-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FOnPoqDlI7yOYx/MCtNngqqGiiH41ewuVUsNILs/MPr9AxKgxHW0PzaCa50KUXRW 8t0AhnsZXgwfPk/DKUCrSg== 0000950123-98-009988.txt : 19981118 0000950123-98-009988.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950123-98-009988 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19981116 GROUP MEMBERS: BENAROYA RAPHAEL/GRR/CRW/FS/JFW/CAL/JS GROUP MEMBERS: BRADLEY ORLOFF GROUP MEMBERS: ELLEN DEMAIO GROUP MEMBERS: FREDERIC E. STERN GROUP MEMBERS: GEORGE R. REMETA SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RETAIL GROUP INC/DE CENTRAL INDEX KEY: 0000881905 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 510303670 STATE OF INCORPORATION: DE FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-42996 FILM NUMBER: 98751871 BUSINESS ADDRESS: STREET 1: 365 WEST PASSAIC ST CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2018450880 MAIL ADDRESS: STREET 1: 365 W PASSAIC STREET STREET 2: 365 W PASSAIC STREET CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BENAROYA RAPHAEL/GRR/CRW/FS/JFW/CAL/JS CENTRAL INDEX KEY: 0000903414 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 365 WEST PASSAIC ST CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 SC 13D/A 1 AMENDMENT #2 TO SCHEDULE SC 13D 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 2 )* United Retail Group, Inc. ------------------------- (Name of Issuer) Common Stock ($.001 Par Value) ------------------------------ (Title of Class of Securities) 911380103 --------- (CUSIP Number) George R. Remeta, 365 West Passaic Street, Rochelle Park, NJ 07662 (201) 909-2110 -------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) November 6, 1998 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box ___. Check the following box if a fee is being paid with the statement ___. (A fee is not required only if reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 2 SCHEDULE 13D CUSIP NO. 911380103 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON RAPHAEL BENAROYA 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) (b) X 3. SEC USE ONLY 4. SOURCE OF FUNDS (SEE INSTRUCTIONS) OO 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [ ] PURSUANT TO ITEMS 2(d) or 2(E) 6. CITIZENSHIP OR PLACE OF ORGANIZATION U.S.A.; ISRAEL 7. SOLE VOTING POWER -0- NUMBER OF SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,275,574 OWNED BY EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON WITH 10. SHARED DISPOSITIVE POWER 5,275,574 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,275,574 12. CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES (SEE INSTRUCTIONS) 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 38.8% 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) IN 3 13D CUSIP NO. 911380103 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GEORGE R. REMETA 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) (b) X 3. SEC USE ONLY 4. SOURCE OF FUNDS (SEE INSTRUCTIONS) OO 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [ ] PURSUANT TO ITEMS 2(d) or 2(E) 6. CITIZENSHIP OR PLACE OF ORGANIZATION U.S.A. 7. SOLE VOTING POWER -0- NUMBER OF SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,275,574 OWNED BY EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON WITH 10. SHARED DISPOSITIVE POWER 5,275,574 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,275,574 12. CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES (SEE INSTRUCTIONS) 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 38.8% 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) IN 4 13D CUSIP NO. 911380103 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON ELLEN DEMAIO 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) (b) X 3. SEC USE ONLY 4. SOURCE OF FUNDS (SEE INSTRUCTIONS) OO 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [ ] PURSUANT TO ITEMS 2(d) or 2(E) 6. CITIZENSHIP OR PLACE OF ORGANIZATION U.S.A. 7. SOLE VOTING POWER -0- NUMBER OF SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,275,574 OWNED BY EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON WITH 10. SHARED DISPOSITIVE POWER 5,275,574 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,275,574 12. CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES (SEE INSTRUCTIONS) 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 38.8% 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) IN 5 13D CUSIP NO. 911380103 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON BRADLEY ORLOFF 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) (b) X 3. SEC USE ONLY 4. SOURCE OF FUNDS (SEE INSTRUCTIONS) OO 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [ ] PURSUANT TO ITEMS 2(d) or 2(E) 6. CITIZENSHIP OR PLACE OF ORGANIZATION U.S.A. 7. SOLE VOTING POWER -0- NUMBER OF SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,275,574 OWNED BY EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON WITH 10. SHARED DISPOSITIVE POWER 5,275,574 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,275,574 12. CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES (SEE INSTRUCTIONS) 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 38.8% 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) IN 6 13D CUSIP NO. 911380103 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON FREDRIC E. STERN 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) (b) X 3. SEC USE ONLY 4. SOURCE OF FUNDS (SEE INSTRUCTIONS) OO 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED [ ] PURSUANT TO ITEMS 2(d) or 2(E) 6. CITIZENSHIP OR PLACE OF ORGANIZATION U.S.A. 7. SOLE VOTING POWER -0- NUMBER OF SHARES 8. SHARED VOTING POWER BENEFICIALLY 5,275,574 OWNED BY EACH 9. SOLE DISPOSITIVE POWER REPORTING -0- PERSON WITH 10. SHARED DISPOSITIVE POWER 5,275,574 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,275,574 12. CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES (SEE INSTRUCTIONS) 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 38.8% 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) IN 7 CUSIP No. 911380103 STATEMENT ON SCHEDULE 13D - AMENDMENT NO. 2 ITEM 1. SECURITY AND ISSUER. Common Stock, $.001 par value per share ("Shares"), of United Retail Group, Inc. (the "Issuer"), 365 West Passaic Street, Rochelle Park, NJ 07662 ITEM 2. IDENTITY AND BACKGROUND. (a) See Item 1 of the cover pages for the names of the reporting persons. (b) The business address of the reporting persons is: c/o United Retail Group, Inc. 365 West Passaic Street Rochelle Park, NJ 07662 (c) The present principal occupation or employment of each of the reporting persons is employee of the Issuer. The Issuer operates a chain of retail specialty stores selling large size women's apparel and accessories. (d) None of the reporting persons has been convicted in a criminal proceeding during the last five years. (e) None of the reporting persons has during the last five years been a party to a civil proceeding of a judicial or administrative body and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) See Item 6 of the cover pages for the citizenship of the reporting persons. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Not Applicable. 8 ITEM 4. PURPOSE OF TRANSACTION. All the reporting persons purchased Shares and acquired employee stock options for investment. (Certain of the reporting persons sold the Shares they purchased.) The reporting persons have no plans or proposals that relate to or would result in: (a) The acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer, except the exercise of employee stock options; (b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) A sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; 9 (d) Any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors, except to fill one vacancy; (e) Any material change in the present capitalization or dividend policy of the Issuer; (f) Any other material change in the Issuer's business or corporate structure; (g) Changes in the Issuer's certificate of incorporation or bylaws or other actions which may impede the acquisition of control of the Issuer by any person; (h) Causing a class of securities of the Issuer to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) A class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g) of the Securities Exchange Act (the "Act"); or (j) Any action similar to any of those enumerated above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) The aggregate number of Shares beneficially owned by each reporting person, identifying Shares which there is a right to acquire upon exercise of vested employee stock options, and the percentage of the Shares owned beneficially by each reporting person is as follows:
Outstanding Vested Total % Name Shares Owned Options Number of Class ---- ------------ ------- ------ -------- Raphael Benaroya 2,277,937 341,570 2,619,507 19.5% Ellen Demaio -0- 20,000 20,000 0.2% Bradley Orloff -0- 14,000 14,000 0.1% George R. Remeta 341,888 139,000 480,888 3.6% Fredric E. Stern 26,300 6,000 32,300 0.2%
The reporting persons believe that the other persons who might comprise a group with the reporting persons within the meaning of Section 13(d) (3) of the Act are the beneficial owners of the following shares: 10
Outstanding Vested Total % Name Shares Owned Options Number of Class ---- ------------ ------- ------ -------- Mort Greenberg 3,500 -0- 3,500 -- Limited Direct Assoc. L.P. 2,100,000 -0- 2,100,000 16.0% Cheryl A. Lutz 79 -0- 79 -- Jerry Silverman 5,300 -0- 5,300 --
(b) the persons named in the preceding subsection, together with the Issuer and Centre Capital Investors L.P. ("CCI"), are parties to the Restated Stockholders' Agreement, dated December 23, 1992 (as amended the "Restated Stockholders' Agreement"), which is incorporated herein by reference to Exhibit No. 2 hereto. The Restated Stockholders' Agreement provides, among other things, that the parties other than the Issuer and CCI shall take such action, including the voting of Shares, as may be necessary to cause the Board to be elected in the following manner: (i) the Board shall consist of nine members, of whom two are persons ("Management Directors") nominated by the Chairman of the Board, one is a person nominated by Limited Direct Associates, L.P. ("LDA") and six are persons ("Public Directors") who are not affiliates of (w) Mr. Benaroya, (x) certain executives of the Issuer or (y) Mr. Benaroya's or such executives' Permitted Transferees under the Restated Stockholders' Agreement (collectively, "Management Investors") or (z) LDA, named by the Nominating Committee and approved by the Board; (ii) if the holdings of the Management Investors increase to at least 3,010,000 Shares, the Chairman of the Board shall be entitled to nominate one additional Management Director, for a total Board membership of 10, for so long as he and his family continue to hold at least 500,000 Shares, he remains Chairman of the Board and the Management Investors continue to hold at least 2,010,000 Shares, provided, that in the event the number of Shares held by the Chairman (and his family) and the Management Investors falls below 500,000 Shares and 2,010,000 Shares, respectively, the Chairman shall thereafter nominate two persons, rather than three persons, for election as Directors; (iii) in the event of Mr. Benaroya's termination as Chairman of the Board under any circumstances, (x) he shall be entitled to nominate one Director so long as he and his family continue to hold at least 100,000 Shares, (y) one other person, who would otherwise have been nominated by him as a Director, shall be named instead by the Nominating Committee and approved by the Board and (z) if the Board then has 10 members, the Board membership shall be decreased to nine; and 11 (iv) the rights of Mr. Benaroya and LDA to nominate a Director shall expire if their stockholdings fall below 100,000 Shares and, in the case of Mr. Benaroya, he no longer serves as Chairman of the Board; in which case the Director who would otherwise be nominated by such party shall be named instead by the Nominating Committee and approved by the Board. The Restated Stockholders' Agreement provides that the parties other than the Issuer and CCI shall act together in connection with the election of the Board, the removal of directors and certain amendments to the by-laws of the Issuer. Accordingly, the stockholders of the Issuer who are parties to the Restated Stockholders' Agreement might be deemed to share voting power with respect to all the Shares beneficially owned by them. The voting arrangement under the Restated Stockholders' Agreement described above expires on July 17, 1999. Except for the provisions of the Restated Stockholders' Agreement, each of the reporting persons has the power, either solely or jointly with a spouse, to vote the Shares he owns and believes that the other stockholders of the Issuer who are parties to the Restated Stockholders' Agreement have the power, either solely or jointly with a spouse, to vote the Shares they own. The Restated Stockholders' Agreement contains certain restrictions on transfers of Shares held by the stockholders of the Issuer who are parties to the Restated Stockholders' Agreement but it unconditionally permits sales on the NASDAQ National Market System and donations to charity. Accordingly, the stockholders of the Issuer who are parties to the Restated Stockholders' Agreement might be deemed to share the power to dispose of all the Shares beneficially owned by them. Except for the provisions of the Restated Stockholders' Agreement and the pledges of shares of Common Stock referred to in Item 6 below, each of the reporting persons has the power, either solely or jointly with a spouse, to dispose of the Shares he owns and he believes that the other stockholders of the Issuer who are parties to the Restated Stockholders' Agreement have the power, either solely or jointly with a spouse, to dispose of the Shares they own. Each of the reporting persons disclaims beneficial ownership of the Shares held by all the other parties to the Restated Stockholders' Agreement. In addition to the reporting persons, CCI and the Issuer, the current parties to the Restated Stockholders' Agreement are: (i) Mort Greenberg 6866 Touchtown Circle Palm Beach Gardens, FL 33418 12 (ii) Limited Direct Associates, L.P. Three Limited Parkway Columbus, OH 43216 (iii) Cheryl A. Lutz 4408 F Street Sacramento, CA 95819 (iv) Jerry Silverman 3017 Caminito Carboneras Del Mar, CA 92014 Mr. Greenberg is retired and is a citizen of the United States. LDA is a Delaware limited partnership. The reporting persons believe that LDA is controlled by The Limited, Inc. Ms. Lutz is an employee of the Issuer and is a citizen of the United States. Mr. Silverman is the proprietor of Silverman & Associates, a real estate consultancy, with offices at 3017 Caminito Carboneras, Del Mar, CA 92014. He is a citizen of the United States. The reporting persons have no reason to believe that Mr. Greenberg, LDA, Ms. Lutz or Mr. Silverman during the last five years has either been convicted in a criminal proceeding or was a party to a civil proceeding before a judicial or administrative body and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (c) None of the reporting persons effected any transaction involving Shares during the last 60 days. (d) No other person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, Shares owned by the reporting persons. 13 ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The reporting persons are parties to the Restated Stockholders' Agreement, which is incorporated herein by reference to Exhibit No. 2 hereto. The Shares purchased on February 13, 1998 by each of Mr. Benaroya and Mr. Remeta have been pledged to the Company to secure payment of a loan to him by the Company to finance the withholding taxes incurred by him in connection with the purchase. Mr. Benaroya purchased 777,925 Shares. Mr. Remeta purchased 116,888 Shares.The loans were in the amounts of $1,637,087 to Mr. Benaroya and $245,543 to Mr. Remeta; have a term of four years; and provide for full recourse. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 1. Joint Filing Agreement among the reporting persons (previously filed). 2. Restated Stockholders' Agreement among the Issuer, CCI, LDA and the Management Stockholders, and Amendment Nos. 1,2 and 3 thereto. 3.1. Restated 1990 Stock Option Plan as of March 6, 1998. 3.2. Restated 1990 Stock Option Plan as of May 28, 1996. 3.3. Restated 1996 Stock Option Plan as of March 6, 1998. 3.4. Restated 1989 Management Stock Option Plan as of May 6, 1998. 3.5. 1998 Stock Option Agreement between the Issuer and Raphael Benaroya. 3.6. 1998 Stock Option Agreement between the Issuer and George R. Remeta. 14 SIGNATURE: This joint Schedule 13D Amendment No. 2 is filed on behalf of each of the following stockholders of the Issuer. After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in Schedule 13D Amendment No. 2 is true, complete and correct. Name Date ---- ---- RAPHAEL BENAROYA * November 16, 1998 ---------------------- Raphael Benaroya /s/ GEORGE R. REMETA November 16, 1998 ---------------------- George R. Remeta ELLEN DEMAIO * November 16, 1998 ---------------------- Ellen Demaio BRADLEY ORLOFF * November 16, 1998 ---------------------- Bradley Orloff FREDRIC E. STERN * November 16, 1998 ---------------------- Fredric E. Stern *By /s/ GEORGE R. REMETA, as attorney-in-fact pursuant to the power of attorney contained in Exhibit 1 to the Statement on Schedule 13D filed on July 22, 1993. Attention: Intentional misstatement or omissions of fact constitute federal criminal violations (see U.S.C. 1001). 15 EXHIBIT INDEX ------------- Exhibit No. Description ----------- ----------- 1. Joint Filing Agreement among the reporting persons (previously filed). 2. Restated Stockholders' Agreement among the Issuer, CCI, LDA and the Management Stockholders and Amendment Nos. 1,2 and 3 thereto. 3.1. Restated 1990 Stock Option Plan as of March 6, 1998. 3.2. Restated 1990 Stock Option Plan as of May 28, 1996. 3.3. Restated 1996 Stock Option Plan as of March 6, 1998. 3.4. Restated 1989 Management Stock Option Plan as of May 6, 1998. 3.5. 1998 Stock Option Agreement between the Issuer and Raphael Benaroya. 3.6. 1998 Stock Option Agreement between the Issuer and George R. Remeta. EX-99.2 2 RESTATED STOCKHOLDERS AGREEMENT 1 Exhibit No. 2 RESTATED STOCKHOLDERS' AGREEMENT -------------------------------- RESTATED STOCKHOLDERS' AGREEMENT, dated as of December 23, 1992, by and among United Retail Group, Inc., a Delaware corporation (the "Corporation"), and the Stockholders (as hereinafter defined) and Centre Capital Investors L.P. ("CCI"). W I T N E S S E T H: ------------------- WHEREAS, CCI owns 2,500,000 Shares, Limited Direct Associates, L.P., a Delaware limited partnership, owns 2,500,000 Shares, Raphael Benaroya ("Benaroya") owns 1,500,000 Shares and the other Stockholders own an aggregate of 513,000 Shares; WHEREAS, the Corporation has reserved 1,187,500 Shares for issuance upon the exercise of the stock options that have been granted to Benaroya under the 1991 Stock Option Agreement and the Restated 1989 Management Stock Option Plan and an aggregate of 862,000 additional Shares has been reserved for issuance upon the exercise of stock options that have been or may be granted to other employees of the Corporation; and WHEREAS, it is deemed to be in the best interests of the Corporation and the Stockholders that provision be made for the continuity and stability of the business and management of the Corporation and, to that end, the Corporation and the Stockholders hereby set forth their agreement with respect to the Shares owned or which may hereafter be acquired by the Stockholders. 2 NOW, THEREFORE, in consideration of the mutual convenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. Definitions. In addition to the terms defined elsewhere herein, when used herein the following terms shall have the meanings indicated: (a) Affiliate shall mean, with respect to any Stockholder, (i) any Person who, directly or indirectly, is in control of, is controlled by or is under common control with, the Stockholder, and (ii) any Person who is a director or officer of the Stockholder or of any Person described in clause (i) above. (b) Assigns shall mean, with respect to CCI, the partners of CCI and any distributees of such partners in any transaction not involving a sale and any donees or Permitted Transferees of any of the foregoing. (c) Board of Directors shall mean the Board of Directors of the Corporation. (d) CCI Tansferees shall mean Michel David-Weil, Lester Pollack, Paul F. Balser, Mark E. Jennings, Gaz et Eaux SA, Eliane David-Weil, LF Centre LP, Philippe Meyer, Damon Mezzacappa, Pearson Inc., Dreyfus Acquisition Corp. and Park Road Corp. (e) Common Stock shall mean the Corporation's Common Stock, par value $.001 per share. (f) Demand Registration Right shall mean the right of a Selling Stockholder to require the filing of a registration 2 3 statement under the 1933 Act with respect to its Shares pursuant to Section 5(a). (g) Director shall mean a member of the Board of Directors. (h) Exempt Sale shall mean any of the following sales of Shares: (i) a sale of Shares by Limited to any Affiliate of Limited; (ii) a sale of Shares in an underwritten public offering (as the term "public offering" is used in Section 4(2) of the 1933 Act) registered under the 1933 Act pursuant to the seller's registration rights provided by Section 5 hereof (excluding any offering solely to qualified institutional buyers as that term is defined in Rule 144A(a)(1) under the 1933 Act); (iii) a sale of Shares to the Corporation; (iv) a sale of Shares by a Stockholder pursuant to Rule 144 under the 1933 Act; or (v) a sale of Shares by a Management Investor to one of his Permitted Transferees. (i) Incumbent Chairman of the Board shall mean Benaroya for so long as he retains the position of Chairman of the Board of the Corporation and not afterwards. (j) Limited shall mean Limited Direct Associates, L.P. and any Affiliate of Limited Direct Associates, L.P. to which Limited Direct Associates, L.P. or any such Affiliate shall transfer Shares. (k) Management Investor shall mean (i) Benaroya (regardless of whether he is employed with the Corporation) and his Permitted Transferees and (ii) any other Stockholder who is employed by the Corporation or any of its subsidiaries (but only during the term of 3 4 such other Stockholder's employment with the Corporation) and his or her Permitted Transferees. (l) Management Stock Transfer Agreements shall mean collectively, the following agreements as amended from time to time: (i) the Management Stock Transfer Agreements, dated as of July 17, 1989, between Sized Unlimited Acquisition Corporation (the predecessor by merger of the Corporation) and Raphael Benaroya and George R. Remeta, respectively; (ii) the Management Stock Transfer Agreement, dated as of November 20, 1989 by and among the Corporation and Ellen Demaio, Mary Jo Slater, Julie Stodolak, Jean Srour, Fredric Stern, Bradley Orloff, James Hufford and Cheryl A. Lutz; (iii) the Management Stock Transfer Agreement, dated as of October 22, 1990, by and between the Corporation and James F. Wimpress; (iv) the Management Stock Transfer Agreements, dated as of May 31, 1991, by and between the Corporation and Charles R. Wilkinson and Jerry Silverman, respectively; and (v) the Management Stock Transfer Agreement, dated July 30, 1992, by and between the Corporation and Mort Greenberg. 4 5 (m) 1991 Stock Option Agreements shall mean the Stock Option Agreements, dated November 1, 1991, between the Corporation and Raphael Benaroya and George R. Remeta, respectively, as amended from time to time. (n) 1934 Act shall mean the Securities Exchange Act of 1934, as amended. (o) 1933 Act shall mean the Securities Act of 1933, as amended. (p) Nominating Committee shall mean the nominating committee of the Board of Directors as constituted in accordance with the Corporation's By-laws, as amended from time to time. (q) Permitted Transferees shall mean a natural Person's executor or heirs at law, or his spouse, parents or children (including adopted children) or the children of his spouse or a trust, the beneficiaries of which include only such Person and such Person's spouse or parents or such children, and over which such Person has the right, power and authority to exercise control as to investment decisions and distributions, as trustee or otherwise, or a corporation or partnership, the stockholders or limited and general partners of which include only such Person and such Person's spouse or parents or such children; provided that no transfer of Shares to a Permitted Transferee shall be an Exempt Sale unless and until such Person's executor, heir, spouse, parent, child, trust, corporation or partnership executes and delivers to the Corporation an appropriate instrument, in form and substance reasonably satisfactory to the Corporation, confirming and 5 6 acknowledging that he or she has acquired and will hold Shares subject to all of the terms, conditions and provisions of this Agreement, which instrument shall specify that the executor, heir, spouse, parent, child, trust, corporation or partnership will have the same rights, privileges, duties and obligations of the transferor of such Shares under this Agreement, other than as otherwise expressly specified herein. Upon the execution and delivery of such instrument to the Corporation, a transferee of a Stockholder shall be deemed a "Stockholder" for purposes of this Agreement, with the same rights, privileges, duties and obligations of the transferor of such Shares (provided that there shall be no requirement that such transferee be employed by the Corporation), except as otherwise expressly specified herein. Notwithstanding anything to the contrary contained in this Section 1(q), no transfer to any Permitted Transferee shall be made if the Corporation would be required to register any Shares under the 1933 Act, the 1934 Act or any applicable state securities laws except to the extent that such registration is effected in accordance with Section 5 hereof. (r) Person shall mean any natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and a government or agency or political subdivision thereof. 6 7 (s) Public Directors shall have the meaning set forth in Section 2(b). (t) Registrable Securities shall mean any Shares owned of record by any Stockholder or CCI Transferee. (u) Selling Stockholder shall have the meaning set forth in Section 5(a). (v) Restated 1989 Management Stock Option Plan shall mean the Lernmark, Inc. Management Stock Option Plan, as amended and restated from time to time. (w) Restated 1990 Stock Option Plan shall mean the Corporation's 1990 Stock Option Plan, as amended and restated from time to time. (x) Sale of the Corporation shall mean the consummation of a merger or consolidation of the Corporation with or into another Person that is not a parent or subsidiary of the Corporation as a result of which those Persons who were stockholders of the Corporation immediately prior to such transaction own, in the aggregate, less than a majority of the outstanding voting capital stock of the surviving or resulting corporation or the consummation of the sale of all or substantially all of the Corporation's assets to a Person that is not a parent or subsidiary of the Corporation. (y) Shares (with respect to the holding of any Stockholder or CCI or its Assigns or the CCI Transferees) shall mean the lesser of (A) the number of shares of Common Stock that were originally issued to the Stockholder prior to November 1, 1991 and shall be originally issued thereafter to such Stockholder pursuant to the 7 8 exercise of options granted under the Restated 1989 Management Stock Option Plan and the 1991 Stock Option Agreements, and granted and to be granted under the Restated 1990 Stock Option Plan, minus the number of shares of Common Stock that such Stockholder sold either in an underwritten public offering registered under the 1933 Act pursuant to such Stockholder's registration rights provided by Section 5 hereof or pursuant to the exercise of his "bring along" rights under Section 4(a) hereof, and (B) the lowest number of shares of Common Stock held combined with shares underlying unexercised options granted as aforesaid at any time by (as the case may be) a Management Investor and his Permitted Transferees, combined, or Limited Direct Associates, L.P. and its Affiliates, combined. (z) Stock Purchase Agreements shall mean, collectively, the Stock Purchase Agreements, dated July 14, 1989, between Sizes Unlimited Acquisition Corporation and CCI and Limited, respectively. (aa) Stockholder shall mean any of the signatories to this Agreement other than CCI and the Company. (bb) Third Party Demander shall have the meaning set forth in Section 5(f). SECTION 2. Election and Removal of Directors. (a) Voting. Each of the Stockholders shall vote all Shares and other shares of Common Stock owned or controlled by such Stockholder (i) at any annual or special meeting of Stockholders of the Corporation called for the purpose of voting on the election or 8 9 removal of Directors or amendment of the By-laws of the Corporation or (ii) by consensual action of Stockholders of the Corporation with respect to the election or removal of Directors or amendment of the By-laws of the Corporation, in favor of the election or removal of Directors in accordance with, and only in accordance with, this Section 2 and against any amendment of the By-laws of the Corporation not approved in advance by the Board of Directors, provided, however, that all the rights and obligations under this Section 2 of each of Limited and Benaroya shall terminate permanently in the event the number of shares of Common Stock owned by it or by him and his Permitted Transferees as a group shall be less than 100,000 shares of Common Stock at any time after the date of this Agreement. (b) Initial Board of Directors. The Board of Directors of the Corporation shall consist of two Persons nominated by the Incumbent Chairman of the Board (the "Management Directors"), two Persons nominated by Limited (the "Limited Directors"), and five persons who are not Affiliates of any Management Investor or Limited ("Public Directors") named by the Nominating Committee and approved by the Board of Directors. (c) Subsequent Nominations. Until March 17, 1997, the Stockholders shall, at any time that Directors of the Corporation are to be elected, take such action as may be necessary to nominate or to cause the Board of Directors to nominate and recommend to the Stockholders, as the proposed members of the Board of Directors: 9 10 (i) for as long as Limited at all times after the date of this Agreement owns at least 500,000 shares of Common Stock - two Persons designated by Limited, two Persons designated by the Incumbent Chairman of the Board and five Public Directors approved by the Nominating Committee and the Board of Directors; (ii) for as long as Limited at all times after the date of this Agreement owns at least 100,000 shares of Common Stock but at any time owns less than 500,000 shares of Common Stock - one Person designated by Limited, two Persons designated by the Incumbent Chairman of the Board and six Public Directors approved by the Nominating Committee and the Board of Directors; and (iii) if at any time Limited owns less than 100,000 shares of Common Stock - two Persons designated by the Incumbent Chairman of the Board and seven Public Directors approved by the Nominating Committee and the Board of Directors; provided, however, that in the event the total number of shares of Common Stock held by the Management Investors as a group shall increase to 3,010,000 or more at any time after the date of this Agreement (and the increase in the total number of shares of Common Stock includes an increase of at least 500,000 shares of Common Stock by Benaroya and his Permitted Transferees), then, so long as (i) the Incumbent Chairman of the Board and his Permitted Transferees at all times after the date of this Agreement own at 10 11 least 500,000 shares of Common Stock, and (ii) the Management Investors at all times after the date of this Agreement own at least 2,010,000 shares of Common Stock, the Incumbent Chairman of the Board shall designate three Persons, instead of two Persons, to be nominated as proposed members of the Board of Directors, and the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to increase the total membership of the Board from nine to 10 and provided, further, that in the event the total numbers of shares of Common Stock owned by the Incumbent Chairman and his Permitted Transferees and by the Management Investors, respectively, shall at any time after the date of this Agreement be less than those required by clauses (i) and (ii) of the preceding proviso, the Incumbent Chairman of the Board shall thereafter designate two Persons, instead of three Persons, to be nominated as proposed members of the Board of Directors and the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to decrease the total membership of the Board from 10 to nine. In the event Benaroya shall cease to serve as Chairman of the Board, regardless of the circumstances of such cessation, he, or his executor in the event of his death or the committee of his property in the event of his legal incompetence, shall retain the right to designate one Person to be nominated as a proposed member of the Board of Directors but one other Person who would otherwise have been designated by the Incumbent Chairman of the Board shall be designated instead by the Nominating Committee, and, if the Board 11 12 of Directors then has 10 members, the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to decrease the total membership of the Board from 10 to nine, provided, however, that, after having ceased to serve as Chairman of the Board, Benaroya, or his executor or committee, shall have no right to designate if Benaroya and his Permitted Transferees own less than 100,000 shares of Common Stock at any time, and the Person or Persons who would otherwise have been nominated by the Incumbent Chairman of the Board shall then be designated instead by the Nominating Committee. (d) Adjustments. The numbers of shares of Common Stock referred to in Section 2(c) shall be adjusted in proportion in order to give effect to any stock dividends, splits, reverse splits, combinations, recapitalizations and the like. (e) Removal. After the date hereof, Limited shall be entitled at any time with or without cause to designate any Limited Director for removal as a Director, the Incumbent Chairman of the Board shall be entitled at any time with or without cause to designate any Management Director for removal as a Director and Benaroya (or Benaroya's executor in the event of his death), in the event he shall have ceased to serve as Chairman of the Board but shall have retained the right to designate, shall be entitled at any time with or without cause to require the removal of his designee as a Director. The Stockholders agree to take such action, and to cause the remaining Directors to take such action, within 20 days after such designation, as is necessary to remove a 12 13 Director designated for removal in accordance with the foregoing. Except as set forth in this Section 2(e), no Stockholder shall take any action, or cause any Director to take any action, to remove a Limited Director, a Management Director or a Director designated by Benaroya after he shall have ceased to serve as Chairman of the Board. (f) Filling Vacancies. If at any time a vacancy is created on the Board of Directors by reason of the death, removal or resignation of any Director, the Stockholders agree to take such action, and to cause the remaining Directors to take such action, within 20 days after such occurrence, to approve and elect a Person to fill such vacancy, which Person shall be designated for election as a Director by Limited, if the Person who has ceased to be a Director was a Limited Director; designated by the Incumbent Chairman of the Board, if the Person who has ceased to be a Director was a Management Director; designated by Benaroya (or Benaroya's executor in the event of his death), if the Person who has ceased to be a Director was designated by him; or approved by the Nominating Committee and the Board of Directors, if the Person who has ceased to be a Director was a Public Director, or designated by the Nominating Committee, if such Person had otherwise been designated by the Nominating Committee. (g) Subsidiaries. The Corporation agrees to take all action necessary to ensure that (i) the directors of each subsidiary shall be four in number and shall include (A) three Persons designated by the Incumbent Chairman of the Board and (B) if there is one or two 13 14 Limited Directors then in office, one Person designated by Limited or, if there is no Limited Director then in office, four Persons designated by the Incumbent Chairman of the Board and (ii) the directors of each company organized in a jurisdiction other than a state of the United States in which the Corporation is a stockholder shall include one Person designated by the Incumbent Chairman of the Board and, if there is one or more Limited Directors then in office, one Person designated by Limited. If the Incumbent Chairman of the Board fails to make a designation authorized by the preceding sentence, the designation shall be made instead by the Nominating Committee. If Limited fails to make a designation authorized by the penultimate sentence, the designation may (but need not) be made instead by the Incumbent Chairman of the Board and such designee(s) of the Incumbent Chairman of the Board shall serve until Limited makes a designation authorized by the penultimate sentence. The Corporation further agrees to take all action necessary to ensure that the by-laws of all the Corporation's subsidiaries other than The Avenue, Inc. are substantially identical to the Corporation's by-laws except with respect to quorum requirements and the number of directors. (h) Termination. All the provisions of this Section 2 shall terminate on March 17, 1997. (i) Observer Status. At any time that there is one or more Limited Directors on the Board of Directors pursuant to Section 2(b) or Section 2(c) of this Agreement, Limited shall be entitled to have one representative (in addition to such Limited Director or Directors) admitted to each meeting of the Board of Directors, of any committee of the Board of Directors of which a Limited Director 14 15 is a member and of the board of directors of any of the Corporation's subsidiaries or any committee thereof. The Corporation shall furnish Limited, to the attention of such person as Limited may designate in writing to the Corporation from time to time and at the same time as furnished to the Directors (i) notice of each such meeting and (ii) all materials and information furnished to Directors. Such representative shall treat all information received by such representation pursuant to this Section 2(i) in accordance with applicable law and such duties as would be applicable to a Director receiving such information. SECTION 3. Other Arrangements. No Stockholder shall grant any proxy or enter into or agree to be bound by any voting trust with respect to any Shares, or other shares of Common Stock nor shall any Stockholder or the Corporation enter into any stockholder agreements or arrangements of any kind with any Person with respect to any Shares, or other shares of Common Stock inconsistent with the provisions of this Agreement (whether or not such agreements and arrangements are with other Stockholders or holders of shares of Common Stock that are not bound by this Agreement), or act, for any reason, as a member of a group or in concert with any other Persons in connection with the voting of Shares, or other shares of Common Stock in any manner which is inconsistent with the provisions of this Agreement. No Stockholder shall enter into any agreement or arrangement of any kind with any Person (whether or not such agreement or arrangement is with other Stockholders or holders of shares of Common Stock that are not bound by this 15 16 Agreement) to exercise such Stockholder's rights under Section 2(c) in order to designate a nominee of such Person as a Director. The obligations of a Stockholder under this Section 3 shall terminate at the same time as his obligations under Section 2. SECTION 4. Bring Along. (a) If a Stockholder (a "Transferor") wishes to transfer Shares to any Person except pursuant to (i) an Exempt Sale, (ii) pursuant to the exercise of the rights granted under this Section 4(a), (iii) pursuant to a bona fide gift to a charity or a charitable foundation, or (iv) pursuant to a bona fide pledge to secure indebtedness to a financial institution, including a commercial bank or a broker-dealer (provided that if Benaroya pledges Shares, he shall within 15 days after the pledge, give written notice to Limited of the number of Shares pledged and the amount of indebtedness secured by the pledge at the time but he shall not be required to update the amount of indebtedness secured), then the Transferor shall, as a condition to such transfer, permit each of the other Stockholders and each of the CCI Transferees (or cause the other Stockholders and the CCI Transferees to be permitted) to sell (either to the prospective purchaser of the Shares or to other financially reputable purchasers reasonably acceptable to the Stockholders electing to be brought along pursuant to this Section 4(a)), at the same price and otherwise on the same terms and conditions as those actually received by the Transferor in such sale, a number of Shares that bears the same proportion to the number of Shares then held by the 16 17 other Stockholders and the CCI Transferees as the number of Shares previously sold (including pursuant to Exempt Sales) and proposed to be sold by the Transferor bears to the number of Shares acquired by the Transferor in the first transaction in which the Transferor first acquired Shares and pursuant to the exercise of any option granted by the Corporation; provided, however, that if the Transferor is a Management Investor and if, after giving effect to such transfer (excluding Exempt Sales), either (a) the Management Investors as a group would have transferred to transferees other than their Permitted Transferees more than one-half (1/2) of the Shares acquired by them on or before the date hereof and any Shares acquired by them pursuant to the exercise of options granted by the Corporation, or (b) Benaroya would have transferred to transferees other than his Permitted Transferees more than one-half (1/2) of the Shares he acquired on or before the date hereof and pursuant to the exercise of options granted by the Corporation, then the Transferor who is a Management Investor must, as an additional condition precedent to such transfer, permit the Stockholders that are not Management Investors and the CCI Transferees (or cause them to be permitted) to sell at the same price and otherwise on the same terms and conditions as those actually received by the Transferor in such sale, all of the Shares then owned by the other Stockholders and the CCI Transferees. (b) Anything to the contrary in Section 4(c) notwithstanding, the event any Person exercises his "bring along" rights pursuant to Section 4(a), and the number of Shares to be sold by the 17 18 Stockholder who initiated the transfer of Shares and those Stockholders electing to be "brought along" in such transfer pursuant to Section 4(a) exceeds the number of shares of Common Stock the prospective purchaser or purchasers thereof desire to acquire, the number of Shares each such Stockholder shall be permitted to sell to such prospective purchaser or purchasers shall be reduced, on a pro rata basis, based on the number of Shares each such Stockholder is offering to such purchaser or purchasers pursuant to Section 4(a) and the CCI Transferees shall not be permitted to sell any Shares pursuant to Section 4(a). (c) In the event any Person exercises his "bring along" rights pursuant to Section 4(a), and the number of Shares to be sold by the Stockholder who initiated the transfer of Shares and those Stockholders and CCI Transferees electing to be "brought along" in such transfer pursuant to Section 4(a) exceeds the number of shares of Common Stock the prospective purchaser or purchasers thereof desire to acquire, then, subject to Section 4(b) above, all the Shares to be sold by Stockholders shall be purchased and any remaining Shares to be sold shall be allocated, on a pro rata basis, to the CCI Transferees based on the number of Shares each CCI Transferee is offering to such purchaser or purchasers pursuant to Section 4(a). (d) A Person must exercise his "bring along" rights pursuant to Section 4(a) within 10 days after receipt of a written notice setting forth the material terms of the proposed transfer. Such rights shall be exercised by written reply, sent by registered 18 19 mail, return receipt requested, to the person named in such notice. The "bring along" rights contained in this Section 4 may be exercised or waived solely at the option of the party entitled thereto. SECTION 5. Registration Rights. (a) If the Corporation shall receive a written request to file a registration statement (a "Registration Request") with respect to Shares held by either CCI or its Assigns (who may include one or more CCI Transferees), Limited or Benaroya and his Permitted Transferees (each of CCI or its Assigns, of Limited and of Benaroya and his Permitted Transferees as a group being referred to as a "Selling Stockholder"), the Corporation shall at its expense (which shall include, without limitation, all registration and filing fees, printing and mailing expenses, fees and disbursements of counsel to, and independent accountants for, the Corporation, fees and expenses incident to compliance with state securities laws, and fees and expenses of any special experts retained in connection with the requested registration ("Registration Expenses") but shall exclude underwriting discounts and commissions, fees and expenses of counsel to the Selling Stockholder, and transfer taxes, if any, properly allocable to securities included in such registration statement): (i) use its best efforts to effect promptly registration, qualification or compliance under the 1933 Act and under any other applicable federal law and any applicable securities or blue sky laws of such jurisdictions within the United States as the Selling Stockholder may request as shall be necessary to enable the Selling Stockholder to sell all the Shares owned by CCI or its Assigns, all the Shares owned by Limited and all the Shares 19 20 owned by Benaroya and his Permitted Transferees, as the case may be, and offered for sale; provided, however, that in no event shall the Corporation be obligated to qualify to do business in any jurisdiction where it is not so qualified or to take any action that would subject it to tax or the service of process (other than process in connection with such registration) in any state where it is not subject thereto; (ii) furnish to the Selling Stockholder such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits), the prospectus in the registration statement filed under the 1933 Act (including each preliminary and summary prospectus) in conformity with the requirements of the 1933 Act and such other documents as the Selling Stockholder may reasonably request in order to facilitate the disposition of the Shares covered by the registration statement; (iii) notify the Selling Stockholder, at any time when a prospectus relating to the Shares covered by such registration statement is required to be delivered under the 1933 Act, of the Corporation's becoming aware that the prospectus in such registration statement, as then in effect, includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and at the request of the Selling Stockholder, prepare and furnish to it any reasonable number of copies of any supplement to or amendment of such prospectus necessary so that, as thereafter delivered to any purchaser of the Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) prepare and file with the Securities and Exchange Commission (the "SEC") such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until three months after the effective date of the registration statement or the earlier sale by the Selling Stockholder of all the Shares that shall have been registered, provided, however, that in the case of a registration statement for Shares held by Benaroya and his Permitted Transferees the Corporation shall prepare and file with the SEC such amendments and supplements as may be necessary to keep such registration statement effective until six months and one business day after the effective date of the registration statement if the Shares being registered were obtained upon the exercise 20 21 of options granted by the Corporation and Benaroya shall deliver to the Corporation an opinion of counsel to the effect that the sale of the Shares within six months after the effective date of the registration statement would be subject to the provisions of Section 16(b) of the 1934 Act; (v) otherwise use its efforts to comply with all applicable rules and regulations of the SEC, and, if required, make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first day of the Corporation's first fiscal quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; provided, however, that the Corporation shall not be required to conduct a special audit in order to satisfy its obligations under this subsection (v); (vi) use it best efforts to cause all Shares covered by such registration statement to be listed on the principal securities exchange on which similar equity securities issued by the Corporation are then listed or eligible for listing, or on the NASDAQ National Market System if the listing of such Shares is then permitted under the rules of such exchange or NASDAQ, as the case may be; (vii) provide a transfer agent and registrar for all Shares covered by such registration statement not later than the effective date of such registration statement; (viii) in connection with any underwritten offering, enter into an underwriting agreement with the underwriter of such offering in the form customary for such underwriter for similar offerings, including such representations and warranties by the Corporation, provisions regarding the delivery of opinions of counsel for the Corporation and accountants' letters, provisions regarding indemnification and contribution, and such other terms and conditions as are at the time customarily contained in such underwriter's underwriting agreements for similar offerings (and, the representations and warranties by, and the other agreements on the part of, the Corporation to and for the benefit of such underwriter shall also be made to and for the benefit of the Selling Stockholder); (ix) upon receipt of such confidentiality agreements as the Corporation may reasonably request, make available for inspection by the Selling Stockholder and by any attorney, accountant or other agent retained by it, all pertinent financial and other records, pertinent corporate documents and properties of the Corporation and its 21 22 subsidiaries, and cause all of the Corporation's and its subsidiaries' officers, directors and employees to supply all information reasonably requested by it or its attorney, accountant or agent in connection with such registration statement; and (x) permit the Selling Stockholder, if, in its sole judgment, exercised in good faith, it might be deemed to be a controlling person of the Corporation, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Corporation in writing, that in its judgment, as aforesaid, should be included. Notwithstanding any other provision of this Section 5(a), the Corporation shall not register any Shares in response to a Registration Request (other than pursuant to a Registration Request for an underwritten public offering of more than 250,000 shares) if the Corporation receives an opinion of counsel satisfactory to the Board of Directors stating that the proposed method of distribution of such Shares would be exempt from the registration requirements of the 1933 Act. (b) As a condition to registering a Selling Stockholder's Shares under the 1933 Act, the Corporation may require (i) that it furnish to the Corporation such information regarding itself and the contemplated distribution of its Shares as is required to be included in the registration statement, and (ii) that such information be furnished to the Corporation in writing and signed by it and stated to be specifically for use in the related registration statement, prospectus, offering circular or other document incident thereto. Except for the foregoing and as otherwise provided by Sections 5(a), 5(k) and 5(m) the Selling Stockholder shall not be required to make any representations or 22 23 warranties to or agreements with the Corporation as a condition to the registration of such Shares under the 1933 Act. (c) Demand Registration Rights shall be exercisable on only four occasions: on two occasions by Limited, on one occasion by CCI (on behalf of CCI and its Assigns) and on one occasion by Benaroya and his Permitted Transferees as a group (the "Benaroya Registration Statement"). In the case of CCI's Assigns, a Registration Request may be made only by CCI or by CCI's general partner. In the case of Benaroya's Permitted Transferees, a Registration Request may be made only by Benaroya or by his executor in the event of his death or by the committee of his property in the event of his legal incompetence. Registration statements filed upon the exercise of Demand Registration Rights by Limited shall not become effective prior to March 10, 1993, and the Benaroya Registration Statement shall not become effective prior to the earlier of January 1, 1996 and three months after the effective date of a registration of Shares by Limited pursuant to its Demand Registration Rights, provided, however, that no registration of Shares held by a Selling Stockholder shall become effective within three months after the effective date of a prior registration of Shares held by another Selling Stockholder or of Shares, or securities convertible into or exchangeable for shares of Common Stock, issued in an offering for the account of the Corporation. (d) No registration of shares of Common Stock, or securities convertible into or exchangeable for shares of Common 23 24 Stock, offered for the account of the Corporation shall become effective within three months after the effective date of a prior registration of Shares held by a Selling Stockholder. (e) A Selling Stockholder may withdraw its exercise of Demand Registration Rights by notifying the Corporation in writing prior to the effective date of the registration statement. A withdrawn exercise of Demand Registration Rights shall not be deemed to be an exercise of Demand Registration Rights if the Selling Stockholder shall reimburse the Corporation for the Registration Expenses at the time it notifies the Corporation of the withdrawal. (f) If the Corporation shall receive a Registration Request pursuant to Section 5(a) or from another Person that has the right to demand such registration pursuant to any contract with the Corporation (such other Person is referred to as the "Third Party Demander"), or if the Corporation shall determine to effect any registration under the 1933 Act for an offering for its own account of shares of Common Stock or securities convertible into shares of Common Stock, the Corporation will, at its expense (which shall include all expenses referred to in Section 5(a)): (i) promptly give written notice thereof to each Stockholder and CCI Transferee, provided, however, that CCI Transferees shall not be given notice of a Registration Request by CCI; and (ii) subject to Section 5(g), include in the registration (in addition to the shares of Common Stock that 24 25 the Corporation, Selling Stockholder or Third Party Demander is entitled to register) such portion of the Registrable Securities held by each Stockholder (including Benaroya and his Permitted Transferees) and CCI Transferee as shall be specified in a written request or requests received by the Corporation from such Stockholder or CCI Transferee within 15 days after the date upon which the Corporation gave the aforementioned notice and, upon receipt of any such written request and in respect of Registrable Securities in such request, take the action specified in clauses (i) through (x) of Section 5(a) (such action is referred to as "piggyback registration".) Other than as provided in this Agreement, the Corporation shall not grant piggyback registration rights to any Person unless such rights give absolute priority to the rights of the Stockholders and CCI Transferees hereunder. (g) If the offering referred to Section 5(f) is underwritten, Stockholders and CCI Transferees selling Shares pursuant to Section 5(f) shall sell such Shares to or through the underwriter or underwriters (who, if the offering is made pursuant to a Registration Request, shall be selected by the Selling Stockholder or Third Party Demander, in its sole discretion) of the securities being registered for the account of the Corporation, Third Party Demander and/or Selling Stockholder upon terms generally comparable to the terms applicable to the Corporation, Third Party Demander and/or Selling Stockholder. If 25 26 any lead underwriter reasonably determines that the number of securities to be included in the registration statement exceeds the number (the "Saleable Number") that can be sold in an orderly fashion within a price range acceptable to the Corporation, if such registration is being effected at the Corporation's determination, or the Selling Stockholder or Third Party Demander, if such registration is being effected pursuant to a Registration Request, then the number of securities offered shall be limited to the Saleable Number and shall be allocated as follows: (i) if such registration is being effected at the Corporation's determination to sell for its own account shares of Common Stock or securities convertible into shares of Common Stock, (A) first, all the securities the Corporation proposes to register, (B) second, the difference between the Saleable Number and the number to be included pursuant to clause (i) (A) allocated among all Stockholders pro rata on the basis of the relative number of Shares offered for sale by each Stockholder on a "piggyback" basis and (C) third, if the Saleable Number shall not have been fully allocated, the difference between the Saleable Number and the amount to be included pursuant to clause (i)(A) and (B) to the CCI Transferees pro rata on the basis of the relative number of Shares offered for sale by each on a "piggyback" basis. 26 27 (ii) if the registration is being effected pursuant to a Registration Request by a Third Party Demander, (A) first, all the shares of Common Stock that the Third Party Demander is entitled to register, (B) second, the difference between the Saleable Number and the amount to be included pursuant to clause (ii)(A) hereof to all Stockholders pro rata on the basis of the relative number of Shares offered for sale by each Stockholder on a "piggyback" basis and (C) third, if the Saleable Number shall not have been fully allocated, the difference between the Saleable Number and the amount to be included pursuant to clauses (ii) (A) and (B) to the CCI Transferees pro rata on the basis of the relative number of Shares offered for sale by each on a "piggyback" basis. (iii) if the registration is being effected pursuant to a Registration Request by Limited, the Saleable Number to be allocated as follows: (A) first, up to 50% of the Saleable Number to Limited and up to 50% of the Saleable Number to the Management Investors pro rata on the basis of the relative number of Shares offered for sale by each Management Investor, (B) second, the difference between the Saleable Number and the number to be included pursuant to clause (iii) (A), if any, to whichever of Limited or the Management Investors offered for sale a number of shares greater than 50% of the Saleable Number pro rata in the case of the Management Investors on the basis of the relative number of Shares offered for sale by each Management 27 28 Investor on a "piggyback" basis and (C) third, if the Saleable Number shall not have been fully allocated, the difference between the Saleable Number and the amount to be included pursuant to clauses (iii) (A) and (B) to the CCI Transferees pro rata on the basis of the relative number of Shares offered for sale by each on a "piggyback" basis, provided that Limited shall be entitled to elect that 100% of the Saleable Number be allocated to it in connection with one Registration Request by Limited; (iv) if the registration is being effected pursuant to a Registration Request by CCI, the Saleable Number to be allocated as follows: first, all the securities CCI and its Assigns propose to register to CCI and its Assigns, provided that if the offering pursuant to the Registration Request by CCI pursuant to this clause (iv) is not consummated prior to July 1, 1993, Limited may at its option elect to make one of its Demand Registration Rights available to CCI and (y) if Limited so elects the Saleable Number of the additional offering by CCI in lieu of Limited shall be allocated as follows: (A) first, up to 50% of the Saleable Number to CCI and its Assigns, up to 25% of the Saleable Number to the Management Investors pro rata on the basis of the number of shares offered for sale by each Management Investor on a "piggyback" basis, and up to 25% of the Saleable Number to Limited, (B) second, the difference between the Saleable Number and the number to be included pursuant to clause (iv) 28 29 (A) among all Stockholders pro rata on the basis of the relative number of Shares offered for sale by each Stockholder on a "piggyback" basis and (C) third, if the Saleable Number shall not have been fully allocated, the difference between the Saleable Number and the amount to be included pursuant to clauses (iv) (A) and (B) to CCI and its Assigns pro rata on the basis of the relative number of Shares offered for sale by each on a "piggyback" basis and (z) if Limited so elects the first Registration Request exercised by CCI pursuant to this clause (iv) shall on and after July 1, 1993 allocate the Saleable Number as follows: (D) first, up to 50% of the Saleable Number to CCI and its Assigns and up to 50% of the Saleable Number to Limited, (E) second, the difference between the Saleable Number and the number to be included pursuant to clause (iv) (D), if any, to whichever of CCI and its Assigns or Limited offered for sale a number of Shares greater than 50% of the Saleable Number, (F) third, if the Saleable Number shall not have been fully allocated, the difference between the Saleable Number and the amount to be included pursuant to clauses (iv) (D) and (E) to the Management Investors pro rata on the basis of the relative number of Shares offered for sale by each Management Investor on a "piggyback" basis and (G) fourth, if the Saleable Number shall not have been fully allocated, the difference between the Saleable Number and the amount to be included pursuant to clauses (iv) (D), (E) and (F) to CCI 29 30 and its Assigns pro rata on the basis of the relative number of Shares offered for sale by each on a "piggyback" basis; and (v) if the registration is being effected pursuant to a Registration Request by Benaroya, the Saleable Number to be allocated as follows: (A) first, all the securities that Benaroya proposes to register, to him and his Permitted Transferees, (B) second, the difference between the Saleable Number and the number to be included pursuant to clause (v) (A), if any, to the other Stockholders pro rata on the basis of the relative number of Shares offered for sale by each and (C) third, if the Saleable Number shall not have been fully allocated, the difference between the Saleable Number and the amount to be included pursuant to clauses (v) (A) and (B) to the CCI Transferees pro rata on the basis of the relative number of Shares offered for sale by each on a "piggyback" basis. The number of securities required to satisfy any underwriters' overallotment option shall be allocated pro rata on the basis of the relative number of securities otherwise to be included by each Person in the registration. If as a result of the proration provisions of this Section 5(g), any Stockholder or CCI Transferee is not entitled to include all its Shares in such registration, such holder may elect to withdraw its request to include any Shares in such registration (a "Withdrawal Election"), provided, however, that a Withdrawal Election shall be irrevocable and a Stockholder or CCI Transferee who has made 30 31 a Withdrawal Election shall no longer have any right to include any Registrable Shares in the registration as to which such Withdrawal Election was made. (h) If requested in writing by the Corporation or the lead underwriter, if any, of any offering effected pursuant to registration rights granted under this Section 5, each Stockholder owning beneficially or of record (including Shares a Stockholder has the right to acquire upon exercise of options or otherwise) more than 1% of the shares of Common Stock then outstanding agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the 1933 Act, of any shares of Common Stock (other than as part of such underwritten public offering) within 7 days before or three months after the effective date of a registration statement filed pursuant to this Section 5. (i) As a condition to including any Shares held by a Stockholder, CCI or its Assigns in a registration pursuant to Section 5(f), (i) such holder shall furnish to the Corporation such information regarding it and the contemplated distribution of its Shares as is required to be included in the registration statement, and such information shall be furnished to the Corporation in writing and signed by such holder and stated to be specifically for use in the related registration statement, prospectus, offering circular or other document incident thereto and (ii) such holder shall furnish to the Corporation in writing an agreement that such holder shall not prior to March 17, 1997 31 32 or the earlier termination of such agreement in accordance with its terms grant any proxy to vote against the proposed members of the Board of Directors recommended by the Board of Directors or enter into or agree to be bound by any voting trust with respect to any shares of Common Stock or act, for any reason, as a member of a group or in concert with any other Persons to vote against the proposed members of the Board of Directors recommended by the Board of Directors, provided, however, that such agreement shall not restrict the transferability of shares held by the signatory thereto. Except for the foregoing and as otherwise provided by Sections 5(f), 5(k) and 5(m) Stockholders and CCI or CCI Transferees shall not be required to make any representations or warranties to or agreements with the Corporation or the underwriters as a condition to the inclusion of such Shares in a registration. (j) Each holder of Shares participating in an offering shall, as a condition to participation, upon receipt of any notice from the Corporation pursuant to Section 5(a)(iii), forthwith discontinue disposition of Shares pursuant to the registration statement covering such Shares until its receipt of copies of the supplemented or amended prospectus contemplated by Section 5(a)(iii) and, if so directed by the Corporation, it shall deliver to the Corporation (at the Corporation's expense) all copies other than permanent file copies then in its possession, of the prospectus covering such Shares that was in effect prior to such amendment or supplement. 32 33 (k) In the event of the filing of any registration statement under the 1933 Act with respect to Shares pursuant to Section 5(a) or 5(f), the Corporation will indemnify and hold each holder participating in such registration and the directors, officers, general and limited partners and controlling Persons (within the meaning of the 1933 Act ("Controlling Persons")) of each such holder (each such holder together with its Controlling Persons is collectively referred to as an "Indemnified Party") harmless, from and against any losses, claims, damages or liabilities, joint or several, to which each Indemnified Party may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which the Shares were registered under the 1933 Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arise out of or are based upon the failure by the Corporation to file any amendment or supplement thereto that was required to be filed under the 1933 Act, and will reimburse the Indemnified Party for any legal or any other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, 33 34 damage, liability or action; provided, however, that the Corporation will not be liable to the Indemnified Party in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made (i) in such registration statement, preliminary prospectus, final prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to the Corporation through an instrument duly executed by the holder specifically for use in the preparation thereof, or (ii) in any preliminary prospectus or any final prospectus later amended or supplemented if (A) the holder failed to deliver a copy of the final prospectus or the final prospectus as then amended or supplemented, as the case may be, to the Person asserting such loss, claim, damage or liability at or prior to the written confirmation of such sale, (B) such delivery was required by the 1933 Act and (C) the untrue statement or alleged untrue statement or omission or alleged omission in such preliminary prospectus or final prospectus was corrected in the final prospectus or the final prospectus as then amended or supplemented, respectively. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the holder and shall survive the transfer of such Shares. The Corporation's obligation to take any action with respect to registration and any holder's right to participate in a registration is specifically conditioned on the Corporation's receipt from each 34 35 holder participating in the offering of an undertaking satisfactory to the Corporation to indemnify and hold harmless (in the same manner and to the same extent as set forth in the first sentence of this Section 5(k)) the Corporation, all other holders of shares of Common Stock included in such offering and any underwriter of such offering, and their respective directors, officers, general and limited partners and Controlling Persons (each, an "Indemnitee"), with respect to any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under the 1933 Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and in conformity with written information furnished to the Corporation through an instrument duly executed by such holder specifically for use in the preparation of such registration statement, preliminary prospectus or final prospectus or amendment or supplement; provided, however, that such holder will not be liable in any such case to any Indemnitee to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in any preliminary prospectus or any final prospectus later amended or supplemented if (i) such Indemnitee failed to deliver a copy of 35 36 the final prospectus or the final prospectus as then amended or supplemented, as the case may be, to the Person asserting such loss, claim, damage or liability at or prior to the written confirmation of such sale, (ii) such delivery was required by the 1933 Act and (iii) the untrue statement or alleged untrue statement or omission or alleged omission in such preliminary prospectus or final prospectus was corrected in the final prospectus or the final prospectus as then amended or supplemented, respectively. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any such Indemnitee and shall survive the transfer of such Shares. (1) As soon as possible after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it 36 37 wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party; provided that the indemnifying party shall not be entitled to so participate or so assume the defense if, in the indemnified party's reasonable judgment, a conflict of interest between the indemnified party and the indemnifying party exists in respect of such claim. After notice from the indemnifying party to such indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided, however, that an indemnified party (the CCI Assigns being collectively considered a single indemnified party) shall have the right to employ one counsel to represent such indemnified party and its officers, directors, general and limited partners and Controlling Persons if, in such indemnified party's reasonable judgment, a conflict of interest between such indemnified parties and the indemnifying parties exists in respect of such claim, and in that event the fees and expenses of such separate counsel shall be paid by the indemnifying party; and provided further that if, in the reasonable judgment of any indemnified party (the CCI Assigns being collectively considered a single indemnified party), a conflict of interest between such indemnified party and any other indemnified parties exists in respect of such claim, such indemnified party shall be entitled 37 38 to additional counsel or counsels and the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel of counsels. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to all indemnified parties of a release from all liability in respect to such claim or litigation. (m) Indemnification similar to that specified in Section 5(k) (with appropriate modifications) shall be given by the Corporation and, at the Corporation's request and as a condition to participation, each holder participating in an offering with respect to any registration or other qualification of securities under any state securities and "blue sky" laws. (n) If the indemnification provided for in the preceding paragraphs of this Section 5 is unavailable or insufficient to hold harmless an indemnified party, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in the preceding paragraphs of this Section 5 in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, in connection with statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by 38 39 reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statements or omissions. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this paragraph shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim (which shall be limited as provided above if the indemnifying party has assumed the defense of any such action) which is the subject of this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Promptly after receipt by an indemnified party under this paragraph of notice of the commencement of any action against such party in respect of which a claim for contribution may be made against an indemnifying party under this paragraph, such 39 40 indemnified party shall notify the indemnifying party in writing of the commencement thereof if the notice specified with respect to indemnification has not been given with respect to such action; provided that the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have to an indemnified party otherwise under this paragraph, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. Notwithstanding anything in this paragraph to the contrary, no indemnifying party (other than the Corporation) shall be required pursuant to this paragraph to contribute any amount in excess of the proceeds received by such indemnifying party from the sale of Shares in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate. SECTION 6. Provision of Financial Information. The Corporation will furnish to each Director, as soon as available and in any event within 15 days after the end of each fiscal month in each Fiscal Year, the consolidated balance sheet of the Corporation and its subsidiaries as at the end of such month, the related consolidated statements of income and retained earnings for such fiscal month as well as (in the case of each monthly period after the first fiscal month of each Fiscal Year) such balance sheet, financial statements and reports for the period from the beginning of the current Fiscal Year to the end of such fiscal month, setting forth in comparative form the consolidated figures for the corresponding previous Fiscal Year (or, in the 40 41 case of such balance sheet, at the end of the previous Fiscal Year), all determined in accordance with GAAP applied on a consistent basis and all in reasonable detail and certified as complete and correct by the chief financial officer of the Corporation. SECTION 7. Termination. (a) This Agreement may be terminated at any time by an instrument in writing signed by (i) the Corporation, (ii) Stockholders that own of record 90% or more of the issued and outstanding Shares then owned by Stockholders, and (iii) each of Limited and Benaroya, if then a Stockholder, and of CCI and a majority in interest of the CCI Transferees copies of which instrument shall be delivered to each Stockholder and CCI Transferee and to the Corporation. (b) This Agreement shall terminate on the earlier to occur of: (i) the Sale of the Corporation, or (ii) July 17, 1999, provided, however, that, unless a Sale of the Corporation shall have occurred, the provisions of Section 5 shall survive the termination of this Agreement until neither of Limited, or of Benaroya and his Permitted Transferees as a group, holds more than 2% of the shares of Common Stock then outstanding. SECTION 8. Legend. Each Stockholder acknowledges that each certificate representing Shares owned by the Stockholder, and any 41 42 other Person who becomes a party to this Agreement, shall bear the following legend (or other legend incorporating such legend): "THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE STOCKHOLDERS' AGREEMENT BETWEEN THE CORPORATION AND THE HOLDER OF THIS CERTIFICATE. NO TRANSFER, SALE, ASSIGNMENT, OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT AS PERMITTED BY SUCH STOCKHOLDERS' AGREEMENT AND (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND ANY APPLICABLE STATE SECURITIES AND 'BLUE SKY' LAWS, OR (B) IF THE CORPORATION HAS PREVIOUSLY BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE CORPORATION, TO THE EFFECT THAT SUCH TRANSFER, SALE, ASSIGNMENT, OR OTHER DISPOSITION IS EXEMPT FORM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND SUCH STATE SECURITIES AND 'BLUE SKY' LAWS. THE RIGHT OF THE HOLDER OF THESE SECURITIES IN RESPECT OF THE ELECTION AND REMOVAL OF DIRECTORS AND OTHERWISE RELATING TO VOTING RIGHTS ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE STOCKHOLDERS' AGREEMENT. COPIES OF THE STOCKHOLDERS' AGREEMENT ARE ON FILE WITH THE SECRETARY OF THE CORPORATION AND WILL BE MAILED TO A STOCKHOLDER WITHOUT CHARGE WITHIN FIVE DAYS AFTER RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR FROM SUCH STOCKHOLDER." SECTION 9. Severability; Governing Law. If any provision of this Agreement shall be determined to be illegal and unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms. This Agreement 42 43 shall be governed by, and construed in accordance with, the laws of the State of Delaware. SECTION 10. Benefits of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, legal representatives and heirs; Section 4 of this Agreement shall inure to the benefit of the CCI Transferees and such benefits shall not be assignable by them; this Agreement does not create, and shall not be construed as creating, any rights enforceable by any other Person. The rights and obligations of the Stockholders hereunder shall not be assignable except to Permitted Transferees. The right of CCI to make a Registration Request may be assigned only to the general partner of CCI and further assignment shall not be permitted. The right to include Shares in a Registration Request by CCI may be assigned to CCI's Assigns. SECTION 11. Notices. All notices and communications to be given or to otherwise be made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by first class registered or certified mail or by a recognized national courier service, 43 44 postage or charges prepaid, addressed to: (a) If to the Corporation: United Retail Group, Inc. 365 West Passaic Street Rochelle Park, New Jersey 07662-6563 Attention: Chief Executive Officer (b) If to any Stockholder to its address as it appears on the stock books of the Corporation or such other address as may be designated in writing by the addressee to the addressor (c) If to any CCI Transferee, in care of Lester Pollack at his last known address with a copy to the address of such CCI Transferee at its address on the records of the Company's transfer agent. All such notices and communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of mailing, on the fifth business day following such mailing or (c) in the case of delivery by a courier service, on the date of confirmation of delivery, except notices of change of address which shall only be effective upon receipt. SECTION 12. Modification; Amendment. Except as otherwise provided herein, neither this Agreement nor any provision hereof can be modified, changed, or discharged except by an instrument in writing signed by the Corporation and Stockholders owning of record at least 90% of the Shares then owned by Stockholders, in which event such amendment or modification shall be binding upon all Stockholders, CCI and its assigns and CCI Transferees in accordance with its terms (and, provided, that no such amendment 44 45 shall modify, change or otherwise affect the rights under this Agreement of any of CCI and its Assigns, Limited or Benaroya and his Permitted Transferees without its or his written consent or shall impose obligations on any CCI Transferees). This Agreement shall automatically be deemed amended to delete any Stockholder who no longer owns any Shares (and such Person shall thereafter not be deemed a "Stockholder" or entitled to the rights, or subject to the obligations, of a Stockholder under this Agreement, regardless of whether such Person thereafter acquires other Shares). SECTION 13. Recapitalizations, Exchanges, Etc. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Shares, to any and all shares of capital stock of the Corporation that may be issued in respect of, in exchange for, or in substitution of, Shares and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. SECTION 14. Captions and References to Sections. The captions herein are inserted for convenience only and shall not define, limit, extend or describe the scope of this Agreement or affect the construction hereof. Sections mentioned by number only are the respective sections of this Agreement. SECTION 15. Availability of Equitable Remedies. Each Stockholder acknowledges that a breach of the provisions of this Agreement could not adequately be compensated by money damages. 45 46 Accordingly, any party hereto shall be entitled, in addition to any other right or remedy available to it, to an injunction restraining such breach or a threatened breach and to specific performance of any such provision of this Agreement, and in either case no bond or other security shall be required in connection therewith. SECTION 16. Prohibition on Transfer of Limited Interest. Limited Direct Associates L.P. and The Limited, Inc. ("TLI") covenant and agree that Limited Direct Associates, L.P. will not sell any shares of capital stock or partnership interest in or comparable equity interest in Limited Direct Associates L.P. other than to any direct or indirect wholly-owned subsidiary of TLI or any partnership, the partners of which include only TLI or one or more direct or indirect wholly-owned subsidiaries of TLI; provided, that such transferee shall acquire such shares of capital stock, partnership interest or comparable equity interest subject to Section 16. SECTION 17. Entire Agreement; References Hereto. This Agreement, the Management Stock Transfer Agreements, the Stock Purchase Agreements, any stock option agreement between the Corporation and a Management Investor, the Certificate of Incorporation, as amended and restated from time to time, and the By-Laws of the Corporation, as amended and restated from time to time, set forth the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or 46 47 undertakings with respect to the subject matter hereof other than those expressly set forth in this Agreement, the Management Stock Transfer Agreements, the Stock Purchase Agreements, such stock option agreements, the Certificate of Incorporation and the By-Laws of the Corporation. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter other than such agreements and understandings set forth in the Certificate of Incorporation and the By-Laws of the Corporation. SECTION 18. Waiver. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of that provision or of any breach of any other provision of this Agreement. The failure of a party to insist on strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be evidenced by a writing signed by the party against whom the waiver is sought to be enforced. SECTION 19. Pronouns. Any masculine personal pronoun shall be considered to mean the corresponding feminine or neuter personal pronoun, and vice versa, as the context requires. SECTION 20. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. 47 48 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. UNITED RETAIL GROUP, INC. By: /s/ George R. Remeta ------------------------ Name: George R. Remeta Title: Executive Vice President /s/ George Remeta LIMITED DIRECT ASSOCIATES L.P. - ------------------------ By: LIMITED DIRECT, INC., George R. Remeta as general partner By: - ------------------------ ------------------------- Charles R. Wilkinson President - ------------------------ CENTRE CAPITAL INVESTORS L.P. Bradley Orloff By: CENTRE PARTNERS L.P., as general partner - ------------------------ By: PARK ROAD CORPORATION Jerry Silverman as general partner By: /s/ Paul F. Balser ------------------------ President ------------------------ Mort Greenberg /s/ Raphael Benaroya - ------------------------ ------------------------ Frederic Stern Raphael Benaroya - ------------------------ ------------------------ James F. Wimpress Jean Srour - ------------------------ ------------------------ Ellen Demaio Julie Stodolak - ------------------------ ------------------------ James Hufford Cheryl A. Lutz - ------------------------ Mary Jo Slater 48 49 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. UNITED RETAIL GROUP, INC. By:_______________________________ Name: George R. Remeta Title: Executive Vice President __________________________________ LIMITED DIRECT ASSOCIATES L.P. George R. Remeta By: LIMITED DIRECT, INC., as general partner __________________________________ By: /s/ William K. Gerber Charles R. Wilkinson __________________________________ Vice President __________________________________ CENTRE CAPITAL INVESTORS L.P. Bradley Orloff By: CENTRE PARTNERS L.P., as general partner __________________________________ By: PARK ROAD CORPORATION Jerry Silverman as general partner By:______________________ President _________________________________ Mort Greenberg __________________________________ _________________________________ Frederic Stern Raphael Benaroya __________________________________ _________________________________ James F. Wimpress Jean Srour __________________________________ _________________________________ Ellen Demaio Julie Stodolak __________________________________ _________________________________ James Hufford Cheryl A. Lutz __________________________________ Mary Jo Slater 48 50 The undersigned agrees to comply with the requirements of Section 16 above. Dated: December 23, 1992 THE LIMITED, INC. By: /s/ William K. Gerber William K. Gerber Vice President 49 51 AMENDMENT NO. 1 RESTATED STOCKHOLDERS' AGREEMENT -------------------------------- This AMENDMENT NO. 1, dated as of June 1, 1993, to the RESTATED STOCKHOLDERS' AGREEMENT, dated as of December 23, 1992 (the "Original Agreement" and as amended, the "Amended Agreement"), by and among United Retail Group, Inc., a Delaware corporation (the "Corporation"), and the Stockholders and Centre Capital Investors L.P. ("CCI"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, all capitalized terms herein shall have the respective meanings set forth in the Original Agreement; WHEREAS, CCI has transferred all the Shares it held; WHEREAS, there exists one vacancy on the Corporation's Board of Directors; WHEREAS, the undersigned stockholders believe it to be in the best interests of the Corporation and its stockholders to reduce the number of Directors from nine to eight during the period from June 1, 1993 through July 31, 1993; NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. The Original Agreement shall continue in full force and effect in accordance with its terms, except as expressly amended hereby. 52 2. Section 2(c) shall be amended to read in its entirety as follows: (c) Subsequent Nominations. Until March 17, 1997, the Stockholders shall, at any time that Directors of the Corporation are to be elected, take such action as may be necessary to nominate or to cause the Board of Directors to nominate and recommend to the Stockholders, as the proposed members of the Board of Directors: (i) for as long as Limited at all times after December 23, 1992 owns at least 500,000 shares of Common Stock - two Persons designated by Limited, two Persons designated by the Incumbent Chairman of the Board and four Public Directors approved by the Nominating Committee and the Board of Directors, provided, however, that after July 31, 1993 the number of Public Directors approved by the Nominating Committee and the Board of Directors shall be five; (ii) for as long as Limited at all times after December 23, 1992 owns at least 100,000 shares of Common Stock but at any time owns less than 500,000 shares of Common Stock - one Person designated by Limited, two Persons designated by the Incumbent Chairman of the Board and five Public Directors approved by the Nominating Committee and the Board of Directors, provided, however, that after July 31, 1993 the number of Public Directors approved by the Nominating Committee and the Board of Directors shall be six; and 2 53 (iii) if at any time Limited owns less than 100,000 shares of Common Stock - two Persons designated by the Incumbent Chairman of the Board and six Public Directors approved by the Nominating Committee and the Board of Directors, provided, however, that after July 31, 1993 the number of Public Directors approved by the Nominating Committee and the Board of Directors shall be seven; provided, however, that in the event the total number of shares of Common Stock held by the Management Investors as a group shall increase to 3,010,000 or more at any time after July 31, 1993 (and the increase in the total number of shares of Common Stock includes an increase of at least 500,000 shares of Common Stock by Benaroya and his Permitted Transferees), then, so long as (i) the Incumbent Chairman of the Board of his Permitted Transferees at all times after December 23, 1992 own at least 500,000 shares of Common Stock, and (ii) the Management Investors at all times after December 23, 1992 own at least 2,010,000 shares of Common Stock, the Incumbent Chairman of the Board shall designate three Persons, instead of two Persons, to be nominated as proposed members of the Board of Directors, and the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to increase the total membership of the Board from nine to 10 and provided, further, that in the event the total numbers of shares of Common Stock owned by the Incumbent Chairman and his Permitted Transferees and by the Management Investors, 3 54 respectively, shall at any time after July 31, 1993 be less than those required by clauses (i) and (ii) of the preceding proviso, the Incumbent Chairman of the Board shall thereafter designate two Persons, instead of three Persons, to be nominated as proposed members of the Board of Directors and the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to decrease the total membership of the Board from 10 to nine. In the event Benaroya shall cease to serve as Chairman of the Board, regardless of the circumstances of such cessation, he, or his executor in the event of his death or the committee of his property in the event of his legal incompetence, shall retain the right to designate one Person to be nominated as a proposed member of the Board of Directors but one other Person who would otherwise have been designated by the Incumbent Chairman of the Board shall be designated instead by the Nominating Committee, and, if the Board of Directors then has 10 members, the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to decrease the total membership of the Board from 10 to nine, provided, however, that, after having ceased to serve as Chairman of the Board, Benaroya, or his executor or committee, shall have no right to designate if Benaroya and his Permitted Transferees own less than 100,000 shares of Common Stock at any time, and the Person or Persons who would otherwise have been nominated by the Incumbent Chairman of the Board shall then be designated instead by the Nominating Committee. 4 55 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first above written. UNITED RETAIL GROUP, INC. By: /s/ George R. Remeta --------------------------------- Name: George R. Remeta Title: Executive Vice President /s/ George R. Remeta - ----------------------------------- LIMITED DIRECT ASSOCIATES L.P. George R. Remeta By: LIMITED DIRECT, INC., as general partner /s/ Charles R. Wilkinson By: /s/ William K. Gerber - ----------------------------------- ---------------------------------- Charles R. Wilkinson Vice President /s/ Bradley Orloff /s/ Raphael Benaroya - ----------------------------------- ---------------------------------- Bradley Orloff Raphael Benaroya /s/ Jerry Silverman - ----------------------------------- Jerry Silverman - ----------------------------------- Frederic E. Stern /s/ James F. Wimpress - ----------------------------------- James F. Wimpress /s/ Ellen Demaio - ----------------------------------- Ellen Demaio /s/ Mary Jo Slater - ----------------------------------- Mary Jo Slater 5 56 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first above written. UNITED RETAIL GROUP, INC. By: --------------------------------- Name: George R. Remeta Title: Executive Vice President - ----------------------------------- LIMITED DIRECT ASSOCIATES L.P. George R. Remeta By: LIMITED DIRECT, INC., as general partner /s/ Charles R. Wilkinson By: /s/ William K. Gerber - ----------------------------------- ---------------------------------- Charles R. Wilkinson Vice President /s/ Bradley Orloff /s/ Raphael Benaroya - ----------------------------------- ---------------------------------- Bradley Orloff Raphael Benaroya /s/ Jerry Silverman - ----------------------------------- Jerry Silverman /s/ Frederic E. Stern - ----------------------------------- Frederic E. Stern /s/ James F. Wimpress - ----------------------------------- James F. Wimpress /s/ Ellen Demaio - ----------------------------------- Ellen Demaio /s/ Mary Jo Slater - ----------------------------------- Mary Jo Slater 5 57 AMENDMENT NO. 2 TO RESTATED STOCKHOLDERS' AGREEMENT AMENDMENT NO. 2, dated as of February 1, 1997, to the RESTATED STOCKHOLDERS' AGREEMENT, dated as of December 23, 1992 as amended by Amendment No. 1 to Restated Stockholders' Agreement dated as of June 1, 1993 (as so amended, the "Agreement") by and among United Retail Group, Inc., a Delaware corporation (the "Corporation") and the Stockholders (as therein defined) and Centre Capital Investors L.P. WHEREAS, it is deemed to be in the best interests of the Corporation and the Stockholders that the provision originally made for the continuity and stability of the business and management of the Corporation be modified. NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. Section 2(h) of the Agreement is restated to read in its entirety as follows: "Termination. All the provisions of this Section 2 shall terminate on July 17, 1999." SECTION 2. The date in the introductory phrase of Section 2(c) is changed from March 17, 1997 to July 17, 1999. SECTION 3. All the other provisions of the Agreement shall remain in full force and effect in accordance with their terms. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first above written. UNITED RETAIL GROUP, INC. /s/ Raphael Benaroya By: /s/ George R. Remeta - ----------------------------------- ----------------------------------- Raphael Benaroya Name: George R. Remeta Title: Vice Chairman /s/ George R. Remeta - ----------------------------------- LIMITED DIRECT ASSOCIATES L.P. George R. Remeta By: LIMITED DIRECT, INC., as general partner /s/ Bradley Orloff - ----------------------------------- Bradley Orloff By: /s/ William K. Gerber ---------------------------------- /s/ Fredric E. Stern Vice President - ----------------------------------- Frederic E. Stern 58 AMENDMENT NO. 3 RESTATED STOCKHOLDERS' AGREEMENT This AMENDMENT NO. 3, dated as of April 6, 1998, to the RESTATED STOCKHOLDERS' AGREEMENT, dated as of December 23, 1992 (the "Original Agreement" and as amended, the "Amended Agreement"), by and among United Retail Group, Inc., a Delaware corporation (the "Corporation"), and the Stockholders and Centre Capital Investors L.P. ("CCI"). WITNESSETH: WHEREAS, all capitalized terms herein shall have the respective meanings set forth in the Original Agreement; WHEREAS, CCI has transferred all the Shares it held; WHEREAS, the undersigned stockholders believe it to be in the best interests of the Corporation and its stockholders to reduce the number of Directors from nine to eight during the period from May 21, 1998 through July 31, 1998 (the "Interim Period"); NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. The Original Agreement shall constitute in full force and effect in accordance with its terms, except as expressly amended hereby. 2. Section 2(c) shall be amended to read in its entirety as follows: (c) Subsequent Nominations. Until July 17, 1999, the Stockholders shall, at any time that Directors of the Corporation are to be elected, take such action as may be necessary to nominate or to cause the Board of Directors to nominate and recommend to the Stockholders, as the proposed members of the Board of Directors: (i) if Limited at all times prior to May 21, 1998 owns at least 100,000 shares of Common Stock - one Person designated by Limited, two Persons designated by the Incumbent Chairman of the Board and five Public Directors approved by the Nominating Committee and the Board of Directors, provided, however, that after July 31, 1998 the number of Public Directors approved by the Nominating Committee and the Board of Directors shall be six; Page 1 of 3 59 (ii) if at any time Limited owns less than 100,000 shares of Common Stock - two Persons designed by the Incumbent Chairman of the Board and six Public Directors approved by the Nominating Committee and the Board of Directors, provided, however, that after July 31, 1998 the number of Public Directors approved by the Nominating Committee of the Board of Directors shall be seven; provided, however, that in the event the total number of shares of Common Stock held by the Management Investors as a group shall increase to 3,010,000 or more at any time, then, so long as (i) the Incumbent Chairman of the Board and his Permitted Transferees at all times after July 31, 1998 own at least 500,000 shares of Common Stock, and (ii) the Management Investors at all times after July 31, 1998 own at least 2,010,000 shares of Common Stock, the Incumbent Chairman of the Board shall designate three Persons, instead of two Persons, to be nominated as proposed members of the Board of Directors, and the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to increase the total membership of the Board from nine to 10 and provided, further, that in the event the total number of shares of Common Stock owned by the Incumbent Chairman and his Permitted Transferees and by the Management Investors, respectively, shall at any time after July 31, 1998 be less than those required by clauses (i) and (ii) of the preceding proviso, the Incumbent Chairman of the Board shall thereafter designate two Persons, instead of three Persons, to be nominated as proposed members of the Board of Directors and the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to decrease the total membership of the board from 10 to nine. In the event Benaroya shall cease to serve as Chairman of the Board, regardless of the circumstances of such cessation, he, or his executor in the event of his death or the committee of his property in the event of his legal incompetence, shall retain the right to designate one Person to be nominated as a proposed member of the Board of Directors and the one other Person who would otherwise have been designated by the Incumbent Chairman of the Board shall be designated instead by the Nominating Committee, provided that, if the Board of Directors then has 10 members, the Stockholders shall take such action, and shall cause the Directors to take such action, as may be necessary to decrease the total membership of the Board from 10 to nine, and provided further that, notwithstanding any of the foregoing, after having ceased to serve as Chairman of the Board, Benaroya, or his executor or committee, shall have no right to designate if Benaroya and his Permitted Transferees own less than 100,000 shares of Common Stock at any time, and in such case the Person or Persons who would otherwise have been nominated by the Incumbent Chairman of the Board shall then be designated instead by the Nominating Committee. Page 2 of 3 60 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first above written. UNITED RETAIL GROUP, INC. By: /s/ GEORGE R. REMETA ------------------------- Name: George R. Remeta Title: Vice Chairman /s/ GEORGE R. REMETA LIMITED DIRECT ASSOCIATES, L.P., - ------------------------- By: LIMITED DIRECT, INC., George R. Remeta as general partner /s/ BRADLEY ORLOFF - ------------------------- Bradley Orloff By: /s/ KENNETH GILMAN ------------------------- Name: Kenneth Gilman /s/ FREDRIC E. STERN Title: President - ------------------------- Fredric E. Stern /s/ RAPHAEL BENAROYA ------------------------------ Raphael Benaroya Page 3 of 3 EX-99.3.1 3 RESTATED STOCK OPTION PLAN 1 RESTATED UNITED RETAIL GROUP, INC. 1990 STOCK OPTION PLAN (DATED MARCH 6, 1998) WHEREAS, United Retail Group, Inc., a Delaware corporation (the "Company"), desires to attract and retain the best available directors, executives, and key management associates for itself and its direct and indirect subsidiaries, to provide long range inducements for them to remain associated with the Company and its direct and indirect subsidiaries, to provide the highest level of performance by such directors, executives and associates, and to acquire a permanent stake in the Company with the interest and outlook of owners; and WHEREAS, the Board of Directors of the Company adopted the United Retail Group, Inc. 1990 Stock Option Plan and the stockholders of the Company approved the same; and WHEREAS, the Plan was restated as of May 28, 1996; and WHEREAS, the Compensation Committee of the Board of Directors adopted certain amendments to the provisions of the 1990 Plan, effective March 6, 1998, and authorized Optionees to amend their Option Agreements to incorporate the provisions of the Plan contained herein; NOW, THEREFORE, the Company hereby approves and adopts the Restated United Retail Group, Inc. 1990 Stock Option Plan on the following terms and conditions, which shall apply to Option Agreements that are amended to incorporate the provisions contained herein: SECTION 1. DEFINITIONS. The following terms have the following meanings when used in this Plan, in both singular and plural forms: "ASSIGNEE" means a member of the immediate family of an Optionee to whom the Optionee has assigned an Option. "ASSOCIATE" means any full-time associate of an Employer. "CHANGE IN CONTROL" means (a) the acquisition after the Effective Date by any person (defined for the purposes of this Section to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company, the Chief Executive Officer of the Company, or an employee benefit plan created by the Board of Directors of the Company for the benefit of its Associates, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the Securities and Exchange Commission ("SEC") under Section 13(d) of the Exchange Act) of any securities issued by the Company if, after such acquisition, such person is the beneficial owner of securities issued by the Company having 20% or more of the voting power in the election of Directors at the next meeting of the holders of voting securities to be held for such purpose of all of the voting 2 securities issued by the Company, if such person acquired such beneficial ownership without the prior consent of the Board of Directors of the Company; (b) the election of a majority of the Directors, elected at any meeting of the holders of voting securities of the Company, who were not nominated for such election by the Board of Directors or a duly constituted committee of the Board of Directors; or (c) the merger or consolidation with or transfer of substantially all of the assets of the Company to another person if the Board of Directors does not adopt a resolution, before the Company enters into any agreement for such merger, consolidation or transfer, determining that it is not a Change in Control. "CODE" means the Internal Revenue Code of 1986, as now in effect or hereafter amended and as now or hereafter interpreted, construed and applied by regulations, rulings and cases. "COMMITTEE" means (a) the members of the Compensation Committee of the Board of Directors of the Company who are non-employee directors within the meaning of SEC Rule 16b-3(b)(3)(i), who, if they are fewer than all the members, shall constitute an ad hoc committee of the Board of Directors, or (b) if the Compensation Committee has fewer than two members who are such non-employee directors, such other committee of the Board of Directors of the Company having at least two members who are such non-employee directors as may be designated from time to time by the Board of Directors of the Company, provided, however, that if any such Committee is not composed exclusively of such non-employee directors, the Committee will consist only of those members who are such non-employee directors. "COMPANY" means United Retail Group, Inc., a Delaware corporation. "DATE OF GRANT" means (a) in the case of a formula grant to a Director under Section 2, the date of the annual meeting of stockholders of the Company to which the grant relates, (b) in the case of a discretionary Committee grant under Section 3, generally, the date action was taken by the Committee to grant an Option, or (c) in the case of a discretionary Committee grant under Section 3 where the grant was made to an Associate being hired by the Employer, in the sole discretion of the Committee, the Associate's date of hire rather than the date on which the Committee subsequently or previously approved the grant of an Option to him or her; provided, however, that the Date of Grant for purposes of determining whether or not an Option is an Incentive Option will be the later of the date of such action or the date of hire. "DIRECTOR" means a duly elected and acting member of the Board of Directors of the Company. "DISABILITY" means a disability as defined under the Company's long-term disability benefits plan in effect on the Effective Date. "EFFECTIVE DATE" means May 21, 1993. "EMPLOYER" means the Company and any corporation which is a subsidiary corporation of the Company, as defined in Section 424(f) of the Code. "HOLDER" means the person who is, at the time of reference, entitled to exercise an Option. 2 3 "INCENTIVE OPTION" means an Option which meets the requirements of Section 422 of the Code. "NONINCENTIVE OPTION" means any Option which is not an Incentive Option. "NOTICE OF EXERCISE" means a notice of exercise of any Option in a form determined by the Committee. "OPTION" means any right to purchase Shares granted under the Plan. "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms of an Option. "OPTION PRICE" means the price per Share at which an Option is exercisable. "OPTIONEE" means an Associate or Director to whom an unexercised Option has been granted under the Plan. "PLAN" means this Restated United Retail Group, Inc. 1990 Stock Option Plan. "PUBLIC DIRECTOR" means a Director who is neither an Associate nor an LDA Director (as such term is defined in the Restated Stockholders' Agreement dated December 23, 1992 among the Company and certain of its stockholders). "RETIREMENT" means the Termination of an Associate after the Associate's 65th birthday. "SHARES" means shares of Common Stock, with par value equal to $.001 per share, of the Company. "TAX PAYMENT LOAN GUARANTY" shall mean a guaranty of payment made by the Company in the amount and under the circumstances described in Section 5. "TERMINATION" means the termination of the Optionee's relationship with the Company including termination of the Optionee's employment and status as Director. An Optionee who is absent from employment or other relationship with the Company for a reason or purpose and for a period of time approved by the Committee, in its sole discretion, shall not for the period of such absence be deemed, solely because of such absence, to have suffered a Termination, unless and until the Committee otherwise determines. "TERMINATION DATE" means June 8, 2000. "VALUE" means (a) if the Shares are listed or admitted to trading on a national securities exchange (including the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ")), the closing price of Shares on the principal securities exchange on which the Shares are listed or admitted to trading on the day prior to the 3 4 date of determination, or if no closing price can be determined for the date of determination, the most recent date for which such price can reasonably be ascertained, or (b) if the Shares are not listed or admitted to trading on a national securities exchange but are publicly traded, the mean between the representative bid and asked prices of the Shares in the over-the-counter market at the closing of the day prior to the date of determination or the most recent such bid and asked prices then available, as reported by NASDAQ or if the Shares are not then quoted by NASDAQ as furnished by any market maker selected from time to time by the Company for that purpose, or (c) if neither (a) nor (b) is applicable, the fair market value on the applicable date as determined by the Committee in good faith using factors the Committee deems to be relevant including but not limited to any sale of Shares to an independent third party. SECTION 2. FORMULA GRANTS TO DIRECTORS. 2.1. ELIGIBILITY AND FORMULA. All Public Directors elected at each year's annual meeting of the stockholders were automatically granted an Option to purchase 3,000 Shares. All Options granted under this Section were intended to be formula awards under SEC Rule 16b-3 and will not be subject to any provision of the Plan that gives the Committee discretion to change the terms of such Options to the extent that such Committee discretion will cause the Options granted under this Section to cease to be formula awards under SEC Rule 16b-3. 2.2. TERMS. All Options granted to Directors under this Section 2 were on the following terms: 2.2.1. Each Option was a Nonincentive Option. 2.2.2. Each Option has an Option Price equal to the Value of a Share as of the Date of Grant. 2.2.3. Each Option is exercisable as to 20% of the Shares subject to the Option on the completion of the first full year after the Date of Grant and as to an additional 20% of such Shares on the completion of each full year thereafter prior to Termination. 2.2.4. Notwithstanding Section 2.2.3, each Option will become immediately exercisable as to 100% of the Shares subject to the Option upon (a) a Change in Control or (b) the Optionee's death or Disability. 2.2.5. Each Option will lapse on the earliest of (a) the date 10 years and one day after the Date of Grant, or (b) the date one year after the Termination of the Optionee if the Termination is due to death or Disability or if the Optionee dies within 90 days of Termination, or (c) the date 90 days after Termination if the Termination is for any reason other than death or Disability. 4 5 SECTION 3. DISCRETIONARY GRANTS TO ASSOCIATES. 3.1. DISCRETIONARY AWARDS. The Committee granted Options to Associates whom the Committee determined to be executive and key management Associates of the Employer. 3.2. TERMS OF ASSOCIATE OPTIONS. 3.2.1. The Committee determined the terms and conditions of any Options granted to an Associate. 3.2.2. In the absence of any provision in the grant of an Option to the contrary, each Option will lapse on the earliest of (i) for an Incentive Option, the date 10 years after the Date of Grant, and for a Nonincentive Option, the date 10 years and one day after the Date of Grant, (ii) the date one year after the Termination of the Optionee if the Termination is due to death or Disability or if the Optionee dies within 90 days of the date of Termination, or (iii) the date 90 days after Termination for any other reason. 3.2.3. Each Option granted under Section 3 will become immediately exercisable as to 100% of the Shares subject to the Option upon (a) a Change in Control, or (b) the Optionee's death, Disability, or Retirement. 3.2.4. Nonincentive Options may be amended to provide that if the Optionee shall so direct at least 60 days prior to the date of exercise, either (i) the Shares issued upon exercise of the Option shall be issued and registered on the Company's stockholder list as follows: the number of Shares having a Value on the date of exercise equal to the exercise price paid in connection with the exercise shall be issued to and registered in the name of the Optionee and the remainder of the Shares shall be issued to and registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan, or (ii) the number of Shares otherwise issuable upon exercise of the Option shall be reduced by the number of Shares having a Value on the date of exercise equal in the aggregate to the exercise price of the gross number of Options and the net number of Shares after such reduction shall be issued to and registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan. SECTION 4. RESTRICTIONS ON ALL OPTIONS. 4.1. OPTION AGREEMENTS. Any action taken after the Date of Grant may be reflected in an amendment to or restatement of such Option Agreement. 4.2. RESTRICTIONS ON TERMS OF OPTIONS. No Shares will be issued under the Plan unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges or NASDAQ upon which the Shares may be listed have been fully met. 4.3. SIX MONTH RULE. Nothing in the Plan will permit an Option to be exercisable within six months of the Date of Grant except in the case of the Optionee's death. 5 6 SECTION 5. TAX PAYMENT LOAN GUARANTY. The Committee will have authority on the exercise by the Optionee of an Option which is not taxed as an Incentive Option, to authorize an unconditional guaranty of payment by the Company of a full recourse loan on terms acceptable to the Committee obtained by the Optionee who exercised the Option from a commercial bank or a registered broker-dealer for the exclusive purpose of paying personal income or excise taxes incurred as a result of such exercise. Loan guaranties will be issued if the Committee, in its sole discretion, determines them to be appropriate and in the best interests of the Employer to assist in the payment of income and excise taxes incurred on exercise of such Option. SECTION 6. EXERCISE OF OPTIONS. 6.1. NOTICE OF EXERCISE. Options may be exercised only by delivery to the Vice President-Human Resources or such other person designated by the Committee of a Notice of Exercise and payment under Section 6.2 for the Shares. Except as specifically provided, an Option shall be exercisable during the Optionee's lifetime only by the Optionee or his or her Assignee. 6.2. DELIVERIES ON EXERCISE. 6.2.1. Any Notice of Exercise will be effective only if the Holder pays to the Company the Option Price for the portion of any Option being exercised and pays the Company an amount equal to any tax withholding required to be made. 6.2.2. The Holder may, in his or her sole discretion, pay all or a portion of the Option Price for the portion of an Option being exercised by surrender and delivery of Shares already owned by the Holder for not less than six months. Any such Shares delivered in full or partial payment of the Option Price shall be valued at the Value as of the date of receipt of the Shares by the Company. 6.2.3. The Committee may, in its sole discretion, permit all or a portion of any amount required to be withheld for taxes to be paid by surrendering and delivering Shares already owned by the Holder or by withholding a portion of the Shares that otherwise would be issued to the Holder upon exercise of the Option. Any such Shares surrendered or withheld will be valued at the Value as of the date of receipt for surrendered Shares or as of the date of exercise of the Option for withheld Shares. Any election to have Shares withheld from the Shares that would otherwise be issued to the Holder upon exercise must be made during or as of the period beginning on the third business day following the date of release of quarterly or annual financial data of the Company and ending on the twelfth business day following such date. 6.3. TIME AND MANNER RESTRICTIONS. The Committee has the right to limit the time and manner of exercise of Options to comply with applicable law including but not limited to federal securities laws. 6 7 6.4. DELIVERY OF SHARES. As soon as reasonably practicable following exercise, a certificate representing the Shares purchased will be registered in the name of the Holder and will be delivered to the Holder or, at the direction of the Holder in accordance with Section 3.2.4, will be registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan and delivered to the trustee. SECTION 7. THE COMMITTEE. 7.1. POWERS OF COMMITTEE. The Committee will have the power to do the following: 7.1.1. To maintain records relating to Optionees, Assignees and Holders; 7.1.2. To prepare and furnish to Optionees, Assignees and Holders all information required by applicable law or the Plan; 7.1.3. To construe and apply the provisions of the Plan and to correct defects and omissions therein; 7.1.4. To engage assistants and professional advisers; 7.1.5. To provide procedures for determination of claims under the Plan; 7.1.6. To make any factual determinations necessary or useful under the Plan; and 7.1.7. To adopt and revise rules, regulations and policies under the Plan. 7.2. DELEGATION. The Committee may delegate to any one or more of its number authority to sign any documents on its behalf or to perform ministerial acts, but no person to whom such authority is delegated shall perform any act involving the exercise of any discretion without first obtaining the concurrence of a majority of the members of the Committee, even though he or she alone may sign any document required by third parties. The Committee may designate a secretary, who may be a member of the Committee. All third parties may rely on any communication signed by the secretary, acting as such, as an official communication from the Committee. 7.3. BINDING EFFECT OF ACTIONS. All actions taken by the Committee under the Plan will be final and binding on all persons. 7.4. INDEMNIFICATION. No member of the Committee, nor any Associate to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made with respect to the Plan or awards made thereunder, and each member of the Committee shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Certificate of Incorporation and By-laws, as amended from time to time. 7 8 SECTION 8. ACTIONS BY COMMITTEE AFTER GRANT. 8.1. GENERAL. The Committee may, subject to the consent of the Holder under Section 9.2, where the action impairs or adversely alters the rights of the Holder, at any time and from time to time after the Date of Grant of any Option, modify the terms of any grant to terms which would have been permitted for such grant on the Date of Grant. 8.2. ANTIDILUTION PROVISIONS. If, as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, recapitalization or other such change, the Shares are increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation; then: 8.2.1. The number and kind of shares of stock or other securities into which each outstanding Share is changed or for which each such Share may be exchanged, will automatically be substituted for each Share subject to an unexercised Option and for each Share available for additional grants. 8.2.2. The Option Price will be increased or decreased proportionately so that the aggregate Option Price for the securities subject to the Option remains the same as immediately prior to such event and the ratio of the Option Price to the Value of the securities subject to the Option is no more favorable to the Holder than the ratio of the Option Price to the Value immediately before such event. 8.2.3. The Committee shall make such other adjustments to Options and the provisions of the Plan and Option Agreements as may be appropriate and equitable, and not confer on the Holder more favorable benefits than those of the Holder before the event, which adjustments may provide for the elimination of fractional shares or units. 8.3. MERGER OF THE COMPANY. If, directly or indirectly, (a) the Company is a party to a merger or consolidation agreement with a corporation that is not a subsidiary of the Company, (b) the Company is a party to an agreement to sell substantially all of its assets to any person other than a subsidiary of the Company, or (c) any person other than the Company or one of its subsidiaries has publicly announced an offer to purchase more than 5% of the outstanding voting securities of the Company, the Committee, in its sole discretion, may provide that, for a period beginning on the later of the date six months after the Date of Grant or 15 days before the closing of any such proposed transaction, and not extending beyond the earlier of the date on which the Options would otherwise lapse and the date of the closing of such proposed transaction, notwithstanding the provisions of any Option Agreement, all Options granted under the Plan may be exercised by the Holders in whole or in part during such period, and that upon the closing of such proposed transaction, all Options under the Plan will expire and be null and void. At least 15 days prior to the closing of such proposed transaction, the Company must notify each Holder that the Option is exercisable under this Section. If the agreement for such proposed transaction is terminated, (a) all exercises under this Section of Options will be void ab initio (from the outset), 8 9 (b) the Company will refund the applicable Option Price and withholding tax and the Holder will return any Shares issued, and (c) the Option will be reinstated and exercisable thereafter on the terms of the Options without regard to that application of this Section. 8.4. AUTHORITY TO ACCELERATE. Notwithstanding anything else in the Plan to the contrary the Committee may at any time or from time to time, accelerate the time at which Options become exercisable or waive any provisions of the Plan relating to the manner of payment or procedures for the exercise of any Options. Any such acceleration or waiver may be made effective (a) with respect to one or more or all Optionees under the Plan, (b) with respect to some or all of the Shares subject to an Option of any Optionee or (c) for a period of time ending at or before the expiration date of any Option. If the waiver of any provisions constitutes a new grant of an Option or the grant of an additional derivative security for purposes of SEC Rule 16b-3, the date of the waiver will be deemed to be a new Date of Grant for purposes of Section 4.3. If the waiver of any provisions constitutes a new grant of an Option for purposes of Code Section 424, the Committee must determine if the Option retains its status as an Incentive Option. 8.5. SURRENDERS. The Committee may permit the voluntary surrender of all or a portion of any Option granted under the Plan. Upon surrender, the Options surrendered will be canceled and the Shares or units previously subject to them will be available for the grant of other Options in exchange. SECTION 9. AMENDMENT OF THE PLAN. 9.1. RIGHT TO AMEND, ETC. The Company may amend, suspend or terminate the Plan at any time, provided that, unless first approved by the stockholders of the Company, no amendment may be made in the Plan which materially increases the benefits accruing to participants under the Plan. 9.2. IMPAIRMENT OF RIGHTS OF HOLDERS. No amendment to the Plan or the terms of any grant hereunder shall be made so as to impair or adversely alter the rights of any Holder without such Holder's consent. Actions by the Committee under Section 8.2 or 8.3 do not constitute an amendment of the Plan or of any grant. SECTION 10. SHARES RESERVED. The maximum number of Shares which may be issued under the Plan after March 6, 1998 will be 625,700 Shares, subject to adjustment under Section 8.2, and such number of Shares will be reserved for issuance under the Plan. In accordance with the provisions of the Restated 1996 Stock Option Plan, no additional options may be granted hereunder. The Shares issued on exercise of Options may be authorized and unissued Shares or Shares held by the Company as treasury stock. SECTION 11. MISCELLANEOUS. 11.1 REGISTRATION. The Company shall (i) prepare and file with the SEC amendments to the Registration Statement with respect to the Plan as may be necessary or advisable to permit the continued and uninterrupted exercise of Options and the resale of Shares purchased pursuant 9 10 to the exercise of Options or as may be required by the SEC, (ii) execute such other documents, and take such other actions, as may be necessary or advisable to cause the Registration Statement, as the same may be amended, to comply with the Securities Act of 1933 (the "Securities Act") and the Rules and Regulations thereunder, and (iii) register and qualify all Shares purchased pursuant to the exercise of Options for resale by the Holder in the State of New Jersey and in each state adjacent to the State of New Jersey. An amendment to the Registration Statement necessary for the resale of Shares purchased pursuant to the exercise of Options shall be filed by the Company within five business days after the Secretary of the Company receives a written request from a Holder to file an amendment. The Registration Statement shall not be withdrawn by the Company until all the Options shall have lapsed, or until all Shares purchased upon the exercise of Options shall have been resold, as the case may be. 11.2. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or in any Option or Option Agreement will confer upon any Associate or Director any right to continue in the employment or other relationship of any Employer or to be entitled to any remuneration or benefits not set forth in the Plan or such Option Agreement or interfere with or limit the right of any Employer to terminate such Associate's employment or Director's relationship at any time. 11.3. SUCCESSORS AND ASSIGNS. The obligations of the Company under the Plan will be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. 11.4. RIGHTS AS STOCKHOLDER. No Holder will have any of the rights of a stockholder of the Company with respect to the Shares issuable under the Plan until certificates for such Shares have been issued. 11.5. EXPENSES. All expenses and costs in connection with administration of the Plan will be borne by the Company. 11.6. SECTION 16. Any provision of this Plan will be deemed amended and void to the extent it causes a violation under Section 16 of the Exchange Act and the rules thereunder. 11.7. LIMITATION OF LIABILITY. The liability of the Company under this Plan or in connection with any exercise of an Option is limited to the obligations expressly set forth in the Plan and in any of the Option Agreements and no term or provision of this Plan or any Option Agreement will be construed to impose any further or additional duties, obligations or costs on the Employer not expressly set forth in the Plan and the Option Agreement. 11.8. BENEFICIARIES AND ASSIGNMENT OF RIGHTS. No Option or other right under the Plan may be assigned, pledged, hypothecated, given, or otherwise transferred by the Holder, except that (a) an Optionee will be entitled to designate a beneficiary of the Option upon the Optionee's death by delivering such designation in writing to the Committee, (b) if no such designation is made by the Optionee, the Option will be transferred upon the Optionee's death as determined under the applicable laws of descent and distribution, (c) an Option shall be transferred in 10 11 accordance with a qualified domestic relations order (as defined in the Code), and (d) an Optionee will be entitled to assign an Option to a member of his immediate family, who, after such assignment, shall have all the rights and obligations of the Optionee with respect to the Option, provided, however, that the provisions of the Plan relating to death, Disability, Retirement, Termination and employment, including vesting provisions, shall remain unchanged and shall continue to refer to the Optionee. If an Optionee suffers a Disability and does not have the capacity to exercise an Option, such Option will be exercisable by the Optionee's guardian or attorney-in-fact during the Optionee's lifetime. 11.9. NOTICES. Notices required or permitted to be made under the Plan will be sufficiently made if personally delivered or sent by first-class, registered, or certified mail addressed (a) to the Holder at the Holder's address as set forth in the books and records of the Employer, or (b) to the Company or the Committee at the principal office of the Company to the attention of the Vice President-Human Resources. Any party may change its address through the method described above. 11.10. CAPTIONS. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of the Plan. 11.11. APPLICABLE LAW. The Plan will be governed by and interpreted, construed, and applied in accordance with the laws of the State of New Jersey to the extent that they apply. 11.12. SEVERABILITY. If any provisions of the Plan are held illegal or invalid for any reason, such illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included. 11 EX-99.3.2 4 RESTATED STOCK OPTION PLAN 1 RESTATED UNITED RETAIL GROUP, INC. 1990 STOCK OPTION PLAN (DATED MAY 28, 1996) WHEREAS, United Retail Group, Inc., a Delaware corporation (the "Company"), desires to attract and retain the best available directors, executives, and key management associates for itself and its direct and indirect subsidiaries, to provide long range inducements for them to remain associated with the Company and its direct and indirect subsidiaries, to provide the highest level of performance by such directors, executives and associates, and to acquire a permanent stake in the Company with the interest and outlook of owners; and WHEREAS, the Board of Directors of the Company adopted the United Retail Group, Inc. 1990 Stock Option Plan and the stockholders of the Company approved the same; and WHEREAS, the adoption of the 1996 Stock Option Plan required certain amendments to the provisions of the 1990 Plan; NOW, THEREFORE, the Company hereby approves and adopts the Restated United Retail Group, Inc. 1990 Stock Option Plan on the following terms and conditions: SECTION 1. DEFINITIONS. The following terms have the following meanings when used in this Plan, in both singular and plural forms: "ASSOCIATE" means any full-time associate of an Employer. "CHANGE IN CONTROL" means (a) the acquisition after the Effective Date by any person (defined for the purposes of this Section to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company, the Chief Executive Officer of the Company, or an employee benefit plan created by the Board of Directors of the Company for the benefit of its Associates, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the Securities and Exchange Commission ("SEC") under Section 13(d) of the Exchange Act) of any securities issued by the Company if, after such acquisition, such person is the beneficial owner of securities issued by the Company having 20% or more of the voting power in the election of Directors at the next meeting of the holders of voting securities to be held for such purpose of all of the voting securities issued by the Company, if such person acquired such beneficial ownership without the prior consent of the Board of Directors of the Company; (b) the election of a majority of the Directors, elected at any meeting of the holders of voting securities of the Company, who were not nominated for such election by the Board of Directors or a duly constituted committee of the Board of Directors; or (c) the merger or consolidation with or transfer of substantially all of the assets of the Company to another person if the Board of Directors does not adopt a resolution, before the Company enters into any agreement for such merger, consolidation or transfer, determining that it is not a Change in Control. 2 "CODE" means the Internal Revenue Code of 1986, as now in effect or hereafter amended and as now or hereafter interpreted, construed and applied by regulations, rulings and cases. "COMMITTEE" means (a) the members of the Compensation Committee of the Board of Directors of the Company who are non-employee directors within the meaning of SEC Rule 16b-3(b)(3)(i), who, if they are fewer than all the members, shall constitute an ad hoc committee of the Board of Directors, or (b) if the Compensation Committee has fewer than two members who are such non-employee directors, such other committee of the Board of Directors of the Company having at least two members who are such non-employee directors as may be designated from time to time by the Board of Directors of the Company, provided, however, that if any such Committee is not composed exclusively of such non-employee directors, the Committee will consist only of those members who are such non-employee directors. "COMPANY" means United Retail Group, Inc., a Delaware corporation. "DATE OF GRANT" means (a) in the case of a formula grant to a Director under Section 2, the date of the annual meeting of stockholders of the Company to which the grant relates, (b) in the case of a discretionary Committee grant under Section 3, generally, the date action was taken by the Committee to grant an Option, or (c) in the case of a discretionary Committee grant under Section 3 where the grant was made to an Associate being hired by the Employer, in the sole discretion of the Committee, the Associate's date of hire rather than the date on which the Committee subsequently or previously approved the grant of an Option to him or her; provided, however, that the Date of Grant for purposes of determining whether or not an Option is an Incentive Option will be the later of the date of such action or the date of hire. "DIRECTOR" means a duly elected and acting member of the Board of Directors of the Company. "DISABILITY" means a disability as defined under the Company's long-term disability benefits plan in effect on the Effective Date. "EFFECTIVE DATE" means May 21, 1993. "EMPLOYER" means the Company and any corporation which is a subsidiary corporation of the Company, as defined in Section 424(f) of the Code. "HOLDER" means the person who is, at the time of reference, entitled to exercise an Option. "INCENTIVE OPTION" means an Option which meets the requirements of Section 422 of the Code. "NONINCENTIVE OPTION" means any Option which is not an Incentive Option. "NOTICE OF EXERCISE" means a notice of exercise of any Option in a form determined by the Committee. 2 3 "OPTION" means any right to purchase Shares granted under the Plan. "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms of an Option. "OPTION PRICE" means the price per Share at which an Option is exercisable. "OPTIONEE" means an Associate or Director to whom an unexercised Option has been granted under the Plan. "PLAN" means this Restated United Retail Group, Inc. 1990 Stock Option Plan. "PUBLIC DIRECTOR" means a Director who is neither an Associate nor an LDA Director (as such term is defined in the Restated Stockholders' Agreement dated December 23, 1992 among the Company and certain of its stockholders). "RETIREMENT" means the Termination of an Associate after the Associate's 65th birthday. "SHARES" means shares of Common Stock, with par value equal to $.001 per share, of the Company. "TAX PAYMENT LOAN GUARANTY" shall mean a guaranty of payment made by the Company in the amount and under the circumstances described in Section 5. "TERMINATION" means the termination of the Optionee's relationship with the Company including termination of the Optionee's employment and status as Director. An Optionee who is absent from employment or other relationship with the Company for a reason or purpose and for a period of time approved by the Committee, in its sole discretion, shall not for the period of such absence be deemed, solely because of such absence, to have suffered a Termination, unless and until the Committee otherwise determines. "TERMINATION DATE" means June 8, 2000. "VALUE" means (a) if the Shares are listed or admitted to trading on a national securities exchange (including the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ")), the closing price of Shares on the principal securities exchange on which the Shares are listed or admitted to trading on the day prior to the date of determination, or if no closing price can be determined for the date of determination, the most recent date for which such price can reasonably be ascertained, or (b) if the Shares are not listed or admitted to trading on a national securities exchange but are publicly traded, the mean between the representative bid and asked prices of the Shares in the over-the-counter market at the closing of the day prior to the date of determination or the most recent such bid and asked prices then available, as reported by NASDAQ or if the Shares are not then quoted by NASDAQ as furnished by any market maker selected from time to time by the Company for that purpose, or (c) if neither (a) nor (b) is applicable, the fair market value on the applicable date as determined by 3 4 the Committee in good faith using factors the Committee deems to be relevant including but not limited to any sale of Shares to an independent third party. SECTION 2. FORMULA GRANTS TO DIRECTORS. 2.1. ELIGIBILITY AND FORMULA. All Public Directors elected at each year's annual meeting of the stockholders were automatically granted an Option to purchase 3,000 Shares. All Options granted under this Section were intended to be formula awards under SEC Rule 16b-3 and will not be subject to any provision of the Plan that gives the Committee discretion to change the terms of such Options to the extent that such Committee discretion will cause the Options granted under this Section to cease to be formula awards under SEC Rule 16b-3. 2.2. TERMS. All Options granted to Directors under this Section 2 were on the following terms: 2.2.1. Each Option was a Nonincentive Option. 2.2.2. Each Option has an Option Price equal to the Value of a Share as of the Date of Grant. 2.2.3. Each Option is exercisable as to 20% of the Shares subject to the Option on the completion of the first full year after the Date of Grant and as to an additional 20% of such Shares on the completion of each full year thereafter prior to Termination. 2.2.4. Notwithstanding Section 2.2.3, each Option will become immediately exercisable as to 100% of the Shares subject to the Option upon (a) a Change in Control or (b) the Optionee's death or Disability. 2.2.5. Each Option will lapse on the earliest of (a) the date 10 years and one day after the Date of Grant, or (b) the date one year after the Termination of the Optionee if the Termination is due to death or Disability or if the Optionee dies within 90 days of Termination, or (c) the date 90 days after Termination if the Termination is for any reason other than death or Disability. SECTION 3. DISCRETIONARY GRANTS TO ASSOCIATES. 3.1. DISCRETIONARY AWARDS. The Committee granted Options to Associates whom the Committee determined to be executive and key management Associates of the Employer. 3.2. TERMS OF ASSOCIATE OPTIONS. 3.2.1. The Committee determined the terms and conditions of any Options granted to an Associate. 4 5 3.2.2. In the absence of any provision in the grant of an Option to the contrary, each Option will lapse on the earliest of (i) for an Incentive Option, the date 10 years after the Date of Grant, and for a Nonincentive Option, the date 10 years and one day after the Date of Grant, (ii) the date one year after the Termination of the Optionee if the Termination is due to death or Disability or if the Optionee dies within 90 days of the date of Termination, or (iii) the date 90 days after Termination for any other reason. 3.2.3. Each Option granted under Section 3 will become immediately exercisable as to 100% of the Shares subject to the Option upon (a) a Change in Control, or (b) the Optionee's death, Disability, or Retirement. SECTION 4. RESTRICTIONS ON ALL OPTIONS. 4.1. OPTION AGREEMENTS. Any action taken after the Date of Grant may be reflected in an amendment to or restatement of such Option Agreement. 4.2. RESTRICTIONS ON TERMS OF OPTIONS. No Shares will be issued under the Plan unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges or NASDAQ upon which the Shares may be listed have been fully met. 4.3. SIX MONTH RULE. Nothing in the Plan will permit an Option to be exercisable within six months of the Date of Grant except in the case of the Optionee's death. SECTION 5. TAX PAYMENT LOAN GUARANTY. The Committee will have authority on the exercise by the Optionee of an Option which is not taxed as an Incentive Option, to authorize an unconditional guaranty of payment by the Company of a full recourse loan on terms acceptable to the Committee obtained by the Optionee who exercised the Option from a commercial bank or a registered broker-dealer for the exclusive purpose of paying personal income or excise taxes incurred as a result of such exercise. Loan guaranties will be issued if the Committee, in its sole discretion, determines them to be appropriate and in the best interests of the Employer to assist in the payment of income and excise taxes incurred on exercise of such Option. SECTION 6. EXERCISE OF OPTIONS. 6.1. NOTICE OF EXERCISE. Options may be exercised only by delivery to the Vice President-Human Resources or such other person designated by the Committee of a Notice of Exercise and payment under Section 6.2 for the Shares. Except as specifically provided, an Option shall be exercisable during the Optionee's lifetime only by the Optionee. 6.2. DELIVERIES ON EXERCISE. 6.2.1. Any Notice of Exercise will be effective only if the Holder pays to the Company the Option Price for the portion of any Option being exercised and pays the Company an amount equal to any tax withholding required to be made. 5 6 6.2.2. The Holder may, in his or her sole discretion, pay all or a portion of the Option Price for the portion of an Option being exercised by surrender and delivery of Shares already owned by the Holder for not less than six months. Any such Shares delivered in full or partial payment of the Option Price shall be valued at the Value as of the date of receipt of the Shares by the Company. 6.2.3. The Committee may, in its sole discretion, permit all or a portion of any amount required to be withheld for taxes to be paid by surrendering and delivering Shares already owned by the Holder or by withholding a portion of the Shares that otherwise would be issued to the Holder upon exercise of the Option. Any such Shares surrendered or withheld will be valued at the Value as of the date of receipt for surrendered Shares or as of the date of exercise of the Option for withheld Shares. Any election to have Shares withheld from the Shares that would otherwise be issued to the Holder upon exercise must be made during or as of the period beginning on the third business day following the date of release of quarterly or annual financial data of the Company and ending on the twelfth business day following such date. 6.3. TIME AND MANNER RESTRICTIONS. The Committee has the right to limit the time and manner of exercise of Options to comply with applicable law including but not limited to federal securities laws. 6.4. DELIVERY OF SHARES. As soon as reasonably practicable following exercise, a certificate representing the Shares purchased registered in the name of the Holder will be delivered to the Holder. SECTION 7. THE COMMITTEE. 7.1. POWERS OF COMMITTEE. The Committee will have the power to do the following: 7.1.1. To maintain records relating to Optionees and Holders; 7.1.2. To prepare and furnish to Optionees and Holders all information required by applicable law or the Plan; 7.1.3. To construe and apply the provisions of the Plan and to correct defects and omissions therein; 7.1.4. To engage assistants and professional advisers; 7.1.5. To provide procedures for determination of claims under the Plan; 7.1.6. To make any factual determinations necessary or useful under the Plan; and 7.1.7. To adopt and revise rules, regulations and policies under the Plan. 6 7 7.2. DELEGATION. The Committee may delegate to any one or more of its number authority to sign any documents on its behalf or to perform ministerial acts, but no person to whom such authority is delegated shall perform any act involving the exercise of any discretion without first obtaining the concurrence of a majority of the members of the Committee, even though he or she alone may sign any document required by third parties. The Committee may designate a secretary, who may be a member of the Committee. All third parties may rely on any communication signed by the secretary, acting as such, as an official communication from the Committee. 7.3. BINDING EFFECT OF ACTIONS. All actions taken by the Committee under the Plan will be final and binding on all persons. 7.4. INDEMNIFICATION. No member of the Committee, nor any Associate to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made with respect to the Plan or awards made thereunder, and each member of the Committee shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Certificate of Incorporation and By-laws, as amended from time to time. SECTION 8. ACTIONS BY COMMITTEE AFTER GRANT. 8.1. GENERAL. The Committee may, subject to the consent of the Holder under Section 9.2, where the action impairs or adversely alters the rights of the Holder, at any time and from time to time after the Date of Grant of any Option, modify the terms of any grant to terms which would have been permitted for such grant on the Date of Grant. 8.2. ANTIDILUTION PROVISIONS. If, as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, recapitalization or other such change, the Shares are increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation; then: 8.2.1. The number and kind of shares of stock or other securities into which each outstanding Share is changed or for which each such Share may be exchanged, will automatically be substituted for each Share subject to an unexercised Option and for each Share available for additional grants. 8.2.2. The Option Price will be increased or decreased proportionately so that the aggregate Option Price for the securities subject to the Option remains the same as immediately prior to such event and the ratio of the Option Price to the Value of the securities subject to the Option is no more favorable to the Holder than the ratio of the Option Price to the Value immediately before such event. 7 8 8.2.3. The Committee shall make such other adjustments to Options and the provisions of the Plan and Option Agreements as may be appropriate and equitable, and not confer on the Holder more favorable benefits than those of the Holder before the event, which adjustments may provide for the elimination of fractional shares or units. 8.3. MERGER OF THE COMPANY. If, directly or indirectly, (a) the Company is a party to a merger or consolidation agreement with a corporation that is not a subsidiary of the Company, (b) the Company is a party to an agreement to sell substantially all of its assets to any person other than a subsidiary of the Company, or (c) any person other than the Company or one of its subsidiaries has publicly announced an offer to purchase more than 5% of the outstanding voting securities of the Company, the Committee, in its sole discretion, may provide that, for a period beginning on the later of the date six months after the Date of Grant or 15 days before the closing of any such proposed transaction, and not extending beyond the earlier of the date on which the Options would otherwise lapse and the date of the closing of such proposed transaction, notwithstanding the provisions of any Option Agreement, all Options granted under the Plan may be exercised by the Holders in whole or in part during such period, and that upon the closing of such proposed transaction, all Options under the Plan will expire and be null and void. At least 15 days prior to the closing of such proposed transaction, the Company must notify each Holder that the Option is exercisable under this Section. If the agreement for such proposed transaction is terminated, (a) all exercises under this Section of Options will be void ab initio (from the outset), (b) the Company will refund the applicable Option Price and withholding tax and the Holder will return any Shares issued, and (c) the Option will be reinstated and exercisable thereafter on the terms of the Options without regard to that application of this Section. 8.4. AUTHORITY TO ACCELERATE. Notwithstanding anything else in the Plan to the contrary the Committee may at any time or from time to time, accelerate the time at which Options become exercisable or waive any provisions of the Plan relating to the manner of payment or procedures for the exercise of any Options. Any such acceleration or waiver may be made effective (a) with respect to one or more or all Optionees under the Plan, (b) with respect to some or all of the Shares subject to an Option of any Optionee or (c) for a period of time ending at or before the expiration date of any Option. If the waiver of any provisions constitutes a new grant of an Option or the grant of an additional derivative security for purposes of SEC Rule 16b-3, the date of the waiver will be deemed to be a new Date of Grant for purposes of Section 4.3. If the waiver of any provisions constitutes a new grant of an Option for purposes of Code Section 424, the Committee must determine if the Option retains its status as an Incentive Option. 8.5. SURRENDERS. The Committee may permit the voluntary surrender of all or a portion of any Option granted under the Plan. Upon surrender, the Options surrendered will be canceled and the Shares or units previously subject to them will be available for the grant of other Options in exchange. 8 9 SECTION 9. AMENDMENT OF THE PLAN. 9.1. RIGHT TO AMEND, ETC. The Company may amend, suspend or terminate the Plan at any time, provided that, unless first approved by the stockholders of the Company, no amendment may be made in the Plan which materially increases the benefits accruing to participants under the Plan. 9.2. IMPAIRMENT OF RIGHTS OF HOLDERS. No amendment to the Plan or the terms of any grant hereunder shall be made so as to impair or adversely alter the rights of any Holder without such Holder's consent. Actions by the Committee under Section 8.2 or 8.3 do not constitute an amendment of the Plan or of any grant. SECTION 10. SHARES RESERVED. The maximum number of Shares which may be issued under the Plan after May 28, 1996 will be 665,000 Shares, subject to adjustment under Section 8.2, and such number of Shares will be reserved for issuance under the Plan. In accordance with the provisions of the 1996 Stock Option Plan, no additional options may be granted hereunder. The Shares issued on exercise of Options may be authorized and unissued Shares or Shares held by the Company as treasury stock. SECTION 11. MISCELLANEOUS. 11.1 REGISTRATION. The Company shall (i) prepare and file with the SEC amendments to the Registration Statement with respect to the Plan as may be necessary or advisable to permit the continued and uninterrupted exercise of Options and the resale of Shares purchased pursuant to the exercise of Options or as may be required by the SEC, (ii) execute such other documents, and take such other actions, as may be necessary or advisable to cause the Registration Statement, as the same may be amended, to comply with the Securities Act of 1933 (the "Securities Act") and the Rules and Regulations thereunder, and (iii) register and qualify all Shares purchased pursuant to the exercise of Options for resale by the Holder in the State of New Jersey and in each state adjacent to the State of New Jersey. An amendment to the Registration Statement necessary for the resale of Shares purchased pursuant to the exercise of Options shall be filed by the Company within five business days after the Secretary of the Company receives a written request from a Holder to file an amendment. The Registration Statement shall not be withdrawn by the Company until all the Options shall have lapsed, or until all Shares purchased upon the exercise of Options shall have been resold, as the case may be. 11.2. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or in any Option or Option Agreement will confer upon any Associate or Director any right to continue in the employment or other relationship of any Employer or to be entitled to any remuneration or benefits not set forth in the Plan or such Option Agreement or interfere with or limit the right of any Employer to terminate such Associate's employment or Director's relationship at any time. 9 10 11.3. SUCCESSORS AND ASSIGNS. The obligations of the Company under the Plan will be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. 11.4. RIGHTS AS STOCKHOLDER. No Holder will have any of the rights of a stockholder of the Company with respect to the Shares issuable under the Plan until certificates for such Shares have been issued. 11.5. EXPENSES. All expenses and costs in connection with administration of the Plan will be borne by the Company. 11.6. SECTION 16. Any provision of this Plan will be deemed amended and void to the extent it causes a violation under Section 16 of the Exchange Act and the rules thereunder. 11.7. LIMITATION OF LIABILITY. The liability of the Company under this Plan or in connection with any exercise of an Option is limited to the obligations expressly set forth in the Plan and in any of the Option Agreements and no term or provision of this Plan or any Option Agreement will be construed to impose any further or additional duties, obligations or costs on the Employer not expressly set forth in the Plan and the Option Agreement. 11.8. BENEFICIARIES AND ASSIGNMENT OF RIGHTS. No Option or other right under the Plan may be assigned, pledged, hypothecated, given, or otherwise transferred by the Holder, except that (a) an Optionee will be entitled to designate a beneficiary of the Option upon the Optionee's death by delivering such designation in writing to the Committee, and (b) if no such designation is made by the Optionee, the Option will be transferred upon the Optionee's death as determined under the applicable laws of descent and distribution, and (c) if an Optionee suffers a Disability and does not have the capacity to exercise an Option, such Option will be exercisable by the Optionee's guardian or attorney-in-fact during the Optionee's lifetime. 11.9. NOTICES. Notices required or permitted to be made under the Plan will be sufficiently made if personally delivered or sent by first-class, registered, or certified mail addressed (a) to the Holder at the Holder's address as set forth in the books and records of the Employer, or (b) to the Company or the Committee at the principal office of the Company to the attention of the Vice President-Human Resources. Any party may change its address through the method described above. 11.10. CAPTIONS. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of the Plan. 11.11. APPLICABLE LAW. The Plan will be governed by and interpreted, construed, and applied in accordance with the laws of the State of New Jersey to the extent that they apply. 10 11 11.12. SEVERABILITY. If any provisions of the Plan are held illegal or invalid for any reason, such illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included. 11 EX-99.3.3 5 RESTATED STOCK OPTION PLAN 1 RESTATED UNITED RETAIL GROUP, INC. 1996 STOCK OPTION PLAN (DATED MARCH 6, 1998) WHEREAS, United Retail Group, Inc., a Delaware corporation (the "Company"), desires to attract and retain the best available directors, executives, and key management associates for itself and its direct and indirect subsidiaries, to provide long range inducements for them to remain associated with the Company and its direct and indirect subsidiaries, to provide the highest level of performance by such directors, executives and associates, and to acquire a permanent stake in the Company with the interest and outlook of owners; and WHEREAS, the Board of Directors of the Company adopted the United Retail Group, Inc. 1996 Stock Option Plan and the stockholders of the Company approved the same; and WHEREAS, the Compensation Committee of the Board of Directors adopted certain amendments to the provisions of the United Retail Group, Inc. 1996 Stock Option Plan, effective March 6, 1998; NOW, THEREFORE, the Company hereby approves and adopts the Restated United Retail Group, Inc. 1996 Stock Option Plan on the following terms and conditions: SECTION 1. DEFINITIONS. The following terms have the following meanings when used in this Plan, in both singular and plural forms: "ASSIGNEE" means a member of the immediate family of an Optionee to whom the Optionee has assigned an Option. "ASSOCIATE" means any full-time associate of an Employer. "CHANGE IN CONTROL" means (a) the acquisition after the Effective Date by any person (defined for the purposes of this Section to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company, the Chief Executive Officer of the Company, or an employee benefit plan created by the Board of Directors of the Company for the benefit of its Associates, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the Securities and Exchange Commission ("SEC") under Section 13(d) of the Exchange Act) of any securities issued by the Company if, after such acquisition, such person is the beneficial owner of securities issued by the Company having 20% or more of the voting power in the election of Directors at the next meeting of the holders of voting securities to be held for such purpose of all of the voting securities issued by the Company, if such person acquired such beneficial ownership without the prior consent of the Board of Directors of the Company; (b) the election of a majority of the Directors, elected at any meeting of the holders of voting securities of the Company, who were not nominated for such election by the Board of Directors or a duly constituted committee of the 2 Board of Directors; or (c) the merger or consolidation with or transfer of substantially all of the assets of the Company to another person if the Board of Directors does not adopt a resolution, before the Company enters into any agreement for such merger, consolidation or transfer, determining that it is not a Change in Control. "CODE" means the Internal Revenue Code of 1986, as now in effect or hereafter amended and as now or hereafter interpreted, construed and applied by regulations, rulings and cases. "COMMITTEE" means (a) the members of the Compensation Committee of the Board of Directors of the Company who are non-employee directors within the meaning of SEC Rule 16b-3(b)(3)(i), who, if they are fewer than all the members, shall constitute an ad hoc committee of the Board of Directors, or (b) if the Compensation Committee has fewer than two members who are such non-employee directors, such other committee of the Board of Directors of the Company having at least two members who are such non-employee directors as may be designated from time to time by the Board of Directors of the Company, provided, however, that if any such Committee is not composed exclusively of such non-employee directors, the Committee will consist only of those members who are such non-employee directors. "COMPANY" means United Retail Group, Inc., a Delaware corporation. "DATE OF GRANT" means (a) in the case of a formula grant to a Director under Section 2, the date of the annual meeting of stockholders of the Company to which the grant relates, (b) in the case of a discretionary Committee grant under Section 3, generally, the date action is taken by the Committee to grant an Option, or (c) in the case of a discretionary Committee grant under Section 3 where the grant is being made to an Associate being hired by the Employer, in the sole discretion of the Committee, the Associate's date of hire rather than the date on which the Committee subsequently or previously approves the grant of an Option to him or her; provided, however, that the Date of Grant for purposes of determining whether or not an Option is an Incentive Option will be the later of the date of such action or the date of hire. "DIRECTOR" means a duly elected and acting member of the Board of Directors of the Company. "DISABILITY" means a disability as defined under the Company's long-term disability benefits plan in effect on the Effective Date. "EFFECTIVE DATE" means May 28, 1996. "EMPLOYER" means the Company and any corporation which is a subsidiary corporation of the Company, as defined in Section 424(f) of the Code. "HOLDER" means the person who is, at the time of reference, entitled to exercise an Option. "INCENTIVE OPTION" means an Option which meets the requirements of Section 422 of the Code. "NONINCENTIVE OPTION" means any Option which is not an Incentive Option. 2 3 "NOTICE OF EXERCISE" means a notice of exercise of any Option in a form determined by the Committee. "OPTION" means any right to purchase Shares granted under the Plan. "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms of an Option. "OPTION PRICE" means the price per Share at which an Option is exercisable. "OPTIONEE" means an Associate or Director to whom an unexercised Option has been granted under the Plan. "PLAN" means this Restated United Retail Group, Inc. 1996 Stock Option Plan. "PUBLIC DIRECTOR" means a Director who is neither an Associate nor a Director proposed for nomination by Limited Direct Associates, L.P. (pursuant to the Restated Stockholders' Agreement dated December 23, 1992 among the Company and certain of its stockholders, as amended, or any similar arrangement that may replace such Agreement). "RETIREMENT" means the Termination of an Associate after the Associate's 65th birthday. "SHARES" means shares of Common Stock, with par value equal to $.001 per share, of the Company. "TAX PAYMENT LOAN GUARANTY" shall mean a guaranty of payment made by the Company in the amount and under the circumstances described in Section 5. "TERMINATION" means the termination of the Optionee's relationship with the Company including termination of the Optionee's employment and status as Director. An Optionee who is absent from employment or other relationship with the Company for a reason or purpose and for a period of time approved by the Committee, in its sole discretion, shall not for the period of such absence be deemed, solely because of such absence, to have suffered a Termination, unless and until the Committee otherwise determines. "TERMINATION DATE" means May 28, 2006. "VALUE" means (a) if the Shares are listed or admitted to trading on a national securities exchange (including the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ")), the closing price of Shares on the principal securities exchange on which the Shares are listed or admitted to trading on the day prior to the date of determination, or if no closing price can be determined for the date of determination, the most recent date for which such price can reasonably be ascertained, or (b) if the Shares are not listed or admitted to trading on a national securities exchange but are publicly traded, the mean between the representative bid and asked prices of the Shares in the over-the-counter market at 3 4 the closing of the day prior to the date of determination or the most recent such bid and asked prices then available, as reported by NASDAQ or if the Shares are not then quoted by NASDAQ as furnished by any market maker selected from time to time by the Company for that purpose, or (c) if neither (a) nor (b) is applicable, the fair market value on the applicable date as determined by the Committee in good faith using factors the Committee deems to be relevant including but not limited to any sale of Shares to an independent third party. SECTION 2. FORMULA GRANTS TO DIRECTORS. 2.1. ELIGIBILITY AND FORMULA. Beginning on the Effective Date and until the Termination Date, all Public Directors elected at each year's annual meeting of the stockholders will automatically be granted an Option to purchase 3,000 Shares. All Options granted under this Section are intended to be formula awards under SEC Rule 16b-3 and will not be subject to any provision of the Plan that gives the Committee discretion to change the terms of such Options to the extent that such Committee discretion will cause the Options granted under this Section to cease to be formula awards under SEC Rule 16b-3. 2.2. TERMS. All Options granted to Directors under this Section 2 will be on the following terms: 2.2.1. Each Option will be a Nonincentive Option. 2.2.2. Each Option will have an Option Price equal to the Value of a Share as of the Date of Grant. 2.2.3. Each Option will become exercisable as to 20% of the Shares subject to the Option on the completion of the first full year after the Date of Grant and as to an additional 20% of such Shares on the completion of each full year thereafter prior to Termination. 2.2.4. Notwithstanding Section 2.2.3 but subject to Section 4.5, each Option will become immediately exercisable as to 100% of the Shares subject to the Option upon (a) a Change in Control or (b) the Optionee's death or Disability, provided, however, that the Committee within 90 days after the Termination of an Optionee for a reason other than death or Disability may make his Option(s)) immediately exercisable as to 100% of the Shares subject to the Option. 2.2.5. Each Option will lapse on the earliest of (a) the date 10 years and one day after the Date of Grant, or (b) the date one year after the Termination of the Optionee if the Termination is due to death or Disability or if the Optionee dies within 90 days of Termination, or (c) the date 90 days after Termination if the Termination is for any reason other than death or Disability, provided, however, that the Committee within 90 days after the Termination of an Optionee may defer the lapse of his Option (s) to the date 10 years and one day after the Date of the Grant. 4 5 SECTION 3. DISCRETIONARY GRANTS TO ASSOCIATES. 3.1. ELIGIBILITY AND DISCRETIONARY AWARDS. Subject to the limitations contained in the Plan, the Committee may, at any time prior to the Termination Date, grant Options to Associates whom the Committee determines to be executive and key management Associates of the Employer. In determining the Associates to whom Options may be granted and the terms and conditions of such grants, the Committee may take into account the nature of the services rendered by such Associates, their past, present and potential contributions to the success of the Employer, and such other factors as the Committee deems relevant. In no event, however, shall the Committee grant Options to any Associate who is also a Director on the Date of the Grant. 3.2. TERMS OF ASSOCIATE OPTIONS. 3.2.1. Subject to the provisions of the Plan and applicable law, the Committee will, in its sole discretion, determine the terms and conditions of any Options granted to an Associate at the time of grant. 3.2.2. In the absence of any provision in the grant of an Option to the contrary, the Option will have the following terms: (a) The Options will be Incentive Options with respect to the maximum number of Shares that may be Incentive Options and Nonincentive Options with respect to all other Shares. (b) Each Option will have an Option Price equal to the Value of a Share as of the Date of Grant. (c) Each Option will become exercisable as to 20% of the Shares subject to the Option on completion of the first full year of employment of the Optionee after the Date of Grant and as to an additional 20% of such Shares on the completion of each full year of such employment thereafter until Termination. (d) Each Option will lapse on the earliest of (i) for an Incentive Option, the date 10 years after the Date of Grant, and for a Nonincentive Option, the date 10 years and one day after the Date of Grant, (ii) the date one year after the Termination of the Optionee if the Termination is due to death or Disability or if the Optionee dies within 90 days of the date of Termination, or (iii) the date 90 days after Termination for any other reason. 3.2.3. Subject to Section 4.5, each Option granted under Section 3 will become immediately exercisable as to 100% of the Shares subject to the Option upon (a) a Change in Control, or (b) the Optionee's death, Disability, or Retirement. 5 6 3.2.4. Nonincentive Options granted after March 5, 1998 shall provide, and Nonincentive Options granted prior to March 6, 1998 may be amended to provide, that if the Optionee shall so direct at least 60 days prior to the date of exercise, either (i) the Shares issued upon exercise of the Option shall be issued and registered on the Company's stockholder list as follows: the number of Shares having a Value on the date of exercise equal to the exercise price paid in connection with the exercise shall be issued to and registered in the name of the Optionee and the remainder of the Shares shall be issued to and registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan, or (ii) the number of Shares otherwise issuable upon exercise of the Option shall be reduced by the number of Shares having a Value on the date of exercise equal in the aggregate to the exercise price of the gross number of Options and the net number of Shares after such reduction shall be issued to and registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan. SECTION 4. RESTRICTIONS ON ALL OPTIONS. 4.1. OPTION AGREEMENTS. Each grant of an Option must be reduced to writing in an Option Agreement, in such form as the Committee determines, within a reasonable period after the Date of Grant. Any action taken after the Date of Grant may be reflected in an amendment to or restatement of such Option Agreement. 4.2. CORPORATE MERGERS; ACQUISITIONS. The Committee may grant Options having terms and provisions which vary from those specified in the Plan if such Options are granted in substitution for, or in connection with the assumption of, existing options granted by another corporation and assumed or otherwise agreed to be provided for by the Company in connection with a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which any Employer is a party. 4.3. RESTRICTIONS ON TERMS OF OPTIONS. Each Option shall be subject to the following restrictions: 4.3.1. No Shares will be issued under the Plan unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges or NASDAQ upon which the Shares may be listed have been fully met. 4.3.2. No Option will have an Option Price less than 100% of the Value of a Share as of the Date of Grant. 4.3.3. Each Option will lapse no later than the date 10 years and one day after the Date of Grant. 4.3.4. Subject to Sections 2.2.4, 3.2.3 and 8, no more than 25% of the Shares subject to each Option may become exercisable before completion of the first full year of employment of the Optionee after the Date of Grant and no more than an additional 25% of such 6 7 Shares may become exercisable before the completion of each full year of such employment thereafter until Termination. 4.4. MAXIMUM NUMBER. In no event shall the Committee grant Options to an Associate to purchase a total of more than 60,000 Shares under the Plan, including any Options that lapse or are surrendered for cancellation. 4.5. SIX MONTH RULE. Nothing in the Plan will permit an Option to be exercisable within six months of the Date of Grant except in the case of the Optionee's death. SECTION 5. TAX PAYMENT LOAN GUARANTY. The Committee will have authority, at the time of grant of a Nonincentive Option or on the exercise by the Optionee of an Option which is not taxed as an Incentive Option, to authorize an unconditional guaranty of payment by the Company of a full recourse loan on terms acceptable to the Committee obtained by the Optionee who exercised the Option from a commercial bank or a registered broker-dealer for the exclusive purpose of paying personal income or excise taxes incurred as a result of such exercise. Loan guaranties will be issued if the Committee, in its sole discretion, determines them to be appropriate and in the best interests of the Employer to assist in the payment of income and excise taxes incurred on exercise of such Option. SECTION 6. EXERCISE OF OPTIONS. 6.1. NOTICE OF EXERCISE. Options may be exercised only by delivery to the Vice President- Human Resources or such other person designated by the Committee of a Notice of Exercise and payment under Section 6.2 for the Shares. Except as specifically provided, an Option shall be exercisable during the Optionee's lifetime only by the Optionee or his or her Assignee. 6.2. DELIVERIES ON EXERCISE. 6.2.1. Any Notice of Exercise will be effective only if the Holder pays to the Company the Option Price for the portion of any Option being exercised and pays the Company an amount equal to any tax withholding required to be made. 6.2.2. The Holder may, in his or her sole discretion, pay all or a portion of the Option Price for the portion of an Option being exercised by surrender and delivery of Shares already owned by the Holder for not less than six months. Any such Shares delivered in full or partial payment of the Option Price shall be valued at the Value as of the date of receipt of the Shares by the Company. 6.2.3. The Committee may, in its sole discretion, permit all or a portion of any amount required to be withheld for taxes to be paid by surrendering and delivering Shares already owned by the Holder or by withholding a portion of the Shares that otherwise would be issued to the Holder upon exercise of the 7 8 Option. Any such Shares surrendered or withheld will be valued at the Value as of the date of receipt for surrendered Shares or as of the date of exercise of the Option for withheld Shares. Any election to have Shares withheld from the Shares that would otherwise be issued to the Holder upon exercise must be made during or as of the period beginning on the third business day following the date of release of quarterly or annual financial data of the Company and ending on the twelfth business day following such date. 6.3. TIME AND MANNER RESTRICTIONS. The Committee has the right to limit the time and manner of exercise of Options to comply with applicable law including but not limited to federal securities laws. 6.4. DELIVERY OF SHARES. As soon as reasonably practicable following exercise, a certificate representing the Shares purchased will be registered in the name of the Holder and will be delivered to the Holder or, at the direction of the Holder in accordance with Section 3.2.4, will be registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan and will be delivered to the trustee. SECTION 7. THE COMMITTEE. 7.1. POWERS OF COMMITTEE. The Committee will have the power to do the following: 7.1.1 To grant Options on such terms not inconsistent with the Plan as the Committee determines; 7.1.2. To maintain records relating to Optionees, Assignees and Holders; 7.1.3. To prepare and furnish to Optionees, Assignees and Holders all information required by applicable law or the Plan; 7.1.4. To construe and apply the provisions of the Plan and to correct defects and omissions therein; 7.1.5. To engage assistants and professional advisers; 7.1.6. To provide procedures for determination of claims under the Plan; 7.1.7. To make any factual determinations necessary or useful under the Plan; and 7.1.8. To adopt and revise rules, regulations and policies under the Plan. 7.2. DELEGATION. The Committee may delegate to any one or more of its number authority to sign any documents on its behalf or to perform ministerial acts, but no person to whom such authority is delegated shall perform any act involving the exercise of any discretion without first obtaining the concurrence of a majority of the members of the Committee, even though he or she alone may sign any document required by third parties. The Committee may designate a secretary, who may be a member of the Committee. All third parties may rely on any communication signed by the secretary, acting as such, as an official communication from the Committee. 8 9 7.3. BINDING EFFECT OF ACTIONS. All actions taken by the Committee under the Plan will be final and binding on all persons. 7.4. INDEMNIFICATION. No member of the Committee, nor any Associate to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made with respect to the Plan or awards made thereunder, and each member of the Committee shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Certificate of Incorporation and By-laws, as amended from time to time. SECTION 8. ACTIONS BY COMMITTEE AFTER GRANT. 8.1. GENERAL. The Committee may, subject to the consent of the Holder under Section 9.2, where the action impairs or adversely alters the rights of the Holder, at any time and from time to time after the Date of Grant of any Option, modify the terms of any grant to terms which would have been permitted for such grant on the Date of Grant. 8.2. ANTIDILUTION PROVISIONS. If, as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, recapitalization or other such change, the Shares are increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation; then: 8.2.1. The number and kind of shares of stock or other securities into which each outstanding Share is changed or for which each such Share may be exchanged, will automatically be substituted for each Share subject to an unexercised Option and for each Share available for additional grants. 8.2.2. The Option Price will be increased or decreased proportionately so that the aggregate Option Price for the securities subject to the Option remains the same as immediately prior to such event and the ratio of the Option Price to the Value of the securities subject to the Option is no more favorable to the Holder than the ratio of the Option Price to the Value immediately before such event. 8.2.3. The Committee shall make such other adjustments to Options and the provisions of the Plan and Option Agreements as may be appropriate and equitable, and not confer on the Holder more favorable benefits than those of the Holder before the event, which adjustments may provide for the elimination of fractional shares or units. 8.3. MERGER OF THE COMPANY. If, directly or indirectly, (a) the Company is a party to a merger or consolidation agreement with a corporation that is not a subsidiary of the Company, (b) the Company is a party to an agreement to sell substantially all of its assets to any person other than a subsidiary of the Company, or (c) any person other than the Company or one of its 9 10 subsidiaries has publicly announced an offer to purchase more than 5% of the outstanding voting securities of the Company, the Committee, in its sole discretion, may provide that, for a period beginning on the later of the date six months after the Date of Grant or 15 days before the closing of any such proposed transaction, and not extending beyond the earlier of the date on which the Options would otherwise lapse and the date of the closing of such proposed transaction, notwithstanding the provisions of any Option Agreement, all Options granted under the Plan may be exercised by the Holders in whole or in part during such period, and that upon the closing of such proposed transaction, all Options under the Plan will expire and be null and void. At least 15 days prior to the closing of such proposed transaction, the Company must notify each Holder that the Option is exercisable under this Section. If the agreement for such proposed transaction is terminated, (a) all exercises under this Section of Options will be void ab initio (from the outset), (b) the Company will refund the applicable Option Price and withholding tax and the Holder will return any Shares issued, and (c) the Option will be reinstated and exercisable thereafter on the terms of the Options without regard to that application of this Section. 8.4. AUTHORITY TO ACCELERATE. Notwithstanding anything else in the Plan to the contrary other than Section 4.5, the Committee may, at the time of grant or at any time or from time to time thereafter, accelerate the time at which Options become exercisable or waive any provisions of the Plan relating to the manner of payment or procedures for the exercise of any Options. Any such acceleration or waiver may be made effective (a) with respect to one or more or all Optionees under the Plan, (b) with respect to some or all of the Shares subject to an Option of any Optionee or (c) for a period of time ending at or before the expiration date of any Option. If the waiver of any provisions constitutes a new grant of an Option or the grant of an additional derivative security for purposes of SEC Rule 16b-3, the date of the waiver will be deemed to be a new Date of Grant for purposes of Section 4.5. If the waiver of any provisions constitutes a new grant of an Option for purposes of Code Section 424, the Committee must determine if the Option retains its status as an Incentive Option. 8.5. SURRENDERS. The Committee may permit the voluntary surrender of all or a portion of any Option granted under the Plan. Upon surrender, the Options surrendered will be canceled and the Shares or units previously subject to them will be available for the grant of other Options. SECTION 9. AMENDMENT OF THE PLAN. 9.1. RIGHT TO AMEND, ETC. The Company may amend, suspend or terminate the Plan at any time, provided that, unless first approved by the stockholders of the Company, no amendment may be made in the Plan which: 9.1.1. Materially increases the benefits accruing to participants under the Plan; 9.1.2. Materially increases the number of securities which may be issued under the Plan; or 10 11 9.1.3. Materially modifies the requirements as to eligibility for participation in the Plan. 9.2. IMPAIRMENT OF RIGHTS OF HOLDERS. No amendment to the Plan or the terms of any grant hereunder shall be made so as to impair or adversely alter the rights of any Holder without such Holder's consent. Actions by the Committee under Section 8.2 or 8.3 do not constitute an amendment of the Plan or of any grant. SECTION 10. SHARES RESERVED; PREVIOUS PLANS. The maximum number of Shares which may be issued under the Plan will be 440,000 Shares, subject to adjustment under Section 8.2, and such number of Shares will be reserved for issuance under the Plan. Each previous stock option plan of the Company is hereby amended so that no additional options may be granted thereunder on or after the Effective Date except in exchange for the surrender and cancellation of an equal number of outstanding options issued thereunder, provided, however, all Options granted under any previous stock option plan will remain in full effect. The Shares issued on exercise of Options may be authorized and unissued Shares or Shares held by the Company as treasury stock. If any Option under this Plan terminates, expires, lapses or is canceled as to any Shares, new Options may thereafter be granted for the purchase of such Shares. SECTION 11. MISCELLANEOUS. 11.1 REGISTRATION. The Company shall (i) prepare and file with the SEC amendments to the Registration Statement with respect to the Plan as may be necessary or advisable to permit the continued and uninterrupted exercise of Options and the resale of Shares purchased pursuant to the exercise of Options or as may be required by the SEC, (ii) execute such other documents, and take such other actions, as may be necessary or advisable to cause the Registration Statement, as the same may be amended, to comply with the Securities Act of 1933 (the "Securities Act") and the Rules and Regulations thereunder, and (iii) register and qualify all Shares purchased pursuant to the exercise of Options for resale by the Holder in the State of New Jersey and in each state adjacent to the State of New Jersey. An amendment to the Registration Statement necessary for the resale of Shares purchased pursuant to the exercise of Options shall be filed by the Company within five business days after the Secretary of the Company receives a written request from a Holder to file an amendment. The Registration Statement shall not be withdrawn by the Company until all the Options shall have lapsed, or until all Shares purchased upon the exercise of Options shall have been resold, as the case may be. 11.2. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or in any Option or Option Agreement will confer upon any Associate or Director any right to continue in the employment or other relationship of any Employer or to be entitled to any remuneration or benefits not set forth in the Plan or such Option Agreement or interfere with or limit the right of any Employer to terminate such Associate's employment or Director's relationship at any time. 11.3. SUCCESSORS AND ASSIGNS. The obligations of the Company under the Plan will be binding upon any successor corporation or organization resulting from the merger, consolidation 11 12 or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. 11.4. RIGHTS AS STOCKHOLDER. No Holder will have any of the rights of a stockholder of the Company with respect to the Shares issuable under the Plan until certificates for such Shares have been issued. 11.5. EXPENSES. All expenses and costs in connection with administration of the Plan will be borne by the Company. 11.6. SECTION 16. Any provision of this Plan will be deemed amended and void to the extent it causes a violation under Section 16 of the Exchange Act and the rules thereunder. 11.7. LIMITATION OF LIABILITY. The liability of the Company under this Plan or in connection with any exercise of an Option is limited to the obligations expressly set forth in the Plan and in any of the Option Agreements and no term or provision of this Plan or any Option Agreement will be construed to impose any further or additional duties, obligations or costs on the Employer not expressly set forth in the Plan and the Option Agreement. 11.8. BENEFICIARIES AND ASSIGNMENT OF RIGHTS. No Option or other right under the Plan may be assigned, pledged, hypothecated, given, or otherwise transferred by the Holder, except that (a) an Optionee will be entitled to designate a beneficiary of the Option upon the Optionee's death by delivering such designation in writing to the Committee, (b) if no such designation is made by the Optionee, the Option will be transferred upon the Optionee's death as determined under the applicable laws of descent and distribution, (c) an Option shall be transferred in accordance with a qualified domestic relations order (as defined in the Code), and (d) an Optionee will be entitled to assign an Option to a member of his immediate family, who, after such assignment, shall have all the rights and obligations of the Optionee with respect to the Option, provided, however, that the provisions of the Plan relating to death, Disability, Retirement, Termination and employment, including vesting provisions, shall remain unchanged and shall continue to refer to the Optionee. If an Optionee suffers a Disability and does not have the capacity to exercise an Option, such Option will be exercisable by the Optionee's guardian or attorney-in-fact during the Optionee's lifetime. 11.9. NOTICES. Notices required or permitted to be made under the Plan will be sufficiently made if personally delivered or sent by first-class, registered, or certified mail addressed (a) to the Holder at the Holder's address as set forth in the books and records of the Employer, or (b) to the Company or the Committee at the principal office of the Company to the attention of the Vice President-Human Resources. Any party may change its address through the method described above. 11.10. CAPTIONS. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of the Plan. 12 13 11.11. APPLICABLE LAW. The Plan will be governed by and interpreted, construed, and applied in accordance with the laws of the State of New Jersey to the extent that they apply. 11.12. SEVERABILITY. If any provisions of the Plan are held illegal or invalid for any reason, such illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included. 13 EX-99.3.4 6 RESTATED PERFORMANCE PLAN 1 UNITED RETAIL GROUP, INC. RESTATED 1989 MANAGEMENT STOCK OPTION PLAN (as of May 6, 1998) 1. Purpose. The United Retail Group, Inc. Restated 1989 Management Stock Option Plan (the "Plan") is intended to further the best interest of United Retail Group, Inc. (the "Corporation"), formerly known as Lernmark, Inc., by encouraging key employees of the Corporation to continue association with the Corporation and by providing additional incentive for unusual industry and efficiency through offering an opportunity to acquire an additional proprietary stake in the Corporation and its future growth. The Corporation believes that this goal may best be achieved by granting stock options to key employees of the Corporation ("Optionees"). 2. Restatement: Tax Status. (a) This Plan supercedes and restates the Lernmark, Inc. Management Stock Option Plan (the "Original Plan") that took effect and came into force on July 17, 1989 (the "Original Effective Date"). The stock options granted pursuant to the Original Plan (the "Options") shall remain in full force and effect but shall be subject to and governed by the terms of this Plan rather than the Original Plan. 2 (b) Options shall not be Incentive Stock Options (as defined in Section 422A of the Internal Revenue Code of 1986, as amended). 3. Shares Subject to Plan. There are reserved for issue upon the exercise of Options 1,128,125 Shares. If any Option shall expire or terminate pursuant to Section 7(a) without having been exercised in full, the unissued Shares subject thereto shall not be available again for the purposes of the Plan and the related stock option reserve shall terminate. 4. Effective Date of the Plan. The Plan shall become effective and come into force on the Effective Date. 5. Administration of the Plan. The Compensation Committee of the Board of Directors (the "Committee") shall administer the Plan. 3 6. No Further Grant of Options. The outstanding Options are evidenced by written agreements (each, as amended from time to time, a "Performance Option Agreement") executed by the Chairman of the Board of the Corporation or the Secretary of the Corporation. No further Options shall be granted pursuant to the Plan. 7. Duration of Options. (a) The period for which each Option is effective commenced upon the date of the grant of the Option and shall continue (the "Option Period") until December 31, 1999. (b) The termination of the Optionee's employment with the Corporation by death, Disability, Retirement, Involuntary Termination (regardless of the circumstances of such Involuntary Termination), Voluntary Resignation or otherwise shall not limit the Option Period, or otherwise affect the exercisability, of any Option in any way. (c) Nothing contained herein shall limit whatever right the Corporation or its subsidiaries might otherwise have to terminate the employment of any Optionee. 4 (d) If an Option shall be exercised by the executor or heir at law of a deceased Optionee, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such executor or heir to exercise such Option. 8. Exercisability of Options. Options that have not otherwise been terminated pursuant to Section 7(a), cancelled or exercised pursuant to Section 12 or cancelled pursuant to Section 14 shall be exercisable at any time and from time to time during the Option Period commencing on the Effective Date. 9. Beneficiaries and Assignment of Rights. (a) No Option or other right under the Plan may be assigned, pledged, hypothecated, given, or otherwise transferred, except that (a) an Optionee will be entitled to designate a beneficiary of the Option upon the Optionee's death by delivering such designation in writing to the Committee, (b) if no such designation is made by the Optionee, the Option will be transferred upon the Optionee's death as determined under the applicable laws of descent and distribution, (c) an Option shall be transferred in accordance with a qualified domestic relations order (as defined in the Code), and (d) an Optionee will be entitled to assign an Option to a member of his immediate family, who, after such assignment, shall have all the rights and obligations of the Optionee with respect to the Option, provided, however, that the provisions of the Plan relating to death, Disability, Retirement, Termination and employment, including vesting provisions, shall remain unchanged and shall continue to refer to the Optionee (the Optionee and any permitted transferee being referred to as a "Holder"). If an Optionee suffers a Disability and does not have the capacity to exercise an Option, such Option will be exercisable by the Optionee's guardian or attorney-in-fact during the Optionee's lifetime. (b) Subparagraph (a) above to the contrary notwithstanding, if the Optionee shall so direct at least 60 days prior to the date of exercise, either (i) the Shares issued upon exercise of the Option shall be issued and registered on the Corporation's stockholder list as follows: the number of Shares having a Value on the date of exercise equal to the exercise price paid in connection with the exercise shall be issued to and registered in the name of the Optionee and the remainder of the Shares shall be issued to and registered in the name of the trustee under the Corporation's Supplemental Retirement Savings Plan, or (ii) the number of Shares otherwise issuable upon exercise of the Option shall be reduced by the number of Shares having a Value on the date of exercise equal in the aggregate to the exercise price of the gross number of Options and the net number of Shares after such reduction shall be issued to and registered in the name of the trustee under the Corporation's Supplemental Retirement Savings Plan. (c) Subparagraph (a) above to the contrary notwithstanding, the Options may be transferred by the Holder to a public charity or to a Code Section 501(c) private foundation meeting the requirements of Code Section 170(c), provided, however, that the expiration of the term of such Options shall be advanced so as to expire 30 days after the transfer is recorded on the Corporation's books, after which time the transferred options shall be null and void. 5 10. Procedure for Exercise and Payment for Shares. Exercise of an Option shall be made from time to time by the giving of written notice to the Corporation by the Holder. Such written notice shall be deemed sufficient for this purpose only if delivered to the Corporation at its principal offices and only if such written notice states the number of Shares with respect to which the Option is being exercised at the time and, further, states the date, not more than 90 days after the date of such notice, upon which the Shares shall be purchased and payment therefor shall be made. The payments for Shares purchased pursuant to exercise of an Option shall be made at the principal offices of the Corporation. Upon the exercise of the Option, in compliance with the provisions of this Section 10 and Sections 11 and 13(c) and immediately upon receipt by the Corporation of the payment for the Shares so purchased together with the payment of the amount of any taxes required to be collected or withheld as a result of the exercise of the Option, the Corporation shall deliver or cause to be delivered to the Holder so exercising an Option (or to the trustee in accordance with Section 9(b)) a certificate or certificates for the number of Shares with respect to which the Option is so exercised and payment is so made. The Shares shall be registered in the name of the exercising Holder (or to the trustee in accordance with Section 9(b)); provided, however, that in no event shall any Shares be issued pursuant to exercise of an Option until full payment therefor shall have been made by cash or certified or bank cashier's check and not until the Shares have been issued shall the 6 exercising Optionee have any of the rights of a stockholder. For purposes of this Section 10, the date of issuance shall be the date upon which payment in full of the Option Price has been received by the Corporation as provided herein. 11. Requirements of Law. If any law or any regulation of any commission or agency of competent jurisdiction shall require the Corporation or the exercising Optionee to take any action with respect to the Shares acquired by the exercise of an Option, then the date upon which the Corporation shall issue or cause to be issued the certificate or certificates for the Shares shall be postponed until full compliance has been made with all such requirements of law or regulation; provided, however, that the Corporation shall promptly take all necessary action to comply with such requirements of law or regulation. 7 12. Adjustments. (a) In the event that the outstanding shares of the Corporation should, as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, recapitalization or other such change, be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation, other than in connection with a Transfer Event then (i) there shall automatically be substituted for each Share subject to an unexercised option (in whole or in part) granted under the Plan the number and kind of shares of stock or other securities into which each outstanding share 8 shall be changed or for which each such Share shall be exchanged, and (ii) the option price per Share or unit of securities shall be increased or decreased proportionately so that the aggregate purchase price of the securities subject to the Option shall remain the same as immediately prior to such event. Any such adjustment may provide for the elimination of fractional shares. Any adjustment to the Options or Option Prices contemplated by this Section 12 may be by action of the Committee. (b) The Corporation shall give the Optionees not less than 15 days' notice of any Transfer Event. (c) If an Option shall not have been exercised and a Sale of the Corporation shall close after at least 15 days' notice has been given to the Optionees, the Options then outstanding shall automatically be cancelled, effective upon the closing of the Sale of the Corporation, in exchange for either (i) a cash payment per Share to the respective Optionees equal to the difference between the Option Price and the cash price (or the fair market value of non-cash consideration) per share of Common Stock to be received in the Sale of the Corporation (the "Option Value"), or (ii), if outstanding shares of Common Stock will be converted into or exchanged for different shares of stock or other securities in accordance with the Sale of the Corporation, delivery to the Optionee of the number of such shares of stock or other securities having a fair market value equal to the product of 9 the Option Value multiplied by the number of Shares. In the event an Option is cancelled pursuant to the preceding sentence, the Committee shall determine, in its sole discretion, whether the Corporation shall pay cash to the Optionee in accordance with clause (i) of the preceding sentence or deliver securities having an equivalent value in accordance with clause (ii) of the preceding sentence. 13. Termination, Amendment, Discontinuance of the Plan; Reimbursement for Taxes. (a) This Plan shall terminate at the end of the Option Period of all the Options unless it shall have sooner terminated by the entire 1,128,125 Shares subject to the Plan having been issued or cancelled pursuant to Section 7(a), 12 or Section 14. (b) The Board of Directors may not alter or amend or discontinue or revoke or otherwise impair any outstanding Options which remain unexercised. (c) The Corporation may require an Optionee exercising an Option granted hereunder to reimburse the Corporation for any taxes required by any government to be withheld or otherwise deducted and paid by the Corporation in respect of the issuance or disposition of Shares. In lieu thereof, the Corporation shall have the right to withhold the amount of such taxes from any other sums due or to become due from the Corporation to the Optionee upon such terms and conditions as the Committee shall prescribe. The Corporation may, in its discretion, hold the stock certificate to which 10 such Optionee is entitled upon the exercise of an Option as security for the payment of such withholding tax liability, until cash sufficient to pay that liability has been accumulated. In addition, the Corporation shall be authorized to effect any such withholding upon exercise of an Option by retention of Shares issuable upon such exercise having a fair market value at the date of exercise which is equal to the amount to be withheld. 14. Liquidation of the Corporation. In the event of the complete liquidation or dissolution of the Corporation other than as incident to a merger or reorganization, any Options remaining unexercised shall be deemed cancelled without regard to or limitation by any other provision of the Plan. 15. Definitions. For purpose of the Plan, the following terms have the meanings indicated below: (a) Affiliate shall mean, with respect to any Stockholder, (i) any Person who, directly or indirectly, is in control of, is controlled by or is under common control with, the Stockholder, and (ii) any Person who is a director or officer of the Stockholder or of any Person described in clause (i) above. (b) Board of Directors shall mean the Board of Directors of the Corporation. 11 (c) Common Stock shall mean shares of the Corporation's common stock, $.001 par value per share. (d) Disability. The term "Disability," with respect to an Optionee, shall have the meaning set forth in the Restated Employment Agreement between the Corporation and the Optionee. (e) Effective Date shall be March 17, 1992. 12 (f) Involuntary Termination shall mean termination of the Optionee's employment with the Corporation by the Corporation, which termination is not the result of the Optionee's Retirement, death, Disability or Voluntary Resignation. 13 (g) Option Value shall have the meaning set forth in Section 12(c). (h) Option Price shall mean the exercise price per Share set forth in a Performance Option Agreement. (i) Performance Option Agreement shall have the meaning set forth in Section 6. 14 (j) Retirement shall mean, with respect to any Optionee, such Optionee's termination of employment at or after attainment of age 65 if the Optionee has been continuously 15 employed by the Corporation (including any predecessor corporation) or any of its subsidiaries for at least 10 years. (k) Shares shall mean shares of Common Stock issuable upon exercise of Options. (l) Transfer Event shall mean either of the following: (i) the completion of the sale of that number of shares of Common Stock pursuant to an effective registration statement under the 1933 Act (other than a registration statement relating to shares issuable upon exercise of employee stock options or in connection with any employee benefit plan maintained by the Corporation or any of its subsidiaries) representing, when taken together with all shares of Common Stock sold under previous registration statements which were not in connection with employee stock options or employee benefit plans, at least 50% of the then outstanding shares of Common Stock, or (ii) the consummation of a merger or consolidation of the Corporation with or into another person that is not a parent or subsidiary of the Corporation as a result of which those persons who were stockholders of the Corporation immediately prior to such transaction own, in the aggregate, less than a majority of the outstanding voting capital stock of the surviving or resulting corporation or the 16 consummation of the sale of all or substantially all of the Corporation's assets to a person that is not a parent or subsidiary of the Corporation (a "Sale of the Corporation"). (m) Voluntary Resignation shall mean voluntary termination of the Optionee's employment with the Corporation by the Optionee, excluding termination of employment by Retirement, death, Disability or Involuntary Termination. * * * EX-99.3.5 7 STOCK OPTION AGREEMENT 1 THIS AGREEMENT MUST BE RETURNED TO THE COMPANY IN THE EVENT THAT THE OPTION GRANTED HEREUNDER IS EXERCISED IN WHOLE OR IN PART. 1998 STOCK OPTION AGREEMENT This 1998 STOCK OPTION AGREEMENT, dated May 21, 1998, between RAPHAEL BENAROYA, residing at 179 Lincoln Street, Englewood, New Jersey 07631 (the "Optionee"), and UNITED RETAIL GROUP, INC., with offices at 365 West Passaic Street, Rochelle Park, New Jersey 07662 (the "Company"). WHEREAS, the Company desires to attract and retain the best available associates and to provide long range inducements for them to remain associated with the Company; and WHEREAS, on May 21, 1998, the stockholders of the Company authorized the execution and delivery of this Agreement by the Company; NOW, THEREFORE, the parties hereby agree as follows: SECTION 1. DEFINITIONS. The following terms have the following meanings when used in this Agreement, in both singular and plural forms: "ASSIGNEE" means a Charity or a member of the immediate family of the Optionee, to whom the Optionee shall have assigned one or more Options. "ASSOCIATE" means a full time employee of the Company. "CHANGE IN CONTROL" means (a) the acquisition after the Date of Grant by any person (defined for the purposes of this subsection to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company, the Chief Executive Officer of the Company, or an employee benefit plan created by the Board of Directors of the Company for the benefit of its associates, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the Securities and Exchange Commission ("SEC") under Section 13(d) of the Exchange Act) of any securities issued by the Company if, after such acquisition, such person is the beneficial owner of securities issued by the Company having 20% or more of the voting power in the election of Directors at the next meeting of the holders of voting securities to be held for such purpose of all of the voting securities issued by the Company, if such person acquired such beneficial ownership without the prior consent of the Board of Directors of the Company; (b) the election of a majority of the Directors, elected at any meeting of the holders of voting securities of the Company, who were not nominated for such election by the Board of Directors or a duly constituted committee of the Board of Directors; or (c) the merger or consolidation with or transfer of substantially all of the assets of the Company to another person if the Board of Directors does not adopt a resolution, 2 before the Company enters into any agreement for such merger, consolidation or transfer, determining that it is not a Change in Control. "CHARITY" means a public charity or a Code Section 501(c) private foundation meeting the requirements of Code Section 170(c). "CODE" means the Internal Revenue Code of 1986, as now in effect or hereafter amended and as now or hereafter interpreted, construed and applied by regulations, rulings and cases. "COMMITTEE" means (a) the members of the Compensation Committee of the Board of Directors of the Company who are non-employee directors within the meaning of SEC Rule 16b-3(b)(3)(i), who, if they are fewer than all the members, shall constitute an ad hoc committee of the Board of Directors, or (b) if the Compensation Committee has fewer than two members who are such non-employee directors, such other committee of the Board of Directors of the Company having at least two members who are such non-employee directors as may be designated from time to time by the Board of Directors of the Company, provided, however, that if any such committee is not composed exclusively of such non-employee directors, the Committee will consist only of those members who are such non-employee directors. "DATE OF GRANT" means February 15, 1998. "DISABILITY" means a disability as defined under the Company's long-term disability benefits plan in effect on the Date of Grant. "HOLDER" means the person who is, at the time of reference, entitled to exercise an Option. "INCENTIVE OPTION" means an Option which meets the requirements of Section 422 of the Code. "NONINCENTIVE OPTION" means an Option which is not an Incentive Option. "NOTICE OF EXERCISE" means a notice of exercise of any Option in a form determined by the Committee. "OPTION" means any right to purchase Shares granted under this Agreement. "OPTION PRICE" means $6.3125 per Share, as adjusted pursuant to Section 7.1.2. "SHARES" means shares of Common Stock, with par value equal to $.001 per share, of the Company, as adjusted pursuant to Section 7.1.1. "TAX PAYMENT LOAN GUARANTY" shall mean a guaranty of payment made by the Company in the amount and under the circumstances described in Section 4. 2 3 "TERMINATION" means the termination of the Optionee's relationship with the Company as an Associate, provided, however, that absence from employment with the Company for a reason or purpose and for a period of time approved by the Committee, in its sole discretion, shall not for the period of such absence be deemed, solely because of such absence, to constitute Termination. "VALUE" means (a) if the Shares are listed or admitted to trading on a national securities exchange (including the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ")), the closing price of Shares on the principal securities exchange on which the Shares are listed or admitted to trading on the day prior to the date of determination, or if no closing price can be determined for the date of determination, the most recent date for which such price can reasonably be ascertained, or (b) if the Shares are not listed or admitted to trading on a national securities exchange but are publicly traded, the mean between the representative bid and asked prices of the Shares in the over-the-counter market at the closing of the day prior to the date of determination or the most recent such bid and asked prices then available, as reported by NASDAQ or if the Shares are not then quoted by NASDAQ as furnished by any market maker selected from time to time by the Company for that purpose, or (c) if neither (a) nor (b) is applicable, the fair market value on the applicable date as determined by the Committee in good faith using factors the Committee deems to be relevant including but not limited to any sale of Shares to an independent third party. SECTION 2. GRANT. 2.1. GRANT. The Optionee shall have the right from time to time until February 15, 2008 to purchase a total of 200,000 Shares at the Option Price, subject to the following terms and conditions. 2.2. TERMS. 2.2.1. The Option is a Nonincentive Option. 2.2.2. The Option will become exercisable as to 40,000 Shares on the completion of the first full year of employment after the Date of Grant and as to an additional 40,000 Shares on the completion of each full year of employment thereafter until the entire 200,000 Shares are exercisable. 2.2.3. Notwithstanding Section 2.2.2 but subject to Section 3.2, the Option will become immediately exercisable as to 100% of the Shares subject to the Option upon (a) a Change in Control or (b) the Optionee's death or Disability, provided, however, that the Committee within 90 days after Termination for a reason other than death or Disability may make the Option immediately exercisable as to 100% of the Shares subject to the Option. 2.2.4. The Option will lapse on the earliest of (a) the date 10 years and one day after the Date of Grant, (b) the date one year after the Termination if the Termination is due to 3 4 death or Disability or if the Optionee dies within 90 days of Termination, or (c) the date 90 days after Termination if the Termination is for any reason other than death or Disability, provided, however, that the Committee within 90 days after Termination may defer the lapse of the Option to the date 10 years and one day after the Date of Grant. 2.2.5. If the Optionee shall so direct at least 60 days prior to the date of exercise, either (i) the Shares issued upon exercise of the Option shall be issued and registered on the Company's stockholder list as follows: the number of Shares having a Value on the date of exercise equal to the exercise price paid in connection with the exercise shall be issued to and registered in the name of the Optionee and the remainder of the Shares shall be issued to and registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan, or (ii) the number of Shares otherwise issuable upon exercise of the Option shall be reduced by the number of Shares having a Value on the date of exercise equal in the aggregate to the exercise price of the gross number of Options and the net number of Shares after such reduction shall be issued to and registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan. SECTION 3. RESTRICTIONS. 3.1. REGULATORY COMPLIANCE. No Shares will be issued unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges or NASDAQ market upon which the Shares may be listed have been fully met. 3.2. SIX-MONTH RULE. Anything in this Agreement to the contrary notwithstanding, the Option will not be exercisable within six months of the Date of Grant except in the case of the Optionee's death. SECTION 4. TAX PAYMENT LOAN GUARANTY. The Committee will have authority on the exercise of the Option to authorize an unconditional guaranty of payment by the Company of a full recourse loan on terms acceptable to the Committee obtained by the Optionee from a commercial bank or a registered broker-dealer for the exclusive purpose of paying personal income or excise taxes incurred as a result of such exercise. Loan guaranties will be issued if the Committee, in its sole discretion, determines them to be appropriate and in the best interests of the Company to assist in the payment of income and excise taxes incurred on exercise of the Option. SECTION 5. EXERCISE OF OPTION. 5.1. NOTICE OF EXERCISE. The Option may be exercised only by delivery to the Vice President-Finance or such other person designated by the Committee of this Agreement, a Notice of Exercise and payment under Section 5.2 for the Shares and, if the Holder is an Assignee, an instrument of assignment signed by the Optionee. Except as otherwise specifically provided, an Option shall be exercisable during the Optionee's lifetime only by the Optionee or his Assignee. 4 5 5.2. DELIVERIES ON EXERCISE. 5.2.1. Any Notice of Exercise will be effective only if the Holder pays to the Company the Option Price for the portion of the Option being exercised and pays the Company an amount equal to any tax withholding required to be made. 5.2.2. The Holder may, in his sole discretion, pay all or a portion of the Option Price for the portion of an Option being exercised by surrender and delivery of Shares already owned by the Holder for not less than six months. Any such Shares delivered in full or partial payment of the Option Price shall be valued at the Value as of the date of receipt of the Shares by the Company. 5.2.3. The Committee may, in its sole discretion, permit all or a portion of any amount required to be withheld for taxes to be paid by surrendering and delivering Shares already owned by the Holder or by withholding a portion of the Shares that otherwise would be issued to the Holder upon exercise of the Option. Any such Shares surrendered or withheld will be valued at the Value as of the date of receipt for surrendered Shares or as of the date of exercise of the Option for withheld Shares. Any election to have Shares withheld from the Shares that would otherwise be issued to the Holder upon exercise must be made during the period beginning on the third business day following the date of release of quarterly or annual financial data of the Company and ending on the twelfth business day following such date. 5.3. TIME AND MANNER RESTRICTIONS. The Committee has the right to limit the time and manner of exercise of Options to comply with applicable law including but not limited to federal securities laws. 5.4. DELIVERY OF SHARES. As soon as reasonably practicable following exercise, a certificate representing the Shares purchased will be registered in the name of the Holder and delivered to the Holder or, as provided in Section 2.2.5, registered in the name of and delivered to the trustee under the Company's Supplemental Retirement Savings Plan. SECTION 6. THE COMMITTEE. 6.1. POWERS OF COMMITTEE. The Committee will have the power to do the following: 6.1.1. To maintain records relating to Assignees and Holders; 6.1.2. To prepare and furnish to the Optionee, Assignees and Holders all information required by applicable law; 6.1.3. To construe and apply the provisions of this Agreement and to correct defects and omissions herein; 5 6 6.1.4. To engage assistants and professional advisers; 6.1.5. To provide procedures for determination of claims under this Agreement; and 6.1.6. To make any factual determinations necessary or useful hereunder. 6.2. DELEGATION. The Committee may delegate to any one or more of its number authority to sign any documents on its behalf or to perform ministerial acts, but no person to whom such authority is delegated shall perform any act involving the exercise of any discretion without first obtaining the concurrence of a majority of the members of the Committee, even though he or she alone may sign any document required by third parties. The Committee may designate a secretary, who may be a member of the Committee. All third parties may rely on any communication signed by the secretary, acting as such, as an official communication from the Committee. 6.3. BINDING EFFECT OF ACTIONS. All actions taken by the Committee will be final and binding on all persons. 6.4. INDEMNIFICATION. No member of the Committee, nor any associate to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made hereunder, and each member of the Committee shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Certificate of Incorporation and By-laws, as amended from time to time. SECTION 7. ACTIONS BY COMMITTEE. 7.1. ANTIDILUTION PROVISIONS. If, as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, recapitalization or other such change, the Shares are increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation; then: 7.1.1. The number and kind of shares of stock or other securities into which each outstanding Share is changed or for which each such Share may be exchanged, will automatically be substituted for each Share subject to an unexercised Option. 7.1.2. The Option Price will be increased or decreased proportionately so that the aggregate Option Price for the securities subject to the Option remains the same as immediately prior to such event and the ratio of the Option Price to the Value of the securities subject to the Option is no more favorable to the Holder than the ratio of the Option Price to the Value immediately before such event. 6 7 7.1.3. The Committee shall make such other adjustments to the Option and this Agreement as may be appropriate and equitable, and not confer on the Holder more favorable benefits than those of the Holder before the event, which adjustments may provide for the elimination of fractional shares or units. 7.2. MERGER OF THE COMPANY. If, directly or indirectly, (a) the Company is a party to a merger or consolidation agreement with a corporation that is not a subsidiary of the Company, (b) the Company is a party to an agreement to sell substantially all of its assets to any person other than a subsidiary of the Company, or (c) any person other than the Company or one of its subsidiaries has publicly announced an offer to purchase more than 5% of the outstanding voting securities of the Company, the Committee, in its sole discretion, may provide that, for a period beginning on the later of the date six months after the Date of Grant or 15 days before the closing of any such proposed transaction, and not extending beyond the earlier of the date on which the Option would otherwise lapse and the date of the closing of such proposed transaction, notwithstanding the other provisions of this Agreement, the Option may be exercised by the Holder during such period as to 100% of the Shares subject to the Option, or such lesser percentage as the Holder may choose, and upon the closing of such proposed transaction, the Option will expire and be null and void. At least 15 days prior to the closing of such proposed transaction, the Company must notify each Holder that the Option is exercisable under this Section. If the agreement for such proposed transaction is terminated, (a) all exercises under this Section of the Option will be void ab initio (from the outset), (b) the Company will refund the applicable Option Price and withholding tax and the Holder will return any Shares issued, and (c) the Option will be reinstated and exercisable thereafter on the terms of the Option without regard to that application of this Section. 7.3. AUTHORITY TO ACCELERATE, ETC. Notwithstanding anything else in this Agreement to the contrary other than Section 3.2, the Committee may, at any time or from time to time, accelerate the time at which the Option becomes exercisable or waive any provisions of this Agreement relating to the manner of payment or procedures for the exercise of the Option. Any such acceleration or waiver may be made effective (a) with respect to some or all of the Shares subject to the Option or (b) for a period of time ending at or before the expiration date of the Option. If the waiver of any provisions constitutes a new grant of an Option or the grant of an additional derivative security for purposes of SEC Rule 16b-3, the date of the waiver will be deemed to be a new Date of Grant for purposes of Section 3.2. SECTION 8. AMENDMENT OF THIS AGREEMENT. 8.1. RIGHT TO AMEND, ETC. The Committee may amend this Agreement at any time, provided that, unless first approved by vote of the stockholders of the Company, no amendment may be made in this Agreement which: 8.1.1. Materially increases the benefits under this Agreement; or 7 8 8.1.2. Materially increases the number of securities which may be issued under this Agreement. 8.2. IMPAIRMENT OF RIGHTS OF HOLDERS. No amendment to this Agreement shall be made so as to impair or adversely alter the rights of any Holder without such Holder's consent. Actions by the Committee under Section 7.1 or 7.2 do not constitute an amendment of this Agreement. SECTION 9. SHARES RESERVED. The maximum number of Shares which may be issued under this Agreement will be 200,000 Shares, subject to adjustment under Section 7.1.1, and such number of Shares will be reserved for issuance under this Agreement. The Shares issued on exercise of the Option may be authorized and unissued Shares or Shares held by the Company as treasury stock. SECTION 10. MISCELLANEOUS. 10.1 REGISTRATION. The Company shall (a) prepare and file with the SEC a Registration Statement with respect to this Agreement as may be necessary or advisable to permit the continued and uninterrupted exercise of the Option and the resale of Shares purchased pursuant to the exercise of the Option or as may be required by the SEC, (b) execute such other documents, and take such other actions, as may be necessary or advisable to cause the Registration Statement, as the same may be amended, to comply with the Securities Act of 1933 and the Rules and Regulations thereunder, and (c) register and qualify all Shares purchased pursuant to the exercise of the Option for resale by the Holder in the State of New Jersey. An amendment to the Registration Statement necessary for the resale of Shares purchased pursuant to the exercise of the Option shall be filed by the Company within five business days after the Secretary of the Company receives a written request from a Holder to file an amendment. The Registration Statement shall not be withdrawn by the Company until the Option shall have lapsed, or until all Shares purchased upon the exercise of the Option shall have been resold, as the case may be. 10.2. NO RIGHT TO EMPLOYMENT. Nothing in this Agreement will confer upon the Optionee any right to continue in the Company's employ or to be entitled to any remuneration or benefits not set forth in this Agreement or interfere with or limit any right that the Company may otherwise have to terminate the Optionee's employment. 10.3. SUCCESSORS AND ASSIGNS. The obligations of the Company under this Agreement will be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. 10.4. RIGHTS AS STOCKHOLDER. No Holder will have any of the rights of a stockholder of the Company with respect to the Shares issuable under this Agreement until certificates for such Shares have been issued. 8 9 10.5. EXPENSES. All expenses and costs in connection with administration of this Agreement will be borne by the Company. 10.6. SECTION 16. Any provision of this Agreement will be deemed amended and void to the extent it causes a violation under Section 16 of the Exchange Act and the rules thereunder. 10.7. LIMITATION OF LIABILITY. The liability of the Company under this Agreement or in connection with any exercise of the Option is limited to the obligations expressly set forth in this Agreement. 10.8. BENEFICIARIES AND ASSIGNMENT OF RIGHTS. Subject to Section 2.2.5, no Option or other right under this Agreement may be assigned, pledged, hypothecated, given, or otherwise transferred by the Holder, except that (a) the Optionee will be entitled to designate a beneficiary of the Option upon the Optionee's death by delivering such designation in writing to the Committee, (b) if no such designation is made by the Optionee, the Option will be transferred upon the Optionee's death as determined under the applicable laws of descent and distribution, (c) the Option shall be transferred in accordance with a qualified domestic relations order (as defined in the Code), and (d) the Optionee will be entitled to assign the Option, in whole or in part, to an Assignee, who, after such assignment, shall have all the rights and obligations of the Optionee with respect to the Option, provided, however, that the provisions of this Agreement relating to death, Disability, Termination and employment, including vesting provisions, shall remain unchanged and shall continue to refer to the Optionee and provided, further, that if the Assignee is a Charity, the Option will lapse as to the portion transferred 30 days after the transfer is recorded on the Company's books, after which time the portion transferred shall be null and void. If the Optionee suffers a Disability and does not have the capacity to exercise the Option, the Option will be exercisable by the Optionee's guardian or attorney-in-fact during the Optionee's lifetime. 10.9. NOTICES. Notices required or permitted to be made under this Agreement will be sufficiently made if personally delivered or sent by registered or certified mail addressed (a) to the Holder at the Holder's address as set forth in the books and records of the Company, or (b) to the Company or the Committee at the principal office of the Company to the attention of the Vice President-Finance. Any party may change its address through the method described above. 10.10. CAPTIONS. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of this Agreement. 10.11. APPLICABLE LAW. This Agreement will be governed by and interpreted, construed, and applied in accordance with the laws of the State of New Jersey to the extent that they apply. 10.12. SEVERABILITY. If any provisions of this Agreement are held illegal or invalid for any reason, such illegality or invalidity will not affect the remaining parts of this Agreement, and this Agreement will be construed and enforced as if the illegal or invalid provision had not been included. 9 10 IN WITNESS WHEREOF, the parties have executed this Agreement, in the case of the Company, by an officer thereunto duly authorized. UNITED RETAIL GROUP, INC. By: /s/ GEORGE R. REMETA Vice Chairman of the Board /s/ RAPHAEL BENAROYA Raphael Benaroya 10 EX-99.3.6 8 STOCK OPTION AGREEMENT 1 THIS AGREEMENT MUST BE RETURNED TO THE COMPANY IN THE EVENT THAT THE OPTION GRANTED HEREUNDER IS EXERCISED IN WHOLE OR IN PART. 1998 STOCK OPTION AGREEMENT This 1998 STOCK OPTION AGREEMENT, dated May 21, 1998, between GEORGE R. REMETA, residing at 25 Lee Way, Oakland, New Jersey 07436 (the "Optionee"), and UNITED RETAIL GROUP, INC., with offices at 365 West Passaic Street, Rochelle Park, New Jersey 07662 (the "Company"). WHEREAS, the Company desires to attract and retain the best available associates and to provide long range inducements for them to remain associated with the Company; and WHEREAS, on May 21, 1998, the stockholders of the Company authorized the execution and delivery of this Agreement by the Company; NOW, THEREFORE, the parties hereby agree as follows: SECTION 1. DEFINITIONS. The following terms have the following meanings when used in this Agreement, in both singular and plural forms: "ASSIGNEE" means a member of the immediate family of the Optionee to whom the Optionee shall have assigned one or more Options. "ASSOCIATE" means a full time employee of the Company. "CHANGE IN CONTROL" means (a) the acquisition after the Date of Grant by any person (defined for the purposes of this subsection to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company, the Chief Executive Officer of the Company, or an employee benefit plan created by the Board of Directors of the Company for the benefit of its associates, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the Securities and Exchange Commission ("SEC") under Section 13(d) of the Exchange Act) of any securities issued by the Company if, after such acquisition, such person is the beneficial owner of securities issued by the Company having 20% or more of the voting power in the election of Directors at the next meeting of the holders of voting securities to be held for such purpose of all of the voting securities issued by the Company, if such person acquired such beneficial ownership without the prior consent of the Board of Directors of the Company; (b) the election of a majority of the Directors, elected at any meeting of the holders of voting securities of the Company, who were not nominated for such election by the Board of Directors or a duly constituted committee of the Board of Directors; or (c) the merger or consolidation with or transfer of substantially all of the assets of the Company to another person if the Board of Directors does not adopt a resolution, before the Company enters into any agreement for such merger, consolidation or transfer, determining that it is not a Change in Control. 2 "CODE" means the Internal Revenue Code of 1986, as now in effect or hereafter amended and as now or hereafter interpreted, construed and applied by regulations, rulings and cases. "COMMITTEE" means (a) the members of the Compensation Committee of the Board of Directors of the Company who are non-employee directors within the meaning of SEC Rule 16b-3(b)(3)(i), who, if they are fewer than all the members, shall constitute an ad hoc committee of the Board of Directors, or (b) if the Compensation Committee has fewer than two members who are such non-employee directors, such other committee of the Board of Directors of the Company having at least two members who are such non-employee directors as may be designated from time to time by the Board of Directors of the Company, provided, however, that if any such committee is not composed exclusively of such non-employee directors, the Committee will consist only of those members who are such non-employee directors. "DATE OF GRANT" means February 15, 1998. "DISABILITY" means a disability as defined under the Company's long-term disability benefits plan in effect on the Date of Grant. "HOLDER" means the person who is, at the time of reference, entitled to exercise an Option. "INCENTIVE OPTION" means an Option which meets the requirements of Section 422 of the Code. "NONINCENTIVE OPTION" means an Option which is not an Incentive Option. "NOTICE OF EXERCISE" means a notice of exercise of any Option in a form determined by the Committee. "OPTION" means any right to purchase Shares granted under this Agreement. "OPTION PRICE" means $6.3125 per Share, as adjusted pursuant to Section 7.1.2. "SHARES" means shares of Common Stock, with par value equal to $.001 per share, of the Company, as adjusted pursuant to Section 7.1.1. "TAX PAYMENT LOAN GUARANTY" shall mean a guaranty of payment made by the Company in the amount and under the circumstances described in Section 4. "TERMINATION" means the termination of the Optionee's relationship with the Company as an Associate, provided, however, that absence from employment with the Company for a reason or purpose and for a period of time approved by the Committee, in its sole discretion, shall not for the period of such absence be deemed, solely because of such absence, to constitute Termination. 2 3 "VALUE" means (a) if the Shares are listed or admitted to trading on a national securities exchange (including the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ")), the closing price of Shares on the principal securities exchange on which the Shares are listed or admitted to trading on the day prior to the date of determination, or if no closing price can be determined for the date of determination, the most recent date for which such price can reasonably be ascertained, or (b) if the Shares are not listed or admitted to trading on a national securities exchange but are publicly traded, the mean between the representative bid and asked prices of the Shares in the over-the-counter market at the closing of the day prior to the date of determination or the most recent such bid and asked prices then available, as reported by NASDAQ or if the Shares are not then quoted by NASDAQ as furnished by any market maker selected from time to time by the Company for that purpose, or (c) if neither (a) nor (b) is applicable, the fair market value on the applicable date as determined by the Committee in good faith using factors the Committee deems to be relevant including but not limited to any sale of Shares to an independent third party. SECTION 2. GRANT. 2.1. GRANT. The Optionee shall have the right from time to time until February 15, 2008 to purchase a total of 100,000 Shares at the Option Price, subject to the following terms and conditions. 2.2. TERMS. 2.2.1. The Option is a Nonincentive Option. 2.2.2. The Option will become exercisable as to 20,000 Shares on the completion of the first full year of employment after the Date of Grant and as to an additional 20,000 Shares on the completion of each full year of employment thereafter until the entire 100,000 Shares are exercisable. 2.2.3. Notwithstanding Section 2.2.2 but subject to Section 3.2, the Option will become immediately exercisable as to 100% of the Shares subject to the Option upon (a) a Change in Control or (b) the Optionee's death or Disability, provided, however, that the Committee within 90 days after Termination for a reason other than death or Disability may make the Option immediately exercisable as to 100% of the Shares subject to the Option. 2.2.4. The Option will lapse on the earliest of (a) the date 10 years and one day after the Date of Grant, (b) the date one year after the Termination if the Termination is due to death or Disability or if the Optionee dies within 90 days of Termination, or (c) the date 90 days after Termination if the Termination is for any reason other than death or Disability, provided, however, that the Committee within 90 days after Termination may defer the lapse of the Option to the date 10 years and one day after the Date of Grant. 3 4 2.2.5. If the Optionee shall so direct at least 60 days prior to the date of exercise, either (i) the Shares issued upon exercise of the Option shall be issued and registered on the Company's stockholder list as follows: the number of Shares having a Value on the date of exercise equal to the exercise price paid in connection with the exercise shall be issued to and registered in the name of the Optionee and the remainder of the Shares shall be issued to and registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan, or (ii) the number of Shares otherwise issuable upon exercise of the Option shall be reduced by the number of Shares having a Value on the date of exercise equal in the aggregate to the exercise price of the gross number of Options and the net number of Shares after such reduction shall be issued to and registered in the name of the trustee under the Company's Supplemental Retirement Savings Plan. SECTION 3. RESTRICTIONS. 3.1. REGULATORY COMPLIANCE. No Shares will be issued unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges or NASDAQ market upon which the Shares may be listed have been fully met. 3.2. SIX-MONTH RULE. Anything in this Agreement to the contrary notwithstanding, the Option will not be exercisable within six months of the Date of Grant except in the case of the Optionee's death. SECTION 4. TAX PAYMENT LOAN GUARANTY. The Committee will have authority on the exercise of the Option to authorize an unconditional guaranty of payment by the Company of a full recourse loan on terms acceptable to the Committee obtained by the Optionee from a commercial bank or a registered broker-dealer for the exclusive purpose of paying personal income or excise taxes incurred as a result of such exercise. Loan guaranties will be issued if the Committee, in its sole discretion, determines them to be appropriate and in the best interests of the Company to assist in the payment of income and excise taxes incurred on exercise of the Option. SECTION 5. EXERCISE OF OPTION. 5.1. NOTICE OF EXERCISE. The Option may be exercised only by delivery to the Vice President-Finance or such other person designated by the Committee of this Agreement, a Notice of Exercise and payment under Section 5.2 for the Shares and, if the Holder is an Assignee, an instrument of assignment signed by the Optionee. Except as otherwise specifically provided, an Option shall be exercisable during the Optionee's lifetime only by the Optionee or his Assignee. 5.2. DELIVERIES ON EXERCISE. 5.2.1. Any Notice of Exercise will be effective only if the Holder pays to the Company the Option Price for the portion of the Option being exercised and pays the Company an amount equal to any tax withholding required to be made. 4 5 5.2.2. The Holder may, in his sole discretion, pay all or a portion of the Option Price for the portion of an Option being exercised by surrender and delivery of Shares already owned by the Holder for not less than six months. Any such Shares delivered in full or partial payment of the Option Price shall be valued at the Value as of the date of receipt of the Shares by the Company. 5.2.3. The Committee may, in its sole discretion, permit all or a portion of any amount required to be withheld for taxes to be paid by surrendering and delivering Shares already owned by the Holder or by withholding a portion of the Shares that otherwise would be issued to the Holder upon exercise of the Option. Any such Shares surrendered or withheld will be valued at the Value as of the date of receipt for surrendered Shares or as of the date of exercise of the Option for withheld Shares. Any election to have Shares withheld from the Shares that would otherwise be issued to the Holder upon exercise must be made during the period beginning on the third business day following the date of release of quarterly or annual financial data of the Company and ending on the twelfth business day following such date. 5.3. TIME AND MANNER RESTRICTIONS. The Committee has the right to limit the time and manner of exercise of Options to comply with applicable law including but not limited to federal securities laws. 5.4. DELIVERY OF SHARES. As soon as reasonably practicable following exercise, a certificate representing the Shares purchased will be registered in the name of the Holder and delivered to the Holder or, as provided in Section 2.2.5, registered in the name of and delivered to the trustee under the Company's Supplemental Retirement Savings Plan. SECTION 6. THE COMMITTEE. 6.1. POWERS OF COMMITTEE. The Committee will have the power to do the following: 6.1.1. To maintain records relating to Assignees and Holders; 6.1.2. To prepare and furnish to the Optionee, Assignees and Holders all information required by applicable law; 6.1.3. To construe and apply the provisions of this Agreement and to correct defects and omissions herein; 6.1.4. To engage assistants and professional advisers; 6.1.5. To provide procedures for determination of claims under this Agreement; and 6.1.6. To make any factual determinations necessary or useful hereunder. 5 6 6.2. DELEGATION. The Committee may delegate to any one or more of its number authority to sign any documents on its behalf or to perform ministerial acts, but no person to whom such authority is delegated shall perform any act involving the exercise of any discretion without first obtaining the concurrence of a majority of the members of the Committee, even though he or she alone may sign any document required by third parties. The Committee may designate a secretary, who may be a member of the Committee. All third parties may rely on any communication signed by the secretary, acting as such, as an official communication from the Committee. 6.3. BINDING EFFECT OF ACTIONS. All actions taken by the Committee will be final and binding on all persons. 6.4. INDEMNIFICATION. No member of the Committee, nor any associate to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made hereunder, and each member of the Committee shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Certificate of Incorporation and By-laws, as amended from time to time. SECTION 7. ACTIONS BY COMMITTEE. 7.1. ANTIDILUTION PROVISIONS. If, as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, recapitalization or other such change, the Shares are increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation; then: 7.1.1. The number and kind of shares of stock or other securities into which each outstanding Share is changed or for which each such Share may be exchanged, will automatically be substituted for each Share subject to an unexercised Option. 7.1.2. The Option Price will be increased or decreased proportionately so that the aggregate Option Price for the securities subject to the Option remains the same as immediately prior to such event and the ratio of the Option Price to the Value of the securities subject to the Option is no more favorable to the Holder than the ratio of the Option Price to the Value immediately before such event. 7.1.3. The Committee shall make such other adjustments to the Option and this Agreement as may be appropriate and equitable, and not confer on the Holder more favorable benefits than those of the Holder before the event, which adjustments may provide for the elimination of fractional shares or units. 6 7 7.2. MERGER OF THE COMPANY. If, directly or indirectly, (a) the Company is a party to a merger or consolidation agreement with a corporation that is not a subsidiary of the Company, (b) the Company is a party to an agreement to sell substantially all of its assets to any person other than a subsidiary of the Company, or (c) any person other than the Company or one of its subsidiaries has publicly announced an offer to purchase more than 5% of the outstanding voting securities of the Company, the Committee, in its sole discretion, may provide that, for a period beginning on the later of the date six months after the Date of Grant or 15 days before the closing of any such proposed transaction, and not extending beyond the earlier of the date on which the Option would otherwise lapse and the date of the closing of such proposed transaction, notwithstanding the other provisions of this Agreement, the Option may be exercised by the Holder during such period as to 100% of the Shares subject to the Option, or such lesser percentage as the Holder may choose, and upon the closing of such proposed transaction, the Option will expire and be null and void. At least 15 days prior to the closing of such proposed transaction, the Company must notify each Holder that the Option is exercisable under this Section. If the agreement for such proposed transaction is terminated, (a) all exercises under this Section of the Option will be void ab initio (from the outset), (b) the Company will refund the applicable Option Price and withholding tax and the Holder will return any Shares issued, and (c) the Option will be reinstated and exercisable thereafter on the terms of the Option without regard to that application of this Section. 7.3. AUTHORITY TO ACCELERATE, ETC. Notwithstanding anything else in this Agreement to the contrary other than Section 3.2, the Committee may, at any time or from time to time, accelerate the time at which the Option becomes exercisable or waive any provisions of this Agreement relating to the manner of payment or procedures for the exercise of the Option. Any such acceleration or waiver may be made effective (a) with respect to some or all of the Shares subject to the Option or (b) for a period of time ending at or before the expiration date of the Option. If the waiver of any provisions constitutes a new grant of an Option or the grant of an additional derivative security for purposes of SEC Rule 16b-3, the date of the waiver will be deemed to be a new Date of Grant for purposes of Section 3.2. SECTION 8. AMENDMENT OF THIS AGREEMENT. 8.1. RIGHT TO AMEND, ETC. The Committee may amend this Agreement at any time, provided that, unless first approved by vote of the stockholders of the Company, no amendment may be made in this Agreement which: 8.1.1. Materially increases the benefits under this Agreement; or 8.1.2. Materially increases the number of securities which may be issued under this Agreement. 7 8 8.2. IMPAIRMENT OF RIGHTS OF HOLDERS. No amendment to this Agreement shall be made so as to impair or adversely alter the rights of any Holder without such Holder's consent. Actions by the Committee under Section 7.1 or 7.2 do not constitute an amendment of this Agreement. SECTION 9. SHARES RESERVED. The maximum number of Shares which may be issued under this Agreement will be 100,000 Shares, subject to adjustment under Section 7.1.1, and such number of Shares will be reserved for issuance under this Agreement. The Shares issued on exercise of the Option may be authorized and unissued Shares or Shares held by the Company as treasury stock. SECTION 10. MISCELLANEOUS. 10.1 REGISTRATION. The Company shall (a) prepare and file with the SEC a Registration Statement with respect to this Agreement as may be necessary or advisable to permit the continued and uninterrupted exercise of the Option and the resale of Shares purchased pursuant to the exercise of the Option or as may be required by the SEC, (b) execute such other documents, and take such other actions, as may be necessary or advisable to cause the Registration Statement, as the same may be amended, to comply with the Securities Act of 1933 and the Rules and Regulations thereunder, and (c) register and qualify all Shares purchased pursuant to the exercise of the Option for resale by the Holder in the State of New Jersey. An amendment to the Registration Statement necessary for the resale of Shares purchased pursuant to the exercise of the Option shall be filed by the Company within five business days after the Secretary of the Company receives a written request from a Holder to file an amendment. The Registration Statement shall not be withdrawn by the Company until the Option shall have lapsed, or until all Shares purchased upon the exercise of the Option shall have been resold, as the case may be. 10.2. NO RIGHT TO EMPLOYMENT. Nothing in this Agreement will confer upon the Optionee any right to continue in the Company's employ or to be entitled to any remuneration or benefits not set forth in this Agreement or interfere with or limit any right that the Company may otherwise have to terminate the Optionee's employment. 10.3. SUCCESSORS AND ASSIGNS. The obligations of the Company under this Agreement will be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. 10.4. RIGHTS AS STOCKHOLDER. No Holder will have any of the rights of a stockholder of the Company with respect to the Shares issuable under this Agreement until certificates for such Shares have been issued. 10.5. EXPENSES. All expenses and costs in connection with administration of this Agreement will be borne by the Company. 8 9 10.6. SECTION 16. Any provision of this Agreement will be deemed amended and void to the extent it causes a violation under Section 16 of the Exchange Act and the rules thereunder. 10.7. LIMITATION OF LIABILITY. The liability of the Company under this Agreement or in connection with any exercise of the Option is limited to the obligations expressly set forth in this Agreement. 10.8. BENEFICIARIES AND ASSIGNMENT OF RIGHTS. Subject to Section 2.2.5, no Option or other right under this Agreement may be assigned, pledged, hypothecated, given, or otherwise transferred by the Holder, except that (a) the Optionee will be entitled to designate a beneficiary of the Option upon the Optionee's death by delivering such designation in writing to the Committee, (b) if no such designation is made by the Optionee, the Option will be transferred upon the Optionee's death as determined under the applicable laws of descent and distribution, (c) the Option shall be transferred in accordance with a qualified domestic relations order (as defined in the Code), and (d) the Optionee will be entitled to assign the Option, in whole or in part, to a member of his immediate family, who, after such assignment, shall have all the rights and obligations of the Optionee with respect to the Option, provided, however, that the provisions of this Agreement relating to death, Disability, Termination and employment, including vesting provisions, shall remain unchanged and shall continue to refer to the Optionee. If the Optionee suffers a Disability and does not have the capacity to exercise the Option, the Option will be exercisable by the Optionee's guardian or attorney-in-fact during the Optionee's lifetime. 10.9. NOTICES. Notices required or permitted to be made under this Agreement will be sufficiently made if personally delivered or sent by registered or certified mail addressed (a) to the Holder at the Holder's address as set forth in the books and records of the Company, or (b) to the Company or the Committee at the principal office of the Company to the attention of the Vice President-Finance. Any party may change its address through the method described above. 10.10. CAPTIONS. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of this Agreement. 10.11. APPLICABLE LAW. This Agreement will be governed by and interpreted, construed, and applied in accordance with the laws of the State of New Jersey to the extent that they apply. 10.12. SEVERABILITY. If any provisions of this Agreement are held illegal or invalid for any reason, such illegality or invalidity will not affect the remaining parts of this Agreement, and this Agreement will be construed and enforced as if the illegal or invalid provision had not been included. 9 10 IN WITNESS WHEREOF, the parties have executed this Agreement, in the case of the Company, by an officer thereunto duly authorized. UNITED RETAIL GROUP, INC. By: /s/ RAPHAEL BENAROYA Chairman of the Board /s/ GEORGE R. REMETA George R. Remeta 10 -----END PRIVACY-ENHANCED MESSAGE-----