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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950148-01-501627.txt : 20010822
<SEC-HEADER>0000950148-01-501627.hdr.sgml : 20010822
ACCESSION NUMBER:		0000950148-01-501627
CONFORMED SUBMISSION TYPE:	S-1
PUBLIC DOCUMENT COUNT:		11
FILED AS OF DATE:		20010821

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BIG 5 HOLDINGS CORP
		CENTRAL INDEX KEY:			0001156388
		STANDARD INDUSTRIAL CLASSIFICATION:	 []
		IRS NUMBER:				954388794
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		S-1
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-68094
		FILM NUMBER:		1720665

	BUSINESS ADDRESS:	
		STREET 1:		2525 EAST EL SEGUNDO BOULEVARD
		CITY:			EL SEGUNDO
		STATE:			CA
		ZIP:			90245-4632
		BUSINESS PHONE:		3102977706

	MAIL ADDRESS:	
		STREET 1:		2525 EAST EL SEGUNDO BOULEVARD
		CITY:			EL SEGUNDO
		STATE:			CA
		ZIP:			90245-4632
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-1
<SEQUENCE>1
<FILENAME>v75241ors-1.txt
<DESCRIPTION>FORM S-1
<TEXT>
<PAGE>   1

    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 2001
                                                  REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------

                        BIG 5 SPORTING GOODS CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>
<S>                               <C>                               <C>
            DELAWARE                            5941                           95-4388794
  (STATE OR OTHER JURISDICTION      (PRIMARY STANDARD INDUSTRIAL            (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)    CLASSIFICATION CODE NUMBER)         IDENTIFICATION NUMBER)
</Table>

                         2525 EAST EL SEGUNDO BOULEVARD
                          EL SEGUNDO, CALIFORNIA 90245
                                 (310) 536-0611
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

                              GARY S. MEADE, ESQ.
                    SENIOR VICE PRESIDENT & GENERAL COUNSEL
                        BIG 5 SPORTING GOODS CORPORATION
                         2525 EAST EL SEGUNDO BOULEVARD
                          EL SEGUNDO, CALIFORNIA 90245
                                 (310) 536-0611
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICES)

                                   COPIES TO:

<Table>
<S>                                               <C>
              ANDREW W. GROSS, ESQ.                              GREGG A. NOEL, ESQ.
               IRELL & MANELLA LLP                    SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
       1800 AVENUE OF THE STARS, SUITE 900                     300 SOUTH GRAND AVENUE
           LOS ANGELES, CA 90067-4276                           LOS ANGELES, CA 90071
                 (310) 277-1010                                    (213) 687-5000
</Table>

        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this registration statement becomes effective.

    If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [ ]

    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [ ]

    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]  __________

    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]  __________

    If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, check the following box.  [ ]

                        CALCULATION OF REGISTRATION FEE

<Table>
<S>                                                          <C>                     <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
                                                                PROPOSED MAXIMUM
             TITLE OF EACH CLASS OF SECURITIES                 AGGREGATE OFFERING          AMOUNT OF
                     TO BE REGISTERED                             PRICE(1)(2)           REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
Common stock, par value $0.01 per share....................       $115,000,000              $28,750
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</Table>

(1) Includes shares of common stock that may be sold pursuant to the
    underwriters' over-allotment options.

(2) Estimated solely for the purpose of computing the amount of the registration
    fee pursuant to Rule 457(o) under the Securities Act.
                            ------------------------

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

                  SUBJECT TO COMPLETION, DATED AUGUST 21, 2001

                                               Shares

                        BIG 5 SPORTING GOODS CORPORATION

                                     [LOGO]

                                  Common Stock
                               ------------------

     Prior to this offering, there has been no public market for our common
stock. We are selling             shares of common stock and the selling
stockholders are selling            shares of common stock. We will not receive
any of the proceeds from the shares of common stock sold by the selling
stockholders.

     The initial public offering price of the common stock is expected to be
between $     and $     per share. We will apply to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "     ."

     The underwriters have an option to purchase a maximum of
          additional shares to cover over-allotments of shares.

     INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.

<Table>
<Caption>
                                                         UNDERWRITING      PROCEEDS TO      PROCEEDS TO
                                          PRICE TO       DISCOUNTS AND        BIG 5           SELLING
                                           PUBLIC         COMMISSIONS    SPORTING GOODS    STOCKHOLDERS
                                       ---------------  ---------------  ---------------  ---------------
<S>                                    <C>              <C>              <C>              <C>
Per Share............................         $                $                $                $
Total................................         $                $                $                $
</Table>

     Delivery of the shares of common stock will be made on or about
                    , 2001.

     Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON

                      U.S. BANCORP PIPER JAFFRAY

                                           JEFFERIES & COMPANY, INC.

                                                          STEPHENS INC.

               The date of this prospectus is             , 2001.
<PAGE>   3

                            DESCRIPTION OF ARTWORK:

     The inside front cover contains a map of the western half of the United
States with dots indicating store locations. The heading of the map states "THE
LEADING SPORTING GOODS RETAILER IN THE WESTERN UNITED STATES". There is a legend
on the top right hand side of the map that indicates the states in which we
operate and the number of stores in each state.

     Below the map there are two photographs of front entrances to Big 5
Sporting Goods stores.
<PAGE>   4

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

                               TABLE OF CONTENTS

<Table>
<Caption>
                                        PAGE
                                        ----
<S>                                     <C>
PROSPECTUS SUMMARY....................     1
RISK FACTORS..........................     7
FORWARD-LOOKING STATEMENTS............    13
USE OF PROCEEDS.......................    14
DIVIDEND POLICY.......................    14
CAPITALIZATION........................    15
DILUTION..............................    16
SELECTED CONSOLIDATED FINANCIAL AND
  OTHER DATA..........................    17
MANAGEMENT'S DISCUSSION AND ANALYSIS
  OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS.......................    19
BUSINESS..............................    25
MANAGEMENT............................    34
RELATED PARTY TRANSACTIONS............    39
SECURITY OWNERSHIP BY MANAGEMENT AND
  PRINCIPAL STOCKHOLDERS..............    40
</Table>

<Table>
<Caption>
                                        PAGE
                                        ----
<S>                                     <C>
DESCRIPTION OF CAPITAL STOCK..........    41
DESCRIPTION OF CERTAIN INDEBTEDNESS...    44
SHARES ELIGIBLE FOR FUTURE SALE.......    46
U.S. FEDERAL TAX CONSIDERATIONS FOR
  NON-U.S. HOLDERS....................    48
THE SELLING STOCKHOLDERS..............    50
UNDERWRITING..........................    51
NOTICE TO CANADIAN RESIDENTS..........    54
LEGAL MATTERS.........................    55
EXPERTS...............................    55
WHERE YOU CAN FIND MORE INFORMATION...    55
INDEX TO CONSOLIDATED FINANCIAL
  STATEMENTS..........................   F-1
</Table>

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

     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.

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

     Big 5, Court Casuals, Golden Bear, Pacifica and Rugged Exposure are our
registered trademarks. All other registered trademarks and trade names referred
to in this prospectus are the property of their respective owners.

                     DEALER PROSPECTUS DELIVERY OBLIGATION

     UNTIL             , 2001 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>   5

                               PROSPECTUS SUMMARY

     This summary highlights information contained elsewhere in this prospectus.
We urge you to read this entire prospectus carefully, including the "Risk
Factors" section beginning on page 7.

                              BIG 5 SPORTING GOODS

OVERVIEW

     We are the leading sporting goods retailer in the western United States,
operating 252 stores in 10 states under the name "Big 5 Sporting Goods." We
provide a full-line product offering of over 25,000 stock keeping units in a
traditional sporting goods store format that averages 11,000 square feet. Our
product mix includes athletic shoes, apparel and accessories, as well as a broad
selection of outdoor and athletic equipment for team sports, fitness, camping,
hunting, fishing, tennis, golf, snowboarding and in-line skating.

     We believe that over the past 46 years we have developed a reputation with
the competitive and recreational sporting goods customer as a convenient
neighborhood sporting goods retailer that delivers consistent value on quality
merchandise. Our stores carry a wide range of products at competitive prices
from well-known brand name manufacturers, including Nike, Reebok, adidas, New
Balance, Wilson, Spalding and Columbia. We also offer brand name merchandise
produced exclusively for us, private label merchandise and specials on quality
items we purchased through opportunistic buys of vendor over-stock and close-out
merchandise. We reinforce our value reputation through weekly print advertising
in major and local newspapers and mailers designed to generate customer traffic,
drive sales and build brand awareness.

     Founded in 1955, our accumulated management experience and expertise in
sporting goods merchandising, advertising, operations and store development have
enabled us to generate consistent, profitable growth. As of July 1, 2001, we
have realized 22 consecutive quarterly increases in same store sales over
comparable prior periods. All but one of our stores have generated positive
store-level operating profit in each of the past five fiscal years. For the
twelve months ended July 1, 2001, we generated net sales of $599.1 million and
EBITDA of $52.2 million. From 1996 through the twelve months ended July 1, 2001,
our net sales and EBITDA increased at compounded annual growth rates of 9.1% and
16.7%. We believe our success can be attributed to one of the most experienced
management teams in the sporting goods industry, a value-based, execution-driven
operating philosophy, a controlled growth strategy and a proven business model.

OUR STRENGTHS

     We believe we have been successful due to the following competitive
strengths:

     LEADING POSITION IN ESTABLISHED MARKETS. We are the market leader in the
western United States, operating almost four times as many stores in California,
and more than twice as many stores in each of Washington, Oregon, Arizona and
Nevada, as any of our full-line sporting goods competitors. This deep
penetration of our established markets results in high customer awareness of the
Big 5 Sporting Goods name and frequent visits to our conveniently located
stores. More sporting goods shoppers identified Big 5 Sporting Goods as the
place they purchased sporting goods in the greater Los Angeles area than any
other store, according to the most recent Los Angeles Times Sporting Goods
Survey. The survey included specialty sporting goods stores such as Foot Locker
and Champs, mass merchandisers such as Target and Kmart, and local sporting
goods superstores such as Sport Chalet and Sportmart. Surveys in several of our
other major metropolitan markets confirm our leading position as a preferred
shopping destination for sporting goods.

     PROVEN STORE FORMAT. Our typical store averages 11,000 square feet, is
conveniently located near our target customers in either a free-standing
location or a multi-store shopping center and is designed to minimize operating
and maintenance costs. Our format enables us to have substantial flexibility
regarding
                                        1
<PAGE>   6

new store locations. We have successfully operated stores in major metropolitan
areas and in areas with as few as 60,000 people. Our format differentiates us
from superstores that typically average over 35,000 square feet, require larger
target markets, are more expensive to operate and require higher net sales per
store for profitability. Our format has also resulted in productivity that we
believe is among the highest of any full-line sporting goods retailer, with net
sales per gross square foot of approximately $220 for the twelve months ended
July 1, 2001.

     SUPERIOR MERCHANDISING CAPABILITIES. We have developed considerable
expertise in identifying, stocking and selling a broad assortment of full-line
sporting goods at competitive prices. We differentiate our product offering by
editing our assortment to carry an extensive range of categories but only a
selected number of different products in any one category. This effective
merchandise mix allows us to offer attractive values to our customers while
providing our customers the ability to comparison shop within a category. Our
merchandise mix also allows us to minimize inventory levels and maximize shelf
space for items we believe will provide attractive returns on investment. Our
buyers average 18 years of experience with us and work closely with senior
management to determine product selection, promotion and pricing. In addition to
our buyers' experience, we utilize an integrated merchandising, distribution,
point of sale and financial information system to continuously improve our
merchandise mix, pricing strategy, advertising effectiveness and inventory
levels.

     EXTENSIVE ADVERTISING PROGRAMS AND EXPERTISE. Through years of targeted
advertising, we have solidified our reputation for offering quality products at
attractive prices. We have advertised almost exclusively through weekly print
advertisements since 1955. We typically utilize four-page color advertisements
to highlight promotions across our merchandise categories. We believe our print
advertising, which includes the weekly distribution of over 12.5 million
newspaper inserts and mailers, consistently reaches more households in our
established markets than that of our full-line sporting goods competitors. The
consistency and reach of our print advertising programs drive sales and create
high customer awareness of the name Big 5 Sporting Goods.

     SIGNIFICANT MANAGEMENT EXPERIENCE. We believe the experience, commitment
and tenure of our professional staff provide a substantial competitive
advantage. We were co-founded in 1955 by Robert W. Miller, currently our
Chairman, and are managed today by his son, Steven G. Miller, our President and
Chief Executive Officer who has worked at our company for 32 years. Our
senior-level managers have worked at our company for an average of 28 years. We
spend significant time and resources developing our personnel and typically seek
to fill positions through internal promotion. The tenure of our management and
the scope of their accumulated experience has resulted in valuable expertise
regarding our markets, store-level operations, merchandising and advertising.

     CONSISTENT GROWTH AND STRONG CASH FLOW. We have been able to generate
consistent growth, expand margins and increase our profitability because of our
extensive experience, our proven strategy and steady execution of our business
model. Our consistent net sales growth combined with improved purchasing,
inventory management and economies of scale have enabled us to increase our
gross margin from 31.5% in fiscal 1996 to 34.0% in fiscal 2000 and our EBITDA
margin from 6.5% in fiscal 1996 to 8.7% in fiscal 2000. Our EBITDA growth
combined with our strict management of working capital and low maintenance
capital expenditure requirements have resulted in strong cash flow.

     STRONG RETURNS ON NEW STORE OPENINGS. Throughout our history, we have
sought to expand with the addition of new stores through a disciplined strategy
of controlled growth. We have typically utilized cash generated by our
operations to invest in new stores. New store openings represent attractive
investment opportunities due to the relatively low investment required and the
relatively short time in which our new stores become profitable. Based on our
operating experience, a new store typically achieves store-level cash-on-cash
returns of approximately 35% to 40% in its first full fiscal year of operation.

                                        2
<PAGE>   7

OUR STRATEGY

     Our objective is to build upon these competitive strengths to profitably
grow our business and further advance our position as the leading sporting goods
retailer in the western United States. We intend to accomplish this by:

     - continuing our dedicated focus on execution;

     - profitably expanding our store base;

     - generating net sales growth through our distinctive merchandise mix and
       advertising programs; and

     - enhancing profitability through increased operating efficiencies.
                               ------------------

     Big 5 Sporting Goods Corporation is a Delaware corporation. Our principal
executive offices are located at 2525 East El Segundo Boulevard, El Segundo, CA
90245. Our telephone number is (310) 536-0611.

                                        3
<PAGE>   8

                                  THE OFFERING

Common stock offered by us..........                 shares

Common stock offered by the selling
  stockholders......................                 shares

Common stock to be outstanding after
this offering.......................                 shares

Use of proceeds.....................     We intend to use the net proceeds we
                                         receive to redeem our senior discount
                                         notes and to redeem our outstanding
                                         shares of Series A preferred stock. We
                                         will use the remainder of the net
                                         proceeds, if any, for general corporate
                                         purposes.

                                         We will not receive any of the proceeds
                                         from the sale of shares by the selling
                                         stockholders.

Listing.............................     We intend to file an application to
                                         have our common stock approved for
                                         quotation on The Nasdaq Stock Market's
                                         National Market under the symbol
                                         "     ."

     Unless otherwise indicated, all share information in this prospectus is
based on the number of shares outstanding as of July 1, 2001 and excludes:

     - 60,000 shares of our common stock issuable upon exercise of an
       outstanding warrant, at a price of $0.01 per share;

     -                shares of our common stock available for future issuance
       under our 2001 stock incentive plan; and

     - the possible issuance of up to                additional shares of our
       common stock that the underwriters have the option to purchase from us to
       cover over-allotments.

                                        4
<PAGE>   9

                 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

     The summary consolidated financial and other data for the fiscal year ended
December 29, 1996 are derived from the unaudited financial statements of our
predecessor, Big 5 Corporation. The summary consolidated financial and other
data for the fiscal year ended December 28, 1997 are derived from our unaudited
financial statements. The summary data presented below under the captions
"Statements of Operations Data" and "Balance Sheet Data" for, and as of the end
of the fiscal years ended January 3, 1999, January 2, 2000 and December 31, 2000
are derived from our audited consolidated financial statements, which financial
statements have been audited by KPMG LLP, independent certified public
accountants. The consolidated financial statements as of January 2, 2000 and
December 31, 2000, and for each of the fiscal years ended January 3, 1999,
January 2, 2000 and December 31, 2000, and the report thereon are included
elsewhere in the prospectus. The summary consolidated financial and other data
for the 26 weeks ended July 2, 2000 and July 1, 2001 are derived from our
unaudited consolidated financial statements included elsewhere in this
prospectus and include, in the opinion of management, all adjustments necessary
for a fair presentation of our financial position and operating results for
these periods and as of such date. Our results for interim periods are not
necessarily indicative of our results for a full year's operations. You should
read the following tables in conjunction with the consolidated financial
statements and accompanying notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.

<Table>
<Caption>
                                                                                                     26 WEEKS ENDED
                                                          FISCAL YEARS(1)                         --------------------
                                      --------------------------------------------------------    JULY 2,     JULY 1,
                                        1996        1997        1998        1999        2000        2000        2001
                                      --------    --------    --------    --------    --------    --------    --------
                                             (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S>                                   <C>         <C>         <C>         <C>         <C>         <C>         <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...........................  $404,265    $443,541    $491,430    $514,324    $571,476    $266,983    $294,635
Gross profit........................   127,149     144,648     161,187     172,472     194,436      91,282     101,445
Operating income....................    16,518      23,039      30,240      31,771      40,393      15,528      17,513
Net income..........................     2,781       8,737       4,506       5,825      11,148       2,732       5,900
Pro forma net income(2).............
Pro forma earnings per share(2):
  Basic.............................                                                  $                       $
                                                                                      ========                ========
  Diluted...........................                                                  $                       $
                                                                                      ========                ========
Shares used to calculate pro forma
  earnings per share(2):
  Basic.............................
  Diluted...........................

STORE DATA:
  Same store sales increase(3)......       3.7%        6.6%        5.2%        2.0%        6.6%        5.6%        5.9%
  Net sales per gross square
    foot(4).........................  $    185    $    196    $    206    $    203    $    217    $    104    $    108
  End of period stores..............       196         210         221         234         249         236         252
  Average net sales per store(5)....  $  2,090    $  2,218    $  2,324    $  2,285    $  2,405    $  1,154    $  1,193

OTHER FINANCIAL DATA:
  Gross margin......................      31.5%       32.6%       32.8%       33.5%       34.0%       34.2%       34.4%
  EBITDA(6).........................  $ 26,096    $ 34,517    $ 39,130    $ 41,250    $ 49,733    $ 20,174    $ 22,657
  EBITDA margin.....................       6.5%        7.8%        8.0%        8.0%        8.7%        7.6%        7.7%
  Capital expenditures..............  $  3,453    $  5,151    $  8,500    $ 13,075    $ 11,602    $  5,237    $  4,457
  Depreciation and amortization.....     9,578       8,176       8,890       9,479       9,340       4,646       5,144
</Table>

<Table>
<Caption>
                                                                  AS OF JULY 1, 2001
                                                              --------------------------
                                                               ACTUAL     AS ADJUSTED(2)
                                                              --------    --------------
                                                                     (UNAUDITED)
<S>                                                           <C>         <C>
BALANCE SHEET DATA:
Net working capital(7)......................................  $ 83,693
Total assets................................................   256,722
Total debt..................................................   180,127
Redeemable preferred stock..................................    55,199
Stockholders' deficit.......................................   (87,785)
</Table>

                                        5
<PAGE>   10

- ---------------
(1) Our fiscal year is the 52 or 53 week reporting period ending on the Sunday
    closest to the calendar year end. Fiscal 1998 consisted of 53 weeks as
    compared to 52 weeks for each of fiscal years 1996, 1997, 1999 and 2000.

(2) The pro forma statements of operations data and the balance sheet data as
    adjusted are presented as if this offering and the application of the net
    proceeds occurred at the beginning of the periods presented for the pro
    forma statements of operations data and at July 1, 2001 for the balance
    sheet data as adjusted.

(3) Same store sales data for a period presented reflect net sales for stores
    open throughout that period as well as the corresponding prior period.

(4) Net sales per gross square foot is calculated by dividing net sales for
    stores open the entire period by the total gross square footage for those
    stores.

(5) Average net sales per store is calculated by dividing net sales for stores
    open the entire period by total store count for stores open the entire
    period.

(6) EBITDA is operating income before depreciation and amortization and, in
    fiscal 1997, excludes non-recurring transaction-related expenses. EBITDA is
    not a measure of financial performance under generally accepted accounting
    principles, or GAAP. Although EBITDA should not be considered in isolation
    or as a substitute for net income, cash flows from operating activities and
    other income or cash flow statement data prepared in accordance with GAAP,
    or as a measure of profitability or liquidity, we understand that EBITDA is
    widely used by financial analysts as a measure of financial performance. Our
    calculation of EBITDA may not be comparable to similarly titled measures
    reported by other companies.

(7) Net working capital is defined as current assets less current liabilities.

                                        6
<PAGE>   11

                                  RISK FACTORS

     The value of an investment in us will be subject to significant risks
inherent in our business. You should carefully consider the risks described
below, together with all of the other information included in this prospectus,
before purchasing our common stock. If any of the following risks and
uncertainties actually occur, our business, financial condition or operating
results could be materially and adversely affected. This could cause the trading
price of our common stock to decline, perhaps significantly.

                         RISKS RELATED TO OUR BUSINESS

WE ARE HIGHLY LEVERAGED AND FUTURE CASH FLOWS MAY NOT BE SUFFICIENT TO MEET OUR
OBLIGATIONS AND WE MIGHT HAVE DIFFICULTY OBTAINING MORE FINANCING.

     We have, and will continue to have, a substantial amount of debt. Upon the
application of our net proceeds from this offering, the aggregate amount of our
debt will be approximately $     million. Our highly leveraged financial
position means:

     - a substantial portion of our cash flow from operations will be required
       to service our indebtedness;

     - our ability to obtain financing in the future for working capital,
       capital expenditures and general corporate purposes might be impeded; and

     - we are more vulnerable to economic downturns and our ability to withstand
       competitive pressures is limited.

     Our future cash flow might not be sufficient to meet our obligations and
commitments. If we fail to make any required payment under our credit agreement
or indentures or if we otherwise default under these instruments, our debt may
be accelerated under these instruments. This acceleration could also result in
the acceleration of other indebtedness that we may have outstanding at that
time.

     If we are unable to generate sufficient cash flow from operations to meet
our obligations and commitments, we will be required to refinance or restructure
our indebtedness or raise additional debt or equity capital. Additionally, we
may be required to sell material assets or operations or delay or forego
expansion opportunities. These alternative strategies might not be effected on
satisfactory terms, if at all.

THE TERMS OF OUR DEBT INSTRUMENTS IMPOSE OPERATING AND FINANCIAL RESTRICTIONS ON
US, WHICH MAY IMPAIR OUR ABILITY TO RESPOND TO CHANGING BUSINESS AND ECONOMIC
CONDITIONS.

     The terms of our debt instruments impose operating and financial
restrictions on us, including, among other things, restrictions on our ability
to incur additional indebtedness, create or allow liens, pay dividends, engage
in mergers, acquisitions or reorganizations, or make capital expenditures. As a
result, our ability to respond to changing business and economic conditions and
to secure additional financing, if needed, may be significantly restricted, and
we may be prevented from engaging in transactions that might further our growth
strategy or otherwise benefit us without obtaining consent from our lenders. In
addition, our credit facility is secured by a first priority security interest
in our trade accounts receivable, merchandise inventories and general intangible
assets. In the event of our insolvency, liquidation, dissolution or
reorganization, the lenders under our debt instruments would be entitled to
payment in full from our assets before distributions, if any, were made to our
stockholders.

IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR CONTROLLED GROWTH STRATEGIES OR
MANAGE OUR GROWING BUSINESS, OUR FUTURE OPERATING RESULTS COULD SUFFER.

     One of our strategies includes opening profitable stores in new and
existing markets. Our ability to successfully implement our growth strategy
could be negatively affected by any of the following:

     - suitable sites may not be available for leasing;

     - we may not be able to negotiate acceptable lease terms;
                                        7
<PAGE>   12

     - we might not be able to hire and retain qualified store personnel; and

     - we might not have the financial resources necessary to fund our expansion
       plans.

     In addition, our expansion in new and existing markets may present
competitive, distribution and merchandising challenges that differ from our
current challenges. These potential new challenges include competition among our
stores, added strain on our distribution center, additional information to be
processed by our management information systems and diversion of management
attention from ongoing operations. We face additional challenges in entering new
markets, including consumers' lack of awareness of us, difficulties in hiring
personnel, and problems due to our unfamiliarity with local real estate markets
and demographics. New markets may also have different competitive conditions,
consumer tastes and discretionary spending patterns than our existing markets.
To the extent that we are not able to meet these new challenges, our net sales
could decrease and our operating costs could increase.

BECAUSE OUR STORES ARE CONCENTRATED IN THE WESTERN UNITED STATES, WE ARE SUBJECT
TO REGIONAL RISKS.

     Our stores are located in the western United States. Because of this, we
are subject to regional risks, such as the economy, weather conditions, power
outages, the increasing cost of electricity, earthquakes and other natural
disasters and government regulations. For example, particularly in southern
California where we have a high concentration of stores, seasonal factors such
as unfavorable snow conditions, inclement weather or other localized conditions
such as flooding, earthquakes or electricity blackouts could adversely affect
our operations. If the region were to suffer an economic downturn or other
adverse regional event, there could be an adverse impact on our net sales and
profitability and our ability to implement our planned expansion program.
Several of our competitors operate stores across the United States and thus are
not as vulnerable to these regional risks.

IF WE LOSE KEY MANAGEMENT OR ARE UNABLE TO ATTRACT AND RETAIN THE TALENT
REQUIRED FOR OUR BUSINESS, OUR OPERATING RESULTS COULD SUFFER.

     Our future success depends to a significant degree on the skills,
experience and efforts of Steven G. Miller, our President and Chief Executive
Officer, and other key personnel who are not obligated to stay with us. The loss
of the services of any of these individuals could harm our business and
operations. In addition, as our business grows, we will need to attract and
retain additional qualified personnel in a timely manner and develop, train and
manage an increasing number of management level sales associates and other
employees. Competition for qualified employees could require us to pay higher
wages to attract a sufficient number of employees, and increases in the federal
minimum wage or other employee benefits costs could increase our operating
expenses. If we are unable to attract and retain personnel as needed in the
future, our net sales growth and operating results may suffer.

OUR HARDWARE AND SOFTWARE SYSTEMS ARE VULNERABLE TO DAMAGE THAT COULD HARM OUR
BUSINESS.

     Our success, in particular our ability to successfully manage inventory
levels, largely depends upon the efficient operation of our computer hardware
and software systems. We use management information systems to track inventory
information at the store level, communicate customer information and aggregate
daily sales information. These systems and our operations are vulnerable to
damage or interruption from:

     - earthquake, fire, flood and other natural disasters;

     - power loss, computer systems failures, internet and telecommunications or
       data network failure, operator negligence, improper operation by or
       supervision of employees, physical and electronic loss of data or
       security breaches, misappropriation and similar events; and

     - computer viruses.

     Any failure that causes an interruption in our operations or a decrease in
inventory tracking could result in reduced net sales.

                                        8
<PAGE>   13

IF OUR SUPPLIERS DO NOT PROVIDE SUFFICIENT QUANTITIES OF PRODUCTS, OUR NET SALES
AND PROFITABILITY COULD SUFFER.

     We purchase merchandise from over 750 vendors. Although we did not rely on
any single vendor for more than 7.0% of our total purchases during the twelve
months ended July 1, 2001, our dependence on principal suppliers involves risk.
Our 20 largest vendors collectively accounted for 34.5% of our total purchases.
If there is a disruption in supply from a principal supplier or distributor, we
may be unable to obtain merchandise that we desire to sell and that consumers
desire to purchase. In addition, a significant portion of the products that we
purchase, including those purchased from domestic suppliers, are manufactured
abroad. A vendor could discontinue selling to us products manufactured in
foreign countries at any time for reasons that may or may not be in our control.
Our net sales and profitability could decline if we are unable to promptly
replace a vendor who is unwilling or unable to satisfy our requirements with a
vendor providing equally appealing products.

BECAUSE ALL OF OUR STORES RELY ON A SINGLE DISTRIBUTION CENTER, ANY DISRUPTION
COULD ADVERSELY AFFECT OUR NET SALES.

     We currently rely on a single distribution center in Fontana, California.
Any natural disaster or other serious disruption to this distribution center due
to fire, earthquake or any other cause could damage a significant portion of our
inventory and could materially impair both our ability to adequately stock our
stores and our net sales and profitability. If the security measures used at our
distribution center do not prevent inventory theft, our gross margin may
significantly decrease. In addition, because of limited capacity at the current
distribution center, we will need to build a replacement distribution center in
the next two to three years. Any disruption to, or delay in, this process could
adversely affect our future operations.

SOME OF OUR COMPENSATION PRACTICES HAVE BEEN CHALLENGED IN A COMPLAINT THAT, IF
SUCCESSFUL, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

     On August 9, 2001, we received a copy of a complaint filed in the
California Superior Court in Los Angeles entitled Mosely, et al., v. Big 5
Corp., Case No. BC255749, alleging violations of the California Labor Code and
the Business and Professions Code. This complaint was brought as a purported
class action with two subclasses comprised of our California store managers and
our California first assistant store managers. The plaintiffs allege that we
improperly classified our store managers and first assistant store managers as
exempt employees not entitled to overtime pay for work in excess of forty hours
per week. They seek, on behalf of the class members, back pay for overtime
allegedly not paid, statutory penalties in the amount of an additional thirty
days' wages for each employee whose employment terminated in the four years
preceding the complaint and injunctive relief to require us to treat our store
management as non-exempt. The complaint has only recently been filed. We have
not yet answered the complaint and discovery has not commenced. We intend to
defend the case vigorously. This litigation could have a material adverse effect
on our financial condition, and any required change in our labor practices, as
well as costs of defending this litigation, could have a negative impact on our
results of operations.

                         RISKS RELATED TO OUR INDUSTRY

A DOWNTURN IN THE ECONOMY MAY AFFECT CONSUMER PURCHASES OF DISCRETIONARY ITEMS,
WHICH COULD REDUCE OUR NET SALES.

     In general, our sales represent discretionary spending by our customers.
Discretionary spending is affected by many factors, including, among others,
general business conditions, interest rates, inflation, consumer debt levels,
the availability of consumer credit, taxation, electricity power rates,
unemployment trends and other matters that influence consumer confidence and
spending. Our customers' purchases of discretionary items, including our
products, could decline during periods when disposable income is lower

                                        9
<PAGE>   14

or periods of actual or perceived unfavorable economic conditions. If this
occurs, our net sales and profitability could decline.

SEASONAL FLUCTUATIONS IN THE SALES OF SPORTING GOODS COULD CAUSE OUR ANNUAL
OPERATING RESULTS TO SUFFER SIGNIFICANTLY.

     We experience seasonal fluctuations in our net sales and operating results.
In fiscal 2000, we generated 27.7% of our net sales and 38.0% of our operating
income in the fourth fiscal quarter, which includes the holiday selling season
as well as the peak winter sports selling season. As a result, we incur
significant additional expenses in the fourth fiscal quarter due to higher
purchase volumes and increased staffing. If we miscalculate the demand for our
products generally or for our product mix during the fourth fiscal quarter, our
net sales could decline, resulting in excess inventory, which could harm our
financial performance. Because a substantial portion of our operating income is
derived from our fourth fiscal quarter net sales, a shortfall in expected fourth
fiscal quarter net sales could cause our annual operating results to suffer
significantly.

INTENSE COMPETITION IN THE SPORTING GOODS INDUSTRY COULD LIMIT OUR GROWTH AND
REDUCE OUR PROFITABILITY.

     The retail market for sporting goods is highly fragmented and intensely
competitive. We compete directly or indirectly with the following categories of
companies:

     - other traditional sporting goods stores and chains;

     - mass merchandisers, discount stores and department stores, such as
       Wal-Mart, Kmart, Target, JC Penney and Sears;

     - specialty sporting goods shops and pro shops, such as The Athlete's Foot
       and Foot Locker;

     - sporting goods superstores, such as The Sports Authority and Gart Sports
       Company; and

     - internet retailers.

     Some of our competitors have a larger number of stores and greater
financial, distribution, marketing and other resources than we have. In
addition, if our competitors reduce their prices, it may be difficult for us to
reach our net sales goals without reducing our prices. As a result of this
competition, we may also need to spend more on advertising and promotion than we
anticipate. If we are unable to compete successfully, our operating results will
suffer.

WE MAY INCUR COSTS FROM LITIGATION OR INCREASED REGULATION RELATING TO PRODUCTS
THAT WE SELL, PARTICULARLY FIREARMS.

     We sell products manufactured by third parties, some of which may be
defective. If any product that we sell were to cause physical injury or injury
to property, the injured party or parties could bring claims against us as the
retailer of the product. Our insurance coverage may not be adequate to cover
every claim that could be asserted against us. If a successful claim were
brought against us in excess of our insurance coverage, it could harm our
business. Even unsuccessful claims could result in the expenditure of funds and
management time and could have a negative impact on our business. In addition,
we are subject to regulation by the Consumer Product Safety Commission and
similar state regulatory agencies. If we fail to comply with government and
industry safety standards, we may be subject to claims, lawsuits, fines and
adverse publicity that could adversely affect our operating results.

     In addition, we sell firearms, products associated with an increased risk
of injury and related lawsuits. Sales of firearms and ammunition represented
approximately 2.7% of our net sales in fiscal 2000. We may incur losses due to
lawsuits relating to our performance of background checks on firearms purchases
as mandated by state and federal law or the improper use of firearms sold by us,
including lawsuits by municipalities or other organizations attempting to
recover costs from firearms manufacturers and retailers relating to the misuse
of firearms. In addition, in the future there may be increased federal, state or
local regulation, including taxation, of the sale of firearms in both our
current markets as well as future markets
                                        10
<PAGE>   15

in which we may operate. Commencement of these lawsuits against us or the
establishment of new regulations could reduce our net sales and decrease our
profitability.

IF WE FAIL TO ANTICIPATE CHANGES IN CONSUMER PREFERENCES, WE MAY EXPERIENCE
LOWER NET SALES, HIGHER INVENTORY MARKDOWNS AND LOWER MARGINS.

     Our products must appeal to a broad range of consumers whose preferences
cannot be predicted with certainty. These preferences are also subject to
change. Our success depends upon our ability to anticipate and respond in a
timely manner to trends in sporting goods merchandise and consumers'
participation in sports. If we fail to identify and respond to these changes,
our net sales may decline. In addition, because we often make commitments to
purchase products from our vendors up to six months in advance of the proposed
delivery, if we misjudge the market for our merchandise, we may over-stock
unpopular products and be forced to take inventory markdowns that could have a
negative impact on profitability.

                         RISKS RELATED TO THIS OFFERING

BECAUSE OF THEIR SIGNIFICANT STOCK OWNERSHIP, OUR OFFICERS, DIRECTORS AND A
SUBSTANTIAL STOCKHOLDER MAY BE ABLE TO EXERT SIGNIFICANT CONTROL OVER OUR FUTURE
DIRECTION.

     After this offering, our executive officers and directors, their affiliates
and a substantial stockholder will together control approximately      % of our
outstanding common stock. As a result, these stockholders, if they act together,
may be able to control, as a practical matter, all matters requiring our
stockholders' approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may delay,
prevent or deter a change in control, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of a sale of the
company or its assets and might adversely affect the market price of our common
stock.

THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE OFFERING
PRICE YOU PAY AND MAY BE VOLATILE.

     Prior to this offering, our common stock has not been sold in a public
market. After this offering, an active trading market in our common stock might
not develop. If an active trading market develops, it may not continue.
Moreover, if an active market develops, the trading price of our common stock
may fluctuate widely as a result of a number of factors, many of which are
outside our control. In addition, the stock market has experienced extreme price
and volume fluctuations that have affected the market prices of many companies.
These broad market fluctuations could adversely affect the market price of our
common stock. A significant decline in our stock price could result in
substantial losses for individual stockholders and could lead to costly and
disruptive securities litigation. If you purchase shares of our common stock in
this offering, you will pay a price that was not established in a competitive
market. Rather, you will pay a price that was negotiated with the
representatives of the underwriters based upon a number of factors. The price of
our common stock that will prevail in the market after this offering may be
higher or lower than the offering price.

SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK COULD BE SOLD IN THE NEAR FUTURE, WHICH
COULD DEPRESS OUR STOCK PRICE.

     Prior to this offering, there has been no public market for our common
stock. We cannot predict the effect, if any, that market sales of shares of
common stock or the availability of shares of common stock for sale will have on
the market price of our common stock prevailing from time to time. All of the
outstanding shares of common stock belonging to officers, directors and other
stockholders are currently "restricted securities" under the Securities Act.
Some of these shares will be included in the sale of shares in this offering.
The remaining shares are eligible for future sale in the public market at
prescribed times pursuant to Rule 144 under the Securities Act, or otherwise.
Sales of a significant number of these shares of common stock in the public
market could adversely affect the market price of the common stock.

                                        11
<PAGE>   16

     Green Equity Investors, L.P. owns 723,577 shares of our common stock and
has the right to require us to register the common stock held by it at any time
pursuant to a registration rights agreement entered into in 1992. In addition,
holders of 1,444,800 shares of our common stock will have piggyback registration
rights after the consummation of this offering. All of these holders, including
Green Equity Investors, L.P., have agreed not to sell or otherwise dispose of
any of their shares, other than those shares being sold in this offering, for a
period of 180 days after the consummation of this offering. If, upon the
expiration of the 180 days, Green Equity Investors, L.P. exercises its right to
require us to register its shares for resale, the market price of our common
stock could decline.

OUR ANTI-TAKEOVER PROVISIONS COULD PREVENT OR DELAY A CHANGE IN CONTROL OF OUR
COMPANY, EVEN IF SUCH CHANGE OF CONTROL WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

     Provisions of our amended and restated certificate of incorporation and
amended and restated bylaws as well as provisions of Delaware law could
discourage, delay or prevent a merger, acquisition or other change in control of
our company, even if such change in control would be beneficial to our
stockholders. These provisions include:

     - a board of directors that is classified such that only one-third of
       directors are elected each year;

     - authorizing the issuance of "blank check" preferred stock that could be
       issued by our board of directors to increase the number of outstanding
       shares and thwart a takeover attempt;

     - limitations on the ability of stockholders to call special meetings of
       stockholders;

     - prohibiting stockholder action by written consent and requiring all
       stockholder actions to be taken at a meeting of our stockholders; and

     - establishing advance notice requirements for nominations for election to
       the board of directors or for proposing matters that can be acted upon by
       stockholders at stockholder meetings.

     In addition, Section 203 of the Delaware General Corporations Law limits
business combination transactions with 15% stockholders that have not been
approved by the board of directors. These provisions and other similar
provisions make it more difficult for a third party to acquire us without
negotiation. These provisions may apply even if the transaction may be
considered beneficial by some stockholders.

INVESTORS WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF
THEIR INVESTMENT.

     The initial public offering price will be substantially higher than the net
tangible book value per share of the outstanding common stock. If you purchase
shares of our common stock, you will incur immediate and substantial dilution in
the amount of $     per share, based on an assumed initial public offering price
of $     per share, which is the mid-point of the initial public offering price
range set forth on the cover of this prospectus. This means that if we were to
be liquidated immediately after the offering, there may be no assets available
for distribution to you after satisfaction of all of our obligations to
creditors. Investors will incur additional dilution upon the exercise of the
outstanding warrant.

                                        12
<PAGE>   17

                           FORWARD-LOOKING STATEMENTS

     Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business", and elsewhere in this prospectus constitute
forward-looking statements. These statements involve risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential", "continue" or the negative of these terms or other comparable
terminology.

     Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
Except as required by law, we do not intend to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.

                                        13
<PAGE>   18

                                USE OF PROCEEDS

     We expect to receive approximately $78.1 million in net proceeds from the
sale of shares of our common stock in this offering based on the sale of
          million shares at an assumed initial public offering price of
$               per share, the mid-point of the initial public offering price
range set forth on the cover of this prospectus. If the underwriters exercise
their over-allotment option in full, we expect our net proceeds to be
approximately $87.4 million.

     We intend to use the net proceeds from this offering to:

     - redeem in full all of our 13.45% senior discount notes due 2008 for an
       aggregate redemption price of approximately $       million; and

     - redeem in full all outstanding shares of our redeemable Series A 13.45%
       senior exchangeable preferred stock for an aggregate redemption price of
       approximately $       million.

     If the underwriters do not exercise their over-allotment option, we intend
to draw upon our credit facility to fully fund these uses. If the underwriters
exercise their over-allotment option, any additional net proceeds to us will be
used to fund general corporate purposes. Pending application of the net proceeds
as described above, we intend to invest the net proceeds in short-term
investment grade securities.

     We will not receive any of the proceeds from the sale of shares by the
selling stockholders.

                                DIVIDEND POLICY

     We anticipate that we will retain all of our earnings in the foreseeable
future to finance the expansion of our business and, therefore, we do not
anticipate paying any cash dividends on our shares of common stock in the
foreseeable future. In addition, our credit facility and the indentures
governing our outstanding senior notes and senior discount notes place
limitations on our ability to pay dividends or make other distributions in
respect of our common stock. Our future dividend policy will also depend on the
requirements of any future financing agreements to which we may be a party and
other factors considered relevant by our board of directors, including the
General Corporation Law of the State of Delaware, which provides that dividends
are only payable out of surplus or current net profits.

                                        14
<PAGE>   19

                                 CAPITALIZATION

     The following table sets forth our capitalization as of July 1, 2001:

     - on an actual basis; and

     - on an as adjusted basis to give effect to the sale of           shares of
       our common stock in this offering at an assumed initial public offering
       price of $     per share, which is the mid-point of the initial public
       offering price range set forth on the cover of this prospectus, and the
       intended application of the net proceeds.

<Table>
<Caption>
                                                               AS OF JULY 1, 2001
                                                              ---------------------
                                                              ACTUAL    AS ADJUSTED
                                                              ------    -----------
                                                                   (UNAUDITED)
                                                              (DOLLARS IN MILLIONS)
<S>                                                           <C>       <C>
Total debt:
  Revolving credit facility(1)..............................  $ 53.3      $
  10.875% senior notes due 2007.............................   103.8
  13.45% senior discount notes due 2008.....................    23.0          --
                                                              ------      ------
Total debt..................................................   180.1
  Redeemable Series A 13.45% senior exchangeable preferred
     stock, $0.01 par value, authorized 350,000 shares;
     issued and outstanding 350,000 shares actual; no shares
     issued and outstanding as adjusted.....................    55.2          --
Stockholders' deficit:
  Preferred stock, $0.01 par value, authorized 1,150,000
     shares; no shares issued and outstanding actual; no
     shares issued and outstanding as adjusted..............      --          --
  Common stock, $0.01 par value per share, 5,000,000 shares
     authorized, 1,926,500 shares issued and outstanding,
     actual;           shares issued and outstanding as
     adjusted...............................................      --          --
  Additional paid-in capital................................    10.0
  Accumulated deficit.......................................   (97.8)
                                                              ------      ------
  Stockholders' deficit.....................................   (87.8)
                                                              ------      ------
Total capitalization........................................  $147.5      $
                                                              ======      ======
</Table>

- ---------------
(1) As of July 1, 2001, on an actual basis, there was $55.3 million available
    for additional borrowings under our revolving credit facility.

                                        15
<PAGE>   20

                                    DILUTION

     The net tangible book value of our common stock on July 1, 2001 was $
million, or approximately $     per share. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding. Dilution in net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of our common stock in this offering and the
net tangible book value per share of our common stock immediately afterwards.
After giving effect to the sale of shares at an assumed initial public offering
price of $     per share, which is the mid-point of the initial public offering
price range set forth on the cover of this prospectus, and after deducting
estimated underwriting discounts and commissions and offering expenses payable
by us, our net tangible book value at July 1, 2001 would have been approximately
$     million, or $     per share. This represents an immediate increase in net
tangible book value of $     per share to existing stockholders and an immediate
dilution in net tangible book value of $     per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this dilution on a per share basis:

<Table>
<S>                                                           <C>         <C>
Assumed initial public offering price per share.............              $
  Net tangible book value per share at July 1, 2001.........  $
  Increase per share attributable to this offering..........  $
As adjusted net tangible book value per share after this
  offering..................................................              $
Dilution per share to new investors.........................              $
</Table>

     The following table summarizes, on an as adjusted basis, as of
            , 2001, the total number of shares of our common stock, the total
consideration paid and the average price per share paid by existing stockholders
and by the new investors in this offering, calculated before deducting the
estimated underwriting discounts and commissions and offering expenses:

<Table>
<Caption>
                                             SHARES PURCHASED     TOTAL CONSIDERATION
                                            -------------------   -------------------   AVERAGE PRICE
                                             NUMBER    PERCENT     AMOUNT    PERCENT      PER SHARE
                                            --------   --------   --------   --------   -------------
<S>                                         <C>        <C>        <C>        <C>        <C>
Existing stockholders.....................
New investors.............................
  Total...................................
</Table>

     The foregoing discussion and tables assume no exercise by the underwriters
of their over-allotment option and no exercise of the outstanding warrant for
60,000 shares of our common stock that is exercisable at $0.01 per share.
               shares are reserved for issuance under our 2001 stock incentive
plan. To the extent the over-allotment option or the outstanding warrant is
exercised, or any shares under the 2001 stock incentive plan are issued, there
may be further dilution to new investors.

                                        16
<PAGE>   21

                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     The selected consolidated financial data for the fiscal year ended December
29, 1996 are derived from the unaudited financial statements of our predecessor,
Big 5 Corporation. The selected consolidated financial and other data for the
fiscal year ended December 28, 1997 are derived from our unaudited financial
statements. The selected data presented below under the captions "Statements of
Operations Data" and "Balance Sheet Data" for, and as of the end of, the fiscal
years ended January 3, 1999, January 2, 2000 and December 31, 2000 are derived
from our audited consolidated financial statements, which financial statements
have been audited by KPMG LLP, independent certified public accountants. The
consolidated financial statements as of January 2, 2000 and December 31, 2000,
and for each of the years ended January 3, 1999, January 2, 2000 and December
31, 2000, and the report thereon are included elsewhere in this prospectus. The
selected consolidated financial and other data for the 26 weeks ended July 2,
2000 and July 1, 2001 are derived from our unaudited consolidated financial
statements included elsewhere in this prospectus and include, in the opinion of
management, all adjustments necessary for a fair presentation of our financial
position and operating results for these periods and as of such date. Our
results for interim periods are not necessarily indicative of our results for a
full year's operations. You should read the following tables in conjunction with
the consolidated financial statements and accompanying notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus.

<Table>
<Caption>
                                                                         FISCAL YEARS(1)                        26 WEEKS ENDED
                                                       ----------------------------------------------------   -------------------
                                                                                                              JULY 2,    JULY 1,
                                                         1996       1997       1998       1999       2000       2000       2001
                                                       --------   --------   --------   --------   --------   --------   --------
                                                           (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S>                                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................................  $404,265   $443,541   $491,430   $514,324   $571,476   $266,983   $294,635
Cost of goods sold, buying and occupancy.............   277,116    298,893    330,243    341,852    377,040    175,701    193,190
                                                       --------   --------   --------   --------   --------   --------   --------
Gross profit.........................................   127,149    144,648    161,187    172,472    194,436     91,282    101,445
Selling and administrative...........................   101,053    113,433    122,057    131,222    144,703     71,108     78,788
Depreciation and amortization........................     9,578      8,176      8,890      9,479      9,340      4,646      5,144
                                                       --------   --------   --------   --------   --------   --------   --------
Operating income.....................................    16,518     23,039     30,240     31,771     40,393     15,528     17,513
Interest expense, net................................    11,482     12,879     22,975     21,574     22,008     11,063     10,181
                                                       --------   --------   --------   --------   --------   --------   --------
Income before income taxes and extraordinary gain....     5,036     10,160      7,265     10,197     18,385      4,465      7,332
Income taxes.........................................       970       (174)     2,838      4,000      7,324      1,820      3,032
                                                       --------   --------   --------   --------   --------   --------   --------
Income before extraordinary gain.....................     4,066     10,334      4,427      6,197     11,061      2,645      4,300
Extraordinary gain (loss) from early extinguishment
  of debt, net of income taxes.......................    (1,285)    (1,597)        79       (372)        87         87      1,600
                                                       --------   --------   --------   --------   --------   --------   --------
Net income...........................................     2,781      8,737      4,506      5,825     11,148      2,732      5,900
Redeemable preferred stock dividends.................     1,350      1,763      5,036      5,621      6,400      3,092      3,529
                                                       --------   --------   --------   --------   --------   --------   --------
Net income (loss) available to common stockholders...  $  1,431   $  6,974   $   (530)  $    204   $  4,748   $   (360)  $  2,371
                                                       ========   ========   ========   ========   ========   ========   ========
Earnings (loss) per share:
  Basic..............................................  $   0.36   $   1.87   $  (0.27)  $   0.11   $   2.46   $  (0.19)  $   1.23
                                                       ========   ========   ========   ========   ========   ========   ========
  Diluted............................................  $   0.32   $   1.67   $  (0.27)  $   0.10   $   2.39   $  (0.19)  $   1.19
                                                       ========   ========   ========   ========   ========   ========   ========
Shares used to calculate earnings per share:
  Basic..............................................     3,974      3,721      1,934      1,927      1,927      1,927      1,927
  Diluted............................................     4,429      4,177      1,934      1,987      1,987      1,927      1,987
STORE DATA:
Same store sales increase(2).........................       3.7%       6.6%       5.2%       2.0%       6.6%       5.6%       5.9%
Net sales per gross square foot(3)...................  $    185   $    196   $    206   $    203   $    217   $    104   $    108
End of period stores.................................       196        210        221        234        249        236        252
Average net sales per store(4).......................  $  2,090   $  2,218   $  2,324   $  2,285   $  2,405   $  1,154   $  1,193
OTHER FINANCIAL DATA:
Gross margin.........................................      31.5%      32.6%      32.8%      33.5%      34.0%      34.2%      34.4%
EBITDA(5)............................................  $ 26,096   $ 34,517   $ 39,130   $ 41,250   $ 49,733   $ 20,174   $ 22,657
EBITDA margin........................................       6.5%       7.8%       8.0%       8.0%       8.7%       7.6%       7.7%
Capital expenditures.................................  $  3,453   $  5,151   $  8,500   $ 13,075   $ 11,602   $  5,237   $  4,457
BALANCE SHEET DATA:
Cash and cash equivalents............................  $  4,797   $  1,364   $     --   $     --   $     --   $     --   $     --
Net working capital(6)...............................    70,428     80,299     66,873     71,289     69,427     81,882     83,693
Total assets.........................................   197,869    220,863    216,048    227,945    248,981    241,690    256,722
Total debt...........................................    86,450    198,286    176,591    178,446    172,098    187,349    180,127
Redeemable preferred stock...........................    20,756     35,000     39,866     45,408     51,721     48,462     55,199
Stockholders' equity (deficit).......................    11,099    (94,510)   (95,102)   (94,902)   (90,156)   (95,264)   (87,785)
</Table>

                                        17
<PAGE>   22

- ---------------
(1) Our fiscal year is the 52 or 53 week reporting period ending on the Sunday
    closest to the calendar year end. Fiscal 1998 consisted of 53 weeks as
    compared to 52 weeks for each of fiscal years 1996, 1997, 1999 and 2000.

(2) Same store sales data for a period presented reflect stores open throughout
    that period as well as the corresponding prior period.

(3) Net sales per gross square foot is calculated by dividing net sales for
    stores open the entire period by the total gross square footage for those
    stores.

(4) Average net sales per store is calculated by dividing net sales for stores
    open the entire period by total store count for stores open the entire
    period.

(5) EBITDA is operating income before depreciation and amortization and, in
    fiscal 1997, excludes non-recurring transaction-related expenses. EBITDA is
    not a measure of financial performance under generally accepted accounting
    principles, or GAAP. Although EBITDA should not be considered in isolation
    or as a substitute for net income, cash flows from operating activities and
    other income or cash flow statement data prepared in accordance with GAAP,
    or as a measure of profitability or liquidity, we understand that EBITDA is
    widely used by financial analysts as a measure of financial performance. Our
    calculation of EBITDA may not be comparable to similarly titled measures
    reported by other companies.

(6) Net working capital is defined as current assets less current liabilities.

                                        18
<PAGE>   23

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

     Throughout this section, our fiscal years ended January 3, 1999, January 2,
2000 and December 31, 2000 are referred to as 1998, 1999 and 2000, respectively.
The following discussion and analysis of our financial condition and results of
operations for 1998, 1999 and 2000 and the 26 weeks ended July 2, 2000 and July
1, 2001 should be read in conjunction with the financial statements and related
notes included elsewhere in this prospectus. Some of the information contained
in this discussion and analysis or set forth elsewhere in this prospectus,
including information with respect to our plans and strategies for our business,
includes forward-looking statements that involve risk and uncertainties. You
should review the "Risk Factors" set forth elsewhere in this prospectus for a
discussion of important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained herein.

OVERVIEW

     We are the leading sporting goods retailer in the western United States,
operating 252 stores in 10 states under the name "Big 5 Sporting Goods." We
provide a full-line product offering of over 25,000 stock keeping units in a
traditional sporting goods store format that averages 11,000 square feet. Our
product mix includes athletic shoes, apparel and accessories, as well as a broad
selection of outdoor and athletic equipment for team sports, fitness, camping,
hunting, fishing, tennis, golf, snowboarding and in-line skating. We believe
over the past 46 years we have developed a reputation with the competitive and
recreational sporting goods customer as a convenient neighborhood sporting goods
retailer that delivers consistent value on quality merchandise.

     Throughout our 46 year history, we have emphasized controlled growth. The
following table summarizes our store count for the periods presented:

<Table>
<Caption>
                                                                                   26 WEEKS ENDED
                                                             FISCAL YEAR         ------------------
                                                         --------------------    JULY 2,    JULY 1,
                                                         1998    1999    2000     2000       2001
                                                         ----    ----    ----    -------    -------
<S>                                                      <C>     <C>     <C>     <C>        <C>
BIG 5 SPORTING GOODS STORES
  Beginning of period..................................  210     221     234       234        249
  New stores(1)........................................   12      15      15         2          6
  Stores relocated.....................................   (1)     (1)     --        --         (3)
  Stores closed........................................   --      (1)     --        --         --
                                                         ---     ---     ---       ---        ---
  End of Period........................................  221     234     249       236        252
                                                         ===     ===     ===       ===        ===
</Table>

- ---------------
(1) Stores that are relocated during any period are classified as new stores.

BASIS OF REPORTING

     Net Sales

     Net sales consists of sales from all stores operated during the period
presented, net of merchandise returns. Same store sales for a period reflect net
sales from stores operated throughout that period as well as the corresponding
prior period. New store sales for a period reflect net sales from stores opened
in that period as well as net sales from stores opened during the prior fiscal
year. Stores that are relocated during any period are treated as new stores.

     Gross Profit

     Gross profit is comprised of net sales less all costs of sales, including
the cost of merchandise, inventory markdowns, inventory shrinkage, inbound
freight, distribution and warehousing, payroll for our buying personnel and
store occupancy costs. Store occupancy costs include rent, contingent rents,
common area maintenance and real estate property taxes.

                                        19
<PAGE>   24

     Selling and Administrative

     Selling and administrative includes store management and corporate
expenses, including non-buying personnel payroll, employment taxes, employee
benefits, management information systems, advertising, insurance, legal, store
pre-opening expenses and other corporate level expenses. Store pre-opening
expenses include store-level payroll, grand opening event marketing, travel,
supplies and other store opening expenses.

     Depreciation and Amortization

     Depreciation and amortization consists primarily of the depreciation of
leasehold improvements, fixtures and equipment owned by us, amortization of
leasehold interest and goodwill and non-cash rent expense.

RESULTS OF OPERATIONS

     The following table sets forth selected items from our statements of
operations as a percentage of our net sales for the periods indicated:

<Table>
<Caption>
                                                                                 26 WEEKS ENDED
                                                     FISCAL YEAR              --------------------
                                             ---------------------------      JULY 2,      JULY 1,
                                             1998       1999       2000        2000         2001
                                             -----      -----      -----      -------      -------
<S>                                          <C>        <C>        <C>        <C>          <C>
Net sales..................................  100.0%     100.0%     100.0%      100.0%       100.0%
Costs of sales.............................   67.2       66.5       66.0        65.8         65.6
                                             -----      -----      -----       -----        -----
  Gross profit.............................   32.8       33.5       34.0        34.2         34.4
Selling and administrative.................   24.8       25.5       25.3        26.6         26.8
Depreciation and amortization..............    1.8        1.8        1.6         1.7          1.7
                                             -----      -----      -----       -----        -----
  Operating income.........................    6.2        6.2        7.1         5.9          5.9
Interest expense, net......................    4.7        4.2        3.9         4.2          3.5
                                             -----      -----      -----       -----        -----
  Income before income tax expense.........    1.5        2.0        3.2         1.7          2.4
Income tax expense.........................    0.6        0.8        1.3         0.7          1.0
Extraordinary gain/(loss)..................    0.0       (0.1)       0.0         0.0          0.5
                                             -----      -----      -----       -----        -----
  Net income...............................    0.9%       1.1%       1.9%        1.0%         1.9%
                                             =====      =====      =====       =====        =====
</Table>

26 WEEKS ENDED JULY 1, 2001 COMPARED TO 26 WEEKS ENDED JULY 2, 2000

     Net Sales. Net sales increased by $27.6 million, or 10.4%, to $294.6
million in the first 26 weeks of 2001 from $267.0 million in the first 26 weeks
of 2000. This growth reflected an increase of $15.7 million in same store sales
and an increase of $13.3 million in new store sales. The remaining variance is
attributable to net sales from closed stores. Same store sales increased by 5.9%
in the first 26 weeks of 2001. The increase in same store sales was attributable
to higher net sales in the majority of our merchandise categories. New store
sales reflect the opening of 6 stores during the first 26 weeks of 2001 as well
as 15 new stores opened during 2000. As of July 1, 2001, we have realized 22
consecutive quarterly increases in same store sales over comparable prior
periods.

     Gross Profit. Gross profit increased by $10.1 million, or 11.1%, to $101.4
million in the first 26 weeks of 2001 from $91.3 million in the first 26 weeks
of 2000. Gross profit was 34.4% of net sales in the first 26 weeks of 2001
compared to 34.2% in the first 26 weeks of 2000. We achieved higher gross
margins primarily due to improved gross margins in the majority of our product
categories as well as increased same store sales that resulted in decreased
occupancy costs as a percentage of net sales.

     Selling and Administrative. Selling and administrative increased by $7.7
million, or 10.8%, to $78.8 million in the first 26 weeks of 2001 from $71.1
million in the first 26 weeks of 2000. The increase in selling and
administrative reflects an increase in our store base from 236 stores at July 2,
2000 to 252 at July 1, 2001. Selling and administrative was 26.8% of net sales
in the first 26 weeks of 2001 compared to

                                        20
<PAGE>   25

26.6% in the first 26 weeks of 2000. The increase in selling and administrative
on a percentage basis was due to one-time expenses related to training of our
store personnel for the completion of the rollout of our new point of sale
systems to all stores.

     Depreciation and Amortization. Depreciation and amortization increased by
$0.5 million, or 10.7%, to $5.1 million in the first 26 weeks of 2001 from $4.6
million in the first 26 weeks of 2000. The increase was primarily due to added
depreciation and amortization related to expenditures for the growth in our
store base, as well as depreciation related to expenditures for our new point of
sale system.

     Interest Expense, net. Interest expense, net decreased by $0.9 million, or
8.0%, to $10.2 million in the first 26 weeks of 2001 from $11.1 million in the
first 26 weeks of 2000. This decrease reflected lower average daily debt
balances during the first 26 weeks of 2001, in addition to lower average
interest rates related to our credit facility.

     Income Taxes. Provision for income taxes was $3.0 million for the first 26
weeks of 2001 and $1.8 million for the first 26 weeks of 2000. Our effective
income tax rate for the first 26 weeks of 2001 was 41.4% as compared to 40.8%
for the first 26 weeks of 2000. Income taxes are based on the estimated
effective tax rate for the entire fiscal year applied to the pre-tax income for
the period.

     Extraordinary Gain From Early Extinguishment of Debt. We incurred an
extraordinary gain of $1.6 million, net of taxes, for the first 26 weeks of
2001, in connection with the repurchase of $12.5 million face value of our
senior discount notes. We incurred an extraordinary gain of $0.1 million, net of
taxes, for the first 26 weeks of 2000, in connection with the repurchase of $7.8
million of our senior notes.

FISCAL 2000 COMPARED TO FISCAL 1999

     Net Sales. Net sales increased by $57.2 million, or 11.1%, to $571.5
million in 2000 from $514.3 million in 1999. This growth reflected an increase
of $33.3 million in same store sales and an increase of $21.6 million in new
store sales. The remaining variance is attributable to net sales from closed
stores. Same store sales increased by 6.6% in 2000. The increase in same store
sales was primarily attributable to higher net sales in the majority of our
merchandise categories led by growth in the exercise, skating (including
scooters), winter apparel, golf, water sports and snowboard equipment
categories. The increase in same store sales was in part due to a significant
increase in the sale of scooters during the second half of 2000. We do not
expect to realize comparable scooter sales volume in 2001. The increase in new
store sales reflected the opening of 15 stores during 2000 and 15 stores during
1999.

     Gross Profit. Gross profit increased by $21.9 million, or 12.7%, to $194.4
million in 2000 from $172.5 million in 1999. Gross profit was 34.0% of net sales
in 2000 compared to 33.5% in 1999. We were able to achieve higher gross margins
in the majority of our product categories in 2000.

     Selling and Administrative. Selling and administrative increased by $13.5
million, or 10.3%, to $144.7 million in 2000 from $131.2 million in 1999. The
increase was primarily due to the increase in our store count, added store labor
in response to positive sales trends and increases in advertising expenses
during particular periods of 2000. Selling and administrative was 25.3% of net
sales in 2000 compared to 25.5% in 1999. The decrease resulted from the 6.6%
increase in same store sales that allowed us to leverage certain costs included
in selling and administrative.

     Depreciation and Amortization. Depreciation and amortization decreased by
$0.2 million, or 1.5%, to $9.3 million in 2000 from $9.5 million in 1999. This
decrease resulted primarily from the completion in the fourth quarter of 1999 of
depreciation of fixed assets related to our original acquisition by Green Equity
Investors, L.P. and management in 1992 and a decrease in non-cash rent expense.
These decreases were partially offset by added depreciation and amortization
related to expenditures for the growth in our store base during 2000, with store
count growing from 234 at the end of 1999 to 249 at the end of 2000.

     Interest Expense, net. Interest expense, net increased by $0.4 million, or
2.0%, to $22.0 million in 2000 from $21.6 million in 1999. This increase was
primarily due to higher interest rates on our credit

                                        21
<PAGE>   26

facility in 2000 versus 1999 and accretion on our senior discount notes. This
increase was partially offset by lower average debt balances for our credit
facility and senior notes in 2000 versus 1999.

     Income Taxes. Provision for income taxes was $7.3 million in 2000 and $4.0
million in 1999. Our effective income tax rate for 2000 was 39.8% as compared to
39.2% for 1999.

     Extraordinary Gain From Early Extinguishment of Debt. We incurred an
extraordinary gain of $0.1 million, net of taxes in 2000, in connection with the
repurchase of $7.8 million of our senior notes. We incurred an extraordinary
loss of $0.4 million, net of taxes, in 1999, in connection with the repurchase
of $19.1 million of our senior notes and $2.5 million face value of our senior
discount notes.

FISCAL 1999 COMPARED TO FISCAL 1998

     Extra Week in 1998. Our fiscal year ends on the Sunday nearest to December
31 and generally results in a 52 week fiscal year. Fiscal 1998 included 53
weeks. For purposes of annual comparisons, unless otherwise noted, we have not
adjusted for this difference.

     Net Sales. Net sales increased by $22.9 million, or 4.7%, to $514.3 million
in 1999 from $491.4 million in 1998. This growth reflected an increase of $9.5
million in same store sales, an increase of $22.5 million in new store sales and
a decrease of $7.7 million related to the extra week of sales included in 1998's
53 week results. The remaining variance is attributable to net sales from closed
stores. Same store sales increased by 2.0% from 1998 to 1999. The increase in
same store sales was primarily attributable to strong sales of outdoor related
products. Unfavorable weather resulted in lower snowboard and winter apparel
sales during the year while the majority of our remaining categories showed
positive results for the year. The increase in new store sales reflected the
opening of 15 stores in 1999 and 12 stores in 1998.

     Gross Profit. Gross profit increased by $11.3 million, or 7.0%, to $172.5
million in 1999 from $161.2 million in 1998. Gross profit was 33.5% of net sales
in 1999 compared to 32.8% in 1998. We were able to achieve higher gross margins
in the majority of our product categories in 1999.

     Selling and Administrative. Selling and administrative increased by $9.2
million, or 7.5%, to $131.2 million in 1999 from $122.1 million in 1998. Selling
and administrative was 25.5% of net sales in 1999 compared to 24.8% in 1998. The
increase was primarily due to increases in store related expenses as well as
increases in advertising expenses during particular periods of 1999.

     Depreciation and Amortization. Depreciation and amortization increased by
$0.6 million, or 6.6%, to $9.5 million in 1999 from $8.9 million in 1998. The
increase was due primarily to added depreciation and amortization related to
expenditures for the growth in our store base during 1999, with store count
growing from 221 at the end of 1998 to 234 at the end of 1999.

     Interest Expense, net. Interest expense, net decreased by $1.4 million, or
6.1%, to $21.6 million in 1999 from $23.0 million in 1998. This decrease was
primarily due to lower average debt balances during 1999 versus 1998.

     Income Taxes. Provision for income taxes was $4.0 million in 1999 and $2.8
million in 1998. Our effective income tax rate for 1999 was 39.2% as compared to
39.1% for 1998.

     Extraordinary Loss From Early Extinguishment of Debt. We incurred an
extraordinary loss of $0.4 million, net of taxes in 1999, in connection with the
repurchase of $19.1 million of our senior notes and $2.5 million face value of
our senior discount notes. We incurred an extraordinary gain of $0.1 million,
net of taxes in 1998, in connection with the repurchase of $5.0 million face
value of our senior discount notes.

                                        22
<PAGE>   27

UNAUDITED QUARTERLY OPERATING RESULTS

     The following table sets forth, for the periods indicated, our results of
operations and selected items in our consolidated statements of operations as a
percentage of total year results and as a percentage of net sales. The
information for each of these quarters is unaudited and has been prepared on the
same basis as our audited financial statements appearing elsewhere in this
prospectus. In the opinion of our management, all necessary adjustments,
consisting only of normal recurring adjustments, have been included to present
fairly the unaudited quarterly results when read in conjunction with our audited
consolidated financial statements and the related notes appearing elsewhere in
this prospectus.
<Table>
<Caption>
                                                     FISCAL 1999                      FISCAL 2000
                                      -----------------------------------------   -------------------
                                         Q1         Q2         Q3         Q4         Q1         Q2
                                      --------   --------   --------   --------   --------   --------
                                                          (DOLLARS IN THOUSANDS)
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
Results of operations:
 Net sales..........................  $117,097   $125,579   $131,440   $140,208   $129,712   $137,271
 Gross profit.......................    38,269     43,857     43,040     47,306     42,888     48,394
 Selling and administrative.........    31,823     32,787     33,820     32,792     34,941     36,167
 Depreciation and amortization......     2,380      2,335      2,386      2,378      2,329      2,317
                                      --------   --------   --------   --------   --------   --------
 Operating income...................     4,066      8,735      6,834     12,136      5,618      9,910
 Net income.........................      (837)     1,880        500      4,282        134      2,598
Same store sales increase...........       0.8%       1.1%       2.9%       3.5%       6.2%       5.0%
Percentage of total year:(1)
 Net sales..........................      22.8%      24.4%      25.6%      27.3%      22.7%      24.0%
 Operating income...................      12.8%      27.5%      21.5%      38.2%      13.9%      24.5%
Percentage of net sales:
 Gross profit.......................      32.7%      34.9%      32.7%      33.7%      33.1%      35.3%
 Selling and administrative.........      27.2%      26.1%      25.7%      23.4%      26.9%      26.3%
 Operating income...................       3.5%       7.0%       5.2%       8.7%       4.3%       7.2%

<Caption>
                                          FISCAL 2000           FISCAL 2001
                                      -------------------   -------------------
                                         Q3         Q4         Q1         Q2
                                      --------   --------   --------   --------
                                               (DOLLARS IN THOUSANDS)
<S>                                   <C>        <C>        <C>        <C>
Results of operations:
 Net sales..........................  $146,169   $158,324   $143,179   $151,456
 Gross profit.......................    48,913     54,241     47,837     53,609
 Selling and administrative.........    37,060     36,535     38,252     40,537
 Depreciation and amortization......     2,325      2,369      2,574      2,570
                                      --------   --------   --------   --------
 Operating income...................     9,528     15,337      7,011     10,502
 Net income.........................     2,422      5,994      2,643      3,257
Same store sales increase...........       7.2%       8.1%       6.1%       5.8%
Percentage of total year:(1)
 Net sales..........................      25.6%      27.7%        NA         NA
 Operating income...................      23.6%      38.0%        NA         NA
Percentage of net sales:
 Gross profit.......................      33.5%      34.3%      33.4%      35.4%
 Selling and administrative.........      25.4%      23.1%      26.7%      26.8%
 Operating income...................       6.5%       9.7%       4.9%       6.9%
</Table>

- ---------------
(1) Percentages may not add to 100.0% due to rounding.

     We have experienced, and expect to continue to experience, fluctuations in
our quarterly operating results. Although there are numerous factors that can
contribute to these fluctuations, the principal factor is seasonality in the
fourth fiscal quarter, which includes a seasonal weather change from fall to
winter, the holiday selling season and the peak winter sports selling season.

LIQUIDITY AND CAPITAL RESOURCES

     Our principal liquidity requirements are for working capital and capital
expenditures. We fund our liquidity requirements with cash flow from operations
and borrowings under our credit facility.

     Net cash used in operating activities for the 26 weeks ended July 1, 2001
and July 2, 2000 was $3.6 million and $4.6 million. The decrease in cash used in
operating activities primarily reflects improved earnings and working capital
management during the first 26 weeks of 2001. Net cash provided by operating
activities for the years 2000, 1999 and 1998 was $20.0 million, $16.5 million
and $29.8 million. The increase in 2000 versus 1999 primarily reflected higher
earnings and working capital management. The decrease in 1999 versus 1998
primarily reflected higher inventory levels and lower payables.

     Capital expenditures for the 26 weeks ended July 1, 2001 and July 2, 2000
were $4.5 million and $5.2 million. Capital expenditures for the years 2000,
1999 and 1998 were $11.6 million, $13.1 million and $8.5 million. The variances
were primarily attributable to the opening of new stores as well as timing of
expenditures related to our new point of sale store register systems. We
expended $0.5 million on hardware and software to complete this project during
the 26 weeks ended July 1, 2001, $2.2 million in 2000 and $2.5 million in 1999.
We expect capital expenditures for the remaining 26 weeks of 2001 will range
from approximately $4.5 million to $5.5 million, primarily to fund the opening
of approximately 7 to 9 new stores, store maintenance and remodels, warehouse
and headquarters maintenance and systems related expenditures.

     Net cash provided by financing activities for the 26 weeks ended July 1,
2001 and July 2, 2000 was $8.0 million and $9.8 million. Net cash used in
financing activities for the years 2000, 1999 and 1998 was

                                        23
<PAGE>   28

$8.4 million, $3.4 million and $22.6 million in each year. In connection with
our 1997 recapitalization, we received cash proceeds of $24.2 million from the
issuance of $48.2 million face value of senior discount notes and cash proceeds
of $130.4 million from the issuance of $131.0 million face value of senior
notes. We repurchased $5.0 million face value of our senior discount notes
during 1998. We repurchased $19.1 million of our senior notes and $2.5 million
face value of our senior discount notes during 1999. We repurchased $7.8 million
of our senior notes during 2000. During the 26 weeks ended July 1, 2001, we
repurchased $12.5 million face value of our senior discount notes. At July 1,
2001, we had $55.3 million available for additional borrowings under our credit
facility.

     We believe we will be able to fund our future cash requirements for
operations from operating cash flows, cash on hand and borrowings under our
credit facility. We believe these sources of funds will be sufficient to
continue our operations and planned capital expenditures and satisfy our
scheduled payments under debt obligations for at least the next twelve months.
However, our ability to satisfy such obligations depends upon our future
performance, which, in turn, is subject to general economic conditions and
regional risks, and to financial, business and other factors affecting our
operations, including factors beyond our control.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

     On July 20, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets. These new pronouncements significantly change the permissible
accounting methods for business combinations and the treatment of goodwill and
other intangible assets. Prior to the adoption of these new standards, goodwill
and similar intangible assets were generally amortized into income on a stated
periodic basis. This treatment will be replaced by an alternative system, which
will not require intangible amortization on a stated basis but rather will
require periodic testing of the intangible for impairment, with no charge to
income except to the extent of any such impairment. We are required to adopt the
provisions of SFAS No. 141 immediately and SFAS No. 142 effective January 1,
2002, at which time we will cease to record periodic goodwill charges absent an
impairment charge. As of July 1, 2001, we had recorded $4.6 million of goodwill
on our consolidated balance sheet. The adoption of SFAS Nos. 141 and 142 is not
expected to have a material effect on the Company's financial position or
results of operations.

IMPACT OF INFLATION

     We do not believe that inflation has a material impact on our earnings from
operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     We are subject to risks resulting from interest rate fluctuations since
interest on our borrowings under our credit facility are based on variable
rates. If the LIBOR rate were to increase 1.0% in 2001 as compared to the rate
at December 31, 2000, our interest expense for 2001 would increase $0.4 million
based on the outstanding balance of our credit facility at December 31, 2001. We
do not hold any derivative instruments and do not engage in hedging activities.

                                        24
<PAGE>   29

                                    BUSINESS

OVERVIEW

     We are the leading sporting goods retailer in the western United States,
operating 252 stores in 10 states under the name "Big 5 Sporting Goods." We
provide a full-line product offering of over 25,000 stock keeping units in a
traditional sporting goods store format that averages 11,000 square feet. Our
product mix includes athletic shoes, apparel and accessories, as well as a broad
selection of athletic equipment for team sports, fitness, camping, hunting,
fishing, tennis, golf, snowboarding and in-line skating.

     We believe that over the past 46 years we have developed a reputation with
the competitive and recreational sporting goods customer as a convenient
neighborhood sporting goods retailer that delivers consistent value on quality
merchandise. Our stores carry a wide range of products at competitive prices
from well-known brand name manufacturers, including Nike, Reebok, adidas, New
Balance, Wilson, Spalding and Columbia. We also offer brand name merchandise
produced exclusively for us, private label merchandise and specials on quality
items we purchased through opportunistic buys of vendor over-stock and close-out
merchandise. We reinforce our value reputation through weekly print advertising
in major and local newspapers and mailers designed to generate customer traffic,
drive net sales and build brand awareness.

     Robert W. Miller, our Chairman, co-founded our company in 1955 with the
establishment of five retail locations in California. We sold World War II
surplus items until 1963, when we began focusing exclusively on sporting goods
and changed our trade name to "Big 5 Sporting Goods." In 1971, we were acquired
by Thrifty Corporation, which was subsequently purchased by Pacific Enterprises.
In 1992, management bought our company in conjunction with Green Equity
Investors, L.P., an affiliate of Leonard Green & Partners, L.P. In 1997, Robert
W. Miller, Steven G. Miller and Green Equity Investors, L.P. recapitalized our
company so that the majority of our common stock would be owned by our
management and employees.

     Our accumulated management experience and expertise in sporting goods
merchandising, advertising, operations and store development have enabled us to
generate consistent, profitable growth. As of July 1, 2001, we have realized 22
consecutive quarterly increases in same store sales over comparable prior
periods. All but one of our stores have generated positive store-level operating
profit in each of the past five fiscal years. For the twelve months ended July
1, 2001, we generated net sales of $599.1 million and EBITDA of $52.2 million.
From 1996 through the twelve months ended July 1, 2001, our net sales and EBITDA
increased at compounded annual growth rates of 9.1% and 16.7%. We believe our
success can be attributed to one of the most experienced management teams in the
sporting goods industry, a value-based, execution-driven operating philosophy, a
controlled growth strategy and a proven business model.

OUR STRENGTHS

     We believe we have been successful due to the following competitive
strengths:

     LEADING POSITION IN ESTABLISHED MARKETS. We are the market leader in the
western United States, operating almost four times as many stores in California,
and more than twice as many stores in each of Washington, Oregon, Arizona and
Nevada, as any of our full-line sporting goods competitors. This deep
penetration of our established markets results in high customer awareness of the
Big 5 Sporting Goods name and frequent visits to our conveniently located
stores. More sporting goods shoppers identified Big 5 Sporting Goods as the
place they purchased sporting goods in the greater Los Angeles area than any
other store, according to the most recent Los Angeles Times Sporting Goods
Survey. The survey included specialty sporting goods stores such as Foot Locker
and Champs, mass merchandisers such as Target and Kmart, and local sporting
goods superstores such as Sport Chalet and Sportmart. Surveys in several of our
other major metropolitan markets confirm our leading position as a preferred
shopping destination for sporting goods.

                                        25
<PAGE>   30

     PROVEN STORE FORMAT. Our typical store averages 11,000 square feet, is
conveniently located near our target customers in either a free-standing
location or a multi-store shopping center and is designed to minimize operating
and maintenance costs. Our format enables us to have substantial flexibility
regarding new store locations. We have successfully operated stores in major
metropolitan areas and in areas with as few as 60,000 people. Our format
differentiates us from superstores that typically average over 35,000 square
feet, require larger target markets, are more expensive to operate and require
higher net sales per store for profitability. Our format has also resulted in
productivity that we believe is among the highest of any full-line sporting
goods retailer, with net sales per gross square foot of approximately $220 for
the twelve months ended July 1, 2001.

     SUPERIOR MERCHANDISING CAPABILITIES. We have developed considerable
expertise in identifying, stocking and selling a broad assortment of full-line
sporting goods at competitive prices. We differentiate our product offering by
editing our assortment to carry an extensive range of categories but only a
selected number of different products in any one category. This effective
merchandise mix allows us to offer attractive values to our customers while
providing our customers the ability to comparison shop within a category. Our
merchandise mix also allows us to minimize inventory levels and maximize shelf
space for items we believe will provide attractive returns on investment. Our
buyers average 18 years of experience with us and work closely with senior
management to determine product selection, promotion and pricing. In addition to
our buyers' experience, we utilize an integrated merchandising, distribution,
point of sale and financial information system to continuously improve our
merchandise mix, pricing strategy, advertising effectiveness and inventory
levels.

     EXTENSIVE ADVERTISING PROGRAMS AND EXPERTISE. Through years of targeted
advertising, we have solidified our reputation for offering quality products at
attractive prices. We have advertised almost exclusively through weekly print
advertisements since 1955. We typically utilize four-page color advertisements
to highlight promotions across our merchandise categories. We believe our print
advertising, which includes the weekly distribution of over 12.5 million
newspaper inserts and mailers, consistently reaches more households in our
established markets than that of our full-line sporting goods competitors. The
consistency and reach of our print advertising programs drive sales and create
high customer awareness of the name Big 5 Sporting Goods.

     SIGNIFICANT MANAGEMENT EXPERIENCE. We believe the experience, commitment
and tenure of our professional staff provide a substantial competitive
advantage. We were co-founded in 1955 by Robert W. Miller, currently our
Chairman, and are managed today by his son, Steven G. Miller, our President and
Chief Executive Officer who has worked at our company for 32 years. Our
senior-level managers have worked at our company for an average of 28 years. We
spend significant time and resources developing our personnel and typically seek
to fill positions through internal promotion. The tenure of our management and
the scope of their accumulated experience has resulted in valuable expertise
regarding our markets, store-level operations, merchandising and advertising.

     CONSISTENT GROWTH AND STRONG CASH FLOW. We have been able to generate
consistent growth, expand margins and increase our profitability because of our
extensive experience, our proven strategy and steady execution of our business
model. Our consistent net sales growth combined with improved purchasing,
inventory management and economies of scale have enabled us to increase our
gross margin from 31.5% in fiscal 1996 to 34.0% in fiscal 2000 and our EBITDA
margin from 6.5% in fiscal 1996 to 8.7% in fiscal 2000. Our EBITDA growth
combined with our strict management of working capital and low maintenance
capital expenditure requirements have resulted in strong cash flow.

     STRONG RETURNS ON NEW STORE OPENINGS. Throughout our history, we have
sought to expand with the addition of new stores through a disciplined strategy
of controlled growth. We have typically utilized cash generated by our
operations to invest in new stores. New store openings represent attractive
investment opportunities due to the relatively low investment required and the
relatively short time in which our new stores become profitable. Based on our
operating experience, a new store typically achieves store-level cash-on-cash
returns of approximately 35% to 40% in its first full fiscal year of operation.

                                        26
<PAGE>   31

OUR STRATEGY

     Our objective is to build upon these competitive strengths to profitably
grow our business and further advance our position as the leading sporting goods
retailer in the western United States. We intend to accomplish this by:

     CONTINUING OUR DEDICATED FOCUS ON EXECUTION. Our accumulated management
experience and expertise in sporting goods merchandising, advertising,
operations and store development have enabled us to generate consistent,
profitable growth. Our experienced management team has a dedicated focus on the
day-to-day execution of our business model, which has been developed and
enhanced over the past 46 years. We intend to continue this focus to further
improve our business and operations.

     PROFITABLY EXPANDING OUR STORE BASE. Due to the flexibility of our proven
store format, we believe we have numerous expansion opportunities in both new
and existing markets. We plan to expand our store base by identifying
high-traffic locations where we can take advantage of our name recognition,
leverage our advertising and distribution costs, and capitalize on our
economical store format to generate strong growth and returns. We have opened 6
new stores in the first half of fiscal 2001, including 3 store relocations, and
we expect to open an additional 7 to 9 new stores in the second half of fiscal
2001. Beginning in fiscal 2002, we expect to open 15 to 20 new stores per year.

     GENERATING NET SALES GROWTH THROUGH OUR DISTINCTIVE MERCHANDISE MIX AND
ADVERTISING PROGRAMS. We have realized 22 consecutive quarterly increases in
same store sales over comparable prior periods. We intend to continue our
consistent growth in net sales by continuously improving our distinctive
merchandise mix and advertising programs. Through effective merchandising,
strategic market positioning and compelling advertising, we believe we can
continue to increase net sales at existing stores by increasing both the
frequency of customer visits and our customers' average transaction size.

     ENHANCING PROFITABILITY THROUGH INCREASED OPERATING EFFICIENCIES. We intend
to enhance profitability by continuously improving our operating efficiencies
and by leveraging our operating expenses over a larger store base. We believe as
we continue to expand our store base, especially by opening additional stores in
established markets, we will continue to realize economies of scale in
distribution, advertising, purchasing and corporate expenses.

OUR STORES

     Throughout our history, we have focused on operating traditional, full-line
sporting goods stores. Our stores generally range from 8,000 to 15,000 square
feet and average 11,000 square feet. Our typical store is located in either
free-standing street locations or multi-store shopping centers. Our numerous
convenient locations and store format encourage frequent customer visits. In
fiscal 2000, we processed approximately 17 million sale transactions, and our
average transaction size was approximately $34.

     Our store format results in productivity levels that are among the highest
of any full-line sporting goods retailer. In the twelve months ended July 1,
2001, we generated net sales per gross square foot of approximately $220. Our
high net sales per square foot combined with our efficient store-level
operations and low store maintenance costs allow us to generate consistently
strong store-level returns. All but one of our stores open at least one year
have generated positive store-level operating profit in each of the past five

                                        27
<PAGE>   32

fiscal years. In addition, we have never needed to close a store due to poor
performance. The following table details our store locations as of July 1, 2001:

<Table>
<Caption>
                                                            YEAR       # OF     % OF TOTAL
                         REGIONS                           ENTERED    STORES    STORE BASE
                         -------                           -------    ------    ----------
<S>                                                        <C>        <C>       <C>
California:
  Southern California....................................   1955        88         34.9%
  Northern California....................................   1971        71         28.2
                                                                       ---        -----
     Total California....................................              159         63.1
Washington...............................................   1984        28         11.0
Arizona..................................................   1993        16          6.3
Oregon...................................................   1995        15          6.0
Texas....................................................   1995        10          4.0
New Mexico...............................................   1995         7          2.8
Nevada...................................................   1978         7          2.8
Utah.....................................................   1998         5          2.0
Idaho....................................................   1993         4          1.6
Colorado.................................................   2001         1          0.4
                                                                       ---        -----
     Total...............................................              252        100.0%
                                                                       ===        =====
</Table>

EXPANSION AND STORE DEVELOPMENT

     Throughout our operating history, we have sought to expand our business
with the addition of new stores through a disciplined strategy of controlled
growth. Our expansion within and beyond California has been systematic and
designed to capitalize on our name recognition, economical store format and
economies of scale related to distribution and advertising. Over the past four
fiscal years, we have opened 56 stores, an average of 14 new stores annually, of
which 70% were outside of California. The following table illustrates the
results of our expansion program during the periods indicated:

<Table>
<Caption>
                                            NEW STORES
                                  ------------------------------
                                                 OTHER               STORES      STORES    # OF STORES AT
              YEAR                CALIFORNIA    MARKETS    TOTAL    RELOCATED    CLOSED      PERIOD END
              ----                ----------    -------    -----    ---------    ------    --------------
<S>                               <C>           <C>        <C>      <C>          <C>       <C>
1997............................      6            8        14        --          --            210
1998............................      3            9        12       (1)          --            221
1999............................      3           12        15       (1)         (1)            234
2000............................      5           10        15        --          --            249
Year to date 2001(1)............      2            4         6       (3)          --            252
</Table>

- -------------------------
(1) As of July 1, 2001.

     Our format enables us to have substantial flexibility regarding new store
locations. We have successfully operated stores in major metropolitan areas and
in areas with as few as 60,000 people. Our format differentiates us from
superstores that typically average over 35,000 square feet, require larger
target markets, are more expensive to operate and require higher net sales per
store for profitability.

     New store openings represent attractive investment opportunities due to the
relatively low investment required and the relatively short time in which our
stores become profitable. Our store format requires investments of approximately
$350,000 in fixtures and equipment and approximately $400,000 in net working
capital with limited pre-opening and real estate expenses due to our leased,
"build-to-suit" locations. We seek to maximize new store performance by staffing
new store management with experienced personnel from our existing stores. Based
on our operating experience, a new store typically achieves store-level
cash-on-cash returns of approximately 35% to 40% in its first full fiscal year
of operation.

                                        28
<PAGE>   33

     Our in-house store development personnel, who have opened an average of 12
stores during each of the past 10 years, analyze new store locations with the
assistance of real estate firms that specialize in retail properties. We have
identified numerous expansion opportunities to further penetrate our established
markets, develop recently entered markets and expand into new contiguous markets
with attractive demographic, competitive and economic profiles. We have opened 6
new stores in the first half of fiscal 2001, including 3 store relocations, and
we expect to open an additional 7 to 9 new stores in the second half of fiscal
2001. Beginning in fiscal 2002, we expect to open 15 to 20 new stores per year.

MANAGEMENT EXPERIENCE

     We believe the experience, commitment and tenure of our professional staff
drives our superior execution and strong operating performance and gives us a
substantial competitive advantage. The table below describes the tenure of our
professional staff in some of our key functional areas:

<Table>
<Caption>
                                                     NUMBER OF    AVERAGE # OF     AVERAGE
                                                     EMPLOYEES    YEARS WITH US      AGE
                                                     ---------    -------------    -------
<S>                                                  <C>          <C>              <C>
Senior Management..................................       7            28            54
Vice Presidents....................................      10            23            51
Buyers.............................................      13            18            45
Store District/Division Supervisors................      26            20            44
Store Managers.....................................     252             9            35
</Table>

MERCHANDISING

     We target the competitive and recreational sporting goods customer with a
full-line product offering at a wide variety of price points. We offer over
25,000 stock keeping units in a product mix that includes athletic shoes,
apparel and accessories, as well as a broad selection of outdoor and athletic
equipment for team sports, fitness, camping, hunting, fishing, tennis, golf,
snowboarding and in-line skating. As a key element of our long history of
success, we offer consistent value to consumers by offering a distinctive
merchandise mix that includes a combination of well-known brand name
merchandise, merchandise produced exclusively for us under a manufacturer's
brand name, private label merchandise and specials on quality items we purchased
through opportunistic buys of vendor over-stock and close-out merchandise.

     We believe we enjoy significant advantages in making opportunistic buys of
vendor over-stock and close-out merchandise because of our strong vendor
relationships and rapid decision-making process. Although vendor over-stock and
close-out merchandise typically represent only approximately 15% of our net
sales, our weekly advertising highlights these items together with merchandise
produced exclusively for us under a manufacturer's brand name in order to
reinforce our reputation as a retailer that offers attractive values to our
customers.

     The following table illustrates our mix of hard and soft goods as a percent
of net sales:

<Table>
<Caption>
                                                                    FISCAL YEAR
                                                              -----------------------
                                                              1998     1999     2000
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Soft goods
  Athletic and sport apparel................................   16.2%    15.0%    15.7%
  Athletic and sport footwear...............................   32.5     31.3     29.8
                                                              -----    -----    -----
     Total soft goods.......................................   48.7     46.3     45.5
Hard goods..................................................   51.3     53.7     54.5
                                                              -----    -----    -----
     Total..................................................  100.0%   100.0%   100.0%
                                                              =====    =====    =====
</Table>

                                        29
<PAGE>   34

     We purchase our popular branded merchandise from an extensive list of major
sporting goods equipment, athletic footwear and apparel manufacturers. Below is
a selection of some of the brands we carry:

<Table>
<S>            <C>       <C>                  <C>               <C>
adidas         Coleman   Hillerich & Bradsby  Prince            Saucony
Asics          Columbia  Icon (ProForm)       Rawlings          Shimano
Bauer          Crosman   JanSport             Razor             Spalding
Bausch & Lomb  Easton    K2                   Reebok            Speedo
Bike Athletic  Everlast  Lifetime             Remington         Timex
Browning       Fila      Mizuno               Rockport          Titleist
Bushnell       Franklin  New Balance          Rollerblade       Wilson
Casio          Head      Nike                 Russell Athletic  Zebco
</Table>

     We also offer a variety of private label merchandise to complement our
branded product offerings. Our private label items include shoes, apparel, golf
equipment, binoculars, camping equipment and fishing supplies. Private label
merchandise is sold under the labels Fives, Court Casuals, Sport Essentials,
Rugged Exposure, Golden Bear, Pacifica, South Bay and Kemper, which is licensed
from a third party.

     Through our 46 years of experience across different demographic, economic
and competitive markets, we have refined our merchandising strategy to increase
net sales by offering a selection of products that meets customer demands while
effectively managing inventory levels. In terms of category selection, we
believe our merchandise offering compares favorably to our competitors,
including the superstores. Our edited selection of products enables customers to
comparison shop without being overwhelmed by a large number of different
products in any one category. We further tailor our merchandise selection on a
store-by-store basis in order to satisfy each region's specific needs and
seasonal buying habits.

     Our 13 buyers, who average 18 years of experience with us, work closely
with senior management to determine the product selection, promotion and pricing
of our merchandise mix. Management utilizes an integrated merchandising,
distribution, point of sale and financial information system to continuously
refine our merchandise mix, pricing strategy, advertising effectiveness and
inventory levels to best serve the needs of our customers.

ADVERTISING

     Through years of targeted advertising, we have solidified our reputation
for offering quality products at attractive prices. We have advertised almost
exclusively through weekly print advertisements since 1955. We typically utilize
four-page color advertisements to highlight promotions across our merchandise
categories. We believe our print advertising, which includes the weekly
distribution of over 12.5 million newspaper inserts or mailers, consistently
reaches more households in our established markets than that of our full-line
sporting goods competitors. The consistency and reach of our print advertising
programs drive sales and create high customer awareness of the name Big 5
Sporting Goods.

     We use our professional in-house advertising staff rather than an outside
advertising agency to generate our advertisements, including design, layout,
production and media management. Our in-house advertising department provides
management the flexibility to react quickly to merchandise trends and to
maximize the effectiveness of our weekly inserts and mailers. We utilize
demographic tools that give us the ability to effectively target different
population zones for our advertising expenditures. We place inserts in over 120
newspapers throughout our markets, supplemented in many areas by mailer
distributions to create market saturation.

VENDOR RELATIONSHIPS

     We have developed strong vendor relationships over the past 46 years. In
the twelve months ended July 1, 2001, no single vendor represented greater than
7.0% of total purchases. We believe current relationships with our vendors are
good. We benefit from the long-term working relationships that our senior
management and our buyers have carefully nurtured throughout our history.

                                        30
<PAGE>   35

MANAGEMENT INFORMATION SYSTEMS

     We have fully integrated management information systems that track, on a
daily basis, point of sale information, inventory receiving and distribution,
merchandise movement and financial information. The management information
systems provide us with valuable inventory tracking information through store-
level perpetual inventories. The management information system also includes a
local area network that connects all corporate users to electronic mail,
scheduling and the host system. The host system and our stores are linked by a
network that provides satellite communications for credit card, in-house tender
authorization, and daily polling of sales and merchandise movement at the store
level. In our distribution center, radio frequency terminals are used in the
areas of receiving, stock put-away, stock movement, order filling, cycle
counting and inventory management. At our stores, we use hand-held terminals to
assist in receiving, transfers and maintenance of perpetual inventories.

     Our point of sale system uses state of the art IBM hardware based on a
Microsoft Windows NT operating system that enables us to use a variety of
readily available Windows applications in conjunction with the software that
drives the system. The point of sale system uses satellite communications to
verify credit cards and checks and to provide corporate data exchange. We
completed the roll-out of this new system to each of our stores during the first
half of 2001. We believe our management information systems are efficiently
supporting our current operations and provide a foundation for future growth.

DISTRIBUTION

     We maintain a 440,000 square foot leased distribution center in Fontana,
California that services all of our stores. The distribution center is fully
integrated with our management information systems that provide warehousing and
distribution capabilities. The distribution center was constructed in 1990 and
warehouses the majority of the merchandise carried in our stores. We estimate
that 98% of all store merchandise is received from this distribution center. We
distribute merchandise from the distribution center to our stores at least once
a week, Monday through Saturday, using a fleet of 28 leased and two owned
tractors, and 12 leased and 66 owned trailers, as well as contract carriers. Our
lease for the distribution center has an initial term that expires in 2006 and
includes three additional five-year renewal options. Based on our expected net
sales and store growth, we plan to replace our existing distribution center
during the next two to three years.

INDUSTRY AND COMPETITION

     The retail market for sporting goods is highly competitive. In general, our
competitors tend to fall into the following five basic categories:

     Traditional Sporting Goods Stores. This category consists of traditional
sporting goods chains, including us. These stores range in size from 5,000 to
20,000 square feet and are frequently located in regional malls and multi-store
shopping centers. The traditional chains typically carry a varied assortment of
merchandise and attempt to position themselves as convenient neighborhood
stores. Sporting goods retailers operating stores within this category include
Hibbett's and Modell's.

     Mass Merchandisers. This category includes discount retailers such as
Wal-Mart, Target and Kmart and department stores such as Sears. These stores
range in size from approximately 50,000 to 200,000 square feet and are primarily
located in regional malls, shopping centers or free-standing sites. Sporting
goods merchandise and apparel represent a small portion of the total merchandise
in these stores and the selection is often more limited than in other sporting
goods retailers. Although generally price competitive, discount and department
stores typically have limited customer service in their sporting goods
departments.

     Specialty Sporting Goods Stores. This category consists of two groups. The
first group generally includes athletic footwear specialty stores that are
typically 2,000 to 20,000 square feet in size and are located in shopping malls.
Examples include retail chains such as Foot Locker, Lady Foot Locker and The
Athlete's Foot. These retailers are highly focused, with most of their sales
coming from athletic footwear and team licensed apparel. The second group
consists of pro shops and stores specializing in a particular

                                        31
<PAGE>   36

sport or recreation. This group includes backpacking and mountaineering
specialty stores and golf shops. Prices at specialty stores tend to be higher
than prices at the sporting goods superstores and traditional sporting goods
stores.

     Sporting Goods Superstores. Stores in this category typically are larger
than 35,000 square feet and tend to be freestanding locations. These stores
emphasize high volume sales and a large number of stock keeping units. Examples
include The Sports Authority, Sport Chalet and Gart Sports Company.

     Internet Retailers. This category consists of numerous retailers that sell
a broad array of new and used sporting goods products via the internet.

     We compete successfully with each of the competitors discussed above by
focusing on what we believe are the primary factors of competition in the
sporting goods retail industry. These factors include experienced and
knowledgeable personnel, customer service, breadth, depth, price and quality of
merchandise offered, advertising, purchasing and pricing policies, effective
sales techniques, direct involvement of senior officers in monitoring store
operations, management information systems and store location and format.

EMPLOYEES

     We manage our stores through regional, district and store-based personnel.
Our Senior Vice President of Store Operations has general oversight
responsibility for all of our stores. Field supervision is led by three regional
supervisors who report directly to the Senior Vice President of Store Operations
and who oversee 23 district supervisors. The district supervisors are each
responsible for an average of 11 stores. Each of our stores has a store manager
who is responsible for all aspects of store operations and who reports directly
to a district supervisor. In addition, each store has at least two assistant
managers, at least one full-time cashier, at least one management trainee and a
complement of full and part-time associates.

     As of July 1, 2001, we had approximately 5,820 full and part-time
employees. The Steel, Paper House, Chemical Drivers & Helpers, Local Union 578,
affiliated with the International Brotherhood of Teamsters, currently represents
472 hourly employees in our distribution center and some of our retail personnel
in our stores. In September 2000, we negotiated two contracts with Local 578
covering these employees. These contracts expire on August 31, 2005. We have not
had a strike or work stoppage in the last 21 years. We believe we provide
working conditions and wages that are comparable to those offered by other
retailers in the sporting goods industry and that our employee relations are
good.

EMPLOYEE TRAINING

     We have developed a comprehensive training program that is tailored for
each store position. All employees are given an orientation and reference
materials that stress excellence in customer service and selling skills. All
full-time employees, including salespeople, cashiers and management trainees,
receive additional training specific to their job responsibilities. Our tiered
curriculum includes seminars, individual instruction and performance evaluations
to promote consistency in employee development. The manager trainee schedule
provides seminars on operational responsibilities such as merchandising
strategy, loss prevention and inventory control. Ongoing store management
training includes topics such as advanced merchandising, delegation, personnel
management, scheduling, payroll control and loss prevention.

     We also provide unique opportunities for our employees to gain knowledge
about our products. These opportunities include "hands-on" training seminars and
a sporting goods product expo. At the sporting goods product expo, our vendors
set up booths where full-time store employees from every store receive intensive
training on the products we carry. We believe this event is a successful program
for both training and motivating our employees.

PROPERTIES

     We lease all but one of our 252 store sites. Most of our long-term leases
contain fixed-price renewal options and the average lease expiration term of our
existing leases, taking into account renewal options, is

                                        32
<PAGE>   37

approximately 20 years. Of the 251 store leases that we have, only 18 are due to
expire in the next five years without renewal options.

DESCRIPTION OF SERVICE MARKS AND TRADEMARKS

     We use the Big 5 name as a service mark in connection with our business
operations and have registered this name as a federal service mark. We have also
registered federally and/or locally as trademarks and service marks some private
labels under which we sell a variety of merchandise, including apparel.

LEGAL PROCEEDINGS

     On August 9, 2001, we received a copy of a complaint filed in the
California Superior Court in Los Angeles entitled Mosely, et al., v. Big 5
Corp., Case No. BC255749, alleging violations of the California Labor Code and
the Business and Professions Code. This complaint was brought as a purported
class action with two subclasses comprised of our California store managers and
our California first assistant store managers. The plaintiffs allege that we
improperly classified our store managers and first assistant store managers as
exempt employees not entitled to overtime pay for work in excess of forty hours
per week. They seek, on behalf of the class members, back pay for overtime
allegedly not paid, statutory penalties in the amount of an additional thirty
days' wages for each employee whose employment terminated in the four years
preceding the complaint and injunctive relief to require us to treat our store
management as non-exempt. The complaint has only recently been filed. We have
not yet answered the complaint and discovery has not commenced. We intend to
defend the case vigorously. This litigation could have a material adverse effect
on our financial condition, and any required change in our labor practices, as
well as costs of defending this litigation, could have a negative impact on our
results of operations.

     In addition, we are from time to time involved in routine litigation
incidental to the conduct of our business. We regularly review all pending
litigation matters in which we are involved and establish reserves deemed
appropriate by management for such litigation matters. We believe no other
litigation currently pending against us will have a material adverse effect on
our financial position or results of operations.

                                        33
<PAGE>   38

                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     Our executive officers and directors and their ages and positions are as
follows:

<Table>
<Caption>
             NAME           AGE                            POSITIONS
             ----           ---                            ---------
    <S>                     <C>   <C>
    Robert W. Miller......  78    Chairman of the Board
    Steven G. Miller......  49    President, Chief Executive Officer and Director
    Charles P. Kirk.......  45    Senior Vice President and Chief Financial Officer
    Gary S. Meade.........  55    Senior Vice President, General Counsel and Secretary
    Richard A. Johnson....  55    Senior Vice President, Store Operations
    Thomas J. Schlauch....  56    Senior Vice President, Buying
    Jeffrey L. Fraley.....  44    Senior Vice President, Human Resources
    Dr. Michael D.
      Miller..............  51    Director
    John G. Danhakl.......  45    Director
</Table>

     Robert W. Miller has served as Chairman of our board of directors since
1992. Mr. Robert W. Miller co-founded our company in 1955 and served as our
President from 1973 to 1992 and Chief Executive Officer from 1973 to 2000.

     Steven G. Miller has served as our Chief Executive Officer since 2000 and
our President since 1992. Mr. Steven G. Miller has also served as a director
since 1992. In addition, Mr. Steven G. Miller served as our Chief Operating
Officer from 1992 to 2000 and our Executive Vice President, Administration from
1988 to 1992. Mr. Steven G. Miller is Robert W. Miller's son and Dr. Michael D.
Miller's brother.

     Charles P. Kirk has served as our Senior Vice President and Chief Financial
Officer since 1992. Prior to joining us, Mr. Kirk served as Thrifty
Corporation's Director of Planning and Vice President of Planning and Treasury
since October 1990. Prior to that, Mr. Kirk had held various financial positions
with Thrifty Corporation's former parent, Pacific Enterprises, since 1981.

     Gary S. Meade has served as our Senior Vice President since July 2001 and
our General Counsel and Secretary since 1997. Mr. Meade also served as our Vice
President from 1997 to 2001. Prior to joining us, Mr. Meade was Thrifty
Corporation's Vice President, General Counsel and Secretary since 1992 and
Thrifty Corporation's Vice President -- Legal Affairs since 1979.

     Richard A. Johnson has served as our Senior Vice President, Store
Operations since 1992. Prior to that, Mr. Johnson was our Vice President, Store
Operations since 1982.

     Thomas J. Schlauch has served as our Senior Vice President, Buying since
1992. Prior to that, Mr. Schlauch served as our Head of Buying from 1990 to 1992
and as our Vice President, Buying from 1982 to 1990.

     Jeffrey L. Fraley has served as our Senior Vice President, Human Resources
since July 2001. Prior to that, Mr. Fraley served as our Vice President, Human
Resources from 1992 to 2001.

     Michael D. Miller, Ph.D. has served as a director since 1997. Dr. Miller is
a senior mathematician at The RAND Corporation. Dr. Miller is Robert W. Miller's
son and Steven G. Miller's brother.

     John G. Danhakl has served as a director since 1997. Mr. Danhakl has been
an executive officer and equity owner of Leonard Green & Partners, L.P. since
1995. From 1990 to 1995, Mr. Danhakl was a Managing Director at Donaldson,
Lufkin & Jenrette Securities Corporation. Prior to joining Donaldson, Lufkin &
Jenrette Securities Corporation, Mr. Danhakl was a Vice President at Drexel
Burnham Lambert Incorporated. Mr. Danhakl is also a member of the board of
directors of Arden Group, Inc., Twinlab Corporation, Communications & Power
Industries, Inc., Leslie's Poolmart, Inc., Liberty Group Publishing, Inc. and
Diamond Triumph Auto Glass, Inc.

                                        34
<PAGE>   39

BOARD OF DIRECTORS COMPOSITION

     Our certificate of incorporation will, at the completion of this offering,
provide for a classified board of directors consisting of three classes of
directors, each serving staggered three-year terms. As a result, a portion of
our board of directors will be elected each year. To implement the classified
board of directors structure, prior to the completion of this offering, two of
the members of the board of directors will be elected to one-year terms, two
will be elected to two-year terms and two will be elected to three-year terms.
Thereafter, directors will be elected for three-year terms.

     At the completion of this offering, our board of directors intends to
create an audit committee and a compensation committee. The composition of the
audit committee will comply with the requirements of The Nasdaq Stock Market's
National Market. The audit committee will make recommendations to our board of
directors regarding the selection of independent auditors, review the results
and scope of the audit and other services provided by our independent auditors,
and review and evaluate our audit and control functions. We expect that the
compensation committee will be comprised of at least two independent directors.
The compensation committee will review and recommend to the board of directors
the compensation and benefits of our employees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The board of directors as a whole performed the functions that it intends
to delegate to the compensation committee at the completion of this offering,
and all of the board of directors participated in deliberations concerning
executive compensation. No interlocking relationship will exist between our
board of directors or the compensation committee and the board of directors or
compensation committee of any other company, nor has any interlocking
relationship existed in the past.

     You should refer to the section of this prospectus entitled "Related Party
Transactions" for information regarding transactions and relationships between
us and the various members of our board of directors and entities affiliated
with them.

DIRECTOR COMPENSATION

     Our directors do not currently receive any compensation for services on our
board of directors or any committee of our board of directors. Upon the
completion of this offering, our directors who are not employees will receive an
annual fee of $          for service on our board of directors, plus $
for each meeting of the board of directors or any committee that they attend.
Directors will also be reimbursed for all out-of-pocket expenses incurred in
attending such meeting.

EXECUTIVE COMPENSATION

     The following table shows compensation for our Chief Executive Officer and
each of our four other most highly compensated executive officers for the past
three fiscal years.

<Table>
<Caption>
                                                                      ANNUAL COMPENSATION
                                                                      --------------------
                NAME AND PRINCIPAL POSITION                   YEAR     SALARY      BONUS
                ---------------------------                   ----    --------    --------
<S>                                                           <C>     <C>         <C>

</Table>

401(k) PLAN

     We maintain a savings plan qualified under Sections 401(a) and (k) of the
Internal Revenue Code. Generally, all our full-time employees who are at least
21 years of age, have earned a year of eligibility service, or become employed
in a position that qualifies for plan participation, and who are not subject to
collective bargaining, or if they are subject to collective bargaining but are
not covered by another pension plan, are eligible to participate in the 401(k)
plan. We may make discretionary matching contributions of

                                        35
<PAGE>   40

up to 4% of a participant's compensation to the 401(k) plan in addition to any
discretionary profit sharing contribution to the 401(k) plan.

STOCK OPTION AND STOCK PURCHASE PLANS

     1997 Management Equity Plan

     Our 1997 management equity plan was adopted by our board of directors and
approved by our stockholders in November 1997. The 1997 management equity plan
provides for the grant of incentive stock options and non-qualified stock
options to our key employees as well as for stock purchase rights. A total of
560,000 shares of our common stock have been reserved for issuance pursuant to
the 1997 management equity plan of which no more than 100,000 shares may be
subject to stock options outstanding at any time. As of July 1, 2001, 462,309
shares of restricted common stock had been sold under the 1997 management equity
plan. We do not intend to make any more grants under the 1997 management equity
plan.

     Our board of directors intends to delegate general administrative authority
over the 1997 management equity plan to our compensation committee. The members
of the compensation committee will be "non-employee directors" within the
meaning of Rule 16b-3 of the Securities Exchange Act. The administrator has
broad authority to designate recipients of awards and determine the terms and
provisions of awards, including the price, expiration date, vesting schedule and
terms of exercise.

     The exercise price of stock options, and the purchase price of restricted
stock, must be at least 85% of the fair market value of the common stock on the
date of grant. Stock options granted to optionees who own more than 10% of our
outstanding common stock must have an exercise price that is at least 110% of
the fair market value of the common stock. The purchase price of restricted
stock granted to any person who owns stock possessing more than 10% of the total
combined voting power of our stock must have a purchase price of at least 100%
of the fair market value of the common stock. Options expire no later than ten
years from the date of grant. The 1997 management equity plan does not allow for
the transfer of options or stock purchase rights.

     After the termination of an optionee's employment or services for reasons
other than for cause, death or disability, exercisable options will remain
exercisable until at least 30 days after the date of termination of employment.
If termination is due to death or disability, exercisable options will remain
exercisable until at least six months after the date of death or termination of
employment. If termination is for cause, all options, including vested and
exercisable ones, are immediately terminated and cancelled.

     We have the authority to amend, revise, suspend or terminate the 1997
management equity plan provided that our doing so does not materially adversely
affect the rights of any participant or increase the number of shares for which
options or stock awards may be granted.

     2001 Stock Incentive Plan

     In connection with the consummation of this offering, we intend to adopt
our 2001 stock incentive plan. The 2001 stock incentive plan provides for the
grant of incentive stock options and non-qualified stock options to our
employees, directors and specified consultants. We intend to reserve a total of
               shares of our common stock for issuance pursuant to the 2001
stock incentive plan.

     Our board of directors intends to delegate general administrative authority
over the 2001 stock incentive plan to our compensation committee. The members of
the compensation committee will be "non-employee directors" within the meaning
of Rule 16b-3 of the Securities Exchange Act. The administrator has broad
authority to designate recipients of awards and determine the terms and
provisions of awards, including the price, expiration date, vesting schedule and
terms of exercise.

     The exercise price of stock options must be at least 100% of the fair
market value of the common stock on the date of grant. Incentive stock options
granted to optionees who own more than 10% of our outstanding common stock must
have an exercise price that is at least 110% of fair market value of the

                                        36
<PAGE>   41

common stock. Options expire no later than ten years from the date of grant, or
five years with respect to incentive stock options granted to optionees who own
more than 10% of our outstanding common stock. The 2001 stock incentive plan
does not allow for the transfer of options.

     After the termination of the employment or services of an optionee for
reasons other than for cause, death or disability, exercisable options will
remain exercisable until the earlier of their expiration as set forth in the
option agreement or three months after the date of termination of employment. If
termination is due to death or disability, exercisable options will remain
exercisable until the earlier of the expiration date stated in the option
agreement or twelve months after the date of death or termination of employment.
If termination is for cause, all options, including vested and exercisable ones,
are immediately terminated and cancelled.

     Upon the occurrence of specified events that result in a change of our
organizational or ownership structure, the administrator has the discretion to
do one or more of the following:

     - shorten the exercise period of the options;

     - accelerate the vesting schedule of the options;

     - arrange to have the surviving or successor entity assume or replace the
       options; or

     - cancel the options and pay to the optionee in cash, with respect to each
       exercisable option, an amount equal to the excess of the fair market
       value of the common stock over the exercise price of the option.

     We have the authority to amend, alter, suspend or terminate the 2001 stock
incentive plan provided that our doing so does not impair the rights of any
optionee or increase the number of shares for which options may be granted.

EMPLOYMENT AGREEMENTS

     Steven G. Miller and Robert W. Miller entered into employment agreements in
January 1993. According to these employment agreements, Steven G. Miller and
Robert W. Miller are to continue employment with us for successive one-year
periods renewing annually on December 31, unless any party gives timely notice
to the other that the employment term shall not be so extended. We are currently
negotiating amendments to these employment agreements.

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

     Upon the closing of the offering contemplated by this prospectus, we will
adopt an amended and restated certificate of incorporation which, together with
our amended and restated bylaws, will provide our directors and key officers
with limitations on liability and indemnification rights described below.

     Our amended and restated certificate of incorporation will limit the
liability of directors to the maximum extent permitted by Delaware law. Delaware
law provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for any of the following:

     - any breach of their duty of loyalty to the corporation or its
       stockholders;

     - acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

     - unlawful payments of dividends or unlawful stock repurchases or
       redemptions; or

     - any transaction from which the director derived an improper personal
       benefit.

     This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

                                        37
<PAGE>   42

     Our amended and restated certificate of incorporation and amended and
restated bylaws will provide that we will indemnify our directors and executive
officers to the fullest extent permitted by law. We believe indemnification
under our amended and restated bylaws covers at least negligence and gross
negligence on the part of indemnified parties. In addition to indemnification
provided for in our amended and restated bylaws, we intend to enter into
agreements to indemnify our directors and executive officers. These agreements,
among other things, will provide for indemnification of our directors and
executive officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or executive officer or at our request. We
believe these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.

     The limited liability and indemnification provisions in our amended and
restated certificate of incorporation and amended and restated bylaws may
discourage stockholders from bringing a lawsuit against our directors for breach
of their fiduciary duty and may reduce the likelihood of derivative litigation
against our directors and officers, even though a derivative litigation, if
successful, might otherwise benefit us and our stockholders. A stockholder's
investment in us may be adversely affected to the extent we pay the costs of
settlement or damage awards against our directors or officers under these
indemnification provisions.

     At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.

DIRECTORS' AND OFFICERS' INSURANCE

     We currently maintain a directors' and officers' liability insurance policy
that provides our officers and directors with liability coverage in amounts we
consider appropriate.

                                        38
<PAGE>   43

                           RELATED PARTY TRANSACTIONS

RELATIONSHIP WITH PACIFIC ENTERPRISES, THRIFTY CORPORATION AND RITE AID
CORPORATION

     Prior to September 1992, we were a wholly owned subsidiary of Thrifty
Corporation, a wholly owned subsidiary of Pacific Enterprises. In December 1996,
Thrifty Corporation was acquired by Rite Aid Corporation.

     As a result of our prior relationship with Thrifty Corporation and its
affiliates, we continue to maintain certain relationships with Rite Aid and
Sempra Energy, the successor to Pacific Enterprises. These relationships include
continuing indemnification obligations of Sempra Energy to us for certain
environmental matters and obligations under ERISA. In addition, Green Equity
Investors III, L.P., an affiliate of Leonard Green & Partners, L.P., holds
convertible preferred stock in Rite Aid that, if converted, would represent
approximately 11% of its outstanding stock.

CONFLICTS OF INTEREST

     Green Equity Investors, L.P., an affiliate of Leonard Green & Partners,
L.P., holds an equity interest in us and also holds an equity interest in Gart
Sports Company, one of our competitors. John G. Danhakl, an executive officer
and equity owner of Leonard Green & Partners, L.P., currently serves on our
board of directors. Two different equity owners of Leonard Green & Partners,
L.P. currently serve on Gart Sports Company's board of directors. Mr. Danhakl
may have conflicts of interest with respect to certain matters affecting us. All
of these potential conflicts may not be resolved in a manner that is favorable
to us. We believe it is impossible to predict the precise circumstances under
which future potential conflicts may arise and therefore intend to address
potential conflicts on a case-by-case basis. Under Delaware law, directors have
a fiduciary duty to act in good faith and in what they believe to be in the best
interest of the corporation and its stockholders. Such duties include the duty
to refrain from impermissible self-dealing and to deal fairly with respect to
transactions in which the directors, or other companies with which such
directors are affiliated, have an interest.

MANAGEMENT SERVICES AGREEMENT

     We entered into a management services agreement with Leonard Green &
Associates, L.P., an affiliate of Leonard Green & Partners, L.P., on November
13, 1997. Pursuant to the management services agreement, we pay an annual fee of
$333,333 to Leonard Green & Associates, L.P. for ongoing management, consulting
and financial planning services. We also pay reasonable and customary fees to
Leonard Green & Associates, L.P. for financial advisory and investment banking
services in connection with any major financial transactions that we may
undertake from time to time. In addition to the fees we pay for these services,
we also pay reasonable out-of-pocket expenses incurred in connection with
rendering such services. The management services agreement terminates in May
2005. We believe its terms are comparable to what could be obtained from
unrelated, but equally qualified, third parties.

STOCKHOLDERS AGREEMENT

     We entered into a stockholders agreement with Green Equity Investors, L.P.,
Robert W. Miller and Steven G. Miller on November 13, 1997. We intend to enter
into an amended and restated stockholders agreement prior to the consummation of
this offering.

REDEMPTION OF SERIES A PREFERRED STOCK

     We intend to use a portion of our net proceeds from this offering to redeem
all of our outstanding shares of Series A preferred stock. Green Equity
Investors, L.P. and its affiliates currently own 309,071 shares of the 350,000
outstanding shares of our Series A preferred stock. See "Use of Proceeds."

                                        39
<PAGE>   44

                      SECURITY OWNERSHIP BY MANAGEMENT AND
                             PRINCIPAL STOCKHOLDERS

     The following table sets forth information regarding beneficial ownership
of our common stock as of             by:

     - each of the individuals listed under "Executive Compensation" on page 35;

     - each of our directors;

     - each person, or group of affiliated persons, who is known by us to own
       beneficially 5% or more of our common stock; and

     - all current directors and executive officers as a group.

     Except as otherwise indicated in the footnotes below, each beneficial owner
has the sole power to vote and to dispose of all shares held by that holder.
Percentage ownership is based on            shares of common stock outstanding
as of             and                shares of common stock outstanding after
completion of this offering.

<Table>
<Caption>
                                                        BENEFICIAL OWNERSHIP    BENEFICIAL OWNERSHIP
                                                           OF COMMON STOCK         OF COMMON STOCK
                                                           BEFORE OFFERING         AFTER OFFERING
                                                        ---------------------   ---------------------
                       NAME(1)                           SHARES      PERCENT     SHARES      PERCENT
                       -------                          ---------   ---------   ---------   ---------
<S>                                                     <C>         <C>         <C>         <C>
Robert W. Miller......................................
Steven G. Miller......................................
Dr. Michael D. Miller.................................
Thomas J. Schlauch....................................
Richard A. Johnson....................................
Charles P. Kirk.......................................
John G. Danhakl.......................................
Green Equity Investors, L.P...........................
All Executive Officers and Directors as a Group.......
</Table>

- ---------------
 *  The percentage of shares beneficially owned does not exceed 1% of the class.

(1) The address for each stockholder is 2525 East El Segundo Boulevard, El
    Segundo, California 90245, except Green Equity Investors, L.P. and Mr.
    Danhakl for which the address is 11111 Santa Monica Boulevard, Suite 2000,
    Los Angeles, California 90025.

                                        40
<PAGE>   45

                          DESCRIPTION OF CAPITAL STOCK

GENERAL

     Upon the completion of this offering, we will be authorized to issue
               shares of common stock, 350,000 shares of Series A preferred
stock, $0.01 par value per share, and                shares of undesignated
preferred stock, $0.01 par value per share. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our amended and restated certificate of incorporation and
amended and restated bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.

COMMON STOCK

     As of July 1, 2001, there were 1,926,500 shares of common stock
outstanding, which were held of record by approximately 250 stockholders. The
holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Subject to preferences that may be applicable to
any outstanding preferred stock, the holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available for that purpose. In the
event of our liquidation, dissolution or winding up, the holders of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The holders of common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock.

SERIES A PREFERRED STOCK

     We issued our redeemable Series A 13.45% senior exchangeable preferred
stock under a certificate of designations filed with the Secretary of State of
Delaware on November 13, 1997. As of July 1, 2001, there were 350,000 shares of
our Series A preferred stock outstanding, which were held of record by 34
stockholders. The Series A preferred stock ranks senior to all classes of common
stock, bears cumulative dividends at the rate of 13.45% per annum and has a
liquidation preference over our common stock equal to $100 per share plus
accrued and unpaid dividends thereon. In addition, the Series A preferred stock
is subject to mandatory redemption by us on November 13, 2009, and our optional
redemption, at a premium declining to par after November 13, 2002 and prior to
November 13, 2009.

     On or prior to November 13, 2002, we may redeem any or all of the shares of
Series A preferred stock then outstanding at a redemption price equal to 110% of
the liquidation preference thereof, plus accrued and unpaid dividends, with the
proceeds of an underwritten public offering of our common stock. We anticipate
using a portion of our net proceeds from this offering to redeem all of the
outstanding shares of Series A preferred stock.

PREFERRED STOCK

     The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:

     - restricting dividends on the common stock;

     - diluting the voting power of the common stock;

     - impairing the liquidation rights of the common stock; or

     - delaying or preventing a change in control of us without further action
       by the stockholders.

                                        41
<PAGE>   46

WARRANT

     As of July 1, 2001, a warrant to purchase 60,000 shares of our common stock
was outstanding. The warrant is exercisable at any time with an exercise price
of $0.01 per share. The warrant expires on November 30, 2008.

REGISTRATION RIGHTS

     Green Equity Investors, L.P. has the right to demand, on two occasions,
that we file a registration statement under the Securities Act covering all or a
portion of the 723,577 shares of our common stock held by it. In addition,
specified holders, including Green Equity Investors, L.P., will have piggyback
registration rights with respect to 1,444,800 shares of our common stock and
60,000 shares of our common stock underlying a warrant. Registration of these
shares of our common stock would permit their sale into the market immediately.
Each of these holders, including Green Equity Investors, L.P., has agreed not to
sell or otherwise dispose of any of its shares, other than shares sold in this
offering, for a period of 180 days after the consummation of this offering.
Please refer to the information in the prospectus under the heading "Shares
Eligible for Future Sale -- Registration Rights" for a more detailed discussion
of these registration rights.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

     Provisions of Delaware law and our amended and restated certificate of
incorporation and amended and restated bylaws to be adopted immediately prior to
the closing of this offering could make the following more difficult:

     - the acquisition of us by means of a tender offer;

     - acquisition of us by means of a proxy contest or otherwise; or

     - the removal of our incumbent officers and directors.

     These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
us to first negotiate with our board of directors. We believe the benefits of
increased protection of our potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.

     Classified Board of Directors. Under our amended and restated certificate
of incorporation and our amended and restated bylaws, our board of directors is
divided into three classes of directors serving staggered three-year terms, with
one-third of the board of directors being elected each year.

     Stockholder Meetings. Under our amended and restated certificate of
incorporation and our amended and restated bylaws, only the board of directors,
the chairman of the board of directors, the chief executive officer and the
president may call special meetings of stockholders.

     Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our amended and restated bylaws establish advance notice procedures
with respect to stockholder proposals and the nomination of candidates for
election as directors, other than nominations made by or at the direction of the
board of directors or a committee of the board of directors.

     No Action by Written Consent. Under our amended and restated certificate of
incorporation, stockholders may only take action at an annual or special meeting
of stockholders and may not act by written consent.

     Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction

                                        42
<PAGE>   47

in which the person became an interested stockholder is approved in a prescribed
manner. Generally, a "business combination" includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an
anti-takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.

     No Cumulative Voting. Our amended and restated certificate of incorporation
and amended and restated bylaws do not provide for cumulative voting in the
election of directors.

     Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for our board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or management of
us.

TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the common stock is                .

LISTING

     We intend to file an application to have our common stock approved for
quotation on The Nasdaq Stock Market's National Market under the symbol "     ."

                                        43
<PAGE>   48

                      DESCRIPTION OF CERTAIN INDEBTEDNESS

THE CREDIT FACILITY

     We, through our wholly owned subsidiary, have a non-amortizing $125.0
million revolving credit facility. The credit facility bears interest at various
rates based on our performance, with a floor of LIBOR plus 1.50% or the Chase
Manhattan prime lending rate and a ceiling of LIBOR plus 2.50% or the Chase
Manhattan prime lending rate plus 0.75% and is secured by our trade accounts
receivable, merchandise inventory and general intangible assets, including
trademarks and trade names. As of July 1, 2001, loans under the credit facility
bear interest at a rate of LIBOR plus 1.50% or the Chase Manhattan prime lending
rate. An annual fee of 0.325%, payable monthly, is assessed on the unused
portion of the credit facility. As of July 1, 2001, we had $53.3 million in
LIBOR and prime lending rate borrowings and letters of credit of $4.5 million
outstanding. Our maximum eligible borrowing available under the credit facility,
including outstanding letters of credit, is limited to the lesser of $125.0
million and an amount equal to 70% of the aggregate value of eligible inventory
during November through February and 65% of the aggregate value of eligible
inventory during the remaining months of the year. Available borrowings over and
above actual LIBOR and prime rate borrowings and letters of credit outstanding
on the credit facility amounted to $55.3 million as of July 1, 2001.

     Our credit facility requires our wholly owned subsidiary, on a consolidated
basis at the end of each fiscal quarter, to maintain a certain minimum net
worth. Additionally, we must either maintain certain unused availability under
the credit facility or maintain a certain minimum fixed charge coverage ratio.
The credit facility also contains covenants restricting the ability of our
wholly owned subsidiary to incur indebtedness or liens, to pay dividends or make
distributions on its stock, to make investments or loans, to engage in
transactions with affiliates, including us, or to sell assets or effect certain
mergers or consolidations.

     The credit facility may be terminated by the lenders by giving at least 90
days prior written notice before any anniversary date, commencing with its
anniversary date in November 2002. Unless it is terminated, the credit facility
will continue on an annual extension basis from anniversary date to anniversary
date beginning in November 2002. The credit facility may be terminated at any
time at our election or upon the occurrence of specified events of default.

THE SENIOR NOTES

     In connection with our 1997 recapitalization, we, through our wholly owned
subsidiary, issued $131.0 million face amount of 10.875% senior notes due 2007,
less a discount of approximately $0.6 million based on an imputed interest rate
of 10.95%. The senior notes mature on November 15, 2007. The senior notes bear
interest at the rate per annum of 10.875% from the most recent interest payment
date to which interest has been paid or provided for, payable in semi-annual
installments on May 15 and November 15 of each year. Interest is calculated on
the basis of a 360-day year consisting of twelve 30-day months. The last date on
which interest was paid on the senior notes was May 15, 2001. We have no
mandatory payments of principal on the senior notes prior to their maturity in
2007.

     The senior notes are general unsecured obligations, rank senior in right of
payment to all existing and future indebtedness of our wholly owned subsidiary
that is subordinated to the senior notes and rank pari passu in right of payment
with all current and future unsubordinated indebtedness of our wholly owned
subsidiary, subject to certain restrictions due to the securitization of certain
assets.

     Our senior notes are redeemable, in whole or in part, at our option, at any
time on or after November 15, 2002. The senior notes will be redeemable at the
following redemption prices, expressed as percentages of the principal amount,
if redeemed during the twelve month period commencing

                                        44
<PAGE>   49

November 15 of the years indicated below at the following redemption prices,
plus accrued and unpaid interest and liquidated damages, if any, to the date of
redemption:

<Table>
<Caption>
                           YEAR                             PERCENTAGE
                           ----                             ----------
<S>                                                         <C>
2002......................................................   105.475%
2003......................................................   103.650%
2004......................................................   101.825%
2005 and thereafter.......................................   100.000%
</Table>

     Upon a change of control of our wholly owned subsidiary, our wholly owned
subsidiary will be required to offer to purchase all of the outstanding senior
notes at a price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and liquidated damages, if any, to the date of
purchase.

     The indenture pursuant to which our senior notes were issued contains
certain covenants limiting the ability of our wholly owned subsidiary to, among
other things, incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, make certain investments, create certain
liens, sell certain assets, enter into certain transactions with affiliates, and
effect certain mergers and consolidations.

SENIOR DISCOUNT NOTES

     In connection with our 1997 recapitalization, we issued $48.2 million face
amount of 13.45% senior discount notes due 2008. According to the terms of the
indenture under which the senior discount notes were issued, we have the right
to redeem all, but not less than all, of our senior discount notes prior to
November 30, 2002 at a redemption price equal to 113.45% of the principal
amount, plus accrued and unpaid interest, upon our receipt of cash from a public
equity offering. We anticipate using a portion of our net proceeds from this
offering to redeem all of the outstanding senior discount notes.

                                        45
<PAGE>   50

                        SHARES ELIGIBLE FOR FUTURE SALE

SALES OF RESTRICTED SECURITIES

     Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
our common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.

     Upon the completion of this offering, we will have                shares of
our common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of the outstanding warrant. All of the
shares sold in this offering will be freely tradable, except that any shares
purchased by directors, officers or owners of 10% or more of our stock may only
be sold in compliance with the applicable limitations of Rule 144. The remaining
               shares of our common stock are "restricted securities" as defined
under Rule 144. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below.

     Subject to the provisions of Rules 144, 144(k) and 701 and a right of
repurchase in favor of us applicable to some of our common stock,
               shares of our common stock will be available for sale in the
public market upon the expiration of the 180-day lock-up period.

     If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the prevailing market price of our common
stock could decline. Furthermore, sales of substantial amounts of our common
stock in the public market after contractual and legal restrictions lapse could
adversely affect the prevailing market price of the common stock and our ability
to raise equity capital in the future.

RULE 144

     In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:

     - 1% of the number of shares of common stock then outstanding; or

     - the average weekly trading volume of the common stock during the four
       calendar weeks preceding the filing of a Form 144 with respect to such
       sale.

     Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

RULE 701

     In general, under Rule 701 of the Securities Act, as currently in effect,
any of our employees, consultants or advisors who purchase shares from us under
a stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
complying with the holding period, public information, volume limitation or
notice provisions of Rule 144, so long as they are not affiliates of ours. If
they are an affiliate, they are eligible to resell the shares 90 days after the
effective date of this offering in reliance on Rule 144 but without compliance
with the

                                        46
<PAGE>   51

holding period contained in Rule 144. These shares are subject to the lock-up
agreements and will be available for sale in the open market beginning 180 days
after the date of this prospectus.

LOCK-UP AGREEMENTS

     Holders of all of our outstanding shares of common stock have entered into
lock-up agreements. These lock-up agreements provide that, except for shares of
common stock to be sold in this offering, these stockholders will not offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of our
common stock or any securities exercisable for or convertible into our common
stock owned by them for a period of 180 days after the date of this prospectus
without the prior written consent of Credit Suisse First Boston Corporation.
Credit Suisse First Boston Corporation has advised us that it has no present
intention to release any of the shares subject to the lock-up agreements prior
to the expiration of the lock-up periods described below. These lock-up
agreements do not restrict the transfer of shares of common stock purchased
under the directed share program in connection with this offering or in the open
market following the date of this prospectus.

REGISTRATION RIGHTS

     All holders of registration rights contained in agreements with us are
expected to waive such rights in connection with this offering. Green Equity
Investors, L.P. has the right to demand, on two occasions, that we file a
registration statement under the Securities Act covering all or a portion of the
723,577 shares of our common stock held by them. Registration would result in
the shares becoming freely tradable without restriction under the Securities
Act.

     In addition, after this offering, specified holders, including Green Equity
Investors, L.P., will have piggyback registration rights with respect to
1,444,800 shares of our common stock and 60,000 shares of our common stock
underlying a warrant. If we propose to register any common stock under the
Securities Act, other than pursuant to a registration of our common stock on
form S-4 or S-8, these holders may require us to include all or a portion of
their securities in the registration. However, the managing underwriter, if any,
of the offering pursuant to the registration has the right to limit the number
of securities to be included by these holders.

     The outstanding piggyback registration rights with respect to 1,379,139
shares of our common stock and all 60,000 shares of our common stock underlying
a warrant have no expiration date. The piggyback registration rights with
respect to 65,661 shares of our common stock will expire upon the earlier of the
first anniversary of the consummation of this offering and the date of the
effectiveness of any registration of our common stock under the Securities Act
subsequent to this offering in which all of these holders were given the
opportunity to register their shares.

     We would bear all registration expenses incurred in connection with these
registrations. The stockholders would pay all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of its securities.

STOCK OPTIONS

     Immediately after this offering, we intend to file a registration statement
under the Securities Act covering shares of common stock reserved for issuance
under the 2001 stock incentive plan. Shares registered under that registration
statement will, upon the optionee's exercise and depending on vesting provisions
and Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market immediately after the lock-up agreements expire.

                                        47
<PAGE>   52

              U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of our common stock by
a person that is not a "United States person" for U.S. federal income tax
purposes (a "non-U.S. holder"). For this purpose, a "United States person" is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate, the income of which is subject to U.S.
federal income taxation regardless of its source, or a trust if (i) a U.S. court
is able to exercise primary supervision over the trust's administration and (ii)
one or more United States persons have the authority to control all of the
trust's substantial decisions. The discussion does not consider specific facts
and circumstances that may be relevant to a particular non-U.S. holder's tax
position. Special rules may apply to certain non-U.S. holders, such as dealers
in securities, banks, insurance companies, tax-exempt organizations, persons
holding their shares as part of a "straddle," "hedge," or "conversion
transaction," persons who acquire shares as compensation, "controlled foreign
corporations," "passive foreign investment companies," "foreign personal holding
companies," and corporations that accumulate earnings to avoid U.S. federal
income tax, that are subject to special treatment under the Code. This
discussion is limited to beneficial owners of the common stock who hold the
common stock as capital assets. It does not address any aspect of state, local,
or foreign law, persons who hold common stock through a partnership or other
pass-through entity, or persons who are former citizens or long-term residents
of the United States.

     ACCORDINGLY, EACH NON-U.S. HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR
WITH RESPECT TO THE UNITED STATES TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE
UNDER THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING
JURISDICTION.

DIVIDENDS

     Dividends paid to a non-U.S. holder of our common stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30% rate, or at a lower
rate under an applicable income tax treaty that provides for a reduced rate of
withholding. To claim the benefit of a lower treaty rate, a non-U.S. holder must
properly file with the payor an IRS Form W-8BEN, or successor form, or, in the
case of payments made outside the United States with respect to an offshore
account, comply with certain documentary evidence procedures, directly, or under
certain circumstances, through an intermediary. If, however, the dividends are
effectively connected with the conduct by the non-U.S. holder of a trade or
business within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the non-U.S. holder,
then the dividends will be exempt from the withholding tax described above,
provided that an IRS Form W-8ECI, or successor form, is furnished to the payor.
Such dividends will instead be taxed on a net basis at applicable graduated
individual or corporate rates. Effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject as well to a
"branch profits tax" at a rate of 30% or a lower applicable treaty rate. A
non-United States Holder who furnished the payor with an IRS Form W-8ECI or
successor form must also provide a United States tax identification number.

GAIN ON DISPOSITION OF COMMON STOCK

     A non-U.S. holder generally will not be subject to United States federal
income tax in respect of a gain realized on a disposition of our common stock,
provided that (a) the gain is not effectively connected with a trade or business
conducted by the non-U.S. holder in the United States, (b) in the case of a non-
U.S. holder who is an individual, such holder is present in the United States
for less than 183 days in the taxable year of the sale and other conditions are
met, and (c) we are not nor have been a "United States real property holding
corporation" for United States federal income tax purposes (a "USRPHC"). We
believe we are not currently, and are not likely to become a USRPHC. Even if we
were to become a USRPHC, gain on the sale or other disposition of common stock
by a non-United States holder generally would not be subject to United States
federal income tax provided that (i) the common stock was

                                        48
<PAGE>   53

"regularly traded" on an established securities market and (ii) such non-United
States holder did not actually or constructively own more than 5% of the common
stock at any time during the shorter of the five-year period preceding the
disposition or such non-United States holder's holding period.

     If a non-U.S. Holder is engaged in the conduct of a trade or business in
the United States, gain on the disposition of our common stock that is
effectively connected with the conduct of such trade or business and, where an
income tax treaty applies, is attributable to a United States permanent
establishment, will be taxed on a net basis at applicable graduated individual
or corporate rates. Effectively connected gain of a foreign corporation may,
under certain circumstances, be subject as well to a branch profits tax at a
rate of 30% or a lower applicable treaty rate.

FEDERAL ESTATE TAXES

     Our common stock owned or treated as being owned by a non-U.S. holder at
the time of death will be included in that holder's gross estate for U.S.
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise. The United States federal estate tax was recently repealed; however,
the repeal does not take effect until 2010. In addition, the legislation
repealing the estate tax expires in 2011, and thus the estate tax will be
reinstated at that time unless future legislation extends the repeal.

U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

     U.S. information reporting on IRS Form 1099 and backup withholding tax will
not apply to dividends paid on our common stock to a non-U.S. holder, provided
that non-U.S. holder provides an IRS Form W-8BEN (or satisfies certain
certification documentary evidence requirements for establishing that it is a
non-United States person under U.S. Treasury regulations) or otherwise
establishes an exemption. Distributions on our common stock will, however, be
reported to the Internal Revenue Service ("IRS") and to the non-U.S. holder on
IRS Form 1042-S.

     Information reporting and backup withholding also generally will not apply
to a payment of the proceeds of a sale of our common stock effected outside the
United States by a foreign office of a foreign broker. However, information
reporting requirements (but not backup withholding) will apply to a payment of
the proceeds of a sale of our common stock effected outside the United States by
a foreign office of a broker if the broker (i) is a United States person, (ii)
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States, (iii) is a "controlled foreign
corporation" as to the United States, or (iv) is a foreign partnership that, at
any time during its taxable year, is 50% or more (by income or capital interest)
owned by United States persons or is engaged in the conduct of a U.S. trade or
business, unless in any such case the broker has documentary evidence in its
records that the holder is a non-U.S. holder and certain conditions are met, or
the holder otherwise establishes an exemption. Payment by a United States office
of a broker of the proceeds of a sale of our common stock will be subject to
both backup withholding and information reporting unless the holder certifies
its non-U.S. status under penalties of perjury or otherwise establishes an
exemption. Pursuant to recent tax legislation the rate of backup withholding tax
will be 30.5% for payments made after August 6, 2001 and will be reduced to 30%
on January 1, 2002, 29% on January 1, 2004 and 28% on January 1, 2006.

     Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against that holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.

                                        49
<PAGE>   54

                            THE SELLING STOCKHOLDERS

     The following are the stockholders for whose accounts the common stock is
being offered; the amount of common stock owned by such stockholders prior to
this offering; the amount of common stock to be offered for the stockholder's
account; and the amount to be owned by such stockholder following completion of
the offering. Other than as disclosed below, no selling stockholder holds or has
held during the past three years any position, office, or other material
relationship with the company.

<Table>
<Caption>
                                                           # OF                                       % OF
                                        RELATIONSHIP   SHARES OWNED                     # OF         SHARES
                                            WITH         PRIOR TO     # OF SHARES   SHARES OWNED     OWNED
     NAME OF SELLING STOCKHOLDER          COMPANY        OFFERING       OFFERED      AFTER SALE    AFTER SALE
     ---------------------------        ------------   ------------   -----------   ------------   ----------
<S>                                     <C>            <C>            <C>           <C>            <C>
</Table>

                                        50
<PAGE>   55

                                  UNDERWRITING

     Under the terms and subject to the conditions contained in an underwriting
agreement dated                     , 2001, we and the selling stockholders have
agreed to sell to the underwriters named below, for whom Credit Suisse First
Boston Corporation, U.S. Bancorp Piper Jaffray Inc., Jefferies & Company, Inc.
and Stephens Inc. are acting as representatives, the following respective
numbers of shares of common stock:

<Table>
<Caption>
                                                               NUMBER
                        UNDERWRITER                           OF SHARES
                        -----------                           ---------
<S>                                                           <C>
Credit Suisse First Boston Corporation......................
U.S. Bancorp Piper Jaffray Inc. ............................
Jefferies & Company, Inc. ..................................
Stephens Inc. ..............................................

                                                              --------
  Total.....................................................
                                                              ========
</Table>

     The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.

     We and the selling stockholders have granted to the underwriters a 30-day
option to purchase on a pro rata basis up to                additional shares
from us and an aggregate of                additional outstanding shares from
the selling stockholders at the initial public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.

     The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $     per share. The
underwriters and selling group members may allow a discount of $     per share
on sales to other broker/dealers. After the initial public offering, the
representatives may change the public offering price and concession and discount
to broker/dealers.

     The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay:

<Table>
<Caption>
                                                        PER SHARE                           TOTAL
                                             -------------------------------   -------------------------------
                                                WITHOUT            WITH           WITHOUT            WITH
                                             OVER-ALLOTMENT   OVER-ALLOTMENT   OVER-ALLOTMENT   OVER-ALLOTMENT
                                             --------------   --------------   --------------   --------------
<S>                                          <C>              <C>              <C>              <C>
Underwriting discounts and commissions paid
  by us....................................     $                $                $                $
Expenses payable by us.....................     $                $                $                $
Underwriting discounts and commissions paid
  by selling stockholders..................     $                $                $                $
Expenses payable by the selling
  stockholders.............................     $                $                $                $
</Table>

                                        51
<PAGE>   56

     The representatives have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

     We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.

     Our officers, directors and stockholders have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction that would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any of these transactions
are to be settled by delivery of our common stock or other securities, in cash
or otherwise, or publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.

     The underwriters have reserved for sale at the initial public offering
price up to                shares of our common stock for employees, directors
and other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.

     We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments that the
underwriters may be required to make in that respect.

     We will apply to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "     ".

     Prior to this offering, there has been no public trading market for our
common stock. The initial public offering price for our common stock will be
determined by negotiation between us, the selling stockholders and the
representatives. The principal factors to be considered in determining the
initial public offering price include:

     - the information included in this prospectus and otherwise available to
       the representatives,

     - the history and the prospects of the industry in which we compete,

     - the ability of our management,

     - our past and present operations,

     - our prospects for future earnings,

     - the recent market prices of and demand for publicly traded common stock
       of generally comparable companies,

     - market conditions for initial public offerings, and

     - the general condition of the securities markets at the time of this
       offering.

     We cannot assure you that the initial public offering price will correspond
to the price at which our common stock will trade in the public market
subsequent to the offering or that an active trading market for our common stock
will develop and continue after the offering.

                                        52
<PAGE>   57

     In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act.

     - Stabilizing transactions permit bids to purchase the underlying security
       so long as the stabilizing bids do not exceed a specified maximum.

     - Over-allotment involves sales by the underwriters of shares in excess of
       the number of shares the underwriters are obligated to purchase, which
       creates a syndicate short position. The short position may be either a
       covered short position or a naked short position. In a covered short
       position, the number of shares over-allotted by the underwriters is not
       greater than the number of shares that they may purchase in the
       over-allotment option. In a naked short position, the number of shares
       involved is greater than the number of shares in the over-allotment
       option. The underwriters may close out any short position by either
       exercising their over-allotment option and/or purchasing shares in the
       open market.

     - Syndicate covering transactions involve purchases of the common stock in
       the open market after the distribution has been completed in order to
       cover syndicate short positions. In determining the source of shares to
       close out the short position, the underwriters will consider, among other
       things, the price of shares available for purchase in the open market as
       compared to the price at which they may purchase shares through the
       over-allotment option. If the underwriters sell more shares than could be
       covered by the over-allotment option, a naked short position, the
       position can only be closed out by buying shares in the open market. A
       naked short position is more likely to be created if the underwriters are
       concerned that there could be downward pressure on the price of the
       shares in the open market after pricing that could adversely affect
       investors who purchase in the offering.

     - Penalty bids permit the representatives to reclaim a selling concession
       from a syndicate member when the common stock originally sold by the
       syndicate member is purchased in a stabilizing or syndicate covering
       transaction to cover syndicate short positions.

     These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common stock or preventing or retarding a decline in the market price of our
common stock. As a result the price of our common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.

     A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations. Credit Suisse First Boston Corporation may effect an
on-line distribution through its affiliate, CSFBdirect Inc., an on-line
broker/dealer, as a selling group member.

                                        53
<PAGE>   58

                          NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

     The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.

REPRESENTATIONS OF PURCHASERS

     By purchasing common stock in Canada and accepting a purchase confirmation
a purchaser is representing to us, the selling stockholders and the dealer from
whom the purchase confirmation is received that:

     - the purchaser is entitled under applicable provincial securities laws to
       purchase the common stock without the benefit of a prospectus qualified
       under those securities laws,

     - where required by law, that the purchaser is purchasing as principal and
       not as agent, and

     - the purchaser has reviewed the text above under "Resale Restrictions".

RIGHTS OF ACTION (ONTARIO PURCHASERS)

     The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

     All of the issuer's directors and officers, as well as the experts named
herein and the selling stockholders, may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

     A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. The report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
for common stock acquired on the same date and under the same prospectus
exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

     Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.

                                        54
<PAGE>   59

                                 LEGAL MATTERS

     The validity of the common stock offered hereby will be passed upon for us
by Irell & Manella LLP, Los Angeles, California. Selected legal matters in
connection with this offering will be passed upon for the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California.

                                    EXPERTS

     The consolidated financial statements of Big 5 Sporting Goods Corporation
and subsidiary as of January 2, 2000 and December 31, 2000 and for each of the
fiscal years ended January 3, 1999, January 2, 2000 and December 31, 2000 have
been included herein and in the registration statement in reliance on the report
of KPMG LLP, independent certified public accountants appearing elsewhere herein
and upon the authority of said firm as experts in accounting and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

     We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules, which are part of the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and exhibits and schedules filed as part
of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other documents are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
Any document we file may be read and copied at the Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our filings with the Commission are also available to the
public from the Commission's Web site at http://www.sec.gov.

     Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act, and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the Web site of the Commission referred to above.

                                        55
<PAGE>   60

                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<S>                                                           <C>
Index to Consolidated Financial Statements..................  F-1
Independent Auditors' Report................................  F-2
Consolidated Balance Sheets at January 2, 2000, December 31,
  2000 and July 1, 2001 (unaudited).........................  F-3
Fiscal Years Ended January 3, 1999, January 2, 2000,
  December 31, 2000 and twenty-six weeks ended July 2, 2000
  (unaudited) and July 1, 2001 (unaudited)
  Consolidated Statements of Operations.....................  F-4
  Consolidated Statements of Stockholders' Deficit..........  F-5
  Consolidated Statements of Cash Flows.....................  F-6
Notes to Consolidated Financial Statements..................  F-7
</Table>

                                       F-1
<PAGE>   61

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Big 5 Sporting Goods Corporation:

     We have audited the consolidated financial statements of Big 5 Sporting
Goods Corporation and subsidiary as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Big 5
Sporting Goods Corporation and subsidiary as of January 2, 2000 and December 31,
2000 and the results of their operations and their cash flows for each of the
fiscal years ended January 3, 1999, January 2, 2000 and December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.

                                          KPMG LLP

Los Angeles, California
August 9, 2001

                                       F-2
<PAGE>   62

                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                              JANUARY 2,   DECEMBER 31,     JULY 1,
                                                                 2000          2000          2001
                                                              ----------   ------------   -----------
                                                                                          (UNAUDITED)
<S>                                                           <C>          <C>            <C>
                           ASSETS
CURRENT ASSETS:
  Trade and other receivables, net of allowance for doubtful
     accounts of $93, $11 and $220, respectively............  $   6,405     $   7,085      $  4,936
  Merchandise inventories...................................    155,283       168,981       178,401
  Prepaid expenses..........................................      1,435         1,146         1,835
                                                              ---------     ---------      --------
     Total current assets...................................    163,123       177,212       185,172
                                                              ---------     ---------      --------
Property and equipment:
  Land......................................................        186           186           186
  Buildings and improvements................................     22,885        27,264        29,219
  Furniture and equipment...................................     45,396        50,089        50,580
  Less accumulated depreciation and amortization............    (32,910)      (37,577)      (39,545)
                                                              ---------     ---------      --------
     Net property and equipment.............................     35,557        39,962        40,440
                                                              ---------     ---------      --------
Deferred income taxes, net..................................      7,667        13,159        14,037
Leasehold interest, net of accumulated amortization of
  $17,452, $19,387 and $20,288, respectively................     11,131         9,347         8,451
Other assets, at cost, less accumulated amortization of
  $1,293, $1,442 and $1,809, respectively...................      5,540         4,621         4,066
Goodwill, less accumulated amortization of $1,618, $1,865
  and $1,989, respectively..................................      4,927         4,680         4,556
                                                              ---------     ---------      --------
     Total assets...........................................  $ 227,945     $ 248,981      $256,722
                                                              =========     =========      ========
 LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
                           DEFICIT
CURRENT LIABILITIES:
  Accounts payable..........................................  $  51,087     $  59,241      $ 62,624
  Accrued expenses..........................................     40,747        48,544        38,855
                                                              ---------     ---------      --------
     Total current liabilities..............................     91,834       107,785       101,479
Deferred rent...............................................      7,159         7,533         7,702
Long-term debt..............................................    178,446       172,098       180,127
                                                              ---------     ---------      --------
     Total liabilities......................................    277,439       287,416       289,308
                                                              ---------     ---------      --------
Redeemable Series A 13.45% Senior Exchangeable Preferred
  Stock, $0.01 par value. Authorized 350,000 shares; issued
  and outstanding 350,000 shares at January 2, 2000,
  December 31, 2000, and July 1, 2001, respectively.........     45,408        51,721        55,199
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
  Preferred stock, $0.01 par value. Authorized 1,150,000
     shares; no shares issued and outstanding at January 2,
     2000, December 31, 2000 and July 1, 2001,
     respectively...........................................         --            --            --
  Common stock, $0.01 par value. Authorized 5,000,000
     shares; issued and outstanding 1,926,900, 1,926,500,
     and 1,926,500 shares at January 2, 2000, December 31,
     2000 and July 1, 2001, respectively....................         19            19            19
  Additional paid-in capital................................      9,982         9,980         9,980
  Accumulated deficit.......................................   (104,903)     (100,155)      (97,784)
                                                              ---------     ---------      --------
     Net stockholders' deficit..............................    (94,902)      (90,156)      (87,785)
                                                              ---------     ---------      --------
     Total liabilities, redeemable preferred stock and
       stockholders' deficit................................  $ 227,945     $ 248,981      $256,722
                                                              =========     =========      ========
</Table>

See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   63

                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                 FISCAL YEAR ENDED
                                       --------------------------------------        26 WEEKS ENDED
                                       JANUARY 3,                               -------------------------
                                          1999      JANUARY 2,   DECEMBER 31,     JULY 2,       JULY 1,
                                       (53 WEEKS)      2000          2000          2000          2001
                                       ----------   ----------   ------------   -----------   -----------
                                                                                (UNAUDITED)   (UNAUDITED)
<S>                                    <C>          <C>          <C>            <C>           <C>
Net sales............................  $  491,430   $  514,324    $  571,476    $  266,983    $  294,635
Cost of goods sold, buying and
  occupancy..........................     330,243      341,852       377,040       175,701       193,190
                                       ----------   ----------    ----------    ----------    ----------
     Gross profit....................     161,187      172,472       194,436        91,282       101,445
                                       ----------   ----------    ----------    ----------    ----------
Operating expenses:
  Selling and administrative.........     122,057      131,222       144,703        71,108        78,788
  Depreciation and amortization......       8,890        9,479         9,340         4,646         5,144
                                       ----------   ----------    ----------    ----------    ----------
     Total operating expenses........     130,947      140,701       154,043        75,754        83,932
                                       ----------   ----------    ----------    ----------    ----------
     Operating income................      30,240       31,771        40,393        15,528        17,513
Interest expense.....................      22,975       21,574        22,008        11,063        10,181
                                       ----------   ----------    ----------    ----------    ----------
     Income before income taxes and
       extraordinary gain (loss).....       7,265       10,197        18,385         4,465         7,332
Income taxes.........................       2,838        4,000         7,324         1,820         3,032
                                       ----------   ----------    ----------    ----------    ----------
     Income before extraordinary gain
       (loss)........................       4,427        6,197        11,061         2,645         4,300
Extraordinary gain (loss) from early
  extinguishment of debt, net of
  income taxes.......................          79         (372)           87            87         1,600
                                       ----------   ----------    ----------    ----------    ----------
     Net income......................  $    4,506   $    5,825    $   11,148    $    2,732    $    5,900
                                       ==========   ==========    ==========    ==========    ==========
Net income per common stockholder
  excluding extraordinary item:
  Basic..............................  $    (0.31)  $     0.30    $     2.42    $    (0.23)   $     0.40
                                       ==========   ==========    ==========    ==========    ==========
  Diluted............................  $    (0.31)  $     0.29    $     2.35    $    (0.23)   $     0.39
                                       ==========   ==========    ==========    ==========    ==========
Net income per common stockholder:
  Basic..............................  $    (0.27)  $     0.11    $     2.46    $    (0.19)   $     1.23
                                       ==========   ==========    ==========    ==========    ==========
  Diluted............................  $    (0.27)  $     0.10    $     2.39    $    (0.19)   $     1.19
                                       ==========   ==========    ==========    ==========    ==========
Weighted average shares of common
  stock outstanding:
  Basic..............................   1,934,199    1,927,374     1,926,870     1,926,900     1,926,500
                                       ==========   ==========    ==========    ==========    ==========
  Diluted............................   1,934,199    1,987,374     1,986,870     1,926,900     1,986,500
                                       ==========   ==========    ==========    ==========    ==========
</Table>

See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   64

                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FISCAL YEARS ENDED JANUARY 3, 1999 (53 WEEKS), JANUARY 2, 2000 AND DECEMBER 31,
                                      2000
                  AND 26 WEEKS ENDED JULY 1, 2001 (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                 COMMON STOCK      ADDITIONAL                      NET
                                              ------------------    PAID-IN     ACCUMULATED   STOCKHOLDERS'
                                               SHARES     AMOUNT    CAPITAL       DEFICIT        DEFICIT
                                              ---------   ------   ----------   -----------   -------------
<S>                                           <C>         <C>      <C>          <C>           <C>
Balance at December 28, 1997................  1,940,000    $19      $10,048      $(104,577)     $(94,510)
Redeemable preferred stock dividend.........         --     --           --         (5,036)       (5,036)
Repurchase of common stock..................    (12,300)    --          (62)            --           (62)
Net income..................................         --     --           --          4,506         4,506
                                              ---------    ---      -------      ---------      --------
Balance at January 3, 1999..................  1,927,700     19        9,986       (105,107)      (95,102)
Redeemable preferred stock dividend.........         --     --           --         (5,621)       (5,621)
Repurchase of common stock..................       (800)    --           (4)            --            (4)
Net income..................................         --     --           --          5,825         5,825
                                              ---------    ---      -------      ---------      --------
Balance at January 2, 2000..................  1,926,900     19        9,982       (104,903)      (94,902)
Redeemable preferred stock dividend.........         --     --           --         (6,400)       (6,400)
Repurchase of common stock..................       (400)    --           (2)            --            (2)
Net income..................................         --     --           --         11,148        11,148
                                              ---------    ---      -------      ---------      --------
Balance at December 31, 2000................  1,926,500     19        9,980       (100,155)      (90,156)
Redeemable preferred stock dividend
  (unaudited)...............................         --     --           --         (3,529)       (3,529)
Net income (unaudited)......................         --     --           --          5,900         5,900
                                              ---------    ---      -------      ---------      --------
Balance at July 1, 2001 (unaudited).........  1,926,500    $19      $ 9,980      $ (97,784)     $(87,785)
                                              =========    ===      =======      =========      ========
</Table>

See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   65

                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                              FISCAL YEAR ENDED
                                                    --------------------------------------        26 WEEKS ENDED
                                                    JANUARY 3,                               -------------------------
                                                       1999      JANUARY 2,   DECEMBER 31,     JULY 2,       JULY 1,
                                                    (53 WEEKS)      2000          2000          2000          2001
                                                    ----------   ----------   ------------   -----------   -----------
                                                                                             (UNAUDITED)   (UNAUDITED)
<S>                                                 <C>          <C>          <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income......................................   $  4,506     $  5,825      $ 11,148      $  2,732       $ 5,900
  Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
     Depreciation and amortization................      8,890        9,479         9,340         4,646         5,144
     Amortization of deferred finance charges and
       discounts..................................      4,638        4,293         4,684         1,961         1,932
     Deferred tax provision (benefit).............        181       (1,567)       (5,492)         (966)         (878)
     Loss on disposal of equipment and leasehold
       interest...................................         --          133           278           119            25
     Extraordinary (gain) loss from early
       extinguishment of debt.....................       (133)         621          (148)         (148)       (2,591)
     Changes in operating assets and liabilities:
       Merchandise inventories....................        (17)      (7,987)      (13,698)      (14,253)       (9,420)
       Trade and other accounts receivable, net...        355          (58)         (680)        1,773         2,149
       Income tax receivable......................      2,788           --            --            --            --
       Prepaid expenses and other assets..........       (899)         219           182            63          (778)
       Accounts payable...........................      9,621       (3,088)        6,719         7,751         4,703
       Accrued expenses...........................       (169)       8,605         7,710        (8,257)       (9,739)
                                                     --------     --------      --------      --------       -------
          Net cash provided by (used in) operating
            activities............................     29,761       16,475        20,043        (4,579)       (3,553)
                                                     --------     --------      --------      --------       -------
CASH FLOWS FROM INVESTING ACTIVITIES -- purchases
  of property and equipment.......................     (8,500)     (13,075)      (11,602)       (5,237)       (4,457)
                                                     --------     --------      --------      --------       -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (repayments) under revolving
     credit facilities and other..................   $(19,957)    $ 17,027      $ (1,100)     $ 17,157       $14,698
  Repayment of Notes..............................     (2,606)     (20,423)       (7,339)       (7,339)       (6,688)
  Repurchase of common stock......................        (62)          (4)           (2)           (2)           --
                                                     --------     --------      --------      --------       -------
          Net cash provided by (used in) financing
            activities............................    (22,625)      (3,400)       (8,441)        9,816         8,010
                                                     --------     --------      --------      --------       -------
          Net increase (decrease) in cash.........     (1,364)          --            --            --            --
Cash at beginning of year.........................      1,364           --            --            --            --
                                                     --------     --------      --------      --------       -------
Cash at end of year...............................   $     --     $     --      $     --      $     --       $    --
                                                     ========     ========      ========      ========       =======
Supplemental disclosures of non-cash financing
  activities:
  Dividends on preferred stock....................   $  5,036     $  5,621      $  6,400      $  3,092       $ 3,529
                                                     ========     ========      ========      ========       =======
Supplemental disclosures of cash flow information:
  Interest paid...................................   $ 18,044     $ 16,935      $ 17,013
                                                     ========     ========      ========
  Income taxes paid...............................         --        1,664         8,143
                                                     ========     ========      ========
</Table>

See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>   66

                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        JANUARY 2, 2000, DECEMBER 31, 2000 AND JULY 1, 2001 (UNAUDITED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

     The accompanying consolidated financial statements as of January 2, 2000,
December 31, 2000 and July 1, 2001 (unaudited) and for the fiscal years ended
January 3, 1999, January 2, 2000, December 31, 2000 and 26 weeks ended July 2,
2000 (unaudited) and July 1, 2001 (unaudited) represent the financial position
and results of operations of Big 5 Sporting Goods Corporation and subsidiary.
The Company operates in one business segment, as a sporting goods retailer under
the Big 5 Sporting Goods name carrying a broad range of hardlines, softlines and
footwear, operating 252 stores at July 1, 2001 in California, Washington,
Arizona, Oregon, Texas, New Mexico, Nevada, Utah, Idaho and Colorado.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

     The consolidated financial statements include Big 5 Sporting Goods
Corporation and its wholly owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.

REPORTING PERIOD

     The Company reports on a 52-53 week fiscal year ending on the Sunday
nearest December 31. Information presented for the fiscal years ended December
31, 2000 and January 2, 2000 represent 52-week fiscal years, while information
presented for the year ended January 3, 1999 represents a 53-week fiscal year.

REVENUE RECOGNITION

     The Company's revenue is received from retail sales of merchandise through
the Company's stores. Revenue is recognized when merchandise is received by the
customer and is shown net of returns.

OTHER RECEIVABLES

     Other receivables consist principally of amounts due from vendors for
certain co-op advertising and amounts due from credit card companies. An
allowance for doubtful accounts is provided when accounts are determined to be
uncollectible.

MERCHANDISE INVENTORIES

     The Company values merchandise inventories using the lower of average cost
(which approximates the first-in, first-out cost) or market method. Average cost
includes the direct purchase price of merchandise inventory and certain overhead
costs associated with the Company's distribution center.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost and depreciated over the
estimated useful lives or lease terms, using the straight-line method.

     The estimated useful lives are 40 years for buildings, 7 to 10 years for
fixtures and equipment and the shorter of the lease term or 10 years for
leasehold improvements. Maintenance and repairs are charged to expense as
incurred.

                                       F-7
<PAGE>   67
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LEASEHOLD INTEREST

     Upon acquisition of the Company in 1992, an asset was recognized for the
net fair value of favorable operating lease agreements. The leasehold interest
asset is being amortized on a straight-line basis over 13.5 years. The
unamortized balance attributable to leases terminated since the acquisition has
been reflected as a component of the gain or loss upon disposition of the
underlying properties.

GOODWILL

     Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over periods ranging
from 15 to 30 years. The Company assesses the recoverability of goodwill by
determining whether the carrying value can be recovered through undiscounted
future operating cash flows from the assets. The impairment, if any, is measured
based on projected discounted future operating cash flows using a discount rate
equal to the Company's average cost of funds. Recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.

OTHER ASSETS

     Other assets consist principally of deferred financing costs and are
amortized straight-line over the terms of the respective debt.

SELF-INSURANCE RESERVES

     The Company maintains self-insurance programs for workers' compensation and
general liability risks. The Company is self-insured up to specified
per-occurrence limits and maintains insurance coverage for losses in excess of
specified amounts. Estimated costs under these programs, including incurred but
not reported claims, are recorded as expenses based upon actuarially determined
historical experience and trends of paid and incurred claims.

PREOPENING EXPENSES

     New store preopening expenses are charged against operations as incurred.

ADVERTISING EXPENSES

     The Company recognizes advertising costs the first time the advertising
takes place. Advertising expenses amounted to $33,498 for the fiscal year ended
December 31, 2000, $30,613 for the fiscal year ended January 2, 2000 and $28,465
for the fiscal year ended January 3, 1999. Advertising expense is included in
selling and administrative.

INCOME TAXES

     The Company accounts for income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The realizability of deferred tax assets is
assessed throughout the year and a valuation allowance is established if deemed
necessary.

                                       F-8
<PAGE>   68
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EARNINGS PER SHARE

     Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average common shares outstanding during the
period. Diluted earnings per share is calculated by using the weighted average
of common shares outstanding adjusted to include the potentially dilutive effect
of an outstanding warrant.

USE OF ESTIMATES

     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.

CONCENTRATION OF CREDIT RISK

     Customer purchases are generally transacted using cash or credit cards. In
certain instances, the Company grants credit to schools and youth-oriented
organizations, under normal trade terms. Trade accounts receivable were
approximately $337 and $306 at December 31, 2000 and January 2, 2000,
respectively.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

     The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value, less costs to sell.

STOCK COMPENSATION

     The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), and has elected
to measure compensation costs under Accounting Principle Board Opinion No. 25,
Accounting for Stock Issued to Employees, and comply with the pro forma
disclosure requirements of SFAS No. 123, except for options and warrants granted
to nonemployees, which are recorded in the financial statements under SFAS No.
123.

INTERIM FINANCIAL DATA

     The unaudited operating results have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments (consisting of normal recurring accruals) necessary for
the fair presentation for the periods presented. The unaudited financial
statements should be read in conjunction with the audited consolidated financial
statements presented for each of the years in the three year period ended
December 31, 2000.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

     On July 20, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. These new
pronouncements significantly change the permissible accounting
                                       F-9
<PAGE>   69
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

methods for business combinations and the treatment of goodwill and other
intangible assets. Prior to the adoption of these new standards, goodwill and
similar intangible assets were generally amortized into income on a stated
periodic basis. This treatment will be replaced by an alternative system, which
will not require intangible amortization on a stated basis but rather will
require periodic testing of the intangible for impairment, with no charge to
income except to the extent of any such impairment. The Company is required to
adopt the provisions of SFAS No. 141 immediately and SFAS No. 142 effective
January 1, 2002, at which time the Company will cease to record periodic
goodwill charges absent an impairment charge. As of July 1, 2001, the Company
had $4.6 million of goodwill on the consolidated balance sheet. The adoption of
SFAS Nos. 141 and 142 is not expected to have a material effect on the Company's
financial position or results of operations.

(3) LONG-TERM DEBT

     Long-term debt consists of the following:

<Table>
<Caption>
                                                       JANUARY 2,    DECEMBER 31,
                                                          2000           2000
                                                       ----------    ------------
<S>                                                    <C>           <C>
Revolving credit facility............................   $ 39,856       $ 37,321
10.875% Senior Notes, net of unamortized discount,
  $104.1 million face amount due in 2007.............    111,453        103,768
13.45% Senior Discount Notes, net of unamortized
  discount, $40.7 million face amount due in 2008....     27,137         31,009
                                                        --------       --------
  Total long-term debt...............................   $178,446       $172,098
                                                        ========       ========
</Table>

     In 1997, the Company issued $131.0 million face amount, 10.875% Senior
Notes due 2007 (Senior Notes), less a discount of $591 based on an imputed
interest rate of 10.95%. The notes require semiannual interest payments on each
May 15 and November 15, commencing on May 15, 1998. The Company has no mandatory
payments of principal on the Senior Notes prior to their maturity in 2007. The
notes may be redeemed in whole or in part, at the option of the Company, at any
time on or after November 15, 2002, at the redemption prices set forth below
with respect to the indicated redemption date, together with any accrued and
unpaid interest to such redemption date. During fiscal 1999, the Company
repurchased $19,100 of Senior Notes. The Company repurchased an additional
$7,750 of Senior Notes during the year ended December 31, 2000.

     If redeemed during the 12-month period beginning November 15, the
redemption prices of the Senior Notes before accrued and unpaid interest are as
follows:

<Table>
<Caption>
                           YEAR                             PERCENTAGE
                           ----                             ----------
<S>                                                         <C>
2002......................................................   105.475%
2003......................................................   103.650
2004......................................................   101.825
2005 and thereafter.......................................   100.000
</Table>

     In 1997, the Company issued $48.2 million face amount, 13.45% Senior
Discount Notes (Senior Discount Notes) due 2008, less discount of $24.0 million
based on an imputed interest rate of 13.85%. The Senior Discount Notes were
issued with a warrant (see Note 14) for aggregate consideration of $24.5
million. The Senior Discount Notes are unsecured and cash interest will not
accrue on the Senior Discount Notes prior to November 30, 2002. Thereafter, cash
interest on the Senior Discount Notes will accrue at 13.45% per annum and will
be payable semiannually in arrears on each May 31 and November 30, commencing in
May 2003. The Company has no mandatory payments of principal on the Senior
Discount Notes prior to their maturity in 2008. During fiscal 1998, the Company
repurchased and

                                       F-10
<PAGE>   70
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

retired $5.0 million face value of Senior Discount Notes. The Company
repurchased and retired $2.5 million face value of Senior Discount Notes in
fiscal 1999.

     The Senior Discount Notes may be redeemed, in their entirety only, at the
option of the Company upon the Company's receipt of proceeds from an initial
public offering of its common stock at any time prior to November 30, 2002 at a
redemption price equal to 113.45% of their accreted value plus accrued but
unpaid interest.

     The Senior Discount Notes may also be redeemed at the option of the Company
in whole or in part on or after November 30, 2002 at the redemption prices set
forth below with respect to the indicated redemption date together with any
accrued and unpaid interest to such redemption date. The Senior Discount Notes
Indenture contains covenants that, among other things, limit the ability of the
Company to enter into certain mergers or consolidations or incur certain liens
and to incur additional indebtedness, pay dividends and make certain other
restricted payments and engage in certain transactions with affiliates. Under
certain circumstances, including a change in control (as defined in the Senior
Discount Notes indenture), the Company may be required to make an offer to
purchase the Senior Discount Notes at prices specified in the Senior Discount
Note indenture. The Senior Discount Notes indenture contains certain customary
events of default, which include the failure to pay interest and principal, the
failure to comply with certain covenants in the Senior Discount Notes or certain
events occurring under bankruptcy laws.

     If redeemed during the 12-month period beginning November 30, the
redemption prices of the Senior Discount Notes before accrued and unpaid
interest are as follows:

<Table>
<Caption>
                           YEAR                             PERCENTAGE
                           ----                             ----------
<S>                                                         <C>
2002......................................................   110.000%
2003......................................................   106.670
2004......................................................   103.330
2005 and thereafter.......................................   100.000
</Table>

     The Company has a five-year, non-amortizing $125.0 million revolving credit
facility (the CIT Credit Facility), expiring in November 2002. The CIT Credit
Facility bears interest at various rates based on the Company's performance,
with a floor of LIBOR plus 1.50% or the Chase Manhattan prime lending rate and a
ceiling of LIBOR plus 2.50% or the Chase Manhattan prime lending rate plus 0.75%
and is secured by trade accounts receivable, merchandise inventory and general
intangible assets (including trademarks and trade names) of the Company. At
December 31, 2000, loans under the CIT Credit Facility bear interest at a rate
of LIBOR (6.73% at December 31, 2000) plus 1.50% or the Chase Manhattan prime
lending rate (9.50% at December 31, 2000). An annual fee of 0.325%, payable
monthly, is assessed on the unused portion of the facility. On December 31,
2000, the Company had $37,321 in LIBOR and prime lending rate borrowings and
letters of credit of $4,046 outstanding. The Company's maximum eligible
borrowing available under the facility is limited to 70% of the aggregate value
of eligible inventory during November through February and 65% of the aggregate
value of eligible inventory during the remaining months of the year. Available
borrowings over and above actual LIBOR and prime rate borrowings and letters of
credit outstanding on the CIT Credit Facility amounted to $73,826 at December
31, 2000.

     The various debt agreements contain covenants restricting the ability of
the Company to, among other things, incur additional debt, pay dividends, merge
or consolidate with or invest in other companies, sell, lease or transfer all or
substantially all of its properties or assets, or make certain payments with
respect to its outstanding capital stock, and engage in certain transactions
with affiliates. In addition, the Company must comply with certain financial
covenants. The Company was in compliance with such covenants at December 31,
2000.

                                       F-11
<PAGE>   71
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) FAIR VALUES OF FINANCIAL INSTRUMENTS

     The fair value of cash and cash equivalents, trade and other receivables,
trade accounts payable and accrued expenses approximate the fair values of these
instruments due to their short-term nature. The fair value of the Company's
Senior Notes at December 31, 2000 approximated $92.7 million based on recent
market prices. The fair value of the Company's Senior Discount Notes at December
31, 2000 approximated $21.8 million based on recent market prices. The carrying
amount of the revolving credit facility reflects the fair value based on current
rates available to the Company for debt with the same remaining maturities.

(5) LEASES

     The Company currently leases certain stores, distribution facilities,
vehicles and equipment under noncancelable operating leases that expire through
the year 2019. These leases generally contain renewal options for periods
ranging from 5 to 15 years and require the Company to pay all executory costs
such as maintenance and insurance.

     Certain leases contain escalation clauses and provide for contingent
rentals based on percentages of sales. The Company recognizes rental expense on
a straight-line basis over the terms of the underlying leases, without regard to
when rentals are paid. The accrual of the current noncash portion of this rental
expense has been included in depreciation and amortization in the accompanying
consolidated statements of operations and cash flows and deferred rent in the
accompanying consolidated balance sheets.

     Rental expense for operating leases consisted of the following:

<Table>
<Caption>
                                                               FISCAL YEAR ENDED
                                                    ----------------------------------------
                                                    JANUARY 3,    JANUARY 2,    DECEMBER 31,
                                                       1999          2000           2000
                                                    ----------    ----------    ------------
<S>                                                 <C>           <C>           <C>
Cash rental payments..............................   $25,711       $27,179        $29,667
Noncash rentals...................................       546           625            375
Contingent rentals................................     1,506         1,360          1,592
                                                     -------       -------        -------
  Rental expense..................................   $27,763       $29,164        $31,634
                                                     =======       =======        =======
</Table>

     Future minimum lease payments (cash rentals) under noncancelable operating
leases (with initial or remaining lease terms in excess of one year) as of
December 31, 2000 are:

<Table>
<S>                                                          <C>
Year ending:
  2001.....................................................  $30,944
  2002.....................................................   29,765
  2003.....................................................   28,995
  2004.....................................................   28,213
  Thereafter...............................................  145,966
</Table>

                                       F-12
<PAGE>   72
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) ACCRUED EXPENSES

     Accrued expenses consist of the following:

<Table>
<Caption>
                                                       JANUARY 2,    DECEMBER 31,
                                                          2000           2000
                                                       ----------    ------------
<S>                                                    <C>           <C>
Payroll and related expenses.........................   $11,651        $13,557
Advertising..........................................     4,973          5,059
Sales tax............................................     5,946          6,781
Income tax...........................................     3,274          8,018
Other................................................    14,903         15,129
                                                        -------        -------
                                                        $40,747        $48,544
                                                        =======        =======
</Table>

(7) INCOME TAXES

     Total income tax expense (benefit) consists of the following:

<Table>
<Caption>
                                                               FISCAL YEAR ENDED
                                                    ----------------------------------------
                                                    JANUARY 3,    JANUARY 2,    DECEMBER 31,
                                                       1999          2000           2000
                                                    ----------    ----------    ------------
<S>                                                 <C>           <C>           <C>
Income tax before extraordinary gain (loss).......   $ 2,838       $ 4,000         $7,324
Tax effect of extraordinary gain (loss)...........        54          (249)            61
                                                     -------       -------         ------
  Total income tax expense........................   $ 2,892       $ 3,751         $7,385
                                                     =======       =======         ======
</Table>

<Table>
<Caption>
                                                     CURRENT       DEFERRED        TOTAL
                                                    ----------    ----------    ------------
<S>                                                 <C>           <C>           <C>
2000:
  Federal.........................................   $10,506       $(4,882)        $5,624
  State...........................................     2,310          (610)         1,700
                                                     -------       -------         ------
                                                     $12,816       $(5,492)        $7,324
                                                     =======       =======         ======
1999:
  Federal.........................................   $ 4,591       $(1,327)        $3,264
  State...........................................       976          (240)           736
                                                     -------       -------         ------
                                                     $ 5,567       $(1,567)        $4,000
                                                     =======       =======         ======
1998:
  Federal.........................................   $ 2,475       $  (206)        $2,269
  State...........................................       182           387            569
                                                     -------       -------         ------
                                                     $ 2,657       $   181         $2,838
                                                     =======       =======         ======
</Table>

                                       F-13
<PAGE>   73
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The provision for income taxes differs from the amounts computed by
applying the Federal statutory tax rate of 35% to earnings before income taxes
and extraordinary items, as follows:

<Table>
<Caption>
                                                               FISCAL YEAR ENDED
                                                    ----------------------------------------
                                                    JANUARY 3,    JANUARY 2,    DECEMBER 31,
                                                       1999          2000           2000
                                                    ----------    ----------    ------------
<S>                                                 <C>           <C>           <C>
Tax expense at statutory rate.....................    $2,542        $3,568         $6,434
State taxes, net of Federal benefit...............       352           495            875
Increase (decrease) in valuation allowance, net of
  IRS adjustment in 1998..........................      (157)           --             --
Other.............................................       101           (63)            15
                                                      ------        ------         ------
                                                      $2,838        $4,000         $7,324
                                                      ======        ======         ======
</Table>

     Deferred tax assets and liabilities consist of the following tax-effected
temporary differences:

<Table>
<Caption>
                                                       JANUARY 2,    DECEMBER 31,
                                                          2000           2000
                                                       ----------    ------------
<S>                                                    <C>           <C>
Deferred tax assets:
  Self-insurance reserves............................    $1,401        $ 1,844
  Employee benefits..................................     1,476          1,754
  State taxes........................................       455            809
  Noncash rent expense...............................     2,852          3,001
  Amortization of tangible and intangible assets.....       827            598
  Deferred interest..................................        --          4,560
  Other..............................................       700            883
                                                         ------        -------
     Deferred tax assets.............................     7,711         13,449
Deferred liabilities -- basis in fixed assets........        44            290
                                                         ------        -------
     Net deferred tax assets.........................    $7,667        $13,159
                                                         ======        =======
</Table>

     In 1998, the Company reduced the valuation allowance to reflect
realizability of its deferred tax assets. In doing so, management considered
whether it was more likely than not that some portion or all of the deferred tax
assets would be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversals of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections of future taxable income over the
periods during which the deferred tax assets are deductible, management believes
it is more likely than not that the Company will realize the benefits of these
deductible differences. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.

(8) EMPLOYEE BENEFIT PLANS

     The Company has a 401(k) plan that covers all eligible employees. All
employee contributions may be supplemented by Company contributions. The Company
contributed $1,650 for the year ended December 31, 2000, $1,483 for the year
ended January 2, 2000 and $1,411 for the year ended January 3, 1999 in employer
matching and profit sharing contributions.

     The Company has no other significant postretirement or postemployment
benefits.

                                       F-14
<PAGE>   74
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) RELATED PARTY TRANSACTIONS

     Prior to September 1992, the Company was a wholly owned subsidiary of
Thrifty Corporation (Thrifty), which was in turn a wholly owned subsidiary of
Pacific Enterprises (PE). In December 1996, Thrifty was acquired by Rite Aid
Corporation (Rite Aid).

     As a result of the Company's prior relationship with Thrifty and its
affiliates, the Company continues to maintain certain relationships with Rite
Aid and PE. These relationships include continuing indemnification obligations
of PE to the Company for certain environmental matters; agreements between the
Company and PE with respect to various tax matters and obligations under ERISA,
including the allocation of various tax obligations relating to the inclusion of
the Company and each member of the affiliated group of which the Company was a
subsidiary in certain consolidated and/or unitary tax returns of PE; and
subleases described as follows.

     The Company leases certain property and equipment from Rite Aid, which
leases this property and equipment from an outside party. Charges related to
these leases totaled $203 for the year ended December 31, 2000, $194 for the
year ended January 2, 2000 and $435 for the year ended January 3, 1999.

     The Company has a Management Services Agreement with an investment advisor
group that is an affiliate of a stockholder of the Company that expires in May
2005, under which $333, plus expenses, will be paid annually for financial
advisory and investment banking services. During each of the years ended
December 31, 2000, January 2, 2000 and January 3, 1999, the Company paid $340 to
this advisor group. An executive officer and equity owner of the investment
advisor group is a member of the Company's Board of Directors.

(10) CONTINGENCIES

     On August 9, 2001, the Company received a copy of a complaint filed in the
California Superior Court in Los Angeles entitled Mosely, et al., v. Big 5
Corp., Case No. BC255749, alleging violations of the California Labor Code and
the Business and Professions Code. This complaint was brought as a purported
class action with two subclasses comprised of the Company's California store
managers and the Company's California first assistant store managers. The
plaintiffs allege that the Company improperly classified the store managers and
assistant store managers as exempt employees not entitled to overtime pay for
work in excess of forth hours per week. They seek, on behalf of the class
members, back pay for overtime allegedly not paid, statutory penalties in the
amount of an additional thirty days' wages and injunctive relief to require the
Company to treat store management as non-exempt. The complaint has only recently
been filed. The Company has not yet answered the complaint and discovery has not
commenced. The Company intends to defend the case vigorously. This litigation
could have a material adverse effect on the Company's financial condition, and
any required change in the Company's labor practices, as well as costs of
defending this litigation, could have a negative impact on the Company's results
of operations.

     The Company is also involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.

(11) BUSINESS CONCENTRATIONS

     The Company operates traditional sporting goods retail stores located
principally in the Western states of the United States. The Company is subject
to regional risks such as the local economies, weather conditions and natural
disasters and government regulations. If the region were to suffer an economic
downturn or if other adverse regional events were to occur, there could be a
significant adverse effect on management's estimates and an adverse impact on
the Company's performance. The retail industry is
                                       F-15
<PAGE>   75
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

impacted by the general economy. Changes in the marketplace may significantly
affect management's estimates and the Company's performance.

(12) QUARTERLY FINANCIAL DATA (UNAUDITED)

<Table>
<Caption>
                                                FISCAL YEAR ENDED DECEMBER 31, 2000
                                      --------------------------------------------------------
                                       FIRST       SECOND      THIRD       FOURTH
                                      QUARTER     QUARTER     QUARTER     QUARTER      TOTAL
                                      --------    --------    --------    --------    --------
<S>                                   <C>         <C>         <C>         <C>         <C>
Net sales...........................  $129,712    $137,271    $146,169    $158,324    $571,476
Gross profit........................    42,888      48,394      48,913      54,241     194,436
Net income..........................       134       2,598       2,422       5,994      11,148
</Table>

<Table>
<Caption>
                                                 FISCAL YEAR ENDED JANUARY 2, 2000
                                      --------------------------------------------------------
                                       FIRST       SECOND      THIRD       FOURTH
                                      QUARTER     QUARTER     QUARTER     QUARTER      TOTAL
                                      --------    --------    --------    --------    --------
<S>                                   <C>         <C>         <C>         <C>         <C>
Net sales...........................  $117,097    $125,579    $131,440    $140,208    $514,324
Gross profit........................    38,269      43,857      43,040      47,306     172,472
Net income..........................      (837)      1,880         500       4,282       5,825
</Table>

(13) REDEEMABLE PREFERRED STOCK

     In November 1997, the Company authorized and issued 350,000 shares of
redeemable Series A 13.45% Senior Exchangeable Preferred Stock (Preferred
Stock), par value $0.01 per share, with a liquidation preference of $100.00 per
share as of the date of issue. The Preferred Stock has a liquidation preference
over the Common Stock equal to the initial liquidation value of the Preferred
Shares plus accrued and unpaid dividends thereon. The Preferred Stock bears
cumulative dividends at the rate of 13.45% per annum. Dividends may, at the
option of the Company, be paid in cash or by adding to the liquidation
preference of the Preferred Stock an amount equal to the dividends then accrued
and payable. The Preferred Stock may, subject to certain conditions, be
exchanged at the option of the Company into Subordinated Exchange Debentures,
which shall have terms substantially similar to those of the Preferred Stock.
Accrued and unpaid dividends were $831 and $918 at January 2, 2000 and December
31, 2000, respectively.

     At January 3, 1999, January 2, 2000 and December 31, 2000, redeemable
preferred stock consists of the following:

<Table>
<Caption>
                                                                       FISCAL YEAR ENDED
                                                            ----------------------------------------
                                                            JANUARY 3,    JANUARY 2,    DECEMBER 31,
                                                               1999          2000           2000
                                                            ----------    ----------    ------------
<S>                                                         <C>           <C>           <C>
Initial liquidation preference............................   $35,000       $35,000        $35,000
Dividends added to initial liquidation preference.........     4,866        10,408         16,721
                                                             -------       -------        -------
                                                             $39,866       $45,408        $51,721
                                                             =======       =======        =======
</Table>

     The Preferred Stock is subject to mandatory redemption on November 13, 2009
at 100% of the liquidation preference plus accrued and unpaid dividends. Prior
to November 13, 2002, the Company may also redeem the Preferred Stock with the
proceeds from an initial public offering of its common stock at 110% of the
liquidation preference plus accrued and unpaid dividends. The Preferred Stock
may be redeemed at the option of the Company in whole or in part on or after
November 13, 2002 at the redemption prices set forth below with respect to the
indicated redemption date together with any accrued and unpaid dividends to such
redemption date.

                                       F-16
<PAGE>   76
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     If redeemed during the 12-month period beginning November 13, the
redemption prices of the Preferred Stock before accrued and unpaid interest are
as follows:

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

(14) STOCK OPTIONS, RESTRICTED STOCK AND WARRANT

1997 MANAGEMENT EQUITY PLAN

     The 1997 Management Equity Plan (Plan) provides for the sale of shares or
granting of incentive stock options or nonqualified options to officers,
directors and selected key employees of the Company to purchase shares of the
Company's common stock. The 1997 Plan is administered by the Board of Directors
and the granting of awards under the Plan is discretionary with respect to the
individuals to whom and the times at which awards are made, the number of
options awarded or shares sold, and the vesting and exercise period of such
awards. The options and stock granted under the Plan must have an exercise or
sale price that is no less than 85% of the fair value of the Company's common
stock at the time the stock option or stock is granted or sold. The aggregate
number of common shares that may be allocated to awards under the Plan is
560,000 shares. No more than 100,000 of these shares shall be subject to stock
options outstanding at any time. Options granted or restricted stock sold under
the 1997 Plan vest ratably over five years from the date the options are granted
and have an exercise period not to exceed 120 months from the date the Stock
option is granted. The Plan does not allow for the transfer of options or stock
purchase rights. As of December 31, 2000, no options had been granted under the
1997 Plan and 462,309 shares of restricted common stock had been sold under the
Plan.

     In connection with the issuance of the Senior Discount Notes in 1997, the
Company issued a warrant to purchase 60,000 shares of common stock. The warrant
is exercisable at any time with an exercise price of $0.01 per share. The
warrant expires on November 30, 2008. The fair value of the warrant at the time
of issuance was $0.3 million. At December 31, 2000 the warrant had not been
exercised.

                                       F-17
<PAGE>   77
                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(15) EARNINGS PER SHARE

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

<Table>
<Caption>
                                          FISCAL YEAR ENDED                     26 WEEKS ENDED
                               ----------------------------------------    ------------------------
                               JANUARY 3,    JANUARY 2,    DECEMBER 31,     JULY 2,       JULY 1,
                                  1999          2000           2000           2000          2001
                               ----------    ----------    ------------    ----------    ----------
                                                                                 (UNAUDITED)
<S>                            <C>           <C>           <C>             <C>           <C>
Income before extraordinary
  gain (loss)................  $    4,427    $    6,197     $   11,061     $    2,645    $    4,300
Extraordinary gain (loss)....          79          (372)            87             87         1,600
                               ----------    ----------     ----------     ----------    ----------
  Net income.................       4,506         5,825         11,148          2,732         5,900
Less: Preferred stock
  dividends..................       5,036         5,621          6,400          3,092         3,529
                               ----------    ----------     ----------     ----------    ----------
  Net income (loss) available
     to common
     stockholders............  $     (530)   $      204     $    4,748     $     (360)   $    2,371
                               ==========    ==========     ==========     ==========    ==========
Basic earnings (loss) per
  share:
  Income before extraordinary
     gain (loss).............  $    (0.31)   $     0.30     $     2.42     $    (0.23)   $     0.40
                               ==========    ==========     ==========     ==========    ==========
  Net income.................  $    (0.27)   $     0.11     $     2.46     $    (0.19)   $     1.23
                               ==========    ==========     ==========     ==========    ==========
Diluted earnings (loss) per
  share:
  Income before extraordinary
     gain (loss).............  $    (0.31)   $     0.29     $     2.35     $    (0.23)   $     0.39
                               ==========    ==========     ==========     ==========    ==========
  Net income.................  $    (0.27)   $     0.10     $     2.39     $    (0.19)   $     1.19
                               ==========    ==========     ==========     ==========    ==========
Weighted average shares of
  common stock outstanding:
  Basic......................   1,934,199     1,927,374      1,926,870      1,926,900     1,926,500
  Dilutive effect of
     outstanding warrant.....          --        60,000         60,000             --        60,000
                               ----------    ----------     ----------     ----------    ----------
  Diluted....................   1,934,199     1,987,374      1,986,870      1,926,900     1,986,500
                               ==========    ==========     ==========     ==========    ==========
</Table>

     Shares issuable upon the exercise of the warrant not included in the
calculation of diluted earnings per share were 60,000 for the fiscal year ended
January 3, 1999 and 60,000 (unaudited) for the twenty-six weeks ended July 2,
2000 because they were antidilutive.

                                       F-18
<PAGE>   78

                                  [BACK PAGE]

                                     [LOGO]
<PAGE>   79

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
common stock being registered, all of which will be paid by the Registrant:

<Table>
<Caption>
                                                               AMOUNT
                                                              --------
<S>                                                           <C>
Registration fee -- Securities and Exchange Commission......  $ 28,750
Filing fee -- National Association of Securities Dealers,
  Inc. .....................................................    12,000
Quotation fee -- The Nasdaq National Market.................    95,000
Printing and engraving expenses.............................   200,000
Legal fees and expenses.....................................   400,000
Accounting fees and expenses................................   100,000
Blue sky fees and expenses..................................    10,000
Transfer agent and registrar fees and expenses..............    15,000
Miscellaneous...............................................    50,000
                                                              --------
  Total.....................................................  $910,750
                                                              ========
</Table>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Section 145 of the Delaware General Corporation ("DGCL") provides that a
corporation has the power to indemnify its officers, directors, employees and
agents (or persons serving in such positions in another entity at the request of
the corporation) against expenses, including attorney's fees, judgments, fines
or settlement amounts actually and reasonably incurred by them in connection
with the defense of any action by reason of being or having been directors or
officers, if such person shall have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation (and, with respect to any criminal action, had no reasonable cause
to believe the person's conduct was unlawful), except that if such action shall
be by or in the right of the corporation, no such indemnification shall be
provided as to any claim, issue or matter as to which such person shall have
been judged to have been liable to the corporation unless and to the extent that
the Court of Chancery of the State of Delaware, or another court in which the
suit was brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity. The Registrant's certificate of incorporation provides that the
Registrant will indemnify its officers and directors to the fullest extent
permitted by Delaware law.

     As permitted by Section 102 of the DGCL, the Registrant's certificate of
incorporation provides that no director shall be liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as a director
other than (i) for breaches of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for the
unlawful payment of dividends or unlawful stock purchases or redemptions under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.

     The Underwriting Agreement is expected to provide that the underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act. Reference is made to the form of
Underwriting Agreement to be filed as Exhibit 1.1 hereto.

     The Registrant maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers, and intends to enter into
indemnification agreements (in the form to be filed as Exhibit 10.16 hereto) for
the benefit of its directors and certain of its officers.

                                       II-1
<PAGE>   80

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

     There have been no sales of the Registrant's securities that were not
registered under the Securities Act during the past three years.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

     See exhibits listed on the Exhibit Index following the signature page of
this Form S-1, which is incorporated herein by reference.

(b) FINANCIAL STATEMENT SCHEDULES:

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Schedule II -- Valuation and Qualifying Accounts............  S-1
</Table>

     Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

     The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

     Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act, and will be governed by the final
adjudication of such issue.

     The undersigned Registrant hereby undertakes that:

          (1) For purposes of determining any liability under the Securities
     Act, the information omitted from the form of Prospectus filed as part of
     this Registration Statement in reliance upon Rule 430A and contained in a
     form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     Registration Statement as of the time it was declared effective.

          (2) For the purpose of determining any liability under the Securities
     Act, each post-effective amendment that contains a form of Prospectus shall
     be deemed to be a new registration statement relating to the securities
     offered therein, and the offering of such securities at that time shall be
     deemed to be the initial bona fide offering thereof.

                                       II-2
<PAGE>   81

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, California,
on the 21st day of August, 2001.

                                          BIG 5 SPORTING GOODS CORPORATION

                                          By:     /s/ STEVEN G. MILLER
                                            ------------------------------------
                                                Steven G. Miller
                                                President and Chief Executive
                                              Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles P. Kirk and Gary S. Meade and
each of them acting individually, as true and lawful attorneys-in-fact and
agents each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities to sign any and all
amendments to said Registration Statement (including post-effective amendments
and registration statements filed pursuant to Rule 462 and otherwise), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorneys-in-fact and agents the full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his substitute, may lawfully do or cause to be done by
virtue hereof. Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.

     Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated below.

<Table>
<Caption>
                   SIGNATURE                                     TITLE                      DATE
                   ---------                                     -----                      ----
<C>                                               <S>                                  <C>
              /s/ STEVEN G. MILLER                President, Chief Executive Officer   August 21, 2001
- ------------------------------------------------  and Director (Principal Executive
                Steven G. Miller                  Officer)

              /s/ CHARLES P. KIRK                 Chief Financial Officer (Principal   August 21, 2001
- ------------------------------------------------  Financial and Accounting Officer)
                Charles P. Kirk

              /s/ ROBERT W. MILLER                Chairman of the Board                August 21, 2001
- ------------------------------------------------
                Robert W. Miller

             /s/ MICHAEL D. MILLER                Director                             August 21, 2001
- ------------------------------------------------
               Michael D. Miller

              /s/ JOHN G. DANHAKL                 Director                             August 21, 2001
- ------------------------------------------------
                John G. Danhakl
</Table>

                                       II-3
<PAGE>   82

                BIG 5 SPORTING GOODS CORPORATION AND SUBSIDIARY

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                BALANCE AT    ADDITIONS:    DEDUCTIONS:
                                                BEGINNING     CHARGES TO        A/R        BALANCE AT
                                                 OF YEAR      OPERATIONS    WRITE OFFS     END OF YEAR
                                                ----------    ----------    -----------    -----------
<S>                                             <C>           <C>           <C>            <C>
January 3, 1999
  Allowance for doubtful receivables..........     $118          $120          $ (37)         $201
January 2, 2000
  Allowance for doubtful receivables..........      201           120           (228)           93
December 31, 2000
  Allowance for doubtful receivables..........       93           120           (202)           11
</Table>

                                       S-1
<PAGE>   83

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
 NUMBER                               TITLE
- -------                               -----
<C>        <S>
 1.1       Form of Underwriting Agreement*
 3.1       Restated Certificate of Incorporation of the Registrant (as
           currently in effect)
 3.1.1     Certificate of Amendment of Certificate of Incorporation of
           the Registrant (as currently in effect)
 3.2       Registrant Bylaws (as currently in effect)
 3.3       Form of Amended and Restated Certificate of Incorporation of
           the Registrant (to be filed with the Delaware Secretary of
           State prior to the closing of the offering)*
 3.4       Form of Amended and Restated Bylaws (to be adopted upon the
           closing of the offering)*
 4.1       Form of Specimen of Common Stock Certificate*
 4.2(1)    Indenture dated as of November 13, 1997 between Big 5 Corp.
           and First Trust National Association, as trustee
 4.3(1)    Form of Big 5 Corp. 10.875% Series B Senior Notes due 2007
           (included in Exhibit 4.2)
 4.4       Indenture dated as of November 13, 1997 between the
           Registrant and First Trust National Association, as trustee
 4.5       Form of Registrant 13.45% Senior Discount Notes due 2008
 5.1       Opinion of Irell & Manella LLP (including consent)*
10.1       Amended and Restated Stockholders Agreement among the
           Registrant, Green Equity Investors, L.P., Steven G. Miller
           and Robert W. Miller*
10.2(1)    Management Services Agreement dated as of November 13, 1997
           by and among Registrant, Big 5 Corp. and Leonard Green &
           Associates, L.P.
10.3       1997 Management Equity Plan
10.4       2001 Stock Incentive Plan*
10.5       Amended and Restated Employment Agreement between Robert W.
           Miller and the Registrant*
10.6       Amended and Restated Employment Agreement between Steven G.
           Miller and the Registrant*
10.7(2)    Amended and Restated Indemnification Implementation
           Agreement between Big 5 Corp. (successor to United
           Merchandising Corp.) and Thrifty PayLess Holdings, Inc.
           dated as of April 20, 1994
10.8(2)    Agreement and Release among Pacific Enterprises, Thrifty
           PayLess Holdings, Inc., Thrifty PayLess, Inc., Thrifty and
           Big 5 Corp. (successor to United Merchandising Corp.) dated
           as of March 11, 1994
10.12(3)   Lease among Big 5 Corp. (Lessee) and the State of Wisconsin
           Investment Board (Lessor) dated as of March 5, 1996
10.9(3)    Financing Agreement dated March 8, 1996 between The CIT
           Group/Business Credit, Inc. and Big 5 Corp.
10.10(3)   Grant of Security Interest in and Collateral Assignment of
           Trademarks and Licenses dated as of March 8, 1996 by Big 5
           Corp. in favor of The CIT Group/Business Credit, Inc.
10.11(3)   Guarantee dated March 8, 1996 by Big 5 Corporation (now
           known as the Registrant) in favor of The CIT Group/Business
           Credit, Inc.
10.13(1)   Letter from The CIT Group/Business Credit, Inc. to the Big 5
           Corp. dated November 13, 1997, amending the Financing
           Agreement dated March 8, 1996 between Big 5 Corp. (successor
           to United Merchandising Corp.) and The CIT Group/Business
           Credit, Inc.
10.14      Letter from The CIT Group/Business Credit, Inc. to Big 5
           Corp. dated December 16, 1997, amending the Financing
           Agreement dated March 8, 1996 between Big 5 Corp. (successor
           to United Merchandising Corp.) and The CIT Group/Business
           Credit, Inc.
</Table>
<PAGE>   84

<Table>
<Caption>
EXHIBIT
 NUMBER                               TITLE
- -------                               -----
<C>        <S>
10.15      Fifth Amendment To Financing Agreement, dated March 21,
           2000, by and among Big 5 Corp. and The CIT Group/Business
           Credit, Inc., amending the Financing Agreement, dated March
           8, 1996, between Big 5 Corp. (successor to United
           Merchandising Corp.) and The CIT Group/Business Credit, Inc.
10.16      Form of Indemnification Agreement*
21.1       Subsidiaries of the Registrant
23.1       Consent of KPMG LLP
23.2       Consent of Irell & Manella LLP (included in Exhibit No.
           5.1)*
24.1       Powers of Attorney (included on signature page)
</Table>

- ---------------
 *  To be filed by amendment.

(1) Incorporated by reference to Big 5 Corp.'s Registration Statement on Form
    S-4 (file no. 333-43129) filed with the Securities and Exchange Commission
    on December 23, 1997.

(2) Incorporated by reference to Big 5 Corp.'s Annual Report on Form 10-K for
    the year ended January 1, 1995

(3) Incorporated by reference to Big 5 Corp.'s Annual Report on Form 10-K for
    the year ended December 31, 1995.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>v75241orex3-1.txt
<DESCRIPTION>EXHIBIT 3.1
<TEXT>
<PAGE>   1
                                                                     EXHIBIT 3.1


                     RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                              BIG 5 HOLDINGS CORP.
                             a Delaware corporation

                 (originally incorporated on October 31, 1997)


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

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

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

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

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

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

     (B) Common Stock

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

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

     (C) Preferred Stock.

          The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in one or
<PAGE>   2
more series, and by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing the series of Preferred Stock.

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

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

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


                                      -2-
<PAGE>   3

          3. Dividends.

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

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

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

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

                                      -3-
<PAGE>   4

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

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

          4. Liquidation Preference.

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


                                      -4-
<PAGE>   5
distribution or payment shall be made to the holders of any Junior Securities,
the holders of shares of Series A Preferred then outstanding shall be entitled
to be paid out of the assets of the corporation available for distribution to
its stockholders an amount in cash equal to the Face Amount of each share
outstanding together with an amount in cash equal to all accrued and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding up
(the "LIQUIDATION PREFERENCE"). If the assets of the corporation are not
sufficient to pay in full the Liquidation Preference payable to the holders of
outstanding shares of Series A Preferred, then holders of all such shares shall
share ratably in any distribution of assets in proportion to the amount that
would be payable on such distribution if the amounts to which the holders of
outstanding shares of Series A Preferred are entitled were paid in full. After
payment of the full amount of the Liquidation Preference to which each holder is
entitled, such holders of shares of Series A Preferred will not be entitled to
any further participation in any distribution of the assets of the corporation.

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

          5. Redemption.

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

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


                                      -5-
<PAGE>   6




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

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

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


                                      -6-
<PAGE>   7



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

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

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



                                      -7-
<PAGE>   8


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

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

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


                                      -8-
<PAGE>   9



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

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

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

          8. Definitions.

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


                                      -9-
<PAGE>   10

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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


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

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

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



                                      -15-

<PAGE>   16

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

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

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


                                      -16-
<PAGE>   17


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


                                 BIG 5 HOLDINGS CORP.



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




                                      -17-

<PAGE>   18

                              BIG 5 HOLDINGS CORP.

           CERTIFICATE OF DESIGNATIONS OF THE POWERS, PREFERENCES AND

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

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

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

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


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

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

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

     (a)  Designation.

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

<PAGE>   19

     (b)  Rank.


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

     (c)  Dividends.

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

                                      -2-
<PAGE>   20



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

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




                                      -3-
<PAGE>   21


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

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

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

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



                                      -4-
<PAGE>   22





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

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

     (d)  Liquidation Preference.

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

                                      -5-
<PAGE>   23


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

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

     (e)  Redemption.

          (i)  Optional Redemption.

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

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

<TABLE>
<CAPTION>

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

</TABLE>

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

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

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

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


                                      -7-
<PAGE>   25


          (iii) Procedures for Redemption.

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

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

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


                                      -8-
<PAGE>   26


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

     (f)  Voting Rights.

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

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

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

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


                                      -9-
<PAGE>   27


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

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

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

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


                                      -10-
<PAGE>   28


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

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


                                      -11-
<PAGE>   29


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

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

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

     (g)  Optional Exchange.

          (i)  Conditions.

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


                                      -12-
<PAGE>   30


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

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

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

          (ii) Procedure for Exchange.

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

                                      -13-
<PAGE>   31


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

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

     (h)  Option of Holders to Elect Repurchase.

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

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

                                      -14-
<PAGE>   32


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

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

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

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


                                      -15-
<PAGE>   33


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

     (i)  Conversion or Exchange.

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


     (j)  Preemptive Rights.

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

     (k)  Reissuance of Series A Preferred Stock.

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

     (l)  Business Day.

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

     (m)  Reports.

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


                                      -16-
<PAGE>   34

     (n)  Definitions.

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

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

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

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

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

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

                                      -17-
<PAGE>   35


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

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

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

          "Company" means this corporation.

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

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

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

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

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

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

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

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

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



                                      -18-
<PAGE>   36


          "Legal Holiday" means a Saturday, a Sunday or a day on which banking
     institutions in the Company's principal place of business, the City of New
     York or at a place of payment are authorized by law, regulation or
     executive order to remain closed. If a payment date is a Legal Holiday at a
     place of payment, payment may be made at that place on the next succeeding
     day that is not a Legal Holiday, and no interest shall accrue for the
     intervening period.

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

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

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

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

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

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

          "SEC" means the Securities and Exchange Commission.

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

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

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


                                      -19-
<PAGE>   37

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

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

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



                                   BIG 5 HOLDINGS CORP.



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





                                      -21-


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





                              BIG 5 HOLDINGS CORP.


                13.45% SUBORDINATED EXCHANGE DEBENTURES DUE 2009




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



                                    INDENTURE


                      DATED AS OF ________________________




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



                                     [NAME]

                                   AS TRUSTEE



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





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





<PAGE>   40



                             CROSS-REFERENCE TABLE*

<TABLE>
<CAPTION>

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


                                       i

<PAGE>   41



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










                                       ii
<PAGE>   42




SCHEDULES

<TABLE>

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

EXHIBITS

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

</TABLE>




                                      iii

<PAGE>   43



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>




                                      -i-
<PAGE>   44

<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>


                                      -ii-


<PAGE>   45


<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>

                                     -iii-


<PAGE>   46



<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>



                                      -iv-

<PAGE>   47


<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----

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

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

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

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

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

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

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

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

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

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

</TABLE>



                                      -v-
<PAGE>   48






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

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

                                   ARTICLE 1
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

SECTION 1.01 DEFINITIONS

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

     "Agent" means any Registrar or Paying Agent.

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

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

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

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

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

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



<PAGE>   49

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

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

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

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




                                      -2-
<PAGE>   50



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

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

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

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

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

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

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

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

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

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

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


                                      -3-
<PAGE>   51

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

     "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the Company's principal place of business, the City of New York,
the city in which the Trustee's principal offices are located, or at a place of
payment are authorized by law, regulation or executive order to remain closed.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.

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

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

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

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

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

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

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

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

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

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

     "SEC" means the Securities and Exchange Commission.




                                      -4-
<PAGE>   52

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

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

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

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

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

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

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

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

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



                                      -5-
<PAGE>   53

SECTION 1.02 OTHER DEFINITIONS.

<TABLE>
<CAPTION>

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

</TABLE>

SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.

     Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.

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

     "indenture securities" means the Notes;

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

     "indenture to be qualified" means this Indenture;

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

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

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

SECTION 1.04 RULES OF CONSTRUCTION.

     Unless the context otherwise requires:

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

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

     (c) "or" is not exclusive;



                                      -6-
<PAGE>   54



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

     (e) provisions apply to successive events and transactions;

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

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

                                   ARTICLE 2
                                   THE NOTES

SECTION 2.01 FORM AND DATING

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

SECTION 2.02 EXECUTION AND AUTHENTICATION

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

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

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

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




                                      -7-
<PAGE>   55

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

SECTION 2.03 REGISTRAR AND PAYING AGENT

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

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

SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST

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

SECTION 2.05 HOLDER LISTS

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




                                      -8-
<PAGE>   56

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

SECTION 2.06 TRANSFER AND EXCHANGE

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

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

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

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

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

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

     Neither the Registrar nor the Company shall be required:

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

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

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

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



                                      -9-
<PAGE>   57

SECTION 2.07 REPLACEMENT NOTES

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

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

SECTION 2.08 OUTSTANDING NOTES

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

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

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

SECTION 2.09 TREASURY NOTES

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

SECTION 2.10 TEMPORARY NOTES

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




                                      -10-
<PAGE>   58

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

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

SECTION 2.11 CANCELLATION

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

SECTION 2.12 DEFAULTED INTEREST

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

SECTION 2.13 PERSONS DEEMED OWNERS

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


                                      -11-
<PAGE>   59

                                    ARTICLE 3
                            REDEMPTION AND PREPAYMENT

SECTION 3.01 NOTICES TO TRUSTEE

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

SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED

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

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

SECTION 3.03 NOTICE OF REDEMPTION

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

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

     (a) the redemption date;

     (b) the redemption price;

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



                                      -12-
<PAGE>   60




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

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

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

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

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

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

SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION

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

SECTION 3.05 DEPOSIT OF REDEMPTION PRICE

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

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


                                      -13-
<PAGE>   61

SECTION 3.06 NOTES REDEEMED IN PART

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

SECTION 3.07 OPTIONAL REDEMPTION

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

<TABLE>
<CAPTION>

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

</TABLE>

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

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

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

SECTION 3.08 MANDATORY REDEMPTION

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



                                      -14-
<PAGE>   62

                                   ARTICLE 4
                                   COVENANTS

SECTION 4.01 PAYMENT OF NOTES

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

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

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

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


                                      -15-


<PAGE>   63

SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY.

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

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

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

SECTION 4.03 REPORTS AND OTHER INFORMATION.

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

SECTION 4.04 COMPLIANCE CERTIFICATE.

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




                                      -16-
<PAGE>   64


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

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

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

SECTION 4.05 RESTRICTED PAYMENTS

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


                                      -17-
<PAGE>   65

SECTION 4.06 OFFER TO REPURCHASE UPON CHANGE OF CONTROL.

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

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

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




                                      -18-
<PAGE>   66


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

                                   ARTICLE 5
                                   SUCCESSORS

SECTION 5.01 SUCCESSOR COMPANY SUBSTITUTED

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

                                   ARTICLE 6
                              DEFAULTS AND REMEDIES

SECTION 6.01 EVENTS OF DEFAULT.

     An "Event of Default" occurs if:

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

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




                                      -19-
<PAGE>   67


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

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

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

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

          (i) commence a voluntary case;

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

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

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

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

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

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

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

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






                                      -20-
<PAGE>   68


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

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

SECTION 6.02 ACCELERATION

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

SECTION 6.03 OTHER REMEDIES

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




                                      -21-
<PAGE>   69

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

SECTION 6.04 WAIVER OF PAST DEFAULTS.

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

SECTION 6.05 CONTROL BY MAJORITY

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

SECTION 6.06 LIMITATION ON SUITS

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

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

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

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

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


                                      -22-
<PAGE>   70

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

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

SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT

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

SECTION 6.08 COLLECTION SUIT BY TRUSTEE

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

SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM

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



                                      -23-
<PAGE>   71


SECTION 6.10 PRIORITIES

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

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

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

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

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

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

SECTION 6.11 UNDERTAKING FOR COSTS

     In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to
Section 6.06 hereof, or a suit by Holders of more than 10.0% in then principal
amount of the then outstanding Notes.

                                    ARTICLE 7
                                     TRUSTEE

SECTION 7.01 DUTIES OF TRUSTEE

     (a) If an Event of Default has occurred and is continuing and known to a
Responsible Officer of the Trustee, the Trustee shall exercise such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in its exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.

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

          (i) the Trustee shall not be liable hereunder except for such duties
     of the Trustee which shall be determined solely by the express provision of
     this Indenture and the


                                      -24-
<PAGE>   72


     Trustee need perform only those duties that are specifically set forth in
     this Indenture and no others, and no implied covenants or obligations shall
     be read into this Indenture against the Trustee; and

          (ii) the Trustee may conclusively rely, as to the truth of the
     statements and the correctness of the opinions expressed therein, upon
     certificates or opinions furnished to the Trustee and conforming to the
     requirements of this Indenture. However, the Trustee shall examine the
     certificates and opinions to determine whether or not such documents
     conform to the requirements of this Indenture.

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

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

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

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

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

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

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

SECTION 7.02 RIGHTS OF TRUSTEE

     (a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.

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




                                      -25-
<PAGE>   73


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

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

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

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

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

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

SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE

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

SECTION 7.04 TRUSTEE'S DISCLAIMER

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

SECTION 7.05 NOTICE OF DEFAULTS

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




                                      -26-
<PAGE>   74



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

SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES

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

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

SECTION 7.07 COMPENSATION AND INDEMNITY

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

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




                                      -27-
<PAGE>   75


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

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

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

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

SECTION 7.08 REPLACEMENT OF TRUSTEE.

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

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

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

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

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

     (d) the Trustee becomes incapable of acting.

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

     If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10.0% in then principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.




                                      -28-
<PAGE>   76


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

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

SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.

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

SECTION 7.10 ELIGIBILITY; DISQUALIFICATION

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

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

SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY

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

                                   ARTICLE 8
                                LEGAL DEFEASANCE

SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE



                                      -29-
<PAGE>   77


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

SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE

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

SECTION 8.03 RESERVED

SECTION 8.04 CONDITIONS TO LEGAL DEFEASANCE

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

     In order to exercise Legal Defeasance:

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

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



                                      -30-
<PAGE>   78

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

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

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

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

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

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

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

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




                                      -31-
<PAGE>   79


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

SECTION 8.06 REPAYMENT TO COMPANY

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

SECTION 8.07 REINSTATEMENT

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



                                      -32-
<PAGE>   80

                                   ARTICLE 9
                        AMENDMENT, SUPPLEMENT AND WAIVER

SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES

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

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

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

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

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

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

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

SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES.

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

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




                                      -33-
<PAGE>   81



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

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

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

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

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

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

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

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

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

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



                                      -34-
<PAGE>   82

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

SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT

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

SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS

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

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

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

SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES

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

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



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SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC.

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

                                   ARTICLE 10
                                  SUBORDINATION

SECTION 10.01 AGREEMENT TO SUBORDINATE

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

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

SECTION 10.02 LIQUIDATION; DISSOLUTION; BANKRUPTCY

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

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

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




                                      -36-
<PAGE>   84


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

SECTION 10.03 DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS.

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

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

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



                                      -37-
<PAGE>   85

SECTION 10.04 ACCELERATION OF NOTES

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

SECTION 10.05 WHEN DISTRIBUTION MUST BE PAID OVER

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

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

SECTION 10.06 NOTICE BY COMPANY

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

SECTION 10.07 SUBROGATION

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




                                      -38-
<PAGE>   86



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

SECTION 10.08 RELATIVE RIGHTS

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

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

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

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

SECTION 10.09 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.

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

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

SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE

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

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




                                      -39-
<PAGE>   87

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

SECTION 10.11 RIGHTS OF TRUSTEE AND PAYING AGENT

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

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

SECTION 10.12 AUTHORIZATION TO EFFECT SUBORDINATION

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

SECTION 10.13 PAYMENT

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

SECTION 10.14 REINSTATEMENT

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



                                      -40-
<PAGE>   88

SECTION 10.15 AMENDMENTS

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

                                   ARTICLE 11
                                  MISCELLANEOUS

SECTION 11.01 TRUST INDENTURE ACT CONTROLS

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

SECTION 11.02 NOTICES

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

         If to the Company:

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

                  With a copy to:

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



                                      -41-
<PAGE>   89

         If to the Trustee:

                    [NAME]

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

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

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

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

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

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

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

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

SECTION 11.04 RULES BY TRUSTEE AND AGENTS.

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

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

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




                                      -42-
<PAGE>   90


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

SECTION 11.06 GOVERNING LAW

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

SECTION 11.07 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS

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

SECTION 11.08 SUCCESSORS

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

SECTION 11.09 SEVERABILITY

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

SECTION 11.10 COUNTERPART ORIGINALS

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

SECTION 11.11 TABLE OF CONTENTS, HEADINGS, ETC.

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






                         [Signatures on following page]



                                      -43-
<PAGE>   91


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



                                        BIG 5 HOLDINGS CORP.



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

Attest:

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



                                        [NAME]



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

Attest:

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



                                      -44-
<PAGE>   92

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

                                    EXHIBIT A
                                 (Face of Note)

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

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

                13.45% Subordinated Exchange Debentures due 2009


No.                                                                   $_______
                                                                CUSIP #_______



                              BIG 5 HOLDINGS CORP.

promises to pay to

or registered assigns,

the principal sum of

Dollars on November 13, 2009

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

Record Dates:  May 15 and November 15


                                      A-1
<PAGE>   93


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


                                 BIG 5 HOLDINGS CORP.



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




                                     (SEAL)

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

[NAME]
as Trustee



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



                                      A-2
<PAGE>   94

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

                                 (Back of Note)

                13.45% Subordinated Exchange Debentures due 2009


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

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

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




                                      A-3
<PAGE>   95



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

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

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

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

     6. OPTIONAL REDEMPTION.

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

<TABLE>
<CAPTION>

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

</TABLE>



                                      A-4
<PAGE>   96

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

     7. MANDATORY REDEMPTION.

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

     8. REPURCHASE AT OPTION OF HOLDER.

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

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

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

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



                                      A-5
<PAGE>   97

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

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

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

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




                                      A-6
<PAGE>   98


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

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

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

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

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


                                      A-7

<PAGE>   99


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

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

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

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


                                      A-8
<PAGE>   100



                                 ASSIGNMENT FORM

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

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

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

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

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

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

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

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


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

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

Signature Guarantee


                                      A-9

<PAGE>   101



                       OPTION OF HOLDER TO ELECT PURCHASE

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

     [ ] Section 4.06

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


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

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


Signature Guarantee.


                                      A-10



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1.1
<SEQUENCE>4
<FILENAME>v75241orex3-1_1.txt
<DESCRIPTION>EXHIBIT 3.1.1
<TEXT>
<PAGE>   1
                                                                   EXHIBIT 3.1.1

                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                              BIG 5 HOLDINGS CORP.
                             a Delaware Corporation

     Big 5 Holdings Corp., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "COMPANY"),
DOES HEREBY CERTIFY:

     1.   That the Board of Directors of the Company, by unanimous written
consent, adopted the following resolution:

     RESOLVED, that the amendment of the Certificate of Incorporation of the
Company be, and it hereby is, authorized, approved, and adopted by striking
ARTICLE FIRST, and inserting in place thereof, the following:

          "FIRST:    The name of the corporation is Big 5 Sporting Goods
                     Corporation."

     2.   That the said amendment has been consented to and authorized by the
stockholders of the issued and outstanding stock entitled to vote by a written
consent given in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.

     3.   That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.

     IN WITNESS WHEREOF, the Company has caused this Certificate to be signed,
this 20th day of August, 2001.

                                   BIG 5 HOLDINGS CORP.

                                   By: /s/ GARY S. MEADE
                                       --------------------------------------
                                        Gary S. Meade, Senior Vice President


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>5
<FILENAME>v75241orex3-2.txt
<DESCRIPTION>EXHIBIT 3.2
<TEXT>
<PAGE>   1



                                                                     EXHIBIT 3.2














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




                              BIG 5 HOLDINGS CORP.

                                     BYLAWS



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







<PAGE>   2



                               TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                       Page
                                                                                                       ----

<S>                                                                                                      <C>
ARTICLE I  OFFICES........................................................................................1

         Section 1.      Registered Office................................................................1

         Section 2.      Other Offices....................................................................1


ARTICLE II  MEETINGS OF STOCKHOLDERS......................................................................1

         Section 1.      Place of Meetings................................................................1

         Section 2.      Annual Meetings..................................................................1

         Section 3.      Special Meetings.  ..............................................................1

         Section 4.      Notice of Meetings...............................................................2

         Section 5.      Quorum; Adjournment..............................................................2

         Section 6.      Proxies and Voting...............................................................2

         Section 7.      Stock List.......................................................................3

         Section 8.      Actions by Stockholders..........................................................3


ARTICLE III  BOARD OF DIRECTORS...........................................................................3

         Section 1.      Duties and Powers................................................................3

         Section 2.      Number and Term of Office........................................................3

         Section 3.      Vacancies........................................................................4

         Section 4.      Meetings.........................................................................4

         Section 5.      Quorum...........................................................................4

         Section 6.      Actions of Board Without a Meeting...............................................4

         Section 7.      Meetings by Means of Conference Telephone.  .....................................4

</TABLE>



                                      -i-
<PAGE>   3

<TABLE>
<CAPTION>

                                                                                                       Page
                                                                                                       ----

<S>                                                                                                      <C>
         Section 8.      Committees.......................................................................5

         Section 9.      Compensation.  ..................................................................5

         Section 10.     Removal..........................................................................5


ARTICLE IV  OFFICERS......................................................................................5

         Section 1.      General..........................................................................5

         Section 2.      Election; Term of Office.........................................................6

         Section 3.      Chairman of the Board............................................................6

         Section 4.      President........................................................................6

         Section 5.      Vice President...................................................................6

         Section 6.      Secretary........................................................................6

         Section 7.      Assistant Secretaries............................................................7

         Section 8.      Treasurer........................................................................7

         Section 9.      Assistant Treasurers.............................................................7

         Section 10.     Other Officers...................................................................7


ARTICLE V  STOCK  8

         Section 1.      Form of Certificates.............................................................8

         Section 2.      Signatures.......................................................................8

         Section 3.      Lost Certificates................................................................8

         Section 4.      Transfers........................................................................8

         Section 5.      Record Date......................................................................8

         Section 6.      Beneficial Owners................................................................9

         Section 7.      Voting Securities Owned by the Corporation.......................................9

</TABLE>



                                      -ii-

<PAGE>   4

<TABLE>
<CAPTION>

                                                                                                       Page
                                                                                                       ----

<S>                                                                                                      <C>
ARTICLE VI  NOTICES.......................................................................................9

         Section 1.      Notices..........................................................................9

         Section 2.      Waiver of Notice.................................................................9


ARTICLE VII  GENERAL PROVISIONS..........................................................................10

         Section 1.      Dividends.......................................................................10

         Section 2.      Disbursements...................................................................10

         Section 3.      Corporation Seal................................................................10


ARTICLE VIII  DIRECTORS' LIABILITY AND INDEMNIFICATION...................................................10

         Section 1.      Directors' Liability............................................................10

         Section 2.      Right to Indemnification........................................................11

         Section 3.      Right of Claimant to Bring Suit.................................................11

         Section 4.      Non-Exclusivity of Rights.......................................................12

         Section 5.      Insurance and Trust Fund........................................................12

         Section 6.      Indemnification of Employees and Agents of the Corporation......................12

         Section 7.      Amendment.......................................................................12


ARTICLE IX  AMENDMENTS...................................................................................12
</TABLE>


                                     -iii-


<PAGE>   5






                                     BYLAWS

                                       OF

                              BIG 5 HOLDINGS CORP.
                     (hereinafter called the "Corporation")


                                   ARTICLE I

                                     OFFICES

     Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware.

     Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.

                                   ARTICLE II

                            MEETINGS OF STOCKHOLDERS

     Section 1. Place of Meetings. Meetings of the stockholders for the election
of directors or for any other purpose shall be held at such time and place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.

     Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.

     Section 3. Special Meetings. Special meetings of the stockholders may be
called by the Board of Directors, the Chairman of the Board, the President, or
by the holders of shares entitled to cast not less than 10% of the votes at the
meeting. Upon request in writing to the Chairman of the Board, the President,
any Vice President or the Secretary by any person (other than the board)
entitled to call a special meeting of stockholders, the officer forthwith shall
cause notice to be given to the stockholders entitled to vote that a meeting
will be held at a time requested by the person or persons calling the meeting,
not less than thirty-five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within 20 days after receipt of the
request, the persons entitled to call the meeting may give the notice.


<PAGE>   6

     Section 4. Notice of Meetings. Written notice of the place, date, and time
of all meetings of the stockholders shall be given not less than ten (10) nor
more than sixty (60) days before the date on which the meeting is to be held, to
each stockholder entitled to vote at such meeting, except as otherwise provided
herein or as required from time to time by the Delaware General Corporation Law
or the Certificate of Incorporation.

     Section 5. Quorum; Adjournment. At any meeting of the stockholders, the
holders of a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law or the Certificate of Incorporation. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date, or time without notice
other than announcement at the meeting, until a quorum shall be present or
represented.

     When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.

     Section 6. Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting.

     Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law or the Certificate of
Incorporation.

     All voting, including on the election of directors but excepting where
otherwise provided herein or required by law or the Certificate of
Incorporation, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or such stockholder's proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.

     All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.




                                      -2-
<PAGE>   7



     Section 7. Stock List. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in such stockholder's name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.

     The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.

     Section 8. Actions by Stockholders. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.

                                  ARTICLE III

                               BOARD OF DIRECTORS

     Section 1. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.

     Section 2. Number and Term of Office. The Board of Directors shall consist
of one (1) or more members. The number of directors shall be fixed and may be
changed from time to time by resolution duly adopted by the Board of Directors
or the stockholders, except as otherwise provided by law or the Certificate of
Incorporation. Except as provided in Section 3 of this Article, directors shall
be elected by the holders of record of a plurality of the votes cast at Annual
Meetings of Stockholders, and each director so elected shall hold office until
the next Annual Meeting and until his or her successor is duly elected and
qualified, or until his or her earlier resignation or removal. Any director may
resign at any time upon written notice to the Corporation. Directors need not be
stockholders.


                                      -3-
<PAGE>   8

     Section 3. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director or by the stockholders entitled to vote at any Annual or
Special Meeting held in accordance with Article II, and the directors so chosen
shall hold office until the next Annual or Special Meeting duly called for that
purpose and until their successors are duly elected and qualified, or until
their earlier resignation or removal.

     Section 4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The first meeting of each newly-elected Board of Directors shall be
held immediately following the Annual Meeting of Stockholders and no notice of
such meeting shall be necessary to be given the newly-elected directors in order
legally to constitute the meeting, provided a quorum shall be present. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman of the
Board, the President or a majority of the directors then in office. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances. Meetings may be held at any time
without notice if all the directors are present or if all those not present
waive such notice in accordance with Section 2 of Article VI of these Bylaws.

     Section 5. Quorum. Except as may be otherwise specifically provided by law,
the Certificate of Incorporation or these Bylaws, at all meetings of the Board
of Directors, a majority of the directors then in office shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.

     Section 6. Actions of Board Without a Meeting. Unless otherwise provided by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.

     Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all


                                      -4-
<PAGE>   9



persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 7 shall constitute presence in person at such
meeting.

     Section 8. Committees. The Board of Directors may, by resolution passed by
a majority of the directors then in office, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member of
a committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such members constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any committee, to the extent allowed by law and provided
in the Bylaw or resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Each
committee shall keep regular minutes and report to the Board of Directors when
required.

     Section 9. Compensation. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.

     Section 10. Removal. Unless otherwise restricted by the Certificate of
Incorporation or Bylaws, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.

                                   ARTICLE IV

                                    OFFICERS

     Section 1. General. The officers of the Corporation shall be appointed by
the Board of Directors and shall consist of a Chairman of the Board or a
President, or both, a Secretary and a Treasurer (or a position with the duties
and responsibilities of a Treasurer). The Board of Directors may also appoint
one or more vice presidents, assistant secretaries or assistant treasurers, and
such other officers as the Board of Directors, in its discretion, shall deem
necessary or appropriate from time to time. Any


                                      -5-
<PAGE>   10


number of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.

     Section 2. Election; Term of Office. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect a Chairman of
the Board or a President, or both, a Secretary and a Treasurer (or a position
with the duties and responsibilities of a Treasurer), and may also elect at that
meeting or any other meeting, such other officers and agents as it shall deem
necessary or appropriate. Each officer of the Corporation shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors together with the powers and duties customarily exercised by
such officer; and each officer of the Corporation shall hold office until such
officer's successor is elected and qualified or until such officer's earlier
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. The Board of Directors may at any time, with or without
cause, by the affirmative vote of a majority of directors then in office, remove
any officer.

     Section 3. Chairman of the Board. The Chairman of the Board, if there shall
be such an officer, shall be the chief executive officer of the Corporation. The
Chairman of the Board shall preside at all meetings of the stockholders and the
Board of Directors and shall have such other duties and powers as may be
prescribed by the Board of Directors from time to time.

     Section 4. President. The President shall be the chief operating officer of
the Corporation, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The President shall have and exercise such
further powers and duties as may be specifically delegated to or vested in the
President from time to time by these Bylaws or the Board of Directors. In the
absence of the Chairman of the Board or in the event of his inability or refusal
to act, or if the Board has not designated a Chairman, the President shall
perform the duties of the Chairman of the Board, and when so acting, shall have
all of the powers and be subject to all of the restrictions upon the Chairman of
the Board.

     Section 5. Vice President. In the absence of the President or in the event
of his inability or refusal to act, the Vice President (or in the event there be
more than one vice president, the vice presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The vice presidents shall perform such other duties and have such
other powers as the Board of Directors or the President may from time to time
prescribe.

     Section 6. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be


                                      -6-
<PAGE>   11

given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or the President. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his or her signature. The
Secretary shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly kept or
filed, as the case may be.

     Section 7. Assistant Secretaries. Except as may be otherwise provided in
these Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, or the Secretary, and shall have the authority to
perform all functions of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.

     Section 8. Treasurer. The Treasurer shall be the Chief Financial Officer,
shall have the custody of the corporate funds and securities, shall keep
complete and accurate accounts of all receipts and disbursements of the
Corporation, and shall deposit all monies and other valuable effects of the
Corporation in its name and to its credit in such banks and other depositories
as may be designated from time to time by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation, taking proper vouchers and receipts
for such disbursements, and shall render to the Board of Directors, at its
regular meetings, or when the Board of Directors so requires, an account of all
his or her transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer shall, when and if required by the Board of
Directors, give and file with the Corporation a bond, in such form and amount
and with such surety or sureties as shall be satisfactory to the Board of
Directors, for the faithful performance of his or her duties as Treasurer. The
Treasurer shall have such other powers and perform such other duties as the
Board of Directors or the President shall from time to time prescribe.

     Section 9. Assistant Treasurers. Except as may be otherwise provided in
these Bylaws, Assistant Treasurers, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, or the Treasurer, and shall have the authority to
perform all functions of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer.

     Section 10. Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be


                                      -7-
<PAGE>   12

assigned to them by the Board of Directors. The Board of Directors may delegate
to any other officer of the Corporation the power to choose such other officers
and to prescribe their respective duties and powers.

                                   ARTICLE V

                                      STOCK

     Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board or the President or a Vice President and (ii)
by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by such
holder in the Corporation.

     Section 2. Signatures. Any or all the signatures on the certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.

     Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.

     Section 4. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these Bylaws. Transfers of stock shall be made
on the books of the Corporation only by the person named in the certificate or
by such person's attorney lawfully constituted in writing and upon the surrender
of the certificate therefor, which shall be cancelled before a new certificate
shall be issued.

     Section 5.Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more


                                      -8-
<PAGE>   13





than sixty (60) days prior to any other action. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.

     Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.

     Section 7. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chairman of the Board, the President, any Vice
President or the Secretary and any such officer may, in the name of and on
behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.

                                   ARTICLE VI

                                     NOTICES

     Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable and such notice shall be
deemed to be given at the time of receipt thereof if given personally or at the
time of transmission thereof if given by telegram, telex or cable.

     Section 2. Waiver of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these Bylaws to be given to any director, member
or a committee or stockholder, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to notice.



                                      -9-
<PAGE>   14


                                  ARTICLE VII

                               GENERAL PROVISIONS

     Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting or by any
Committee of the Board of Directors having such authority at any meeting
thereof, and may be paid in cash, in property, in shares of the capital stock or
in any combination thereof. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for any proper purpose, and the Board of Directors may modify or abolish any
such reserve.

     Section 2. Disbursements. All notes, checks, drafts and orders for the
payment of money issued by the Corporation shall be signed in the name of the
Corporation by such officers or such other persons as the Board of Directors may
from time to time designate.

     Section 3. Corporation Seal. The corporate seal, if the Corporation shall
have a corporate seal, shall have inscribed thereon the name of the Corporation,
the year of its organization and the words "Corporate Seal, Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.

                                  ARTICLE VIII

                    DIRECTORS' LIABILITY AND INDEMNIFICATION

     Section 1. Directors' Liability. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended. Any repeal or
modification of this provision shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.

     This Section 1 is also contained in Article SEVENTH of the Corporation's
Certificate of Incorporation, and accordingly, may be altered, amended or
repealed only to the extent and at the time such Certificate Article is altered,
amended or repealed.




                                      -10-
<PAGE>   15





     Section 2. Right to Indemnification. Each person who was or is made a party
to or is threatened to be made a party to or is involuntarily involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation, or is or was serving (during his or her
tenure as director and/or officer) at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, whether the basis of such Proceeding
is an alleged action or inaction in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law (or other applicable law), as
the same exists or may hereafter be amended, against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection with such Proceeding. Such director or
officer shall have the right to be paid by the Corporation for expenses incurred
in defending any such Proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law (or other applicable law)
requires, the payment of such expenses in advance of the final disposition of
any such Proceeding shall be made only upon receipt by the Corporation of an
undertaking by or on behalf of such director or officer to repay all amounts so
advanced if it should be determined ultimately that he or she is not entitled to
be indemnified under this Article or otherwise.

     Section 3. Right of Claimant to Bring Suit. If a claim under Section 2 of
this Article is not paid in full by the Corporation within ninety (90) days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim, together with interest thereon, and, if successful in whole
or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim, including reasonable attorneys' fees incurred in
connection therewith. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law (or other applicable law) for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation (or
of its full Board of Directors, its directors who are not parties to the
Proceeding with respect to which indemnification is claimed, its stockholders,
or independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law (or other applicable law), nor
an actual determination by any such person or persons that such claimant has not
met such applicable standard of conduct, shall be a defense to such action or
create a presumption that the claimant has not met the applicable standard of
conduct.



                                      -11-
<PAGE>   16

     Section 4. Non-Exclusivity of Rights. The rights conferred by this Article
shall not be exclusive of any other right which any director, officer,
representative, employee or other agent may have or hereafter acquire under the
Delaware General Corporation Law or any other statute, or any provision
contained in the Corporation's Certificate of Incorporation or Bylaws, or any
agreement, or pursuant to a vote of stockholders or disinterested directors, or
otherwise.

     Section 5. Insurance and Trust Fund. In furtherance and not in limitation
of the powers conferred by statute:

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

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

     Section 6. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, including the right to be paid by
the Corporation the expenses incurred in defending any Proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article VIII or otherwise with respect
to the indemnification and advancement of expenses of directors and officers of
the Corporation.

     Section 7. Amendment. Any repeal or modification of this Article VIII shall
not change the rights of an officer or director to indemnification with respect
to any action or omission occurring prior to such repeal or modification.

                                   ARTICLE IX

                                   AMENDMENTS

     Except as otherwise specifically stated within an Article to be altered,
amended or repealed, these Bylaws may be altered, amended or repealed and new
Bylaws may be adopted at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting.



                                      -12-
<PAGE>   17




     The undersigned, as the Incorporator of Big 5 Holdings Corp. hereby adopts
the foregoing Bylaws as the Bylaws of said corporation.

     Dated as of October 31, 1997.


                                      /s/ S. A. Morgan
                                      ------------------------------------------
                                      S. A. Morgan, Incorporator


     The undersigned, constituting the Board of Directors of Big 5 Holdings
Corp. hereby adopt the foregoing Bylaws as the Bylaws of said corporation.

     Dated as of October 31, 1997.


                                       /s/ Robert W. Miller
                                       -----------------------------------------
                                       Robert W. Miller, Director


                                       /s/ Steven G. Miller
                                       -----------------------------------------
                                       Steven G. Miller, Director


                                       /s/ Michael D. Miller
                                       -----------------------------------------
                                       Dr. Michael D. Miller, Director


                                       /s/ John Danhakl
                                       -----------------------------------------
                                       John G. Danhakl, Director


                                       /s/ Jonathan A. Seiffer
                                       -----------------------------------------
                                       Jonathan A. Seiffer, Director



THIS IS TO CERTIFY:

     That I am the duly elected, qualified and acting Secretary of Big 5
Holdings Corp. and that the foregoing Bylaws were adopted as the Bylaws of said
corporation as of the 31st day of October, 1997, by the Board of Directors of
said corporation.

     Dated as of October 31, 1997.



                                       /s/ GARY S. MEADE
                                       -----------------------------------------
                                       GARY S. MEADE, SECRETARY



                                      -13-
<PAGE>   18



                            AMENDMENT NO. 1 TO BYLAWS
                                       OF
                              BIG 5 HOLDINGS CORP.

                  Resolution Adopted by the Board of Directors
                                November 15, 2000


                           Resolution Amending Bylaws

     RESOLVED, that the Bylaws of this corporation are hereby amended as
follows:

     1. Article IV, Section 1 of the Bylaws is hereby amended by deleting the
entirety thereof and inserting the following in its place:

          "Section 1. General. The officers of the Corporation shall be
     appointed by the Board of Directors and shall consist of a Chairman of the
     Board or a President, or both, a Secretary and a Treasurer (or a position
     with the duties and responsibilities of a Treasurer). The Board of
     Directors, the Chairman or the President may also appoint one or more vice
     presidents, assistant secretaries or assistant treasurers, and such other
     officers as they, in their discretion, shall deem necessary or appropriate
     from time to time. Any number of offices may be held by the same person,
     unless the Certificate of Incorporation or these Bylaws otherwise provide."

     2. Article IV, Section 2 of the Bylaws is hereby amended by deleting the
entirety thereof and inserting the following in its place:

          "Section 2. Election: Term of Office. The Board of Directors at its
     first meeting held after each Annual Meeting of Stockholders shall elect a
     Chairman of the Board or a President, or both, a Secretary and a Treasurer
     (or a position with the duties and responsibilities of a Treasurer), and
     may also elect at that meeting or any other meeting such other officers and
     agents as it shall deem necessary or appropriate. Each officer of the
     Corporation shall exercise such powers and perform such duties as shall be
     determined from time to time by the Board of Directors, the Chairman of the
     Board or the President, together with the powers and duties customarily
     exercised by such officer; and each officer of the Corporation shall hold
     office until such officer's successor is elected and qualified or until
     such officer's earlier resignation or removal. Any officer may resign at
     any time upon written notice to the Corporation. The Board of Directors may
     at any time, with or without cause, by the affirmative vote of a majority
     of the directors then in office, remove any officer. The Chairman of the
     Board or the President may at any time, with or without cause, remove any
     officer except for the Chairman of the Board, the President, the Secretary
     and the Treasurer (or a position with the duties and responsibilities of a
     Treasurer)."

     3. Article IV, Section 3 of the Bylaws is hereby amended by deleting the
entirety thereof and inserting the following in its place:




                                      -1-
<PAGE>   19





          "Section 3. Chairman of the Board. The Chairman of the Board, if there
     shall be such an officer, shall preside at all meetings of the stockholders
     and the Board of Directors and shall have such other duties and powers as
     may be prescribed by the Board of Directors from time to time."

     4. Article IV, Section 4 of the Bylaws is hereby amended by deleting the
entirety thereof and inserting the following in its place:

          "Section 4. President. The President shall have general and active
     management of the business of the Corporation and shall see that all orders
     and resolutions of the Board of Directors are carried into effect. The
     President shall have and exercise such further powers and duties as may be
     specifically delegated to or vested in the President from time to time by
     these Bylaws or the Board of Directors. The Board of Directors shall
     appoint either the Chairman of the Board or the President to be the chief
     executive officer of the Corporation, who shall hold such position until
     his or her successor is appointed and qualified or until his or her earlier
     resignation or removal by the affirmative vote of a majority of directors
     then in office. In the absence of the chief executive officer or in the
     event of his or her inability or refusal to act, whichever of the Chairman
     of the Board or the President is not the chief executive officer shall
     perform the duties of the chief executive officer, and when so acting,
     shall have all of the powers and be subject to all of the restrictions upon
     the chief executive officer."

     5. Article IV, Section 10 of the Bylaws is hereby amended by deleting the
entirety thereof and inserting the following in its place:

          "Section 10. Other Officers. Such other officers as the Board of
     Directors, the Chairman of the Board or the President may choose shall
     perform such duties and have such powers as from tine to time may be
     assigned to them by the Board of Directors, the Chairman of the Board or
     the President. The Board of Directors may delegate to any other officer of
     the Corporation the power to choose such other officers and to prescribe
     their respective duties and powers."



THIS IS TO CERTIFY:

     That I am the duly elected, qualified and acting Secretary of Big 5
Holdings Corp. and that the foregoing Amendment No. 1 to Bylaws was adopted as
an amendment to the Bylaws of said corporation as of the 15th day of November,
2000, by the Board of Directors of said corporation.

     Dated as of November 15, 2000.



                                      /s/ Gary S. Meade
                                      ------------------------------------------
                                      Gary S. Meade, Secretary



                                      -2-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>6
<FILENAME>v75241orex4-4.txt
<DESCRIPTION>EXHIBIT 4.4
<TEXT>
<PAGE>   1

                                                                     EXHIBIT 4.4

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




                              BIG 5 HOLDINGS CORP.

                                       TO

                        FIRST TRUST NATIONAL ASSOCIATION
                                   as Trustee

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

                                    Indenture

                          Dated as of November 13, 1997

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

                                   $48,225,000

                         Senior Discount Notes due 2008



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


<PAGE>   2

               Reconciliation and tie between Trust Indenture Act
                   of 1939 and Indenture, dated as of November 13, 1997
<TABLE>
<CAPTION>

    Trust Indenture                                                         Indenture
      Act Section                                                            Section
- --------------------------                                                -------------
<S>                                                                       <C>
Section 310 (a)(1)             ............................................  609
            (a)(2)                                                           609
            (a)(3)             ............................................  Not
                                                                             Applicable
            (a)(4)             ............................................  Not
                                                                             Applicable
            (b)                ............................................  608
                                                                             610
Section 311 (a)                ............................................  613 (a)
            (b)                ............................................  613 (b)
            (b)(2)             ............................................  703 (a) (2)
                                                                             703 (b)
Section 312 (a)                ............................................  701
                                                                             702 (a)
            (b)                ............................................  702 (b)
            (c)                ............................................  702 (c)
Section 313 (a)                ............................................  703 (a)
            (b)                ............................................  703 (b)
            (c)                ............................................  703 (a)
                                                                             703 (b)
            (d)                ............................................  703 (c)
Section 314 (a)                ............................................  704
            (b)                ............................................  Not
                                                                             Applicable
            (c)(1)             ............................................  102
            (c)(2)             ............................................  102
            (c)(3)             ............................................  Not
                                                                             Applicable
            (d)                ............................................  Not
                                                                             Applicable
            (e)                ............................................  102
Section 315 (a)                ............................................  601 (a)
            (b)                ............................................  602
                                                                             703 (a) (6)
            (c)                ............................................  601 (b)
            (d)                ............................................  601 (c)
            (d)(1)             ............................................  601 (a) (1)
            (d)(2)             ............................................  601 (c) (2)
            (d)(3)             ............................................  601 (c) (3)
            (e)                ............................................  514

</TABLE>

<PAGE>   3

<TABLE>
<CAPTION>
    Trust Indenture                                                         Indenture
      Act Section                                                            Section
- --------------------------                                                -------------
<S>                                                                       <C>
Section 316 (a)                ............................................  101
            (a)(1)(A)          ............................................  502
                                                                             512
            (a)(1)(B)          ............................................  513
            (a)(2)             ............................................  Not
                                                                             Applicable
            (b)                ............................................  508
Section 317 (a)(1)             ............................................  503
         (a)(2)                ............................................  504
            (b)                ............................................  1003
Section 318 (a)                ............................................  107

</TABLE>

        ---------------
        Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.



<PAGE>   4

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>     <C>                                                                          <C>
ARTICLE ONE
        Definitions and Other Provisions
        of General Application.....................................................   1
        SECTION 101.      Definitions..............................................   1
        SECTION 102.      Compliance Certificates and Opinions.....................  31
        SECTION 103.      Form of Documents Delivered to Trustee...................  32
        SECTION 104.      Acts of Holders; Record Date.............................  32
        SECTION 105.      Notices, Etc., to Trustee and Company....................  34
        SECTION 106.      Notice to Holders; Waiver................................  34
        SECTION 107.      Conflict with Trust Indenture Act........................  35
        SECTION 108.      Effect of Headings and Table of Contents.................  35
        SECTION 109.      Successors and Assigns...................................  35
        SECTION 110.      Separability Clause......................................  35
        SECTION 111.      Benefits of Indenture....................................  36
        SECTION 112.      Governing Law............................................  36
        SECTION 113.      Legal Holidays...........................................  36
        SECTION 114.      No Personal Liability of Partners,
                          Stockholders, Officers, Directors........................  36

ARTICLE TWO

        Note Forms        .........................................................  37
        SECTION 201.      Forms Generally..........................................  37
        SECTION 202.      Form of Face of Note.....................................  37
        SECTION 203.      Form of Trustee's Certificate of Authentication..........  40
        SECTION 204.      Form of Reverse of Note..................................  40

ARTICLE THREE

        The Notes         .........................................................  45
        SECTION 301.      Title and Terms..........................................  46
        SECTION 302.      Denominations............................................  47
        SECTION 303.      Execution, Authentication, Delivery and Dating...........  47
        SECTION 304.      Temporary Notes..........................................  48
        SECTION 305.      Registration, Registration of Transfer and Exchange......  48

</TABLE>


                                      -i-

<PAGE>   5

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>     <C>                                                                          <C>

        SECTION 306.      Mutilated, Destroyed, Lost and Stolen Notes..............  50
        SECTION 307.      Payment of Interest; Interest Rights Preserved...........  51
        SECTION 308.      Persons Deemed Owners....................................  53
        SECTION 309.      Cancellation.............................................  53
        SECTION 310.      Computation of Interest..................................  53

ARTICLE FOUR

        Satisfaction and Discharge.................................................  54
        SECTION 401.      Satisfaction and Discharge of Indenture..................  54
        SECTION 402.      Application of Trust Money...............................  55

ARTICLE FIVE

        Remedies          .........................................................  55
        SECTION 501.      Events of Default........................................  55
        SECTION 502.      Acceleration of Maturity; Rescission and Annulment.......  58
        SECTION 503.      Collection of Indebtedness and Suits for Enforcement by
                          Trustee..................................................  59
        SECTION 504.      Trustee May File Proofs of Claim.........................  60
        SECTION 505.      Trustee May Enforce Claims Without Possession of Notes...  61
        SECTION 506.      Application of Money Collected...........................  61
        SECTION 507.      Limitation on Suits......................................  62
        SECTION 508.      Unconditional Right of Holders to Receive Principal,
                          Premium and Interest.....................................  63
        SECTION 509.      Restoration of Rights and Remedies.......................  63
        SECTION 510.      Rights and Remedies Cumulative...........................  63
        SECTION 511.      Delay or Omission Not Waiver.............................  64
        SECTION 512.      Control By Holders.......................................  64
        SECTION 513.      Waiver of Past Defaults..................................  64
        SECTION 514.      Undertaking for Costs....................................  65
        SECTION 515.      Waiver of Stay or Extension Laws.........................  65

ARTICLE SIX

        The Trustee       .........................................................  66
        SECTION 601.      Certain Duties and Responsibilities......................  66
        SECTION 602.      Notice of Defaults.......................................  66

</TABLE>
                                      -ii-


<PAGE>   6

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>     <C>                                                                          <C>

        SECTION 603.      Certain Rights of Trustee................................  66
        SECTION 604.      Not Responsible for Recitals or
                          Issuance of Notes .......................................  68
        SECTION 605.      May Hold Notes...........................................  68
        SECTION 606.      Money Held in Trust......................................  68
        SECTION 607.      Compensation and Reimbursement...........................  69
        SECTION 608.      Disqualification; Conflicting Interests..................  69
        SECTION 609.      Corporate Trustee Required; Eligibility..................  69
        SECTION 610.      Resignation and Removal; Appointment
                          of Successor.............................................  70
        SECTION 611.      Acceptance of Appointment by Successor...................  72
        SECTION 612.      Merger, Conversion, Consolidation or Succession to
                          Business.................................................  72
        SECTION 613.      Preferential Collection of Claims Against Company........  73

ARTICLE SEVEN

        Holders' Lists and Reports by Trustee and Company..........................  73
        SECTION 701.      Company to Furnish Trustee Names and
                          Addresses of Holders.....................................  73
        SECTION 702.      Preservation of Information; Communications
                          to Holders...............................................  73
        SECTION 703.      Reports by Trustee.......................................  74
        SECTION 704.      Reports by Company.......................................  74

ARTICLE EIGHT

        Consolidation, Merger, Conveyance, Transfer or Lease.......................  75
        SECTION 801.      Limitation on Merger, Sale or Consolidation..............  75
        SECTION 802.      Successor Substituted....................................  76
        SECTION 803.      Transfer of Subsidiary Assets............................  76

ARTICLE NINE

        Supplemental Indentures....................................................  77
        SECTION 901.      Supplemental Indentures Without
                          Consent of Holders.......................................  77
        SECTION 902.      Supplemental Indentures with Consent
                          of Holders...............................................  78
</TABLE>


                                     -iii-

<PAGE>   7

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>     <C>                                                                          <C>
        SECTION 903.      Execution of Supplemental Indentures.....................  79
        SECTION 904.      Effect of Supplemental Indentures........................  79
        SECTION 905.      Conformity with Trust Indenture Act......................  79
        SECTION 906.      Reference in Notes to Supplemental Indentures............  80

ARTICLE TEN

        Covenants         .........................................................  80
        SECTION 1001.     Payment of Principal, Premium and Interest...............  80
        SECTION 1002.     Maintenance of Office or Agency..........................  80
        SECTION 1003.     Money for Note Payments to be Held in Trust..............  81
        SECTION 1004.     Existence................................................  83
        SECTION 1005.     Maintenance of Properties................................  83
        SECTION 1006.     Payment of Taxes and Other Claims........................  83
        SECTION 1007.     Maintenance of Insurance.................................  84
        SECTION 1008.     Limitation on Incurrence of Additional Indebtedness and
                          Disqualified Capital Stock...............................  84
        SECTION 1009.     Limitation on Restricted Payments........................  86
        SECTION 1010.     Limitations on Dividends and Other Payment Restrictions
                          Affecting Subsidiaries...................................  88
        SECTION 1011.     Limitation on Liens......................................  90
        SECTION 1012.     Limitation on Transactions with Affiliates...............  90
        SECTION 1013.     Limitation on Certain Sales of Capital Stock of
                          Subsidiaries and Certain Assets..........................  91
        SECTION 1014.     Limitation on Issuances and Sales of Capital Stock of
                          Wholly Owned Subsidiaries................................  96
        SECTION 1015.     Change of Control........................................  96
        SECTION 1016.     Reserved.................................................  99
        SECTION 1017.     Investment Company.......................................  99
        SECTION 1018.     Statement by Officers as to Default; Compliance
                          Certificates............................................. 100
        SECTION 1019.     Waiver of Certain Covenants.............................. 100
</TABLE>


                                      -iv-

<PAGE>   8

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>     <C>                                                                          <C>
ARTICLE ELEVEN

        Redemption of Notes........................................................ 101
        SECTION 1101.     Right of Redemption...................................... 101
        SECTION 1102.     Applicability of Article................................. 101
        SECTION 1103.     Election to Redeem; Notice to Trustee.................... 102
        SECTION 1104.     Selection by Trustee of Notes to Be Redeemed............. 102
        SECTION 1105.     Notice of Redemption..................................... 102
        SECTION 1106.     Deposit of Redemption Price.............................. 103
        SECTION 1107.     Notes Payable on Redemption Date......................... 103
        SECTION 1108.     Notes Redeemed in Part................................... 104

ARTICLE TWELVE

        Defeasance and Covenant Defeasance......................................... 104
        SECTION 1201.     Company's Option to Effect Defeasance or Covenant
                          Defeasance............................................... 104
        SECTION 1202.     Defeasance and Discharge................................. 104
        SECTION 1203.     Covenant Defeasance...................................... 105
        SECTION 1204.     Conditions to Defeasance or Covenant Defeasance.......... 106
        SECTION 1205.     Deposited Money and U.S. Government Obligations to be
                          Held in Trust; Other Miscellaneous Provisions............ 108
        SECTION 1206.     Reinstatement............................................ 109
</TABLE>


                                      -v-

<PAGE>   9

        INDENTURE, dated as of November 13, 1997, between Big 5 Holdings Corp.,
a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 2525 E.
El Segundo Blvd., El Segundo, California 90245, and First Trust National
Association, a national banking association duly organized and existing under
the laws of the United States of America, as Trustee (herein called the
"Trustee").

                             RECITALS OF THE COMPANY

        The Company has duly authorized the creation of an issue of its Senior
Discount Notes due November 30, 2008 (the "Notes") of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.

        All things necessary to make the Notes, when executed by the Company and
authenticated and delivered hereunder and duly issued by the Company, the valid
obligations of the Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done.

                   NOW, THEREFORE, THIS INDENTURE WITNESSETH:

        For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes as follows:

                                   ARTICLE ONE

                        Definitions and Other Provisions
                             of General Application

SECTION 101. Definitions.

        For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:


<PAGE>   10

        (1) the terms defined in this Article have the meanings assigned to them
    in this Article and include the plural as well as the singular;

        (2) all other terms used herein which are defined in the Trust Indenture
    Act, either directly or by reference therein, have the meanings assigned to
    them therein;

        (3) all accounting terms not otherwise defined herein have the meanings
    assigned to them in accordance with GAAP;

        (4) unless otherwise specifically set forth herein, all calculations or
    determinations of a Person shall be performed or made on a consolidated
    basis in accordance with generally accepted accounting principles; and

        (5) the words "herein", "hereof" and "hereunder" and other words of
    similar import refer to this Indenture as a whole and not to any particular
    Article, Section or other subdivision.

        Certain terms, used principally in Article Six, are defined in that
Article.

        "Accreted Value" has the meaning set forth in Section 502.

        "Accrual Period" means the semi-annual periods ending on May 31 and
November 30 in each year through and including November 30, 2002.

        "Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock
of any person existing at the time such person becomes a Subsidiary of the
Company, including by designation, or is merged or consolidated into or with the
Company or one of its Subsidiaries.

        "Acquisition" means the purchase or other acquisition of any person
(including, without limitation, the acquisition of more than 50% of the Equity
Interests of any person) or all or substantially all the assets of any person by
any other person, whether by purchase, stock purchase, merger, consolidation, or
other transfer, and whether or not for consideration.


                                      -2-

<PAGE>   11

        "Act", when used with respect to any Holder, has the meaning specified
in Section 104.

        "Adjusted Issue Price" means (i) at the beginning of the first Accrual
Period, the Issue Price, and (ii) thereafter, the Issue Price increased each day
by the daily portion of Original Issue Discount.

        "Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that, with respect to ownership interest in the Company
and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting
power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.

        "Asset Sale" has the meaning set forth in Section 1013.

        "Asset Sale Offer" has the meaning set forth in Section 1013.

        "Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of months from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.

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

        "Board of Directors" means, with respect to any person, the board of
directors of such person or any committee of the Board of Directors of such
person


                                      -3-

<PAGE>   12

authorized, with respect to any particular matter, to exercise the power of the
board of directors of such person.

        "Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

        "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.

        "Capital Contribution" means a contribution of cash, Cash Equivalents or
property (tangible or intangible) to the consolidated stockholder's equity of
the Company solely in exchange for, if anything, shares of the Company's capital
stock other than Disqualified Capital Stock.

        "Capitalized Lease Obligation" means, as to any person, the obligations
of such Person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.

        "Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.

        "Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturates of not more than one year from the
date of acquisition; (b) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either standard & Poor's Ratings Group or Moody's
Investors Service, Inc.;


                                      -4-

<PAGE>   13

(c) certificates of deposit, time deposits, Eurodollar time deposits, overnight
bank deposits or bankers' acceptances having maturities of not more than one
year from the date of acquisition thereof of any domestic commercial bank, the
long-term debt of which is rated at the time of acquisition thereof at least A
or the equivalent thereof by Standard & Poor's Ratings Group, or A or the
equivalent thereof by Moody's Investors Service, Inc. and having capital and
surplus in excess of $500,000,000; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(a), (b) and (c) above entered into with any bank meeting the qualifications
specified in clause (c) above; (e) commercial paper rated at the time of
acquisition thereof at least A-2 or the equivalent thereof by Standard & Poor's
Ratings Group or P-2 or the equivalent thereof by Moody's Investors Service,
Inc., or carrying an equivalent rating by a nationally recognized rating agency,
if both of the two named rating agencies cease publishing ratings of
investments, and in either case maturing within 270 days after the date of
acquisition thereof; and (f) interests in any investment company which invests
solely in instruments of the type specified in clauses (a) through (e) above.

        "Change of Control" has the meaning specified in Section 1015.

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

        "Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.

        "Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.


                                      -5-

<PAGE>   14

        "Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture and thereafter "Company" shall mean
such successor Person.

        "Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.

        "Consolidated Coverage Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that for purposes of
calculating Consolidated EBITDA and Consolidated Fixed Charges for this
definition, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of the Reference period, and (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a pro forma basis as if the
average rate in


                                      -6-

<PAGE>   15

effect from the beginning of the Reference Period to the Transaction Date had
been the applicable rate for the entire period, unless such Person or any of its
Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall
remain in effect for the 12-month period immediately following the Transaction
Date) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used.

        "Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) Consolidated income tax
expense, (ii) Consolidated depreciation and amortization expense (including
amortization of debt discount and deferred financing costs in connection with
any Indebtedness of such person and its Subsidiaries), (iii) Consolidated Fixed
Charges and (iv) all other non-cash charges; provided that Consolidated income
tax expense, depreciation and amortization expense of a Subsidiary of such
person that is less than wholly owned shall only be added to the extent of the
equity interest of such person in such Subsidiary.

        "Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, excluding amortization of debt
issuance costs incurred in connection with the Principal Subsidiary Notes or the
Credit Agreement but including (1) original issue discount and non-cash interest
payments or accruals on any, Indebtedness, (ii) the interest portion of all
deferred payment obligations, and (iii) all commissions, discounts and other
fees and charges owed with respect to bankers' acceptances and letters of credit
financings and currency and Interest Swap and Hedging Obligations, in each case
to the extent attributable to such period, and (b) the amount of cash dividends
paid by such person or any of its Consolidated Subsidiaries in respect of
Preferred Stock (other than by Subsidiaries of such person to such person or
such persons wholly owned Subsidiaries).


                                      -7-

<PAGE>   16

For purposes of this definition, (x) interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by the
Company to be the rate of interest implicit in such Capitalized Lease Obligation
in accordance with GAAP and (y) to the extent such expense would result in a
liability upon the consolidated balance sheet of such person in accordance with
GAAP, interest expense attributable to any Indebtedness represented by the
guaranty by such person or a Subsidiary of such person of an obligation of
another person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed. Notwithstanding the foregoing, Consolidated Fixed
Charges shall not include (A) costs, fees and expenses incurred in connection
with the Recapitalization, (B) interest expense on the Old Principal Subsidiary
Notes incurred after the Issue Date, provided that on the Issue Date Principal
Subsidiary's obligations under the Old Principal Subsidiary Notes shall have
been released to the extent provided in Article Nine of the indenture governing
the Old Principal Subsidiary Notes, and within 45 days after the Issue Date the
Old Principal Subsidiary Notes are redeemed or otherwise acquired by the Company
in compliance with the Old Principal Subsidiary Note indenture and the
Indenture, and (C) any one-time non-cash charge or expense associated with the
write-off of deferred debt issuance costs associated with the Credit Agreement
or the Principal subsidiary Notes or the Notes.

        "Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing such
net income (or loss) and without duplication): (a) all gains and losses which
are either extraordinary (as determined in accordance with GAAP) or are either
unusual or nonrecurring (including any gain from the sale or other disposition
of assets outside the ordinary course of business or from the issuance or sale
of any capital stock), (b) the net income, if positive, of any person, other
than a Consolidated Subsidiary, in which such person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such person or a
Consolidated Subsidiary of such person during such period, but in any case (i)
not in excess of such person's pro rata share of such person's net income for
such


                                      -8-

<PAGE>   17

period and (ii) excluding any such payments made to any Subsidiary pursuant to
clause (a) of the definition of Permitted Payments, (c) the net income or loss
of any person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition, (d) the net income, if positive, of any
of such person's Consolidated Subsidiaries in the event and solely to the extent
that the declaration or payment of dividends or similar distributions is not at
the time permitted by operation of the terms of its charter or bylaws or any
other agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Consolidated Subsidiary, (e) the
effects of changes in accounting principles, (f) any non-cash compensation
expense in connection with the exercise of, grant to or repurchase from
officers, directors and employees of stock, stock options or stock equivalents,
(g) any one-time non-cash charge or expense associated with the write-off of
deferred debt issuance costs associated with the Credit Agreement or the
Principal Subsidiary Notes or the Notes, (h) costs, fees and expenses incurred
in connection with the Recapitalization, (i) interest expense on the Old
Principal Subsidiary Notes incurred after the Issue Date, provided that on the
Issue Date Principal Subsidiary's obligations under the Old Principal Subsidiary
Notes shall have been released to the extent provided in Article Nine of the
indenture governing the Old Principal Subsidiary Notes, and within 45 days after
the Issue Date the Old Principal Subsidiary Notes are redeemed or otherwise
acquired by the Company in compliance with the Old Principal Subsidiary Note
indenture and the Principal Subsidiary Indenture, and (j) interest expense on
the Notes and Exchange Notes.

        "Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments


                                      -9-

<PAGE>   18

in subsidiaries that are not Consolidated Subsidiaries and in persons that are
not Subsidiaries.

        "Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.

        "Consolidation" means, with respect to the Company, the consolidation of
the accounts of its Subsidiaries with those of the Company, all in accordance
with GAAP; provided that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company. The
term "Consolidated" has a correlative meaning to the foregoing.

        "Corporate Trust Office" means the principal office of the Trustee in
St. Paul, Minnesota at which at any particular time its corporate trust business
shall be administered.

        "corporation" means a corporation, association, company, joint-stock
company, partnership or business trust.

        "Credit Agreement" means the one or more credit agreements (including,
without limitation, the CIT Credit Facility) entered into by and among the
Company, Principal Subsidiary, certain of its subsidiaries (if any) and certain
financial institutions, which provide for in the aggregate one or more term
loans and/or revolving credit facilities, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative lenders
or holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Credit Agreement" shall
include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to any such credit agreement and all
refundings, refinancings and replacements of any such credit agreement,
including any agreement (i) extending the maturity of any Indebtedness incurred


                                      -10-

<PAGE>   19

thereunder or contemplated thereby, (ii) adding or deleting borrowers or
guarantors thereunder, so long as borrowers and issuers include one or more of
the Company and its Subsidiaries and their respective successors and assigns,
(iii) increasing the amount of Indebtedness incurred thereunder or available to
be borrowed thereunder, provided that on the date such Indebtedness is incurred
it would not be prohibited by Section 1008 or (iv) otherwise altering the terms
and conditions thereof in a manner not prohibited by the terms hereof.

        "Debt Incurrence Ratio" has the meaning set forth in Section 1008.

        "Default Amount" has the meaning set forth in Section 502.

        "Disqualified Capital Stock" means (a) except as set forth in (b) , with
respect to any person, Equity Interests of such person that, by its terms or by
the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time or
both would be, required to be redeemed or repurchased (including at the option
of the holder thereof) by such person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Notes and (b) with respect to
any Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Equity Interests other than any common equity with no preference,
privileges, or redemption or repayment provisions.

        "Equity Interest" of any Person means any shares, interests,
participations or other equivalents (however designated) in such Person's
equity, and shall in any event include any Capital Stock issued by, or
partnership or membership interests in, such Person.

        "Event of Default" has the meaning specified in Section 501.

        "Event of Loss" means, with respect to any property or asset, any (i)
loss, destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.


                                      -11-

<PAGE>   20

        "Exchange Act" refers to the Securities Exchange Act of 1934 as it may
be amended and any successor act thereto.

        "Exchange Notes" means those certain Exchange Notes issued pursuant to
an indenture in the form of the Indenture affixed as an exhibit to that certain
Certificate of Designations governing the Company's Series A 13.45% Senior
Exchangeable Preferred Stock filed with the Delaware Secretary of State on
November 13, 1997 as such Indenture is amended from time to time with the
content of Holders of a majority in aggregate principal amount of Notes, such
consent not to be unreasonably withheld.

        "Excluded Person" means Green Equity Investors, L.P., Robert Miller,
Steven Miller, Michael Miller and their respective Related Parties.

        "Exempted Affiliate Transaction" means (a) compensation, indemnification
and other benefits paid or made available (x) pursuant to the employment
agreements between the Company or a Subsidiary of the Company and members of its
senior management, or (y) for or in connection with services actually rendered
and comparable to those generally paid or made available by entities engaged in
the same or similar businesses (including reimbursement or advancement of
reasonable out-of-pocket expenses, loans to officers, directors and employees in
the ordinary course of business consistent with past practice and directors' and
officers' liability insurance), (b) transactions, expenses and payments in
connection with the Recapitalization, (c) any Restricted Payments or other
payments or transactions expressly permitted under Section 1009, (d) payments to
LGA for management services under the Management Services Agreement in an amount
not to exceed $1.0 million in any fiscal year, plus reimbursement of reasonable
out-of-pocket costs and expenses, (e) payments to LGA for reasonable and
customary fees and expenses for financial advisory and investment banking
services provided to the Company in connection with major financial
transactions, and (f) transactions between or among the Company and its
Subsidiaries or between or among Subsidiaries of the Company, provided that any
ownership interest in any such Subsidiary which is not beneficially owned
directly or indirectly by the Company or any of its Subsidiaries is not
beneficially owned by an Affiliate of the Company other than by virtue of the
direct or indirect ownership interest in


                                      -12-

<PAGE>   21

such Subsidiary held (in the aggregate) by the Company and/or one or more of its
Subsidiaries.

        "GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.

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

        "Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such any person, to the
extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such person (i) evidenced by
bankers' acceptances or similar installments issued or accepted by banks, (ii)
relating to any Capitalized Lease Obligation, or (iii) evidenced by a letter of
credit or a reimbursement obligation of such person with respect to any letter
of credit; (c) all net obligations of such person under Interest Swap and
Hedging Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clauses (a), (b) or (c) that such person has
guaranteed or that is otherwise its legal liability or which are secured by one
or more Liens on any assets or property of such person; provided that if the
liabilities or obligations which are secured by a Lien have not been assumed in
full by such person or are not such person's legal liability in full, the amount
of such Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount of such Indebtedness secured by such Lien or the fair
market value of the assets


                                      -13-

<PAGE>   22

or property securing such Lien; (e) any and all deferrals, renewals, extensions,
refinancing and refundings (whether direct or indirect) of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a), (b), (c) or (d), or this clause (e), whether or not
between or among the same parties; and (f) all Disqualified Capital Stock of
such Person (measured at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends). For purposes hereof,
the "maximum fixed repurchase price" of any Disqualified Capital Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Capital Stock as if such Disqualified Capital
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Disqualified Capital Stock, such Fair
Market Value to be determined in good faith by the board of directors of the
issuer (or managing general partner of the issuer) of such Disqualified Capital
Stock.

        "Incurrence Date" has the meaning set forth in Section 1008.

        "Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.

        "Interest Payment Date" means each May 31 and November 30, commencing
May 31, 2003.

        "Interest Swap and Hedging Obligation" means any obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.


                                      -14-

<PAGE>   23

        "Investment" by any person in any other person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities, including any options or warrants, of
such other person or any agreement to make any such acquisition; (b) the making
by such person of any deposit with, or advance, loan or other extension of
credit to, such other person (including the purchase of property from another
person subject to an understanding or agreement, contingent or otherwise, to
resell such property to such other person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable, endorsements for
collection or deposits arising in the ordinary course of business) ; (c) other
than guarantees of Indebtedness of the Company or any Subsidiary to the extent
permitted by the Section 1008, the entering into by such person of any guarantee
of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other person; (d) the making of any
capital contribution by such person to such other person; and (e) the
designation by the Board of Directors of the Company of any person to be an
Unrestricted Subsidiary. The Company shall be deemed to make an Investment in an
amount equal to the fair market value of the net assets of any subsidiary (or,
if neither the Company nor any of its Subsidiaries has theretofore made an
Investment in such subsidiary, in an amount equal to the Investments being
made), at the time that such subsidiary is designated an Unrestricted
Subsidiary, and any property transferred to an Unrestricted Subsidiary from the
Company or a Subsidiary of the Company shall be deemed an Investment valued at
its fair market value at the time of such transfer. The amount of any such
Investment shall be reduced by any liabilities or obligations of the Company or
any of its Subsidiaries to be assumed or discharged in connection with such
Investment by an entity other than the Company or any of its Subsidiaries. For
purposes of clarification and greater certainty, the designation of a newly
formed subsidiary as an Unrestricted Subsidiary and the initial capitalization
thereof under clause (b) of the definition of Permitted Payment shall not
constitute an Investment.

        "Issue Date" means the date of first issuance of the Notes under the
Indenture.


                                      -15-

<PAGE>   24

        "Issue Price" means $25,000,000.

        "LGA" means Leonard Green & Associates, L.P., a Delaware limited
partnership.

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

        "Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.

        "Maturity", when used with respect to any Note, means the date on which
the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.

        "Management Services Agreement" means the management services agreement,
dated as of the Issue Date, between the Company and Principal Subsidiary on one
hand and LGA on the other hand substantially as in effect on the Issue Date.

        "Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale of Qualified Capital
Stock and by the Company and its Subsidiaries in respect of an Asset Sale plus,
in the case of an issuance of Qualified Capital Stock upon any exercise,
exchange or conversion of securities (including options, warrants, rights
and.convertible or exchangeable debt) of the Company that were issued for cash
on or after the Issue Date, the amount of cash originally received by the
Company upon the issuance of such securities (including options, warrants,
rights and convertible or exchangeable debt) less, in each case, the sum of all
payments, fees, commissions and (in the case of Asset Sales, reasonable and
customary) expenses (including, without limitation, the fees and expenses of
legal counsel and investment banking fees and expenses) incurred in connection
with such Asset Sale or sale of Qualified Capital Stock, and, in the case of an
Asset Sale only, less (i) the amount (estimated reasonably and in good faith by
the Company) of income, franchise, sales and other applicable taxes required to
be paid by the Company or any of its respective Subsidiaries in connection


                                      -16-

<PAGE>   25

with such Asset Sale, (ii) the amounts of any repayments of Indebtedness
secured, directly or indirectly, by Liens on the assets which are the subject of
such Asset Sale or Indebtedness associated with such assets which is due by
reason of such Asset Sale (i.e., such disposition is permitted by the terms of
the instruments evidencing or applicable to such Indebtedness, or by the terms
of a consent granted thereunder, on the condition that the proceeds (or portion
thereof) of such disposition be applied to such Indebtedness) , and other fees,
expenses and other expenditures, in each case, reasonably incurred as a
consequence of such repayment of Indebtedness (whether or not such fees,
expenses or expenditures are then due and payable or made, as the case may be) ;
(iii) all amounts deemed appropriate by the Company (as evidenced by a signed
certificate of the Chief Financial Officer of the Company delivered to the
Trustee) to be provided as a reserve, in accordance with GAAP, against any
liabilities associated with such assets which are the subject of such Asset
Sale; and (iv) with respect to Asset Sales by Subsidiaries of the Company, the
portion of such cash payments attributable to Persons holding a minority
interest in such Subsidiary.

        "Notes" means securities designated in the first paragraph of the
RECITALS OF THE COMPANY.

        "Note Register" and "Notes Registrar" have the respective meanings
specified in Section 305.

        "Offering Memorandum" means the offering memorandum, dated November 8,
1997, relating to the offering of Principal Subsidiary Notes.

        "Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President, a Vice President or the Chief Financial Officer, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee.

        "Old Principal Subsidiary Notes" means those certain 13 5/8% Senior
Subordinated Notes due 2002.

        "Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.


                                      -17-

<PAGE>   26

        "Original Issue Discount", as applied to an Accrual Period, means the
product of the Adjusted Issue Price at the beginning of the Accrual Period and
the Yield to Maturity for such Accrual Period. The daily portions of Original
Issue Discount are determined by allocating to each day in an Accrual Period the
ratable portion of the Original Issue Discount allocable to the Accrual Period.

        "Outstanding", when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:

        (i) Notes theretofore canceled by the Trustee or delivered to the
    Trustee for cancellation;

        (ii) Notes for whose payment or redemption money in the necessary amount
    has been theretofore deposited with the Trustee or any Paying Agent (other
    than the Company) in trust or set aside and segregated in trust by the
    Company (if the Company shall act as its own Paying Agent) for the Holders
    of such Notes; provided that, if such Notes are to be redeemed, notice of
    such redemption has been duly given pursuant to this Indenture or provision
    therefor satisfactory to the Trustee has been made; and

        (iii) Notes which have been paid pursuant to Section 306 or in exchange
    for or in lieu of which other Notes have been authenticated and delivered
    pursuant to this Indenture, other than any such Notes in respect of which
    there shall have been presented to the Trustee proof satisfactory to it that
    such Notes are held by a bona fide purchaser in whose hands such Notes are
    valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes


                                      -18-

<PAGE>   27

so owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or of such
other obligor.

        "pari passu", when used with respect to the ranking of any Indebtedness
of any Person in relation to other Indebtedness of such Person, means that each
such Indebtedness (a) either (i) is not subordinated in right of payment to any
other Indebtedness of such Person or (ii) is subordinate in right of payment to
the same Indebtedness of such Person as is the other and is so subordinate to
the same extent and (b) is not subordinate in right of payment to the other or
to any Indebtedness of such Person as to which the other is not so subordinate.

        "Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Notes on behalf of the
Company.

        "Permitted Indebtedness" means any of the following:

        (a) that the Company and the Subsidiaries may incur Indebtedness
    evidenced by the Notes and the Principal Subsidiary Notes and represented by
    this Indenture or the principal Subsidiary Indenture up to the amounts
    specified therein as of the date thereof;

        (b) that the Company and the Subsidiaries, as applicable, may incur
    Refinancing Indebtedness with respect to any Indebtedness or Disqualified
    Capital Stock, as applicable, that was permitted by this Indenture to be
    incurred and any Indebtedness of Principal Subsidiary outstanding on the
    Issue Date (except the Old Principal Subsidiary Notes) after giving effect
    to the Recapitalization;

        (c) the Company and the Subsidiaries may incur Indebtedness solely in
    respect of bankers' acceptances and letters of credit (in addition to any
    such Indebtedness incurred under the Credit Agreement in accordance with the
    Indenture) (to the extent that such incurrence does not result in the
    incurrence of any obligation to repay any obligation relating to borrowed


                                      -19-

<PAGE>   28

    money of others), all in the ordinary course of business in accordance with
    customary industry practices, in amounts and for the purposes customary in
    the Company's industry; provided, that the aggregate principal amount
    outstanding of such Indebtedness (including any Indebtedness issued to
    refinance, refund or replace such Indebtedness) shall not exceed $5.0
    million;

        (d) the Company and the Subsidiaries may incur Indebtedness arising from
    tender, bid, performance or government contract bonds, other obligations of
    like nature, or warranty or contractual service obligations of like nature,
    in any case, incurred by the Company or the Subsidiaries in the ordinary
    course of business;

        (e) the Company and the Subsidiaries may incur Interest Swap and Hedging
    Obligations that are incurred for the purpose of fixing or hedging interest
    rate or currency risk with respect to any fixed or floating rate
    Indebtedness that is permitted by the Indenture to be outstanding or any
    receivable or liability the payment of which is determined by reference to a
    foreign currency; provided, that the notional amount of any such Interest
    Swap and Hedging Obligation does not exceed the principal amount of
    Indebtedness to which such Interest Swap and Hedging Obligation relates; and

        (f) the Company may incur Indebtedness to any Subsidiary, and any
    Subsidiary may incur Indebtedness to any other Subsidiary or to the Company;
    provided, that, in the case of Indebtedness of the Company, such obligations
    shall be unsecured and subordinated in all respects to the Company's
    obligations pursuant to the Notes and the date of any event that causes such
    Subsidiary no longer to be a Subsidiary shall be an Incurrence Date.

        "Permitted Investment" means Investments in (a) any of the Principal
Subsidiary Notes or the Notes; (b) Cash Equivalents; (c) intercompany notes to
the extent permitted under clause (f) of the definition of "Permitted
Indebtedness," provided that Indebtedness under any such notes of a Subsidiary
shall be deemed to be a Restricted Investment if such person ceases to be a
Subsidiary; (d) Investments in the form of promissory notes of members of the
Company's or Principal Subsidiary's management not to


                                      -20-

<PAGE>   29

exceed $2.0 million in principal amount at any time outstanding solely in
consideration of the purchase by such persons of Qualified Capital Stock of the
Company; (e) Investments by the Company or any Subsidiary in any person that is
or immediately after such Investment becomes a Subsidiary, or immediately after
such Investment merges or consolidates into the Company or any Subsidiary in
compliance with the terms of the Indenture, provided that such Person is engaged
in all material respects in a Related Business; (f) Investments in the Company
by any Subsidiary, provided that in the case of Indebtedness of the Company
constituting any such Investment, such Indebtedness shall be unsecured and
subordinated in all respects to the Company's obligations under the Notes; (g)
Investments in securities of trade creditors or customers received in settlement
of obligations that arose in the ordinary course of business or pursuant to any
plan of reorganization or similar arrangement upon the bankruptcy or insolvency
of such trade creditors or customers; (h) Investments by the Company or
Principal Subsidiary outstanding on the Issue Date; (i) transactions or
arrangements with officers or directors of the Company or any Subsidiary entered
into in the ordinary course of business (including compensation or employee
benefit arrangements with any officer or director of the Company or any
Subsidiary permitted under Section 1012; (j) Investments in Persons (other than
Affiliates of the Company) received as consideration from Asset Sales to the
extent not prohibited by Section 1013; and (k) additional Investments at any
time outstanding not to exceed the sum of (i) $4.0 million and (ii) the
cumulative gain (net of taxes and all payments, fees, commissions and expenses
incurred in such sale or disposition) realized by the Company and Subsidiaries
in cash or Cash Equivalents on the sale or other disposition after the Issue
Date of Investments (including Permitted Investments and Restricted Investments)
made after the Issue Date in accordance with this Indenture (but only to the
extent that such gain is excluded from the net income of the Company and the
Consolidated Subsidiaries by the definition of Consolidated Net Income).

        "Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers,


                                      -21-

<PAGE>   30

warehousemen, mechanics, materialmen, landlords, repairmen or other like Liens
arising by operation of law in the ordinary course of business provided that (i)
the underlying obligations are not overdue for a period of more than 60 days, or
(ii) such Liens are being contested in good faith and by appropriate proceedings
and adequate reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP; (d) Liens securing the performance of bids,
trade contracts (other than borrowed money) , leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business; (e) easements,
rights-of-way, zoning, similar restrictions and other similar encumbrances or
title defects which, singly or in the aggregate, do not in any case materially
detract from the value of the property subject thereto (as such property is used
by the Company or any of its Subsidiaries) or interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries; (f) Liens
arising by operation of law in connection with judgments, only to the extent,
for an amount and for a period not resulting in an Event of Default with respect
thereto; (g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security legislation; (h) Liens securing the Notes or the Principal
Subsidiary Notes; (i) Liens securing Indebtedness of a Person existing at the
time such Person becomes a Subsidiary or is merged with or into the Company or a
Subsidiary or Liens securing Indebtedness incurred in connection with an
Acquisition, provided that such Liens were in existence prior to the date of
such acquisition, merger or consolidation, were not incurred in anticipation
thereof, and do not extend to any other assets; (j) Liens arising from Purchase
Money Indebtedness permitted to be incurred under paragraph (a) of section 1008
provided such Liens relate solely to the property which is subject to such
Purchase Money Indebtedness; (k) leases or subleases granted to other persons in
the ordinary course of business not materially interfering with the conduct of
the business of the Company or any of its Subsidiaries or materially detracting
from the value of the relative assets of the Company or any Subsidiary; (1)
Liens arising from precautionary Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Company or any of its
Subsidiaries in the ordinary course of business; (m) Liens securing Refinancing
Indebtedness incurred to refinance any


                                      -22-

<PAGE>   31

Indebtedness that was previously so secured in accordance with the Indenture;
(n) Liens securing Indebtedness incurred under the Credit Agreement in
accordance with the Indenture; (o) Liens securing Indebtedness incurred under
paragraph (b) of Section 1008; and (p) any interest or title of a lessor under
any lease, whether or not characterized as capital or operating, provided that
such Liens do not extend to any property or assets which is not leased property
subject to such lease.

        "Permitted Payments" means, without duplication, (a) payments by the
Company made concurrently with and in an amount equal to or less than payments
to the Company (directly or indirectly through one or more Subsidiaries) by an
Unrestricted Subsidiary, provided that in each case the Company distributes the
same property as that so received by the Company from such Unrestricted
Subsidiary; (b) payments to an Unrestricted Subsidiary by the Company (directly
or indirectly through one or more Subsidiaries) made concurrently with and in an
amount equal to or less than Capital Contributions to the Company, provided that
in each case the Company distributes the same property as that so received by
the Company as such Capital Contribution; (c) payments to redeem or otherwise
acquire the Old Principal Subsidiary Notes after the Issue Date solely with
funds used to defease the Old Principal Subsidiary Notes on the Issue Date in
connection with the Recapitalization; (d) payments by the Company directly of
the payments provided for by clauses (a), (d) and (e) of the definition of
"Exempted Affiliated Transaction"; (e) repurchases of common stock, stock
options and stock equivalents of the Company held by former directors, officers
or employees of Thrifty, the Company or any Subsidiaries of the Company, in an
aggregate amount not to exceed in any fiscal year $1,000,000 plus (x) the
cumulative amount by which (1) the product of $1,000,000 times the number of
preceding fiscal years subsequent to the Issue Date exceeds (2) the aggregate
amount of such payments made during such fiscal years, plus (y) the aggregate
net cash consideration received by the Company, after the Issue Date (excluding
any such consideration received by the Company in connection with the
Recapitalization) and prior to or substantially concurrently with the date of
such repurchase, from the sale or issuance of common stock of the Company to
directors, officers and employees of the Company and the Subsidiaries
(including, to the extent not otherwise included in the amount of such cash
consideration, cash repayments of principal received by the Company on loans


                                      -23-

<PAGE>   32

made to such persons to enable them to purchase such stock); and (f) Restricted
Payments in an aggregate amount not to exceed $4.0 million; provided that
following a Default or Event of Default for so long as such Default or Event of
Default is continuing, (a), (e), and (f) shall not be Permitted Payments if made
by the Company.

        "Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.

        "Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.

        "Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.

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

        "Principal Subsidiary Indenture" means the Indenture, dated November 13,
1997, between Principal Subsidiary and First Trust National Association, as
amended from time to time, and any indenture in connection with any Refinancing
Indebtedness incurred in connection with the Principal Subsidiary Notes.

        "Principal Subsidiary Notes" means the 10 7/8% Senior Notes due 2007 of
Principal Subsidiary and any Refinancing Indebtedness incurred in connection
with such Principal Subsidiary Notes.

        "Public Equity Offering" means an underwritten offering of common stock
of the Company for cash pursuant to an effective registration statement under
the Securities


                                      -24-

<PAGE>   33

Act, provided at the time of or upon consummation of such offering, such common
stock of the Company is listed on a national securities exchange or quoted on
the national market system of the Nasdaq Stock Market.

        "Purchase Date" means the settlement date specified by the Company in an
Asset Sale Offer or Change of Control Offer, which shall be within three
business days of the expiration date specified in such offer.

        "Purchase Money Indebtedness"' of any person means any Indebtedness of
such person to any seller or other person incurred to finance the acquisition or
construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of the Company, is
related to a Related Business of the Company and which is incurred concurrently
with, or within 180 days of, such acquisition or the completion of such
construction and, if secured, is secured only by the assets so financed.

        "Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.

        "Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
issued on or after the Issue Date with the Net Cash Proceeds received by the
Company from the substantially concurrent sale of its Qualified Capital Stock or
any exchange of Qualified Capital Stock of the Company for any Capital Stock or
Indebtedness of the Company issued on or after the Issue Date.

        "Recapitalization" has the meaning set forth in the Offering Memorandum.

        "Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.

        "Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.


                                      -25-

<PAGE>   34

        "Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Notes or the Indenture.

        "Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of (a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of the amount of fees, consents, premiums, prepayment penalties and
reasonable expenses incurred in connection with such Refinancing) the lesser of
(i) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; provided, that (A) such Refinancing
Indebtedness of any Subsidiary of the Company shall only be used to Refinance
outstanding Indebtedness or Disqualified Capital Stock of such Subsidiary, (B)
such Refinancing Indebtedness shall (x) not have an Average Life shorter than
the Indebtedness or Disqualified Capital Stock to be so refinanced at the time
of such Refinancing and (y) in all respects, be no less subordinated or junior,
if applicable, to the rights of Holders of the Notes than was the Indebtedness
or Disqualified Capital Stock to be refinanced, (C) such Refinancing
Indebtedness shall have a final stated maturity or redemption date, as
applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced, (D) such Refinancing Indebtedness shall be secured (if secured) in a
manner no more adverse to the Holders of the Notes than the terms of the Liens
(if any) securing such refinanced Indebtedness, including, without limitation,
the amount of Indebtedness secured shall not be increased (except by the amount
of fees, consents, premiums, prepayment penalties and reasonable expenses
incurred in


                                      -26-

<PAGE>   35

connection with such Refinancing) , and (E) such Refinancing Indebtedness shall
permit the payment of dividends to the Company to pay interest on the Notes on
and after May 31, 2003. For purposes of clarification and greater certainty, if
Indebtedness permitted by the terms of this Indenture (including clauses (a) ,
(b) and (c) of the second paragraph of Section 1008) is repaid, redeemed,
defeased, refunded, refinanced, discharged or otherwise retired for value from
the proceeds of Refinancing Indebtedness, the maximum amount of such Refinancing
Indebtedness shall be determined in accordance with the provisions of this
definition, and the amount of such Refinancing Indebtedness in excess of the
amount of such Indebtedness (as permitted by this definition) shall not reduce
the amount of Indebtedness permitted by the terms of this Indenture (including,
without limitation, not reducing or counting towards the amounts set forth in
such clauses (a), (b) and (c).

        "Regular Record Date" means each May 15 and November 15.

        "Related Business" means the business conducted (or proposed to be
conducted, including the activities referred to as being contemplated by the
Company, as described or referred to in the Offering Memorandum) by the Company
as of the Issue Date and any and all businesses that in the good faith judgment
of the Board of Directors of the Company are reasonably related businesses,
including reasonably related extensions thereof.

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

        "Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the


                                      -27-

<PAGE>   36

board of directors, the chairman or any vice-chairman of the executive committee
of the board of directors, the chairman of the trust committee, the president,
any vice president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller or any assistant controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.

        "Restricted Investment" means, in one or a series of related
transactions, any Investment, other than investments in Cash Equivalents and
other Permitted Investments; provided, however, that a merger of another person
with or into the Company or a Subsidiary in accordance with the terms of this
Indenture shall not be deemed to be a Restricted Investment so long as the
surviving entity is the Company or a direct wholly owned Subsidiary.

        "Restricted Payment" means, with respect to any person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such person, (b) any payment on account of the purchase,
redemption or other acquisition or retirement for value of Equity Interests of
such person, (c) other than with the proceeds from the substantially concurrent
sale of, or in exchange for, Refinancing Indebtedness, any purchase, redemption,
or other acquisition or retirement for value of, any payment in respect of any
amendment of the terms of or any defeasance of, any Subordinated Indebtedness,
directly or indirectly, by the Company prior to the scheduled maturity, any
scheduled repayment of principal, or scheduled sinking fund payment, as the case
may be, of such Indebtedness and (d) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on or with respect to Equity Interests
of the Company to the extent payable solely in shares of Qualified Capital Stock
of the Company; (ii) any dividend, distribution or other payment to the Company,
or to any of the Subsidiaries, by any of its Subsidiaries; (iii) payments made
pursuant to the Recapitalization (including, without limitation, bonuses not to
exceed $750,000 in the aggregate


                                      -28-

<PAGE>   37

payable to certain members of the Company's senior management at the time of or
promptly after the Recapitalization); (iv) Permitted Investments; or (v) pro
rata dividends and other distributions on Equity Interests of any Subsidiary by
such Subsidiary.

        "Sale and Leaseback Transaction" means any transaction by which the
Company or a Subsidiary, directly or indirectly, becomes liable as a lessee or
as a guarantor or other surety with respect to any lease of any property
(whether real or personal or mixed), whether now owned or hereafter acquired
that the Company or any Subsidiary has sold or transferred or is to sell or
transfer to any other Person in a substantially concurrent transaction with such
assumption of liability.

        "Series A Preferred Stock" means the Company's Series A 13.45% Senior
Exchangeable Preferred Stock issued pursuant to that certain Certificate of
Designations filed with the Delaware Secretary of State on November 13, 1997 as
such Certificate is amended from time to time with the consent of Holders of a
majority in aggregate principal amount of Notes, such consent not to be
unreasonably withheld.

        "Significant Subsidiary" shall have the meaning provided under
Regulation S-X of the Securities Act, as in effect on the Issue Date.

        "Stated Maturity," when used with respect to any Note or any installment
of interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.

        "Subordinated Indebtedness" means Indebtedness of the Company that is
subordinated in right of payment by its terms or the terms of any document or
instrument or instrument relating thereto to the Notes in any respect or has a
final stated maturity after the Stated Maturity.

        "Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person,


                                      -29-

<PAGE>   38

(ii) any other person (other than a corporation) in which such person, one or
more Subsidiaries of such person, or such person and one or more Subsidiaries of
such person, directly or indirectly, at the date of determination thereof has at
least majority ownership interest, or (iii) a partnership in which such person
or a Subsidiary of such person is, at the time, a general partner.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a
Subsidiary of the Company or of any Subsidiary of the Company. Unless the
context requires otherwise, Subsidiary means each direct and indirect Subsidiary
of the Company.

        "Thrifty" means Thrifty Corporation.

        "Transaction Date" has the meaning set forth in the definition of
"Consolidated Coverage Ratio."

        "Trustee" means the person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.

        "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed, except as provided in
Section 905; provided, however, that in the event the Trust Indenture Act of
1939 is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.

        "U.S. Government Obligations" has the meaning specified in Section 1204.

        "Unrestricted Subsidiary" means any subsidiary of the Company that does
not own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that (i) such subsidiary shall not
engage, to any substantial extent, in any line or lines of business activity
other than a Related Business, (ii) neither immediately prior thereto nor after
giving pro forma effect to such designation would there exist a Default or Event
of Default and (iii) immediately after giving pro forma effect thereto, the
Company could incur at least $1.00 of


                                      -30-

<PAGE>   39

Indebtedness pursuant to the Debt Incurrence Ratio of Section 1008 (provided,
however, that this clause (iii) will not apply in the case of a newly formed
subsidiary being designated an Unrestricted Subsidiary, with the initial
capitalization thereof to be effected under clause (b) of the definition of
Permitted Payments). The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Subsidiary, provided that (i) no Default or
Event of Default is existing or will occur as a consequence thereof and (ii)
immediately after giving effect to such designation, on a pro forma basis, the
Company could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio of Section 1008. Each such designation shall be evidenced by
filing with the Trustee a certified copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.

        "U.S. Government Obligations" means direct noncallable obligations of,
or noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.

        "Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".

        "Yield to Maturity" equals 13.45% per annum (6.725% for each Accrual
Period).

SECTION 102. Compliance Certificates and Opinions.

        Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.


                                      -31-

<PAGE>   40

        Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include

            (1) a statement that each individual signing such certificate or
    opinion has read such covenant or condition and the definitions herein
    relating thereto;

            (2) a brief statement as to the nature and scope of the examination
    or investigation upon which the statements or opinions contained in such
    certificate or opinion are based;

            (3) a statement that, in the opinion of each such individual, he has
    made such examination or investigation as is necessary to enable him to
    express an informed opinion as to whether or not such covenant or condition
    has been complied with; and

            (4) a statement as to whether, in the opinion of each such
    individual, such condition or covenant has been complied with.

SECTION 103. Form of Documents Delivered to Trustee.

        In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

        Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an


                                      -32-

<PAGE>   41

officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.

        Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

SECTION 104. Acts of Holders; Record Date.

        (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.

        (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be


                                      -33-

<PAGE>   42

proved in any other manner which the Trustee deems sufficient.

        c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.

        d) The ownership of Notes shall be proved by the Note Register.

        e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.

SECTION 105. Notices, Etc., to Trustee and Company.

        Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,

            (1) the Trustee by any Holder or by the Company shall be sufficient
    for every purpose hereunder if made, given, furnished or filed in writing to
    or with the Trustee at its Corporate Trust Office, or


                                      -34-

<PAGE>   43

            (2) the Company by the Trustee or by any Holder shall be sufficient
    for every purpose hereunder (unless otherwise herein expressly provided) if
    in writing and mailed, first-class postage prepaid, to the Company addressed
    to it at the address of its principal office specified in the first
    paragraph of this instrument or at any other address previously furnished in
    writing to the Trustee by the Company.

SECTION 106. Notice to Holders; Waiver.

        Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Note Register, not later than
the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.

        In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.

SECTION 107. Conflict with Trust Indenture Act.

        If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any


                                      -35-

<PAGE>   44

provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or to
be excluded, as the case may be.

SECTION 108. Effect of Headings and Table of Contents.

        The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.

        SECTION 109. Successors and Assigns.

        All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.

        SECTION 110. Separability Clause.

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

SECTION 111. Benefits of Indenture.

        Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders of Notes, any benefit or any legal or equitable right, remedy or
claim under this Indenture.

SECTION 112. Governing Law.

        This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York.


                                      -36-

<PAGE>   45

SECTION 113. Legal Holidays.

        In any case where any Interest Payment Date, Redemption Date, Purchase
Date or Stated Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of interest or principal (and premium, if any) need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, Redemption Date or Purchase
Date, or at the Stated Maturity, provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Purchase Date
or Stated Maturity, as the case may be.

SECTION 114. No Personal Liability of Partners,
             Stockholders, Officers, Directors.

        No direct or indirect stockholder, employee, officer or director, as
such, past, present or future of the Company, the Subsidiaries or any successor
entity shall have any personal liability in connection with this Indenture or
the Notes solely by reason of his or its status as such stockholder, employee,
officer or director. Each Holder of Notes by accepting a Note waives and
releases all such liability, acknowledges and consents to the transactions
constituting the Recapitalization and further acknowledges the waiver and
release are part of the consideration for the issuance of the Notes.

                                   ARTICLE TWO

                                   Note Forms

SECTION 201. Forms Generally.

        The Notes and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers


                                      -37-

<PAGE>   46

executing such Notes, as evidenced by their execution of the Notes.

        The definitive Notes shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Notes may be listed, all as determined by the officers executing
such Notes, as evidenced by their execution of such Notes.

SECTION 202. Form of Face of Note.

        FOR PURPOSES OF SECTIONS 1272, 1273 and 1275 OF THE UNITED STATES
INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND PURSUANT TO SECTION 1.1275-3(b),
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT, THE ISSUE PRICE OF THIS NOTE
IS 50.18% OF ITS PRINCIPAL AMOUNT, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS
NOTE IS $1,305.17 PER $1,000 OF STATED FACE AMOUNT, THE ISSUE DATE IS NOVEMBER
13, 1997 AND THE YIELD TO MATURITY IS 13.82%.*

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


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

*  Company and each Holder hereby agree to amend this legend within sixty
   (60) days following the date of this Indenture to reflect adjustments in
   the number of warrants originally issued in connection with the Notes.


                                      -38-

<PAGE>   47

                         SENIOR DISCOUNT NOTES DUE 2008

No.                                                                  $48,225,000

        Big 5 Holdings Corp., a corporation duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to) , for value
received, hereby promises to pay to ______________________, or registered
assigns, the principal sum of Forty Eight Two Hundred Twenty Five Thousand
Dollars on November 30, 2008, and to pay interest thereon from November 30, 2002
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually on May 31 and November 30 in each year,
commencing May 31, 2003, at 13.45% until the principal hereof is paid or made
available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at the rate of 15.45% per annum on any overdue
principal and premium] and on any overdue installment of interest until paid as
specified on the reverse hereof.

        The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the May 15 or November 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.

        The principal of this Note shall not accrue interest until November 30,
2002, except in the case of a default in payment of principal upon acceleration
or


                                      -39-

<PAGE>   48

redemption and, in such case, the interest payable pursuant to the preceding
paragraph on the overdue principal as specified on the reverse hereof shall be
payable on demand and, if not so paid on demand, such interest shall itself bear
interest at the rate of 15.45% per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
demand for payment to the date payment of such interest has been made or duly
provided for, and such interest or unpaid interest shall also be payable on
demand.

        Payment of the principal of (and premium, if any) and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the Note
Register.

        Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

        Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.


                                      -40-

<PAGE>   49

        IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.

Dated:

                                            BIG 5 HOLDINGS CORP.

[Seal]

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

Attest:



- -------------------------------
Title:


SECTION 203. Form of Trustee's Certificate of Authentication.

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

Dated:

                                              ----------------------------------
                                                          as Trustee



                                            By
                                              ----------------------------------
                                              Authorized Officer



SECTION 204. Form of Reverse of Note.

        This Note is one of a duly authorized issue of Notes of the Company
designated as its Senior Discount Notes due 2008 (herein called the "Notes"),
limited in aggregate principal amount to $48,225,000, issued and to be issued
under an Indenture, dated as of November 13, 1997 (herein called the
"Indenture"), between the Company and First Trust National Association, as
Trustee (herein called the


                                      -41-

<PAGE>   50

"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all Indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee and the Holders of the Notes
and of the terms upon which the Notes are, and are to be, authenticated and
delivered.

        The Notes are subject to redemption upon not less than 30 nor more than
60 days' notice by mail, at any time on or after November 30, 2002, as a whole
or in part, at the election of the Company, at a Redemption Price which, if
during the twelve month period beginning November 30, 2002 is equal to 110% of
the principal amount of this Note; if during the twelve month period beginning
November 30, 2003 is equal to 106.67% of the principal amount of this Note; if
during the twelve month period beginning November 30, 2004 is equal to 103.33%
of the principal amount of this Note; and thereafter is equal to 100% of the
principal amount of this Note, in each case plus interest thereon accruing from
November 30, 2002 or the most recent Interest Payment Date to which interest has
been paid or duly provided for, at the rate of 13.45% per annum, provided that
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.

        Notwithstanding the foregoing, at any time prior to November 30, 2002,
the Company may give notice of redemption for all, but not less than all, of
this Note at a Redemption Price equal to 113.45% of the Accreted Value of this
Note promptly upon (and in no event later than 10 days after) the Company's
receipt of cash from the Net Cash Proceeds to the Company of any Public Equity
Offering. In such event, the Note shall be redeemed on a date not less than 30
days nor more than 60 days after the date of such notice.

        The Notes do not have the benefit of any sinking fund obligations.

        In the event of redemption or purchase pursuant to an Asset Sale Offer
or Change of Control Offer of this Note in part only, a new Note or Notes for
the unredeemed portion


                                      -42-

<PAGE>   51

hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.

        If an Event of Default shall occur and be continuing, there may be
declared due and payable the Default Amount of the Securities, in the manner and
with the effect provided in the Indenture. Until and including November 30,
2002, the Default Amount in respect of this Note as of any particular date of
acceleration shall equal the Accreted Value of this Note. For this purpose,
Accreted Value means the Adjusted Issue Price as of the first day of the Accrual
Period in which the date of acceleration occurs increased by the daily portion
of the Original Issue Discount for each day in such Accrual Period ending on the
date of acceleration. Such Default Amount shall bear interest at the rate of
15.45% per annum (to the extent that the payment of such interest shall be
legally enforceable), which shall accrue from the date of acceleration to the
date payment has been made or duly provided for. On and after November 30, 2002,
the Default Amount in respect of this Note shall equal 100% of the principal
amount of this Note. Such Default Amount shall bear interest at the rate of
15.45% per annum from November 30, 2002 or the most recent Interest Payment Date
to which interest has been paid or duly provided for. Upon payment of (i) the
Default Amount so declared due and payable and any overdue installment of
interest, (ii) interest on the Default Amount and (iii) as provided on the face
hereof, interest on any overdue installment of interest or, if acceleration
occurs prior to November 30, 2002, on the interest referred to in the third
preceding sentence (in each case to the extent that the payment of such interest
shall be legally enforceable), all of the Company's obligations in respect of
the payment of the principal of and interest on the Notes shall terminate.

        The Indenture provides that, subject to certain conditions, if (i)
certain Net Cash Proceeds are available to the Company as a result of Asset
Sales or (ii) a Change of Control occurs, the Company shall be required to make
an Asset Sale Offer or Change of Control Offer, respectively, for all of the
Notes.

        The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Note or (ii) certain restrictive covenants and
Events of Default with respect to this Note, in each case upon compliance with
certain conditions set forth therein.


                                      -43-

<PAGE>   52

        The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all the Notes, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.

        No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place and rate, and in the coin or currency,
herein prescribed.

        As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable in the Note Register, upon
surrender of this Note for registration of transfer at the office or agency of
the Company in the Borough of Manhattan, The City of New York and at any other
office or agency maintained by the Company for such purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Note Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Notes, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

        The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes


                                      -44-

<PAGE>   53

of a different authorized denomination, as requested by the Holder surrendering
the same.

        No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

        Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

        Accrual Periods and interest on this Note shall be computed on the basis
of a 360-day year of twelve 30-day months.

        No direct or indirect stockholder, employee, officer or director, as
such, past, present or future of the Company, the Subsidiaries or any successor
entity shall have any personal liability in connection with this Note solely by
reason of his or its status as such stockholder, employee, officer or director.
Each Holder by accepting this Note waives and releases all such liability,
acknowledges and consents to the transactions constituting the Recapitalization
and further acknowledges the waiver and release are part of the consideration
for the issuance of this Note.

        All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.

        The Indenture and this Note shall be governed by and construed in
accordance with the laws of the State of New York.


                                      -45-

<PAGE>   54

                       OPTION OF HOLDER TO ELECT PURCHASE

        If you want to elect to have this Note purchased in its entirety by the
Company pursuant to Section 1013 or 1015 of the Indenture, check the box:

            [ ]

        If you want to elect to have only a part of this Note purchased by the
Company pursuant to Section 1013 or 1015 of the Indenture, state the amount: $

Dated:                                  Your Signature:
                                                      --------------------------
                                        (Sign exactly as name appears
                                        on the other side of this Note)

Signature Guarantee:
                    ---------------------------------------
                    (Signature must be guaranteed by a member firm of the
                    New York Stock Exchange or a commercial bank or trust
                    company)


                                  ARTICLE THREE

                                    The Notes

SECTION 301. Title and Terms.

        The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $48,225,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 906 or 1108
or in connection with an Asset Sale Offer or Change of Control Offer pursuant to
Sections 1013 or 1015.

        The Notes shall be known and designated as the "Senior Discount Notes
due 2008" of the Company. Their Stated Maturity shall be November 30, 2008 and
they shall bear interest at 13.45% from November 30, 2002 or from the most
recent Interest Payment Date to which interest has been


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<PAGE>   55

paid or duly provided for, as the case may be, payable semiannually on May 31
and November 30, commencing May 31, 2003, until the principal thereof is paid or
made available for payment.

        The principal of (and premium, if any) and interest on the Notes shall
be payable at the office or agency of the Company in the Borough of Manhattan,
The City of New York maintained for such purpose and at any other office or
agency maintained by the Company for such purpose; provided, however, that at
the option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the Note
Register.

        The Notes shall be subject to repurchase by the Company pursuant to an
Asset Sale Offer or Change of Control Offer, respectively, as provided in
Sections 1013 and 1015.

        The Notes shall be subject to defeasance at the option of the Company as
provided in Article Twelve.

SECTION 302. Denominations.

        The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 and any integral multiple thereof.

SECTION 303. Execution, Authentication, Delivery and Dating.

        The Notes shall be executed on behalf of the Company by its Chairman of
the Board, its President or one of its Vice Presidents, reproduced thereon and
may be attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Notes may be manual or facsimile.

        Notes bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.


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<PAGE>   56

        At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes as in this Indenture provided
and not otherwise.

        Each Note shall be dated the date of its authentication.

        No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.

SECTION 304. Temporary Notes.

        Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.

        If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at any office or agency of the Company
designated pursuant to Section 1002, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Notes of authorized denominations. Until so
exchanged the


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<PAGE>   57

temporary Notes shall in all respects be entitled to the same benefits under
this Indenture as definitive Notes.

SECTION 305. Registration, Registration of Transfer and Exchange.

        The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Trustee is hereby appointed
"Note Registrar" for the purpose of registering Notes and transfers of Notes as
herein provided.

        Upon surrender for registration of transfer of any Note at an office or
agency of the Company designated pursuant to Section 1002 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes of any
authorized denominations and of a like aggregate principal amount.

        At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.

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

        Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Note Registrar duly


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<PAGE>   58

executed, by the Holder thereof or his attorney duly authorized in writing.

        No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 304, 906 or 1108 or in accordance with any Asset Sale Offer
or Change of Control Offer pursuant to Section 1013 or 1015 not involving any
transfer.

        The Company shall not be required (i) to issue, register the transfer of
or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 1104 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.

        All Notes originally issued hereunder shall bear the following legend:

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

        All Notes issued upon transfer or exchange or replacement thereof shall
bear such legend unless the Company shall have delivered to the Trustee (and the
Note Register, if other than the Trustee) a Company Order which states that the
Note may be issued without such legend thereon.


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<PAGE>   59

SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.

        If any mutilated Note is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.

        If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Note and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a
new Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.

        In case any such mutilated, destroyed, lost or stolen Note has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Note, pay such Note.

        Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.

        Every new Note issued pursuant to this Section in lieu of any destroyed,
lost or stolen Note shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen Note
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.

        The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.


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<PAGE>   60

SECTION 307. Payment of Interest; Interest Rights Preserved.

        Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date immediately preceding such Interest Payment
Date.

        Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:

        (1) The Company may elect to make payment of any Defaulted Interest to
    the Persons in whose names the Notes (or their respective Predecessor Notes)
    are registered at the close of business on a Special Record Date for the
    payment of such Defaulted Interest, which shall be fixed in the following
    manner. The Company shall notify the Trustee in writing of the amount of
    Defaulted Interest proposed to be paid on each Note and the date of the
    proposed payment, and at the same time the Company shall deposit with the
    Trustee an amount of money equal to the aggregate amount proposed to be paid
    in respect of such Defaulted Interest or shall make arrangements
    satisfactory to the Trustee for such deposit prior to the date of the
    proposed payment, such money when deposited to be held in trust for the
    benefit of the Persons entitled to such Defaulted Interest as in this Clause
    provided. Thereupon the Trustee shall fix a Special Record Date for the
    payment of such Defaulted Interest which shall be not more than 15 days and
    not less than 10 days prior to the date of the proposed payment and not less
    than 10 days after the receipt by the Trustee of the notice of the proposed
    payment. The Trustee shall promptly notify the Company of such Special
    Record Date and, in the name and at the expense of the Company, shall cause
    notice of the proposed payment of such Defaulted Interest and the Special
    Record Date therefor to be


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<PAGE>   61
    mailed, first-class postage prepaid, to each Holder at his address as it
    appears in the Note Register, not less than 10 days prior to such Special
    Record Date. Notice of the proposed payment of such Defaulted Interest and
    the Special Record Date therefor having been so mailed, such Defaulted
    Interest shall be paid to the Persons in whose names the Notes (or their
    respective Predecessor Notes) are registered at the close of business on
    such Special Record Date and shall no longer be payable pursuant to the
    following Clause (2).

        (2) The Company may make payment of any Defaulted Interest in any other
    lawful manner not inconsistent with the requirements of any securities
    exchange on which the Notes may be listed, and upon such notice as may be
    required by such exchange, if, after notice given by the Company to the
    Trustee of the proposed payment pursuant to this Clause, such manner of
    payment shall be deemed practicable by the Trustee.

        Subject to the foregoing provisions of this Section, each Note delivered
under this Indenture upon registration of transfer of or in exchange for or in
lieu of any other Note shall carry the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Note.

SECTION 308. Persons Deemed Owners.

        Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Note is registered as the owner of such Note for the
purpose of receiving payment of principal of (and premium, if any) and (subject
to Section 307) interest on such Note and for all other purposes whatsoever,
whether or not such Note be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.

SECTION 309. Cancellation.

        All Notes surrendered for payment, redemption, registration of transfer
or exchange or any Asset Sale Offer or Change of Control Offer pursuant to
Section 1013 or 1015


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<PAGE>   62

shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly canceled by it. The Company may at any time
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes
canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Notes held by the Trustee shall be disposed of as
directed by a Company Order.

SECTION 310. Computation of Interest.

        Accrual Periods and interest on the Notes shall be computed on the basis
of a year of twelve 30-day months.

                                  ARTICLE FOUR

                           Satisfaction and Discharge

SECTION 401. Satisfaction and Discharge of Indenture.

        This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Notes herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when

        (1) either

            (A) all Notes theretofore authenticated and delivered (other than
        (i) Notes which have been destroyed, lost or stolen and which have been
        replaced or paid as provided in Section 306 and (ii) Notes for whose
        payment money has theretofore been deposited in trust or segregated and
        held in trust by the Company and thereafter repaid to the Company or
        discharged from such trust, as provided in Section 1003) have been
        delivered to the Trustee for cancellation; or

            (B) all such Notes not theretofore delivered to the Trustee for
        cancellation


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<PAGE>   63

                (i) have become due and payable, or

                (ii) will become due and payable at their Stated Maturity within
                one year, or

                (iii) are to be called for redemption within one year under
                arrangements satisfactory to the Trustee for the giving of
                notice of redemption by the Trustee in the name, and at the
                expense, of the Company,

                and the Company, in the case of (i), (ii) or (iii) above, has
                deposited or caused to be deposited with the Trustee as trust
                funds in trust for the purpose an amount sufficient to pay and
                discharge the entire indebtedness on such Notes not theretofore
                delivered to the Trustee for cancellation, for principal (and
                premium, if any) and interest to the date of such deposit (in
                the case of Notes which have become due and payable) or to the
                Stated Maturity or Redemption Date, as the case may be;

        (2) the Company has paid or caused to be paid all other sums payable
    hereunder by the Company; and

        (3) the Company has delivered to the Trustee an Officers' Certificate
    and an Opinion of Counsel, each stating that all conditions precedent herein
    provided for relating to the satisfaction and discharge of this Indenture
    have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.

SECTION 402. Application of Trust Money.

        Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this


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<PAGE>   64

Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.

                                  ARTICLE FIVE

                                    Remedies

SECTION 501. Events of Default.

        "Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

        (1) the failure by the Company to pay any installment of interest on the
    Notes as and when the same becomes due and payable and the continuance of
    any such failure for 30 days;

        (2) the failure by the Company to pay all or any part of the principal,
    or premium, if any, on the Notes when and as the same becomes due and
    payable at maturity, redemption, by acceleration or otherwise, including,
    without limitation, payment of the Change of Control Purchase Price or the
    Asset Sale Offer Price, or otherwise;

        (3) the failure by the Company or any Subsidiary of the Company to
    observe or perform any other covenant or agreement contained in the Notes or
    the Indenture and, subject to certain exceptions, the continuance of such
    failure for a period of 30 days after written notice is given to the Company
    by the Trustee or to the Company and the Trustee by the Holders of at least
    25% in aggregate principal amount of the Notes outstanding, specifying such
    Default;

        (4) the entry by a court having jurisdiction in the premises of (A) a
    decree or order for relief in


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<PAGE>   65

    respect of the Company or any Subsidiary of the Company in an involuntary
    case or proceeding under any applicable Federal or State bankruptcy,
    insolvency, reorganization or other similar law or (B) a decree or order
    adjudging the Company or any such Subsidiary a bankrupt or insolvent, or
    approving as properly filed a petition seeking reorganization, arrangement,
    adjustment or composition of or in respect of the Company or any such
    Subsidiary under any applicable Federal or State law, or appointing a
    custodian, receiver, liquidator, assignee, trustee, sequestrator or other
    similar official of the Company or any such Subsidiary or of any substantial
    part of the property of the Company or any such Subsidiary, or ordering the
    winding up or liquidation of the affairs of the Company or any such
    Subsidiary, and the continuance of any such decree or order for relief or
    any such other decree or order unstayed and in effect for a period of 60
    consecutive days;

        (5) the commencement by the Company or any Subsidiary of the Company of
    a voluntary case or proceeding under any applicable Federal or State
    bankruptcy, insolvency, reorganization or other similar law or of any other
    case or proceeding to be adjudicated a bankrupt or insolvent, or the consent
    by the Company or any such Subsidiary to the entry of a decree or order for
    relief in respect of the Company or any Subsidiary of the Company in an
    involuntary case or proceeding under any applicable Federal or State
    bankruptcy, insolvency, reorganization or other similar law or to the
    commencement of any bankruptcy or insolvency case or proceeding against the
    Company or any Subsidiary of the Company, or the filing by the Company or
    any such Subsidiary of a petition or answer or consent seeking
    reorganization or relief under any applicable Federal or State law, or the
    consent by the Company or any such Subsidiary to the filing of such petition
    or to the appointment of or taking possession by a custodian, receiver,
    liquidator, assignee, trustee, sequestrator or similar official of the
    Company or any Subsidiary of the Company or of any substantial part of the
    property of the Company or any Subsidiary of the Company, or the making by
    the Company or any Subsidiary of the Company of an assignment for the
    benefit of creditors, or the admission by the Company or any such Subsidiary
    in writing of its


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<PAGE>   66

    inability to pay its debts generally as they become due, or the taking of
    corporate action by the Company or any such Subsidiary in furtherance of any
    such action;

        (6) a default in any indebtedness of the Company or its Subsidiaries,
    with an aggregate principal in excess of $15 million (a) resulting from the
    failure to pay principal at maturity or (b) as a result of which the
    maturity of such indebtedness has been accelerated prior to its stated
    maturity; or

        (7) a final judgment or final judgments not covered by insurance for the
    payment of money are entered against the Company or any Subsidiary of the
    Company in an aggregate amount in excess of $15 million by a court or courts
    of competent jurisdiction, which judgments remain undischarged or unbonded
    for a period (during which execution shall not be effectively stayed) of 60
    days after the right to appeal all such judgments has expired.

SECTION 502. Acceleration of Maturity; Rescission and Annulment.

        If an Event of Default (other than an Event of Default specified in
Section 501(4) or (5)) occurs and is continuing, then and in every such case
unless the principal of all of the Notes shall already become due and payable,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Notes then outstanding may declare the Default Amount of all the
Notes to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Holders), and upon any such declaration such
Default Amount and any accrued interest shall become immediately due and
payable. If an Event of Default specified in section 501(4) or (5) occurs, the
Default Amount of and any accrued interest on the Notes then Outstanding shall
ipso facto become immediately due and payable without any declaration or other
Act on the part of the Trustee or any Holder.

        Until and including November 30, 2002, the "Default Amount" in respect
of any particular Note as of any particular date of acceleration shall equal the
Accreted


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<PAGE>   67

Value of the Note. For this purpose, "Accreted Value" means the Adjusted Issue
Price as of the first day of the Accrual Period in which the date of
acceleration occurs increased by the daily portion of the Original Issue
Discount for each day in such Accrual Period ending on the date of acceleration.
On and after November 30, 2002, the "Default Amount" in respect of any
particular Note shall equal 100% of the principal amount of the Note.

        At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of the Outstanding Notes, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if

        (1) the Company has paid or deposited with the Trustee a sum sufficient
    to pay

            (A) all overdue interest on all Notes,

            (B) the principal of (and premium, if any, on) any Notes which have
        become due otherwise than by such declaration of acceleration (including
        any Notes required to have been purchased on the pursuant to an Asset
        Sale Offer or Change of Control Offer made by the Company) and, to the
        extent that payment of such interest is lawful, interest thereon at the
        rate provided by the Notes,

            (C) to the extent that payment of such interest is lawful, interest
        upon overdue interest at the rate provided by the Notes, and

            (D) all sums paid or advanced by the Trustee hereunder and the
        reasonable compensation, expenses, disbursements and advances of the
        Trustee, its agents and counsel;

        and

        (2) all Events of Default, other than the nonpayment of the principal or
    premium, if any, and interest on the Notes which have become due solely by


                                      -59-

<PAGE>   68
    such declaration of acceleration, have been cured or waived as provided in
    Section 513.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.

        The Company covenants that if

        (1) default is made in the payment of any interest on any Note when such
    interest becomes due and payable and such default continues for a period of
    30 days, or

        (2) default is made in the payment of the principal of (or premium, if
    any, on) any Note at the Maturity thereof or, with respect to any Note
    required to have been purchased pursuant to an Asset Sale Offer or Change of
    Control Offer made by the Company, at the Purchase Date thereof,

the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Notes, the whole amount then due and payable on such Notes for
principal (and premium, if any) and interest, and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
(and premium, if any) and on any overdue interest, at the rate provided by the
Notes, and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.

        If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.


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<PAGE>   69

        If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.

SECTION 504. Trustee May File Proofs of Claim.

        In case of any judicial proceeding relative to the Company (or any other
obligor upon the Notes), its property or its creditors, the Trustee shall be
entitled and empowered, by intervention in such proceeding or otherwise, to take
any and all actions authorized under the Trust Indenture Act in order to have
claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.

        No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.

SECTION 505. Trustee May Enforce Claims Without Possession of Notes.

        All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the


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<PAGE>   70

production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes in respect of which such judgment has been recovered.

SECTION 506. Application of Money Collected.

        Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:

            FIRST: To the payment of all amounts due the Trustee under Section
        607; and

            SECOND: To the payment of the amounts then due and unpaid for
        principal of (and premium, if any) and interest on the Notes in respect
        of which or for the benefit of which such money has been collected,
        ratably, without preference or priority of any kind, according to the
        amounts due and payable on such Notes for principal (and premium, if
        any) and interest, respectively.

SECTION 507. Limitation on Suits.

        No Holder of any Note shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless

        (1) such Holder has previously given written notice to the Trustee of a
    continuing Event of Default:

        (2) the Holders of not less than 25% in principal amount of the
    Outstanding Notes shall have made written request to the Trustee to
    institute proceedings in


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<PAGE>   71

    respect of such Event of Default in its own name as Trustee hereunder;

        (3) such Holder or Holders have offered to the Trustee reasonable
    indemnity against the costs, expenses and liabilities to be incurred in
    compliance with such request;

        (4) the Trustee for 60 days after its receipt of such notice, request
    and offer of indemnity has failed to institute any such proceeding; and

        (5) no direction inconsistent with such written request has been given
    to the Trustee during such 60-day period by the Holders of a majority in
    principal amount of the outstanding Notes;

it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.

SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
             Interest.

        Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Note on the respective Stated Maturities expressed in such Note
(or, in the case of redemption, on the Redemption Date or in the case of an
Asset Sale Offer or Change of Control Offer made by the Company and required to
be accepted as to such Note, on the purchase Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.


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SECTION 509. Restoration of Rights and Remedies.

        If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.

SECTION 510. Rights and Remedies Cumulative.

        Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

SECTION 511. Delay or Omission Not Waiver.

        No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.


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SECTION 512. Control by Holders.

        The Holders of a majority in principal amount of the Outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that

        (1) such direction shall not be in conflict with any rule of law or with
    this Indenture, and

        (2) the Trustee may take any other action deemed proper by the Trustee
    which is not inconsistent with such direction.

SECTION 513. Waiver of Past Defaults.

        The Holders of not less than a majority in aggregate principal amount of
the Outstanding Notes may on behalf of the Holders of all the Notes waive any
past default hereunder and its consequences, except a default

        (1) in the payment of the principal of (or premium, if any) or interest
    on any Note (including any Note which is required to have been purchased
    pursuant to an Asset Sale Offer or Change of Control Offer which has been
    made by the Company), or

        (2) in respect of a covenant or provision hereof which under Article
    Nine cannot be modified or amended without the consent of the Holder of each
    Outstanding Note affected.

        Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.

SECTION 514. Undertaking for Costs.

        In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit


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<PAGE>   74

to file an undertaking to pay the costs of such suit, and may assess costs
against any such party litigant, in the manner and to the extent provided in the
Trust Indenture Act; provided, that neither this Section nor the Trust Indenture
Act shall be deemed to authorize any court to require such an undertaking or to
make such an assessment in any suit instituted by the Company.

SECTION 515. Waiver of Stay or Extension Laws.

        The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

                                   ARTICLE SIX

                                   The Trustee

SECTION 601. Certain Duties and Responsibilities.

        The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.


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SECTION 602. Notice of Defaults.

        The Trustee shall give the Holders notice of any default hereunder as
and to the extent provided by the Trust Indenture Act. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default.

SECTION 603. Certain Rights of Trustee.

        Subject to the provisions of Section 601:

        (a) the Trustee may rely and shall be protected in acting or refraining
    from acting upon any resolution, certificate, statement, instrument,
    opinion, report, notice, request, direction, consent, order, bond,
    debenture, note, other evidence of indebtedness or other paper or document
    believed by it to be genuine and to have been signed or presented by the
    proper party or parties;

        (b) any request or direction of the Company mentioned herein shall be
    sufficiently evidenced by a Company Request or Company Order and any
    resolution of the Board of Directors may be sufficiently evidenced by a
    Board Resolution;

        (c) whenever in the administration of this Indenture the Trustee shall
    deem it desirable that a matter be proved or established prior to taking,
    suffering or omitting any action hereunder, the Trustee (unless other
    evidence be herein specifically prescribed) may, in the absence of bad faith
    on its part, rely upon an Officers' Certificate;

        (d) the Trustee may consult with counsel and the written advice of such
    counsel or any Opinion of Counsel shall be full and complete authorization
    and protection in respect of any action taken, suffered or omitted by it
    hereunder in good faith and in reliance thereon;

        (e) the Trustee shall be under no obligation to exercise any of the
    rights or powers vested in


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<PAGE>   76

    it by this Indenture at the request or direction of any of the Holders
    pursuant to this Indenture, unless such Holders shall have offered to the
    Trustee reasonable security or indemnity against the costs, expenses and
    liabilities which might be incurred by it in compliance with such request or
    direction;

        (f) the Trustee shall not be bound to make any investigation into the
    facts or matters stated in any resolution, certificate, statement,
    instrument, opinion, report, notice, request, direction, consent, order,
    bond, debenture, note, other evidence of indebtedness or other paper or
    document, but the Trustee, in its discretion, may make such further inquiry
    or investigation into such facts or matters as it may see fit, and, if the
    Trustee shall determine to make such further inquiry or investigation, it
    shall be entitled to examine the books, records and premises of the Company,
    personally or by agent or attorney; and

        (g) the Trustee may execute any of the trusts or powers hereunder or
    perform any duties hereunder either directly or by or through agents or
    attorneys and the Trustee shall not be responsible for any misconduct or
    negligence on the part of any agent or attorney appointed with due care by
    it hereunder.

SECTION 604. Not Responsible for Recitals or Issuance of Notes.

        The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes. The Trustee shall not be accountable for the use or application by
the Company of Notes or the proceeds thereof.


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SECTION 605. May Hold Notes.

        The Trustee, any Paying Agent, any Note Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Notes and, subject to Sections 608 and 613, may otherwise deal with
the Company with the same rights it would have if it were not Trustee, Paying
Agent, Note Registrar or such other agent.

SECTION 606. Money Held in Trust.

        Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.

SECTION 607. Compensation and Reimbursement.

        The Company agrees

        (1) to pay to the Trustee from time to time reasonable compensation for
    all services rendered by it hereunder (which compensation shall not be
    limited by any provision of law in regard to the compensation of a trustee
    of an express trust);

        (2) except as otherwise expressly provided herein, to reimburse the
    Trustee upon its request for all reasonable expenses, disbursements and
    advances incurred or made by the Trustee in accordance with any provision of
    this Indenture (including the reasonable compensation and the expenses and
    disbursements of its agents and counsel), except any such expense,
    disbursement or advance as may be attributable to its negligence or bad
    faith; and

        (3) to indemnify the Trustee for, and to hold it harmless against, any
    loss, liability or expense incurred without negligence or bad faith on its
    part, arising out of or in connection with the acceptance or administration
    of this trust, including the costs and expenses of defending


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<PAGE>   78

    itself against any claim or liability in connection with the exercise or
    performance of any of its powers or duties hereunder.

SECTION 608. Disqualification; Conflicting Interests.

        If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.

SECTION 609. Corporate Trustee Required; Eligibility.

        There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000 and a Corporate Trust
Office in the Borough of Manhattan, The City of New York. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.

SECTION 610. Resignation and Removal; Appointment of Successor.

        (a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.

        (b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may


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<PAGE>   79

petition any court of competent jurisdiction for the appointment of a successor
Trustee.

        (c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee
and to the Company.

        (d) If at any time:

        (1) the Trustee shall fail to comply with Section 608 after written
    request therefor by the Company or by any Holder who has been a bona fide
    Holder of a Note for at least six months, or

        (2) the Trustee shall cease to be eligible under Section 609 and shall
    fail to resign after written request therefor by the Company or by any such
    Holder, or

        (3) the Trustee shall become incapable of acting or shall be adjudged a
    bankrupt or insolvent or a receiver of the Trustee or of its property shall
    be appointed or any public officer shall take charge or control of the
    Trustee or of its property of affairs for the purpose of rehabilitation,
    conservation or liquidation,

then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.

        (e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee


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and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.

        (f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.

SECTION 611. Acceptance of Appointment by Successor.

        Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.

        No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.


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SECTION 612. Merger, Conversion, Consolidation or Succession to Business.

        Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes.

SECTION 613. Preferential Collection of Claims Against Company.

        If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Notes), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).

                                  ARTICLE SEVEN

                Holders' Lists and Reports by Trustee and Company

SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.

        The Company will furnish or cause to be furnished to the Trustee

        (a) semi-annually, not more than 15 days after each May 15 and November
    15, commencing May 15, 2003, a list, in such form as the Trustee may
    reasonably require, of the names and addresses of the Holders as of such
    date, and


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<PAGE>   82

        (b) at such other times as the Trustee may request in writing, within 30
    days after the receipt by the Company of any such request, a list of similar
    form and content as of a date not more than 15 days prior to the time such
    list is furnished;

excluding from any such list names and addresses received by the Trustee in its
capacity as Note Registrar.

SECTION 702. Preservation of Information; Communications to Holders.


        (a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar.
The Trustee may destroy any list furnished to it as provided in Section 701 upon
receipt of a new list so furnished.


        (b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Notes and the corresponding
rights and duties of the Trustee, shall be provided by the Trust Indenture Act.

        (c) Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to the names and addresses of Holders made pursuant
to the Trust Indenture Act.

SECTION 703. Reports by Trustee.

        (a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.

        (b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Notes are listed,


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<PAGE>   83

with the Commission and with the Company. The Company will notify the Trustee
when the Notes are listed on any stock exchange.

SECTION 704. Reports by Company.

        The Company shall deliver to the Trustee within 15 days after it is or
would have been (if it were subject to such reporting obligations) required to
file such with the Commission, annual and quarterly financial statements
substantially equivalent to financial statements that would have been included
in reports field with the Commission, if the Company were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with respect
to annual information only, a report thereon by the Company's certified
independent public accountants as such would be required in such reports to the
Commission.


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<PAGE>   84

                                  ARTICLE EIGHT

              Consolidation, Merger, Conveyance, Transfer or Lease

SECTION 801. Limitation on Merger, Sale or Consolidation.

        The Company and its Subsidiaries shall not consolidate with or merge
with or into another Person or, directly or indirectly, sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis) , whether in a single transaction or a series of related transactions, to
another Person or group of affiliated Persons or adopt a plan of liquidation,
unless:

        (1) either (a) the Company is the continuing entity or (b) the
    resulting, surviving or transferee entity or, in the case of a plan of
    liquidation, the entity which receives the greatest value from such plan of
    liquidation is a corporation organized under the laws of the United States,
    any state thereof or the District of Columbia and expressly assumes by
    supplemental indenture all of the obligations of the Company in connection
    with the Notes and this Indenture;

        (2) no Default or Event of Default shall exist or shall occur
    immediately after giving effect on a pro forma basis to such transaction;

        (3) immediately after giving effect to such transaction on a pro forma
    basis, the Consolidated Net Worth of the consolidated surviving or
    transferee entity or, in the case of a plan of liquidation, the entity which
    receives the greatest value from such plan of liquidation is at least equal
    to the Consolidated Net Worth of the Company immediately prior to such
    transaction;

        (4) immediately after giving effect to such transaction on a pro forma
    basis, the consolidated resulting, surviving or transferee entity or, in the
    case of a plan of liquidation, the entity which receives the greatest value
    from such plan of liquidation would immediately thereafter be permitted to
    incur at least $1.00 of additional Indebtedness pursuant to the Debt
    Incurrence Ratio set forth in Section 1008; and


                                      -76-
<PAGE>   85

        (5) the Company has delivered to the Trustee an Officer's Certificate
    and an Opinion of Counsel, each stating that such consolidation, merger,
    conveyance, transfer, lease or acquisition and, if a supplemental indenture
    is required in connection with such transaction, such supplemental
    indenture, complies with this Article and that all conditions precedent
    herein provided for relating to such transaction have been complied with,
    and, with respect to such Officer's Certificate, setting forth the manner of
    determination of the Consolidated Net Worth and the ability to Incur
    Indebtedness in accordance with Clause (4) of Section 801, the Company or,
    if applicable, of the Successor Company as required pursuant to the
    foregoing.

SECTION 802. Successor Substituted.

        Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company or consummation of a plan of liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a plan of liquidation, the entity which receives the
greatest value from such plan of liquidation shall succeed to and (except in the
case of a lease) be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
corporation had been named therein as the Company, and (except in the case of a
lease) the Company shall be released from the obligations under the Notes and
the Indenture except with respect to any obligations that arise from, or are
related to, such transaction.

SECTION 803. Transfer of Subsidiary Assets.

        For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.


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<PAGE>   86

                                  ARTICLE NINE

                             Supplemental Indentures

SECTION 901. Supplemental Indentures Without Consent of Holders.

        Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:

        (1) to evidence the succession of another Person to the Company and the
    assumption by any such successor of the covenants of the Company herein and
    in the Notes; or

        (2) to add to the covenants of the Company for the benefit of the
    Holders, or to surrender any right or power herein conferred upon the
    Company; or

        (3) to secure the Notes pursuant to the requirements of Section 1011 or
    otherwise; or

        (4) to comply with any requirements of the Commission in order to effect
    and maintain the qualification of this Indenture under the Trust Indenture
    Act; or

        (5) to cure any ambiguity, to correct or supplement any provision herein
    which may be inconsistent with any other provision herein, or to make any
    other provisions with respect to matters or questions arising under this
    Indenture which shall not be inconsistent with the provisions of this
    Indenture, provided such action pursuant to this Clause (5) shall not
    adversely affect the interests of the Holders in any material respect.


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<PAGE>   87

SECTION 902. Supplemental Indentures with Consent of Holders.

        With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes at the time outstanding, by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of amending or supplementing this
Indenture or any supplemental indenture or modifying the rights of the Holders;
provided, however, that no such modification may, without the consent of Holders
of at least 50% in aggregate principal amount of Notes at the time outstanding,
modify the provisions (including the defined terms used therein) of Section 1015
in a manner adverse to the Holders; and provided that no such modification may,
without the consent of each Holder thereby:

        (1) change the Stated Maturity on any Note, or reduce the principal
    amount thereof or the rate (or extend the time for payment) of interest
    thereon or any premium payable upon the redemption at the option of the
    Company thereof, or change the place of payment where, or the coin or
    currency in which, any Note or any premium or the interest thereon is
    payable, or impair the right to institute suit for the enforcement of any
    such payment on or after the Stated Maturity thereof (or, in the case of
    redemption at the option of the Company, on or after the Redemption Date),
    or reduce the Change of Control Purchase Price or the Asset Sale Offer Price
    of alter the provisions (including the defined terms used therein) regarding
    the right of the Company to redeem the Notes at its option in a manner
    adverse to the Holders, or

        (2) reduce the percentage in principal amount of the outstanding Notes,
    the consent of whose Holders is required for any such amendment,
    supplemental indenture or waiver provided for in this Indenture, or

        (3) modify any of the waiver provisions of this Section, Section 513 or
    Section 1019 except to increase any required percentage or to provide that
    certain other provisions of this Indenture cannot be modified or waived
    without the consent of the Holder of each outstanding Note affected thereby,
    or


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<PAGE>   88

        (4) cause the Notes to become subordinate in right of payment to any
    other Indebtedness, or

        (5) following the mailing of an Asset Sale Offer or Change of Control
    Offer pursuant to Sections 1013 or 1015, modify the provisions of this
    Indenture with respect to such offer in a manner adverse to such Holder.

        It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.

SECTION 903. Execution of Supplemental Indentures.

        In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.

SECTION 904. Effect of Supplemental Indentures.

        Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.

SECTION 905. Conformity with Trust Indenture Act.

        Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.


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<PAGE>   89

SECTION 906. Reference in Notes to Supplemental Indentures.

        Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.

                                   ARTICLE TEN

                                    Covenants

SECTION 1001. Payment of Principal, Premium and Interest.

        The Company will duly and punctually pay the principal of (and premium,
if any) and any interest on the Notes in accordance with the terms of the Notes
and this Indenture.

SECTION 1002. Maintenance of Office or Agency.

        The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.


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

SECTION 1003. Money for Note Payments to be Held in Trust.

        If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.

        Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Notes, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company will, promptly notify
the Trustee of its action or failure so to act.

        The Company will, cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:

        (1) hold all sums held by it for the payment of the principal of (and
    premium. if any) or interest on Notes in trust for the benefit of the
    Persons entitled


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<PAGE>   91

    thereto until such sums shall be paid to such Persons or otherwise disposed
    of as herein provided;

        (2) give the Trustee notice of any default by the Company (or any other
    obligor upon the Notes) in the making of any payment of principal (and
    premium, if any) or interest; and

        (3) at any time during the continuance of any such default, upon the
    written request of the Trustee, forthwith pay to the Trustee all sums so
    held in trust by such Paying Agent.

        The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.

        Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.


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SECTION 1004. Existence.

        Subject to Article Eight and Section 1013, the Company and its
Subsidiaries will do or cause to be done all things necessary to preserve and
keep in full force and effect their existence, rights (charter and statutory)
and franchises; provided, however, that the Company and its Subsidiaries shall
not be required to preserve any such right or franchise if the Board of
Directors in good faith shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company or its
Subsidiaries and that the loss thereof is not disadvantageous in any material
respect to the Holders.

SECTION 1005. Maintenance of Properties.

        The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary of the Company to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Board of Directors in good faith,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.

SECTION 1006. Payment of Taxes and Other Claims.

        The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (2) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company or
any of its Subsidiaries; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or


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<PAGE>   93

discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.

SECTION 1007. Maintenance of Insurance.

        The Company shall, and shall cause its Subsidiaries to, keep at all
times all of their properties which are of an insurable nature insured against
loss or damage with insurers believed by the Company to be responsible to the
extent that property of similar character is usually so insured by corporations
similarly situated and owning like properties in accordance with good business
practice. The Company shall, and shall cause its Subsidiaries to, use the
proceeds from any such insurance policy to repair, replace or otherwise restore
the property to which such proceeds relate.

SECTION 1008. Limitation on Incurrence of Additional Indebtedness and
              Disqualified Capital Stock.

        The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, issue, assume, guaranty, incur, become directly or
indirectly liable with respect to (including as a result of an Acquisition) or
otherwise become responsible for, contingently or otherwise (individually and
collectively, to "incur" or, as appropriate an "incurrence"), any Indebtedness
or any Disqualified Capital Stock (including Acquired Indebtedness) other than
permitted Indebtedness.

        Notwithstanding the foregoing, if (i) no Default or Event of Default
shall have occurred and be continuing at the time of, or would occur after
giving effect on pro forma basis to, such incurrence of Indebtedness (including,
without duplication, guarantees of Indebtedness of Principal Subsidiary
otherwise permitted by this Indenture) or Disqualified Capital Stock and (ii) on
the date of such incurrence (the "Incurrence Date"), the Consolidated Coverage
Ratio of the Company for the Reference Period immediately preceding the
Incurrence Date, after giving effect on a pro forma basis to such incurrence of
such Indebtedness (without duplication) or Disqualified Capital Stock and, to
the extent set forth in the definition of


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<PAGE>   94

Consolidated Coverage Ratio, the use of proceeds thereof would be at least 2.0
to 1 (the "Debt Incurrence Ratio") (it being understood that for purposes of
determining such Debt Incurrence Ratio, the Notes, the Exchange Notes, and all
interest thereon shall not be included), then the Company may incur such
Indebtedness or Disqualified Capital Stock and the Subsidiaries may incur such
Indebtedness other than Disqualified Capital Stock.

        In addition, the foregoing limitations will not apply to:

            (a) the incurrence by the Company or any Subsidiary of Purchase
    Money Indebtedness on or after the Issue Date, provided, that (1) the
    aggregate principal amount of such Indebtedness incurred on or after the
    Issue Date and outstanding at any time pursuant to this paragraph (a)
    (including any Indebtedness issued to refinance, replace or refund such
    Indebtedness) shall not exceed $20.0 million, and (ii) in each case, such
    Indebtedness as originally incurred shall not constitute more than 100% of
    the cost (determined in accordance with GAAP) to Principal Subsidiary or
    such Subsidiary, as applicable, of the property so purchased or leased;

            (b) the incurrence by the Company or any Subsidiary of Indebtedness
    in an aggregate principal amount outstanding at any time (including
    Indebtedness incurred to refinance, replace, or refund such Indebtedness) of
    up to $15.0 million (which may be incurred pursuant to the Credit
    Agreement);

            (c) the incurrence by the Company or any Subsidiary of Indebtedness
    pursuant to the Credit Agreement up to an aggregate principal amount
    outstanding at any time (including any Indebtedness incurred to refinance,
    replace or refund such Indebtedness) of $125.0 million, minus the amount of
    any such Indebtedness retired with the Net Cash Proceeds from any Asset Sale
    or assumed by a transferee in an Asset Sale; and

            (d) the incurrence by the Company of Indebtedness represented by
    Exchange Notes; provided, however, that at any time the Company could not
    (except by reason of this clause (d)) incur the Indebtedness represented by


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<PAGE>   95

    the Exchange Notes under this Section 1008, any interest payment thereon
    shall be counted as a payment under clause (B)(ii) of the penultimate
    paragraph of Section 1009.

        Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.

        Notwithstanding anything to the contrary contained in this Indenture,
(i) the Subsidiaries each may guaranty Indebtedness of the Company or any other
Subsidiary that is permitted to be incurred under the Indenture, at the time the
Company or such other Subsidiary incurs such Indebtedness, and (ii) the Company
may guaranty Indebtedness of any Subsidiary permitted to be incurred under this
Indenture.

        Notwithstanding anything to the contrary contained in this Indenture,
the Company shall not incur any Indebtedness that is contractually subordinate
to any other Indebtedness of the Company unless such Indebtedness is at least as
subordinate to the Notes.

SECTION 1009. Limitation on Restricted Payments.

        The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, make any Restricted Payment if, after giving effect to
such Restricted Payment on a pro forma basis:

        (1) a Default or an Event of Default shall have occurred and be
    continuing,

        (2) Principal Subsidiary is not permitted to incur at least $1.00 of
    additional Indebtedness pursuant to the Debt Incurrence Ratio in Section
    1008,


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<PAGE>   96

        (3) in the case of Principal Subsidiary and its Subsidiaries, the
    aggregate amount of all Restricted Payments made by Principal Subsidiary and
    its Subsidiaries, including after giving effect to such proposed Restricted
    Payment, from and after the Issue Date, would exceed the sum of:

        (a) 50% of the aggregate Consolidated Net Income of Principal Subsidiary
            for the period (taken as one accounting period), commencing on the
            first day after the Issue Date, to and including the last day of the
            fiscal quarter ended immediately prior to the date of each such
            calculation (or, in the event Consolidated Net Income for such
            period is a deficit, then minus 100% of such deficit), plus

        (b) the aggregate Net Cash Proceeds received by Principal Subsidiary
            from the sale of Principal Subsidiary's Qualified Capital Stock
            (other than in each case (i) to a Subsidiary of Principal
            Subsidiary, and (ii) to the extent applied in connection with a
            Qualified Exchange,) or

        (4) in the case of the Company, the aggregate amount of all Restricted
    Payments made by the Company and its Subsidiaries, including after giving
    effect to such proposed Restricted Payment, from and after the Issue Date,
    would exceed the sum of:

        (a) 50% of the aggregate Consolidated Net Income of the Company for the
            period (taken as one accounting period), commencing on the first day
            after the Issue Date, to and including the last day of the fiscal
            quarter ended immediately prior to the date of each such calculation
            (or, in the event Consolidated Net Income for such period is a
            deficit, then minus 100% of such deficit), plus

        (b) the aggregate Net Cash Proceeds received by the Company from the
            sale of the Company's Qualified Capital Stock (other than in each
            case (i) to a Subsidiary of the Company, (ii) to the extent applied
            in connection with a


                                      -88-
<PAGE>   97

            Qualified Exchange and (iii) to the extent applied to repurchase
            Capital Stock pursuant to clause (e) of the definition of Permitted
            Payments).

        The provisions of the immediately preceding paragraph will not prohibit
or be violated by reason of (A) a Qualified Exchange; (B) (i) the payment or
making of any Restricted Payment within 60 days after the date of declaration
thereof or the making of any binding commitment in respect thereof, if at said
date of declaration or commitment, such restricted payment would have complied
with the provisions contained in clauses (1), (2), (3) and (4), as applicable,
of the immediately preceding paragraph, and (ii) the making of any cash dividend
payment on or after December 1, 2004 on the Company's Series A Preferred Stock,
if at said date of declaration or commitment, such Restricted Payment would have
complied with the provisions contained in clause (1) of the immediately
preceding paragraph; and (C) Permitted Payments. The full amount of any
Restricted Payment made pursuant to the foregoing clause (B) (but not pursuant
to clauses (A) or (C) ) of the immediately preceding sentence, however, will be
deducted in the calculation of the aggregate amount of Restricted Payments
available to be made referred to in clause (4) of the immediately preceding
paragraph.

        For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined in the
good faith reasonable judgment of the Board of Directors of the Company.

SECTION 1010. Limitations on Dividends and Other Payment Restrictions Affecting
              Subsidiaries.

        The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, assume or suffer to exist any consensual
encumbrance or restriction on the ability of any Subsidiary of the Company (i)
to pay, directly or indirectly, dividends or make any other distributions in
respect of its Capital Stock or pay any Indebtedness or other obligation owed to
the Company or any other Subsidiary of the Company; (ii) to make or pay loans or
advances to the or in behalf of Company or any Subsidiary


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<PAGE>   98

of the Company; or (iii) to transfer any of its property or assets to or in
behalf of the Company or any Subsidiary of the Company, except:

            (a) restrictions imposed by the Notes or this Indenture or by other
    indebtedness of the Company ranking pari passu with the Notes, provided such
    restrictions are not materially more restrictive than those imposed by this
    Indenture and the Notes,

            (b) restrictions imposed by applicable law,

            (c) existing restrictions under Indebtedness outstanding on the
    Issue Date, including the Principal Subsidiary Notes, or under other
    indebtedness of a Subsidiary ranking pari passu with the Principal
    Subsidiary Notes or a guarantee thereof, provided such restrictions are not
    materially more restrictive than those imposed by the Principal Subsidiary
    Indenture and the Principal Subsidiary Notes,

            (d) restrictions under any Acquired Indebtedness not incurred in
    violation of this Indenture or any agreement relating to any property,
    asset, or business acquired by the Company or any of its Subsidiaries, which
    restrictions in each case existed at the time of acquisition, were not put
    in place in connection with or in anticipation of such acquisition and are
    not applicable to any person, other than the person acquired, or to any
    property, asset or business, other than the property, assets and business so
    acquired,

            (e) any such restriction or requirement imposed by Indebtedness
    incurred under the Credit Agreement in accordance with this Indenture,
    provided such restriction or requirement is not materially more restrictive
    than that imposed by the CIT Credit Facility as of the Issue Date,

            (f) restrictions with respect solely to a Subsidiary of the Company
    imposed pursuant to a binding agreement which has been entered into for the
    sale or disposition of all or substantially all of the Equity Interests or
    assets of such Subsidiary, provided such restrictions apply solely to the
    Equity Interests or assets of such Subsidiary which are being sold,


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<PAGE>   99

            (g) restrictions on transfer contained in Purchase Money
    Indebtedness incurred pursuant to paragraph (a) of Section 1008, provided
    such restrictions relate only to the transfer of the property acquired with
    the proceeds of such Purchase Money Indebtedness, and

            (h) in connection with and pursuant to permitted Refinancings,
    replacements of restrictions imposed pursuant to clauses (a), (c), (d), (e),
    or (g) of this section that are not materially more restrictive than those
    being replaced and do not apply to any other person or assets than those
    that would have been covered by the restrictions in the Indebtedness so
    refinanced.

        Notwithstanding the foregoing, neither (a) customary provisions
restricting subletting or assignment of any lease entered into in the ordinary
course of business, consistent with industry practice, nor (b) Liens permitted
under the terms of this Indenture shall in and of themselves be considered a
restriction on the ability of the applicable Subsidiary to transfer such
agreement or assets, as the case may be.

SECTION 1011. Limitation on Liens.

        The Company will not create, incur, assume or suffer to exist, to secure
any Indebtedness, any Lien of any kind, other than permitted Liens, upon any of
its assets now owned or acquired on or after the date of this Indenture or upon
any income or profits therefrom unless the Company provides that the Notes are
equally and ratably so secured for so long as such Indebtedness so secured
remains outstanding; provided that, if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Notes with the same relative
priority as such Subordinated Indebtedness shall have with respect to the Notes.

SECTION 1012. Limitation on Transactions with Affiliates.

        The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly enter into any contract, agreement, arrangement or
transaction with any


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<PAGE>   100

Affiliate (an "Affiliate Transaction") , or any series of related Affiliate
Transactions (other than Exempted Affiliate Transactions) , unless the terms of
such Affiliate Transaction are fair and reasonable to the Company or such
Subsidiary, as the case may be, and are at least as favorable as the terms which
could reasonably be expected to be obtained by the Company or such Subsidiary,
as the case may be, in a comparable transaction made on an arm's length basis
with persons who are not Affiliates.

        Without limiting the foregoing, in connection with any Affiliate
Transaction or series of related Affiliate Transactions (other than Exempted
Affiliate Transactions) (1) involving consideration to either party in excess of
$1.0 million, the Company must deliver an Officers' Certificate to the Trustee,
stating that the terms of such Affiliate Transaction are fair and reasonable to
the Company, and no less favorable to the Company than could reasonably be
expected to have been obtained in an arm's length transaction with a
non-Affiliate, and (2) involving consideration to either party in excess of $5.0
million, the Company must also, prior to the consummation thereof, obtain a
favorable written opinion as to the fairness of such transaction to the Company
from a financial point of view from an independent investment banking firm of
national reputation or, if pertaining to a matter for which such investment
banking firms do not customarily render such opinions, an appraisal or valuation
firm of national reputation; provided, however, that this sentence shall not
apply to the sale or purchase of products by the Company or its Subsidiaries to
or from any Affiliate of LGP or any Related Party thereof, which sale or
purchase is in the ordinary course of business and in accordance with industry
practice.

SECTION 1013. Limitation on Certain Sales of Capital Stock of Subsidiaries and
              Certain Assets.

        The Company shall not, and shall not permit any of its Subsidiaries to,
in one or a series of related transactions, convey, sell, transfer, assign or
otherwise dispose of, directly or indirectly, any of its property, business or
assets (other than cash or Cash Equivalents) including by merger or
consolidation (in the case of a Subsidiary), and including any sale or other
transfer or issuance of any Equity Interests (other than directors


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<PAGE>   101

qualifying shares) of any Subsidiary of the Company, whether by the Company or a
Subsidiary of the Company, and including (except as provided in clause (vi) of
the third paragraph of this section) any Sale and Leaseback Transaction (any of
the foregoing, an "Asset Sale"), unless:

            (1) (a) within 390 days after the date of such Asset Sale, the Net
    Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to the
    optional redemption of the Notes in accordance with the terms of this
    Indenture and other Indebtedness of the Company ranking on a parity with the
    Notes from time to time outstanding with similar provisions requiring the
    Company to make an offer to purchase or redeem such Indebtedness with the
    proceeds of asset sales, pro rata in proportion to the respective principal
    amounts (or accreted values in the case of Indebtedness issued with an
    original issue discount) of the Notes and such other Indebtedness then
    outstanding or to the repurchase of the Notes and such other Indebtedness
    pursuant to a cash offer (subject only to conditions required by applicable
    law, if any) (pro rata in proportion to the respective principal amounts (or
    accreted values in the case of Indebtedness issued with an original issue
    discount) of the Notes and such other Indebtedness then outstanding) (the
    "Asset Sale Offer") at a purchase price of 100% of the principal amount
    thereof (or the Accreted Value thereof, in the case of Indebtedness issued
    with an original issue discount) (the "Asset Sale Offer Price") together
    with accrued and unpaid interest, if any, to the date of payment, made
    within 370 days of such Asset Sale, or

            (b) within 390 days following such Asset Sale, the Asset Sale Offer
    Amount is used (i) to make one or more Acquisitions or invested in assets
    and property (other than notes, bonds, obligations and securities) which in
    the good faith reasonable judgment of the Board of Directors of the Company
    will constitute or be a part of a Related Business of the Company or such
    Subsidiary (if it continues to be a Subsidiary) immediately following such
    transaction or (ii) to retire permanently principal Subsidiary Notes and
    Indebtedness incurred under the Credit Agreement pursuant to paragraph (c)
    of Section 1008 (including that in the case of a revolver or similar
    arrangement


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<PAGE>   102

    that makes credit available, such commitment is so permanently reduced by
    such amount),

            (2) at least 75% of the consideration for such Asset Sale or series
    of related Asset Sales consists of cash or Cash Equivalents, provided,
    however, that (x) the amount of any liabilities (as shown on the Company's
    most recent consolidated balance sheet) of the Company or any Subsidiary
    (other than Subordinated Indebtedness) that are assumed by the transferee in
    such Asset Sale (provided, however, that the Company and its Subsidiaries
    are released from all obligations in respect thereof) and (y) any notes or
    other obligations received by the Company or any such Subsidiary from such
    transferee that are promptly (but in no event more than 90 days after
    receipt) converted by the Company or such Subsidiary into cash or Cash
    Equivalents (to the extent of the cash or Cash Equivalents, as the case may
    be, received) , shall be deemed to be cash or Cash Equivalents, as the case
    may be, for purposes of this provision, and such cash and Cash Equivalents
    shall be deemed to be Net Cash Proceeds received from the Asset Sale of the
    related property sold for such notes or other obligations, for purposes of
    this covenant, and, provided, further, this clause (2) shall not apply to
    the sale or disposition of assets as a result of a foreclosure (or a secured
    party taking ownership of such assets in lieu of foreclosure) or as a result
    of an involuntary proceeding in which the Company cannot, directly or
    through its Subsidiaries, direct the type of proceeds received, and

            (3) with respect to any Asset Sale or series of related Asset Sales,
    the Net Cash Proceeds of which exceed $500,000, the Board of Directors of
    the Company determines in good faith that the Company or such Subsidiary, as
    applicable, receives fair market value for such Asset Sale.

        An acquisition of Notes pursuant to an Asset Sale Offer may be deferred
until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses
set forth in Clause (1) (b) above (the "Excess Proceeds") exceeds $10 million
and that each Asset Sale Offer shall remain open for 20 Business Days following
its commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset
Sale Offer Period, the Company shall apply the Asset Sale Offer Amount


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plus an amount equal to accrued and unpaid interest, if any, to the purchase of
all Indebtedness properly tendered (on a pro rata basis if the Asset Sale Offer
Amount is insufficient to purchase all Indebtedness so tendered) at the Asset
Sale Offer Price (together with accrued interest, if any). To the extent that
the aggregate amount of Indebtedness tendered pursuant to an Asset Sale Offer is
less than the Asset Sale Offer Amount, the Company may use any remaining Net
Cash Proceeds for general corporate purposes as otherwise permitted by the
Indenture and following each Asset Sale Offer the Excess Proceeds amount shall
be reset to zero.

        Notwithstanding the foregoing provisions of this covenant, the following
transactions shall not be deemed Asset Sales:

            (i) the Company and its Subsidiaries may, in the ordinary course of
    business, convey, sell, lease, transfer, assign or otherwise dispose of
    property in the ordinary course of business;

            (ii) the Company and its Subsidiaries may (x) convey, sell, lease,
    transfer, assign or otherwise dispose of assets pursuant to and in
    accordance with the limitation on mergers, sales or consolidations
    provisions in the Indenture, (y) make Restricted Payments permitted by
    Section 1009 and (z) engage in Exempted Affiliate Transactions;

            (iii) the Company and its Subsidiaries may convey, sell, transfer,
    assign or otherwise dispose of assets or issue Capital Stock to the Company
    or any of the Subsidiaries;

            (iv) the Company and its Subsidiaries may sell or dispose of
    damaged, worn out or other obsolete property in the ordinary course of
    business so long as such property is no longer necessary for the proper
    conduct of the business of the Company or such Subsidiary, as applicable;

            (v) the Company and its Subsidiaries may exchange assets held by the
    Company or a Subsidiary for assets held by any person or entity; provided
    that (i) the assets received by the Company or a Subsidiary in any such
    exchange in the good faith reasonable judgment of


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<PAGE>   104

    the Board of Directors of the Company will immediately constitute, be a part
    of, or be used in, a Related Business, (ii) the Board of Directors of the
    Company has determined that the terms of any exchange are fair and
    reasonable, and (iii) any such exchange shall be deemed to be an Asset Sale
    to the extent that the Company or any subsidiary receive cash or Cash
    Equivalents in such exchange;

            (vi) the company and each Subsidiary may engage in Sale and
    Leaseback Transactions with respect to property acquired after the Issue
    Date (other than property acquired in exchange for or with the proceeds from
    the sale or other disposition of property held by the Company or any
    Subsidiary on the Issue Date);

            (vii) the Company and each Subsidiary may liquidate Cash Equivalents
    in the ordinary course of business;

            (viii) the Company and each Subsidiary may create or assume Liens
    (or permit any foreclosure thereon) not prohibited by the Indenture;

            (ix) the Company and each Subsidiary may surrender or waive contract
    rights or the settlement, release or surrender of contract, tort or other
    claims of any kind; and

            (x) the Company and its Subsidiaries, collectively, may convey,
    sell, transfer, assign or otherwise dispose of assets having an aggregate
    fair market value not exceeding $2.0 million in any fiscal year.

        All Net Cash Proceeds from an Event of Loss (other than the proceeds of
any business interruption insurance) shall be invested or otherwise used as
provided in Clause (1) of the first paragraph of this Section, all within 19
months from the occurrence of such Event of Loss.

        Any Asset Sale Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws and any provisions of the Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.


                                      -96-

<PAGE>   105

        If the payment date in connection with an Asset Sale Offer hereunder is
on or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest will be paid to the
person in whose name a Note is registered at the close of business on such
Record Date, and such interest will not be payable to Holders who tender Notes
pursuant to such Asset Sale Offer.

        The Company and the Trustee shall perform their respective obligations
specified in the Asset Sale Offer. On or prior to the Purchase Date, the Company
shall (i) accept for payment (on a pro rata basis, if necessary) Notes or
portions thereof tendered pursuant to the Offer, (ii) deposit with the paying
agent (or, if the Company is acting as its own paying agent, segregate and hold
in trust as provided in Section 1003) money sufficient to pay the purchase price
of all Notes or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Notes so accepted together with an Officers'
Certificate stating the Notes or portions thereof accepted for payment by the
Company. The paying agent (or the Company, if so acting) shall promptly mail or
deliver to Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail or deliver
to such Holders a new Note equal in principal amount to any unpurchased portion
of the Note surrendered. Any Note not accepted for payment shall be promptly
mailed or delivered by the Company to the Holder thereof.

SECTION 1014. Limitation on Issuances and Sales of Capital Stock of Wholly Owned
              Subsidiaries.

        The Company will not sell, and its Subsidiaries will not issue or sell,
any shares of Capital Stock (other than directors qualifying shares) of any
Subsidiary of the Company to any person other than the Company or a wholly owned
Subsidiary of the Company, except for shares of common stock with no preferences
or special rights or privileges and with no redemption or prepayment provisions.
Notwithstanding the foregoing, (a) the Company and the Subsidiaries may
consummate an Asset Sale of all of the Capital Stock owned by the Company and
the Subsidiaries of any Subsidiary and (b) the Company or any Subsidiary may
pledge, hypothecate or otherwise grant a Lien on any Capital


                                      -97-

<PAGE>   106

Stock of any Subsidiary to the extent not prohibited under Section 1011 or
Section 1016.

SECTION 1015. Change of Control.

        (a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right, at such Holder's option, pursuant to an offer (subject only
to conditions required by applicable law, if any) by the Company (the "Change of
Control Offer") , to require the Company to repurchase all or any part of such
holder's Notes (provided, that the principal amount of such Notes must be $1,000
or an integral multiple thereof) on a date (the "Change of Control Purchase
Date") that is no later than 120 days after the occurrence of such Change of
Control, at a cash price equal to the applicable Redemption Price set forth in
the Note (assuming the Notes were redeemed on the Change of Control Purchase
Date) (the "Change of Control Purchase Price") together with accrued and unpaid
interest, if any, to the Change of Control Purchase Date. The Change of Control
Offer shall be made within 90 days following a Change of Control and shall
remain open for 20 Business Days following its commencement (the "Change of
Control Offer Period"). Upon expiration of the Change of Control Offer Period,
the Company promptly shall purchase all Notes properly tendered in response to
the Change of Control Offer.

        (b) As used herein, a "Change of Control" means:

        (i) any merger or consolidation of the Company or Principal Subsidiary
    with or into any person or any sale, transfer or other conveyance, whether
    direct or indirect, of all or substantially all of the assets of the Company
    or Principal Subsidiary on a consolidated basis, in one transaction or a
    series of related transactions, if, immediately after giving effect to such
    transaction(s), any "person" or "group" (as such terms are used for purposes
    of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable),
    other than any Excluded Person or Excluded Persons or (in the case of
    Principal Subsidiary) the Company, is or becomes the Beneficial Owner,
    directly or indirectly, of more than 50% of the total voting power in the
    aggregate normally entitled to vote in the election of directors, managers,
    or trustees, as applicable, of the transferee(s) or surviving entity or
    entities,


                                      -98-

<PAGE>   107

        (ii) any "person" or "group," other than any Excluded Person or Excluded
    Persons or (in the case of Principal Subsidiary) the Company, is or becomes
    the Beneficial Owner, directly or indirectly, of more than 50% of the total
    voting power in the aggregate of all classes of Capital Stock of the Company
    or the Principal Subsidiary then outstanding normally entitled to vote in
    elections of directors, provided, however, that any "person" or "group" will
    be deemed to be the Beneficial Owner of any Capital Stock of Principal
    Subsidiary held by the Company so long as such person or group is the
    Beneficial Owner of, directly or indirectly, in the aggregate a majority of
    the Capital Stock of the Company then outstanding normally entitled to vote
    in elections of directors,

        (iii) during any period of 12 consecutive months after the Issue Date,
    individuals who at the beginning of any such 12-month period constituted the
    Board of Directors of either the Company or Principal Subsidiary, (together,
    in each case, with any new directors whose election by such Board of
    Directors or whose nomination for election by the shareholders of the
    Company or Principal Subsidiary was approved by LGP or a Related Party of
    LGP or by the Excluded Persons or by a vote of a majority of the directors
    then still in office who were either directors at the beginning of such
    period or whose election or nomination for election was previously so
    approved) cease for any reason to constitute a majority of the Board of
    Directors of the Company or Principal Subsidiary then in office, as
    applicable, or

        (iv) at any time after the Issue Date, Principal Subsidiary no longer
    continues, for Federal income tax purposes, to be a member of the affiliated
    group of the Company under circumstances that would accelerate the
    unrealized gain in respect of the Company's investment account in Principal
    Subsidiary.

        (c) On or before the Change of Control Purchase Date, the Company will
(i) accept for payment Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient
to pay the Change of Control Purchase Price (together with accrued and unpaid
interest, if any), of all Notes so tendered and (iii) deliver to the Trustee
Notes so


                                      -99-

<PAGE>   108

accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent (or the Company, if so
acting) promptly will pay the Holders of Notes so accepted an amount equal to
the Change of Control Purchase Price (together with accrued and unpaid interest,
if any), and the Trustee promptly will authenticate and deliver to such Holders
a new Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be delivered promptly by the Company
to the Holder thereof. The Company publicly will announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Purchase Date.

        (d) Any Change of Control Offer will be made in compliance with all
applicable laws, rules and regulations, including, if applicable, Regulation 14E
under the Exchange Act and the rules thereunder and all other applicable Federal
and state securities laws and any provisions of the Indenture which conflict
with such laws shall be deemed to be superseded by the provisions of such laws.

        (e) If the Change of Control Purchase Date hereunder is on or after an
interest payment Record Date and on or before the associated Interest Payment
Date, any accrued and unpaid interest will be paid to the person in whose name a
Note is registered at the close of business on such Record Date, and such
interest will not be payable to Holders who tender the Notes pursuant to the
Change of Control Offer.

        (f) Prior to making a Change of Control Offer pursuant to paragraph (a),
but in any event within 90 days following such Change of Control, the Company
will (i) obtain any required consents under the Credit Agreement and the
Principal Subsidiary Notes to permit the making of the Change of Control Offer
and the purchase of Notes pursuant to this Section 1015, or (ii) repay all or a
portion of the outstanding Indebtedness of its Subsidiaries to the extent
necessary (including, if necessary, payment in full of such Indebtedness and
payment of any prepayment premiums, fees, expenses or penalties) to permit the
making of the Change of Control Offer and the purchase of Notes pursuant to this
Section 1015 without such consent.


                                     -100-

<PAGE>   109

SECTION 1016. Reserved.

SECTION 1017. Investment Company.

        The Company will not, and will not permit any of its Subsidiaries to, be
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or otherwise become subject to
registration under the Investment Company Act.

SECTION 1018. Statement by Officers as to Default; Compliance Certificates.

        (a) The Company will deliver to the Trustee, within 90 days after the
end of each fiscal year, and within 60 days after the end of each fiscal quarter
(other than the fourth fiscal quarter), of the Company ending after the date
hereof an Officers' Certificate, stating whether or not to the best knowledge of
the signers thereof the Company is in default in the performance and observance
of any of the terms, provisions and conditions of Section 801 or Sections 1004
to 1017, inclusive, and if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.

        (b) The Company shall deliver to the Trustee, as soon as possible and in
any event within 10 days after the Company becomes aware or should reasonably
become aware of the occurrence of an Event of Default or an event which, with
notice by the Trustee or Holders or the lapse of time or both, would constitute
an Event of Default, an Officers' Certificate setting forth the details of such
Event of Default or default, and the action which the Company proposes to take
with respect thereto.

        (c) The Company shall deliver to the Trustee within 90 days after the
end of each fiscal year a written statement by the Company's independent public
accountants stating (A) that their audit examination has included a review of
the terms of this Indenture and the Notes as they relate to accounting matters,
and (B) whether, in connection with their audit examination, any event which,
with notice or the lapse of time or both, would constitute an Event of Default
has come to their attention and, if such a default


                                     -101-

<PAGE>   110

has come to their attention, specifying the nature and period of the existence
thereof.

SECTION 1019. Waiver of Certain Covenants.

        The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 801 and Sections 1004 to 1017, if
before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Notes shall, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect; provided, however, with respect to an Asset Sale Offer and
Change of Control Offer has been mailed, no such waiver may be made or shall be
effective against any Holder tendering Notes pursuant to such offer, and the
Company may not omit to comply with the terms of such offer as to such Holder.

                                 ARTICLE ELEVEN

                               Redemption of Notes

SECTION 1101. Right of Redemption.

        The Notes may be redeemed at the election of the Company, as a whole or
from time to time in part, at any time on or after November 30, 2002, at the
Redemption Prices specified in the form of Note hereinbefore set forth together
with any applicable accrued interest to the Redemption Date. All, but not less
than all, of the Notes may be redeemed at the election of the Company, for which
notice of redemption may be given at any time prior to November 30, 2002, at a
Redemption Price equal to 113.45% of the Accreted Value of the Notes promptly
upon (and in no event later than 10 days after) the Company's receipt of cash
from the Net Cash Proceeds to the Company of any Public Equity Offering; in such
event, the Notes shall be redeemed on a date not less than 30 days nor more than
60 days after the date of such notice.


                                     -102-

<PAGE>   111

SECTION 1102. Applicability of Article.

        Redemption of Notes at the election of the Company, as permitted by any
provision of this Indenture, shall be made in accordance with such provision and
this Article.

SECTION 1103. Election to Redeem; Notice to Trustee.

        The election of the Company to redeem any Notes pursuant to Section 1101
shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of less than all the Notes, the Company shall, at least
30 days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee) , notify the Trustee of such
Redemption Date and of the principal amount of Notes to be redeemed.

SECTION 1104. Selection by Trustee of Notes to Be Redeemed.

        If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 30 days prior to the Redemption Date
by the Trustee, from the outstanding Notes not previously called for redemption,
by such method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions (equal to $1,000 or any
integral multiple thereof) of the principal amount of Notes of a denomination
larger than $1,000.

        The Trustee shall, if requested, promptly notify the Company and each
Note Registrar in writing of the Notes selected for redemption and, in the case
of any Notes selected for partial redemption, the principal amount thereof to be
redeemed.

        For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Notes redeemed or to be redeemed only in part, to the portion of
the principal amount of such Notes which has been or is to be redeemed.


                                     -103-

<PAGE>   112

SECTION 1105. Notice of Redemption.

        Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed, at his address appearing in the
Note Register.

        All notices of redemption shall state:

        (1) the Redemption Date,

        (2) the Redemption Price,

        (3) if less than all the Outstanding Notes are to be redeemed, the
identification (and, in the case of partial redemption, the principal amounts)
of the particular Notes to be redeemed,

        (4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Note to be redeemed, and

        (5) the place or places where such Notes are to be surrendered for
payment of the Redemption Price.

        Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.

SECTION 1106. Deposit of Redemption Price.

        Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and any applicable accrued interest
on, all the Notes which are to be redeemed on that date.

SECTION 1107. Notes Payable on Redemption Date.

        Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the Redemption


                                     -104-

<PAGE>   113

Date, become due and payable at the Redemption Price therein specified, and from
and after such date (unless the Company shall default in the payment of the
Redemption Price any applicable accrued interest) such Notes shall not bear
interest. Upon surrender of any such Note for redemption in accordance with said
notice, such Note shall be paid by the Company at the Redemption Price, together
with any applicable accrued interest to the Redemption Date; provided, however,
that instalments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Notes, or one or more
Predecessor Notes, registered as such at the close of business on the relevant
Record Dates according to their terms and the provisions of Section 307.

        If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate provided by the Note.

SECTION 1108. Notes Redeemed in Part.

        Any Note which is to be redeemed only in part shall be surrendered at an
office or agency of the Company designated for that purpose pursuant to Section
1002 (with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder, in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered.

                                 ARTICLE TWELVE

                       Defeasance and Covenant Defeasance

SECTION 1201. Company's Option to Effect Defeasance or Covenant Defeasance.

        The Company may at its option by Board Resolution, at any time, elect to
have its obligations discharged with


                                     -105-

<PAGE>   114

respect to the Outstanding Notes upon compliance with the conditions set forth
below in this Article Twelve.

SECTION 1202. Defeasance and Discharge.

        Upon the Company's exercise of the option provided in Section 1201
applicable to this Section, the Company shall be deemed to have paid and
discharged the entire indebtedness represented, and this Indenture shall cease
to be of further effect as to all outstanding Notes ("Legal Defeasance"), except
as to(i) rights of Holders to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due from the
trust funds; (ii) the Company's obligations with respect to such Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust; (iii) the rights, powers, trust,
duties, and immunities of the Trustee, and the Company's obligations in
connection therewith; and (iv) the Legal Defeasance provisions of this Article
Twelve, all of which shall survive until otherwise terminated or discharged
hereunder. Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203.

SECTION 1203. Covenant Defeasance.

        Upon the Company's exercise of the option provided in Section 1201
applicable to this Section, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to its (i)
obligations under Sections 1005 through 1017, inclusive, and Clauses (3), (4)
and (5) of Section 801 and (ii) the occurrence of an event specified in Sections
501(3), (with respect to any of Sections 1005 through 1017, inclusive), 501(6)
and 501(7) shall not be deemed to be an Event of Default on and after the date
the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"). For this purpose, such covenant defeasance means that the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section or Clause, whether
directly or indirectly by reason of any reference elsewhere herein to any such


                                     -106-

<PAGE>   115

Section or Clause or by reason of any reference in any such Section or Clause to
any other provision herein or in any other document, but the remainder of this
Indenture and such Notes shall be unaffected thereby.

SECTION 1204. Conditions to Defeasance or Covenant Defeasance.

        The following shall be the conditions to application of either Section
1202 or Section 1203 to the then Outstanding Notes:

        (1) The Company shall irrevocably have deposited or caused to be
    deposited with the Trustee (or another trustee satisfying the requirements
    of Section 609 who shall agree to comply with the provisions of this Article
    Twelve applicable to it) as trust funds in trust for the purpose of making
    the following payments, specifically pledged as security for, and dedicated
    solely to, the benefit of the Holders of such Notes, (A) U.S. legal tender
    in an amount, or (B) U.S. Government Obligations which through the scheduled
    payment of principal and interest in respect thereof in accordance with
    their terms will provide, not later than one day before the due date of any
    payment, money in an amount, or (C) a combination thereof, sufficient, in
    the opinion of a nationally recognized firm of independent public
    accountants expressed in a written certification thereof delivered to the
    Trustee, to pay and discharge, and which shall be applied by the Trustee (or
    other qualifying trustee) to pay and discharge, the principal of (, premium,
    if any,) and each instalment of interest on the Notes on the Stated Maturity
    of such principal or instalment of interest in accordance with the terms of
    this Indenture and of such Notes. The Holders of Notes must have a valid,
    perfected, exclusive security interest in such trust. For this purpose,
    "U.S. Government Obligations" means securities that are (x) direct
    obligations of the United States of America for the payment of which its
    full faith and credit is pledged or (y) obligations of a Person controlled
    or supervised by and acting as an agency or instrumentality of the United
    States of America the payment of which is unconditionally guaranteed as a
    full faith and credit obligation by the United States of America, which, in
    either case, are


                                     -107-

<PAGE>   116

    not callable or redeemable at the option of the issuer thereof, and shall
    also include a depository receipt issued by a bank (as defined in Section
    3(a) (2) of the Securities Act of 1933, as amended) as custodian with
    respect to any such U.S. Government Obligation or a specific payment of
    principal of or interest on any such U.S. Government Obligation held by such
    custodian for the account of the holder of such depository receipt, provided
    that (except as required by law) such custodian is not authorized to make
    any deduction from the amount payable to the holder of such depository
    receipt from any amount received by the custodian in respect of the U.S.
    Government Obligation or the specific payment of principal of or interest on
    the U.S. Government Obligation evidenced by such depository receipt.

        (2) In the case of an election of Legal Defeasance under Section 1202,
    before the date that is one year prior to the Stated Maturity, the Company
    shall have delivered to the Trustee an Opinion of Counsel stating that (x)
    the Company has received from, or there has been published by the Internal
    Revenue Service a ruling, or (y) since the date of this Indenture there has
    been a change in the applicable Federal income tax law, in either case to
    the effect that, and based thereon such opinion shall confirm that, the
    Holders of the Outstanding Notes will not recognize gain or loss for Federal
    income tax purposes as a result of such deposit, defeasance and discharge
    and will be subject to Federal income tax on the same amount, in the same
    manner and at the same times as would have been the case if such deposit,
    defeasance and discharge had not occurred.

        (3) In the case of an election of Covenant Defeasance under Section
    1203, before the date that is one year prior to the Stated Maturity, the
    Company shall have delivered to the Trustee an Opinion of Counsel in the
    United States, reasonably acceptable to such Trustee, to the effect that the
    Holders of the Outstanding Notes will not recognize gain or loss for Federal
    income tax purposes as a result of such deposit and Covenant Defeasance and
    will be subject to Federal income tax on the same amount, in the same manner
    and at the same times as would have been the case if such deposit and
    covenant defeasance had not occurred.


                                     -108-

<PAGE>   117

        (4) The Company shall have delivered to the Trustee an Officer's
    Certificate to the effect that the Notes, if then listed on any Notes
    exchange, will not be delisted as a result of such deposit.

        (5) Such defeasance or covenant defeasance shall not cause the Trustee
    to have a conflicting interest as defined in Section 608 and for purposes of
    the Trust Indenture Act with respect to any Notes of the Company.

        (6) No Default or Event of Default which with notice or lapse of time or
    both would become an Event of Default shall have occurred and be continuing
    on the date of such deposit.

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

        (8) The Company shall have delivered to the Trustee an Officers'
    Certificate stating that the deposit was not made by the Company with the
    interest of preferring the Holders of such Notes over any other creditors of
    the Company or with the intent of defeating, hindering, or delaying or
    defrauding any other creditors of the Company or others.

        (9) The Company shall have delivered to the Trustee an Officers'
    Certificate and an Opinion of Counsel, each stating that all conditions
    precedent provided for relating to either the Legal Defeasance under Section
    1202 or the Covenant Defeasance under Section 1203 (as the case may be) have
    been complied with.

        (10) Such defeasance or covenant defeasance shall not result in the
    trust arising from such deposit constituting an investment company as
    defined in the Investment Company Act of 1940, as amended, or such trust
    shall be qualified under such act or exempt from regulation thereunder.


                                     -109-

<PAGE>   118

SECTION 1205. Deposited Money and U.S. Government Obligations to be Held in
              Trust; Other Miscellaneous Provisions.

        Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee -- collectively, for purposes of
this Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Holders of such Notes, of all sums due and
to become due thereon in respect of principal (and premium, if any) and
interest, but such money need not be segregated from other funds except to the
extent required by law.

        The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.

        Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.

SECTION 1206. Reinstatement.

        If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 1202 or 1203 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, or if a Default from a bankruptcy or insolvency event occurs
at any time during the period ending


                                     -110-

<PAGE>   119

on the 91st day after the date of a deposit by the Company hereunder, then the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to this Article Twelve
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 1202 or 1203; provided, however, that if the
Company makes any payment of principal of (and premium, if any) or interest on
any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or the Paying Agent.

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

        This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

        IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.

                                    BIG 5 HOLDINGS CORP.


                                    By /s/ Charles P. Kirk
                                       -----------------------------------------

Attest:


        /s/ Gary S. Meade
        ----------------------

                                    FIRST TRUST NATIONAL ASSOCIATION


                                    By /s/ K. Barrett
                                       -----------------------------------------

Attest:


        /s/ illegible
        ----------------------




                                     -111-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.5
<SEQUENCE>7
<FILENAME>v75241orex4-5.txt
<DESCRIPTION>EXHIBIT 4.5
<TEXT>
<PAGE>   1

               FOR PURPOSES OF SECTIONS 1272, 1273 and 1275 OF THE UNITED STATES
INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND PURSUANT TO SECTION 1.1275-3(b),
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT, THE ISSUE PRICE OF THIS NOTE
IS 50.80% OF ITS PRINCIPAL AMOUNT, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS
NOTE IS $1,299 PER $1,000 OF STATED FACE AMOUNT, THE ISSUE DATE IS NOVEMBER 13,
1997 AND THE YIELD TO MATURITY IS ______%.

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


                         SENIOR DISCOUNT NOTES DUE 2008

No.                                                                  $48,225,000

        Big 5 Holdings Corp., a corporation duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to Ares Leveraged Investment Fund, L.P., or
registered assigns, the principal sum of Forty Eight Two Hundred Twenty Five
Thousand Dollars on November 30, 2008, and to pay interest thereon from November
30, 2002 or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, semi-annually on May 31 and November 30 in each
year, commencing May 31, 2003, at 13.45% until the principal hereof is paid or
made available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at the rate of 15.45% per annum on any overdue
principal and premium] and on any overdue installment of interest until paid as
specified on the reverse hereof.

        The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is



<PAGE>   2

registered at the close of business on the Regular Record Date for such
interest, which shall be the May 15 or November 15 (whether or not a Business
Day), as the case may be, next preceding such interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to
Holders of Notes not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture.

        The principal of this Note shall not accrue interest until November 30,
2002, except in the case of a default in payment of principal upon acceleration
or redemption and, in such case, the interest payable pursuant to the preceding
paragraph on the overdue principal as specified on the reverse hereof shall be
payable on demand and, if not so paid on demand, such interest shall itself bear
interest at the rate of 15.45% per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
demand for payment to the date payment of such interest has been made or duly
provided for, and such interest or unpaid interest shall also be payable on
demand.

        Payment of the principal of (and premium, if any) and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the Note
Register.

        Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.


                                      -2-

<PAGE>   3

        Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.

        IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.

Dated:

                                            BIG 5 HOLDINGS CORP.


[Seal]

                                            By: /s/ Robert W. Miller
                                               ---------------------------------
                                               Title:


Attest:


- -------------------------------
Title:



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

Dated:



                                            FIRST TRUST NATIONAL ASSOCIATION
                                            ------------------------------------
                                                     as Trustee




                                            By: /s/ illegible
                                                --------------------------------
                                                Authorized Officer



                                      -3-

<PAGE>   4

        This Note is one of a duly authorized issue of Notes of the Company
designated as its Senior Discount Notes due 2008 (herein called the "Notes?),
limited in aggregate principal amount to $48,225,000 issued and to be issued
under an Indenture, dated as of November 13, 1997 (herein called the
"Indenture?), between the Company and First Trust National Association, as
Trustee (herein called the "Trustee?, which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Notes and of the terms upon which the Notes are, and are to be,
authenticated and delivered.

        The Notes are subject to redemption upon not less than 30 nor more than
60 days' notice by mail, at any time on or after November 30, 2002, as a whole
or in part, at the election of the Company, at a Redemption Price which, if
during the twelve month period beginning November 30, 2002 is equal to 110% of
the principal amount of this Note; if during the twelve month period beginning
November 30, 2003 is equal to 106.67% of the principal amount of this Note; if
during the twelve month period beginning November 30, 2004 is equal to 103.33%
of the principal amount of this Note; and thereafter is equal to 100% of the
principal amount of this Note, in each case plus interest thereon accruing from
November 30, 2002 or the most recent Interest Payment Date to which interest has
been paid or duly provided for, at the rate of 13.45% per annum, provided that
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.

        Notwithstanding the foregoing, at any time prior to November 30, 2002,
the Company may give notice of redemption for all, but not less than all, of
this Note at a Redemption Price equal to 113.45% of the Accreted Value of this
Note promptly upon (and in no event later than 10 days after) the Company's
receipt of cash from the Net Cash Proceeds to the Company of any Public Equity
Offering. In such event, the Note shall be redeemed on a date not less than 30
days nor more than 60 days after the date of such notice.


                                      -4-

<PAGE>   5

        The Notes do not have the benefit of any sinking fund obligations.

        In the event of redemption or purchase pursuant to an Asset Sale Offer
or Change of Control Offer of this Note in part only, a new Note or Notes for
the unredeemed portion hereof will be issued in the name of the Holder hereof
upon the cancellation hereof.

        If an Event of Default shall occur and be continuing, there may be
declared due and payable the Default Amount of the Securities, in the manner and
with the effect provided in the Indenture. Until and including November 30,
2002, the Default Amount in respect of this Note as of any particular date of
acceleration shall equal the Accreted Value of this Note. For this purpose,
Accreted Value means the Adjusted Issue Price as of the first day of the Accrual
Period in which the date of acceleration occurs increased by the daily portion
of the Original Issue Discount for each day in such Accrual Period ending on the
date of acceleration. Such Default Amount shall bear interest at the rate of
15.45% per annum (to the extent that the payment of such interest shall be
legally enforceable), which shall accrue from the date of acceleration to the
date payment has been made or duly provided for. On and after November 30, 2002,
the Default Amount in respect of this Note shall equal 100% of the principal
amount of this Note. Such Default Amount shall bear interest at the rate of
15.45% per annum from November 30, 2002 or the most recent Interest Payment Date
to which interest has been paid or duly provided for. Upon payment of (i) the
Default Amount so declared due and payable and any overdue installment of
interest, (ii) interest on the Default Amount and (iii) as provided on the face
hereof, interest on any overdue installment of interest or, if acceleration
occurs prior to November 30, 2002, on the interest referred to in the third
preceding sentence (in each case to the extent that the payment of such interest
shall be legally enforceable), all of the Company's obligations in respect of
the payment of the principal of and interest on the Notes shall terminate.

        The Indenture provides that, subject to certain conditions, if (i)
certain Net Cash Proceeds are available to the Company as a result of Asset
Sales or (ii) a Change of Control occurs, the Company shall be required to make
an Asset Sale Offer or Change of Control Offer, respectively, for all of the
Notes.


                                      -5-

<PAGE>   6

        The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Note or (ii) certain restrictive covenants and
Events of Default with respect to this Note, in each case upon compliance with
certain conditions set forth therein.

        The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all the Notes, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.

        No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place and rate, and in the coin or currency,
herein prescribed.

        As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable in the Note Register, upon
surrender of this Note for registration of transfer at the office or agency of
the Company in the Borough of Manhattan, The City of New York and at any other
office or agency maintained by the Company for such purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Note Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Notes, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.


                                      -6-

<PAGE>   7

        The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.

        No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

        Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

        Accrual Periods and interest on this Note shall be computed on the basis
of a 360-day year of twelve 30-day months.

        No direct or indirect stockholder, employee, officer or director, as
such, past, present or future of the Company, the Subsidiaries or any successor
entity shall have any personal liability in connection with this Note solely by
reason of his or its status as such stockholder, employee, officer or director.
Each Holder by accepting this Note waives and releases all such liability,
acknowledges and consents to the transactions constituting the Recapitalization
and further acknowledges the waiver and release are part of the consideration
for the issuance of this Note.

        All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.

        The Indenture and this Note shall be governed by and construed in
accordance with the laws of the State of New York.


                                      -7-

<PAGE>   8

                       OPTION OF HOLDER TO ELECT PURCHASE

        If you want to elect to have this Note purchased in its entirety by the
Company pursuant to Section 1013 or 1015 of the Indenture, check the box:

           [ ]

        If you want to elect to have only a part of this Note purchased by the
Company pursuant to Section 1013 or 1015 of the Indenture, state the amount: $


Dated:                                Your Signature:
                                                     ---------------------------
                                      (Sign exactly as name appears on the other
                                      side of this Note)


Signature Guarantee:
                    ------------------------------------------------------------
                      (Signature must be guaranteed by a member firm of the New
                      York Stock Exchange or a commercial bank or trust company)




                                      -8-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>8
<FILENAME>v75241orex10-3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>
<PAGE>   1

                                                                    EXHIBIT 10.3


                              BIG 5 HOLDINGS CORP.

                           1997 MANAGEMENT EQUITY PLAN


     1. Purpose. The purpose of this Plan is to secure for Big 5 Holdings Corp.
(the "COMPANY") and its stockholders the benefits arising from stock ownership
by officers, directors and selected key employees of the Company and its
subsidiaries, including without limitation, Big 5 Corp. ("BIG 5"), a
wholly-owned subsidiary of the Company, as the Committee (as hereinafter
defined) may from time to time determine.

     The Company intends that awards of Purchased Shares and Stock Options, and
the issuance of Common Stock upon exercise of Stock Options hereunder (all as
hereinafter defined), shall constitute the offer and sale of securities pursuant
to a compensatory benefit plan within the meaning of Rule 701 promulgated under
the Securities Act of 1933, as amended, and that this 1997 Management Equity
Plan (the "PLAN") constitutes a stock option plan and stock purchase plan within
the meaning of Section 25102(o) of the California Corporate Securities Law of
1968, as amended.

     With respect to Stock Options, the Plan will provide a means whereby (i)
key employees may purchase shares of Common Stock of the Company pursuant to
Stock Options that will qualify as "incentive stock options" under Section 422
of the Internal Revenue Code of 1986, as amended (the "CODE"), and (ii) such
employees may purchase shares of Common Stock of the Company pursuant to
"non-incentive" or "non-qualified" Stock Options.

     2. Administration. The Plan shall be administered by the Board of Directors
of the Company or, in the discretion of the Board, a Committee (in either case,
the "COMMITTEE") consisting of three or more directors of the Company to whom
administration of the Plan has been duly delegated. If the Committee is not the
entire Board of Directors, the Committee shall be appointed by the Board of
Directors of the Company. From and after such time as the Company is subject to
the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), no director shall be appointed to or
shall serve on the Committee who is not a "Non-Employee Director" (as defined in
Rule 16b-3 promulgated under the Exchange Act) any other plan of the Company or
its affiliates during the period of one year prior to such appointment. Except
as otherwise provided in the Company's Certificate of Incorporation or Bylaws,
any action of the Committee with respect to administration of the Plan shall be
taken by a majority vote at a meeting at which a quorum is duly constituted or
unanimous written consent of the Committee's members.

     Subject to the provisions of the Plan, the Committee shall have sole and
final authority (i) to construe and interpret the Plan, (ii) to define the terms
used herein, (iii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (iv) to make awards of Purchased Shares and Stock Options
hereunder, (v) to determine the individuals to whom and the time or times at
which such awards shall be made, the


<PAGE>   2

number of shares of Common Stock to be subject to such awards, the vesting of
such awards and the other terms of such awards, (vi) in the case of Stock
Options, to determine whether such Stock Options shall be intended as "incentive
stock options" or "non-incentive" or "non-qualified" Stock Options under Section
422 of the Code, and (vii) to make all other determinations necessary or
advisable for the administration of the Plan. All determinations and
interpretations made by the Committee shall be binding and conclusive on all
participants in the Plan and their legal representatives and beneficiaries.

     3. Shares Subject to the Plan. The shares to be allocated under this Plan
shall consist of the Company's authorized but unissued Common Stock, $.01 par
value per share ("COMMON STOCK"). Subject to adjustment as provided in Section 8
hereof, the aggregate number of shares of the Common Stock which may be
allocated to awards made to Participants (as defined) shall not exceed Five
Hundred Sixty Thousand (560,000) of such shares (no more than One Hundred
Thousand (100,000) of which shall be subject to Stock Options outstanding at any
time). Shares of Common Stock issued pursuant to the Plan and subsequently
reacquired by the Company shall be available for reissuance under the Plan; and
shares of Common Stock that are subject to Stock Options that lapse or terminate
without exercise shall be available to be subject to newly issued Stock Options
under the Plan or otherwise reissued under the Plan.

     4. Eligibility and Participation. All key employees of Big 5 shall be
eligible for selection to participate in the Plan (each, a "PARTICIPANT").

     5. Awards. A Participant may receive one of more awards hereunder, at any
time and from time to time, as determined by the Committee. Awards may be in the
form of (i) permitted purchases of Common Stock ("PURCHASED SHARES") or (ii)
options to purchase Common Stock ("STOCK OPTIONS"), or any combination of the
foregoing, as determined by the Committee. All awards of Purchased Shares shall
be pursuant to, and shall be subject to the terms and restrictions provided in,
a Management Subscription and Stockholders Agreement substantially in the form
approved from time to time by the Committee; and all awards of Stock Options
shall be pursuant to, and shall be subject to the terms and restrictions
provided in, either a Management Stock Option and Stockholders Agreement or an
Employee Stock Option Agreement substantially in the form attached hereto or as
approved from time to time by the Committee (collectively, the "GRANT
DOCUMENTS"). Subject to the terms of this Plan, the Committee shall determine
the exact terms and restrictions included in each of the foregoing agreements,
as applicable, with respect to each award to a Participant.

     6. Provisions Applicable to Stock Options.

     (a) No Stock Option granted hereunder shall have an exercise price which is
less than 85% of the fair market value of the Common Stock at the time the Stock
Option is granted. In the case of a Stock Option granted to any person who owns
Common Stock possessing more than 10% percent of the total combined voting power
of all classes of stock of the Company, no Stock Option shall be granted with an
exercise


                                      -2-

<PAGE>   3

price of less than 110% of the fair market value of the Common Stock at the time
of the grant.

     (b) If a holder of an "incentive stock option" ceases to be employed by Big
5, the Company or another subsidiary of the Company for any reason other than
the option holder's death or permanent disability (within the meaning of Section
22(e)(3) of the Code), the option holder's "incentive stock option" shall not be
entitled to incentive treatment under the Code if exercised after more than
three months after the date the option holder ceased to be an employee of one of
such corporations (unless by its terms such Stock Option sooner expires). If a
holder of an "incentive stock option" ceases to be employed by Big 5, the
Company or another subsidiary of the Company on account of death or permanent
disability (within the meaning of Section 22(e)(3) of the Code), such Stock
Option shall not be entitled to incentive treatment under the Code if exercised
after one year after the date of such death or permanent disability unless by
its terms it sooner expires. During such period after death, any vested
unexercised portion of the Stock Option may be exercised by the person or
persons to whom the option holder's rights under the Stock Option shall pass by
will or the laws of descent and distribution.

     To the extent that the aggregate fair market value of Common Stock or other
capital stock with respect to which "incentive stock options" are exercisable
for the first time by any individual during any calendar year (under all plans
of the Company and its parent and subsidiary corporations) exceeds $100,000,
such Stock Options shall be treated as Stock Options which are not "incentive
stock options."

     (c) Stock Options granted hereunder shall have an exercise period not to
exceed 120 months from the date the Stock Option is granted.

     (d) The right to exercise Stock Options granted hereunder shall vest at a
rate of at least 20% per year over five years from the date the option is
granted, provided, however, that all Stock Options shall cease to vest
immediately upon termination of a Participant's employment for any reason
(unless otherwise approved by the Committee); and provided further, that in the
case of Stock Options granted to officers or directors, such Stock Options may
become fully exercisable, subject to continued employment (unless otherwise
approved by the Committee), at any time or during any period as the Committee
shall determine.

     (e) In the event that any Participant previously granted Stock Options
hereunder ceases to be employed Big 5, the Company or another subsidiary of the
Company by which Stock Options such Participant had the right to exercise as of
the date such individual ceases to be employed by Big 5, the Company or another
subsidiary of the Company, such Stock Options will be exercisable:

          (i) For at least six months if the Participant ceases to be employed
by Big 5, the Company or another subsidiary of the Company because of death
or disability; or


                                      -3-

<PAGE>   4

          (ii) For at least thirty days if the Participant ceases to be employed
by Big 5, the Company or another subsidiary of the Company for reasons other
than death or disability.

     Notwithstanding the foregoing or any provision to the contrary contained in
any Grant Document, unless otherwise approved by the Committee, Stock Options
granted to any Participant whose employment is terminated for "just cause" shall
terminate immediately and cease to be exercisable. "Just Cause" shall mean
termination of the Participant' employment as a result of (i) such Participant's
violation of any rule or policy of the Company or its subsidiaries that results
in damage to the Company or its subsidiaries or which, after written notice to
do so, the Participant fails to correct within a reasonable time; (ii) any
material failure by the Participant to comply with a reasonable direction of the
Board of Directors of the Company or its subsidiaries or the willful misconduct
by the Participant in the responsibilities reasonably assigned to him or her;
(iii) any willful failure by the Participant to perform his or her job as
required to meet the objectives of the Company or its subsidiaries; (iv) the
Participant's performing services for any other corporation or person which
competes with the Company or its subsidiaries while he or she is employed by the
Company or its subsidiaries and without the written approval of the Chief
Executive Officer of the Company (or, in case the Chief Executive Officer is the
Participant, then by approval of the Company's Board of Directors); (v)
conviction by a court of competent jurisdiction of a felony; or (vi) any other
action or condition that may result in termination of an employee for cause
pursuant to any generally applied standard adopted by the Board of Directors of
the Company from time to time.

     7. Provisions Applicable to Purchased Shares. No grant of Purchased Shares
hereunder shall have a purchase price which is less than 85% of the fair market
value of the stock at the time the right to purchase Purchased Shares is
granted. In the case a right to purchase Purchased Shares is granted to any
person who owns stock possessing more than 10% percent of the total combined
voting power of all classes of stock of the Company, such right to purchase
Purchased Shares shall be granted with a purchase price of at least 100% of the
fair market value of the stock at the time of the grant.

     8. Adjustments. If the outstanding shares of the Common Stock of the
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company or any other corporation
through reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar transaction, or in connection
with any merger or reorganization, (i) an appropriate and proportionate
adjustment shall be made in the maximum number and kind of shares which may be
awarded under this Plan and (ii) the restrictions and rights set forth in this
Plan or any of the Grant Documents shall apply with respect to such other
capital stock to the same extent as they are, or would have been applicable, to
the Common Stock on or with respect to which such other capital stock was
distributed or exchanged.


                                      -4-


<PAGE>   5

     Adjustments under this paragraph 8 shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.

     9. Nontransferability of Stock Options or Rights to Purchase Shares. Stock
Options and a Participant's rights to purchase Purchased Shares granted
hereunder may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Participant, only
by the Participant.

     10. Amendment and Termination of the Plan. Subject to Section 11 of the
Plan, the Plan shall become effective upon the earlier to occur of its adoption
by the Board of Directors or its approval by the stockholders of the Company as
described in Section 11 of the Plan and shall continue in effect for a term of
ten (10) years; provided, however, that the Committee may at any time suspend or
terminate the Plan. The Committee may also at any time amend or revise the terms
of the Plan.

     Notwithstanding the foregoing, no amendment, suspension or termination of
the Plan that would materially adversely affect any rights or obligations of any
Participant under any Management Subscription and Stockholders Agreement,
Management Stock Option and Stockholders Agreement or Employee Stock Option
Agreement shall be effective as to such Participant unless there shall have been
specific action of the Committee and consent of the Participant.

     11. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
Stock Options may be granted but not exercised and Purchased Shares may be
granted and purchased prior to shareholder approval of the Plan. If any Stock
Options are so granted and stockholder approval shall not have been obtained
within twelve months of the date of adoption of this Plan by the Board of
Directors, such Stock Options shall terminate retroactively as of the date they
were granted. If any Purchased Shares are so granted and purchased and
shareholder approval shall not have been obtained within twelve months of the
date of adoption of this Plan by the Board of Directors, the sale of such
Purchased Shared shall be rescinded as of the date granted.

     12. No Employment Rights. The selection of any person to receive an award
under this Plan shall not give such person any right to be retained in the
employment of Big 5, the Company or any of their affiliates and the right and
the power of Big 5 to discharge any such person shall not be affected by such
award. No person shall have any right or claim whatever, directly, indirectly or
by implication, to receive an award, nor any expectancy thereof, unless and
until an award in fact shall have been made to such person by the Committee as
provided herein. The award to any person hereunder at any time shall not create
any right or implication that any other or further award may or shall be made at
another time. Each award hereunder shall be separate and distinct


                                      -5-

<PAGE>   6

from every other award and shall not be construed as a part of any continuing
series of awards or compensation.

     13. Annual Financial Information. Each Participant who receives Grant
Shares, Purchased Shares or Stock Options shall be provided with a copy of the
financial statements of the Company at least annually shall be provided with a
copy of financial statements of the Company at least annually.

     14. Repurchase Rights. The Grant Documents may include provisions which
grant the Company the right to repurchase Purchased Shares, Stock Options or
shares of Common Stock acquired upon the exercise of Stock Options substantially
similar to the repurchase rights in the form of the Grant Documents attached
hereto, provided that such rights comply with any state securities laws or
regulations, if any, applicable to the Plan or grants thereunder.

     15. Plan Not Exclusive. The Plan is not exclusive. The Company may have
other plans, programs and arrangements for compensation or the issuance of
shares or options. The Plan does not require that Participants hereunder be
precluded from participation in such other plans, programs and arrangements.


NOVEMBER 1997 MANAGEMENT SUBSCRIPTION AND STOCKHOLDERS AGREEMENT ATTACHED
HERETO.









                                      -6-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>9
<FILENAME>v75241orex10-14.txt
<DESCRIPTION>EXHIBIT 10.14
<TEXT>
<PAGE>   1
                                                                   EXHIBIT 10.14


The CIT Group/
Business Credit, Inc.
3rd Floor
300 South Grand Avenue
Los Angeles, CA 90071
Tel:   (213) 613-2575
Fax:  (213) 613-2588





December 16, 1997





Big 5 Corp.
2525 East El Segundo Boulevard
El Segundo, CA  90245

Dear Sirs:

We refer to the Financing Agreement, dated March 8, 1996 (as previously amended,
the "Agreement") between Big 5 Corp., a Delaware corporation, as borrower (the
"Company") and The CIT Group/Business Credit, Inc., as agent and lender
(individually the "Agent", and together with the other lenders, the "Lenders").
Capitalized terms not otherwise defined herein shall be as defined in the
Agreement. The Company and the Lenders hereby agree that the Agreement is
amended, as follows:

     1. The last sentence in paragraph 1 of Section 3 of the Agreement is hereby
amended by deleting the word "herein", and inserting in lieu thereof the words
"in the second sentence of this paragraph 1 of Section 3 of this Financing
Agreement".

     2. Clause (b) of paragraph 10 of Section 12 of the Agreement is hereby
amended by deleting the words "in bulk", and inserting in lieu thereof the wards
"with a value greater than $2,500,000.00"

     3. The word "third" set forth in the first sentence of paragraph 11 of
Section 12 is hereby deleted, and the word "fifth" is inserted in lieu thereof.


<PAGE>   2



Except as otherwise hereinabove provided, no other amendment or modification of
the Agreement is hereby intended or implied. If the foregoing is in accordance
with your understanding, please so indicate by signing and returning to us the
enclosed copy of this letter. Very truly yours,



                                     The CIT Group/Business Credit, Inc.
                                     (as Agent and Lender)


                                     By: /s/ Illegible
                                         ---------------------------------------

                                     Title: Vice President
                                           -------------------------------------
Read and Agreed to:

Big 5 Corp.

By: /s/ Charles P. Kirk
   -----------------------------------------

Title: Sr. Vice President / CFO
       -------------------------------------


BT Commercial Corporation (as Lender)

By: /s/ Illegible
   -----------------------------------------

Title:
      --------------------------------------


National Bank of Canada (as Lender)

By: /s/ Illegible         /s/ John Curry
   -----------------------------------------

Title: Vice President   Vice President
      --------------------------------------


Sanwa Business Credit Corporation (as Lender)

By: /s/ Illegible
   -----------------------------------------

Title: Vice President
      --------------------------------------


Transamerica Business Credit (as Lender)

By: /s/ Thomas Fernandes
   -----------------------------------------

Title: Senior Account Executive
      --------------------------------------



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>10
<FILENAME>v75241orex10-15.txt
<DESCRIPTION>EXHIBIT 10.15
<TEXT>
<PAGE>   1

                                                                   EXHIBIT 10.15



                     FIFTH AMENDMENT TO FINANCING AGREEMENT


     This FIFTH AMENDMENT TO FINANCING AGREEMENT (this "Amendment"), dated as of
March 21, 2000, is entered into by and among Big 5 Corp., a Delaware
corporation, successor by merger to United Merchandising Corp. (the "Borrower"),
each of the financial institutions that is a signatory to this Amendment
(collectively, the "Lenders") and The CIT Group/Business Credit, Inc., as agent
for the Lenders (in such capacity, the "Agent"), and amends that certain
Financing Agreement, dated as of March 8, 1996 (as the same is in effect
immediately prior to the effectiveness of this Amendment, the "Existing
Financing Agreement" and as the same may be amended, supplemented or modified
and in effect from time to time, the "Financing Agreement"), by and among the
Borrower, the Agent and the Lenders from time to time party to the Financing
Agreement. Capitalized terms used and not otherwise defined in this Amendment
shall have the same meanings in this Amendment as set forth in the Financing
Agreement.

                                     RECITAL

     The Borrower has requested that the Agent and the Lenders amend Section 6,
Paragraph 9, Subparagraph G of the Existing Financing Agreement and delete
Section 6, Paragraph 10 of the Existing Financing Agreement and the Agent and
the Lenders are willing to agree to so amend the Existing Financing Agreement on
the terms and subject to the conditions set forth below.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements set forth below and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:

     Section 1. Amendments. On the terms of this Amendment and subject to the
satisfaction of the conditions precedent set fort below in Section 2:

          (a) Section 6, Paragraph 9, Subparagraph G of the Existing Financing
Agreement is hereby amended to read in its entirety as follows:

          "Declare or pay any dividend of any kind on, or purchase, acquire,
          redeem or retire, any of its capital stock or equity interest of any
          class whatsoever, whether now or hereafter outstanding, except that
          (i) the Company may declare and pay dividends on its capital stock (a)
          in cash in (1) amounts sufficient to enable the Parent to purchase,
          acquire or redeem the capital stock owned by its employees or its
          retired, deceased or terminated officers, directors or shareholders
          which the Parent is contractually obligated or



<PAGE>   2





          entitled to purchase, acquire or redeem and (2) additional amounts not
          to exceed the sum of $3,000,000 and tenet cash proceeds realized from
          sales by the Company in such fiscal year of its capital stock in any
          fiscal year; provided, however, that if the Company does not declare
          and pay dividends in any fiscal year of up to the sum of $3,000,000
          and the net cash proceeds realized from sales by the Company in such
          fiscal year of its capital stock, the difference may be added to the
          amount permitted in subsequent fiscal years and provided, further,
          that such dividends may not be declared and paid, on or after May 1,
          1996, if a Default or Event of Default is then in existence or will be
          in existence after giving effect to such dividends, (b) in kind, (c)
          in cash in an amount sufficient to (1) enable the Parent to pay income
          or franchise taxes of the Company due as a result of the filing of a
          consolidated, combined or unitary tax return in which the operations
          of the Company are included or (2) reimburse the Parent for
          out-of-pocket expenses incurred by the Parent for the joint or several
          benefit of the Parent and the Company, and fees and expenses of its
          directors for attending the Board of Directors' meeting or (d) in cash
          to the Parent on or after May 15, 2003, provided, that such dividends
          may not be declared or paid if a Default or Event of Default is then
          in existence or will be in existence after giving effect to the
          payment of such dividends and provided, further that such dividends
          may not be declared or paid if they are prohibited under the terms and
          conditions of the Senior Notes and (ii) the Company may repurchase the
          Senior Notes, and declare and pay dividends on its capital stock in
          cash to the Parent to enable the Parent to repurchase its 13.45%
          Subordinated Exchange Debentures Due 2009 (the "Parent Debentures"),
          provided, that (a) the aggregate amount of all such repurchases and
          dividends shall not exceed $35,000,000, (b) the aggregate amount of
          dividends paid to the Parent for purposes of repurchasing the Parent
          Debentures shall not exceed $10,000,000, (c) the amount paid for each
          such repurchase shall not exceed 105% of par value of the Senior Notes
          or the Parent Debentures, as the case may be and (d) both before and
          after giving effect to the making of such repurchase or dividend, no
          Default or Event of Default shall have occurred and be continuing;"

          (b) Section 6, Paragraph 10 of the Financing Agreement is hereby
deleted in its entirety.

          (c) Section 9, Paragraph 1 of the Existing Financing Agreement is
hereby amended by deleting the period at the end of clause (k), and inserting
the following in lieu thereof:




                                      -2-
<PAGE>   3


          "and, provided, further, that the Company may make the repurchases and
          dividends permitted under Section 6, Paragraph 9, Subparagraph G of
          this Financing Agreement."

     Section 2. Conditions to Effectiveness. The amendments set forth in Section
1 of this Amendment shall become effective only upon the satisfaction of all of
the following conditions precedent (the date of satisfaction of all such
conditions being referred to as the "Amendment Effective Date"):

          (a) On or before the Amendment Effective Date, the Agent shall have
received, on behalf of the Lenders, this Amendment, duly executed and delivered
by the Borrower, the Lenders and the Agent.

          (b) On or before the Amendment Effective Date, all corporate,
partnership and other proceedings taken or to be taken in connection with the
transactions contemplated by this Amendment, and all documents incidental
thereto, shall be reasonably satisfactory in form and substance to the Agent and
its counsel, and the Agent and such counsel shall have received all such
counterpart originals or certified copies of such documents as they may
reasonably request.

          (c) The representations and warranties set forth in this Amendment
shall be true and correct as of the Amendment Effective Date.

     Section 3. Representations and Warranties. In order to induce the Agent and
the Lenders to enter into this Amendment and to amend the Existing Financing
Agreement in the manner provided in this Amendment, the Borrower represents and
warrants to the Agent and each Lender as of the Amendment Effective Date as
follows:

          (a) Power and Authority. The Borrower has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Existing
Financing Agreement as amended by this Amendment (hereafter referred to as the
"Amended Financing Agreement").

          (b) Authorization of Agreements. The execution and delivery of this
Amendment by the Borrower and the performance of the Amended Financing Agreement
by the Borrower have been duly authorized by all necessary action, and this
Amendment has been duly executed and delivered by the Borrower.

          (c) Enforceability. The Amended Financing Agreement constitutes the
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general. The enforceability of the obligations of the Borrower hereunder is
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).


                                      -3-
<PAGE>   4

          (d) No Conflict. The execution and delivery by the Borrower of this
Amendment and the performance by the Borrower of the Amended Financing Agreement
do not and will not (i) contravene, in any material respect, any provision of
any law, regulation, decree, ruling, judgment or order that is applicable to the
Borrower or its properties or other assets, (ii) result in a breach of or
constitute a default under the charter, bylaws or other organizational documents
of the Borrower, or any material agreement, indenture, lease or instrument
binding upon the Borrower or its properties or other assets or (iii) result in
the creation or imposition of any liens on its properties other than as
permitted under the Financing Agreement.

          (e) Governmental Consents. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Borrower of this Amendment.

          (f) Representations and Warranties in the Financing Agreement. The
Borrower confirms that as of the Amendment Effective Date the representations
and warranties contained in Section 6 of the Financing Agreement are (before and
after giving effect to this Amendment) true and correct in all material respects
(except to the extent any such representation and warranty is expressly stated
to have been made as of a specific date, in which case it shall be true and
correct as of such specific date) and tat no Default or Event of Default has
occurred and is continuing.

     Section 4. Miscellaneous.

          (a) Reference to and Effect on the Existing Financing Agreement.

                    (i) Except as specifically amended by this Amendment and the
               documents executed and delivered in connection herewith, the
               Existing Financing Agreement and each of the agreements,
               documents and instruments executed in connection therewith
               (collectively, the "Loan Documents") shall remain in full force
               and effect and are hereby ratified and confirmed.

                    (ii) The execution and delivery of this Amendment and
               performance of the Amended Financing Agreement shall not, except
               as expressly provided herein, constitute a waiver of any
               provision of, or operate as a waiver of any right, power or
               remedy of the Lenders under, the Existing Financing Agreement or
               any of the other Loan Documents.

                    (iii) Upon the conditions precedent set forth herein being
               satisfied, this Amendment shall be construed as one with the
               Existing Financing Agreement, and the Existing Financing
               Agreement shall, where the context requires, be read and
               construed throughout so as to incorporate this Amendment.

               (b) Fees and Expenses. The Borrower acknowledges that all costs,
fees and expenses incurred in connection with this Amendment will be paid in
accordance with Section 7, Paragraph 4 of the Existing Financing Agreement.


                                      -4-
<PAGE>   5

               (c) Heading. Section and subsection headings in this Amendment
are included for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose or be given any substantive effect.

               (e) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

               (f) Governing Law. This Amendment shall be governed by and
construed according to the laws of the State of California.

     IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the date first above written.


                                  BORROWER

                                  BIG 5 CORP.


                                  By: /s/ Charles P. Kirk
                                     -----------------------------------------
                                  Name: Charles P. Kirk
                                       ---------------------------------------
                                  Title: Vice President
                                         -------------------------------------


                                  AGENT

                                  THE CIT GROUP/BUSINESS CREDIT, INC., as agent


                                  By: /s/ Adrian Avalos
                                     -----------------------------------------
                                  Name: Adrian Avalos
                                        --------------------------------------
                                  Title: AVP
                                        --------------------------------------


                                  LENDERS

                                  THE CIT GROUP/BUSINES CREDIT, INC.


                                  By: /s/ Adrian Avalos
                                     -------------------------------------------
                                  Name: Adrian Avalos
                                        ----------------------------------------
                                  Title: AVP
                                        ----------------------------------------



                                      -5-
<PAGE>   6









                                    FLEET CAPITAL CORPORATION


                                    By: /s/ Mark D. Newlun
                                       -----------------------------------------
                                    Name: Mark D. Newlun
                                         ---------------------------------------
                                    Title: S.V.P.
                                          --------------------------------------


                                    NATIONAL BANK OF CANADA


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


                                    TRANSAMERICA BUSINESS CREDIT CORPORATION


                                    By: /s/ Robert L. Heinz
                                       -----------------------------------------
                                    Name: Robert L. Heinz
                                         ---------------------------------------
                                    Title: Senior Vice President
                                          --------------------------------------


                                    BANK OF AMERICA, N.A.


                                    By: /s/ Steven W. Sharp
                                       -----------------------------------------
                                    Name: Steven W. Sharp
                                          --------------------------------------
                                    Title: Vice President
                                          --------------------------------------


                                      -6-
<PAGE>   7




     The undersigned hereby (a) ratifies and reaffirms all of its obligations to
the Agent and the Lenders under that certain Guaranty dated March 8, 1996 (the
"Guaranty") by Big 5 Holdings Corp., a Delaware corporation, successor by merger
to Big 5 Corporation, in favor of the Agent, in connection with its guaranty of
all obligations of Big 5 Corp., a Delaware corporation (the "Borrower") to the
Agent and the Lenders, (b) consents to the execution and delivery by the
Borrower of that certain Fifth Amendment to Financing Agreement. dated March 21,
2000 among the Borrower, the Agent and the Lenders (the "Amendment") and (c)
confirms that the Guaranty and all agreements, documents and instruments
executed in connection therewith remain in full force and effect. The
undersigned agrees that the execution and delivery of this consent and
reaffirmation of the Guaranty is not necessary for the continued validity and
enforceability of the Guaranty and the agreements, documents and instruments
executed in connection therewith, but is executed to induce die Agent and the
Lenders to enter into the Amendment.


                                       BIG 5 HOLDINGS CORP



                                       By: /s/ Charles P. Kirk
                                          --------------------------------------
                                       Name: Charles P. Kirk
                                            ------------------------------------
                                       Title: Vice President
                                             -----------------------------------




                                      -7-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>11
<FILENAME>v75241orex21-1.txt
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
<PAGE>   1
                                                                    EXHIBIT 21.1



Subsidiaries of the Registrant

1)   Big 5 Corp., a Delaware Corporation. Big 5 Corp. does business as Big 5
     Sporting Goods in all states in which it has operations except in Arizona
     where it does business under the name New Big 5 Corp.




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>12
<FILENAME>v75241orex23-1.txt
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<PAGE>   1
                                                                    EXHIBIT 23.1


The Board of Directors
Big 5 Sporting Goods Corporation:


The audits referred to in our report dated August 9, 2001, included the related
financial statement schedules as of December 31, 2000, and for each of the
fiscal years ended December 31, 2000, January 2, 2000 and January 3, 1999,
included in the registration statement. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.


We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.



KPMG LLP


Los Angeles, California
August 20, 2001

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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