0000881905-06-000103.txt : 20061207 0000881905-06-000103.hdr.sgml : 20061207 20061207163609 ACCESSION NUMBER: 0000881905-06-000103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20061028 FILED AS OF DATE: 20061207 DATE AS OF CHANGE: 20061207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RETAIL GROUP INC/DE CENTRAL INDEX KEY: 0000881905 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 510303670 STATE OF INCORPORATION: DE FISCAL YEAR END: 0127 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19774 FILM NUMBER: 061263052 BUSINESS ADDRESS: STREET 1: 365 W PASSAIC ST CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2018450880 MAIL ADDRESS: STREET 1: 365 W PASSAIC STREET STREET 2: 365 W PASSAIC STREET CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 10-Q 1 form10q1206.htm FORM 10.Q DECEMBER 2006

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2006

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 00019774

United Retail Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware

State or other jurisdiction of

Incorporation or organization

51 0303670

(I.R.S. Employer

Identification No.)

365 West Passaic Street, Rochelle Park, NJ

(Address of principal executive offices)

07662

(Zip Code)

Registrant’s telephone number, including area code (201) 845-0880

_______________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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 (the “Exchange Act”) 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 ___X___

NO _______

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one.)

Large accelerated filer _____

Accelerated filer X

Non-accelerated filer _____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ______

NO ___X____

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court.

YES _______

NO _______

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 28, 2006, there were outstanding 13,813,113 units, each consisting of one share of the registrant’s common stock, $.001 par value per share, and one attached stock purchase right. The units are referred to herein as “shares.”

PART 1. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	October 28,	January 28,	October 29,
	2006	2006	2005
ASSETS	(Unaudited)		(Unaudited)
Current assets:
Cash and cash equivalents	$32,860	$32,268	$15,859
Accounts receivable	2,218	3,899	2,773
Inventory	81,338	62,801	75,839
Prepaid rents	4,640	4,607	4,585
Restricted cash	348	846	311
Current deferred taxes	4,676	9,350	-
Other prepaid expenses	2,564	1,448	1,933
Total current assets	128,644	115,219	101,300

Property and equipment, net	60,562	66,791	69,210
Deferred compensation plan assets	4,729	4,086	4,277
Long-term deferred taxes	11,245	9,473	184
Deferred charges and other intangible assets, net of
accumulated amortization of $563, $517 and $501	319	366	382
Other assets	1,270	1,561	1,587
Total assets	$206,769	$197,496	$176,940
LIABILITIES
Current liabilities:
Current portion of distribution center financing	$805	756	$739
Current portion of capital leases	281	$1,695	1,829
Current portion of revolver	-	-	-
Accounts payable and other	32,418	29,466	32,777
Disbursement accounts	12,553	10,240	11,470
Accrued expenses	22,882	26,511	23,716
Total current liabilities	68,939	68,668	70,531

Long-term distribution center financing	1,267	1,877	2,072
Long-term capital leases	-	-	324
Long-term line-of-credit borrowings	-	-	-
Deferred lease incentives	9,005	10,636	11,271
Deferred compensation plan liabilities	4,729	4,086	4,277
Other long-term liabilities	8,820	9,066	7,828
Total liabilities	92,760	94,333	96,303

STOCKHOLDERS’ EQUITY
Preferred stock, $.001 par value; authorized
1,000,000 shares; none issued
Series A junior participating preferred stock,
$.001 par value; authorized 150,000 shares;
none issued
Common stock, $.001 par value; authorized
30,000,000 shares; issued 15,217,600 shares,
14,652,400 shares, and 14,498,900 shares	15	15	14
Additional paid-in capital	92,091	87,743	86,528
Deferred compensation obligation (279,870 shares)	1,353	1,353	1,353
Retained earnings	29,739	21,757	418
Treasury stock (1,404,487 shares, 1,312,955 shares,
1,310,896 shares) at cost	(9,189)	(7,705)	(7,676)
Total stockholders’ equity	114,009	103,163	80,637
Total liabilities and stockholders’ equity	$206,769	$197,496	$176,940

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share amounts)

(Unaudited)

	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	October 28,	October 29,	October 28,	October 29,
	2006	2005	2006	2005

Net sales	$104,230	$98,061	$334,563	$319,294

Cost of goods sold, including
buying and occupancy costs	78,567	72,995	248,598	237,834

Gross profit	25,663	25,066	85,965	81,460

General, administrative and
store operating expenses	23,270	23,422	74,281	74,318

Operating income	2,393	1,644	11,684	7,142

Interest income	333	115	971	314
Interest expense	(152)	(133)	(343)	(479)

Income before income taxes	2,574	1,626	12,312	6,977

Provision for (benefit from) income taxes	1,485	(228)	4,329	65

Net income	$1,089	$1,854	$7,983	$6,912

Net income per share
Basic	$0.08	$0.14	$0.59	$0.54
Diluted	$0.08	$0.14	$0.56	$0.53

Weighted average number of
shares outstanding
Basic	13,734,352	13,104,279	13,543,485	12,850,262
Common stock equivalents
(stock options)	575,315	393,596	640,971	297,716
Diluted	14,309,667	13,497,875	14,184,456	13,147,978

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	Thirty-Nine Weeks Ended
	October 28,	October 29,
	2006	2005
Cash Flows From Operating Activities:
Net income	$7,983	$6,912
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment	9,014	10,076
Amortization of deferred charges and other
intangible assets	71	71
Loss on disposal of assets	238	375
Deferred compensation expense	481	624
Excess tax benefit from exercise of stock options	(1,297)	-
Gain on insurance proceeds	(700)	-
Deferred income taxes	4,199	-
Deferred lease assumption revenue amortization	-	-
Internal Revenue Service settlement related to warrants	-	-
Changes in operating assets and liabilities:
Accounts receivable	2,458	(1,269)
Income taxes	(351)	75
Inventory	(18,537)	(13,961)
Accounts payable and accrued expenses	(326)	1,791
Other current assets	(651)	224
Deferred lease incentives	(1,631)	(1,637)
Other assets and liabilities	20	(1,190)
Net Cash Provided by Operating Activities	971	2,091

Investing Activities:
Capital expenditures	(3,023)	(941)
Deferred payment for property and equipment	-	107
Gain on insurance proceeds	(77)	-

Net Cash Used in Investing Activities	(3,100)	(834)

Financing Activities:
Repayments of long-term debt	(561)	(515)
Payments on capital lease obligations	(1,414)	(1,455)
Increase in disbursement accounts	2,313	2,404
Net repayments under line-of-credit agreement	-	(100)
Excess tax benefit from exercise of stock options	1,297	-
Treasury stock acquired	(1,484)	-
Proceeds from exercise of stock options	2,570	1,672

Net Cash Provided by Financing Activities	2,721	2,006

Net increase in cash and cash equivalents	592	3,263
Cash and cash equivalents, beginning of period	32,268	12,596
Cash and cash equivalents, end of period	$32,860	$15,859

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

UNITED RETAIL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation

The condensed consolidated financial statements include the accounts of United Retail Group, Inc. and its subsidiaries (the “Company”). All significant intercompany balances and transactions have been eliminated.

The condensed consolidated financial statements as of and for the thirteen and thirty-nine weeks ended October 28, 2006 and October 29, 2005 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements do not include all disclosures required by generally accepted accounting principles for a full set of financial statements and should be read in conjunction with the financial statement disclosures contained in the Company’s 2005 Annual Report and 2005 Form 10-K. In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations for a full fiscal year.

Inventories are stated at the lower of cost or market and include import inventory in-transit under FOB shipping point terms. Import inventory in-transit has been included in the balance sheet and accounts payable on the basis of the FOB shipping point terms. Prior year inventory and accounts payable amounts have been revised to appropriately reflect the FOB shipping point amounts at October 29, 2005 in the amount of $12.4 million. The comparable amounts of import inventory in-transit at October 28, 2006 and January 28, 2006 was $12.1 million and $12.5 million, respectively.

Certain prior year balances have been reclassified to conform with the current year presentation.

2.	Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition of uncertain tax positions, financial statement classification, accounting for interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company does not believe that the adoption of FASB Interpretation No. 48 will have a significant impact on its consolidated financial condition, results of operations or cash flows.

In October 2005, the FASB issued FSP No. FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period.” The FSP concluded that rental costs associated with ground or building operating leases that are incurred during a construction period should be recognized as rental expense. The rental costs should be included in income from continuing operations. The guidance in this FSP shall be applied in the first reporting period beginning after December 15, 2005. The Company does not believe this FSP will have a significant impact on its consolidated financial condition, results of operations or cash flows.

In September 2006, FASB issued Statement of Financial Accounting Standards (SFAS) 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which shall be applied in the first reporting period beginning after December 15, 2006. The Company does not maintain a defined benefit pension plan. Accordingly, we do not believe this SFAS will have a significant impact on its consolidated financial condition, results of operations or cash flows.

3.	Provision for Income Taxes

In March 2005, the Company received $0.3 million to settle state income tax refund claims, which was recorded as a benefit during the first quarter of fiscal 2005.

Tax liabilities for the third quarter of fiscal 2005 were predominately offset against NOL's rather than being paid in cash.

In the fourth quarter of fiscal 2005, due to a number of factors, primarily that the Company recorded income before taxes of $11.4 million for fiscal 2005 (and taxable income exceeded that amount); management increased its projection of future taxable income. As a result of these increased projections, management concluded the future utilization of its deferred tax assets (with the exception of charitable contributions carryforward) was more likely than not.

For the reasons set forth in the preceding paragraph, in the fourth quarter of fiscal 2005, the Company reversed the $22.6 million valuation allowance for net deferred tax assets, NOL’s and other tax attributes that the Company maintained at the end of the previous quarter. In the fourth quarter of fiscal 2005, the Company recorded a benefit from income taxes of $16.8 million, primarily as a result of the reversal of the tax valuation allowance, which favorably affected the Company’s reported net income for that period. In contrast, a provision for income taxes in the fourth quarter of fiscal 2006 would unfavorably affect the Company’s reported net income for that period. The Company anticipates that tax liabilities for the fourth quarter of fiscal 2006 will be predominately offset against NOL’s rather than being paid in cash.

4.	Net Earnings Per Share

Basic per share data has been computed based on the weighted average number of shares of common stock outstanding. Diluted per share data includes the weighted average effect of dilutive options on the weighted average shares outstanding. The computation of earnings per diluted share excludes common stock equivalents that were anti-dilutive for the thirteen and thirty-nine weeks ended October 28, 2006 and October 29, 2005.

Common stock equivalents, which were not included in the computation of diluted per share data, were as follows:

	Thirteen Weeks Ended		Thirty-nine Weeks Ended
	October 28, 2006	October 29, 2005	October 28, 2006	October 29, 2005

Common stock equivalents	288,500	559,400	288,500	665,400

5. Vendor Discounts

The Company avails itself of excess cash positions by paying vendors earlier than required by the terms of the purchase order. Such payments resulted in additional discounts in the amount of $1.2 million and $.9 million for the thirty-nine weeks ended October 28, 2006 and October 29, 2005, respectively, and were deducted from general, administrative and store operating expenses.

6.	Credit Cards

Charges and credits associated with credit card transactions (MasterCard, Visa, American Express, Discover, Military Star Card and private label credit) are included in general, administrative and store operating expenses and amounted to a net credit of $1.4 million and $2.3 million for the thirty-nine weeks ended October 28, 2006 and October 29, 2005, respectively.

7.	Share Based Compensation

Effective January 29, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”), a revision of SFAS No. 123, “Accounting for Stock Based Compensation,” using the modified prospective transition method. Under the modified prospective transition method of SFAS 123R, the value of share-based compensation is measured at fair value on the grant date of the award based on the estimated number of awards that are expected to vest. Compensation cost for awards that vest would not be reversed if the awards expire without being exercised. SFAS 123R applies to all outstanding and unvested share-based payment awards at the adoption date. Prior to adoption of SFAS 123R, the Company accounted for its share-based awards using the intrinsic value method under APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Under the provisions of APB No. 25, no share-based compensation cost was reflected in the consolidated financial statements unless options were granted that had an exercise price less than the market value of the underlying stock on the date of grant. In adopting SFAS 123R using the modified prospective transition method, the Company was not required to restate the results of prior periods.

On October 28, 2006, the Company had one primary plan, the shareholder approved 2006 Equity Based Compensation and Performance Incentive Plan (the “2006 Plan”), under which stock options, stock appreciation rights settled in stock (“stock SAR’s”) and stock appreciation rights settled in cash (“cash SAR’s”) (see note 9) and shares of restricted stock are granted. Grants have been made at fair market value on the date of such grants. Stock options, SAR’s and restricted stock awards have a maximum term of seven years. Stock options and stock SAR’s generally vest over five years with 20% vesting each year. Restricted stock grants generally vest over a five-year period with 20% vesting after each of years three and four and the balance vesting after the fifth year. Under the 2006 Plan, 685,000 options and their equivalents have been authorized to be granted to employees and Directors. Restricted stock awards decrease the number of awards available for grant by a factor of 1.9 for each award. As of October 28, 2006, 79,000 options and their equivalents were available for grant. The Company also has other share based compensation plans under which it had granted stock options to its associates and non-management Directors and cash SAR’s to its non-management Directors prior to the adoption of the 2006 Plan.

The Company recognized expense of $.2 million and $.5 million related to share-based compensation for the thirteen week and thirty-nine week periods ended October 28, 2006, respectively. For the thirty-nine week period ended October 28, 2006, the Company received proceeds of $2.6 million in the form of both cash and stock in connection with stock option exercises.

Prior to the adoption of SFAS 123R, the Company presented all benefits of tax deductions resulting from the exercise of share-based compensation as operating cash flows in the condensed Statements of Cash Flows. SFAS 123R requires the benefits of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash inflows. For the thirty-nine weeks ended October 28, 2006, the Company reported $1.3 million of excess tax benefits as a financing cash inflow.

Under APB No. 25, the Company did not expense share-based compensation costs during the thirty-nine weeks ended October 29, 2005 or during the fourth quarter of fiscal 2005. The Company’s pro forma net income and pro forma earnings per share for the thirty-nine weeks ended October 29, 2005, had compensation costs for the Company’s stock option plans been determined under the fair value based method and recognition provisions of SFAS 123 at the grant date, would have been as follows (in thousands, except per share amounts):

		13 Weeks Ended October 29, 2005			39 Weeks Ended October 29, 2005
Net Income, as reported			$ 1,854			$ 6,912
Deduct:
	Share-based compensation			(96)			(303)
Pro forma net income			$ 1,758			$ 6,609
Net income per share:
	Basic, as reported		$ .14			$ .54
	Basic, pro forma		$ .13			$ .51
	Diluted, as reported		$ .14			$ .53
	Diluted, pro forma		$ .13			$ .50

The weighted average grant date fair value of options and stock appreciation rights settled in stock (“stock SAR’s”) granted during the thirteen and thirty-nine weeks ended October 28, 2006 were estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 45%, expected term of 5 years, risk-free interest rate ranging from 4.69% to 4.92%, and expected dividend yield of 0%. Expected volatility is based on an average of the historical volatility of the Company’s stock, the implied volatility of market options, peer company volatility, and other factors. The average expected life represents the period of time that option grants are expected to be outstanding and is derived from historical terms and other factors. The risk-free rate is based on the rate of U.S. Treasury securities at a constant maturity equal to the expected life of option grants. The Company uses historical data to estimate pre-vesting forfeiture rates.

Award activity

A summary of stock option and stock SAR’s activity under the Company’s share-based compensation plans for the thirty-nine weeks ended October 28, 2006 is summarized below:

	Number Outstanding	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
			(in years)	(in thousands)
Outstanding at January 28, 2006	1,502,300	$ 6.86
Granted	288,500	16.20
Exercised	(390,200)	6.59
Forfeited or expired	(8,800)	4.79
Outstanding at October 28, 2006	1,391,800	$ 8.89	4.89	$ 13,835
Exercisable at October 28, 2006	875,600	$ 7.55	3.32	$ 9,875

The weighted-average grant-date fair value of options and stock SAR’s granted during the thirty-nine weeks ended October 28, 2006 was $ 7.34 and the total intrinsic value of options exercised during the same period was $4.1 million. As of October 28, 2006, the total unrecognized compensation cost related to outstanding non-vested options and stock SAR’s was $2.1 million, which is expected to be recognized over a weighted average period of approximately 2.2 years.

Restricted Stock Activity

The Company’s restricted stock activity for the thirty-nine weeks ended October 28, 2006 was as follows:

	Number of Shares	Weighted Average Grant Date Fair Value
Unvested at January 28, 2006	-
Granted	175,000	$ 16.33
Vested	-	-
Cancelled	-	-
Unvested at October 28, 2006	175,000	$ 16.33

As of October 28, 2006, there was $2.7 million of total unrecognized compensation cost related to unvested restricted stock. That cost is expected to be recognized over a weighted-average period of 4.8 years.

8. Financing Arrangements

In 1994, the Company executed a fifteen-year $8.0 million loan bearing interest at 8.64%. Interest and principal are payable in equal monthly installments beginning May 1994. The balance of the loan as of October 28, 2006 was $2.1 million. The loan is collateralized by a mortgage on the national distribution center owned by the Company in Troy, Ohio.

The Company and certain of its subsidiaries (collectively, the “Companies”) are parties to a Financing Agreement, dated August 15, 1997 (the “Financing Agreement”), with The CIT Group/Business Credit, Inc. (“CIT”) that provides a revolving line of credit for a term ending on August 15, 2008. The maximum amount available under the line of credit is $50 million, which is subject to availability of credit under an asset-based formula.

The Companies are required to maintain unused at all times combined asset availability of at least $5 million. Except for the maintenance of a minimum availability of $5 million and a limit on capital expenditures, the Financing Agreement does not contain any significant financial covenants.

The revolving line of credit is used by the Companies to support trade letters of credit and standby letters of credit and to finance loans, which could be used for working capital and general corporate purposes.

The Financing Agreement also includes certain restrictive covenants that impose limitations (subject to certain exceptions) on the Companies with respect to, among other things, making certain investments, declaring or paying dividends, making loans, engaging in certain transactions with affiliates, consolidating, merging, making acquisitions outside the ordinary course of business or incurring indebtedness to third parties for borrowed money.

In the event a loan is made to one of the Companies, interest is payable monthly based on a 360-day year at the JP Morgan Chase Manhattan Bank prime rate plus incremental percentages ranging from 0.00% to 0.75% or the LIBOR rate plus incremental percentages ranging from 1.75% to 2.50% as determined by the average excess availability each month per the Financing Agreement on a per annum basis. The borrower can select either the prime rate or the LIBOR rate as the basis for determining the interest rate. Payments of revolving loans are not required until termination of the agreement unless either 1) the outstanding balance of revolving loans and outstanding letters of credit exceeds the availability under the agreement, in which case the excess would be payable upon demand from CIT or 2) the Company is in default under the Financing Agreement.

The line of credit is collateralized by a security interest in i) inventory and its proceeds ii) bank credit card receivables and iii) the balance on deposit from time to time in a bank account that has been pledged to the lenders.

At October 28, 2006, the borrowing capacity of the Companies under the Financing Agreement with CIT, after satisfying the $5 million minimum availability requirement, was $ 16.0 million, trade letters of credit for the account of the Companies were outstanding in the amount of $ 26.8 million, standby letters of credit were outstanding in the amount of $ 7.2 million and no loan from CIT was outstanding. The Company’s balance sheet cash and cash equivalents of $ 32.9 million were unrestricted.

The Company is required by CIT to maintain at all times balances in a designated account in an amount not less than 25% of the amount of gift cards and merchandise credits issued and not redeemed during the prior six-month period. The balance in this account as of October 28, 2006 was $ .3 million and was classified as restricted cash on the balance sheet.

In January 2002, the Company executed a five-year $8.2 million sale and lease back agreement for certain fixtures in new and remodeled stores. The lease bears an interest rate of 7.0% per annum. The Company was required to pay sales tax as part of the agreement. The agreement provides for equal monthly rent payments of $163,344 beginning February 2002 and gives the Company the option of buying back the fixtures at the end of the term for a nominal price.

9. Stock Appreciation Rights Settled in Cash

In the second quarter of fiscal 2000 and annually thereafter through the second quarter of fiscal 2004, each non-management Director received an award of cash SAR’s under the Company’s Stock Appreciation Rights Plan that provides for a cash payment by the Company when the Director exercises the stock option granted to him contemporaneously under the Company’s Stock Option Plans. The payment will be an amount equivalent to the equity in the option that is being exercised, that is, the excess of the then current market price of the shares issued over the exercise price of the corresponding option. Further, cash SAR’s were awarded in June 2005 that provide for payment of an amount equivalent to twice the equity in the related option.

In May 2006, each non-management Director received an award of 10,000 cash SAR’s under the Company’s 2006 Plan (see note 7). Cash SAR’s under the 2006 Plan awarded to non-management Directors are free standing, are exercisable for a term of seven years, and vest in four equal annual installments commencing on the first anniversary of the date of grant.

The amount accrued at October 28, 2006 was $1.7 million for future potential payments and a payment in the amount of $.1 million was made during the third quarter of fiscal 2006. The amount recorded as compensation expense related to the cash SAR’s was $.6 million and $.9 million for the thirteen and thirty-nine weeks ended October 28, 2006, respectively.

10.

Supplemental Cash Flow Information

Net cash flow from operating activities reflects cash payments for interest and income taxes as follows (dollars in thousands):

	Thirteen Weeks Ended		Thirty-nine Weeks Ended
	October 28, 2006	October 29, 2005	October 28, 2006	October 29, 2005
Cash interest paid	$83	$105	$368	$466
Cash interest received	(399)	(97)	(1,060)	(294)
Net cash interest (received) paid	($316)	$8	($692)	$172

Net income taxes paid (refunded)	$384	$41	$918	($131)

The Company, in certain stock option plans, allows its participants to tender shares of common stock instead of cash when exercising their stock options. Non-cash financing activities include the receipt of 91,532 shares of Company stock with a market value equal to the exercise price of the options exercised and in some cases the related payroll taxes in the amount of approximately $1.5 million in the thirty-nine weeks ended October 28, 2006.

11. Contingencies

The Company is involved in legal actions and claims arising in the ordinary course of business. Management believes that such litigation and claims, net of reserves, will not have a material adverse effect on the Company’s financial position, annual results of operations or cash flows. Legal fees are typically expensed as incurred.

On May 1, 2003, a suit in California Superior Court, Los Angeles County, styled Erik Stanford vs. United Retail Incorporated was served on the Company by a former store manager in California. On March 3, 2004, an amended complaint was served that added another plaintiff. The suit was purportedly a class action on behalf of certain current and former associates in California in the previous four years.

The plaintiffs in the Stanford case asserted federal and state wage and hour claims and related claims against the Company.

Total expense related to this matter was $0.7 million in fiscal 2003 and $1.6 million in fiscal 2004.

The Stanford case was settled in the second quarter of fiscal 2005 at a cost of $1.8 million, at which time the underlying accruals were adjusted resulting in $0.5 million of income. During the third quarter of fiscal 2005, $1.1 million of this liability was paid. The final payment of $0.7 million was paid during the first quarter of fiscal 2006. In anticipation of the settlement, compensation of store managers employed by the Company in California had been converted from salaried to hourly wages in January 2005.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

EXECUTIVE SUMMARY

Introduction

The Executive Summary section of Management’s Discussion and Analysis of Financial Condition and Results of Operations provides a high level summary of the more detailed information elsewhere in this Report and an overview to put this information in context. This section is also an introduction to the discussion and analysis that follows. Accordingly, it necessarily omits details that appear elsewhere in this Report. It should be read together with the balance of this Report and the Company’s Annual Report on Form 10-K for the year ended January 28, 2006 (the “Form 10-K”) filed with the Securities and Exchange Commission (the “Commission”), which is available online at www.sec.gov.

Products and Purchasing

The Company is a leading specialty retailer of women’s fashions featuring its proprietary AVENUE® brand. Its product line features AVENUE® brand large size (14 or larger) women’s wearing apparel, AVENUE BODY® brand large size women’s undergarments and lingerie and CLOUDWALKERS® brand women’s footwear, as well as AVENUE® brand accessories and gifts.

Most of the Company’s products are made for the Company by contract manufacturing abroad.

Customer Base

The Company serves the mass market in the United States and targets fashion conscious women who are from 25 to 55 years of age and wear size 14 or larger apparel. Management believes that the number of women in this age range who wear large size apparel has increased in recent years.

Merchandising and Marketing

Design is an important aspect of the Company’s products. Many AVENUE® and AVENUE BODY® products are custom designed. The Company emphasizes a contemporary brand image and consistency of merchandise quality and fit.

The Company has used direct mail, print media advertising, credit card statement inserts, in-store signage and e-mail messages in its marketing activities.

Channel of Distribution

The Company’s channel of distribution is retail stores using its AVENUE® trade name. At October 28, 2006, it leased 491 stores in 37 states. See, “Stores.” The Company also has operated a website at www.avenue.com that sells a selection of the merchandise that is also on sale in the stores.

Until March 2003, the Company also mailed catalogs that featured a merchandise selection that included both items in the stores and similar products. (The website and the catalog, while it was in existence, are referred to as “shop @ home” activities.) The Company licensed its AVENUE trade name to a leading catalog publisher to conduct a market test of an AVENUE catalog earlier in fiscal 2006. The Company was not responsible for the costs of the market test, did not supply the merchandise featured and did not include sales to catalog customers in its reported sales. The results of the market test have been analyzed and the Company and the catalog publisher will not go forward with further mailings.

Increased Competition

The women’s retail apparel and shoe industries are highly competitive. Operating results of businesses in these industries, especially businesses that emphasize fashionable merchandise, can vary materially from year to year. The Company’s competition includes other specialty retailers, mass merchants, department stores, discount stores, mail order companies, television shopping channels and Internet websites. Management believes that total sales of large size women’s apparel from these sources of supply increased in recent years. Among specialty retailers for large size women like the Company, the competition includes large store chains that have announced long-term store growth plans to aggressively expand into additional strip shopping center locations. (Most of the Company’s stores are in strip shopping center locations.)

Deflationary Price Trend in Apparel Industry

The Consumer Price Index published by the U.S. Dept. of Labor, Bureau of Labor Statistics, city average for women’s and girls’ apparel (the “CPI”) declined 1.5% in fiscal 2003, 0.5% in fiscal 2004 and 2.0% in fiscal 2005, comparing January 31^st each year with that date in the previous year. During the 10 years ended January 31, 2006, the CPI declined 14.3%. Price deflation in the industry has limited the extent to which the Company is able to increase prices. There is no assurance that this general deflationary trend will not continue.

Company Sales Fluctuations

The Company conducts a weekly interdisciplinary review of sales and merchandise margins and prepares budgets for two six-month seasons each year, the Spring season and the Fall season. Management uses comparable store sales (for stores open at least 12 months at the time) to measure business trends.

Seasonal store sales data (with sales improvements versus the previous comparable period in bold type) follow:

	2003		2004		2005		2006
	Spring	Fall	Spring	Fall	Spring	Fall	Spring
Total store sales ($ millions)*	$203.5	$187.7	$196.0	$196.9	$215.6	$209.0	$221.4
Sales per average store ($000’s)	$371	$344	$368	$372	$422	$412	$445
Average number of stores	548	545	532	529	511	507	497
Comparable store sales**	-9.3%	-4.2%	-2.2%	+6.8%	+12.8%	+10.2%	+4.8%

_______

*Excludes sales on the Internet and through a catalog that was distributed until March 2003.

**A store that is relocated within the same shopping center or mall is considered comparable. However, if the store is relocated elsewhere, it is considered a new store and not comparable. A store that is expanded or contracted is still comparable, i.e., the sales from the remodeled store are considered comparable. Stores that are closed are not considered comparable. The comparable store sales calculation is not adjusted for changes in the store sales return reserve and excludes sales on the Internet and through a catalog that was distributed until March 2003.

Reversal of Tax Valuation Allowance In Fourth Quarter of Fiscal 2005

In the fourth quarter of fiscal 2005, the Company reversed the $22.6 million valuation allowance for net deferred tax assets, NOL’s and other tax attributes that the Company maintained at the end of the previous quarter. In the fourth quarter of fiscal 2005, the Company recorded a benefit from income taxes of $16.8 million, primarily as a result of the reversal of the tax valuation allowance, which favorably affected the Company’s reported net income for that period. In contrast, a provision for income taxes in the fourth quarter of fiscal 2006 would unfavorably affect the Company’s reported net income for that period. The Company anticipates that tax liabilities for the fourth quarter of fiscal 2006 will be predominately offset against NOL’s rather than being paid in cash.

(The preceding paragraph constitutes forward-looking information under the Private Securities Litigation Reform Act (the “Reform Act”) and is subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results”.)

Leap Year

Fiscal 2006 will have 53 weeks and the fourth quarter of the year will have 14 weeks.

Growth

The Company plans to continue its internal growth by increasing sales per square foot in its existing store base, as well as in the Company’s shop @ home activities, and by further store openings. Also, the Company from time to time conducts “due diligence” reviews of businesses that are either for sale as a going concern or are in liquidation. The Company would consider making a bid on a suitable corporate acquisition at an opportune price if adequate financing at acceptable rates were available.

Store counts averaged 546 stores, 531 stores and 509 stores, respectively, for fiscal 2003, 2004 and 2005. The Company estimates that in fiscal 2006 it will close approximately 15-20 stores as part of its normal lease maintenance program and open approximately 10 new stores, generally in strip shopping centers. The declines in store counts resulted from the Company’s normal ongoing lease maintenance store closings combined with a business decision not to open significant numbers of new stores until there was a clear indication of customer acceptance of the Company’s new merchandise assortment.

The Company plans to accelerate its new store opening program in fiscal 2007 and open the maximum number of new stores that fit its success criteria. The Company anticipates that approximately 30 to 50 new stores will be opened in fiscal 2007, subject to the availability of suitable locations that are projected to fit the Company’s financial model. Start-up costs for new stores will be expensed but are not expected to have a material effect on general, administrative and store operating expenses for fiscal 2007. This paragraph contains forward-looking information under the Reform Act, which is subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results.”

Liquidity

United Retail Group, Inc. and certain of its subsidiaries (collectively, the “Companies”) are parties to a Financing Agreement, dated August 15, 1997, as amended (the “Financing Agreement”), with The CIT Group/Business Credit, Inc. (“CIT”). The Financing Agreement provides credit to the Companies on a revolving basis.

The Company plans to use the Financing Agreement for its immediate and future working capital needs. Management believes that the borrowing capacity under the Financing Agreement, together with cash on hand and current and anticipated cash flow from operations, will be adequate to meet the Company’s cash requirements for at least the next 12 months. This paragraph constitutes forward-looking information under the Reform Act and is subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results.”

DISCUSSION AND ANALYSIS

(This section and the following one provide details about the material line items in the Company’s statements of operations.)

Third quarter of fiscal 2006 versus third quarter of fiscal 2005

Net sales for third quarter of fiscal 2006 increased 6.3% from third quarter of fiscal 2005, to $104.2 million from $98.1 million.

The principal sources of net sales growth were as follows:

Amount	Attributable to
$6.0 million	6.4% comparable store sales increase
0.1 million	non-comparable store sales increase
(1.8) million	closed stores
1.5 million	shop @ home sales increase
0.3 million	other
$6.1 million	Total

In the third quarter of fiscal 2006, excluding shop @ home sales, average price per unit sold increased approximately 2%, units sold per average store increased approximately 7% and transactions per average store increased approximately 8%.

There was better customer acceptance of knit tops, sweaters, shoes, woven pants and bras, which collectively increased sales by $6.4 million in comparison to the third quarter of fiscal 2005.

The average number of stores decreased from 508 to 492.

Gross profit increased to $25.7 million in third quarter of fiscal 2006 from $25.1 million in third quarter of fiscal 2005, decreasing, however, as a percentage of net sales to 24.6% from 25.6%. Gross profit as a percentage of net sales decreased principally because a decrease in merchandise margins (180 basis points rounded to the nearest 10 basis points) and an increase in freight costs (40 basis points) was only partially offset by a decrease in buying and occupancy expenses (130 basis points). It should be noted that the Company plans to accelerate its new store opening program in fiscal 2007. See, “Stores.” In the past, average sales at new stores have generally been lower than the average at other, established stores and new store rents have been higher. Accordingly, the new stores planned to be opened in fiscal 2007 may have a higher occupancy expense as a percentage of net sales than the Company average while sales there are ramping up. Future gross profit levels will be subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results.”

General, administrative and store operating expenses decreased to $23.3 million in the third quarter of fiscal 2006 from $23.4 million in the third quarter of fiscal 2005 and decreased as a percentage of net sales to 22.3% from 23.9%. General, administrative and store operating expenses decreased as a percentage of net sales principally because of decreases in cash incentive compensation (110 basis points), store payroll (80 basis points) and insurance expenses (80 basis points), largely from the receipt of insurance proceeds in the third quarter of fiscal 2006 from claims arising from Hurricane Katrina. Compensation expense in the third quarter of fiscal 2006 included an increase of $0.5 million for stock appreciation rights to be settled in cash (“Cash SAR’s”) that were held by nonmanagement Directors and that were marked to market and $0.2 million for grants of other forms of equity-based compensation. See, “Equity-Based Compensation.”

Operating income increased 46% to $2.4 million in the third quarter of fiscal 2006 from $1.6 million in the third quarter of fiscal 2005 as a result of the foregoing.

Interest income increased to $0.3 million in the third quarter of fiscal 2006 from $0.1 million in the third quarter of fiscal 2005, principally from larger amounts invested.

Income before income taxes increased 58% to $2.6 million in the third quarter of fiscal 2006 from $1.6 million in the third quarter of fiscal 2005.

Net income was $1.1 million in the third quarter of fiscal 2006 and $1.9 million in the third quarter of fiscal 2005. The decline was a result of a $1.5 million provision for income taxes in the third quarter of fiscal 2006 versus a benefit from income taxes of $0.2 million in the third quarter of fiscal 2005.

The provision for income taxes for the third quarter of fiscal 2006 includes, among other items, adjustments to taxes payable as a result of income tax returns having been filed during the quarter for fiscal 2005 and an increase in the liability for uncertainty in income taxes. (However, tax liabilities were predominately offset against net operating loss carryforwards (“NOL’s”)rather than being paid in cash. See, “Supplemental Cash Flow Information”. )

The $0.2 million benefit from income taxes in the third quarter of fiscal 2005 reflected, among other things, a $0.5 million decrease in the valuation allowance related to deferred tax assets, NOL’s and other tax attributes that the Company maintained in that quarter. (At October 28, 2006, the Company had federal NOL’s of approximately $4 million and state NOL’s of approximately $75 million.)

The Company’s effective tax rate was plus 35.1% for the first 39 weeks of fiscal 2006 and plus 0.9% for the first 39 weeks of fiscal 2005. (However, tax liabilities were predominately offset against NOL’s rather than being paid in cash. See, “Supplemental Cash Flow Information”. )

Reversal of Tax Valuation Allowance In Fourth Quarter of Fiscal 2005

(The preceding paragraph constitutes forward-looking information under the Reform Act and is subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results”.)

First 39 weeks of fiscal 2006 versus first 39 weeks of fiscal 2005

Net sales for the first 39 weeks of fiscal 2006 increased 4.8% from the first 39 weeks of fiscal 2005, to $334.6 million from $319.3 million.

The principal sources of net sales growth were as follows:

Amount	Attributable to
$16.2 million	5.3% comparable store sales increase
0.4 million	non-comparable store sales increase
(6.7) million	closed stores
4.8 million	shop @ home sales increase
0.6 million	other
$15.3 million	Total

In the first 39 weeks of fiscal 2006, excluding shop @ home sales, average price per unit sold increased approximately 2%, units sold per average store increased approximately 5% and transactions per average store increased approximately 6%.

There was better customer acceptance of knit tops and woven pants, which collectively increased sales by $15.9 million in comparison to the first 39 weeks of fiscal 2005.

The average number of stores decreased from 510 to 495.

Gross profit increased to $86.0 million in the first 39 weeks of fiscal 2006 from $81.5 million in the first 39 weeks of fiscal 2005, increasing as a percentage of net sales to 25.7% from 25.5%.

General, administrative and store operating expenses were $74.3 million in the first 39 weeks of both fiscal 2006 and fiscal 2005 but decreased as a percentage of net sales to 22.2% from 23.3%, primarily as a result of lower cash incentive compensation (70 basis points) and store payroll (60 basis points). Compensation expense in the first 39 weeks of fiscal 2006 included an increase of $0.6 million for Cash SAR’s that were held by nonmanagement directors and $0.5 million for grants of other forms of equity-based compensation.

Operating income increased 64% to $11.7 million in the first 39 weeks of fiscal 2006 from $7.1 million in the first 39 weeks of fiscal 2005 as a result of the foregoing.

Interest income increased to $1.0 million in the first 39 weeks of fiscal 2006 from $0.3 million in the first 39 weeks of fiscal 2005, principally from larger amounts invested.

Income before income taxes increased 77% to $12.3 million in the first 39 weeks of fiscal 2006 from $7.0 million in the first 39 weeks of fiscal 2005.

Net income increased 16% to $8.0 million in the first 39 weeks of fiscal 2006 from $6.9 million in the first 39 weeks of fiscal 2005 as a result of the foregoing, partially offset by a $4.3 million provision for income taxes in the first 39 weeks of fiscal 2006 compared with a $0.1 million provision for income taxes in the first 39 weeks of fiscal 2005. The provision for income taxes in the first 39 weeks of fiscal 2005 reflected a $1.8 million decrease in the valuation allowance related to deferred tax assets, NOL’s and other tax attributes that the Company maintained in that period. (However, tax liabilities were predominately offset against NOL’s rather than being paid in cash. See, “Supplemental Cash Flow Information”. )

November Sales

Net sales for November 2006 increased 2.5% from November 2005, to $36.0 million from $35.2 million, principally from a 2.7% increase in comparable store sales for the month.

Leap Year

Fiscal 2006 will have 53 weeks and the fourth quarter of the year will have 14 weeks.

Increased Competition

Liquidity and Capital Resources

(This section provides details about the Company’s sources of liquidity.)

Cash Flow Information

Net cash provided from operating activities decreased to $1.0 million in the first 39 weeks of fiscal 2006 from $2.1 million in the first 39 weeks of fiscal 2005, principally because of (i) a larger increase in inventory in the third quarter of fiscal 2006 ($18.5 million) than in the previous period ($14.0 million) and (ii) a decrease in accounts payable and accrued expenses in the third quarter of fiscal 2006 ($0.3 million) versus an increase in the previous period ($1.8 million) partially offset by several items, including deferred income taxes of $4.2 million in the third quarter of fiscal 2006 while there were none in the previous period.

Supplemental Cash Flow Information

Net cash flow from operating activities reflects cash payments for interest and income taxes as follows (dollars in thousands):

	Thirteen Weeks Ended		Thirty-nine Weeks Ended
	October 28, 2006	October 29, 2005	October 28, 2006	October 29, 2005
Cash interest paid	$83	$105	$368	$466
Cash interest received	(399)	(97)	(1,060)	(294)
Net cash interest (received) paid	($316)	$8	($692)	$172

Net income taxes paid (refunded)	$384	$41	$918	($131)

Balance Sheet Sources of Liquidity

The Company’s cash and cash equivalents increased to $32.9 million at October 28, 2006 from $15.9 million at October 29, 2005 and $32.3 million at January 28, 2006.

Inventories were stated at $81.3 million at October 28, 2006 compared with $75.8 million at October 29, 2005 and $62.8 million at January 28, 2006. (Inventories at October 29, 2005 have been revised to include import in-transit inventories on a basis consistent with that used at October 28, 2006 and fiscal 2005 year end. See, Note 1 to the consolidated financial statements.) Inventory, excluding shop @ home inventory and import in-transit inventory, on an average store basis (which management uses to monitor inventory trends) increased 11.7% from October 29, 2005 to October 28, 2006. The increase in inventory on hand compared with October 29, 2005 was principally the result of orders for larger quantities of merchandise on-hand in anticipation of higher demand during the fourth quarter of fiscal 2006. See, “November Sales.” However, future sales are subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results.” Variations in inventory levels may continue to affect net cash provided by operating activities in the future. See, “Cash Flow.”

Inventory levels are seasonal. (See, “Critical Accounting Policies – Inventory” for a discussion of estimates made by management in stating inventories in financial statements prepared in accordance with generally accepted accounting principles.)

Property and equipment decreased to $60.6 million at October 28, 2006 from $69.2 million at October 29, 2005 and $66.8 million at January 28, 2006, principally from depreciation.

Other Liquidity Sources

Purchases of merchandise directly imported by the Company are made in U.S. dollars and generally financed by trade letters of credit. The Company was the importer of record for 54% of its total purchases in fiscal 2005.

The Financing Agreement has a term expiring on August 15, 2008. The line of credit is $50 million for the Companies, subject to availability of credit as described in the following paragraphs. The line of credit may be used on a revolving basis by any of the Companies to support trade letters of credit and standby letters of credit and to finance loans. At October 28, 2006, trade letters of credit for the account of the Companies and supported by CIT were outstanding in the amount of $26.8 million and standby letters of credit were outstanding in the amount of $7.2 million. Standby letters of credit were used principally in connection with insurance policies issued to the Company.

Subject to the following paragraph, the availability of credit (within the aggregate $50 million line of credit) to any of the Companies at any time is the excess of its borrowing base over the aggregate outstanding amount of its letters of credit and its revolving loans, if any. The borrowing base, as to any of the Companies is (i) the sum of (x) a percentage of the book value of its eligible inventory (both on hand and unfilled purchase orders financed with letters of credit), ranging from 65% to 75% depending on the time of year, (y) the balance from time to time in a bank account in its name that has been pledged to the lenders (a “Pledged Account”) and (z) 85% of certain receivables from credit card companies less (ii) reserves for rent for 141 stores located in certain states and liens other than permitted liens and, at CIT’s option, a reserve for sales taxes collected but not yet paid.

The provisions of the preceding paragraph to the contrary notwithstanding, the Companies are required to maintain unused at all times combined availability of at least $5 million. Except for the maintenance of a minimum availability of $5 million and a limit on capital expenditures, the Financing Agreement does not contain any significant financial covenants.

The combined borrowing capacity of the Companies under the Financing Agreement is cyclical due to the seasonality of the retail industry. At October 28, 2006, the combined borrowing capacity of the Companies, after satisfying the $5 million minimum availability requirement, was $16.0 million; the Pledged Account had a zero balance; no loan was outstanding; and the Companies’ balance sheet cash and cash equivalents of $32.9 million were unrestricted. The Company has agreed with CIT to have its subsidiary, Avenue Giftcards, Inc. (which issues AVENUE® giftcards), maintain a minimum level of high-grade liquid investments. These investments, which amounted to $0.3 million, were classified as restricted cash on the balance sheet at October 28, 2006 and will fluctuate each quarter in relation to the volume of net issuances of AVENUE® giftcards and merchandise credits during the previous six months. (The volume of net issuances is seasonal.)

The line of credit is collateralized by (i) inventory and its proceeds, (ii) receivables from credit card companies and (iii) the balance, if any, from time to time in the Pledged Account.

The Financing Agreement includes certain restrictive covenants that (i) impose limitations (subject to certain exceptions) on the Companies with respect to making certain investments, declaring or paying dividends, making loans, engaging in certain transactions with affiliates, or consolidating, merging or making acquisitions outside the ordinary course of business, (ii) prohibit the Company from incurring secured indebtedness to third parties for borrowed money and (iii) limit the amount of unsecured indebtedness to third parties for borrowed money to $250,000 outstanding at any time.

The Company has drawn on the revolving loan facility under the Financing Agreement from time to time to meet its peak working capital requirements. Interest is payable monthly based on a 360-day year either at the prime rate plus an incremental percentage up to 0.75% per annum or at the LIBOR rate plus an incremental percentage ranging from 1.75% to 2.50% per annum. The borrower can select either the prime rate or the LIBOR rate as the basis for determining the interest rate. In either case, the incremental percentage is determined by the average excess availability. Payment of revolving loans is not required until termination of the Financing Agreement unless either (1) the outstanding balance of revolving loans and outstanding letters of credit exceeds the combined borrowing capacity of the Companies, in which case the excess would be payable upon demand from CIT or (2) a default under the Financing Agreement arises.

Short-term trade credit represents a significant source of financing for purchases of merchandise by the Company. Trade credit arises from the willingness of the Company’s vendors of these products to grant extended payment terms for inventory purchases and is generally financed either by the vendor or a third-party factor. The availability of trade credit depends on the Company’s having other sources of liquidity, as well. In particular, credit authorizations by trade creditors focus on the amount of the Company’s cash and cash equivalents and its borrowing capacity under the Financing Agreement.

Capital Expenditures

(This section and the following one provide details about certain uses of cash by the Company.)

Capital expenditures were $3.0 million in the first 39 weeks of fiscal 2006 and $0.9 million in the first 39 weeks of fiscal 2005.

Capital expenditures are estimated to be $11 million for fiscal 2006, including costs of refurbishing certain stores and building new stores. See, “Stores” and “Meeting Cash Requirements.” This paragraph constitutes forward-looking information under the Reform Act and is subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results.”

Principal Contractual Obligations

The principal contractual obligations of the Company at January 28, 2006 were summarized in the Form 10-K.

During the first 39 weeks of fiscal 2006, there was no material change outside the ordinary course of the Company’s business in the principal contractual obligations of the Company, taken as a whole.

Pending Litigation

The Company is involved in legal actions and claims arising in the ordinary course of business. Management believes that pending litigation and claims, net of reserves, will not have a material adverse effect on the Company’s financial position, annual results of operations or cash flows. See, also, “Critical Accounting Policies-Incurred But Not Reported Claims For Personal Injuries and Medical Benefits.” This paragraph constitutes forward-looking information under the Reform Act.

Meeting Cash Requirements

The Company’s cash requirements include (i) anticipated working capital needs, including seasonal inventory financing, (ii) financing activities, including payments due on its principal contractual obligations and (iii) investing activities, including costs for refurbishing and building stores and replacing fixtures where appropriate. The Company’s historical sources of liquidity have been the availability of credit under the Financing Agreement on a revolving basis and short-term trade credit, as well as its cash on hand and net cash provided by operating activities. During the first 39 weeks of fiscal 2006, the Company funded its cash requirements from these sources.

The Company plans to use the Financing Agreement for its immediate and future working capital needs. Management believes that the borrowing capacity under the Financing Agreement, together with cash on hand and current and anticipated cash flow from operations, will be adequate to meet the Company’s cash requirements, including the cost of opening new stores, for at least the next 12 months.

This section constitutes forward-looking information under the Reform Act and is subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results.”

Critical Accounting Policies

(This section discusses the Company’s critical accounting policies.)

Introduction

Financial statements in accordance with generally accepted accounting principles are affected by the policies followed by management in preparing them. Some accounting policies require difficult, subjective or complex judgments by management, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Among the most important accounting policies of the Company that involve such managerial judgments are the use of the retail method of accounting for inventory and the use of estimates of incurred but not reported claims for uninsured damages for personal injuries and workers’ compensation benefits and for benefits under the Company’s self-insured medical, dental and prescription plans for its associates, as well as future development costs of reported claims (collectively, “IBNR Claims”).

Inventory

In accordance with generally accepted accounting principles, inventories are stated at the lower of cost or market. The Company utilizes the retail method, under which a cost-to-price relationship is developed on the basis of original cost as compared to initial retail selling price. The valuation of inventories at cost and the resulting margins are calculated by applying this cost-to-price relationship to the retail value of inventories. Consequently, the use of the retail inventory method results in valuing inventories at lower of cost or market.

Inherent in the retail inventory method are estimates by management on current and future selling value of the inventory. These estimates, which are described in the following paragraph, can significantly impact the ending inventory valuation at cost, as well as resulting margins. In the women’s retail specialty apparel industry, sales, especially in businesses that emphasize fashionable merchandise, can vary significantly over time. Sales are volatile because of shifts in consumer spending patterns, consumer preferences and overall economic conditions; the impact of increased competition; variations in weather patterns; fluctuations in consumer acceptance of products; changes in the ability to develop new merchandise; differences in promotional strategies; and movements in consumer confidence levels. The necessity for managerial estimates based on these variables, coupled with the fact that the retail inventory method is an averaging process, can produce inventory valuations at any point in time that are inexact.

Permanent markdowns, when taken, reduce both the price and cost components of inventory on hand, which maintains the established cost-to-price relationship. Deferred markdowns can result in an overstatement of inventories under the lower of cost or market principle. Accordingly, at the end of each six-month merchandising season, management conducts a thorough review of inventory on hand and, based on management’s business judgment, estimates what quantities of current merchandise are in excess of the amounts saleable at historical margin rates. A markdown reserve is established to reduce to estimated net realizable value the carrying value of excess current merchandise and obsolete categories of merchandise.

The markdown reserve was $1.0 million both at October 28, 2006 and at October 29, 2005.

Recording a reserve reduces the inventory on the Company’s balance sheet and is charged to the Company’s cost of sales. If reserves were overestimated at the end of a period, income for that period would be understated and margins for the beginning of the next period would be higher. (The opposite would be true if reserves were underestimated.)

Markdown reserves may fluctuate because the market environment is dynamic for the reasons set forth in the second paragraph in this section. However, a consistent methodology for markdown reserves is one of the Company’s important accounting objectives.

Incurred But Not Reported Claims For Personal Injuries and Medical Benefits

The Company records a liability for IBNR Claims, which is based on (i) the number and size of outstanding claims, (ii) a comparison between the dates paid claims were incurred and the dates they were paid, (iii) an analysis of the amounts previously paid, (iv) projections of inflation in medical costs and (v) advice from time to time from its insurance broker. The Company has insurance policies with coverage for auto, general liability and workers’ compensation claims but it remains liable for a self-insured retention of $0.1 million for each auto claim and $0.3 million for each general liability and workers’ compensation claim. The Company is self-insured for its medical, dental and prescription plans for associates. The Company has stop loss insurance coverage for employee medical claims over $0.2 million each. Also, there is an aggregate limit for these plans which, at January 28, 2006, was $6.7 million based on the number of associates participating at that time.

The Company’s methodologies for estimating liabilities for IBNR claims are discussed in the Form 10-K.

Private Label Credit Cards Issued By World Financial Network National Bank

In fiscal 2005, the Company and World Financial Network National Bank (the “Bank”) were parties to a Private Label Credit Card Program Agreement, dated January 27, 1998 (the “1998 Credit Card Program Agreement”).

Under the 1998 Credit Card Program Agreement, the Bank issued credit cards to eligible Company customers who applied to the Bank. Customers met standards for creditworthiness set by the Bank with the approval of the Company. The credit cards issued by the Bank were co-branded with both the Company’s AVENUE service mark and the Bank’s name. The credit cards were used only for merchandise and services offered by the Company. Credit card holders remitted payments to the Bank, generally by mailing personal checks. The Bank also handled all statement processing, payment processing, cardholder customer service and collections from delinquent cardholders.

In accordance with generally accepted accounting principles, the Company did not include the receivable asset created under the 1998 Credit Card Program Agreement in the Company’s accounts receivable on its balance sheets because the Company had no interest in the customer accounts or receivables. In this connection, it should be noted that the 1998 Credit Card Program Agreement stated that (i) the Bank is the sole and exclusive owner of all customer accounts, (ii) the Company has no interest in the customer accounts and (iii) the Bank is the creditor in respect of receivables (defined in the 1998 Credit Card Program Agreement as amounts owed with respect to retail purchases, finance charges, deferred finance charges, other fees and charges for sales tax). Also, depending on the circumstances, the Company might not purchase the accounts from the Bank upon the expiration of the contractual term.

The credit card program premium reflected in general, administrative and store operating expenses was an amount equal to royalties paid to the Company by the Bank minus costs charged by the Bank. Costs were based on the volume of credit card program processing activities performed by the Bank.

Royalties were based on program revenues minus receivables written off by the Bank and the cost of funds for the program.

On November 28, 2005, the 1998 Credit Card Program Agreement was restated (as restated, the “Amended Agreement”). Under the Amended Agreement, the Bank has continued the private label credit card program and has issued Avenue credit cards that may be used to purchase merchandise and services from United Retail Incorporated and its designees. The Bank also has continued to administer the credit card program, handling remittances and processing services. The Bank has continued to be the sole and exclusive owner of all customer accounts and the creditor in respect of receivables generated. However, the Company must approve any changes to consumer charges, credit terms and credit criteria related to the accounts from those in effect on the date of the Amended Agreement.

Under the Amended Agreement, the Bank pays the Company specified percentages of net credit sales and outstanding receivables, respectively, less chargebacks and “pass through” expenses. Bank payments reduce general, administrative and store operating expenses.

Net credit sales volume with the Bank was $105.8 million in the first 39 weeks of fiscal 2006 and $98.4 million in the first 39 weeks of fiscal 2005.

The Amended Agreement became effective January 29, 2006, and shall expire on February 29, 2012 (as may be extended, the “Term”) unless earlier terminated. Additionally, the Term shall automatically extend for successive three-year terms unless one party notifies the other at least six months prior to any such extension that it does not wish to extend the Amended Agreement.

During the Term of the Amended Agreement, United Retail Incorporated may not, directly or indirectly, make available to customers any credit program or facility that is similar in purpose to the program established under the Amended Agreement except multi-purpose credit, charge, debit or secured cards.

At the expiration of the Term, the Company shall have the right to purchase the customer accounts from the Bank for a price equal to the receivables. Also, the Bank shall then have the right to sell the customer accounts to the Company at that price if the Company commences a private label credit card program either on its own or through another issuer of credit cards. When the Amended Agreement is about to expire without being renewed, the Company is likely to submit requests for proposals to other banks that issue private label credit cards to retailers’ customers and to use the banks’ proposals to evaluate a continuation of the private label credit card program. There is no assurance, however, that other banks would make proposals to continue the program on terms satisfactory to the Company or that the Company could finance a program on its own without involving a bank. The penultimate sentence constitutes forward-looking information under the Reform Act and is subject to possible changes in the sector of the banking industry that issues co-branded credit cards to customers of retail chains and in governmental regulations affecting that sector.

Equity-Based Compensation

The Company issued Cash SAR’s to the nonmanagement Directors as part of annual formula grants commencing in fiscal 2002 under stockholder approved equity-based compensation plans. These Cash SAR’s have been marked to market each fiscal quarter. Compensation expense for the third quarter of fiscal 2006 included $0.6 million for the Cash SAR’s as a result of the increase in the price for shares of Company stock on the NASDAQ Global Market from $14.39 at the end of the second quarter of fiscal 2006 to $18.83 at the end of the third quarter. Compensation expense for the first 39 weeks of fiscal 2006 included $0.9 million as a result of the increase in the stock price from $15.50 at the end of fiscal 2005.

Financial Accounting Standards Board SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”) requires all other share-based payments to directors and employees, including grants of stock options, stock appreciation rights to be settled in stock and shares of restricted stock, to be measured at their fair values at the date of grant and recognized as expense over the service period, which is generally the vesting period. The Company adopted SFAS No. 123R in the first quarter of fiscal 2006, using the modified prospective method. The adoption of SFAS No. 123R increased compensation expense by $0.2 million for the third quarter of fiscal 2006 and $0.5 million for the first 39 weeks of fiscal 2006.

Growth

The Company’s channel of distribution is retail stores using its AVENUE® trade name. The Company leased 491 stores in 37 states at October 28, 2006.

The Company plans to accelerate its new store opening program in fiscal 2007 and open the maximum number of new stores that fit its success criteria. The Company anticipates that approximately 30 to 50 new stores will be opened in fiscal 2007, subject to the availability of suitable locations that fit the Company’s financial model. Start-up costs for new stores will be expensed but are not expected to have a material effect on general, administrative and store operating expenses for fiscal 2007. This paragraph contains forward-looking information under the Reform Act, which is subject to the variables, uncertainties and other risk factors referred to under the caption “Future Results.”

The Company’s retail selling space was approximately 2.2 million square feet both at October 28, 2006 and October 29, 2005.

E-Commerce

The Company has an Internet site (www.avenue.com) that sells a selection of the merchandise that is also for sale in the Company’s stores. The Company ships its avenue.com orders from its national distribution center in Troy, Ohio.

Suspension of Catalog Operations

The Company mailed catalogs until March 2003, when the Company suspended catalog mailings indefinitely.

The Company licensed its AVENUE trade name to a leading catalog publisher to conduct a market test of an AVENUE catalog earlier in fiscal 2006. The Company was not responsible for the costs of the market test, did not supply the merchandise featured and did not include sales to catalog customers in its reported sales. The results of the market test have been analyzed and the Company and the catalog publisher will not go forward with further mailings.

Supplemental Retirement Savings Plan

Prior to fiscal 2005, the trust under the Company’s Supplemental Retirement Savings Plan (“SRSP”) had purchased 279,870 shares using a portion of the funds accumulated in the deferred compensation account of Raphael Benaroya, the Company’s Chairman, President and Chief Executive Officer. (56.2% of the account balance at the time of the share purchases represented amounts previously withheld from Mr. Benaroya’s salary and earnings thereon and the remainder represented contributions by the Company pursuant to the general terms of the SRSP and earnings thereon over a period of more than 15 years.)

In the first quarter of fiscal 2005, the shares held in Mr. Benaroya’s SRSP account were classified as treasury shares and had no voting rights. With respect to the deferred compensation obligations of the SRSP, the liability was marked to market and this liability adjustment flowed through the statement of operations as either an increase or a decrease in compensation expense. With respect to the SRSP assets, marketable securities were also marked to market except shares of Company stock, which were recorded permanently at cost. This asset adjustment also flowed through the statement of operations. The liability adjustment and the asset adjustment were not necessarily equal in amount because of the disparate treatment of Company stock. For example, if the market price of Company stock rose, compensation expense was increased as a result of the foregoing accounting treatment.

In the second quarter of fiscal 2005, the SRSP was amended to change the status of the shares held in Mr. Benaroya’s SRSP account and to accord voting rights to the shares, which are now classified as outstanding shares. (The shares are voted by the Administrative Committee of the SRSP, composed of Company officers other than Mr. Benaroya, in the exercise of its fiduciary duties.) The change in the classification of the shares eliminated the disparate adjustments of SRSP liabilities and assets described in the preceding paragraph and the related effect on compensation expense.

Off-Balance Sheet Arrangements

The Company does not have material off-balance sheet arrangements.

Future Results

The Company cautions that any forward-looking statements (as such term is defined in the Reform Act) contained in this Report or otherwise made by management of the Company involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the Company’s control. Accordingly, the Company’s future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements.

The Company historically experienced fluctuations in customer response to its merchandise assortments. Future success depends on the Company’s ability to consistently anticipate, assess and react to the changing demands of its customer-base. As a private label merchandiser, the Company assumes certain risks, including long product lead times and high initial purchase commitments, that amplify the consequences of any miscalculation that it might make in anticipating fashion trends or interpreting them for customers. There is no assurance that the Company will be able to identify and offer merchandise that appeals to its customer-base or that the introduction of new merchandise will be successful or profitable.

Future success also depends upon the Company’s ability to effectively define, evolve and promote its brand. In order to achieve and maintain significant brand name recognition, it may become necessary to increase investments in the development of the brand through various means, including customer research, advertising, direct mail marketing and Internet marketing. There is no assurance that, if such funding becomes necessary, it will be available.

The following additional factors, among others, could also affect the Company’s actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this Report or otherwise made by management: threats of terrorism; war risk; shifts in consumer spending patterns, overall economic conditions; the impact of increased competition; variations in weather patterns; increases in interest rates; the ability to retain, hire and train key personnel; risks associated with the ability of the Company’s manufacturers to deliver products in a timely manner; political instability and other risks associated with foreign sources of production and increases in fuel costs.

As a result of the variables, risks and uncertainties referred to in this section, the estimates and projections made in this Report, and the expectations referred to herein, may not be reliable.

The Company assumes no obligation to update any forward-looking statement.

Stockholder Rights Plan

Any action by the Company’s stockholders with respect to any proposed merger or business combination with another corporation shall be taken by a majority of the votes cast at a meeting at which a quorum is present except as may be otherwise prescribed by the General Corporation Law of Delaware (the “GCL”) at the time. However, the Company’s stockholder rights plan (filed with the Commission as the exhibit to the Company’s Registration Statement on Form 8-A, dated September 15, 1999, and available online at www.sec.gov) and certain provisions of the By-Laws (filed with the Commission as Exhibit No. 3 to the Company’s Current Report on Form 8-K, dated March 2, 2006, and available online at www.sec.gov) impose restrictions on mergers and business combinations in addition to the requirements of the GCL. These rights and By-Law provisions may make it more difficult for a third party to acquire the Company even if doing so would allow the stockholders to receive a premium over the prevailing market price of the Common Stock. These rights and By-Law provisions are intended to encourage potential acquirers to negotiate and allow the Board of Directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, these rights and provisions may also discourage acquisition proposals or delay or prevent a change in control, which could negatively affect the price of the Common Stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company does not hold or issue financial instruments for trading purposes.

Management of the Company believes that its exposure to interest rate risk is not material. See, however, in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” the penultimate paragraph under the subcaption “Other Liquidity Sources” regarding the variable interest rate payable on revolving loans to the Companies. The pertinent paragraph is incorporated herein by reference.

In the third quarter of fiscal 2006, an increase in the market price of Company stock increased compensation expense related to stock appreciation rights to be settled in cash (“Cash SAR’s”) held by the Company’s nonmanagement Directors because Cash SAR’s are marked to market at the end of each quarter. The expense related to Cash SAR’s in the third quarter was $0.6 million based on the closing price on the NASDAQ Global Market, $18.83, at the end of the quarter. On the contrary, in the second quarter of fiscal 2006, the market price of Company stock decreased and there was a corresponding credit of $0.3 million. The market price of Company stock declined after the third quarter of fiscal 2006 and a decrease in compensation expense related to Cash SAR’s for the fourth quarter of fiscal 2006 will result if the market price remains below $18.83 at the end of the fourth quarter. There is no assurance that the market price of Company stock will not increase (decrease) in the fourth quarter of fiscal 2006 to a degree that will cause a material increase (decrease) in the compensation expense related to Cash SAR’s for that quarter.

The Company is not exposed to foreign currency exchange rate risk under its existing contracts, such as purchase orders for imported merchandise, which are payable in U.S. dollars.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls

A committee of senior managers in the Company’s Finance Department (the “Disclosure Committee”), chaired by the Chief Financial Officer (the “CFO”), coordinates disclosure controls and procedures (as defined by Exchange Act Rule 13a-15(e)) with respect to information required to be disclosed by the Company (“Disclosures”) in filings with the Commission. The Company’s disclosure controls and procedures are intended to provide reasonable assurance that the disclosure controls and procedures will meet their objectives.

Each fiscal quarter, the Company performs a formal evaluation of both the effectiveness and the design and operation of the Company’s disclosure controls and procedures. The evaluation includes, among other things, consideration of the processes carried out under the direction of the Disclosure Committee in order to ensure that Disclosures are recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that Disclosures are accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (the “CEO”) and CFO, as appropriate, to allow timely discussion regarding required financial disclosure.

As of the end of third quarter of fiscal 2006, such an evaluation was carried out under the supervision and with the participation of the CEO and CFO. Based on this evaluation, the CEO and CFO each concluded that, at October 28, 2006, the Company’s disclosure controls and procedures were effective to ensure that the information required to be disclosed in Commission reports is recorded, processed, summarized and reported within the requisite time periods.

Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of Company assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are made only in accordance with authorizations of management and the Board of Directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on financial statements.

Each fiscal quarter, the Company performs a formal evaluation, in which the Company’s CEO and CFO participate, of changes in the Company’s internal control over financial reporting. Based on this evaluation, management concluded that there was no change in the Company’s internal control over financial reporting during the fiscal quarter ended October 28, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The subsection in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” captioned “Pending Litigation” is incorporated herein by reference.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In August 2006, the Compensation Committee of the Company’s Board of Directors made awards to Company associates under the stockholder approved 2006 Equity-Based Compensation and Performance Incentive Plan as follows:

10 officers of the Company and its subsidiaries received both stock appreciation rights to be settled in stock (“Stock SAR’s”) with respect to a total of 192,500 shares at exercise prices ranging from $16.33 to $16.47 per share and 165,000 shares of restricted stock having a market value at the time of issuance ranging from $16.33 to $16.47 per share;

two officers of Company subsidiaries and nine other Company associates received Stock SAR’s with respect to a total of 41,000 shares exercisable at $16.33 per share;

one officer of a Company subsidiary received 10,000 shares of restricted stock having a market value at the time of issuance of $16.33 per share; and

one Company associate received a stock option to purchase 5,000 shares exercisable at $16.47 per share.

The awards are subject to vesting schedules ranging from a minimum of one to three years after issuance to a maximum of five years.

The exemption from registration of the above awards under the Securities Act of 1933 relied upon by the Company was the private offering exemption under Section 4(2) of that Act. In this connection, the recipients of awards were all employed by the Company and subject to vesting schedules. No financial consideration was paid for the awards.

The Financing Agreement does not permit the Company to pay dividends. See Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Other Liquidity Sources.”

In August 2006, the Company acquired 61,106 shares of Company Common Stock at an average price of $16.64 per share in connection with exercises of employee stock options. The shares were acquired from optionholders either in payment of the exercise price of options or in lieu of cash payment by the optionholder of withholding taxes due.

ITEM 5. OTHER INFORMATION.

On December 1, 2006, the Company’s Board of Directors adopted a restatement of:

the Company’s Code of Business Ethics, which applies to the Company’s Chief Executive Officer, Chief Administrative Officer and Chief Accounting Officer, among others (the amendments to the Code were made principally to conform the provisions of the Code to new proxy disclosure requirements with respect to related party transactions)

the form of Severance Pay Agreement for officers other than the Chief Executive Officer, Chief Administrative Officer and Senior Vice President-General Counsel, respectively (the amendments to the form were made to clarify the provisions relating to the contractual term, which is ongoing or “evergreen” subject to cancellation by the Company on a year’s prior notice)

ITEM 6. EXHIBITS.

(a) Consolidated Financial Statements of the Corporation for third quarter of fiscal 2006 are included herein.

(b)

(1) The following additional exhibits are filed herewith:

Number	Description
10*	Form of Severance Pay Agreement
14	Code of Ethics for Principal Executive and Senior Financial Officers pursuant to Section 406
31	Certifications pursuant to Section 302

(2) Certifications pursuant to Section 906 are furnished as Exhibit 32 hereto.

(3) The following additional documents available online at www.sec.gov are incorporated herein by reference:

The following exhibit to the Corporation’s Current Report on Form 8-K filed on November 3, 2006 is incorporated herein by reference:

Number in Filing	Description
10*	Form of Stock Appreciation Rights Settled in Cash Award Agreement under 2006 Equity-Based Compensation and Performance Incentive Plan (“2006 Plan”)

The following exhibits to the Corporation’s Quarterly Report on Form 10-Q for the period ended July 29, 2006 are incorporated herein by reference:

Number in Filing	Description
10.1*	Amendment, dated as of August 25, 2006, to Employment Agreement, dated September 3, 2004, between the Corporation and Raphael Benaroya (“Benaroya Employment Agreement”)
10.2*	Amendment, dated as of August 25, 2006, to Employment Agreement, dated September 3, 2004, between the Corporation and George R. Remeta (“Remeta Employment Agreement”)
10.3*	Form of Incentive Stock Option Award Agreement under 2006 Plan

The following exhibit to the Corporation’s Current Report on Form 8-K filed on August 31, 2006 is incorporated herein by reference:

Number in Filing	Description
10*	Amendment, dated as of August 25, 2006, to Employment Agreement, dated September 3, 2004, between the Corporation and Kenneth P. Carroll (“Carroll Employment Agreement”)

The following exhibits to the Corporation’s Current Report on Form 8-K filed on August 24, 2006 are incorporated herein by reference:

Number in Filing	Description
10.1*	Form of Incentive Compensation Award Agreement under 2006 Plan
10.2*	Form of Stock Appreciation Rights Settled in Stock Award Agreement under 2006 Plan
10.3*	Form of Restricted Stock Award Agreement under 2006 Plan

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended April 29, 2006 is incorporated herein by reference:

Number in Filing	Description
10*	Bonus Agreement, dated June 1, 2006, between the Corporation and Ellen Demaio (Confidential portions filed separately with the Secretary of the Commission)

The following exhibits to the Corporation’s Current Report on Form 8-K filed on June 2, 2006 are incorporated herein by reference:

Number in Filing	Description
10.1*	Form of Nonqualified Stock Option award agreement under 2006 Plan
10.2*	Form of Stock Appreciation Right settled in cash award agreement under the 2006 Plan
10.3*	Form of Stock Appreciation Right settled in cash granted to nonmanagement Directors under the Corporation’s former Stock Appreciation Rights Plan
10.4*	Tax Accounting Fee Reimbursement Plan

The 2006 Plan set forth as the appendix to the Corporation’s proxy statement on Schedule 14A for its 2006 annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the Corporation’s Annual Report on Form 10-K for the year ended January 28, 2006 is incorporated herein by reference:

Number in Filing	Description
10	Private Label Credit Card Program Agreement between the Corporation and United Retail Incorporated and World Financial Network National Bank (“Private Label Credit Card Program Agreement”) (Confidential portions filed separately with the Secretary of the Commission)

The following exhibits to the Corporation’s Current Report on Form 8-K filed on March 2, 2006 are incorporated herein by reference:

Number in Filing	Description
3	Amended By-laws of the Corporation
10.1*	Spring 2006 Incentive Compensation Plan Agreement

The following exhibits to the Corporation’s Current Report on Form 8-K filed on September 1, 2005 are incorporated herein by reference:

Number in Filing	Description
10.2*	Amendment to Supplemental Retirement Savings Plan
10.3*	Amendment, dated August 29, 2005, to Benaroya Employment Agreement
10.4*	Amendment, dated August 29, 2005, to Remeta Employment Agreement
10.5*	Amendment, dated August 29, 2005, to Carroll Employment Agreement
10.6*	Form of Severance Pay Agreements, dated August 26, 2005, between the Corporation and Terence Puffer and Rose Panicali, respectively
10.9*	Bonus Agreement, dated August 22, 2005, between the Corporation and Rose Panicali

The following exhibits to the Corporation’s Current Report on Form 8-K filed on June 29, 2005 are incorporated herein by reference:

Number in Filing	Description
10.1*	Supplemental Retirement Savings Plan
10.2*	Form of Severance Pay Agreement
10.3*	Amendment to 2003 Stock Option Plan
10.4*	Amendment to 2001 Stock Option Plan
10.5*	Amendment to 1999 Stock Option Plan
10.6*	Amendment to 1996 Stock Option Plan
10.7*	Amendment to 1990 Stock Option Plan
10.8*	Amendment to Stock Option Agreement, dated May 21, 1998, between the Corporation and Raphael Benaroya (“Benaroya Stock Option”)
10.9*	Amendment to Stock Option Agreement, dated May 21, 1998, between the Corporation and George R. Remeta (“Remeta Stock Option”)
10.10*	Amendment to Benaroya Employment Agreement
10.11*	Amendment to Remeta Employment Agreement
10.12*	Amendment to Carroll Employment Agreement

The following exhibit to the Corporation’s Current Report on Form 8-K filed on April 22, 2005 is incorporated herein by reference:

Number in Filing	Description
10*	Restated Stock Appreciation Rights Plan

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended October 30, 2004 is incorporated herein by reference:

Number in Filing	Description
21	Subsidiaries of the Corporation

The following exhibits to the Corporation’s Quarterly Report on Form 10-Q for the period ended July 31, 2004 are incorporated herein by reference:

Number in Filing	Description
10.1*	Benaroya Employment Agreement
10.2*	Remeta Employment Agreement
10.3*	Carroll Employment Agreement

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended April 29, 2004 is incorporated herein by reference:

Number in Filing	Description
10*	Bonus agreement, dated May 28, 2004, between the Corporation and Joann Fielder

The following exhibit to the Corporation’s Annual Report on Form 10-K for the year ended January 31, 2004 is incorporated herein by reference:

Number in Filing	Description
10.2*	Form of Indemnification Agreement between the Corporation and each of its Directors

The following exhibit to the Corporation’s Current Report on Form 8-K filed on January 8, 2004 is incorporated herein by reference:

Number in Filing	Description
10	Amendment, dated December 23, 2003, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and The CIT Group/Business Credit, Inc., as Agent and Lender (“CIT”)

The 2003 Stock Option Plan set forth as the appendix to the Corporation’s proxy statement on Schedule 14A for its 2003 annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the Corporation’s Annual Report on Form 10-K/A for the year ended February 1, 2003 is incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated January 31, 2003, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended August 3, 2002 is incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated August 2, 2002, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the Corporation’s Annual Report on Form 10-K for the year ended February 2, 2002 are incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated April 5, 2002, to Private Label Credit Card Program Agreement, dated January 27, 1998
10.2	Amendment, dated December 29, 1999, to Private Label Credit Card Program Agreement
10.3	Amendment, dated August 19, 1999, to Private Label Credit Card Program Agreement

The following exhibits to the Corporation’s Quarterly Report on Form 10-Q for the period ended November 3, 2001 are incorporated herein by reference:

Number in Filing	Description
10.4*	Summary Plan Description for United Retail Group, Inc. Incentive Compensation Program for Executives
10.5	Amendment, dated October 1, 2001, to Private Label Credit Card Program Agreement

The 2001 Stock Option Plan set forth as an appendix to the Corporation’s proxy statement on Schedule 14A for its 2001 annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the Corporation’s Registration Statement on Form S-8 (Registration No. 333-44868) is incorporated herein by reference:

Number in Filing	Description
10	Amendment, dated August 21, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the Corporation’s Annual Report on Form 10-K for the year ended January 29, 2000 are incorporated herein by reference:

Number in Filing	Description
10.2	Amendment, dated December 28, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT (“Financing Agreement”)
10.3	Amendment, dated January 31, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended October 30, 1999 is incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated October 6, 1999, to Financing Agreement

The following exhibit to the Corporation’s Current Report on Form 8-K, filed September 23, 1999, is incorporated herein by reference:

Number in Filing	Description
3	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock

The stockholders’ rights plan filed as the exhibit to the Corporation’s Registration Statement on Form 8-A, dated September 15, 1999, is incorporated herein by reference.

The following exhibit to the Corporation’s Annual Report on Form 10-K for the year ended January 30, 1999 is incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated March 29, 1999, to Financing Agreement

The 1999 Stock Option Plan set forth as the Appendix to the Corporation’s proxy

statement on Schedule 14A for its 1999 annual meeting of stockholders is incorporated herein by

reference.*

The following exhibits to the Corporation’s Quarterly Report on Form 10-Q for the period ended May 2, 1998 are incorporated herein by reference:

Number in Filing	Description
10.1*	Benaroya Stock Option
10.2*	Remeta Stock Option

The following exhibits to the Corporation’s Annual Report on Form 10-K for the year ended January 31, 1998 are incorporated herein by reference:

Number in Filing	Description
10.1	Restated Stockholders’ Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto
10.2	Private Label Credit Card Program Agreement
10.4*	Restated 1990 Stock Option Plan as of March 6, 1998
10.5*	Restated 1990 Stock Option Plan as of May 28, 1996
10.6*	Restated 1996 Stock Option Plan as of March 6, 1998

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended November 1, 1997 is incorporated herein by reference:

Number in Filing

Description

10.1

Amendment, dated September 15, 1997, to Financing Agreement

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended August 2, 1997 is incorporated herein by reference:

Number in Filing	Description
10.1	Financing Agreement

_______________

*A compensatory plan for the benefit of the Corporation’s management or a management contract.

(4) The following exhibits, hard copies of which can be ordered from the Commission’s Public Reference Room, to the Corporation’s Registration Statement on Form S-1 (Registration No. 33-44499), as amended are incorporated herein by reference:

Number in Filing	Description
3.1	Amended and Restated Certificate of Incorporation of the Corporation
4.1	Specimen Certificate for Common Stock of the Corporation

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

(Registrant)

UNITED RETAIL GROUP, INC.

Date: December 7, 2006

By: /s/ GEORGE R. REMETA

George R. Remeta, Vice Chairman of the Board, Chief

Administrative Officer and Chief Financial Officer – Authorized Signatory

By: /s/ JON GROSSMAN

Jon Grossman, Vice President, Finance and Chief Accounting Officer

EXHIBIT INDEX

(a) Consolidated Financial Statements of the Corporation for third quarter of fiscal 2006 are included herein.

(b)

(1) The following additional exhibits are filed herewith:

Number	Description
10*	Form of Severance Pay Agreement
14	Code of Ethics for Principal Executive and Senior Financial Officers pursuant to Section 406
31	Certifications pursuant to Section 302

(2) Certifications pursuant to Section 906 are furnished as Exhibit 32 hereto.

(3) The following additional documents available online at www.sec.gov are incorporated herein by reference:

The following exhibit to the Corporation’s Current Report on Form 8-K filed on November 3, 2006 is incorporated herein by reference:

Number in Filing	Description
10*	Form of Stock Appreciation Rights Settled in Cash Award Agreement under 2006 Equity-Based Compensation and Performance Incentive Plan (“2006 Plan”)

The following exhibits to the Corporation’s Quarterly Report on Form 10-Q for the period ended July 29, 2006 are incorporated herein by reference:

Number in Filing	Description
10.1*	Amendment, dated as of August 25, 2006, to Employment Agreement, dated September 3, 2004, between the Corporation and Raphael Benaroya (“Benaroya Employment Agreement”)
10.2*	Amendment, dated as of August 25, 2006, to Employment Agreement, dated September 3, 2004, between the Corporation and George R. Remeta (“Remeta Employment Agreement”)
10.3*	Form of Incentive Stock Option Award Agreement under 2006 Plan

The following exhibit to the Corporation’s Current Report on Form 8-K filed on August 31, 2006 is incorporated herein by reference:

Number in Filing	Description
10*	Amendment, dated as of August 25, 2006, to Employment Agreement, dated September 3, 2004, between the Corporation and Kenneth P. Carroll (“Carroll Employment Agreement”)

The following exhibits to the Corporation’s Current Report on Form 8-K filed on August 24, 2006 are incorporated herein by reference:

Number in Filing	Description
10.1*	Form of Incentive Compensation Award Agreement under 2006 Plan
10.2*	Form of Stock Appreciation Rights Settled in Stock Award Agreement under 2006 Plan
10.3*	Form of Restricted Stock Award Agreement under 2006 Plan

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended April 29, 2006 is incorporated herein by reference:

Number in Filing	Description
10*	Bonus Agreement, dated June 1, 2006, between the Corporation and Ellen Demaio (Confidential portions filed separately with the Secretary of the Commission)

The following exhibits to the Corporation’s Current Report on Form 8-K filed on June 2, 2006 are incorporated herein by reference:

Number in Filing	Description
10.1*	Form of Nonqualified Stock Option award agreement under 2006 Plan
10.2*	Form of Stock Appreciation Right settled in cash award agreement under the 2006 Plan
10.3*	Form of Stock Appreciation Right settled in cash granted to nonmanagement Directors under the Corporation’s former Stock Appreciation Rights Plan
10.4*	Tax Accounting Fee Reimbursement Plan

The 2006 Plan set forth as the appendix to the Corporation’s proxy statement on Schedule 14A for its 2006 annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the Corporation’s Annual Report on Form 10-K for the year ended January 28, 2006 is incorporated herein by reference:

Number in Filing	Description
10	Private Label Credit Card Program Agreement between the Corporation and United Retail Incorporated and World Financial Network National Bank (“Private Label Credit Card Program Agreement”) (Confidential portions filed separately with the Secretary of the Commission)

The following exhibits to the Corporation’s Current Report on Form 8-K filed on March 2, 2006 are incorporated herein by reference:

Number in Filing	Description
3	Amended By-laws of the Corporation
10.1*	Spring 2006 Incentive Compensation Plan Agreement

The following exhibits to the Corporation’s Current Report on Form 8-K filed on September 1, 2005 are incorporated herein by reference:

Number in Filing	Description
10.2*	Amendment to Supplemental Retirement Savings Plan
10.3*	Amendment, dated August 29, 2005, to Benaroya Employment Agreement
10.4*	Amendment, dated August 29, 2005, to Remeta Employment Agreement
10.5*	Amendment, dated August 29, 2005, to Carroll Employment Agreement
10.6*	Form of Severance Pay Agreements, dated August 26, 2005, between the Corporation and Terence Puffer and Rose Panicali, respectively
10.9*	Bonus Agreement, dated August 22, 2005, between the Corporation and Rose Panicali

The following exhibits to the Corporation’s Current Report on Form 8-K filed on June 29, 2005 are incorporated herein by reference:

Number in Filing	Description
10.1*	Supplemental Retirement Savings Plan
10.2*	Form of Severance Pay Agreement
10.3*	Amendment to 2003 Stock Option Plan
10.4*	Amendment to 2001 Stock Option Plan
10.5*	Amendment to 1999 Stock Option Plan
10.6*	Amendment to 1996 Stock Option Plan
10.7*	Amendment to 1990 Stock Option Plan
10.8*	Amendment to Stock Option Agreement, dated May 21, 1998, between the Corporation and Raphael Benaroya (“Benaroya Stock Option”)
10.9*	Amendment to Stock Option Agreement, dated May 21, 1998, between the Corporation and George R. Remeta (“Remeta Stock Option”)
10.10*	Amendment to Benaroya Employment Agreement
10.11*	Amendment to Remeta Employment Agreement
10.12*	Amendment to Carroll Employment Agreement

The following exhibit to the Corporation’s Current Report on Form 8-K filed on April 22, 2005 is incorporated herein by reference:

Number in Filing	Description
10*	Restated Stock Appreciation Rights Plan

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended October 30, 2004 is incorporated herein by reference:

Number in Filing	Description
21	Subsidiaries of the Corporation

The following exhibits to the Corporation’s Quarterly Report on Form 10-Q for the period ended July 31, 2004 are incorporated herein by reference:

Number in Filing	Description
10.1*	Benaroya Employment Agreement
10.2*	Remeta Employment Agreement
10.3*	Carroll Employment Agreement

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended April 29, 2004 is incorporated herein by reference:

Number in Filing	Description
10*	Bonus agreement, dated May 28, 2004, between the Corporation and Joann Fielder

The following exhibit to the Corporation’s Annual Report on Form 10-K for the year ended January 31, 2004 is incorporated herein by reference:

Number in Filing	Description
10.2*	Form of Indemnification Agreement between the Corporation and each of its Directors

The following exhibit to the Corporation’s Current Report on Form 8-K filed on January 8, 2004 is incorporated herein by reference:

Number in Filing	Description
10	Amendment, dated December 23, 2003, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and The CIT Group/Business Credit, Inc., as Agent and Lender (“CIT”)

The 2003 Stock Option Plan set forth as the appendix to the Corporation’s proxy statement on Schedule 14A for its 2003 annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the Corporation’s Annual Report on Form 10-K/A for the year ended February 1, 2003 is incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated January 31, 2003, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended August 3, 2002 is incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated August 2, 2002, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the Corporation’s Annual Report on Form 10-K for the year ended February 2, 2002 are incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated April 5, 2002, to Private Label Credit Card Program Agreement, dated January 27, 1998
10.2	Amendment, dated December 29, 1999, to Private Label Credit Card Program Agreement
10.3	Amendment, dated August 19, 1999, to Private Label Credit Card Program Agreement

The following exhibits to the Corporation’s Quarterly Report on Form 10-Q for the period ended November 3, 2001 are incorporated herein by reference:

Number in Filing	Description
10.4*	Summary Plan Description for United Retail Group, Inc. Incentive Compensation Program for Executives
10.5	Amendment, dated October 1, 2001, to Private Label Credit Card Program Agreement

The 2001 Stock Option Plan set forth as an appendix to the Corporation’s proxy statement on Schedule 14A for its 2001 annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the Corporation’s Registration Statement on Form S-8 (Registration No. 333-44868) is incorporated herein by reference:

Number in Filing	Description
10	Amendment, dated August 21, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the Corporation’s Annual Report on Form 10-K for the year ended January 29, 2000 are incorporated herein by reference:

Number in Filing	Description
10.2	Amendment, dated December 28, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT (“Financing Agreement”)
10.3	Amendment, dated January 31, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended October 30, 1999 is incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated October 6, 1999, to Financing Agreement

The following exhibit to the Corporation’s Current Report on Form 8-K, filed September 23, 1999, is incorporated herein by reference:

Number in Filing	Description
3	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock

The stockholders’ rights plan filed as the exhibit to the Corporation’s Registration Statement on Form 8-A, dated September 15, 1999, is incorporated herein by reference.

The following exhibit to the Corporation’s Annual Report on Form 10-K for the year ended January 30, 1999 is incorporated herein by reference:

Number in Filing	Description
10.1	Amendment, dated March 29, 1999, to Financing Agreement

The 1999 Stock Option Plan set forth as the Appendix to the Corporation’s proxy

statement on Schedule 14A for its 1999 annual meeting of stockholders is incorporated herein by

reference.*

The following exhibits to the Corporation’s Quarterly Report on Form 10-Q for the period ended May 2, 1998 are incorporated herein by reference:

Number in Filing	Description
10.1*	Benaroya Stock Option
10.2*	Remeta Stock Option

The following exhibits to the Corporation’s Annual Report on Form 10-K for the year ended January 31, 1998 are incorporated herein by reference:

Number in Filing	Description
10.1	Restated Stockholders’ Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto
10.2	Private Label Credit Card Program Agreement
10.4*	Restated 1990 Stock Option Plan as of March 6, 1998
10.5*	Restated 1990 Stock Option Plan as of May 28, 1996
10.6*	Restated 1996 Stock Option Plan as of March 6, 1998

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended November 1, 1997 is incorporated herein by reference:

Number in Filing

Description

10.1

Amendment, dated September 15, 1997, to Financing Agreement

The following exhibit to the Corporation’s Quarterly Report on Form 10-Q for the period ended August 2, 1997 is incorporated herein by reference:

Number in Filing	Description
10.1	Financing Agreement

_______________

*A compensatory plan for the benefit of the Corporation’s management or a management contract.

Number in Filing	Description
3.1	Amended and Restated Certificate of Incorporation of the Corporation
4.1	Specimen Certificate for Common Stock of the Corporation

EX-10 2 ex10form10q1206.htm FORM 10.Q DECEMBER 2006

Exhibit No. 10

SEVERANCE PAY AGREEMENT

This Severance Pay Agreement (the “Agreement”), dated ___________, 20__ (the “date first set forth above”) between United Retail Incorporated, a Delaware corporation, with principal offices at 365 West Passaic Street, Rochelle Park, New Jersey 07662 (the “Company”) and the undersigned officer of the Company (the “Executive”).

WHEREAS, the availability of severance pay and certain other post-employment benefits will encourage those entitled to them to remain in the Company’s employ;

WHEREAS, this Agreement was reviewed and approved by the Company’s Board of Directors on the date first set forth above; and

WHEREAS, the Company is a wholly owned subsidiary of United Retail Group, Inc.

NOW, THEREFORE, in consideration of the Executive’s continued employment with the Company and other good and valuable consideration, the parties, intending to be legally bound, hereby agree as follows:

Definitions.

(a) By-laws shall mean the By-laws of the Company as in force on the date first set forth above.

(b) Cause shall mean the occurrence after the date first set forth above of one or more of the following events:

(i) a judgment of conviction against the Executive or a plea of guilty has been entered for any felony which is both based on his or her personal actions (excluding liability imputed by reason of his or her position as an associate of the Company) and involves common law fraud, embezzlement, breach of duty as a fiduciary, willful dishonesty or moral turpitude (the entry of a judgment or plea being the only event or circumstance sufficient to constitute Cause under this clause (i)), provided, however, that any felony an essential element of which is predicated on the operation of a vehicle shall be deemed not to involve moral turpitude;

(ii) the Executive has willfully and continuously failed to perform his or her duties to the Company in any material respect, except in the case of Short Term Disability, and material economic harm to the Company has resulted;

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(iii) the Executive has willfully failed in any material respect to follow specific directions of the President of the Company in the performance of his or her duties, except in the case of Short Term Disability;

(iv) there has been a breach in any material respect of any of the provisions of Section 7; or

(v) the Executive has willfully failed to report promptly in writing to the Senior Vice President-General Counsel of United Retail Group, Inc. any fraud of which he or she is aware, or has reasonable grounds to suspect, on the part of any officer of United Retail Group, Inc. or the Company that involves United Retail Group, Inc. or the Company, whether or not the fraud is material and whether it occurred before or after the date first set forth above;

provided, however, that the judgment of conviction or a plea of guilty referred to in clause (i), the failure of performance referred to in clause (ii) and (iii) and the breach referred to in clause (iv) shall constitute Cause for a maximum of only 90 days after the judgment of conviction or plea of guilty was entered, the material economic harm commenced, the directions were not followed or the breach first took place, as the case may be. For purposes of determining Cause, no act or omission by the Executive shall be considered “willful” unless it is done or omitted in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act or failure to act based upon advice of counsel for the Company shall be conclusively presumed to be done or omitted to be done by the Executive in good faith and in the best interests of the Company. Termination of employment shall be deemed to be for Cause only if the Company sends the Executive by certified mail to his or her residence before the termination of employment a notice of termination for Cause specifying in reasonable detail the circumstance that is the basis for termination. Short Term Disability shall not be a basis for termination of employment.

(c) Protected Information shall mean trade secrets, confidential or proprietary information, and all other knowledge, know-how, information, documents or materials, owned or developed by the Company, or otherwise in the possession of the Company, whether in tangible or intangible form, pertaining to the business of the Company, the confidentiality of which the Company takes reasonable measures to protect, including, but not limited to, the Company’s research and development, store operating results, identities and habits of customers and prospective customers, suppliers, business relationships, products (including prices, costs, sales or content), processes, techniques, machinery, contracts, financial information or measures, business methods, future business plans, data bases, computer programs, designs, models, operating procedures, knowledge of the organization, and other information owned, developed or possessed by the Company; provided, however, that Protected Information shall not include information that shall become generally known to the public or the trade without violation of Section 7.

(d)

Severance Pay shall have the meaning set forth in Section 2(b).

(e) Short Term Disability shall mean the inability of the Executive to substantially perform his or her duties and responsibilities to the Company by reason of a physical or mental disability or infirmity for a continuous period of less than six months.

(f)

Successor shall have the meaning set forth in Section 10(b).

(g) Termination Without Cause shall have the meaning set forth in Section 2(a).

(h) Unauthorized shall mean: (i) in contravention of the Company’s policies or procedures; (ii) otherwise inconsistent with the Company’s measures to protect its interests in its Protected Information; or (iii) in contravention of any duty existing under law or contract, provided, however, that the Executive in his or her discretion may disclose Protected Information to the extent necessary in the performance of his or her duties on behalf of the Company.

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2.	Severance Pay.

(a)

If, while this Agreement remains in force, either:

(i) the Company unilaterally terminates the Executive’s employment without Cause;

(ii) the Executive’s base salary, incentive compensation or group benefits are reduced materially by the Company, and the Executive, within 15 days after first learning of the reduction sends a notice of resignation to the Company at its address first set forth above to the attention of the Associate Services Dept. by certified mail; or

(iii) the Company fails to obtain the consent of a Successor required pursuant to Section 10(c);

then Termination Without Cause shall have occurred.

(b) If Termination Without Cause shall occur and within 21 days thereafter the Executive shall send to the Company’s Senior Vice President-Human Resources a general release in form and substance satisfactory to the Company, then the Company shall remit Severance Pay equivalent to ___ weeks’ base pay at the higher of the rate paid on the date first set forth above or on the date on which Termination Without Cause occurred. Severance Pay shall be remitted to the Executive’s residence in ___ equal weekly installments commencing on the fourth Thursday following Termination Without Cause. No grace period shall be allowed for remittance of Severance Pay, time being of the essence.

(c)

In the event Severance Pay is due:

(i) the Executive shall use reasonable efforts to seek other employment and keep the Company informed of all remuneration from employment received during the period Severance Pay is otherwise due;

(ii) there shall be set off against each weekly installment of Severance Pay otherwise due all remuneration from employment that the Executive may have obtained during the previous week; and

(iii) the Executive shall be entitled to the following additional payments:

(A) any base salary accrued or incentive compensation vested but not yet paid;

(B)

pay for any vacation days not taken; and

(d) Payments made pursuant to this Section 2 shall be final and the Company shall not seek to recover all or any part of such payments from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever other than the Executive’s breach in any material respect of the provisions of Section 7.

3. Deductions and Withholding. The Executive agrees that the Company shall withhold from any and all compensation required to be paid to the Executive pursuant to this Agreement all Federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect.

Group Benefits.

(a) Subject to Section 4(c), for ___ months after Termination Without Cause, the Company shall remit to the Executive monthly an amount equal to the excess of the monthly life insurance premium for a converted policy issued to the Executive over the premium previously paid by the Executive for his or her group life insurance.

(b) The Company shall make available to the Executive and his or her dependents health, dental and prescription drug benefits in accordance with COBRA regulations. Subject to Section 4(c), for ___ months after Termination Without Cause, the Company shall remit to the Executive monthly an amount equal to the excess of the monthly premium for COBRA coverage over the payroll withholding previously paid by the Executive for group health benefits.

(c) The premium reimbursements provided in Section 4(a) and (b) shall be available upon submission to the Company of evidence of payment of the premiums by the Executive.

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Indemnification.

(a) The Company shall indemnify the Executive as provided in the By-laws.

(b) The Company shall use reasonable efforts to continue the existing directors’ and officers’ liability policies covering officers of the Company for $20 million and to maintain the policies during the Term, whether or not the Executive shall be in the Company’s employ.

(c) The provisions of this Section 5 shall survive the termination of the Executive’s employment, irrespective of the reason therefor.

Death.

In the event of the death of the Executive, all Severance Pay and other benefits under this Agreement shall automatically terminate.

Restrictive Covenants and Confidentiality.

(a) Until the termination of this Agreement and for 12 months thereafter, the Executive shall not solicit, raid, entice, encourage or induce any person who at any time in the prior year shall have been an associate of the Company to become employed by any person, firm or corporation, and the Executive shall not approach any such associate for such purpose or authorize or knowingly approve the taking of such actions by any other person, firm or corporation or assist any such person, firm or corporation in taking such action.

(b) Until the termination of this Agreemetn and for 12 months thereafter, the Executive will not use, disclose or divulge, furnish or make accessible to anyone, directly or indirectly, any Protected Information in any Unauthorized manner or for any Unauthorized purpose, provided, however, that in the event that the Executive is required to disclose any Protected Information by court order or decree or in compliance with the rules and regulations of a governmental agency or in compliance with law, the Executive will provide the Company with prompt notice of such required disclosure so that the Company may seek an appropriate protective order and/or waive the Executive’s compliance with the provisions of this Section 7(b) and provided, further, that if, in the absence of a protective order or the receipt of a waiver hereunder, the Executive is advised by his or her counsel that such disclosure is necessary to comply with such court order, decree, rules, regulation or law, the Executive may disclose such information without liability hereunder.

(c) Until the termination of this Agreement and for any period afterwards for which Severance Pay is owing, the Executive shall report promptly in writing to the Senior Vice President-General Counsel of United Retail Group, Inc. any fraud of which he or she is aware, or has reasonable grounds to suspect, on the part of any officer of United Retail Group, Inc. or the Company that involves United Retail Group, Inc. or the Company, whether or not the fraud is material.

(d) The Executive agrees that all processes, techniques, know-how, inventions, plans, products, and devices developed, made or invented by the Executive, alone or with others in connection with the Executive’s employment with the Company shall become and be the sole property of the Company.

(e) Neither the Company nor the Executive shall publicly disparge the other either before or after the termination of this Agreement.

(f) The provisions of this Section 7 shall survive the termination of the Executive’s employment with the Company, irrespective of the reason therefor.

Enforcement; Interest.

(a) If any amount owing to the Executive under this Agreement is not paid by the Company, or on its behalf, within 15 days after a written demand, claim or request for payment has been sent to the Company to the attention of its Associate Services Dept. by certified mail, time being of the essence, the Executive may at any time thereafter bring suit against the Company to recover the unpaid amount and interest thereon and, if successful in whole or in part, the Executive shall be entitled to be paid also the expenses of prosecuting such suit, including reasonable attorneys’ fees. Interest shall be payable from the date any amount is first due and payable to the Executive at a rate equal to the highest rate payable on any of the Company’s indebtedness after the date first set forth above but in no event at a rate higher than the maximum rate then permitted by law.

(b) The provisions of this Section 8 shall survive the termination of the Executive’s employment hereunder, irrespective of the reason therefor.

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Governing Law.

This Agreement shall be subject to, and governed by, the internal laws of the State of New Jersey, without regard to conflicts of laws.

10.

Assignability.

(a) The obligations of the Executive may not be delegated and, except as to the designation of beneficiaries of insurance and similar benefits, the Executive may not, without the Company’s written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of benefits under this Agreement. Any such attempted delegation or disposition shall be null and void ab initio and without effect.

(b) This Agreement and all of the Company’s rights and obligations hereunder may be assigned or transferred by the Company to, and shall be binding upon and inure to the benefit of, any subsidiary of the Company or any Successor to the Company, but any such assignment shall not relieve the assigning party of any of its obligations hereunder. Except as provided in this Section 10(b), this Agreement may not otherwise be assigned by the Company. (The term “Successor” shall mean, with respect to the Company or any of its subsidiaries, any corporation or other business entity which, by merger, consolidation, purchase of the assets, or otherwise, acquires all or substantially all of the assets of the Company or such subsidiary.)

(c) The Company shall obtain the agreement of any Successor that the Successor shall assume and be bound by the terms of this Agreement prior to the effectiveness of any such succession. Failure of the Company to obtain the agreement of any Successor to assume and be bound by the terms of this Agreement prior to the effectiveness of any such succession shall be a breach of this Agreement.

11.

Amendment and Termination of Agreement.

This Agreement may be amended or terminated by the Company without liability to the Executive upon one year’s prior written notice to the Executive. The rights of the Executive under this Agreement shall be vested irrevocably until expiration of the notice period referred to in the preceding sentence. However, this Agreement shall not confer any right to continued employment on the Executive.

IN WITNESS WHEREOF, the parties have subscribed their names, in Rochelle Park, New Jersey, in the case of the Company by an officer thereunto duly authorized.

_______________________________

(Please sign your name)

_______________________________

(Please print your name)

UNITED RETAIL INCORPORATED

By: ____________________________

Vice President

URI Severance Pay Agreement

EX-14 3 ex14form10q1206.htm FORM 10.Q DECEMBER 2006

Exhibit No. 14

UNITED RETAIL GROUP, INC.

ASSOCIATES’ CODE OF BUSINESS ETHICS

(effective December 2, 2006)

I.	Overview

The good reputation of United Retail Group, Inc. (the “Company”) is a fragile thing. It must be earned time and again on a continuing basis by doing business honestly and legally.

We require honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest, on the part of ourselves and our fellow associates.

All associates are subject to this Code of Business Ethics when conducting Company business anywhere in the world. It sets forth general norms for all associates and some additional rules to guide officers in their performance of their particular duties.

The Ethical Standards contained in this Code of Business Ethics do not apply to associates’ personal activities after work but the Conflicts of Interest Standards apply to all their activities.

The leadership responsibilities of management include creating a corporate culture of commitment to business ethics and legal compliance, as well as a work environment that encourages associates to raise concerns about these subjects.

II.

Ethical Standards

(A)

Legal Compliance

Associates will observe applicable laws and regulations of the jurisdictions in which Company business activities are conducted, as well as the NASDAQ Global Market rules. No funds or other assets of the Company will be used, directly or indirectly, for any unlawful purpose. Associates will report any legal and regulatory violations by other associates in accordance with the Reporting Responsibilities contained in Section IV(A) of this Code of Business Ethics.

(B)

Financial Disclosures

Officers will make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and other documents signed by them and filed with, or furnished to, the Securities and Exchange Commission (the “Commission”) and in all other public releases of Company financial information reviewed by them.

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Associates will comply with the Company’s internal controls over financial reporting. If requested, they will cooperate with internal audits and with the annual audit of the Company’s financial statements. (Internal audits and financial statement audits are standard business practices and are not a reflection on the business ethics of any associate involved in the audits.)

(C)

Corrupt Practices

Assets will be recorded on the Company’s books and records in accordance with generally accepted accounting practices. No unrecorded fund will be maintained for any reason.

Associates will not, directly or indirectly, bribe any employee of any vendor or any official of any government, political party or labor union.

(D)

Expediting Payments

In some overseas areas, travelers can often obtain routine administrative action or procedural assistance from low level administrative or clerical government employees in a timely manner only through the payment of gratuities or expediting payments. Although these payments are openly permitted by local authorities or accepted by local customs, their formal status under local law is often unclear. Such payments may be made provided that the governmental action or assistance requested is clearly routine and appropriate, that the expected payments are customary in the country involved, and that no reasonable alternative exists to avoid undue delay. Every effort should be made to minimize expediting payments when traveling abroad and in no event shall they be material in amount.

III.

Conflicts of Interest Standards

(A)

General

Business judgment in dealing with third parties in the name of the Company must never be influenced by the personal interest of an associate or his or her child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and any person (other than a tenant or employee) sharing his or her household (“immediate family member”). All decisions regarding third party transactions must be made with the Company’s best interests as the sole determining factor.

An associate who turns down a business opportunity available to the Company will not subsequently pursue the business opportunity personally.

Associates will not compete with the Company.

A possible conflict of interest exists whenever an associate or his or her immediate family member has any material interest, direct or indirect, in any transaction with the Company or between the Company and a third party. Accordingly, all transactions required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the Commission (“Item 404”), the current version of which is attached as “Appendix “A”, as amended from time to time, will be subject to review by the Audit Committee, whose affirmative approval or ratification will be required. The Committee’s review will include, among other things, compliance with applicable laws and regulations, the NASDAQ Global Market Rules, the above Conflicts of Interest Standards and the relevant circumstances. The Committee’s approval may be made subject to the satisfaction of conditions to protect the Company’s interests.

Any proposed transaction between an associate or a member of his or her immediate family and the Company that is out of the ordinary course of business but (i) is not required to be disclosed pursuant to Item 404 and (ii) is not required to be submitted for approval to the Compensation Committee by its Charter shall be on arm’s length terms and conditions, as determined by another associate who is not a subordinate of the party to the transaction, provided, however, that if the Company’s Chief Executive Officer is the interested party, this arm’s length determination shall be made by the Chief Administrative Officer.

If any immediate family member of an officer is an associate, the officer shall disclose the family relationship to the Company’s General Counsel/Secretary, so an assessment of potential conflicts of interest can be made. An associate will not prepare the annual performance rating of another associate who is his or her immediate family member.

(B)

Receiving Gifts

Associates will not solicit any loans or gifts from vendors or Company subordinates and will not accept any unsolicited loans. Associates may accept infrequent unsolicited gifts provided that the gift is (i) a customary business courtesy; (ii) not above $100 in value; (iii) given and accepted without an express or implied understanding that the associate is in any way obligated by acceptance of the gift; and (iv) disclosed to the General Counsel/Secretary of the Company promptly. However, consumables, such as a basket of fruits and candies, may be shared with nearby coworkers or a floral display may be placed in a public area for everyone’s benefit. Other gifts delivered to an associate should be returned to the sender politely and disclosed to the General Counsel/Secretary. Donations to a public charity with which an associate is associated pro bono, however, will not violate this Code of Business Ethics.

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(C)

Invitations to Graft

All invitations to accept graft must be reported promptly to the associate’s immediate supervisor and, in the case of officers, to the Company’s General Counsel/Secretary. Non-disclosure of even a rejected proposal of graft will be reason for serious disciplinary action.

IV.

Administration

(A)

Reporting Responsibilities

If any associate becomes aware of a violation by any other associate that takes place or continues after April 19, 2004, he or she must immediately report that information. Violations by any Company officer should be reported to the Company’s General Counsel/Secretary using one of the methods provided in the attached Business Conduct Reporting Policy. Violations by other associates of the Company should be reported to an officer.

Associates of the Company’s subsidiaries are subject to their own code of business ethics. If any associate of the Company becomes aware of any material violation by any associate of a subsidiary, he or she must immediately report that information to a Company officer.

No one will be subject to retaliation because of a good faith report of a suspected violation.

(B)

Ethical Compliance

Each associate will be held responsible for compliance with the Ethical Standards, the Conflicts of Interest Standards and the Reporting Responsibilities contained in Sections II, III and IV(A) of this Code of Business Ethics as they apply to his or her own acts or omissions and as they apply to his or her actual knowledge of the business conduct of other associates. However, no knowledge of the business conduct of subordinates will be imputed to a supervisory associate who is in fact unaware of their conduct.

(C)

Audit Committee

Associates are encouraged to discuss with the Company’s General Counsel whether a proposed transaction would be required to be disclosed pursuant to Item 404 and reviewed by the Audit Committee.

The Audit Committee itself will determine appropriate actions to be taken in the event of any violation of this Code of Business Ethics by a Company officer. The Audit Committee will designate a Company officer to deal with any violation by any lower ranking associate and to report the outcome to the Chair of the Audit Committee. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to this Code, including, among other things, disciplinary action up to and including termination of employment. In determining what action is appropriate in a particular case, the Audit Committee or its designee will take into account all relevant information, including whether the violation was promptly reported by the violator, whether a violation of law occurred, whether the violation was a single occurrence, whether the violation was intentional and whether the violator had committed other violations in the past.

V.	Miscellaneous

(A)

Publication of Code of Business Ethics

Each associate will be given a copy of this Code of Business Ethics to read. The Company will file the current version of this Code of Business Ethics with the Commission.

(B)

Prospective Waivers of Code of Business Ethics

In unusual circumstances, an associate may apply for a prospective waiver of this Code of Business Ethics. He or she must make full disclosure of the circumstances to the Company’s General Counsel/Secretary. Applications for waivers will be considered by the Board of Directors when submitted by a Company officer or by the Company’s Chief Executive Officer when submitted by a lower ranking associate. Any waiver granted to an officer will be disclosed in the next periodic report filed with the Commission or as otherwise required by law. Any waiver granted will include appropriate controls to protect the Company’s interests.

(C)

Advice of Counsel

Associates may apply to the Company’s General Counsel/Secretary for a determination regarding the applicability of this Code of Business Ethics to a proposed course of action or anticipated state of facts. A favorable determination of the Company’s General Counsel/Secretary shall be a defense against any disciplinary action based on the facts assumed in his determination letter.

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(D)

No Rights Created

This Code of Business Ethics is a statement of certain fundamental principles, standards and procedures that govern the Company’s associates in the conduct of Company business. It is not intended to, and does not, create any rights in any associate, customer, vendor, competitor, shareholder or any other person or entity, other than the rights arising from the Company’s policy against retaliation because of a good faith report of a suspected violation. It is not a comprehensive statement of the Company’s policies that associates are bound to observe.

(E)

Effective Date

This Code of Business Ethics applies to acts or omissions by an associate that take place or continue after the associate is first given a copy to read.

APPENDIX “A”

(Item 404)

Transactions with related persons, promoters and certain control persons.

(a) Transactions with related persons. Describe any transaction, since the beginning of the registrant’s last fiscal year, or any currently proposed transaction, in which the registrant was or is to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest. Disclose the following information regarding the transactions:

(1) The name of the related person and the basis on which the person is a related person.

(2) The related person’s interest in the transaction with the registrant, including the related person’s position(s) or relationship(s) with, or ownership in, a firm, corporation, or other entity that is a party to, or has an interest in, the transaction.

(3)

The approximate dollar value of the amount involved in the transactions.

(4) The approximate dollar value of the amount of the related person’s interest in the transaction, which shall be computed without regard to the amount of profit or loss.

(5) In the case of indebtedness, disclosure of the amount involved in the transaction shall include the largest aggregate amount of principal outstanding during the period for which disclosure is provided, the amount thereof outstanding as of the latest practicable date, the amount of principal paid during the periods for which disclosure is provided, the amount of interest paid during the period for which disclosure is provided, and the rate or amount of interest payable on the indebtedness.

(6) Any other information regarding the transaction or the related person in the context of the transaction that is material to investors in light of the circumstances of the particular transaction.

Instructions to Item 404(a).

1. For the purposes of paragraph (a) of this Item, the term related person means:

a. Any person who was in any of the following categories at any time during the specified period for which disclosure under paragraph (a) of this Item is required:

Any director or executive officer of the registrant;

(over)

ii.

Any nominee for director, when the information called for by paragraph (a) of this Item is being presented in a proxy or information statement relating to the election of that nominee for director; or

iii. Any immediate family member of a director or executive officer of the registrant, or of any nominee for director when the information called for by paragraph (a) of this Item is being presented in a proxy or information statement relating to the election of that nominee for director, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such director, executive officer or nominee for director, and any person (other than a tenant or employee) sharing the household of such director, executive officer or nominee for director; and

b. Any person who was in any of the following categories when a transaction in which such person had a direct or indirect material interest occurred or existed:

i. A security holder covered by Item 403(a) (§228.403(a)); or

ii. Any immediate family member of any such security holder, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such security holder, and any person (other than a tenant or employee) sharing the household of such security holder.

2. For purposes of paragraph (a) of this Item, a transaction includes, but is not limited to, any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships.

3. The amount involved in the transaction shall be computed by determining the dollar value of the amount involved in the transaction in question, which shall include:

a. In the case of any lease or other transaction providing for periodic payments or installments, the aggregate amount of all periodic payments or installments due on or after the beginning of the registrant’s last fiscal year, including any required or optional payments due during or at the conclusion of the lease or other transaction providing for periodic payments or installments; and

b. In the case of indebtedness, the largest aggregate amount of all indebtedness outstanding at any time since the beginning of the registrant’s last fiscal year and all amounts of interest payable on it during the last fiscal year.

In the case of a transaction involving indebtedness:

a. The following items of indebtedness may be excluded from the calculation of the amount of indebtedness and need not be disclosed: amounts due from the related person for purchases of goods and services subject to usual trade terms, for ordinary business travel and expense payments and for other transactions in the ordinary course of business;

b. Disclosure need not be provided of any indebtedness transaction for the related persons specified in Instruction 1.b. to paragraph (a) of this Item; and

c. If the lender is a bank, savings and loan association, or broker-dealer extending credit under Federal Reserve Regulation (12 CFR part 220) and the loans are not disclosed as nonaccrual, past due, restructured or potential problems (see Item III.C.1. and 2. of Industry Guide 3, Statistical Disclosure by Bank Holding Companies (17 CFT 229.802(c))), disclosure under paragraph (a) of this Item may consist of a statement, if such is the case, that the loans to such persons:

Were made in the ordinary course of business;

ii. Were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender; and

iii. Did not involve more than the normal risk of collectibility or present other unfavorable features.

5a. Disclosure of an employment relationship or transaction involving an executive officer and any related compensation solely resulting from that employment relationship or transaction need not be provided pursuant to paragraph (a) of this Item if:

i. The compensation arising from the relationship or transaction is reported pursuant to Item 402 (§228.402); or

ii. The executive officer is not an immediate family member (as specified in Instruction 1 to paragraph (a) of this Item) and such compensation would have been reported under Item 402 (§228.402) as compensation earned for services to the registrant if the executive officer was a named executive officer as that term is defined in Item 402(a)(2) (§228.402(a)(2)), and such compensation had been approved, or recommended to the board of directors of the registrant for approval, by the compensation committee of the board of directors (or group of independent directors performing a similar function) of the registrant.

(over)

5b. Disclosure of compensation to a director need not be provided pursuant to paragraph (a) of this Item if the compensation is reported pursuant to Item 402(f) (§228.402(f)).

6. A person who has a position or relationship with a firm, corporation, or other entity that engages in a transaction with the registrant shall not be deemed to have an indirect material interest within the meaning of paragraph (a) of this Item where:

The interest arises only:

i. From such person’s position as a director of another corporation or organization that is a party to the transaction; or

ii. From the direct or indirect ownership by such person and all other persons specified in Instruction 1 to paragraph (a) of this Item, in the aggregate, of less than a ten percent equity interesting another person (other than a partnership) which is a party to the transaction; or

iii.

From both such position and ownership; or

b. The interest arises only from such person’s position as a limited partner in a partnership in which the person and all other persons specified in Instruction 1 to paragraph (a) of this Item, have an interest of less than ten percent, and the person is not a general partner of and does not hold another position in the partnership.

Disclosure need not be provided pursuant to paragraph (a) of this Item if:

a. The transaction is one where the rates or charges involved in the transaction are determined by competitive bids, or the transaction involves the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority;

b. The transaction involves services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services; or

c. The interest of the related person arises solely from the ownership of a class of equity securities of the registrant and all holders of that class of equity securities of the registrant received the same benefit on a pro rata basis.

(b)

Review, approval or ratification of transactions with related persons.

(1) Describe the registrant’s policies and procedures for the review, approval, or ratification of any transaction required to be reported under paragraph (a) of this Item. While the material features of such policies and procedures will vary depending on the particular circumstances, examples of such features may included, in given cases, among other things:

(i) The types of transactions that are covered by such policies and procedures;

(ii) The standards to be applied pursuant to such policies and procedures;

(iii) The persons or groups of persons on the board of directors or otherwise who are responsible for applying such policies and procedures; and

(iv) A statement of whether such policies and procedures are in writing and, if not, how such policies and procedures are evidenced.

(2) Identify any transaction required to be reported under paragraph (a) of this Item since the beginning of the registrant’s last fiscal year where such policies and procedures did not require review, approval or ratification or where such policies and procedures were not followed.

Instruction to Item 404(b).

Disclosure need not be provided pursuant to this paragraph regarding any transaction that occurred at a time before the related person became one of the enumerated persons in Instruction 1.a.i., ii., or iii. to Item 404(a) if such transaction did not continue after the related person became one of the enumerated persons in Instruction 1.a.i., ii., or iii. to Item 404(a).

APPENDIX “B”

BUSINESS CONDUCT REPORTING POLICY

United Retail Group, Inc. (the “Company”) is committed to compliance, among other things, with applicable laws, rules and regulations, listing requirements of The NASDAQ Global Market, accounting standards and internal controls for financial reporting. It is the responsibility of each associate to promptly report violations. In order to facilitate such reports, the following procedures have been established for the receipt, retention and treatment of reports received by the Company, and the confidential, anonymous submission by associates of reports.

The Office of the General Counsel/Secretary

Reports by associates may be made anonymously to the Company’s General Counsel/Secretary by telephone at 201-909-2200, by mail to United Retail Group, Inc., Secretary, 365 West Passaic Street, Rochelle Park, NJ 07662 and by e-mail to kcarroll@unitedretail.com.

The Hotline

The Company has a 24-hour Hotline, 1-866-345-8355, which you can use to make reports. You have the option to report to the Hotline anonymously. Messages are retrieved and handled each business day.

Confidentiality

Providing your name allows the Company to contact you if necessary during any investigation. To the extent possible, the Company will maintain in confidence the identity of those individuals who provide their names when reporting. However, their identities may be revealed during any investigation.

Protection Against Reprisals

No one will be subject to retaliation because of a good faith report of a complaint. The Company will not discriminate against associates for making good faith reports in any of the terms and conditions of their employment, including but not limited to job assignment, promotion, compensation, training, discipline and termination. Any suspected acts of retaliation should be reported immediately to the General Counsel/Secretary or the Company Hotline.

Treatment of Reports and Retention of Records

The General Counsel/Secretary will send summaries of conversations, and will forward copies of written communications and transcripts of voice mail messages, containing reports to the Chairman of the Board of Directors and the Chairman of the Audit Committee, as appropriate. The General Counsel/Secretary will provide periodic reports to both Chairmen. The General Counsel/Secretary will retain copies of all complaints, investigative reports, summaries of reports and other records relating to complaints in accordance with the Company’s records retention policy.

No Rights Created

This Policy is a statement of certain policies and procedures. It is not intended to, and does not, create any rights in any client, supplier, competitor or shareholder or in any associate except with respect to rights arising from the Company’s policy against retaliation because of a good faith report.

KPC 11/13/06

EX-31 4 ex31form10q1206.htm FORM10.Q DECEMBER 2006

Exhibit No. 31

CERTIFICATIONS

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Raphael Benaroya, the registrant’s Chairman of the Board, President and Chief Executive Officer, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of United Retail Group, Inc.;

2.	based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

the registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	the registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 7, 2006

/s/ RAPHAEL BENAROYA
Raphael Benaroya

I, George R. Remeta, the registrant’s Chief Administrative Officer and Chief Financial Officer, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of United Retail Group, Inc.;

2.	based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	the registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 7, 2006

/s/ GEORGE R. REMETA
George R. Remeta

EX-32 5 ex32form10q1206.htm FORM 10.Q DECEMBER 2006

Exhibit 32

CERTIFICATION

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the Quarterly Report of United Retail Group, Inc. (the “Company”) on Form 10-Q for the period ended October 28, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Raphael Benaroya, Chief Executive Officer of the Company, and George R. Remeta, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act, that based on our knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ RAPHAEL BENAROYA

Raphael Benaroya

Chief Executive Officer

December 7, 2006

/s/ GEORGE R. REMETA

George R. Remeta

Chief Financial Officer

December 7, 2006