledge thereof which any such holder thereof may have or otherwise be
charged.

     Without limiting the generality of the preceding paragraph, the holders of
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to the Trustee or the Holders without incurring responsibility to
the Holders and without impairing or releasing the subordination provided in
this Article 10 or the obligations hereunder of the Holders to the holders of
Senior Indebtedness, do any one or more of the following: (1) change the manner,
place, terms or time of payment of, or renew or alter, Senior Indebtedness or
any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3)
release any person liable in any manner for the collection or payment of Senior
Indebtedness; and (4) exercise or refrain from exercising any rights against the
Company and any other person.

SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE

     Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.

     Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders of Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating




                                      -39-
<PAGE>   87

trustee or agent making any distribution to the Trustee or to the Holders of
Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article 10.

SECTION 10.11 RIGHTS OF TRUSTEE AND PAYING AGENT

     The Trustee shall not be charged with knowledge of the existence of any
facts that would prohibit the making of any payment or distribution by the
Trustee, and the Trustee and the Paying Agent may continue to make payments on
the Notes, unless the Trustee shall have received at its Corporate Trust Office
prior to the date of such payment written notice of facts that would cause the
payment of any Obligations with respect to the Note to violate this Article.
Only the Company or a Representative may give the notice. Nothing in this
Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.

     The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.

SECTION 10.12 AUTHORIZATION TO EFFECT SUBORDINATION

     Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, the Representative is hereby authorized to file an appropriate claim for
and on behalf of the Holders of the Notes.

SECTION 10.13 PAYMENT

     A payment on account of or with respect to any Note shall include, without
limitation, any direct or indirect payment or prepayment of principal, premium
or interest with respect to or in connection with any optional redemption or
repurchase provisions, any direct or indirect payment payable by reason of any
other Indebtedness or Obligation being subordinated to the Notes, and any direct
or indirect payment or recovery on any claim as a Holder relating to or arising
out of this Indenture or any Note, or the issuance of any Note, or the
transactions contemplated by this Indenture or referred to herein.

SECTION 10.14 REINSTATEMENT

     The provisions of this Article 10 shall continue to be effective or be
reinstated, and the Senior Indebtedness shall not be deemed to be a paid in
full, as the case may be, if at any time any payment of any of the Senior
Indebtedness is rescinded or must otherwise be returned by the holder thereof
upon the insolvency, bankruptcy or reorganization of the Company or otherwise,
all as though such payment had not been made.



                                      -40-
<PAGE>   88

SECTION 10.15 AMENDMENTS

     The provisions of this Article 10 shall not be amended or modified in any
manner that is adverse to the holders of any Senior Indebtedness without the
written consent of the holders of a majority in outstanding principal amount of
such Senior Indebtedness.

                                   ARTICLE 11
                                  MISCELLANEOUS

SECTION 11.01 TRUST INDENTURE ACT CONTROLS

     If any provision of this Indenture limits, qualifies or conflict with the
duties imposed by TIA Section 318(c), the imposed duties shall control.

SECTION 11.02 NOTICES

     Any notice or communication by the Company or the Trustee to the others is
duly given if in writing and delivered in Person or mailed by first class mail
(registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:

         If to the Company:

                     Big 5 Holdings Corp.
                     2525 E. El Segundo Boulevard
                     El Segundo, California  90245-4632
                     Phone No.:  (310) 536-0611
                     Telecopier No.:  (310) 297-7595
                     Attention:    Robert W. Miller
                                   Chief Executive Officer

                  With a copy to:

                     Irell & Manella LLP
                     333 South Hope Street, Suite 3300
                     Los Angeles, California  90071-3042
                     Phone No.:  (213) 620-1555
                     Telecopier No.:  (213) 229-0514
                     Attention:  Edmund M. Kaufman, Esq.



                                      -41-
<PAGE>   89

         If to the Trustee:

                    [NAME]

                    ---------------------
                    ---------------------
                    Phone No.:
                               -----------------------
                    Telecopier No.:
                                   --------------------
                    Attention:  Corporate Trust Department

     The Company, the Trustee, or the Senior Discount Note Trustee, by notice to
the others may designate additional or different addresses for subsequent
notices or communications.

     All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.

     Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.

     If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.

     If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.

SECTION 11.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.

     Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the registrar and anyone else shall have the protection of TIA Section
312(c).

SECTION 11.04 RULES BY TRUSTEE AND AGENTS.

     The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

SECTION 11.05 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
              OTHERS.

     No past, present or future director, officer, employee, agent, manager,
incorporator, stockholder or other Affiliate of the Company, as such, shall have
any liability for any obligations




                                      -42-
<PAGE>   90


of the Company under any of the Notes or this Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes.

SECTION 11.06 GOVERNING LAW

     THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES.

SECTION 11.07 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS

     This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.

SECTION 11.08 SUCCESSORS

     All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successors.

SECTION 11.09 SEVERABILITY

     In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

SECTION 11.10 COUNTERPART ORIGINALS

     The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.

SECTION 11.11 TABLE OF CONTENTS, HEADINGS, ETC.

     The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.






                         [Signatures on following page]



                                      -43-
<PAGE>   91


     IN WITNESS WHEREOF, the parties hereto have executed this ______________
________________________.



                                        BIG 5 HOLDINGS CORP.



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

Attest:

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



                                        [NAME]



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

Attest:

                                      (SEAL)
- ---------------------------------



                                      -44-
<PAGE>   92

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

                                    EXHIBIT A
                                 (Face of Note)

[FOR PURPOSES OF SECTION 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED, AND PURSUANT TO SECTION 1.1275-3(b), THIS NOTE
WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT, THE ISSUE PRICE OF THIS NOTE IS ____%
OF ITS PRINCIPAL AMOUNT, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE IS
$_________ PER $1,000 OF STATED FACE AMOUNT, THE ISSUE DATE IS ___________, ____
AND THE YIELD TO MATURITY IS ____%.] [Include if necessary.]

THESE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS (i)
A REGISTRATION STATEMENT UNDER THE ACT SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO AND ALL APPLICABLE QUALIFICATIONS UNDER STATE SECURITIES LAWS SHALL HAVE
BEEN OBTAINED WITH RESPECT THERETO; OR (ii) A WRITTEN OPINION OF COUNSEL FOR THE
HOLDER REASONABLY SATISFACTORY TO THE COMPANY HAS BEEN OBTAINED STATING THAT NO
SUCH REGISTRATION OR QUALIFICATION IS REQUIRED.

                13.45% Subordinated Exchange Debentures due 2009


No.                                                                   $_______
                                                                CUSIP #_______



                              BIG 5 HOLDINGS CORP.

promises to pay to

or registered assigns,

the principal sum of

Dollars on November 13, 2009

Interest Payment Dates:  June 15 and December 15 commencing on ______________.

Record Dates:  May 15 and November 15


                                      A-1
<PAGE>   93


                                 Dated:
                                       -----------------------------------------


                                 BIG 5 HOLDINGS CORP.



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




                                     (SEAL)

This is one of the Notes referred to
in the within-mentioned Indenture:

[NAME]
as Trustee



By:
   ----------------------------------------
     Authorized Signatory



                                      A-2
<PAGE>   94

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

                                 (Back of Note)

                13.45% Subordinated Exchange Debentures due 2009


     Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.

     1. INTEREST. Big 5 Holdings Corp., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 13.45% per
annum from the date of issuance until maturity. The Company will pay interest
semi-annually on June 15 and December 15 of each year, or if any such day is not
a Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be ______________ [the first Interest
Payment Date following the date of issuance]. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.

     2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on the record date or next preceding Interest Payment Date,
even if such Notes are cancelled after such record date and on or before such
Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest. With respect to any interest payable on any
Interest Payment Date on or before December 15, 2004, the amount payable as
interest on such Interest Payment Date may, at the option of the Company, be
paid in cash or by increasing the then principal amount of the Notes by the
amount of such interest payment (rounded to the nearest whole cent). Such
increase in the then stated principal amount of the Notes shall constitute full
payment of such interest. In the event the Company does not make an interest
payment in cash on any Interest Payment Date on or before December 15, 2004, the
Company shall be deemed to have satisfied such payment by increase in the then
stated principal amount of the Notes. Interest payable on any Interest Payment
Date after December 15, 2004 shall be paid only in cash. With respect to
principal, interest and premium, if any, payable on an Interest Payment Date
after December 15, 2004 which is not paid in cash on the Interest Payment Date,
the Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1.0% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. The Notes will be payable as to principal,
premium and interest at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the option of
the Company, payment of interest, to the extent paid in cash, may be made by
check mailed to the Holders at their addresses set forth in the register of
Holders, and provided that payment by wire transfer of next day funds will be
required with respect to principal of and interest and premium, if any, on all
Notes the Holders of which shall have




                                      A-3
<PAGE>   95



provided wire transfer instructions to the Company nor the Paying Agent. The
Company will pay principal and (except as provided above) interest in such coin
or currency of the United Sates of America as at the time of payment is legal
tender for payment of public and private debts.

     3. PAYING AGENT AND REGISTRAR. Initially, [NAME], the Indenture, will act
as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company or any of its Subsidiaries
may act in such capacity.

     4. INDENTURE. The Company issued the Notes under an Indenture dated as of
______________, ____ (the "Indenture") between the Company and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are general unsecured obligations of the Company limited in
aggregate principal amount to the aggregate liquidation preference of the Series
A Preferred Stock, plus accumulated and unpaid dividends, on the date the Notes
are issued.

     5. SUBORDINATION OF NOTES. The Indebtedness evidenced by the Notes is, to
the extent and in the manner provided in the Indenture, subordinate and subject
in right of payment to the prior payment in full in cash or Cash Equivalents of
all Senior Indebtedness as defined in the Indenture (whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed), and this
Note is issued subject to such provisions. Each Holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee, on behalf of such Holder, to take such
action as may be necessary to or appropriate to effectuate the subordination as
provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such
Holder for such purpose.

     6. OPTIONAL REDEMPTION.

          (a) Except as set forth in clause (b) of this paragraph 6, the Company
shall not have the option to redeem the Notes pursuant to this paragraph 6 prior
to November 13, 2002. Thereafter, subject to paragraph 8, the Company shall have
the option to redeem the Notes, in whole or in part, at the redemption prices
(expressed as percentages of the then principal amount) set forth below plus
accrued and unpaid interest to the applicable redemption date, if redeemed
during the twelve-month period beginning on November 13, of the years indicated
below:

<TABLE>
<CAPTION>

         Year                                                     Percentage
         ----                                                     ----------
         <S>                                                     <C>
         2002.................................................    106.725%
         2003.................................................    105.380%
         2004.................................................    104.035%
         2005.................................................    102.690%
         2006.................................................    101.345%
         2007 and thereafter..................................    100.000%

</TABLE>



                                      A-4
<PAGE>   96

          (b) Notwithstanding the provisions of clause (a) of this paragraph 6,
at any time on or prior to November 13, 2002, the Company may, at its option on
one or more occasions, redeem any or all of the Notes originally outstanding at
a redemption price equal to 110% of the then stated principal amount thereof,
plus accrued and unpaid interest to the redemption date, with the net proceeds
of any underwritten public offering of its common stock.

     7. MANDATORY REDEMPTION.

     Except as set forth in paragraph 8 below, the Company shall not be required
to make mandatory redemption payments with respect to the Notes.

     8. REPURCHASE AT OPTION OF HOLDER.

     Subject to contractual restrictions thereon, if there is a Change of
Control, the Company shall be required to make an offer (a "Change of Control
Offer") to repurchase all or any part of each Holder's Notes at a purchase price
equal to 101.0% of the then principal amount thereof plus accrued and unpaid
interest to the date of purchase on a date that is not more than 90 days after
the occurrence of such Change of Control. Within 30 days following any Change of
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.

     9. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $100 may be redeemed in part but only in whole multiples of $100,
unless all of the Notes held by a Holder are to be redeemed. On and after the
redemption date interest ceases to accrue on Notes or portions thereof called
for redemption.

     10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $100 and integral multiples of $100;
provided, however, that in connection with the original issuance of Notes
hereunder in exchange for shares of the Series A Preferred Stock or the transfer
of Notes with respect to which the principal amount thereof has been increased
in accordance with the provisions of the Indenture, the Company may elect to
issue Notes in denominations that are not integral multiples of $100 or that are
less than $100. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.

     11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.



                                      A-5
<PAGE>   97

     12. UNCLAIMED MONEY. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, all liability of the
Trustee and such Paying Agent with respect to such money shall cease.

     13. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any time
deposits with the Trustee money or U.S. Government Obligations sufficient to pay
the principal of and interest on the Notes to redemption or maturity and
complies with the other provisions of the Indenture relating thereto, the
Company will be discharged from certain provisions of the Indenture and the
Notes (including the financial covenants, but excluding its obligations to pay
the principal of and interest on the Securities).

     14. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in then principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in then principal amount of the then outstanding Notes. Without the
consent of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act as then in effect.

     15. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on the Notes (whether or not prohibited
by the subordination provisions of the Indenture); (ii) default in payment of
the principal of or premium, if any, on the Notes when due, whether at maturity,
upon redemption, in the event of repurchase pursuant to a Change of Control
Offer, or otherwise (whether or not prohibited by the subordination provisions
of the Indenture); (iii) failure by the Company for 30 days after requisite
written notice to comply with any of its other agreements in the Indenture or
the Notes from the Trustee or the Holders of at least 25.0% of the then
outstanding principal amount of the Notes, which written notice shall specify
the default and demand that such default be remedied; (iv) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay at stated final maturity principal on such
Indebtedness when due (giving effect to any extensions thereof) (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in the case of the foregoing clauses (a) and (b), the
principal amount of any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or more; (v)
failure by the Company or the Principal Subsidiary to pay final judgments which
judgments are not paid, discharged or stayed within a period of 60 days;
provided that the aggregate of all such unpaid and undischarged judgements
exceeds $5.0




                                      A-6
<PAGE>   98


million at any one time with respect to the Company or the Principal Subsidiary;
and (vi) certain events of bankruptcy or insolvency with respect to the Company
or the Principal Subsidiary. If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25.0% in the then principal amount of the
then outstanding Notes may declare all the Notes to be due and payable; provided
that, so long as any Senior Discount Notes are outstanding, such acceleration
shall not be effective until the earlier of (i) acceleration of any such
Indebtedness under the Senior Discount Notes or (ii) five Business Days after
receipt by the Company of written notice of such acceleration. Notwithstanding
the foregoing, in the event of any Event of Default specified in clause (iv),
such Event of Default and all consequences thereof (including without limitation
any acceleration pursuant to Section 6.02 of the Indenture or resulting payment
default) shall be annulled, waived and rescinded, automatically and without any
action by the Trustee or any Holder, if within 30 days after such Event of
Default arose (x) the Indebtedness or guaranty that is the basis for such Event
of Default has been discharged, or (y) the holders thereof have rescinded or
waived the acceleration, notice or action (as the case may be) giving rise to
such Event of Default, or (z) if the default that is the basis for such Event of
Default has been cured. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency of the
Company, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in then principal amount of the then outstanding Notes may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in the then aggregate principal amount of the Notes then outstanding by
notice to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes. The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.

     16. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.

     17. NO RECOURSE AGAINST OTHERS. A director, officer, employee, agent,
manager, incorporator, stockholder or other Affiliate, of the Company, as such,
shall not have any liability for any obligations of the Company under any of the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.

     18. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.

     19. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT


                                      A-7

<PAGE>   99


TEN (= joint tenants with right of survivorship and not as tenants in common),
CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

     20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

     The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:

                           Big 5 Holdings Corp.
                           2525 E. El Segundo Boulevard
                           El Segundo, California  90245-4632
                           Phone No.:  (310) 536-0611
                           Telecopier No.:  (310) 297-7595
                           Attention:       Robert W. Miller
                                            Chief Executive Officer


                                      A-8
<PAGE>   100



                                 ASSIGNMENT FORM

To assign this Note, fill in the form below: (I) or (we) assign and transfer
this note to

- -------------------------------------------------------------------------------
                  (Insert assignee's soc. sec. or tax I.D. no.)

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

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

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

- --------------------------------------------------------------------------------
              (Print or type assignee's name, address and zip code)

and irrevocably appoint
____________________________________________________________ to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.

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


Date:
     ---------------

                                     Your Signature:
                                                    ----------------------------
                                         (Sign exactly as your name appears on
                                         the face of this Note)

Signature Guarantee


                                      A-9

<PAGE>   101



                       OPTION OF HOLDER TO ELECT PURCHASE

     If you want to elect to have this Note purchased by the Company pursuant to
Section 4.06 of the Indenture, check the box below:

     [ ] Section 4.06

     If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.06 of the Indenture, state the amount you elect to have
purchased: $__________________.


Date:                               Your Signature:
     ----------------------                         ---------------------------
                                                    (Sign exactly as your name
                                                    appears on the Note)

                                    Tax Identification No.:
                                                           ---------------------


Signature Guarantee.


                                      A-10



