UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2010

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                      to                     

Commission file number: 000-49850

BIG 5 SPORTING GOODS CORPORATION

 

(Exact name of registrant as specified in its charter)

Delaware		95-4388794
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
2525 East El Segundo Boulevard
El Segundo, California		90245
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (310) 536-0611

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		o		Accelerated filer		þ
Non-accelerated filer		o (Do not check if a smaller reporting company)		Smaller reporting company		o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     There were 21,819,662 shares of common stock, with a par value of $0.01 per share outstanding as of October 29, 2010.

BIG 5 SPORTING GOODS CORPORATION

INDEX

				Page
PART I — FINANCIAL INFORMATION
Item 1		Financial Statements
		Unaudited Condensed Consolidated Balance Sheets at October 3, 2010 and January 3, 2010			3
		Unaudited Condensed Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended October 3, 2010 and September 27, 2009			4
		Unaudited Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 3, 2010 and September 27, 2009			5
		Notes to Unaudited Condensed Consolidated Financial Statements			6
		Report of Independent Registered Public Accounting Firm			17
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3		Quantitative and Qualitative Disclosures About Market Risk			32
Item 4		Controls and Procedures			32
PART II — OTHER INFORMATION
Item 1		Legal Proceedings			33
Item 1A		Risk Factors			34
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3		Defaults Upon Senior Securities			34
Item 4		(Removed and Reserved)			34
Item 5		Other Information			34
Item 6		Exhibits			35
SIGNATURES					36
EX-10.1
EX-10.2
EX-10.3
EX-15.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

		October 3,				January 3,
		2010				2010
ASSETS
Current assets:
Cash and cash equivalents		$	4,140			$	5,765
Accounts receivable, net of allowances of $93 and $223, respectively			8,628				13,398
Merchandise inventories, net			251,310				230,911
Prepaid expenses			10,336				9,683
Deferred income taxes			8,330				7,723
Total current assets			282,744				267,480
Property and equipment, net			79,976				81,817
Deferred income taxes			13,697				11,327
Other assets, net of accumulated amortization of $0 and $346, respectively			1,491				1,065
Goodwill			4,433				4,433
Total assets		$	382,341			$	366,122
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	90,817			$	85,721
Accrued expenses			54,388				59,314
Current portion of capital lease obligations			2,060				1,904
Total current liabilities			147,265				146,939
Deferred rent, less current portion			24,092				23,832
Capital lease obligations, less current portion			1,886				2,278
Long-term revolving credit borrowings			55,228				54,955
Other long-term liabilities			6,538				6,257
Total liabilities			235,009				234,261
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, authorized 50,000,000 shares; issued 23,299,657 and 23,050,061 shares, respectively; outstanding 21,816,362 and 21,566,766 shares, respectively			233				230
Additional paid-in capital			97,379				95,259
Retained earnings			71,086				57,738
Less: Treasury stock, at cost; 1,483,295 shares			(21,366	)			(21,366	)
Total stockholders’ equity			147,332				131,861
Total liabilities and stockholders’ equity		$	382,341			$	366,122

See accompanying notes to unaudited condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

		13 Weeks Ended								39 Weeks Ended
		October 3,				September 27,				October 3,				September 27,
		2010				2009				2010				2009
Net sales		$	231,753			$	231,582			$	670,102			$	657,913
Cost of sales			154,337				153,073				448,170				441,002
Gross profit			77,416				78,509				221,932				216,911
Selling and administrative expense			66,301				65,327				194,366				190,194
Operating income			11,115				13,182				27,566				26,717
Interest expense			603				562				1,370				1,883
Income before income taxes			10,512				12,620				26,196				24,834
Income taxes			3,689				4,609				9,588				9,409
Net income		$	6,823			$	8,011			$	16,608			$	15,425
Earnings per share:
Basic		$	0.32			$	0.37			$	0.77			$	0.72
Diluted		$	0.31			$	0.37			$	0.76			$	0.72
Dividends per share		$	0.05			$	0.05			$	0.15			$	0.15
Weighted-average shares of common stock outstanding:
Basic			21,580				21,435				21,539				21,426
Diluted			21,845				21,747				21,873				21,545

See accompanying notes to unaudited condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

		39 Weeks Ended
		October 3,				September 27,
		2010				2009
Cash flows from operating activities:
Net income		$	16,608			$	15,425
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			13,975				14,417
Share-based compensation			1,333				1,589
Excess tax benefit related to share-based awards			(294	)			—
Amortization of debt issuance costs			66				40
Deferred income taxes			(2,977	)			(3,305	)
Loss (gain) on disposal of property and equipment			18				(59	)
Changes in operating assets and liabilities:
Accounts receivable, net			4,770				9,991
Merchandise inventories, net			(20,399	)			569
Prepaid expenses and other assets			(693	)			694
Accounts payable			6,746				4,701
Accrued expenses and other long-term liabilities			(6,506	)			3,330
Net cash provided by operating activities			12,647				47,392
Cash flows from investing activities:
Purchases of property and equipment			(8,603	)			(3,169	)
Proceeds from disposal of property and equipment			4				—
Net cash used in investing activities			(8,599	)			(3,169	)
Cash flows from financing activities:
Net payments under revolving credit facility and book overdraft			(1,593	)			(44,446	)
Debt issuance costs			(102	)			—
Principal payments under capital lease obligations			(1,524	)			(1,758	)
Proceeds from exercise of stock options			641				95
Excess tax benefit related to share-based awards			294				—
Tax withholding payments for share-based compensation			(143	)			(47	)
Dividends paid			(3,246	)			(3,222	)
Net cash used in financing activities			(5,673	)			(49,378	)
Net decrease in cash and cash equivalents			(1,625	)			(5,155	)
Cash and cash equivalents at beginning of period			5,765				9,058
Cash and cash equivalents at end of period		$	4,140			$	3,903
Supplemental disclosures of non-cash investing and financing activities:
Property and equipment acquired under capital leases		$	1,310			$	1,837
Property and equipment purchases accrued		$	2,557			$	787
Stock awards vested and issued to employees		$	456			$	182
Debt issuance costs accrued		$	350			$	—
Supplemental disclosures of cash flow information:
Interest paid		$	1,114			$	2,007
Income taxes paid		$	10,618			$	674

See accompanying notes to unaudited condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)		Description of Business

     Big 5 Sporting Goods Corporation (the “Company”) is a leading sporting goods retailer in the western United States, operating 391 stores in 12 states at October 3, 2010. The Company provides a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet. The Company’s product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and in-line skating. The Company is a holding company that operates as one business segment through Big 5 Corp., its wholly-owned subsidiary, and Big 5 Services Corp., which is a wholly-owned subsidiary of Big 5 Corp. Big 5 Services Corp. provides a centralized operation for the issuance and administration of gift cards.

     The accompanying interim unaudited condensed consolidated financial statements (“Interim Financial Statements”) of the Company and its wholly-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended January 3, 2010 included in the Company’s Annual Report on Form 10-K/A. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented.

     The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

(2)		Summary of Significant Accounting Policies

Consolidation

     The accompanying Interim Financial Statements include the accounts of Big 5 Sporting Goods Corporation, Big 5 Corp. and Big 5 Services Corp. Intercompany balances and transactions have been eliminated in consolidation.

Reporting Period

     The Company follows the concept of a 52-53 week fiscal year, which ends on the Sunday nearest December 31. Fiscal year 2010 is comprised of 52 weeks and ends on January 2, 2011. Fiscal year 2009 was comprised of 53 weeks and ended on January 3, 2010. The four quarters of fiscal 2010 are each comprised of 13 weeks, while the first three quarters of fiscal 2009 were each comprised of 13 weeks, and the fourth quarter of fiscal 2009 was comprised of 14 weeks.

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Recently Issued Accounting Updates

     There have been no recently issued accounting updates that had a material impact on the Company’s Interim Financial Statements for the period ended October 3, 2010.

Use of Estimates

     Management has made a number of estimates and assumptions relating to the reporting of assets, liabilities and stockholders’ equity and the disclosure of contingent assets and liabilities at the date of the Interim Financial Statements and reported amounts of revenue and expense during the reporting period to prepare these Interim Financial Statements in conformity with GAAP. Certain items subject to such estimates and assumptions include the carrying amount of merchandise inventories, property and equipment, and goodwill; valuation allowances for receivables, sales returns and deferred income tax assets; estimates related to gift card breakage and the valuation of share-based compensation awards; and obligations related to asset retirements, litigation, self-insurance liabilities and employee benefits. Actual results could differ significantly from these estimates under different assumptions and conditions.

Revenue Recognition

     The Company earns revenue by selling merchandise primarily through its retail stores. Revenue is recognized when merchandise is purchased by and delivered to the customer and is shown net of estimated returns during the relevant period. The allowance for sales returns is estimated based upon historical experience.

     Cash received from the sale of gift cards is recorded as a liability, and revenue is recognized upon the redemption of the gift card or when it is determined that the likelihood of redemption is remote (“gift card breakage”) and no liability to relevant jurisdictions exists. The Company determines the gift card breakage rate based upon historical redemption patterns and recognizes gift card breakage on a straight-line basis over the estimated gift card redemption period (20 quarters as of the end of the third quarter of fiscal 2010). The Company recognized approximately $107,000 and $323,000 in gift card breakage revenue for the 13 weeks and 39 weeks ended October 3, 2010, respectively, compared to approximately $113,000 and $344,000 for the 13 weeks and 39 weeks ended September 27, 2009, respectively.

     The Company records sales tax collected from its customers on a net basis, and therefore excludes it from revenue as defined in Accounting Standards Codification (“ASC”) 605, Revenue Recognition.

     Included in revenue are sales of returned merchandise to vendors specializing in the resale of defective or used products, which accounted for less than 1% of net sales in each of the periods reported.

Valuation of Merchandise Inventories

     The Company’s merchandise inventories are made up of finished goods and are valued at the lower of cost or market using the weighted-average cost method that approximates the first-in,

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

first-out (“FIFO”) method. Average cost includes the direct purchase price of merchandise inventory, net of vendor allowances and cash discounts, and allocated overhead costs associated with the Company’s distribution center.

     Management regularly reviews inventories and records valuation reserves for merchandise damage and defective returns, merchandise items with slow-moving or obsolescence exposure and merchandise that has a carrying value that exceeds market value. Because of its merchandise mix, the Company has not historically experienced significant occurrences of obsolescence.

     Inventory shrinkage is accrued as a percentage of merchandise sales based on historical inventory shrinkage trends. The Company performs physical inventories of its stores at least once per year and cycle counts inventories at its distribution center throughout the year. The reserve for inventory shrinkage represents an estimate for inventory shrinkage for each store since the last physical inventory date through the reporting date.

     These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual results if future economic conditions, consumer demand and competitive environments differ from expectations.

Leases and Deferred Rent

     The Company accounts for its leases under the provisions of ASC 840, Leases.

     The Company evaluates and classifies its leases as either operating or capital leases for financial reporting purposes. Operating lease commitments consist principally of leases for the Company’s retail store facilities, distribution center and corporate office. Capital lease obligations consist principally of leases for some of the Company’s distribution center delivery tractors, management information systems hardware and point-of-sale equipment for the Company’s stores.

     Certain of the leases for the Company’s retail store facilities provide for payments based on future sales volumes at the leased location, which are not measurable at the inception of the lease. These contingent rents are expensed as they accrue.

     Deferred rent represents the difference between rent paid and the amounts expensed for operating leases. Certain leases have scheduled rent increases, and certain leases include an initial period of free or reduced rent as an inducement to enter into the lease agreement (“rent holidays”). The Company recognizes rent expense for rent increases and rent holidays on a straight-line basis over the term of the underlying leases, without regard to when rent payments are made. The calculation of straight-line rent is based on the “reasonably assured” lease term as defined in ASC 840 and may exceed the initial non-cancelable lease term.

     Landlord allowances for tenant improvements, or lease incentives, are recorded as deferred rent and amortized on a straight-line basis over the lease term as a component of rent expense.

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(3)		Fair Value Measurements

     The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate the fair values of these instruments due to their short-term nature. The carrying amount for borrowings under the Company’s financing agreement approximates fair value because of the variable market interest rate charged to the Company for these borrowings.

(4)		Accrued Expenses

     Accrued expenses consist of the following:

		October 3,				January 3,
		2010				2010
		(In thousands)
Payroll and related expense		$	17,506			$	18,472
Occupancy costs			8,982				7,634
Sales tax			7,359				10,379
Advertising			4,095				6,202
Other			16,446				16,627
Accrued expenses		$	54,388			$	59,314

(5)		Revolving Credit Borrowings

     The Company’s prior financing agreement with The CIT Group/Business Credit, Inc. (“CIT”) and a syndicate of other lenders, as amended (the “Prior Financing Agreement”, which was terminated and replaced on October 18, 2010 as discussed below), originally provided for a line of credit up to $175.0 million. In the second quarter of fiscal 2010, the Company permanently reduced the line of credit available under the Prior Financing Agreement to $140.0 million. The Prior Financing Agreement had an initial termination date of March 20, 2011.

     On October 18, 2010, the Company entered into a new credit agreement (the “New Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and a syndicate of other lenders. The New Credit Agreement provides for a revolving credit facility (the “Credit Facility”) with an aggregate committed availability of up to $140.0 million, which amount may be increased at the Company’s option up to a maximum of $165.0 million. The Company used proceeds from its initial borrowing under the New Credit Agreement to repay all of its outstanding indebtedness under the Prior Financing Agreement at which time the Prior Financing Agreement was terminated.

     The Company may borrow under the Credit Facility from time to time, provided the amounts outstanding will not exceed the lesser of the then aggregate availability (as described above) and the Borrowing Base (such lesser amount being referred to as the “Loan Cap”). The “Borrowing Base” generally is comprised of the sum, at the time of calculation of (a) 90.00% of eligible credit card accounts receivable; plus (b)(i) during the period of September 15 through December 15 of each year, the cost of eligible inventory, net of inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation value of eligible inventory (expressed as a percentage of the cost of eligible inventory); and (ii) at all other times, the cost of eligible inventory, net of inventory reserves, multiplied by 85.00% of the appraised net orderly liquidation value of eligible inventory (expressed as a percentage of the cost of eligible inventory); plus (c) the lesser of (i) the cost of eligible in-transit inventory, net of inventory reserves, multiplied by 85.00% of the appraised net orderly liquidation value of eligible in-transit inventory (expressed as a percentage of the cost of eligible in-transit inventory), or (ii) $10.0 million, minus (d) certain reserves established by Wells Fargo in its role as the Administrative Agent in its reasonable discretion.

     Generally, the Company may designate specific borrowings under the Credit Facility as either base rate loans or LIBO rate loans. In each case, the applicable interest rate will be a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap over amounts outstanding under the Credit Facility (such amount being referred to as the “Average Daily Excess Availability”).

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

     Those loans designated as LIBO rate loans shall bear interest at a rate equal to the then applicable LIBO rate plus an applicable margin as shown in the table below. Those loans designated as base rate loans shall bear interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the highest of (a) the Federal funds rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the LIBO rate, as adjusted to account for statutory reserves, plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its “prime rate”.

     The applicable margin shall be as set forth for Level II in the table below from October 18, 2010 through January 2, 2011. Thereafter, the applicable margin for all loans will be as set forth below as a function of Average Daily Excess Availability for the preceding fiscal quarter.

LIBO Rate

Base Rate

Average Daily Excess

Applicable

Applicable

Level

Availability

Margin

Margin

I

Greater than 50% of the Loan Cap

2.00

%

1.00

%

II

Less than or equal to 50% of the Loan Cap

2.25

%

1.25

%

     Obligations under the New Credit Agreement are secured by a general lien and perfected security interest in substantially all of the Company’s assets, including accounts receivable, documents, equipment, general intangibles and inventory.

     In connection with the termination of the Prior Financing Agreement, the Company recorded in interest expense a one-time early termination fee and wrote off the remaining deferred

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

debt issuance costs totaling $0.3 million. The Company also capitalized $0.5 million of debt issuance costs associated with the New Credit Agreement into other assets as of October 3, 2010.

     The Company classified its revolving credit borrowings as long-term as of October 3, 2010 in accordance with ASC 470, Debt, as such borrowings were refinanced on a long-term basis under the New Credit Agreement. Long-term revolving credit borrowings were $55.2 million and $55.0 million as of October 3, 2010, and January 3, 2010, respectively, and total remaining borrowing availability under the Prior Financing Agreement, after subtracting letters of credit, was $84.0 million and $94.3 million as of October 3, 2010 and January 3, 2010, respectively.

(6)		Income Taxes

     Under the asset and liability method prescribed under ASC 740, Income Taxes, the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The realizability of deferred tax assets is assessed throughout the year and a valuation allowance is recorded if necessary to reduce net deferred tax assets to the amount more likely than not to be realized.

     The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The statutes of limitations for consolidated federal income tax returns are open for tax years 2007 and after, and state and local income tax returns are open for tax years 2005 and after.

     At October 3, 2010 and January 3, 2010, the Company had no unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate over the next 12 months. The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expense. At October 3, 2010 and January 3, 2010, the Company had no accrued interest or penalties.

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(7)		Share-based Compensation

     At its discretion, the Company grants share option awards or nonvested share awards to certain employees, as defined by ASC 718, Compensation—Stock Compensation, under the Company’s 2007 Equity and Performance Incentive Plan (the “Plan”) and accounts for its share-based compensation in accordance with ASC 718. The Company recognized approximately $0.4 million and $1.3 million in share-based compensation expense, including share option awards and nonvested share awards, for the 13 weeks and 39 weeks ended October 3, 2010, respectively, compared to $0.6 million and $1.6 million for the 13 weeks and 39 weeks ended September 27, 2009, respectively.

Share Option Awards

     Share option awards granted by the Company generally vest and become exercisable at the rate of 25% per year with a maximum life of ten years. The exercise price of the share option awards is equal to the quoted market price of the Company’s common stock on the date of grant. In the 39 weeks ended October 3, 2010, the Company granted 12,000 share option awards. The weighted-average grant-date fair value per option for share option awards granted in the 39 weeks ended October 3, 2010 and September 27, 2009 was $6.26 and $1.92, respectively.

     The fair value of each share option award on the date of grant is estimated using the Black-Scholes method based on the following weighted-average assumptions:

		13 Weeks Ended								39 Weeks Ended
		October 3,				September 27,				October 3,				September 27,
		2010*				2009*				2010				2009
Risk-free interest rate		—				—				2.4%				2.3%
Expected term		—				—				6.50 years				6.50 years
Expected volatility		—				—				55.2%				55.2%
Expected dividend yield		—				—				1.54%				4.07%

     The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the share option award; the expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based upon the Company’s current dividend rate and future expectations.

     As of October 3, 2010, there was $1.1 million of total unrecognized compensation cost related to nonvested share option awards granted. That cost is expected to be recognized over a weighted-average period of 2.1 years.

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Nonvested Share Awards

     In the 39 weeks ended October 3, 2010, the Company granted 172,000 nonvested share awards. The weighted-average grant-date fair value per share of the Company’s nonvested share awards granted in the 39 weeks ended October 3, 2010 was $15.52.

     The following table details the Company’s nonvested share awards activity for the 39 weeks ended October 3, 2010:

						Weighted-
						Average
						Grant-Date
		Shares				Fair Value
Balance at January 3, 2010			92,925			$	8.60
Granted			172,000				15.52
Vested			(29,875	)			8.45
Forfeited			(1,000	)			11.81
Balance at October 3, 2010			234,050			$	13.69

     The weighted-average grant-date fair value of nonvested share awards is the quoted market price of the Company’s common stock on the date of grant, as shown in the table above.

     Nonvested share awards granted by the Company vest from the date of grant in four equal annual installments of 25% per year.

     As of October 3, 2010, there was $2.6 million of total unrecognized compensation cost related to nonvested share awards. That cost is expected to be recognized over a weighted-average period of 3.0 years.

     To satisfy employee minimum statutory tax withholding requirements for nonvested share awards that vest, the Company withholds and retires a portion of the vesting common shares, unless an employee elects to pay cash. In the 39 weeks ended October 3, 2010, the Company withheld 9,104 common shares with a total value of $143,000. This amount is presented as a cash outflow from financing activities in the accompanying interim unaudited condensed consolidated statements of cash flows.

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(8)		Earnings Per Share

     The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding, reduced by shares repurchased and held in treasury, during the period. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding share option awards and nonvested share awards.

     The following table sets forth the computation of basic and diluted net income per common share:

		13 Weeks Ended								39 Weeks Ended
		October 3,				September 27,				October 3,				September 27,
		2010				2009				2010				2009
		(In thousands, except per share amounts)
Net income		$	6,823			$	8,011			$	16,608			$	15,425
Weighted-average shares of common stock outstanding:
Basic			21,580				21,435				21,539				21,426
Dilutive effect of common stock equivalents arising from share option and nonvested share awards			265				312				334				119
Diluted			21,845				21,747				21,873				21,545
Basic earnings per share		$	0.32			$	0.37			$	0.77			$	0.72
Diluted earnings per share		$	0.31			$	0.37			$	0.76			$	0.72

     The computation of diluted earnings per share for the 13 weeks ended October 3, 2010, the 39 weeks ended October 3, 2010, the 13 weeks ended September 27, 2009 and the 39 weeks ended September 27, 2009 does not include share option awards in the amounts of 922,948, 892,575, 896,342 and 1,391,737, respectively, that were outstanding and antidilutive (i.e., including such share option awards would result in higher earnings per share), since the exercise prices of these share option awards exceeded the average market price of the Company’s common shares.

     The computation of diluted earnings per share for the 13 weeks ended October 3, 2010, the 39 weeks ended October 3, 2010 and the 39 weeks ended September 27, 2009 does not include nonvested share awards in the amounts of 159,610, 244 and 4,879 shares that were outstanding and antidilutive. No nonvested share awards were antidilutive for the 13 weeks ended September 27, 2009.

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

     The Company did not repurchase any shares of its common stock in fiscal 2009 or the first three quarters of fiscal 2010. Since the inception of its initial share repurchase program in May 2006 through October 3, 2010, the Company has repurchased a total of 1,369,085 shares for $20.8 million, leaving a total of $14.2 million available for share repurchases under the current share repurchase program.

(9)		Commitments and Contingencies

     On August 6, 2009, the Company was served with a complaint filed in the California Superior Court for the County of San Diego, entitled Shane Weyl v. Big 5 Corp., et al., Case No. 37-2009-00093109-CU-OE-CTL, alleging violations of the California Labor Code and the California Business and Professions Code. The complaint was brought as a purported class action on behalf of the Company’s hourly employees in California for the four years prior to the filing of the complaint. The plaintiff alleges, among other things, that the Company failed to provide hourly employees with meal and rest periods and failed to pay wages within required time periods during employment and upon termination of employment. The plaintiff seeks, on behalf of the class members, an award of one hour of pay (wages) for each workday that a meal or rest period was not provided; restitution of unpaid wages; actual, consequential and incidental losses and damages; pre-judgment interest; statutory penalties including an additional thirty days’ wages for each hourly employee in California whose employment terminated in the four years preceding the filing of the complaint; civil penalties; an award of attorneys’ fees and costs; and injunctive and declaratory relief. On December 14, 2009, the parties engaged in mediation and agreed to settle the lawsuit. On February 4, 2010, the parties filed a joint settlement and a motion to preliminarily approve the settlement with the court. On July 16, 2010, the court granted preliminary approval of the settlement and scheduled a hearing for December 10, 2010, to consider final approval of the settlement. Under the terms of the settlement, the Company agreed to pay up to a maximum amount of $2.0 million, which includes payments to class members who submit valid and timely claim forms, plaintiff’s attorneys’ fees and expenses, an enhancement payment to the class representative, claims administrator fees and payment to the California Labor and Workforce Development Agency. Under the settlement, in the event that fewer than all class members submit valid and timely claims, the total amount required to be paid by the Company will be reduced, subject to a minimum payment amount calculated in the manner provided in the settlement agreement. The Company’s anticipated total payments pursuant to this settlement have been reflected in a legal settlement accrual recorded in the fourth quarter of fiscal 2009. The Company admitted no liability or wrongdoing with respect to the claims set forth in the lawsuit. Once final approval is granted, the settlement will constitute a full and complete settlement and release of all claims related to the lawsuit. If the court does not grant final approval of the settlement, the Company intends to defend the lawsuit vigorously. If the settlement is not finally approved by the court and the lawsuit is resolved unfavorably to the Company, this litigation, the costs of defending it and any required change in the Company’s labor practices could have a material negative impact on the Company’s results of operations and financial condition.

     On August 13, 2009, the Company was served with a complaint filed in the California Superior Court for the County of San Diego, entitled Michael Kelly v. Big 5 Sporting Goods

BIG 5 SPORTING GOODS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Corporation, et al., Case No. 37-2009-00095594-CU-MC-CTL, alleging violations of the California Business and Professions Code and California Civil Code. The complaint was brought as a purported class action on behalf of persons who purchased certain tennis, racquetball and squash racquets from the Company. The plaintiff alleges, among other things, that the Company employed deceptive pricing, marketing and advertising practices with respect to the sale of such rackets. The plaintiff seeks, on behalf of the class members, unspecified amounts of damages and/or restitution; attorneys’ fees and costs; and injunctive relief to require the Company to discontinue the allegedly improper conduct. On July 20, 2010, the plaintiff filed with the court a Motion for Class Certification. On September 1, 2010, the plaintiff and the Company engaged in mediation in an effort to negotiate a settlement agreement, but the mediation adjourned without a settlement. Any settlement agreement would be subject to court approval. On September 24, 2010, the Company filed with the court an Opposition to Plaintiff’s Motion for Class Certification. Currently the court is scheduled to conduct a hearing regarding plaintiff’s Motion for Class Certification on November 30, 2010, and a trial on the merits of plaintiff’s claims on February 18, 2011. If the plaintiff and the Company are unable to negotiate a settlement agreement, the Company intends to defend the lawsuit vigorously. Because this dispute remains in the preliminary stages and, among other things, discovery is still ongoing, the Company is not able to evaluate the likelihood of a settlement or an unfavorable outcome in this case or to estimate a range of potential loss in the event of a settlement or an unfavorable outcome in this case at the present time. If settled or resolved unfavorably to the Company, this litigation, the costs of defending it and any resulting required change in the business practices of the Company could have a material negative impact on the Company’s results of operations and financial condition.

     The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material negative impact on the Company’s financial position, results of operations or liquidity.

(10)		Subsequent Event

     In the fourth quarter of fiscal 2010, the Company’s Board of Directors declared a quarterly cash dividend of $0.05 per share of outstanding common stock, which will be paid on December 15, 2010 to stockholders of record as of December 1, 2010.

     On October 18, 2010, the Company entered into a new credit agreement, as described more fully in Note 5 of these Interim Financial Statements, as well as in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Quarterly Report on Form 10-Q.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Big 5 Sporting Goods Corporation
El Segundo, California

We have reviewed the accompanying condensed consolidated balance sheet of Big 5 Sporting Goods Corporation and subsidiaries (the “Corporation”) as of October 3, 2010 and the related condensed consolidated statements of operations for the 13 week and 39 week periods ended October 3, 2010 and September 27, 2009, and of cash flows for the 39 week periods ended October 3, 2010 and September 27, 2009. These interim financial statements are the responsibility of the Corporation’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Big 5 Sporting Goods Corporation and subsidiaries as of January 3, 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 3, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 3, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California
November 3, 2010

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis of the Big 5 Sporting Goods Corporation (“we”, “our”, “us”) financial condition and results of operations includes information with respect to our plans and strategies for our business and should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes (“Interim Financial Statements”) included herein and our consolidated financial statements and related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K/A for the fiscal year ended January 3, 2010.

Overview

     We are a leading sporting goods retailer in the western United States, operating 391 stores in 12 states under the name “Big 5 Sporting Goods” at October 3, 2010. We provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet. Our product mix includes athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and in-line skating.

Executive Summary

     Our operating results for the third quarter of fiscal 2010 and the third quarter of fiscal 2009 reflect a difficult environment for retailers resulting from the economic recession and uncertainty in the financial sector. If measures implemented by the federal and state governments or private sector spending fail to stimulate a prolonged economic recovery, this economic recession could continue, which may continue to impact our operating results.

•

Net sales for the third quarter of fiscal 2010 increased 0.1% to $231.8 million compared to $231.6 million for the third quarter of fiscal 2009. The net sales comparison to the prior year was negatively impacted by a calendar shift as we transition to a 52-week fiscal year in 2010 from a 53-week fiscal year in 2009. This calendar shift resulted in net sales for a higher volume sales week leading up to the Fourth of July holiday being included in the second quarter of fiscal 2010, while net sales for this period were included in the third quarter of fiscal 2009. This period was replaced in the third quarter of fiscal 2010 by a lower volume sales week which was included in net sales in the fourth quarter of fiscal 2009.

	•		Same store sales increased 2.0% in the 13 weeks ended October 3, 2010 versus the comparable 13-week period in the prior year. Same store sales for a period reflect net sales from stores that operated throughout the period as well as the corresponding prior period; e.g., comparable quarterly reporting periods for quarterly comparisons.
	•		Net income for the third quarter of fiscal 2010 decreased 15.0% to $6.8 million, or $0.31 per diluted share, compared to $8.0 million, or $0.37 per diluted share, for the third quarter of fiscal 2009. The decrease in net income primarily reflected lower

			merchandise margins and the deleveraging of selling and administrative expense due in part to the impact of the calendar shift, as discussed under net sales above.
	•		Gross profit as a percentage of net sales for the third quarter of fiscal 2010 decreased by approximately 50 basis points to 33.4% compared to the third quarter of fiscal 2009, primarily as a result of lower merchandise margins and higher store occupancy costs as a percentage of net sales due in part to the impact of the calendar shift, as discussed under net sales above.

	•		Selling and administrative expense for the third quarter of fiscal 2010 increased 1.5% to $66.3 million, or 28.6% of net sales, compared to $65.3 million, or 28.2% of net sales, for the third quarter of fiscal 2009. The increase was primarily attributable to higher store-related expense, excluding occupancy, as a result of new store openings. Selling and administrative expense as a percentage of net sales was also negatively impacted by the calendar shift, as discussed under net sales above.
	•		Operating income for the third quarter of fiscal 2010 decreased 15.9% to $11.1 million, or 4.8% of net sales, compared to $13.2 million, or 5.7% of net sales, for the third quarter of fiscal 2009. The lower operating income primarily reflects a lower gross margin percentage and higher selling and administrative expense and occupancy costs as a percentage of net sales, due in part to the impact of the calendar shift, as discussed under net sales above.

Results of Operations

     The results of the interim periods are not necessarily indicative of results for the entire fiscal year.

     13 Weeks Ended October 3, 2010 Compared to 13 Weeks Ended September 27, 2009

     The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:

		13 Weeks Ended
		October 3, 2010								September 27, 2009
						(In thousands, except percentages)
Net sales		$	231,753				100.0	%		$	231,582				100.0	%
Cost of sales (1)			154,337				66.6				153,073				66.1
Gross profit			77,416				33.4				78,509				33.9
Selling and administrative expense (2)			66,301				28.6				65,327				28.2
Operating income			11,115				4.8				13,182				5.7
Interest expense			603				0.3				562				0.2
Income before income taxes			10,512				4.5				12,620				5.5
Income taxes			3,689				1.6				4,609				2.0
Net income		$	6,823				2.9	%		$	8,011				3.5	%

     Net Sales. Net sales increased by $0.2 million, or 0.1%, to $231.8 million in the 13 weeks ended October 3, 2010 from $231.6 million in the third quarter last year. The change in net sales reflected the following:

	•		New store sales increased, reflecting the opening of nine new stores, net of relocations, since June 28, 2009.
	•		Same store sales increased 2.0% in the 13 weeks ended October 3, 2010 versus the comparable 13-week period in the prior year. Same store sales for a period reflect net sales from stores that operated throughout the period as well as the corresponding prior period; e.g., comparable quarterly reporting periods for quarterly comparisons.
	•		Customer traffic into our retail stores increased for the 13 weeks ended October 3, 2010 versus the comparable 13-week period in the prior year.

•

Net sales for the third quarter of fiscal 2010 compared to the prior year reflected a negative effect of approximately $7.3 million related to a calendar shift, as we transition to a 52-week fiscal year in 2010 from a 53-week fiscal year in 2009. This calendar shift resulted in net sales for a higher volume sales week leading up to the Fourth of July holiday being included in the second quarter of fiscal 2010, while net sales for this period were included in the third quarter of fiscal 2009. This period was replaced in the third quarter of fiscal 2010 by a lower volume sales week which was included in net sales in the fourth quarter of fiscal 2009.

     Store count at October 3, 2010 was 391 versus 382 at September 27, 2009. We opened three new stores in the 13 weeks ended October 3, 2010, while we did not open any new stores in the 13 weeks ended September 27, 2009. We expect to open 11 new stores and four relocations in fiscal 2010. Of the four relocations, we closed one store in fiscal 2010 and expect to close the three remaining stores relocated in fiscal 2010 in early fiscal 2011.

     Gross Profit. Gross profit decreased by $1.1 million, or 1.4%, to $77.4 million, or 33.4% of net sales, in the 13 weeks ended October 3, 2010 from $78.5 million, or 33.9% of net sales, in the 13 weeks ended September 27, 2009. The change in gross profit was primarily attributable to the following:

	•		Merchandise margins, which exclude buying, occupancy and distribution costs, decreased approximately 50 basis points versus the third quarter last year, primarily reflecting shifts in product sales mix.
	•		Store occupancy costs increased by $0.5 million year over year, primarily reflecting the expense for new stores.
	•		Distribution costs, including costs capitalized into inventory, decreased $1.1 million, or 9.8%, compared to the same period last year.
	•		Gross profit was also negatively impacted by the calendar shift, as discussed under Net Sales above.

     Selling and Administrative Expense. Selling and administrative expense increased by $1.0 million to $66.3 million, or 28.6% of net sales, in the 13 weeks ended October 3, 2010 from $65.3 million, or 28.2% of net sales, in the same period last year. The increase in selling and administrative expense compared to the prior year was largely attributable to an increase in store-related expense, excluding occupancy, of $1.4 million due mainly to higher labor and operating costs to support the increase in store count, partially offset by a decline in advertising and administrative support expense. Selling and administrative expense as a percentage of net sales was also negatively impacted by the calendar shift, as discussed under Net Sales above.

     Interest Expense. Interest expense remained relatively unchanged at $0.6 million in the 13 weeks ended October 3, 2010 compared to the same period last year. Interest expense on our borrowings decreased $0.2 million in the 13 weeks ended October 3, 2010 compared to the same period last year. This decrease was due to a reduction in average debt levels of approximately $22.2 million to $51.8 million in the third quarter of fiscal 2010 from $74.0

million in the third quarter last year, combined with a reduction in average interest rates of approximately 20 basis points to 1.9% in the third quarter of fiscal 2010 from 2.1% in the same period last year. Interest expense in the 13 weeks ended October 3, 2010 also reflects a one-time early termination fee and the write off of the remaining deferred debt issuance costs of $0.3 million associated with the termination of our prior financing agreement with The CIT Group/Business Credit, Inc. (“CIT”) and a syndicate of other lenders as discussed in the Financing Agreement section of Liquidity and Capital Resources below.

     Income Taxes. The provision for income taxes was $3.7 million for the 13 weeks ended October 3, 2010 and $4.6 million for the 13 weeks ended September 27, 2009. Our effective tax rate was 35.1% for the third quarter of fiscal 2010 compared with 36.5% for the third quarter of fiscal 2009. Our lower effective tax rate for the third quarter of fiscal 2010 compared to the same period last year primarily reflects an increased benefit from income tax credits taken in the third quarter of fiscal 2010.

     39 Weeks Ended October 3, 2010 Compared to 39 Weeks Ended September 27, 2009

     The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:

		39 Weeks Ended
		October 3, 2010								September 27, 2009
		(In thousands, except percentages)
Net sales		$	670,102				100.0	%		$	657,913				100.0	%
Cost of sales (1)			448,170				66.9				441,002				67.0
Gross profit			221,932				33.1				216,911				33.0
Selling and administrative expense (2)			194,366				29.0				190,194				28.9
Operating income			27,566				4.1				26,717				4.1
Interest expense			1,370				0.2				1,883				0.3
Income before income taxes			26,196				3.9				24,834				3.8
Income taxes			9,588				1.4				9,409				1.4
Net income		$	16,608				2.5	%		$	15,425				2.4	%

     Net Sales. Net sales increased by $12.2 million, or 1.9%, to $670.1 million in the 39 weeks ended October 3, 2010 from $657.9 million in the 39 weeks ended September 27, 2009. The increase in net sales was primarily attributable to the following:

•

New store sales increased, reflecting the opening of ten new stores, net of relocations, since December 28, 2008.

•

Same store sales increased 1.3% in the 39 weeks ended October 3, 2010 versus the comparable 39-week period in the prior year. Same store sales for a period reflect net sales from stores that operated throughout the period as well as the corresponding prior period; e.g., comparable year-to-date reporting periods for year-to-date comparisons.

•

Customer traffic into our retail stores increased for the 39 weeks ended October 3, 2010 when compared with the 39 weeks ended September 27, 2009.

     Store count at October 3, 2010 was 391 versus 382 at September 27, 2009. We opened seven new stores, net of relocations, in the 39 weeks ended October 3, 2010, while we opened one new store in the 39 weeks ended September 27, 2009. We expect to open 11 new stores and four relocations in fiscal 2010. Of the four relocations, we closed one store in fiscal 2010 and expect to close the three remaining stores relocated in fiscal 2010 in early fiscal 2011.

     Gross Profit. Gross profit increased by $5.0 million, or 2.3%, to $221.9 million, or 33.1% of net sales, in the 39 weeks ended October 3, 2010 from $216.9 million, or 33.0% of net sales, in the 39 weeks ended September 27, 2009. The change in gross profit was primarily attributable to the following:

	•		Net sales increased by $12.2 million in the 39 weeks ended October 3, 2010 compared to the 39 weeks ended September 27, 2009.
	•		Distribution costs, including costs capitalized into inventory, decreased $2.3 million compared to the same period last year. Distribution costs as a percentage of net sales decreased approximately 40 basis points year over year.
	•		Store occupancy costs increased by $1.8 million, or approximately 10 basis points, year over year, primarily reflecting the expense for new stores.
	•		Merchandise margins, which exclude buying, occupancy and distribution costs, decreased approximately ten basis points year over year, primarily reflecting shifts in product sales mix.

     Selling and Administrative Expense. Selling and administrative expense increased by $4.2 million to $194.4 million, or 29.0% of net sales, in the 39 weeks ended October 3, 2010 from $190.2 million, or 28.9% of net sales, in the same period last year. The increase in selling and administrative expense compared to the same period last year was largely attributable to an increase in store-related expense, excluding occupancy, of $4.2 million due mainly to higher labor and operating costs to support the increase in store count.

     Interest Expense. Interest expense decreased by $0.5 million, or 27.2%, to $1.4 million in the 39 weeks ended October 3, 2010 from $1.9 million in the same period last year. This decrease was due to a reduction in average debt levels of approximately $26.1 million to $55.1 million in the 39 weeks ended October 3, 2010 from $81.2 million in the same period last year, combined with a reduction in average interest rates of approximately 50 basis points to 1.7% in the 39 weeks ended October 3, 2010 from 2.2% in the same period

last year. Interest expense in the 39 weeks ended October 3, 2010 reflects a one-time early termination fee and the write off of the remaining deferred debt issuance costs of $0.3 million associated with the termination of our prior financing agreement with CIT as discussed in the Financing Agreement section of Liquidity and Capital Resources below.

     Income Taxes. The provision for income taxes was $9.6 million for the 39 weeks ended October 3, 2010 and $9.4 million for the 39 weeks ended September 27, 2009, primarily reflecting our higher pre-tax income. Our effective tax rate was 36.6% for the 39 weeks ended October 3, 2010 compared with 37.9% for the 39 weeks ended September 27, 2009. Our lower effective tax rate for the 39 weeks ended October 3, 2010 compared to the same period last year primarily reflects an increased benefit from income tax credits taken in fiscal 2010.

Liquidity and Capital Resources

     Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity requirements primarily through cash on hand, cash flows from operations and borrowings from our revolving credit facility. On October 18, 2010, we replaced our Prior Financing Agreement (as defined in the Financing Agreement section below). We believe our cash on hand, future funds from operations and borrowings from our Credit Facility (as defined in the Financing Agreement section below) will be sufficient to fund our cash requirements for at least the next 12 months. There is no assurance, however, that we will be able to generate sufficient cash flows from operations or maintain our ability to borrow under our Credit Facility (as defined in the Financing Agreement section below).

     We ended the 39 weeks ended October 3, 2010 with $4.1 million of cash and cash equivalents compared with $3.9 million at the end of the same period in fiscal 2009. Our cash flows from operating, investing and financing activities for the 39 weeks ended October 3, 2010 and September 27, 2009 were as follows:

		39 Weeks Ended
		October 3,				September 27,
		2010				2009
		(In thousands)
Net cash provided by (used in):
Operating activities		$	12,647			$	47,392
Investing activities			(8,599	)			(3,169	)
Financing activities			(5,673	)			(49,378	)
Net decrease in cash and cash equivalents		$	(1,625	)		$	(5,155	)

     Operating Activities. Net cash provided by operating activities for the 39 weeks ended October 3, 2010 and September 27, 2009 was $12.6 million and $47.4 million, respectively. The decrease in cash provided by operating activities for the 39 weeks ended October 3, 2010 compared to the same period last year primarily reflects increased merchandise inventory purchases along with increased funding of accrued expenses and a smaller reduction in accounts receivable. Our increase in inventory purchasing year-to-date during fiscal 2010 compared with fiscal 2009 primarily reflected an anticipated improvement in business conditions, increased availability of certain products this year, opportunistic

buying, bringing in seasonal product earlier to avoid potential delivery delays and the one-week calendar shift, as described in the Results of Operations section above, that resulted in the fiscal 2010 third quarter ending one week closer to the holiday selling season.

     Investing Activities. Net cash used in investing activities for the 39 weeks ended October 3, 2010 and September 27, 2009 was $8.6 million and $3.2 million, respectively. Capital expenditures, excluding non-cash property and equipment acquisitions, represented substantially all of the net cash used in investing activities for both periods. This increase was primarily attributable to the resumption in store expansion activity, after a slowdown in fiscal 2009 due to the economic recession, and a corresponding increase in new store capital expenditures.

     Financing Activities. Net cash used in financing activities for the 39 weeks ended October 3, 2010 and September 27, 2009 was $5.7 million and $49.4 million. For both periods, cash was used primarily to pay dividends and pay down our revolving credit borrowings. The lower paydown of our revolving credit borrowings in fiscal 2010 compared with fiscal 2009 primarily reflects this year’s increased funding of inventory purchases along with the resumption of our new store expansion program after scaling back such investments in fiscal 2009 in response to the recession.

     As of October 3, 2010, we had revolving credit borrowings of $55.2 million and letter of credit commitments of $0.8 million outstanding. These balances compare to revolving credit borrowings of $55.0 million and letter of credit commitments of $2.7 million outstanding as of January 3, 2010 and revolving credit borrowings of $59.7 million and letter of credit commitments of $4.6 million outstanding as of September 27, 2009.

     Financing Agreement. As of October 3, 2010, we had a financing agreement with The CIT Group/Business Credit, Inc. (“CIT”) and a syndicate of other lenders, as amended (the “Prior Financing Agreement”, which was terminated and replaced on October 18, 2010 as discussed below), which originally provided for a line of credit up to $175.0 million that was permanently reduced to $140.0 million in the second quarter of fiscal 2010. The initial termination date of the Prior Financing Agreement was March 20, 2011. The Prior Financing Agreement provided for interest at various rates based on our overall borrowings, with a floor of the LIBO rate plus 1.00% or the JP Morgan Chase Bank prime lending rate and a ceiling of the LIBO rate plus 1.50% or the JP Morgan Chase Bank prime lending rate. An annual fee of 0.325%, payable monthly, was assessed on the unused portion of the revolving credit facility. As of October 3, 2010 and January 3, 2010, our total remaining borrowing availability under the revolving credit facility, after subtracting letters of credit, was $84.0 million and $94.3 million, respectively.

     On October 18, 2010, we entered into a new credit agreement (the “New Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and a syndicate of other lenders.

     We borrowed $67.4 million under the New Credit Agreement on October 18, 2010 and used the proceeds from such borrowing to, among other things, repay all of our

outstanding indebtedness under the Prior Financing Agreement with CIT, at which time the Prior Financing Agreement was terminated.

     The New Credit Agreement provides for a revolving credit facility (the “Credit Facility”) with an aggregate committed availability of up to $140.0 million, which amount may be increased at our option up to a maximum of $165.0 million. We may also request additional increases in aggregate availability, up to a maximum of $200.0 million, in which case the existing lenders under the New Credit Agreement will have the option to increase their commitments to accommodate the requested increase. If such existing lenders do not exercise that option, we may (with the consent of Wells Fargo, not to be unreasonably withheld) seek other lenders willing to provide such commitments. The Credit Facility includes a $50.0 million sublimit for issuances of letters of credit and a $20.0 million sublimit for swingline loans.

     We may borrow under the Credit Facility from time to time, provided the amounts outstanding will not exceed the lesser of the then aggregate availability (as described above) and the Borrowing Base (such lesser amount being referred to as the “Loan Cap”). The “Borrowing Base” generally is comprised of the sum, at the time of calculation of (a) 90.00% of our eligible credit card accounts receivable; plus (b)(i) during the period of September 15 through December 15 of each year, the cost of our eligible inventory, net of inventory reserves, multiplied by 90.00% of the appraised net orderly liquidation value of eligible inventory (expressed as a percentage of the cost of eligible inventory); and (ii) at all other times, the cost of our eligible inventory, net of inventory reserves, multiplied by 85.00% of the appraised net orderly liquidation value of eligible inventory (expressed as a percentage of the cost of eligible inventory); plus (c) the lesser of (i) the cost of our eligible in-transit inventory, net of inventory reserves, multiplied by 85.00% of the appraised net orderly liquidation value of our eligible in-transit inventory (expressed as a percentage of the cost of eligible in-transit inventory), or (ii) $10.0 million, minus (d) certain reserves established by Wells Fargo in its role as the Administrative Agent in its reasonable discretion.

     Generally, we may designate specific borrowings under the Credit Facility as either base rate loans or LIBO rate loans. In each case, the applicable interest rate will be a function of the daily average, over the preceding fiscal quarter, of the excess of the Loan Cap over amounts outstanding under the Credit Facility (such amount being referred to as the “Average Daily Excess Availability”).

     Those loans designated as LIBO rate loans shall bear interest at a rate equal to the then applicable LIBO rate plus an applicable margin as shown in the table below. Those loans designated as base rate loans shall bear interest at a rate equal to the applicable margin for base rate loans (as shown below) plus the highest of (a) the Federal funds rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the LIBO rate, as adjusted to account for statutory reserves, plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its “prime rate”.

     The applicable margin shall be as set forth for Level II in the table below from October 18, 2010 through January 2, 2011. Thereafter, the applicable margin for all loans will be as set forth below as a function of Average Daily Excess Availability for the preceding fiscal quarter.

LIBO Rate

Base Rate

Average Daily Excess

Applicable

Applicable

Level

Availability

Margin

Margin

I

Greater than 50% of the Loan Cap

2.00

%

1.00

%

II

Less than or equal to 50% of the Loan Cap

2.25

%

1.25

%

     If any amount payable under the Credit Facility is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter generally bear interest at a default rate equal to the interest rate otherwise applicable plus 2.00% per annum. So long as any other event of default exists, the lenders have the right to raise the applicable interest rate on all outstanding amounts to the above described default rate.

     An annual commitment fee of 0.375% per annum, payable quarterly in arrears, is assessed on the unused portion of the Credit Facility, if Average Daily Excess Availability for the preceding fiscal quarter is less than or equal to 50.00% of the commitments under the Credit Facility. An annual commitment fee of 0.50% per annum, payable quarterly in arrears, is assessed on the unused portion of the Credit Facility, if the Average Daily Excess Availability for the preceding fiscal quarter is greater than 50.00% of the commitments under the Credit Facility.

     All amounts outstanding under the Credit Facility will mature and become due on October 18, 2014. We may prepay any amounts outstanding at any time, subject to payment of certain breakage and redeployment costs relating to LIBO rate loans. The commitments under the Credit Facility may be irrevocably reduced or terminated by us at any time without premium or penalty.

     If at any time the aggregate amount of the loans outstanding under the Credit Facility, together with letters of credit, exceeds the Loan Cap as of that date, then we must immediately repay loans and, if necessary thereafter, cash collateralize letters of credit in an aggregate amount equal to such excess.

     Our New Credit Agreement contains covenants that limit our ability to, among other things: incur liens, incur additional indebtedness, transfer or dispose of assets, change the nature of the business, guarantee obligations, pay dividends or make other distributions or repurchase stock, and make advances, loans or investments.

     In addition, if at any time the excess of the Loan Cap over amounts outstanding under the Credit Facility (the “Excess Availability”) falls below 12.50% of the Loan Cap, we must maintain a minimum consolidated fixed charge coverage ratio (as defined in the New Credit Agreement), calculated monthly on a trailing twelve months basis, of not less than 1.0:1.0, until such time as Excess Availability has equaled or exceeded 12.50% of the Loan Cap at all times for 60 consecutive calendar days.

     We may declare or pay cash dividends or repurchase stock only if (i) no default or event of default then exists or would arise from such dividend or repurchase of stock, (ii) after giving effect to such payment, Adjusted Excess Availability (an amount equal to the Borrowing Base minus the outstanding amount of Loans and Letters of Credit) on a pro forma basis is projected to be equal to or greater than $30.0 million for the immediately following 90 days, (iii) after giving effect to such payment, Excess Availability on a pro forma basis is projected to be equal to or greater than $10.0 million for the immediately following 90 days, and (iv) after giving effect to such payment, the consolidated fixed charge coverage ratio on a pro forma basis for the immediately preceding 12 fiscal months is greater than 1.0:1.0.

     The New Credit Agreement contains customary events of default, including, without limitation, failure to pay when due principal amounts with respect to the Credit Facility, failure to pay any interest or other amounts under the Credit Facility for five days after becoming due, failure to comply with certain agreements or covenants contained in the New Credit Agreement, failure to satisfy certain judgments against us, failure to pay when due (or any other default which does or may lead to the acceleration of) certain other material indebtedness in principal amount in excess of $5.0 million, and certain insolvency and bankruptcy events.

     Obligations under the Credit Facility are secured by a general lien and security interest in substantially all of our assets, including accounts receivable, documents, equipment, general intangibles and inventory.

     The New Credit Agreement and certain related documents are filed as Exhibits 10.1, 10.2 and 10.3 to this Quarterly Report on Form 10-Q.

     Future Capital Requirements. We had cash on hand of $4.1 million at October 3, 2010. We expect capital expenditures for the last quarter of fiscal 2010, excluding non-cash property and equipment acquisitions, to range from approximately $6.0 million to $7.0 million, primarily to fund the opening of new stores, store-related remodeling, distribution center equipment and computer hardware and software purchases. As a result of the economic recession, we slowed our store expansion efforts substantially in fiscal 2009 by opening only three net new stores. We anticipate opening 14 net new stores in fiscal 2010.

     During fiscal 2009 and for the first three quarters of fiscal 2010, we paid quarterly cash dividends of $0.05 per share of outstanding common stock. In the fourth quarter of fiscal 2010, our Board of Directors declared a quarterly cash dividend of $0.05 per share of outstanding common stock, which will be paid on December 15, 2010 to stockholders of record as of December 1, 2010.

     As of October 3, 2010, a total of $14.2 million remained available for share repurchases under our share repurchase program. We did not make any share repurchases in fiscal 2009 or the first three quarters of fiscal 2010 due to the economic recession and expect limited, if any, share repurchases in fiscal 2010.

     We believe we will be able to fund our cash requirements from cash on hand, operating cash flows and borrowings from our Credit Facility for at least the next 12 months. However, our ability to satisfy such cash requirements depends upon our future performance, which in turn is subject to general economic conditions and regional risks, and to financial, business and other factors affecting our operations, including factors beyond our control. There is no assurance that we will be able to generate sufficient cash flows from operations or maintain our ability to borrow under our Credit Facility.

     If we are unable to generate sufficient cash flows from operations to meet our obligations and commitments, or if we are unable to maintain our ability to borrow sufficient amounts under our Credit Facility, we will be required to refinance or restructure our indebtedness or raise additional debt or equity capital. Additionally, we may be required to sell material assets or operations, suspend or further reduce dividend payments or delay or forego expansion opportunities. We might not be able to implement successful alternative strategies on satisfactory terms, if at all.

     Off-Balance Sheet Arrangements and Contractual Obligations. Our material off-balance sheet arrangements are operating lease obligations and letters of credit. We excluded these items from the balance sheet in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

     Operating lease commitments consist principally of leases for our retail store facilities, distribution center and corporate office. Our facility leases frequently include options which permit us to extend the terms beyond the initial fixed lease term. With respect to most of those leases, we intend to renegotiate those leases as they expire.

     Issued and outstanding letters of credit were $0.8 million at October 3, 2010, and were related primarily to importing merchandise and funding insurance program liabilities.

     Our material contractual obligations include capital lease obligations, revolving credit borrowings, certain occupancy costs related to our leased properties and other liabilities. Capital lease obligations consist principally of leases for some of our distribution center delivery tractors, management information systems hardware and point-of-sale equipment for our stores. Our revolving credit borrowings fluctuate daily depending on operating, investing and financing cash flows. Occupancy costs include estimated property maintenance fees and property taxes for our stores, distribution center and corporate headquarters. Other liabilities consist principally of actuarially-determined reserve estimates related to self-insurance liabilities, a contractual obligation for the surviving spouse of Robert W. Miller, our co-founder, and asset retirement obligations related to the removal of leasehold improvements for certain stores upon termination of their leases.

     Included in the Liquidity and Capital Resources section of Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of

our Annual Report on Form 10-K/A for the fiscal year ended January 3, 2010, is a discussion of our future obligations and commitments as of January 3, 2010. In the 39 weeks ended October 3, 2010, our revolving credit borrowings remained relatively unchanged from the end of fiscal 2009. As described in the Financing Agreement section of Liquidity and Capital Resources above, on October 18, 2010 we replaced our Prior Financing Agreement which was scheduled to mature on March 11, 2011 with the New Credit Agreement which matures on October 18, 2014. Our annual interest payments would not materially change as originally presented due to the replacement of our financing agreement. We entered into new operating lease agreements in relation to our business operations during the 39 weeks ended October 3, 2010, but do not believe that these operating leases would materially change our contractual obligations or commitments presented as of January 3, 2010.

     In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected delivery. Because most of these purchase orders do not contain any termination payments or other penalties if cancelled, they are not included as outstanding contractual obligations.

Critical Accounting Estimates

     As discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K/A for the fiscal year ended January 3, 2010, we consider our estimates on inventory valuation, impairment of long-lived assets and self-insurance reserves to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements. There have been no significant changes to these estimates in the 39 weeks ended October 3, 2010.

Seasonality and Impact of Inflation

     We experience seasonal fluctuations in our net sales and operating results and typically generate higher net sales in the fourth fiscal quarter, which includes the holiday selling season. Accordingly, in the fourth fiscal quarter we experience normally higher purchase volumes and increased expense for staffing and advertising. Seasonality influences our buying patterns which directly impacts our merchandise and accounts payable levels and cash flows. We purchase merchandise for seasonal activities in advance of a season. If we miscalculate the demand for our products generally or for our product mix during the fourth fiscal quarter, our net sales can decline, resulting in excess inventory, which can harm our financial performance. A shortfall from expected fourth fiscal quarter net sales can negatively impact our annual operating results.

     In the first half of fiscal 2009, we experienced increasing inflation in the purchase cost of certain products, while during the last half of fiscal 2009 the trend of inflation in product purchase costs generally appeared to stabilize. In the first half of fiscal 2010, the impact of inflation was minimal, although there appears to be increasing inflationary cost pressure in the second half of this year. If we are unable to adjust our merchandise selling prices to cover purchase cost increases then our merchandise margins will decline, which could adversely impact our operating results.

Recently Issued Accounting Updates

     See Note 2 to Interim Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Forward-Looking Statements

     This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, our financial condition, our results of operations, our growth strategy and the business of our company generally. In some cases, you can identify such statements by terminology such as “may”, “could”, “project”, “estimate”, “potential”, “continue”, “should”, “expects”, “plans”, “anticipates”, “believes”, “intends” or other such terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, continued or worsening weakness in the consumer spending environment and the U.S. financial and credit markets, the competitive environment in the sporting goods industry in general and in our specific market areas, inflation, product availability and growth opportunities, seasonal fluctuations, weather conditions, changes in cost of goods, operating expense fluctuations, disruption in product flow, changes in interest rates, credit availability, higher costs associated with sources of credit resulting from uncertainty in financial markets and economic conditions in general. Those and other risks and uncertainties are more fully described in Part II, Item 1A, Risk Factors, in this report and in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K/A and other filings with the Securities and Exchange Commission. We caution that the risk factors set forth in this report are not exclusive. In addition, we conduct our business in a highly competitive and rapidly changing environment. Accordingly, new risk factors may arise. It is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. We undertake no obligation to revise or update any forward-looking statement that may be made from time to time by us or on our behalf.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

     We are subject to risks resulting from interest rate fluctuations since interest on our borrowings under our Credit Facility is based on variable rates. We enter into borrowings under our Credit Facility principally for working capital, capital expenditures and general corporate purposes. We routinely evaluate the best use of our cash and manage financial statement exposure to interest rate fluctuations by managing our level of indebtedness and the interest base rate options on such indebtedness. We do not utilize derivative instruments and do not engage in foreign currency transactions or hedging activities to manage our interest rate risk. If the interest rate on our debt was to change 1.0% as compared to the rate at October 3, 2010, our interest expense would change approximately $0.6 million on an annual basis based on the outstanding balance of our borrowings under our Credit Facility at October 3, 2010.

Item 4.		Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures are effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

     During the fiscal quarter ended October 3, 2010, no changes occurred with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.		Legal Proceedings

     On August 6, 2009, the Company was served with a complaint filed in the California Superior Court for the County of San Diego, entitled Shane Weyl v. Big 5 Corp., et al., Case No. 37-2009-00093109-CU-OE-CTL, alleging violations of the California Labor Code and the California Business and Professions Code. The complaint was brought as a purported class action on behalf of the Company’s hourly employees in California for the four years prior to the filing of the complaint. The plaintiff alleges, among other things, that the Company failed to provide hourly employees with meal and rest periods and failed to pay wages within required time periods during employment and upon termination of employment. The plaintiff seeks, on behalf of the class members, an award of one hour of pay (wages) for each workday that a meal or rest period was not provided; restitution of unpaid wages; actual, consequential and incidental losses and damages; pre-judgment interest; statutory penalties including an additional thirty days’ wages for each hourly employee in California whose employment terminated in the four years preceding the filing of the complaint; civil penalties; an award of attorneys’ fees and costs; and injunctive and declaratory relief. On December 14, 2009, the parties engaged in mediation and agreed to settle the lawsuit. On February 4, 2010, the parties filed a joint settlement and a motion to preliminarily approve the settlement with the court. On July 16, 2010, the court granted preliminary approval of the settlement and scheduled a hearing for December 10, 2010, to consider final approval of the settlement. Under the terms of the settlement, the Company agreed to pay up to a maximum amount of $2.0 million, which includes payments to class members who submit valid and timely claim forms, plaintiff’s attorneys’ fees and expenses, an enhancement payment to the class representative, claims administrator fees and payment to the California Labor and Workforce Development Agency. Under the settlement, in the event that fewer than all class members submit valid and timely claims, the total amount required to be paid by the Company will be reduced, subject to a minimum payment amount calculated in the manner provided in the settlement agreement. The Company’s anticipated total payments pursuant to this settlement have been reflected in a legal settlement accrual recorded in the fourth quarter of fiscal 2009. The Company admitted no liability or wrongdoing with respect to the claims set forth in the lawsuit. Once final approval is granted, the settlement will constitute a full and complete settlement and release of all claims related to the lawsuit. If the court does not grant final approval of the settlement, the Company intends to defend the lawsuit vigorously. If the settlement is not finally approved by the court and the lawsuit is resolved unfavorably to the Company, this litigation, the costs of defending it and any required change in the Company’s labor practices could have a material negative impact on the Company’s results of operations and financial condition.

     On August 13, 2009, the Company was served with a complaint filed in the California Superior Court for the County of San Diego, entitled Michael Kelly v. Big 5 Sporting Goods Corporation, et al., Case No. 37-2009-00095594-CU-MC-CTL, alleging violations of the California Business and Professions Code and California Civil Code. The complaint was brought as a purported class action on behalf of persons who purchased certain tennis, racquetball and squash racquets from the Company. The plaintiff alleges, among other things, that the Company employed deceptive pricing, marketing and advertising practices

with respect to the sale of such rackets. The plaintiff seeks, on behalf of the class members, unspecified amounts of damages and/or restitution; attorneys’ fees and costs; and injunctive relief to require the Company to discontinue the allegedly improper conduct. On July 20, 2010, the plaintiff filed with the court a Motion for Class Certification. On September 1, 2010, the plaintiff and the Company engaged in mediation in an effort to negotiate a settlement agreement, but the mediation adjourned without a settlement. Any settlement agreement would be subject to court approval. On September 24, 2010, the Company filed with the court an Opposition to Plaintiff’s Motion for Class Certification. Currently the court is scheduled to conduct a hearing regarding plaintiff’s Motion for Class Certification on November 30, 2010, and a trial on the merits of plaintiff’s claims on February 18, 2011. If the plaintiff and the Company are unable to negotiate a settlement agreement, the Company intends to defend the lawsuit vigorously. Because this dispute remains in the preliminary stages and, among other things, discovery is still ongoing, the Company is not able to evaluate the likelihood of a settlement or an unfavorable outcome in this case or to estimate a range of potential loss in the event of a settlement or an unfavorable outcome in this case at the present time. If settled or resolved unfavorably to the Company, this litigation, the costs of defending it and any resulting required change in the business practices of the Company could have a material negative impact on the Company’s results of operations and financial condition.

     The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material negative impact on the Company’s financial position, results of operations or liquidity.

Item 1A. Risk Factors

     There have been no material changes to the risk factors identified in Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K/A for the fiscal year ended January 3, 2010.

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

     None.

Item 3.		Defaults Upon Senior Securities

     None.

Item 4.		(Removed and Reserved)

Item 5.		Other Information

     None.

Item 6.		Exhibits

     (a) Exhibits

Exhibit Number				Description of Document
	10.1			Credit Agreement, dated as of October 18, 2010, among Big 5 Corp., Big 5 Services Corp. and Big 5 Sporting Goods Corporation, Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent and Swingline Lender, the Lenders named therein, and Bank of America, N.A. as Documentation Agent.
	10.2			Security Agreement, dated as of October 18, 2010, among Big 5 Corp., Big 5 Services Corp. and Big 5 Sporting Goods Corporation and Wells Fargo Bank, National Association, as Collateral Agent.
	10.3			Guaranty, dated as of October 18, 2010, by Big 5 Sporting Goods Corporation in favor of Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent for the Lenders described therein.
	15.1			Independent Auditors’ Awareness Letter Regarding Interim Financial Statements.
	31.1			Rule 13a-14(a) Certification of Chief Executive Officer.
	31.2			Rule 13a-14(a) Certification of Chief Financial Officer.
	32.1			Section 1350 Certification of Chief Executive Officer.
	32.2			Section 1350 Certification of Chief Financial Officer.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BIG 5 SPORTING GOODS CORPORATION,
	a Delaware corporation
Date: November 3, 2010	By:	/s/ Steven G. Miller
		Steven G. Miller
		Chairman of the Board of Directors,
		President and Chief Executive Officer
Date: November 3, 2010	By:	/s/ Barry D. Emerson
		Barry D. Emerson
		Senior Vice President,
		Chief Financial Officer and Treasurer
		(Principal Financial and
		Accounting Officer)

Exhibit 10.1

 

 

CREDIT AGREEMENT

Dated as of October 18, 2010

among

Big 5 Corp.,
as the Lead Borrower

For

The Borrowers Named Herein

Big 5 Sporting Goods Corporation,
as Guarantor

Wells Fargo Bank, National Association
as Administrative Agent and Collateral Agent and Swing Line Lender,

and

The Other Lenders Party Hereto

Bank of America, N.A.,
as Documentation Agent

Wells Fargo Capital Finance, LLC,
as
Sole Lead Arranger and Sole Book Manager

 

 

 

TABLE OF CONTENTS

Section		Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS			1
1.01 Defined Terms			1
1.02 Other Interpretive Provisions			42
1.03 Accounting Terms			43
1.04 Rounding			43
1.05 Times of Day			43
1.06 Letter of Credit Amounts			43
ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS			44
2.01 Committed Loans; Reserves			44
2.02 Borrowings, Conversions and Continuations of Committed Loans			44
2.03 Letters of Credit			46
2.04 Swing Line Loans			54
2.05 Prepayments			56
2.06 Termination or Reduction of Commitments			57
2.07 Repayment of Loans			58
2.08 Interest			58
2.09 Fees			59
2.10 Computation of Interest and Fees			59
2.11 Evidence of Debt			59
2.12 Payments Generally; Administrative Agent’s Clawback			60
2.13 Sharing of Payments by Lenders			61
2.14 Settlement Amongst Lenders			62
2.15 Increase in Commitments			62
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY; APPOINTMENT OF LEAD BORROWER			64
3.01 Taxes			64
3.02 Illegality			66
3.03 Inability to Determine Rates			66
3.04 Increased Costs; Reserves on LIBO Rate Loans			67
3.05 Compensation for Losses			68
3.06 Mitigation Obligations; Replacement of Lenders			68
3.07 Survival			69
3.08 Designation of Lead Borrower as Borrowers’ Agent			69
ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS			69
4.01 Conditions of Initial Credit Extension			69
4.02 Conditions to all Credit Extensions			73
ARTICLE V REPRESENTATIONS AND WARRANTIES			74
5.01 Existence, Qualification and Power			74
5.02 Authorization; No Contravention			74
5.03 Governmental Authorization; Other Consents			74
5.04 Binding Effect			75
5.05 Financial Statements; No Material Adverse Effect			75

Section		Page
5.06 Litigation			75
5.07 No Default			76
5.08 Ownership of Property; Liens			76
5.09 Environmental Compliance			76
5.10 Insurance			77
5.11 Taxes			77
5.12 ERISA Compliance			78
5.13 Subsidiaries; Equity Interests			78
5.14 Margin Regulations; Investment Company Act;			78
5.15 Disclosure			79
5.16 Compliance with Laws			79
5.17 Intellectual Property; Licenses, Etc.			79
5.18 Labor Matters			79
5.19 Security Documents			80
5.20 Solvency			81
5.21 Deposit Accounts; Credit Card Arrangements			81
5.22 Brokers			81
5.23 Intentionally Omitted			81
5.24 Material Contracts			81
5.25 Casualty			81
ARTICLE VI AFFIRMATIVE COVENANTS			81
6.01 Financial Statements			81
6.02 Certificates; Other Information			82
6.03 Notices			84
6.04 Payment of Obligations			85
6.05 Preservation of Existence, Etc.			85
6.06 Maintenance of Properties			85
6.07 Maintenance of Insurance			85
6.08 Compliance with Laws			86
6.09 Books and Records; Accountants			87
6.10 Inspection Rights			87
6.11 Use of Proceeds			87
6.12 Additional Loan Parties			87
6.13 Cash Management			88
6.14 Information Regarding the Collateral			89
6.15 Physical Inventories			90
6.16 Environmental Laws			90
6.17 Further Assurances			90
6.18 Compliance with Terms of Leaseholds			91
6.19 Material Contracts			91
ARTICLE VII NEGATIVE COVENANTS			91
7.01 Liens			91
7.02 Investments			91
7.03 Indebtedness; Disqualified Stock			91
7.04 Fundamental Changes			91
7.05 Dispositions			92
7.06 Restricted Payments			92
7.07 Prepayments of Indebtedness			92
7.08 Change in Nature of Business			93

Section		Page
7.09 Transactions with Affiliates			93
7.10 Burdensome Agreements			93
7.11 Use of Proceeds			93
7.12 Amendment of Material Documents			93
7.13 Fiscal Year			94
7.14 Deposit Accounts; Credit Card Processors			94
7.15 Consolidated Fixed Charge Coverage Ratio			94
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES			94
8.01 Events of Default			94
8.02 Remedies Upon Event of Default			96
8.03 Application of Funds			97
ARTICLE IX ADMINISTRATIVE AGENT			98
9.01 Appointment and Authority			98
9.02 Rights as a Lender			99
9.03 Exculpatory Provisions			99
9.04 Reliance by Agents			100
9.05 Delegation of Duties			100
9.06 Resignation and Removal of Agents			100
9.07 Non-Reliance on Administrative Agent and Other Lenders			101
9.08 No Other Duties, Etc.			102
9.09 Administrative Agent May File Proofs of Claim			102
9.10 Collateral and Guaranty Matters			102
9.11 Notice of Transfer			103
9.12 Reports and Financial Statements			103
9.13 Agency for Perfection			104
9.14 Indemnification of Agents			104
9.15 Relation among Lenders			104
9.16 Defaulting Lender			104
9.17 Syndication Agent; Documentation Agent			105
ARTICLE X MISCELLANEOUS			105
10.01 Amendments, Etc.			105
10.02 Notices; Effectiveness; Electronic Communications			107
10.03 No Waiver; Cumulative Remedies			109
10.04 Expenses; Indemnity; Damage Waiver			109
10.05 Payments Set Aside			110
10.06 Successors and Assigns			111
10.07 Treatment of Certain Information; Confidentiality			114
10.08 Right of Setoff			114
10.09 Interest Rate Limitation			114
10.10 Counterparts; Integration; Effectiveness			115
10.11 Survival			115
10.12 Severability			115
10.13 Replacement of Lenders			115
10.14 Governing Law; Jurisdiction; Etc.			116
10.15 Waiver of Jury Trial			117
10.16 No Advisory or Fiduciary Responsibility			117
10.17 USA PATRIOT Act Notice			118
10.18 Foreign Asset Control Regulations			118

Section		Page
10.19 Time of the Essence			118
10.20 Press Releases			118
10.21 Additional Waivers			119
10.22 No Strict Construction			120
10.23 Attachments			121
SIGNATURES			S-1

1.01		Borrowers
2.01		Commitments and Applicable Percentages
5.01		Loan Parties Organizational Information
5.05		Supplement to Interim Financial Statements
5.06		Litigation
5.08(b)(1)		Owned Real Estate
5.08(b)(2)		Leased Real Estate
5.09		Environmental Matters
5.10		Insurance
5.13		Subsidiaries; Other Equity Investments
5.17		Intellectual Property Matters
5.18		Collective Bargaining Agreements
5.21(a)		DDAs
5.21(b)		Credit Card Arrangements
5.24		Material Contracts
6.02		Financial and Collateral Reporting
7.01		Existing Liens
7.02		Existing Investments
7.03		Existing Indebtedness
10.02		Administrative Agent’s Office; Certain Addresses for Notices

		Form of
A		Committed Loan Notice
B		Swing Line Loan Notice
C		Note
D		Compliance Certificate
E		Assignment and Assumption
F		Borrowing Base Certificate
G		DDA Notification
H		Credit Card Notification

CREDIT AGREEMENT

     This CREDIT AGREEMENT (“Agreement”) is entered into as of October 18, 2010, among

     Big 5 Corp., a Delaware corporation (the “Lead Borrower”), as agent for itself and Big 5 Services Corp., a Virginia corporation (together with the Lead Borrower, individually, a “Borrower”, and collectively, the “Borrowers”),

     Big 5 Sporting Goods Corporation, a Delaware corporation (the “Parent”),

     each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”),

     Wells Fargo Bank, NATIONAL ASSOCIATION, as Administrative Agent, Collateral Agent, and Swing Line Lender, and

     Bank of America, N.A., as Documentation Agent.

     The Borrowers have requested that the Lenders provide a revolving credit facility, and the Lenders have indicated their willingness to lend and Agent has indicated its willingness to cause the L/C Issuer to issue Letters of Credit, in each case on the terms and conditions set forth herein.

     In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

     1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

     “Accelerated Borrowing Base Delivery Event” means either (i) the occurrence and continuance of any Event of Default, or (ii) the failure of the Borrowers to maintain Availability at least equal to fifteen percent (15%) of the Loan Cap. For purposes of this Agreement, the occurrence of an Accelerated Borrowing Base Delivery Event shall be deemed continuing (i) so long as such Event of Default has not been waived, and/or (ii) if the Accelerated Borrowing Base Delivery Event arises as a result of the Borrowers’ failure to achieve Availability as required hereunder, until Availability has equaled or exceeded fifteen percent (15%) of the Loan Cap for thirty (30) consecutive calendar days, in which case an Accelerated Borrowing Base Delivery Event shall no longer be deemed to be continuing for purposes of this Agreement.

     “Acceptable Document of Title” means, with respect to any Inventory, a tangible bill of lading or other Document (as defined in the UCC) that (a) is issued by a common carrier which is not an Affiliate of the Approved Foreign Vendor or any Loan Party which is in actual possession of such Inventory, (b) is issued to the order of the Borrower, (c) is the subject of Customs Broker Agreement on terms reasonably acceptable to the Collateral Agent, (d) is not subject to any Lien (other than in favor of the Collateral Agent), and (e) is on terms otherwise reasonably acceptable to the Collateral Agent.

     “ACH” means automated clearing house transfers.

     “Accommodation Payment” as defined in Section 10.21(d).

     “Account” means “accounts” as defined in the UCC.

     “Acquisition” means, with respect to any Person (a) a purchase of a Controlling interest in the Equity Interests of any other Person (whether by means of merger, consolidation or otherwise), (b) a purchase or other acquisition of all or substantially all of the assets or properties of, another Person or of any business unit of another Person, or (c) any acquisition of Store locations of any Person in any Fiscal Year in an amount greater than five (5%) percent of the aggregate amount of the Loan Parties’ Stores at the beginning of such Fiscal Year, in each case in any transaction or group of transactions which are part of a common plan.

     “Act” shall have the meaning provided in Section 10.17.

     “Additional Commitment Lender” shall have the meaning provided in Section 2.15(b)(iii).

     “Adjusted Availability” means, as of any date of determination thereof, the result, if a positive number, of:

     (a) The Borrowing Base

     Minus

     (b) The aggregate unpaid balance of Credit Extensions.

     “Adjusted LIBO Rate” means:

     (a) for any Interest Period with respect to any LIBO Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of one percent) equal to (i) the LIBO Rate for such Interest Period multiplied by (ii) the Statutory Reserve Rate; and

     (b) for any interest rate calculation with respect to any Base Rate Loan, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of one percent) equal to (i) the LIBO Rate for an Interest Period commencing on the date of such calculation and ending on the date that is thirty (30) days thereafter multiplied by (ii) the Statutory Reserve Rate.

     The Adjusted LIBO Rate will be adjusted automatically on and as of the effective date of any change in the Statutory Reserve Rate.

     “Adjustment Date” means January 3, 2011, and the first day of each Fiscal Quarter occurring thereafter.

     “Administrative Agent” means Wells Fargo in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

     “Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify the Lead Borrower and the Lenders.

     “Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

     “Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

     “Agent(s)” means, individually, the Administrative Agent or the Collateral Agent, and collectively means both of them.

     “Agent Parties” shall have the meaning specified in Section 10.02(c).

     “Aggregate Commitments” means the Commitments of all the Lenders. As of the Closing Date, the Aggregate Commitments are $140,000,000.

     “Agreement” means this Credit Agreement.

     “Allocable Amount” has the meaning specified in Section 10.21(d).

     “Applicable Commitment Fee Percentage” means the applicable percentage set forth in the grid below:

Average Daily Availability for the immediately preceding Fiscal Quarter		Applicable Commitment Fee Percentage
Less than or equal to 50% of the Aggregate Commitments		0.375%
Greater than 50% of the Aggregate Commitments		0.50%

     “Applicable Lenders” means the Required Lenders, all affected Lenders, or all Lenders, as the context may require.

     “Applicable Margin” means:

     (a) From and after the Closing Date until the first Adjustment Date, the percentages set forth in Level II of the pricing grid below; and

     (b) From and after the first Adjustment Date and on each Adjustment Date thereafter, the Applicable Margin shall be determined from the following pricing grid based upon the Average Daily Availability as of the Fiscal Quarter ended immediately preceding such Adjustment Date; provided, however, that until the Adjustment Date which is January 3, 2011, the Applicable Margin shall not be established at Level I (even if the Average Daily Availability requirements for Level I have been met; provided further that notwithstanding anything to the contrary set forth herein, upon the occurrence and during the continuance of an Event of Default, interest shall accrue at the Default Rate; provided further if any Borrowing Base Certificates are at any time restated or otherwise revised because the information set forth therein proves to be false or incorrect such that the Applicable Margin would have been higher than was otherwise in effect during the period covered thereby, without constituting a waiver of any Default or Event of Default arising as a result thereof, interest due under this Agreement shall be immediately recalculated at such higher rate for any applicable periods and shall be due and payable on demand.

												Commercial				Standby
		Average Daily		LIBOR				Base Rate				Letter of Credit				Letter of
Level		Availability		Margin				Margin				Fee				Credit Fee
I		Greater than 50% of the Loan Cap			2.00	%			1.00	%			1.50	%			2.00	%
II		Less than or equal to 50% of the Loan Cap			2.25	%			1.25	%			1.75	%			2.25	%

     “Applicable Percentage” means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender’s Commitment at such time. If the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 2.06 or Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

     “Appraised Value” means the appraised orderly liquidation value with respect to the Borrowers’ Eligible Inventory, net of costs and expenses to be incurred in connection with any such liquidation, which value is expressed as a percentage of Cost of Eligible Inventory as set forth in the inventory stock ledger of the Lead Borrower, which value shall be determined from time to time by the most recent appraisal undertaken by an independent appraiser engaged by the Administrative Agent.

     “Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender, (c) an entity or an Affiliate of an entity that administers or manages a Lender or (d) the same investment advisor or an advisor under common control with such Lender, Affiliate or advisor, as applicable.

     “Approved Foreign Vendor” means a Foreign Vendor which (a) is located in any country acceptable to the Collateral Agent in its discretion, (b) has received timely payment or performance of all obligations owed to it by the Loan Parties, and (c) has not asserted and has no right to assert any reclamation, repossession, diversion, stoppage in transit, Lien or title retention rights in respect of such Inventory.

     “Arranger” means Wells Fargo Capital Finance, LLC, in its capacity as sole lead arranger and sole book manager.

     “Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

     “Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.

     “Attributable Indebtedness” means, on any date, (a) in respect of any Capital Lease Obligation of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease, agreement or instrument were accounted for as a capital lease.

     “Audited Financial Statements” means the audited consolidated balance sheet of the Parent and its Subsidiaries for the fiscal year ended January 3, 2010, and the related consolidated statements of income or operations, Shareholders’ Equity and cash flows for such fiscal year of the Parent and its Subsidiaries, including the notes thereto.

     “Auto-Extension Letter of Credit” shall have the meaning specified in Section 2.03(b)(iii).

     “Availability” means, as of any date of determination thereof, the result, if a positive number, of:

     (a) The Loan Cap

     Minus

     (b) The aggregate unpaid balance of Credit Extensions.

     “Availability Period” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.

     “Availability Reserves” means, without duplication of any other Reserves or items to the extent such items are otherwise addressed or excluded through eligibility criteria, such reserves as the Administrative Agent, from time to time and in compliance with Section 2.01(c), determines in its reasonable discretion as being appropriate (a) to reflect the impediments to the Agents’ ability to realize upon the Collateral, (b) to reflect claims and liabilities that the Administrative Agent reasonably determines will need to be satisfied in connection with any realization upon the Collateral, (c) to reflect criteria, events, conditions, contingencies or risks which adversely affect any component of the Borrowing Base, or the assets, business, financial performance or financial condition of any Loan Party, or (d) to reflect that a Default or an Event of Default then exists. Without limiting the generality of the foregoing, Availability Reserves may include, in the Administrative Agent’s reasonable discretion, (but are not limited to) reserves based on: (i) rent; (ii) customs duties, and other costs to release Inventory which is being imported into the United States; (iii) outstanding Taxes and other governmental charges, including, without limitation, ad valorem, real estate, personal property, sales, claims of the PBGC and other Taxes which may have priority over the interests of the Collateral Agent in the Collateral; (iv) salaries, wages and benefits due to employees of any Borrower, (v) Customer Credit Liabilities, (vi) Customer Deposits, (vii) reserves for reasonably anticipated changes in the Appraised Value of Eligible Inventory between appraisals, (viii) warehousemen’s or bailee’s charges and other Permitted Encumbrances which may have priority over the interests of the Collateral Agent in the Collateral, (ix) amounts due to vendors on account of consigned goods, (x) Cash Management Reserves, (xi) Bank Products Reserves and (xii) royalties payable in respect of licensed merchandise.

     “Average Daily Availability” shall mean the average daily Availability as reflected in the Administrative Agent’s books and records (absent manifest error) for the immediately preceding Fiscal Quarter.

     “Bank Products” means any services or facilities provided to any Loan Party by any Lender or any of its Affiliates (but excluding Cash Management Services) including, without limitation, on account of (a) Swap Contracts, (b) merchant services constituting a line of credit, and (c) leasing, but excluding any factoring services or Supply Chain Financing.

     “Bank Product Reserves” means such reserves as the Administrative Agent from time to time determines as appropriate to reflect the credit exposure of the Loan Parties in respect of Bank Products, as such exposure has been reasonably determined by the providers of such Bank Products.

     “Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the Adjusted LIBO Rate plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by Wells Fargo as its “prime rate.” The “prime rate” is a rate set by Wells Fargo based upon various factors including Wells Fargo’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Wells Fargo shall take effect at the opening of business on the day specified in the public announcement of such change.

     “Base Rate Loan” means a Loan that bears interest based on the Base Rate.

     “Blocked Account” has the meaning provided in Section 6.13(a)(ii).

     “Blocked Account Agreement” means with respect to an account established by a Loan Party, an agreement, in form and substance reasonably satisfactory to the Collateral Agent, establishing control (as defined in the UCC) of such account by the Collateral Agent and whereby the bank maintaining such account agrees, upon the occurrence and during the continuance of a Cash Dominion Event, to comply only with the instructions originated by the Collateral Agent without the further consent of any Loan Party.

     “Blocked Account Bank” means each bank with whom deposit accounts are maintained in which any funds of any of the Loan Parties from one or more DDAs are concentrated and with whom a Blocked Account Agreement has been, or is required to be, executed in accordance with the terms hereof.

     “Borrower Materials” has the meaning specified in Section 6.02.

     “Borrower(s)” has the meaning specified in the introductory paragraph hereto.

     “Borrowing” means a Committed Borrowing or a Swing Line Borrowing, as the context may require.

     “Borrowing Base” means, at any time of calculation, an amount equal to:

     (a) the face amount of Eligible Credit Card Receivables multiplied by 90%;

     plus

     (b) (i) during the period of September 15 through December 15 of each year, the Cost of Eligible Inventory (other than Eligible In-Transit Inventory), net of Inventory Reserves, multiplied by 90% of the Appraised Value of Eligible Inventory (other than Eligible In-Transit Inventory), and (ii) at all other times, the Cost of Eligible Inventory (other than Eligible In-

Transit Inventory), net of Inventory Reserves, multiplied by 85% of the Appraised Value of Eligible Inventory (other than Eligible In-Transit Inventory);

     plus

     (c) the lesser of (i) the Cost of Eligible In-Transit Inventory, net of Inventory Reserves, multiplied by 85% of the Appraised Value of Eligible In-Transit Inventory, or (ii) $10,000,000;

     minus

     (g) the then amount of all Availability Reserves.

     “Borrowing Base Certificate” means a certificate substantially in the form of Exhibit F hereto (with such changes therein as may be required by the Administrative Agent to reflect the components of and reserves against the Borrowing Base as provided for hereunder from time to time), executed and certified as accurate and complete by a Responsible Officer of the Lead Borrower which shall include appropriate exhibits, schedules, supporting documentation, and additional reports as reasonably requested by the Administrative Agent.

     “Budget” means the annual budget for the year following the most recently completed Fiscal Year prepared by management of the Lead Borrower, including each month of the year, in a form reasonably satisfactory to the Administrative Agent, and which budget shall contain an Availability model, and a consolidated balance sheet and statements of income from operations and cash flows of the Parent and its Subsidiaries on a monthly basis.

     “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any LIBO Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank market.

     “Capital Expenditures” means, with respect to any Person for any period, (a) the aggregate of all expenditures made (whether made in the form of cash or other property) during such period that are capital expenditures as determined in accordance with GAAP, and (b) Capital Lease Obligations incurred by a Person during such period.

     “Capital Lease Obligations” means, with respect to any Person for any period, the portion of the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, required to be capitalized for financial reporting purposes in accordance with GAAP.

     “Cash Collateralize” has the meaning specified in Section 2.03(g). Derivates of such term have corresponding meanings.

     “Cash Dominion Event” means either (i) the occurrence and continuance of any Event of Default, or (ii) the failure of the Borrowers to maintain Availability of at least $10,000,000, or (iii) the failure of the Borrowers to maintain Adjusted Availability of at least 12.5% of the Borrowing Base. For purposes of this Agreement, the occurrence of a Cash Dominion Event shall be deemed continuing at the Administrative Agent’s option (i) so long as such Event of Default has not been waived, and/or (ii) if the Cash Dominion Event arises as a result of the Borrowers’ failure to achieve Availability or Adjusted

Availability as required hereunder, until Availability has exceeded $10,000,000 and Adjusted Availability has exceeded 12.5% of the Borrowing Base for sixty (60) consecutive days, in which case a Cash Dominion Event shall no longer be deemed to be continuing for purposes of this Agreement; provided that a Cash Dominion Event occurring at any time after a Cash Dominion Event has occurred and been discontinued on two (2) occasions after the Closing Date shall be deemed continuing (even if an Event of Default is no longer continuing and/or Availability or Adjusted Availability, as applicable, exceeds the required amount for sixty (60) consecutive days). The termination of a Cash Dominion Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Cash Dominion Event in the event that the conditions set forth in this definition again arise.

     “Cash Management Reserves” means such reserves as the Administrative Agent, from time to time and in compliance with Section 2.01(c), determines in its reasonable discretion as being appropriate to reflect the reasonably anticipated liabilities and obligations of the Loan Parties with respect to Cash Management Services then provided or outstanding.

     “Cash Management Services” means any one cash management services or facilities provided to any Loan Party by any Lender or any of its Affiliates, including, without limitation: (a) ACH transactions, (b) controlled disbursement services, treasury, depository, overdraft, and electronic funds transfer services, (c) foreign exchange facilities, (d) credit or debit cards, (e) credit card processing services and (f) purchase cards.

     “CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq.

     “CERCLIS” means the Comprehensive Environmental Response, Compensation, and Liability Information System maintained by the United States Environmental Protection Agency.

     “CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.

     “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

     “Change of Control” means an event or series of events by which:

     (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of 30% or more of the Equity Interests of the Parent entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully-diluted basis (and taking into account all such Equity Interests that such “person” or “group” has the right to acquire pursuant to any option right); or

     (b) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Parent cease to be composed of

individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; or

     (c) any “change in control” or “sale” or “disposition” or similar event as defined in any Organizational Document of any Loan Party or in any Material Contract, or any document governing Material Indebtedness of any Loan Party; or

     (d) the Parent fails at any time to own, directly or indirectly, 100% of the Equity Interests of each other Loan Party free and clear of all Liens (other than the Liens in favor of the Collateral Agent and other Permitted Encumbrances), except where such failure is as a result of a transaction permitted by the Loan Documents.

     “Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.

     “Code” means the Internal Revenue Code of 1986, and the regulations promulgated thereunder, as amended and in effect.

     “Collateral” means any and all “Collateral” as defined in any applicable Security Document and all other property that is or is intended under the terms of the Security Documents to be subject to Liens in favor of the Collateral Agent.

     “Collateral Access Agreement” means an agreement reasonably satisfactory in form and substance to the Agents executed by (a) a bailee or other Person in possession of Collateral, and (b) any landlord of Real Estate leased by any Loan Party where Collateral is located, pursuant to which such Person (i) acknowledges the Collateral Agent’s Lien on such Collateral, (ii) releases such Person’s Liens in such Collateral, (iii) provides the Collateral Agent with access to such Collateral, (iv) as to any landlord, provides the Collateral Agent with a reasonable time to sell and dispose of such Collateral from such Real Estate, and (v) makes such other agreements with the Collateral Agent as the Agents may reasonably require.

     “Collateral Agent” means Wells Fargo, acting in such capacity for its own benefit and the ratable benefit of the other Credit Parties.

     “Commercial Letter of Credit” means any Letter of Credit issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by a Borrower in the ordinary course of business of such Borrower.

     “Committed Increase” has the meaning specified in Section 2.15(a).

     “Commitment” means, as to each Lender, its obligation to (a) make Committed Loans to the Borrowers pursuant to Section 2.01, (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

     “Commitment Increases” has the meaning specified in Section 2.15(b)(i).

     “Committed Borrowing” means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of LIBO Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.

     “Committed Loan” has the meaning specified in Section 2.01(a).

     “Committed Loan Notice” means a notice of (a) a Committed Borrowing, (b) a Conversion of Committed Loans from one Type to the other, or (c) a continuation of LIBO Rate Loans, pursuant to 2.02(b), which, if in writing, shall be substantially in the form of Exhibit A.

     “Compliance Certificate” means a certificate substantially in the form of Exhibit D.

     “Concentration Account” has the meaning provided in Section 6.13(c).

     “Consolidated” means, when used to modify a financial term, test, statement, or report of a Person, the application or preparation of such term, test, statement or report (as applicable) based upon the consolidation, in accordance with GAAP, of the financial condition or operating results of such Person and its Subsidiaries.

     “Consolidated EBITDA” means, at any date of determination, an amount equal to Consolidated Net Income of the Parent and its Subsidiaries on a Consolidated basis for the most recently completed Measurement Period, plus (a) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges, (ii) the provision for Federal, state, local and foreign income Taxes, (iii) depreciation and amortization expense and (iv) other non-recurring expenses reducing such Consolidated Net Income which do not represent a cash item in such period or any future period (in each case of or by the Parent and its Subsidiaries for such Measurement Period), minus (b) the following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and foreign income tax credits and (ii) all non-cash items increasing Consolidated Net Income (in each case of or by the Parent and its Subsidiaries for such Measurement Period), all as determined on a Consolidated basis in accordance with GAAP.

     “Consolidated Fixed Charge Coverage Ratio” means, at any date of determination, the ratio of (a) (i) Consolidated EBITDA for such period minus (ii) Capital Expenditures (other than Capital Expenditures financed with proceeds of Permitted Indebtedness (other than Borrowings)) made during such period minus (iii) the aggregate amount of Federal, state, local and foreign income taxes paid in cash during such period to (b) the sum of (i) Debt Service Charges plus (ii) the aggregate amount of all Restricted Payments, in each case, of or by the Parent and its Subsidiaries for the most recently completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP.

     “Consolidated Interest Charges” means, for any Measurement Period, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Swap Contracts, but excluding any non-cash or deferred interest financing costs, and (b) the portion of rent expense with respect to such period under Capital Lease Obligations that is treated as interest in accordance with GAAP minus (d) interest income during such period (excluding any portion of interest income representing accruals of amounts received in a previous period), in each

case of or by the Parent and its Subsidiaries for the most recently completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP.

     “Consolidated Net Income” means, as of any date of determination, the net income of the Parent and its Subsidiaries for the most recently completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP, provided, however, that there shall be excluded (a) extraordinary gains and extraordinary losses for such Measurement Period, (b) the income (or loss) of the Parent and its Subsidiaries during such Measurement Period in which any other Person has a joint interest, except to the extent of the amount of cash dividends or other distributions actually paid in cash to the Parent and its Subsidiaries during such period, (c) the income (or loss) of the Parent and its Subsidiaries during such Measurement Period and accrued prior to the date it becomes a Subsidiary of the Parent and its Subsidiaries or any of such Person’s Subsidiaries or is merged into or consolidated with a Person or any of its Subsidiaries or that Person’s assets are acquired by the Parent or any of its Subsidiaries, and (d) the income of any direct or indirect Subsidiary of the Parent and its Subsidiaries to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its Organization Documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, except that the Parent’s equity in any net loss of any such Subsidiary for such Measurement Period shall be included in determining Consolidated Net Income.

     “Contractual Obligation” means, as to any Person, any provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

     “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

     “Convert”, “Conversion” and “Converted” each refers to a conversion of Committed Loans of one Type into Committed Loans of the other Type.

     “Cost” means the lower of cost or market value of Inventory, on a basis consistent with the Borrowers’ accounting practices known to the Administrative Agent and in effect on the Closing Date, which for in-transit Inventory shall be the landed cost thereof. “Cost” shall not include inventory capitalization costs.

     “Covenant Compliance Event” means that Availability at any time is less than 12.5% of the Loan Cap. For purposes hereof, the occurrence of a Covenant Compliance Event shall be deemed continuing until Availability has equaled or exceeded 12.5% of the Loan Cap for sixty (60) consecutive days, in which case a Covenant Compliance Event shall no longer be deemed to be continuing for purposes of this Agreement. The termination of a Covenant Compliance Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Covenant Compliance Event in the event that the conditions set forth in this definition again arise.

     “Credit Card Notification” has the meaning provided in Section 6.13(a)(i).

     “Credit Card Receivables” means each Account together with all income, payments and proceeds thereof, owed by a major credit or debit card issuer (including, but not limited to, Visa, MasterCard, American Express and Discover, and such other issuers approved by the Administrative Agent in the exercise of its reasonable discretion) to a Borrower resulting from charges by a customer of a Loan Party on credit or debit cards issued by such issuer in connection with the sale of goods by a Loan Party, or services performed by a Loan Party, in each case in the ordinary course of its business.

     “Credit Extensions” mean each of the following: (a) a Borrowing and (b) an L/C Credit Extension (including any L/C Borrowing).

     “Credit Party” or “Credit Parties” means (a) individually, (i) each Lender and its Affiliates, (ii) each Agent, (iii) each L/C Issuer, (iv) the Arranger, (v) each beneficiary of each indemnification obligation undertaken by any Loan Party under any Loan Document, (vi) any other Person to whom Obligations under this Agreement and other Loan Documents are owing, and (vii) the permitted successors and assigns of each of the foregoing, and (b) collectively, all of the foregoing.

     “Credit Party Expenses” means, without limitation, (a) all reasonable and documented out-of-pocket expenses incurred by the Agents in connection with (i) the syndication of the credit facilities provided for herein, (ii) the preparation, negotiation, administration, management, execution and delivery of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (iii) the enforcement or protection of their rights in connection with this Agreement or the Loan Documents or efforts to preserve, protect, collect, or enforce the Collateral, or (iv) any workout, restructuring or negotiations in respect of any Obligations, and (b) with respect to the L/C Issuer, all reasonable and documented out-of-pocket expenses incurred in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder; and (c) all reasonable out-of-pocket expenses incurred by the Credit Parties who are not the Agents or the L/C Issuer, after the occurrence and during the continuance of an Event of Default, provided that such Credit Parties shall be entitled to reimbursement for no more than one counsel representing all such Credit Parties (absent a conflict of interest in which case the applicable Credit Party or Credit Parties desiring separate counsel shall inform the Lead Borrower or such conflict in writing, which writing shall set forth the basis for such claimed conflict and reasons why the same cannot be waived, after which such Credit Party or Credit Parties may engage and be reimbursed for additional counsel).

     “Customer Credit Liabilities” means at any time, the aggregate remaining value at such time of (a) outstanding gift certificates and gift cards of the Borrowers entitling the holder thereof to use all or a portion of the certificate or gift card to pay all or a portion of the purchase price for any Inventory, (b) outstanding merchandise credits of the Borrowers and (c) liabilities in connection with frequent shopping programs of the Borrowers.

     “Customer Deposits” means deposits made by customers with respect to the purchase of goods or the performance of services, and layaway obligations of the Borrowers.

     “Customs Broker Agreement” means an agreement in form and substance reasonably satisfactory to the Collateral Agent, among a Loan Party, a customs broker, freight forwarder or other carrier, and the Collateral Agent, in which the customs broker, freight forwarder or other carrier acknowledges that it has control over and holds the documents evidencing ownership of the subject Inventory for the benefit of the Collateral Agent and agrees, upon notice from the Collateral Agent, to hold and dispose of the subject Inventory solely as directed by the Collateral Agent.

     “DDA” means each checking, savings or other demand deposit account maintained by any of the Loan Parties. All funds in each DDA shall be conclusively presumed to be Collateral and proceeds of Collateral and the Agents and the Lenders shall have no duty to inquire as to the source of the amounts on deposit in any DDA.

     “DDA Notification” has the meaning provided therefor in Section 6.13(b).

     “Debt Service Charges” means for any Measurement Period, the sum of (a) Consolidated Interest Charges paid or required to be paid for such Measurement Period, plus (b) principal payments made or required to be made on account of Indebtedness (excluding the Obligations and any Synthetic Lease Obligations but including, without limitation, Capital Lease Obligations) for such Measurement Period, in each case determined on a Consolidated basis in accordance with GAAP.

     “Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

     “Default” means any event or condition that constitutes an Event of Default or that, with the giving of notice of same, the passage of time, or both, would be an Event of Default.

     “Default Rate” means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Margin then applicable to Base Rate Loans, plus (iii) 2% per annum; provided, however, that with respect to a LIBO Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Margin) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Margin for Standby Letters of Credit or Commercial Letters of Credit, as applicable, plus 2% per annum.

     “Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder on the date required to be funded by it hereunder, (b) has notified the Administrative Agent or the Borrowers in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement that it does not intend to comply with its funding obligations generally under agreements in which it commits to extend credit, (c) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, (d) has failed within three (3) Business Days after receipt of written request therefor, to confirm to the Administrative Agent or any Borrower in writing that it will comply with its obligations under this Agreement to fund and otherwise comply with all of its other obligations hereunder, or (e) has, or has a direct or indirect parent company that (i) has become the subject of a proceeding under any Debtor Relief Laws, (ii) has a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar person charged with reorganization or liquidation of its business or a custodian appointed for it, or (iii) has taken any other steps or actions in furtherance of, or indicating its consent to, approval of, or acquiescence in any such proceeding or appointment.

     “Deteriorating Lender” means any Defaulting Lender or any Lender as to which (a) the L/C Issuer or the Swing Line Lender has a good faith belief that such Lender has defaulted in fulfilling its obligations under one or more other syndicated credit facilities, or (b) a Person that Controls such Lender has been deemed insolvent or become the subject of a bankruptcy, insolvency or similar proceeding.

     “Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction and any sale, transfer, license or other disposition of (whether in one transaction or in a series of transactions) of any property (including, without limitation, any Equity Interests) by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

     “Disqualified Stock” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Loans mature; provided, however, that (i) only the portion of such Equity Interests which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock and (ii) with respect to any Equity Interests issued to any employee or to any plan for the benefit of employees of the Lead Borrower or its Subsidiaries or by any such plan to such employees, such Equity Interest shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Lead Borrower or one of its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, resignation, death or disability and if any class of Equity Interest of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of an Equity Interest that is not Disqualified Stock, such Equity Interests shall not be deemed to be Disqualified Stock. Notwithstanding the preceding sentence, any Equity Interest that would constitute Disqualified Stock solely because the holders thereof have the right to require a Loan Party to repurchase such Equity Interest upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Lead Borrower and its Subsidiaries may become obligated to pay upon maturity, or pursuant to any mandatory redemption provisions of, such Disqualified Stock or portion thereof, plus accrued dividends.

     “Documentation Agent” means Bank of America, N.A.

     “Dollars” and “$” mean lawful money of the United States.

     “Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

     “Eligible Assignee” means (a) a Credit Party or any of its Affiliates; (b) a bank, insurance company, or company engaged in the business of making commercial loans, which Person, together with its Affiliates, has a combined capital and surplus in excess of $250,000,000; (c) an Approved Fund; (d) any Person to whom a Credit Party assigns its rights and obligations under this Agreement as part of an assignment and transfer of such Credit Party’s rights in and to a material portion of such Credit Party’s portfolio of asset based credit facilities, and (e) any other Person (other than a natural person) approved by (i) the Administrative Agent, the L/C Issuer and the Swing Line Lender, and (ii) unless an Event of Default has occurred and is continuing, the Lead Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include a Loan Party or any of the Loan Parties’ Affiliates or Subsidiaries.

     “Eligible Credit Card Receivables” means at the time of any determination thereof, each Credit Card Receivable that satisfies the following criteria at the time of creation and continues to meet the same at the time of such determination: such Credit Card Receivable (i) has been earned by performance and represents the bona fide amounts due to a Borrower from a credit card payment processor and/or credit card issuer, and in each case originated in the ordinary course of business of such Borrower, and (ii) is not ineligible for inclusion in the calculation of the Borrowing Base pursuant to any of clauses (a) through (i) below or any other category of ineligibility determined by the Administrative Agent in its reasonable discretion; provided that, so long as no Event of Default has occurred and is continuing, the Administrative Agent shall provide the Lead Borrower with three (3) days’ prior notice of any new category of ineligibility (during which period the Administrative Agent shall be available to discuss any such proposed new category of ineligibility with the Borrowers). Without limiting the foregoing, to

qualify as an Eligible Credit Card Receivable, an Account shall indicate no Person other than a Borrower as payee or remittance party. In determining the amount to be so included, the face amount of an Account shall be reduced by, without duplication, to the extent not reflected in such face amount, (i) the amount of all accrued and actual discounts, claims, credits or credits pending, promotional program allowances, price adjustments, finance charges or other allowances (including any amount that a Borrower may be obligated to rebate to a customer, a credit card payment processor, or credit card issuer pursuant to the terms of any agreement or understanding (written or oral)) and (ii) the aggregate amount of all cash received in respect of such Account but not yet applied by the Borrowers to reduce the amount of such Credit Card Receivable. Except as otherwise agreed by the Administrative Agent, any Credit Card Receivable included within any of the following categories shall not constitute an Eligible Credit Card Receivable:

     (a) Credit Card Receivables which do not constitute an Account;

     (b) Credit Card Receivables that have been outstanding for more than five (5) Business Days from the date of sale;

     (c) Credit Card Receivables (i) that are not subject to a perfected first-priority security interest in favor of the Collateral Agent, or (ii) with respect to which a Borrower does not have good, valid and marketable title thereto, free and clear of any Lien (other than Liens granted to the Collateral Agent pursuant to the Security Documents, those Liens specified in clauses (a) and (e) of the definition of Permitted Encumbrances and Permitted Encumbrances having priority by operation of applicable Laws over the Lien of the Collateral Agent);

     (d) Credit Card Receivables which are disputed, are with recourse, or with respect to which a claim, counterclaim, offset or chargeback has been asserted (to the extent of such claim, counterclaim, offset or chargeback);

     (e) Credit Card Receivables as to which the processor has the right under certain circumstances to require a Borrower to repurchase the Accounts from such credit card processor;

     (f) Credit Card Receivables due from an issuer or payment processor of the applicable credit card which is the subject of any bankruptcy or insolvency proceedings;

     (g) Credit Card Receivables which are not a valid, legally enforceable obligation of the applicable issuer with respect thereto;

     (h) Credit Card Receivables which are evidenced by “chattel paper” or an “instrument” of any kind unless such “chattel paper” or “instrument” is in the possession of the Collateral Agent, and to the extent necessary or appropriate, endorsed to the Collateral Agent; or

         (i) Credit Card Receivables which the Administrative Agent determines in its discretion to be uncertain of collection or which do not meet such other reasonable eligibility criteria for Credit Card Receivables as the Administrative Agent may determine.

     “Eligible In-Transit Inventory” means, as of any date of determination thereof, without duplication of other Eligible Inventory, either (x) unless an Accelerated Borrowing Base Delivery Event has occurred and is continuing, Inventory that has been received by a Borrower within seven (7) days of the end of each Fiscal Month and that would otherwise constitute Eligible Inventory, but which has not yet been entered into the inventory stock ledger of the Lead Borrower, or (y) In-Transit Inventory which meets all of the following requirements:

     (a) Which has been shipped (i) from a foreign location for receipt by a Borrower, but which has not yet been delivered to such Borrower, which In-Transit Inventory has been in transit for forty-five (45) days or less from the date of shipment of such Inventory or (ii) from a domestic location for receipt by a Borrower, but which has not yet been delivered to such Borrower, which In-Transit Inventory has been in transit for seven (7) days or less from the date of shipment of such Inventory;

     (b) For which the purchase order is in the name of a Borrower and title and risk of loss has passed to such Borrower;

     (c) With respect to foreign In-Transit Inventory, for which an Acceptable Document of Title has been issued, and in each case with respect to foreign In-Transit Inventory and domestic In-Transit Inventory as to which the Collateral Agent has control (as defined in the UCC) over the documents of title which evidence ownership of the subject Inventory (such as, if requested by the Collateral Agent, by the delivery of a Customs Broker Agreement);

     (d) Which is insured to the reasonable satisfaction of the Collateral Agent (including, without limitation, marine cargo insurance);

     (e) With respect to foreign In-Transit Inventory, the Foreign Vendor with respect to such foreign In-Transit Inventory is an Approved Foreign Vendor;

     (f) With respect to foreign In-Transit Inventory, for which (i) payment of the purchase price has been made by the Borrower or the purchase price is supported by a Commercial Letter of Credit or (ii) if payment of the purchase price is to be made by the Borrower within applicable trade terms made available to the Borrower by the applicable Foreign Vendor, such Foreign Vendor has entered into a Foreign Vendor Agreement and the Borrower has not breached such trade terms made available to the Borrower by the applicable Foreign Vendor; and

     (g) Which otherwise would constitute Eligible Inventory;

     provided that the Administrative Agent may, in its reasonable discretion, exclude any particular Inventory from the definition of “Eligible In-Transit Inventory” in the event the Administrative Agent determines that (i) such Inventory is subject to any Person’s right or claim which is senior to, or pari passu with, the Lien of the Collateral Agent (such as, without limitation, a right of stoppage in transit) or may otherwise adversely impact the ability of the Collateral Agent to realize upon such Inventory, or (ii) such Inventory is not able to be properly tracked by the Borrowers; provided further that, so long as no Event of Default has occurred and is continuing and no Material Adverse Effect has occurred or would be reasonably likely to occur prior to the expiration of such notice period, the Administrative Agent shall provide the Lead Borrower with three (3) days’ prior notice of any such exclusion (during which period the Administrative Agent shall be available to discuss any such exclusion with the Borrowers).

     “Eligible Inventory” means, as of the date of determination thereof, without duplication, (i) Eligible In-Transit Inventory, and (ii) items of Inventory of a Borrower that are finished goods, merchantable and readily saleable to the public in the ordinary course of a Borrower’s business, and that is not excluded as ineligible by virtue of one or more of the criteria set forth below or any other category of ineligibility determined by the Administrative Agent in its reasonable discretion; provided that, so long as no Event of Default has occurred and is continuing, the Administrative Agent shall provide the Lead Borrower with three (3) days’ prior notice of any new category of ineligibility (during which period the Administrative Agent shall be available to discuss any such proposed new category of ineligibility with

the Borrowers). Except as otherwise agreed by the Administrative Agent, the following items of Inventory shall not be included in Eligible Inventory:

     (a) Inventory that is not solely owned by a Borrower or a Borrower does not have good and valid title thereto;

     (b) Inventory that is leased by or is on consignment to a Borrower or which is consigned by a Borrower to a Person which is not a Loan Party;

     (c) Inventory (other than Eligible In-Transit Inventory) that is not located in the United States of America (excluding territories or possessions of the United States) at a location that is owned or leased by a Borrower, except (i) Inventory in transit between such owned or leased locations, or (ii) to the extent that the Borrowers have furnished the Administrative Agent with (A) any UCC financing statements or other documents that the Administrative Agent may determine to be necessary to perfect its security interest in such Inventory at such location, and (B) a Collateral Access Agreement executed by the Person owning any such location on terms reasonably acceptable to the Administrative Agent;

     (d) Inventory that is located in a distribution center leased by a Borrower, unless the applicable lessor has delivered to the Collateral Agent a Collateral Access Agreement;

     (e) Inventory that is comprised of goods which (i) are damaged, defective, “seconds,” or otherwise unmerchantable, (ii) are to be returned to the vendor, (iii) are obsolete or slow moving, or custom items, work-in-process, raw materials, or that constitute spare parts, promotional, marketing, packaging and shipping materials or supplies used or consumed in a Borrower’s business, (iv) not in compliance with all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale, or (v) are bill and hold goods;

     (f) Inventory that is not subject to a perfected first-priority security interest in favor of the Collateral Agent;

     (g) Inventory that consists of samples, labels, bags, packaging, and other similar non-merchandise categories;

     (h) Inventory that is not insured in compliance with the provisions of Section 5.10 hereof;

     (i) Inventory that has been sold but not yet delivered or as to which a Borrower has accepted a deposit;

     (j) Inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party from which any Borrower or any of its Subsidiaries has received notice of a dispute in respect of any such agreement, but only to the extent that such dispute would preclude the Loan Parties or the Collateral Agent or any other Credit Party from disposing of such Inventory; or

     (k) Inventory acquired in a Permitted Acquisition or which is of the type usually sold in the ordinary course of a Borrower’s business, unless and until the Collateral Agent has completed or received (A) an appraisal of such Inventory from appraisers satisfactory to the Collateral Agent and establishes Inventory Reserves (if applicable) therefor, and otherwise agrees

that such Inventory shall be deemed Eligible Inventory, and (B) such other due diligence as the Agents may require, all of the results of the foregoing to be reasonably satisfactory to the Agents.

     “Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

     “Environmental Liability” means any liability, obligation, damage, loss, claim, action, suit, judgment, order, fine, penalty, fee, expense, or cost, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal or presence of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

     “Equipment” has the meaning set forth in the UCC.

     “Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

     “ERISA” means the Employee Retirement Income Security Act of 1974.

     “ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Lead Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

     “ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Lead Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Lead Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Lead Borrower or any ERISA Affiliate.

     “Event of Default” has the meaning specified in Section 8.01. An Event of Default shall be deemed to be continuing unless and until that Event of Default has been duly waived as provided in Section 10.01 hereof.

     “Excluded Taxes” means, with respect to the Agents, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Loan Parties hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which any Loan Party is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Loan Parties under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Loan Parties with respect to such withholding tax pursuant to Section 3.01(a).

     “Executive Order” has the meaning set forth in Section 10.18.

     “Existing Credit Agreement” means that certain Second Amended and Restated Financing Agreement dated as of December 15, 2004 among the Borrower, The CIT Group/Business Credit, Inc., as agent, and a syndicate of lenders, as amended, together with all of the documents executed pursuant thereto or in connection therewith other than documents purposed to effect the termination thereof.

     “Extraordinary Receipt” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments.

     “Facility Guaranty” means the Guaranty made by the Guarantor in favor of the Agents and the other Credit Parties, in form reasonably satisfactory to the Administrative Agent.

     “Factored Receivables” means any Accounts of a Loan Party which have been factored or sold by an account debtor of a Loan Party to Wells Fargo, or any of its Affiliates pursuant to a factoring arrangement or otherwise.

     “Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Wells Fargo on such day on such transactions as determined by the Administrative Agent.

     “Fee Letter” means the letter agreement, dated August 13, 2010, by and between the Lead Borrower and the Administrative Agent.

     “Fiscal Month” means any fiscal month of any Fiscal Year, which month shall generally end on the Sunday closest to the end of each calendar month in accordance with the fiscal accounting calendar of the Loan Parties.

     “Fiscal Quarter” means any fiscal quarter of any Fiscal Year, which quarters shall generally end on the Sunday closest to the end of each calendar quarter in accordance with the fiscal accounting calendar of the Loan Parties.

     “Fiscal Year” means the fiscal year of the Parent determined in accordance with the method used for such determination in the Audited Financial Statements.

     “Forecast Updates” means the quarterly revisions to the Budget to reflect significant or material changes thereto based on revised assumptions and the actual results obtained during the period or periods then elapsed during the Fiscal Year covered by the Budget.

     “Foreign Assets Control Regulations” has the meaning set forth in Section 10.18.

     “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Lead Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

     “Foreign Vendor” means a Person that sells In-Transit Inventory to a Borrower.

     “Foreign Vendor Agreement” means an agreement between a Foreign Vendor and the Collateral Agent in form and substance reasonably satisfactory to the Collateral Agent and pursuant to which, among other things, the parties shall agree upon their relative rights with respect to In-Transit Inventory of a Borrower purchased from such Foreign Vendor.

     “Fronting Fee” has the meaning assigned to such term in Section 2.03(j).

     “FRB” means the Board of Governors of the Federal Reserve System of the United States.

     “Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

     “GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

     “Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

     “Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable

or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

     “Guarantor” means the Parent, each Subsidiary of the Parent (other than the Borrowers and any CFC) and each other Subsidiary of the Parent that shall be required to execute and deliver a Facility Guaranty pursuant to Section 6.12.

     “Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

     “Honor Date” has the meaning specified in Section 2.03(c)(i).

     “Increase Effective Date” shall have the meaning provided therefor in Section 2.15(c).

     “Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

     (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

     (b) the maximum amount of all reimbursement or other obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

     (c) net obligations of such Person under any Swap Contract;

     (d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than 60 days);

     (e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

     (f) All Attributable Indebtedness of such Person;

     (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Disqualified Stock; and

     (h) all Guarantees of such Person in respect of any of the foregoing.

     For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.

     “Indemnified Taxes” means Taxes other than Excluded Taxes.

     “Indemnitees” has the meaning specified in Section 10.04(b).

     “Information” has the meaning specified in Section 10.07.

     “Intellectual Property” means all present and future: trade secrets, know-how and other proprietary information; trademarks, trademark applications, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights and copyright applications; (including copyrights for computer programs) and all tangible and intangible property embodying the copyrights, unpatented inventions (whether or not patentable); patents and patent applications; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing.

     “Interest Payment Date” means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a LIBO Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the first day after the end of each month and the Maturity Date.

     “Interest Period” means, as to each LIBO Rate Loan, the period commencing on the date such LIBO Rate Loan is disbursed or Converted to or continued as a LIBO Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Lead Borrower in its Committed Loan Notice; provided that:

     (i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

     (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of

such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period;

     (iii) no Interest Period shall extend beyond the Maturity Date; and

     (iv) notwithstanding the provisions of clause (iii), no Interest Period shall have a duration of less than one (1) month, and if any Interest Period applicable to a LIBO Borrowing would be for a shorter period, such Interest Period shall not be available hereunder.

For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent Conversion or continuation of such Borrowing.

     “Internal Control Event” means a material weakness in, or fraud that involves management or other employees who have a significant role in, the Parent’s and/or its Subsidiaries’ internal controls over financial reporting, in each case as described in the Securities Laws and of which the Lead Borrower has Knowledge.

     “In-Transit Inventory” means Inventory of a Borrower which is in the possession of a common carrier and (i) is in transit from a Foreign Vendor of a Borrower from a location outside of the continental United States or (ii) is in transit from a domestic vendor of a Borrower from a location within the continental United States, in each case to a location of a Borrower that is within the continental United States.

     “Inventory” has the meaning given that term in the UCC.

     “Inventory Reserves” means such reserves as may be established from time to time and in compliance with Section 2.01(c) by the Administrative Agent in its reasonable discretion, with respect to the determination of the saleability, at retail, of the Eligible Inventory or which reflect such other factors as affect the market value of the Eligible Inventory. Without limiting the generality of the foregoing, Inventory Reserves may, in the Administrative Agent’s reasonable discretion, include (but are not limited to) reserves based on:

     (a) Obsolescence;

     (b) Seasonality;

     (c) Shrink;

     (d) Imbalance;

     (e) Change in Inventory character;

     (f) Change in Inventory composition;

     (g) Change in Inventory mix;

     (h) Mark-downs (both permanent and point of sale);

     (i) Retail mark-ons and mark-ups inconsistent with prior period practice and performance, industry standards, current business plans or advertising calendar and planned advertising events; and

     (j) Out-of-date and/or expired Inventory.

     “Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) any Acquisition, or (d) any other investment of money or capital in order to obtain a profitable return. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

     “IRS” means the United States Internal Revenue Service.

     “ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

     “Issuer Documents” means with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and any Borrower (or any Subsidiary) or in favor of the L/C Issuer and relating to any such Letter of Credit.

     “Knowledge” means the actual knowledge of a Responsible Officer of a Loan Party after reasonable inquiry.

     “Joinder Agreement” means an agreement, in form satisfactory to the Administrative Agent pursuant to which, among other things, a Person becomes a party to, and bound by the terms of, this Agreement and/or the other Loan Documents in the same capacity and to the same extent as either a Borrower or a Guarantor, as the Administrative Agent may determine.

     “Landlord Lien State” means such state(s) in which a landlord’s claim for rent may have priority over the Lien of the Collateral Agent in any of the Collateral.

     “Laws” means each international, foreign, Federal, state and local statute, treaty, rule, guideline, regulation, ordinance, code and administrative or judicial precedent or authority, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and each applicable administrative order, directed duty, request, license, authorization and permit of, and agreement with, any Governmental Authority, in each case whether or not having the force of law.

     “L/C Advance” means, with respect to each Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage.

     “L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing.

     “L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.

     “L/C Issuer” means (a) Wells Fargo in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder (which successor may only be a Lender selected by the Lead Borrower with the consent of the Administrative Agent), and (b) any other Lender selected by the Administrative Agent in its discretion. The L/C Issuer may, in its discretion, arrange for one or more

Letters of Credit to be issued by Affiliates of the L/C Issuer if consented to by the Lead Borrower, in which case the term “L/C Issuer” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

     “L/C Obligations” means, as at any date of determination, the aggregate undrawn amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amounts available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

     “Lease” means any agreement, whether written or oral, no matter how styled or structured, pursuant to which a Loan Party is entitled to the use or occupancy of any space in a structure, land, improvements or premises for any period of time.

     “Lender” has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the Swing Line Lender.

     “Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Lead Borrower and the Administrative Agent.

     “Letter of Credit” means each Standby Letter of Credit and each Commercial Letter of Credit issued hereunder.

     “Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.

     “Letter of Credit Expiration Date” means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).

     “Letter of Credit Fee” has the meaning specified in Section 2.03(i).

     “Letter of Credit Sublimit” means an amount equal to $50,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments. A permanent reduction of the Aggregate Commitments shall not require a corresponding pro rata reduction in the Letter of Credit Sublimit; provided, however, that if the Aggregate Commitments are reduced to an amount less than the Letter of Credit Sublimit, then the Letter of Credit Sublimit shall be reduced to an amount equal to (or, at Lead Borrower’s option, less than) the Aggregate Commitments.

     “LIBO Borrowing” means a Borrowing comprised of LIBO Rate Loans.

     “LIBO Rate” means for any Interest Period with respect to a LIBO Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “LIBO Rate” for such Interest Period shall be the rate per annum determined by the

Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the LIBO Rate Loan being made, continued or Converted by Wells Fargo and with a term equivalent to such Interest Period would be offered to Wells Fargo by major banks in the London interbank eurodollar market in which Wells Fargo participates at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

     “LIBO Rate Loan” means a Committed Loan that bears interest at a rate based on the Adjusted LIBO Rate.

     “Lien” means (a) any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale, Capital Lease Obligation, Synthetic Lease Obligation, or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing) and (b) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

     “Liquidation” means the exercise by the Administrative Agent or Collateral Agent of those rights and remedies accorded to such Agents under the Loan Documents and applicable Law as a creditor of the Loan Parties with respect to the realization on the Collateral, including (after the occurrence and during the continuation of an Event of Default) the conduct by the Loan Parties acting with the consent of the Administrative Agent, of any public, private or “going out of business”, “store closing”, or other similarly themed sale or any other disposition of the Collateral for the purpose of liquidating the Collateral. Derivations of the word “Liquidation” (such as “Liquidate”) are used with like meaning in this Agreement.

     “Loan” means an extension of credit by a Lender to the Borrower under Article II in the form of a Committed Loan or a Swing Line Loan.

     “Loan Account” has the meaning assigned to such term in Section 2.11(a).

     “Loan Cap” means, at any time of determination, the lesser of (a) the Aggregate Commitments or (b) the Borrowing Base.

     “Loan Documents” means this Agreement, each Note, each Issuer Document, the Fee Letter, all Borrowing Base Certificates, the Blocked Account Agreements, the DDA Notifications, the Credit Card Notifications, the Security Documents, the Facility Guaranty, and any other instrument or agreement now or hereafter executed and delivered in connection herewith evidencing or securing the Obligations, each as amended and in effect from time to time.

     “Loan Parties” means, collectively, the Borrowers and the Guarantors.

     “Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the Loan Parties taken as a whole; (b) a material impairment of the ability of the Loan Parties to perform their obligations under the Loan Documents, taken as a whole; (c) a material impairment of the rights and remedies of the Agent or the Lenders under the Loan Documents, taken as a whole; or (d) a material adverse effect upon the legality, validity, binding effect or enforceability against the Loan Parties of the Loan Documents, taken as a whole. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event in and of itself does not have

such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect.

     “Material Contract” means, with respect to any Person, (i) each contract to which such Person is a party involving aggregate consideration payable to or by such Person of $5,000,000 or more (not including purchase orders or real property leases) or (ii) each contract or agreement, the loss of which could reasonably be expected to result in a Material Adverse Effect.

     “Material Indebtedness” means Indebtedness (other than the Obligations) of the Loan Parties in an aggregate principal amount exceeding $5,000,000. For purposes of determining the amount of Material Indebtedness at any time, (a) the amount of the obligations in respect of any Swap Contract at such time shall be calculated at the Swap Termination Value thereof, (b) undrawn committed or available amounts shall be included, and (c) all amounts owing to all creditors under any combined or syndicated credit arrangement shall be included.

     “Maturity Date” means October 18, 2014.

     “Maximum Rate” has the meaning provided therefor in Section 10.09.

     “Measurement Period” means, at any date of determination, the most recently completed twelve Fiscal Months.

     “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

     “Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Lead Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

     “Non-Consenting Lender” has the meaning provided therefor in Section 10.01.

     “Non-Extension Notice Date” has the meaning specified in Section 2.03(b)(iii).

     “Note” means (a) a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C-1, and (b) the Swing Line Note, as each may be amended, supplemented or modified from time to time.

     “NPL” means the National Priorities List under CERCLA.

     “Obligations” means (a) all advances to, and debts (including principal, interest, fees, costs, and expenses), liabilities, obligations, covenants, indemnities, and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit (including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral therefor), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest, fees, costs, expenses and indemnities that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest, fees, costs, expenses and indemnities are allowed claims in such proceeding, and (b) any Other Liabilities.

     “Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity, and (d) in each case, all shareholder or other equity holder agreements, voting trusts and similar arrangements to which such Person is a party or which is applicable to its Equity Interests and all other arrangements relating to the Control or management of such Person.

     “Other Liabilities” means (a) any obligation on account of (i) any Cash Management Services furnished to any of the Loan Parties or any of their Subsidiaries and/or (ii) any transaction with any Lender or any of its Affiliates, which arises out of any Bank Product entered into with any Loan Party and any such Person, as each may be amended from time to time; and (b) any liability with respect to Factored Receivables or any Supply Chain Financing.

     “Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

     “Outstanding Amount” means (i) with respect to Committed Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans and Swing Line Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.

     “Overadvance” means a Credit Extension to the extent that, immediately after its having been made, Availability is less than zero.

     “Parent” has the meaning specified in the introductory paragraph hereto.

     “Participant” has the meaning specified in Section 10.06(d).

     “Payment Conditions” means, at the time of determination with respect to any specified transaction or payment, that (a) no Default or Event of Default then exists or would arise as a result of entering into such transaction or the making such payment, (b) after giving effect to such transaction or payment, the Pro Forma Availability Condition and the Pro Forma Adjusted Availability Condition have been satisfied, and (c) the Consolidated Fixed Charge Coverage Ratio, on a pro-forma basis after giving effect to such transaction or payment, will be greater than 1.0:1.0. Prior to undertaking any transaction or payment which is subject to the Payment Conditions, the Loan Parties shall deliver to the Administrative Agent evidence of satisfaction of the conditions contained in clause (b) and (c) above on a basis (including, without limitation, giving due consideration to results for prior periods) reasonably satisfactory to the Administrative Agent.

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “PCAOB” means the Public Company Accounting Oversight Board.

     “Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Lead Borrower or any ERISA Affiliate or to which the Lead Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

     “Permitted Acquisition” means an Acquisition in which all of the following conditions are satisfied:

     (a) No Default then exists or would arise from the consummation of such Acquisition;

     (b) Such Acquisition shall have been approved by the Board of Directors of the Person (or similar governing body if such Person is not a corporation) which is the subject of such Acquisition and such Person shall not have announced that it will oppose such Acquisition or shall not have commenced any action which alleges that such Acquisition shall violate applicable Law;

     (c) The Lead Borrower shall have furnished the Administrative Agent with thirty (30) days’ prior written notice of such intended Acquisition and shall have furnished the Administrative Agent with a current draft of the Acquisition Documents (and final copies thereof as and when executed), a summary of any due diligence undertaken by the Loan Parties in connection with such Acquisition, appropriate financial statements of the Person which is the subject of such Acquisition, pro forma projected financial statements for the twelve (12) month period following such Acquisition after giving effect to such Acquisition (including balance sheets, cash flows and income statements by month for the acquired Person, individually, and on a Consolidated basis with all Loan Parties), and such other information as the Administrative Agent may reasonably require, all of which shall be reasonably satisfactory to the Administrative Agent;

     (d) If proceeds of Loans will be used to pay all or any portion of the consideration for such Acquisition, the legal structure of the Acquisition shall be acceptable to the Administrative Agent in its discretion;

     (e) After giving effect to the Acquisition, if the Acquisition is an Acquisition of Equity Interests, a Loan Party shall acquire and own, directly or indirectly, a majority of the Equity Interests in the Person being acquired and shall Control a majority of any voting interests or shall otherwise Control the governance of the Person being acquired;

     (f) Any assets acquired shall be utilized in, and if the Acquisition involves a merger, consolidation or stock acquisition, the Person which is the subject of such Acquisition shall be engaged in, a business otherwise permitted to be engaged in by a Borrower under this Agreement;

     (g) If the Person which is the subject of such Acquisition will be maintained as a Subsidiary of a Loan Party, or if the assets acquired in an Acquisition will be transferred to a Subsidiary which is not then a Loan Party, such Subsidiary shall have been joined as a “Borrower” hereunder or as a Guarantor, as the Administrative Agent shall determine, and the Collateral Agent shall upon closing of such Acquisition receive a first priority security in such

Subsidiary’s Equity Interests, Inventory, Accounts and other property of the same nature as constitutes collateral under the Security Documents;

     (h) The total consideration paid for all such Acquisitions (whether in cash, tangible property, notes or other property) after the Closing Date shall not exceed in the aggregate the sum of $25,000,000; and

     (i) The Loan Parties shall have satisfied the Payment Conditions.

     “Permitted Disposition” means any of the following:

     (a) Dispositions of Inventory in the ordinary course of business;

     (b) bulk sales or other Dispositions of the Inventory of a Loan Party not in the ordinary course of business in connection with Store closings, at arm’s length, provided, that such Store closures and related Inventory dispositions shall not exceed (i) in any Fiscal Year of the Parent and its Subsidiaries, five percent (5%) of the number of the Loan Parties’ Stores as of the beginning of such Fiscal Year (net of new Store openings) and (ii) in the aggregate from and after the Closing Date, ten percent (10%) of the number of the Loan Parties’ Stores in existence as of the Closing Date (net of new Store openings), provided, that all sales of Inventory in connection with Store closings shall be in accordance with liquidation agreements and with professional liquidators reasonably acceptable to the Agents; provided, further that all net proceeds received in connection therewith are applied to the Obligations;

     (c) non-exclusive licenses of Intellectual Property of a Loan Party or any of its Subsidiaries in the ordinary course of business;

     (d) licenses for the conduct of licensed departments within the Loan Parties’ Stores in the ordinary course of business; provided that, if requested by the Agents, the Agents shall have entered into an intercreditor agreement with the Person operating such licensed department on terms and conditions reasonably satisfactory to the Agents;

     (e) Dispositions of Equipment in the ordinary course of business that is substantially worn, damaged, obsolete or, in the judgment of a Loan Party, no longer useful or necessary in its business or that of any Subsidiary;

     (f) Sales, transfers and dispositions among the Loan Parties or by any Subsidiary to a Loan Party;

     (g) Sales, transfers and dispositions by any Subsidiary which is not a Loan Party to another Subsidiary that is not a Loan Party;

     (h) terminations of contracts, licenses, leases or subleases (other than any Material Contract unless such Material Contract is replaced or is no longer necessary to the conduct of the Loan Parties’ business) to the extent that the Loan Parties determine that they are no longer necessary in the conduct of the Loan Parties’ business;

     (i) Dispositions of Real Estate of any Loan Party; provided that, with respect to any sale leaseback transaction, if requested by the Collateral Agent, the Loan Parties shall cause the purchaser of any such Real Estate to enter into a Collateral Access Agreement on terms reasonably satisfactory to the Collateral Agent;

     (j) Dispositions of Intellectual Property in the ordinary course of business that is obsolete or, in the judgment of a Loan Party, no longer used or useful or necessary in, or material to, its business; and

     (k) Dispositions of assets (other than assets included in the Borrowing Base) of the Loan Parties to the extent not permitted under any of the foregoing clauses of “Permitted Dispositions” so long as the value of the assets so Disposed would not exceed $5,000,000 during any Fiscal Year.

     “Permitted Encumbrances” means:

     (a) Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 6.04;

     (b) Carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by applicable Law, arising in the ordinary course of business and securing obligations that are not overdue or are being contested in compliance with Section 6.04;

     (c) Pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations, other than any Lien imposed by ERISA;

     (d) Deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

     (e) Liens in respect of judgments that would not constitute an Event of Default hereunder;

     (f) Easements, covenants, conditions, restrictions, building code laws, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially interfere with the ordinary conduct of business of a Loan Party;

     (g) Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed (other than to be decreased), (ii) the amount secured or benefited thereby is not increased, (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is otherwise permitted hereunder);

     (h) Liens on fixed or capital assets acquired by any Loan Party which are permitted under clause (c) of the definition of Permitted Indebtedness so long as (i) such Liens and the Indebtedness secured thereby are incurred prior to or within ninety (90) days after such acquisition, (ii) the Indebtedness secured thereby does not exceed the cost of acquisition of such fixed or capital assets and (iii) such Liens shall not extend to any other property or assets of the Loan Parties;

     (i) Liens in favor of the Collateral Agent;

     (j) interests of Landlords’ and lessors’ under operating leases and licensors under license agreements, and Liens in respect of rents or royalties not in default or being contested in accordance with Section 6.04;

     (k) Possessory Liens in favor of brokers and dealers arising in connection with the acquisition or disposition of Investments owned as of the date hereof and Permitted Investments, provided that such liens (a) attach only to such Investments and (b) secure only obligations incurred in the ordinary course and arising in connection with the acquisition or disposition of such Investments and not any obligation in connection with margin financing;

     (l) Liens arising solely by virtue of any statutory or common law provisions relating to banker’s liens, liens in favor of securities intermediaries, rights of setoff or similar rights and remedies as to deposit accounts or securities accounts or other funds maintained with depository institutions or securities intermediaries;

     (m) Liens arising from precautionary UCC filings regarding “true” operating leases or, to the extent permitted under the Loan Documents, the consignment of goods to a Loan Party;

     (n) voluntary Liens on property (other than property of the type included in the Borrowing Base) in existence at the time such property is acquired pursuant to a Permitted Acquisition or on such property of a Subsidiary of a Loan Party in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition; provided, that such Liens are not incurred in connection with or in anticipation of such Permitted Acquisition and do not attach to any other assets of any Loan Party or any Subsidiary;

     (o) Liens in favor of customs and revenues authorities imposed by applicable Law arising in the ordinary course of business in connection with the importation of goods and securing obligations that are being contested in good faith by appropriate proceedings, provided that (A) the applicable Loan Party or Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (B) such contest effectively suspends collection of the contested obligation and enforcement of any Lien securing such obligation;

     (p) Liens solely on deposits made by the Loan Parties in connection with any letter of intent, purchase agreements with respect to a proposed acquisition, or in connection with any proposed financing; and

     (r) other Liens not securing Indebtedness in an amount not to exceed $1,000,000 in the aggregate at any time outstanding.

     “Permitted Indebtedness” means each of the following:

     (a) Indebtedness outstanding on the date hereof and listed on Schedule 7.03 and any refinancings, refundings, renewals or extensions thereof; provided that (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder, and the direct or contingent obligor with respect thereto is not changed as a result of or in connection with such refinancing, refunding, renewal or extension, (ii) the result of such extension, renewal or replacement shall not be an earlier maturity date or decreased weighted average life of such Indebtedness, and (iii) the amortization, maturity, collateral (if any) and subordination (if any), and other material terms thereof (other than the

interest rate applicable thereto) taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are not materially less favorable to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;

     (b) Indebtedness of any Loan Party to any other Loan Party;

     (c) Without duplication of Indebtedness described in clause (f) of this definition, purchase money Indebtedness of any Loan Party to finance the acquisition of any fixed or capital assets, including Capital Lease Obligations and Synthetic Lease Obligations, and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof, provided that the amortization, maturity, collateral (if any) and subordination (if any), and other material terms thereof (other than the interest rate applicable thereto) taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are not materially less favorable to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate, provided, however, that the aggregate principal amount of Indebtedness permitted by this clause (c) shall not exceed $10,000,000 at any time outstanding and further provided that, if requested by the Collateral Agent, the Loan Parties shall cause the holders of any such Indebtedness which is secured by a Lien permitted pursuant to clause (h) of the definition of Permitted Encumbrances to enter into a Collateral Access Agreement on terms reasonably satisfactory to the Collateral Agent;

     (d) Obligations (contingent or otherwise) of any Loan Party or any Subsidiary thereof existing or arising under any Swap Contract, provided that such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with fluctuations in interest rates or foreign exchange rates, and not for purposes of speculation or taking a “market view;”;

     (e) Contingent liabilities (i) under surety bonds or similar instruments incurred in the ordinary course of business in connection with the construction, improvement or operation of Stores, (ii) in respect of indemnification obligations, obligations to make customary purchase price adjustments for working capital, non-compete obligations or similar obligations of the Loan Parties incurred in connection with a Permitted Acquisition, (iii) in respect of indemnification obligations under the Existing Credit Agreement or any credit agreement or securities offerings evidencing any Permitted Indebtedness, or (iv) in respect of any agreement or instrument relating to a transaction that is permitted hereunder;

     (f) Indebtedness incurred for the construction or acquisition or improvement of, or to finance or to refinance, any Real Estate owned by any Loan Party (including therein any Indebtedness incurred in connection with sale-leaseback transactions permitted hereunder), provided that, the Loan Parties shall cause the holders of such Indebtedness to enter into a Collateral Access Agreement on terms reasonably satisfactory to the Collateral Agent;

     (g) Indebtedness with respect to the deferred purchase price for any Permitted Acquisition, provided that such Indebtedness does not require the payment in cash of principal (other than in respect of working capital adjustments) prior to the Maturity Date, has a final maturity which extends beyond the Maturity Date, and is subordinated to the Obligations on terms reasonably acceptable to the Agents;

     (h) Indebtedness of any Person that becomes a Subsidiary of a Loan Party in a Permitted Acquisition, which Indebtedness is existing at the time such Person becomes a Subsidiary of a Loan Party (other than Indebtedness incurred solely in contemplation of such Person’s becoming a Subsidiary of a Loan Party);

     (i) The Obligations;

     (j) Indebtedness incurred in the ordinary course of business in connection with the financing of insurance premiums;

     (k) Deferred compensation payable to employees, officers or directors under any deferred compensation plans; and

     (l) Indebtedness not specifically described herein in an aggregate principal amount not to exceed $10,000,000 at any time outstanding.

     “Permitted Investments” means each of the following:

     (a) As long as no Event of Default exists at the time such Investment is made or would arise from the making of such Investment, readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than one (1) year from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;

     (b) As long as no Event of Default exists at the time such Investment is made or would arise from the making of such Investment, commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 270 days from the date of acquisition thereof;

     (c) As long as no Event of Default exists at the time such Investment is made or would arise from the making of such Investment, time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System and (ii) has combined capital and surplus of at least $500,000,000, in each case with maturities of not more than one (1) year from the date of acquisition thereof;

     (d) As long as no Event of Default exists at the time such Investment is made or would arise from the making of such Investment, fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in clause (a) above (without regard to the limitation on maturity contained in such clause) and entered into with a financial

institution satisfying the criteria described in clause (c) above or with any primary dealer and having a market value at the time that such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such counterparty entity with whom such repurchase agreement has been entered into;

     (e) As long as no Event of Default exists at the time such Investment is made or would arise from the making of such Investment, Investments, classified in accordance with GAAP as current assets of the Loan Parties, in any money market fund, mutual fund, or other investment companies that are registered under the Investment Company Act of 1940, as amended, which are administered by financial institutions satisfying the criteria described in clause (c) above, and which invest solely in one or more of the types of securities described in clauses (a) through (d) above;

     (f) Investments existing on the Closing Date, and set forth on Schedule 7.02, but not any increase in the amount thereof or any other modification of the terms thereof;

     (g) (i) Investments by any Loan Party and its Subsidiaries in their respective Subsidiaries outstanding on the date hereof, (ii) additional Investments by any Loan Party and its Subsidiaries in Loan Parties (other than the Parent), (iii) Investments by any Loan Party in the Parent consisting of advances or intercompany loans to pay expenses incurred by the Parent on behalf of the Loan Parties with respect to director and officer compensation, legal fees, taxes, insurance premiums, accounting audits, other public reporting expenses and other usual and customary expenses of a holding company incurred in the ordinary course of business and consistent with the business and activities permitted to be undertaken by the Parent pursuant to Section 7.08(a) hereof, and (iv) additional Investments by Subsidiaries of the Loan Parties that are not Loan Parties in other Subsidiaries that are not Loan Parties;

     (h) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss, or advances in connection with the purchase price of goods or services in the ordinary course of business;

     (i) Guarantees constituting Permitted Indebtedness;

     (j) As long as no Event of Default exists at the time such Investment is made or would arise from the making of such Investment, Investments by any Loan Party in Swap Contracts entered into in the ordinary course of business and for bona fide business (and not speculative purposes) to protect against fluctuations in interest rates or foreign exchange rates in a notional principal amount not to exceed $25,000,000 in the aggregate at any time outstanding;

     (k) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

     (l) Advances to officers, directors and employees of the Loan Parties and Subsidiaries in the ordinary course of business in an amount not to exceed $250,000 to any individual at any time or in an aggregate amount not to exceed $1,000,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;

     (m) As long as no Event of Default exists at the time such Investment is made or would arise from the making of such Investment, Investments constituting Permitted Acquisitions;

     (n) Capital contributions made by any Loan Party to another Loan Party;

     (o) Deposits made to secure performance of operating leases in the ordinary course of business; and

     (p) As long as no Event of Default exists at the time such Investment is made or would arise from the making of such Investment, Investments not otherwise permitted under any of the foregoing clauses of this definition of Permitted Investments in an amount (valued at cost) not to exceed $2,500,000 at any one time outstanding;

provided, however, that notwithstanding the foregoing, after the occurrence and during the continuance of a Cash Dominion Event, further Investments under clauses (a) through (e) shall no longer be permitted during such period unless (i) either (A) no Loans are then outstanding, or (B) the Investment is a temporary Investment pending expiration of an Interest Period for a LIBO Rate Loan, the proceeds of which Investment will be applied to the Obligations after the expiration of such Interest Period, and (ii) such Investments are pledged to the Collateral Agent as additional collateral for the Obligations pursuant to such agreements as may be reasonably required by the Collateral Agent.

     “Permitted Overadvance” means an Overadvance made by the Administrative Agent, in its discretion, which:

     (a) Is made to maintain, protect or preserve the Collateral and/or the Credit Parties’ rights under the Loan Documents or which is otherwise for the benefit of the Credit Parties; or

     (b) Is made to enhance the likelihood of, or to maximize the amount of, repayment of any Obligation;

     (c) Is made to pay any other amount chargeable to any Loan Party hereunder; and

     (d) Together with all other Permitted Overadvances then outstanding, shall not (i) exceed ten percent (10%) of the Borrowing Base at any time or (ii) unless a Liquidation is occurring, remain outstanding for more than forty-five (45) consecutive Business Days, unless in each case, the Required Lenders otherwise agree;

provided however, that the foregoing shall not (i) modify or abrogate any of the provisions of Section 2.03 regarding the Lenders’ obligations with respect to Letters of Credit, or (ii) result in any claim or liability against the Administrative Agent (regardless of the amount of any Overadvance) for Unintentional Overadvances, and such Unintentional Overadvances shall not reduce the amount of Permitted Overadvances allowed hereunder, and further provided that in no event shall the Administrative Agent make an Overadvance, if after giving effect thereto, the principal amount of the Credit Extensions would exceed the Aggregate Commitments (as in effect prior to any termination of the Commitments pursuant to Section 2.06 hereof).

     “Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, limited partnership, Governmental Authority or other entity.

     “Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Lead Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

     “Platform” has the meaning specified in Section 6.02.

     “Prepayment Event” means:

     (a) Any Disposition of any property or asset of a Loan Party of the type included in the Borrowing Base (other than sales of Inventory in the ordinary course of business);

     (b) Any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of a Loan Party constituting Collateral, unless (i) the proceeds therefrom are required to be paid to the holder of a Lien on such property or asset having priority over the Lien of the Collateral Agent or (ii) prior to the occurrence of a Cash Dominion Event, the proceeds therefrom are utilized for purposes of replacing or repairing the assets in respect of which such proceeds, awards or payments were received;

     (c) The issuance by a Loan Party of any Equity Interests, other than any such issuance of Equity Interests (i) by the Parent or to a Loan Party, (ii) as consideration for a Permitted Acquisition or (iii) as a compensatory issuance to any employee, director, or consultant (including under any option plan);

     (d) The incurrence by a Loan Party of any Indebtedness for borrowed money other than Permitted Indebtedness; or

     (e) The receipt by any Loan Party of any Extraordinary Receipts.

     “Pro Forma Adjusted Availability” shall mean, for any date of calculation, after giving pro forma effect to the transaction then to be consummated or payment to be made, the projected Adjusted Availability for the immediately following ninety (90) days.

     “Pro Forma Adjusted Availability Condition” shall mean, for any date of calculation with respect to any transaction or payment, the Pro Forma Adjusted Availability following, and after giving effect to, such transaction or payment, will be equal to or greater than $30,000,000.

     “Pro Forma Availability” shall mean, for any date of calculation, after giving pro forma effect to the transaction then to be consummated or payment to be made, the projected Availability for the immediately following ninety (90) days.

     “Pro Forma Availability Condition” shall mean, for any date of calculation with respect to any transaction or payment, the Pro Forma Availability following, and after giving effect to, such transaction or payment, will be equal to or greater than $10,000,000.

     “Public Lender” has the meaning specified in Section 6.02.

     “Real Estate” means all Leases and all land, together with the buildings, structures, parking areas, and other improvements thereon, now or hereafter owned by any Loan Party, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof.

     “Register” has the meaning specified in Section 10.06(c).

     “Registered Public Accounting Firm” has the meaning specified by the Securities Laws and shall be independent of the Parent and its Subsidiaries as prescribed by the Securities Laws.

     “Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

     “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

     “Reports” has the meaning provided in Section 9.12(b).

     “Request for Credit Extension” means (a) with respect to a Borrowing, Conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

     “Required Lenders” means, as of any date of determination, at least two Lenders holding more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, at least two Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender or Deteriorating Lender shall be excluded from Aggregate Commitments and Total Outstandings for purposes of making a determination of Required Lenders.

     “Reserves” means all (if any) Inventory Reserves and Availability Reserves (including, without limitation, Bank Product Reserves and Cash Management Reserves).

     “Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of a Loan Party or any of the other individuals designated in writing to the Administrative Agent by an existing Responsible Officer of a Loan Party as an authorized signatory of any certificate or other document to be delivered hereunder. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

     “Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to such Person’s stockholders, partners or members (or the equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment. Without limiting the foregoing, “Restricted Payments” with respect to any Person shall also include all payments made by such Person with any proceeds of a dissolution or liquidation of such Person.

     “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

     “Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.

     “SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

     “Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley, and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.

     “Security Agreement” means the Security Agreement dated as of the Closing Date among the Loan Parties and the Collateral Agent.

     “Security Documents” means the Security Agreement, the Blocked Account Agreements, the DDA Notifications, the Credit Card Notifications, and each other security agreement or other instrument or document executed and delivered to the Collateral Agent pursuant to this Agreement or any other Loan Document, and granting a Lien to secure any of the Obligations.

     “Settlement Date” has the meaning provided in Section 2.14(a).

     “Shareholders’ Equity” means, as of any date of determination, consolidated shareholders’ equity of the Lead Borrower and its Subsidiaries as of that date determined in accordance with GAAP.

     “Shrink” means Inventory which has been lost, misplaced, stolen, or is otherwise unaccounted for.

     “Solvent” and “Solvency” means, with respect to any Person on a particular date, that on such date (a) at fair valuation, all of the properties and assets of such Person are greater than the sum of the debts (and for the purposes of this definition including contingent liabilities), of such Person, (b) the present fair saleable value of the properties and assets of such Person is not less than the amount that would be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person’s ability to pay as such debts mature, and (e) such Person is not engaged in a business or a transaction, and is not about to engage in a business or transaction, for which such Person’s properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. The amount of all contingent liabilities (including guarantees) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, can reasonably be expected to become an actual or matured liability.

     “Standby Letter of Credit” means any Letter of Credit that is not a Commercial Letter of Credit and that (a) is used in lieu or in support of performance guaranties or performance, surety or similar bonds (excluding appeal bonds) arising in the ordinary course of business, (b) is used in lieu or in support of stay or appeal bonds, (c) supports the payment of insurance premiums for reasonably necessary casualty insurance carried by any of the Loan Parties, or (d) supports payment or performance for identified purchases or exchanges of products or services in the ordinary course of business.

     “Stated Amount” means at any time the maximum amount for which a Letter of Credit may be honored.

     “Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the FRB to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. LIBO Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

     “Store” means any retail store (which may include any real property, fixtures, equipment, inventory and other property related thereto) operated, or to be operated, by any Loan Party.

     “Subordinated Indebtedness” means Indebtedness which is expressly subordinated in right of payment to the prior payment in full of the Obligations and which is in form and on terms approved in writing by the Administrative Agent.

     “Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares Equity Interests having ordinary voting power for the election of directors or other governing body are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of a Loan Party.

     “Supply Chain Financing” means any supply chain finance services including, without limitation, trade payable services and supplier accounts receivable purchases.

     “Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

     “Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

     “Swing Line” means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.04.

     “Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.

     “Swing Line Lender” means Wells Fargo in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

     “Swing Line Loan” has the meaning specified in Section 2.04(a).

     “Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.

     “Swing Line Note” means the promissory note of the Borrowers substantially in the form of Exhibit C-2, payable to the order of the Swing Line Lender, evidencing the Swing Line Loans made by the Swing Line Lender.

     “Swing Line Sublimit” means an amount equal to the lesser of (a) $20,000,000 and (b) the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Commitments.

     “Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

     “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

     “Termination Date” means the earliest to occur of (i) the Maturity Date, (ii) the date on which the maturity of the Obligations is accelerated (or deemed accelerated) and the Commitments are irrevocably terminated (or deemed terminated) in accordance with Article VII, or (iii) the termination of the Commitments in accordance with the provisions of Section 2.06 hereof.

     “Total Outstandings” means the aggregate Outstanding Amount of all Loans and all L/C Obligations.

     “Trading with the Enemy Act” has the meaning set forth in Section 10.18.

     “Type” means, with respect to a Committed Loan, its character as a Base Rate Loan or a LIBO Rate Loan.

     “UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that if a term is defined in Article 9 of the Uniform Commercial Code differently than in another Article thereof, the term shall have the meaning set forth in Article 9; provided further that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of a security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than

the State of New York, “Uniform Commercial Code” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.

     “UFCA” has the meaning specified in Section 10.21(d).

     “UFTA” has the meaning specified in Section 10.21(d).

     “Uncommitted Increase” has the meaning specified in Section 2.15(b).

     “Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

     “Unintentional Overadvance” means an Overadvance which, to the Administrative Agent’s knowledge, did not constitute an Overadvance when made but which has become an Overadvance resulting from changed circumstances beyond the control of the Credit Parties, including, without limitation, a reduction in the Appraised Value of property or assets included in the Borrowing Base or misrepresentation by the Loan Parties.

     “United States” and “U.S.” mean the United States of America.

     “Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).

     “Wells Fargo” means Wells Fargo Bank, National Association and its successors.

     1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

     (a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer

to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

     (b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

     (c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

     1.03 Accounting Terms

     (a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

     (b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Lead Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Lead Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Lead Borrower shall provide to the Administrative Agent and the Lenders financial schedules and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

     1.04 Rounding. Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

     1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

     1.06 Letter of Credit Amounts. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to be the Stated Amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Documents related thereto, provides for one or more automatic increases in the Stated Amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum Stated Amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum Stated Amount is in effect at such time.

ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS

     2.01 Committed Loans; Reserves. (a) Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a “Committed Loan”) to the Borrowers from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the lesser of (x) the amount of such Lender’s Commitment, or (y) such Lender’s Applicable Percentage of the Borrowing Base; subject in each case to the following limitations:

          (i) after giving effect to any Committed Borrowing, the Total Outstandings shall not exceed the Loan Cap,

          (ii) after giving effect to any Committed Borrowing, the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment, and

          (iii) The Outstanding Amount of all L/C Obligations shall not at any time exceed the Letter of Credit Sublimit.

Within the limits of each Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01, prepay under Section 2.05, and reborrow under this Section 2.01. Committed Loans may be Base Rate Loans or LIBO Rate Loans, as further provided herein.

          (b) The Inventory Reserves and Availability Reserves as of the Closing Date are set forth on the form of Borrowing Base Certificate attached hereto as Exhibit F.

          (c) The Administrative Agent shall have the right, at any time and from time to time after the Closing Date in its reasonable discretion, to establish, modify or eliminate Reserves; provided that, so long as no Event of Default has occurred and is continuing, the Administrative Agent shall provide the Lead Borrower with three (3) days’ prior notice of any new Reserve or modification to increase any existing Reserve (during which period the Administrative Agent shall be available to discuss any such proposed Reserve with the Borrowers); provided further that no such prior notice shall be required for (1) changes to any Reserves resulting solely by virtue of mathematical calculations of the amount of the Reserve in accordance with the methodology of calculation previously utilized (such as, but not limited to, rent and Customer Credit Liabilities), or (2) changes to Reserves or establishment of additional Reserves if a Material Adverse Effect has occurred or it would be reasonably likely that a Material Adverse Effect to the Lenders would occur were such Reserve not changed or established prior to the expiration of such three (3) day period.

     2.02 Borrowings, Conversions and Continuations of Committed Loans.

          (a) Committed Loans (other than Swing Line Loans) shall be either Base Rate Loans or LIBO Rate Loans as the Lead Borrower may request subject to and in accordance with this Section 2.02. All Swing Line Loans shall be only Base Rate Loans. Subject to the other provisions of this Section 2.02, Committed Borrowings of more than one Type may be incurred at the same time.

          (b) Each Committed Borrowing, each Conversion of Committed Loans from one Type to the other, and each continuation of LIBO Rate Loans shall be made upon the Lead Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, Conversion to or continuation of LIBO Rate Loans or of any

Conversion of LIBO Rate Loans to Base Rate Loans, and (ii) on the requested date (which shall be a Business Day) of any Borrowing of Base Rate Loans. Each telephonic notice by the Lead Borrower pursuant to this Section 2.02(b) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Lead Borrower. Each Borrowing of, Conversion to or continuation of LIBO Rate Loans shall be in a principal amount of $3,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided in Sections 2.03(c) and 2.04(c), each Borrowing of or Conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Lead Borrower is requesting a Committed Borrowing, a Conversion of Committed Loans from one Type to the other, or a continuation of LIBO Rate Loans, (ii) the requested date of the Borrowing, Conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, Converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be Converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Lead Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Lead Borrower fails to give a timely notice requesting a Conversion or continuation, then the applicable Committed Loans shall be made as, or Converted to, Base Rate Loans. Any such automatic Conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable LIBO Rate Loans. If the Lead Borrower requests a Borrowing of, Conversion to, or continuation of LIBO Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. Notwithstanding anything to the contrary herein, a Swing Line Loan may not be Converted to a LIBO Rate Loan.

          (c) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a Conversion or continuation is provided by the Lead Borrower, the Administrative Agent shall notify each Lender of the details of any automatic Conversion to Base Rate Loans described in Section 2.02(b). In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01), the Administrative Agent shall use reasonable efforts to make all funds so received available to the Borrowers in like funds by no later than 4:00 p.m. on the day of receipt by the Administrative Agent either by (i) crediting the account of the Lead Borrower on the books of Wells Fargo with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Lead Borrower; provided, however, that if, on the date the Committed Loan Notice with respect to such Borrowing is given by the Lead Borrower, there are L/C Borrowings outstanding, then the proceeds of such Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrowers as provided above.

          (d) The Administrative Agent, without the request of the Lead Borrower, may advance any interest, fee, service charge, Credit Party Expenses, or other payment to which any Credit Party is entitled from the Loan Parties pursuant hereto or any other Loan Document and may charge the same to the Loan Account notwithstanding that an Overadvance may result thereby. The Administrative Agent shall advise the Lead Borrower of any such advance or charge promptly after the making thereof. Such action on the part of the Administrative Agent shall not constitute a waiver of the Administrative Agent’s rights and the Borrowers’ obligations under Section 2.05(c). Any amount which is added to the principal balance of the Loan Account as provided in this Section 2.02(d) shall bear interest at the interest rate then and thereafter applicable to Base Rate Loans.

          (e) Except as otherwise provided herein, a LIBO Rate Loan may be continued or Converted only on the last day of an Interest Period for such LIBO Rate Loan. During the existence of a Default, no Loans may be requested as, Converted to or continued as LIBO Rate Loans without the consent of the Required Lenders.

          (f) The Administrative Agent shall promptly notify the Lead Borrower and the Lenders of the interest rate applicable to any Interest Period for LIBO Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Lead Borrower and the Lenders of any change in Wells Fargo’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

          (g) After giving effect to all Committed Borrowings, all Conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than six Interest Periods in effect with respect to LIBO Loans.

          (h) The Administrative Agent, the Lenders, the Swing Line Lender and the L/C Issuer shall have no obligation to make any Loan or to provide any Letter of Credit if an Overadvance would result. The Administrative Agent may, in its discretion, make Permitted Overadvances without the consent of the Borrowers, the Lenders, the Swing Line Lender and the L/C Issuer, and the Borrowers and each Lender shall be bound thereby. Any Permitted Overadvance may constitute a Swing Line Loan. A Permitted Overadvance is for the account of the Borrowers and shall constitute a Base Rate Loan and an Obligation and shall be repaid by the Borrowers in accordance with the provisions of Section 2.05(c). The making of any such Permitted Overadvance on any one occasion shall not obligate the Administrative Agent or any Lender to make or permit any Permitted Overadvance on any other occasion or to permit such Permitted Overadvances to remain outstanding. The making by the Administrative Agent of a Permitted Overadvance shall not modify or abrogate any of the provisions of Section 2.03 regarding the Lenders’ obligations to purchase participations with respect to Letter of Credits or of Section 2.04 regarding the Lenders’ obligations to purchase participations with respect to Swing Line Loans. The Administrative Agent shall have no liability for, and no Loan Party or Credit Party shall have the right to, or shall, bring any claim of any kind whatsoever against the Administrative Agent with respect to Unintentional Overadvances regardless of the amount of any such Overadvance(s).

     2.03 Letters of Credit.

          (a) The Letter of Credit Commitment.

               (i) Subject to the terms and conditions set forth herein, (A) the Administrative Agent, in reliance upon the agreements of the Lenders set forth in this Section 2.03, shall endeavor to cause the L/C Issuer from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrowers, and to amend or extend Letters of Credit previously issued by it, in accordance with Section 2.03(b) below; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrowers and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the Loan Cap, (y) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Lead Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrowers that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing

limits, and subject to the terms and conditions hereof, the Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

               (ii) No Letter of Credit shall be issued if:

               (A) subject to Section 2.03(b)(iii), the expiry date of such requested Standby Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or

               (B) subject to Section 2.03(b)(iii), the expiry date of such requested Commercial Letter of Credit would occur more than 120 days after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or

               (C) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless either such Letter of Credit is Cash Collateralized on or prior to the date of issuance of such Letter of Credit (or such later date as to which the Administrative Agent may agree) or all the Lenders have approved such expiry date.

               (iii) No Letter of Credit shall be issued without the prior consent of the Administrative Agent if:

               (A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;

               (B) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;

               (C) such Letter of Credit is to be denominated in a currency other than Dollars; provided that if the L/C Issuer, in its discretion, issues a Letter of Credit denominated in a currency other than Dollars, all reimbursements by the Borrowers of the honoring of any drawing under such Letter of Credit shall be paid in the currency in which such Letter of Credit was denominated;

               (D) such Letter of Credit contains any provisions for automatic reinstatement of the Stated Amount after any drawing thereunder; or

               (E) a default of any Lender’s obligations to fund under Section 2.03(c) exists or any Lender is at such time a Defaulting Lender or Deteriorating Lender hereunder, unless the Administrative Agent or L/C Issuer has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the L/C Issuer’s risk with respect to such Lender.

               (iv) The Borrowers shall not permit any Letter of Credit to be amended if (A) the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

               (v) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.

          (b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.

               (i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Lead Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Lead Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such other date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Administrative Agent and the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the Administrative Agent or L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Administrative Agent and the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the Administrative Agent or the L/C Issuer may require. Additionally, the Lead Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.

               (ii) Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the applicable Borrower (or the applicable Loan Party) or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer’s usual and customary business practices. Immediately upon the issuance or amendment of each Letter of Credit, each Lender shall be deemed to (without any further action), and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer, without recourse or warranty, a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Letter of Credit. Upon any change in the Commitments under this Agreement, it is hereby agreed that with respect to all L/C Obligations, there shall be an

automatic adjustment to the participations hereby created to reflect the new Applicable Percentages of the assigning and assignee Lenders.

               (iii) If the Lead Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer shall issue a Standby Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Standby Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Standby Letter of Credit is issued. Unless otherwise directed by the Administrative Agent or the L/C Issuer, the Lead Borrower shall not be required to make a specific request to the Administrative Agent or the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Standby Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the Administrative Agent shall instruct the L/C Issuer not to permit any such extension if (A) the Administrative Agent has determined that it would not be permitted, or would have no obligation, at such time to endeavor to cause the L/C Issuer to issue such Standby Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) the L/C Issuer has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Lead Borrower that one or more of the applicable conditions specified in Section 4.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.