**EXHIBIT 2.1**

 

 

 

**AGREEMENT AND PLAN OF MERGER**

 

 

among

 

 

**NEWTON ACQUISITION, INC.**

 

 

and

 

 

**THE NEIMAN MARCUS GROUP, INC.**

 

 

Dated as of May 1, 2005

 

 

 

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**TABLE OF CONTENTS**

 
| ** **                                                                                   | **Page**                                                                                 |
|----------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|
|                                                                                         |                                                                                     |
| ARTICLE I  THE MERGER *                                                                 |                                                                                     |
|                                                                                         |                                                                                     |
| SECTION 1.1                                                                             | The  Merger *                                                                            |   |
|                                                                                         |                                                                                     |   |
| SECTION 1.2                                                                             | Closing;  Effective Time *                                                               |   |
|                                                                                         |                                                                                     |   |
| SECTION 1.3                                                                             | Effects  of the Merger *                                                                 |   |
|                                                                                         |                                                                                     |   |
| SECTION 1.4                                                                             | Certificate  of Incorporation; By-Laws *                                                 |   |
|                                                                                         |                                                                                     |   |
| SECTION 1.5                                                                             | Directors  and Officers *                                                                |   |
|                                                                                         |                                                                                     |   |
| ARTICLE II  EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS * |                                                                                     |
|                                                                                         |                                                                                     |   |
| SECTION 2.1                                                                             | Conversion  of Securities *                                                              |   |
|                                                                                         |                                                                                     |   |
| SECTION 2.2                                                                             | Treatment  of Options, Restricted Shares, Stock Units, and Deferred Compensation Plans * |   |
|                                                                                         |                                                                                     |   |
| SECTION 2.3                                                                             | Dissenting  Shares *                                                                     |   |
|                                                                                         |                                                                                     |   |
| SECTION 2.4                                                                             | Surrender  of Shares *                                                                   |   |
|                                                                                         |                                                                                     |
| ARTICLE III  REPRESENTATIONS AND WARRANTIES OF THE COMPANY *                            |                                                                                     |
|                                                                                         |                                                                                     |
| SECTION 3.1                                                                             | Organization  and Qualification; Subsidiaries *                                          |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.2                                                                             | Certificate  of Incorporation and By-laws *                                              |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.3                                                                             | Capitalization  *                                                                        |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.4                                                                             | Authority  *                                                                             |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.5                                                                             | No  Conflict; Required Filings and Consents *                                            |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.6                                                                             | Compliance  *                                                                            |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.7                                                                             | SEC  Filings; Financial Statements; No Undisclosed Liabilities *                         |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.8                                                                             | Absence  of Certain Changes or Events *                                                  |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.9                                                                             | Absence  of Litigation *                                                                 |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.10                                                                            | Employee  Benefit Plans *                                                                |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.11                                                                            | Labor  and Employment Matters *                                                          |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.12                                                                            | Insurance  *                                                                             |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.13                                                                            | Properties  *                                                                            |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.14                                                                            | Tax  Matters *                                                                           |   |
|                                                                                         |                                                                                     |   |
| SECTION 3.15                                                                            | Proxy  Statement *                                                                       |   |

 

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| SECTION 3.16                                                          | Opinion  of Financial Advisors *                         |   |
|----------------------------------------------------------------------------|----------------------------------------------------------|--------|
|                                                                       |                                                     |   |
| SECTION 3.17                                                          | Brokers  *                                               |   |
|                                                                       |                                                     |   |
| SECTION 3.18                                                          | Takeover  Statutes; Rights Plans *                       |   |
|                                                                       |                                                     |   |
| SECTION 3.19                                                          | Intellectual  Property *                                 |   |
|                                                                       |                                                     |   |
| SECTION 3.20                                                          | Environmental  Matters *                                 |   |
|                                                                       |                                                     |   |
| SECTION 3.21                                                          | Contracts  *                                             |   |
|                                                                       |                                                     |   |
| SECTION 3.22                                                          | Affiliate  Transactions *                                |   |
|                                                                       |                                                     |   |
| SECTION 3.23                                                          | No  Other Representations or Warranties *                |   |
|                                                                       |                                                     |
| ARTICLE IV  REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB * |                                                     |
|                                                                       |                                                     |
| SECTION 4.1                                                           | Organization  *                                          |   |
|                                                                       |                                                     |   |
| SECTION 4.2                                                           | Authority  *                                             |   |
|                                                                       |                                                     |   |
| SECTION 4.3                                                           | No  Conflict; Required Filings and Consents *            |   |
|                                                                       |                                                     |   |
| SECTION 4.4                                                           | Absence  of Litigation *                                 |   |
|                                                                       |                                                     |   |
| SECTION 4.5                                                           | Proxy  Statement *                                       |   |
|                                                                       |                                                     |   |
| SECTION 4.6                                                           | Brokers  *                                               |   |
|                                                                       |                                                     |   |
| SECTION 4.7                                                           | Financing  *                                             |   |
|                                                                       |                                                     |   |
| SECTION 4.8                                                           | Parent  and Merger Sub *                                 |   |
|                                                                       |                                                     |   |
| SECTION 4.9                                                           | Ownership  of Shares *                                   |   |
|                                                                       |                                                     |   |
| SECTION 4.10                                                          | Vote/Approval  Required *                                |   |
|                                                                       |                                                     |   |
| SECTION 4.11                                                          | No  Other Representations or Warranties *                |   |
|                                                                       |                                                     |
| ARTICLE V  CONDUCT OF BUSINESS PENDING THE MERGER *                   |                                                     |
|                                                                       |                                                     |
| SECTION 5.1                                                           | Conduct  of Business of the Company Pending the Merger * |   |

 

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| SECTION 5.2                                       | Consultation  Rights *                                              |   |
|--------------------------------------------------------|---------------------------------------------------------------------|--------|
|                                                   |                                                                |   |
| SECTION 5.3                                       | Conduct  of Business of Parent and Merger Sub Pending the Merger *  |   |
|                                                   |                                                                |   |
| SECTION 5.4                                       | No  Control of Other Party’s Business *                        |   |
|                                                   |                                                                |
| ARTICLE VI  ADDITIONAL AGREEMENTS *               |                                                                |
|                                                   |                                                                |
| SECTION 6.1                                       | Stockholders  Meeting *                                             |   |
|                                                   |                                                                |   |
| SECTION 6.2                                       | Proxy  Statement *                                                  |   |
|                                                   |                                                                |   |
| SECTION 6.3                                       | Resignation  of Directors *                                         |   |
|                                                   |                                                                |   |
| SECTION 6.4                                       | Access  to Information; Confidentiality *                           |   |
|                                                   |                                                                |   |
| SECTION 6.5                                       | Acquisition  Proposals *                                            |   |
|                                                   |                                                                |   |
| SECTION 6.6                                       | Employment  and Employee Benefits Matters *                         |   |
|                                                   |                                                                |   |
| SECTION 6.7                                       | Directors’  and Officers’ Indemnification and Insurance * |   |
|                                                   |                                                                |   |
| SECTION 6.8                                       | Further  Action; Efforts *                                          |   |
|                                                   |                                                                |   |
| SECTION 6.9                                       | Public  Announcements *                                             |   |
|                                                   |                                                                |   |
| SECTION 6.10                                      | Financing  *                                                        |   |
|                                                   |                                                                |   |
| SECTION 6.11                                      | Notification  *                                                     |   |
|                                                   |                                                                |
| ARTICLE VII  CONDITIONS OF MERGER *               |                                                                |
|                                                   |                                                                |
| SECTION 7.1                                       | Conditions  to Obligation of Each Party to Effect the Merger *      |   |
|                                                   |                                                                |   |
| SECTION 7.2                                       | Conditions  to Obligations of Parent and Merger Sub *               |   |
|                                                   |                                                                |   |
| SECTION 7.3                                       | Conditions  to Obligations of the Company *                         |   |
|                                                   |                                                                |
| ARTICLE VIII  TERMINATION, AMENDMENT AND WAIVER * |                                                                |
|                                                   |                                                                |
| SECTION 8.1                                       | Termination  *                                                      |   |
|                                                   |                                                                |   |
| SECTION 8.2                                       | Effect  of Termination *                                            |   |

 

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| SECTION 8.3                      | Expenses  *                                                              |   |
|---------------------------------------|--------------------------------------------------------------------------|--------|
|                                  |                                                                     |   |
| SECTION 8.4                      | Amendment  *                                                             |   |
|                                  |                                                                     |   |
| SECTION 8.5                      | Waiver  *                                                                |   |
|                                  |                                                                     |
| ARTICLE IX  GENERAL PROVISIONS * |                                                                     |
|                                  |                                                                     |
| SECTION 9.1                      | Non-Survival  of Representations, Warranties, Covenants and Agreements * |   |
|                                  |                                                                     |   |
| SECTION 9.2                      | Notices  *                                                               |   |
|                                  |                                                                     |   |
| SECTION 9.3                      | Certain  Definitions *                                                   |   |
|                                  |                                                                     |   |
| SECTION 9.4                      | Severability  *                                                          |   |
|                                  |                                                                     |   |
| SECTION 9.5                      | Entire  Agreement; Assignment *                                          |   |
|                                  |                                                                     |   |
| SECTION 9.6                      | Parties  in Interest *                                                   |   |
|                                  |                                                                     |   |
| SECTION 9.7                      | Governing  Law *                                                         |   |
|                                  |                                                                     |   |
| SECTION 9.8                      | Headings  *                                                              |   |
|                                  |                                                                     |   |
| SECTION 9.9                      | Counterparts  *                                                          |   |
|                                  |                                                                     |   |
| SECTION 9.10                     | Specific  Performance; Jurisdiction *                                    |   |
|                                  |                                                                     |   |
| SECTION 9.11                     | Parent  Guarantee *                                                      |   |
|                                  |                                                                     |   |
| SECTION 9.12                     | Interpretation  *                                                        |   |

 

Exhibits:

 

Exhibit ACertificate of Incorporation of the Surviving Corporation

 

Exhibit BBylaws of Merger Sub

 

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**INDEX OF DEFINED TERMS**

 
| 2005  Bonus Program               |   | 34 |
|-----------------------------------|--------|----|
| Acquisition  Proposal             |   | 32 |
| Action                            |   | 14 |
| affiliate                         |   | 48 |
| Agreement                         |   | 1  |
| Antitrust  Law                    |   | 38 |
| beneficial  owner                 |   | 48 |
| beneficially  owned               |   | 49 |
| Book-Entry  Shares                |   | 5  |
| business  day                     |   | 49 |
| By-Laws                           |   | 8  |
| Capitalization  Date              |   | 8  |
| Certificate  of Incorporation     |   | 8  |
| Certificate  of Merger            |   | 2  |
| Certificates                      |   | 5  |
| Class A  Common Stock        |   | 3  |
| Class A  Shares              |   | 3  |
| Class B  Common Stock        |   | 3  |
| Class B  Shares              |   | 3  |
| Class C  Common Stock        |   | 3  |
| Class C  Shares              |   | 3  |
| Closing                           |   | 2  |
| Closing  Date                     |   | 2  |
| Code                              |   | 15 |
| Company                           |   | 1  |
| Company  Common Stock             |   | 3  |
| Company  Disclosure Schedule      |   | 7  |
| Company  Employees                |   | 15 |
| Company  Plans                    |   | 15 |
| Company  Requisite Vote           |   | 10 |
| Company  Rights                   |   | 8  |
| Company  Securities               |   | 9  |
| Company  Stock Plans              |   | 9  |
| Compensation                      |   | 35 |
| Confidentiality  Agreement        |   | 32 |
| Contract                          |   | 11 |
| control                           |   | 49 |
| controlled                        |   | 49 |
| controlled  by                    |   | 49 |
| corresponding  section            |   | 49 |
| Costs                             |   | 36 |
| Credit  Card Business Transaction |   | 28 |

 

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| Current  Employee                                             |   | 34 |
|---------------------------------------------------------------|--------|----|
| Debt  Financing                                               |   | 25 |
| Debt  Financing Commitments                                   |   | 25 |
| Deferred  Compensation Plans                                  |   | 4  |
| DGCL                                                          |   | 1  |
| Dissenting  Shares                                            |   | 4  |
| DOJ                                                           |   | 37 |
| Effective  Time                                               |   | 2  |
| employee  benefit plan                                        |   | 14 |
| Environmental  Laws                                           |   | 21 |
| Environmental  Permits                                        |   | 21 |
| Equity  Financing                                             |   | 25 |
| Equity  Financing Commitments                                 |   | 25 |
| ERISA                                                         |   | 14 |
| Exchange  Act                                                 |   | 11 |
| Expenses                                                      |   | 44 |
| Financial  Advisors                                           |   | 19 |
| Financing                                                     |   | 25 |
| Financing  Commitments                                        |   | 25 |
| Foreign  Antitrust Laws                                       |   | 11 |
| Forward  Underwriting Commitment Letter                       |   | 25 |
| FTC                                                           |   | 37 |
| generally  accepted accounting principles                     |   | 49 |
| Government  Entity                                            |   | 11 |
| HSR  Act                                                      |   | 11 |
| Indemnified  Parties                                          |   | 36 |
| industries  in which the Company and its subsidiaries operate |   | 49 |
| Initiation  Date                                              |   | 41 |
| Intellectual  Property                                        |   | 20 |
| Investors                                                     |   | 25 |
| IRS                                                           |   | 15 |
| Junior  Participating Preferred Stock                         |   | 8  |
| Kate  Spade Agreement                                         |   | 27 |
| Kate  Spade Put                                               |   | 27 |
| knowledge                                                     |   | 49 |
| Law                                                           |   | 10 |
| Leased  Real Property                                         |   | 17 |
| Licenses                                                      |   | 11 |
| Lien                                                          |   | 9  |
| Marketing  Period                                             |   | 41 |
| Material  Adverse Effect                                      |   | 7  |
| Material  Contract                                            |   | 22 |

 

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| Material  Subsidiary                |   | 7  |
|-------------------------------------|--------|----|
| Materials  of Environmental Concern |   | 21 |
| Merger                              |   | 1  |
| Merger  Consideration               |   | 3  |
| Merger  Sub                         |   | 1  |
| Merger  Sub Termination Fee         |   | 45 |
| Multiemployer  Plan                 |   | 14 |
| Notice  of Superior Proposal        |   | 34 |
| Option                              |   | 3  |
| Owned  Real Property                |   | 16 |
| Parent                              |   | 1  |
| Parent  Disclosure Schedule         |   | 23 |
| Parent  Plan                        |   | 35 |
| Paying  Agent                       |   | 5  |
| Permitted  Liens                    |   | 17 |
| person                              |   | 49 |
| Preferred  Stock                    |   | 8  |
| Principal  Commitment Letter        |   | 25 |
| Proxy  Statement                    |   | 18 |
| Real  Property Lease                |   | 17 |
| Representatives                     |   | 32 |
| Required  Financial Information     |   | 39 |
| Restricted  Shares                  |   | 4  |
| Rights  Plan                        |   | 8  |
| SAR                                 |   | 3  |
| Sarbanes-Oxley  Act                 |   | 12 |
| SEC                                 |   | 11 |
| SEC  Reports                        |   | 12 |
| Securities  Act                     |   | 12 |
| Shares                              |   | 3  |
| Stock  Units                        |   | 4  |
| Stockholder  Agreement              |   | 1  |
| Stockholders  Meeting               |   | 30 |
| subsidiaries                        |   | 49 |
| subsidiary                          |   | 49 |
| Superior  Proposal                  |   | 33 |
| Surviving  Corporation              |   | 1  |
| Tax  Return                         |   | 18 |
| Taxes                               |   | 18 |
| Termination  Date                   |   | 43 |
| Termination  Fee                    |   | 45 |
| TPG                                 |   | 25 |
| under  common control with          |   | 49 |
| WP                                  |   | 25 |

 

----

 

**AGREEMENT AND PLAN OF MERGER**

 

AGREEMENTAND PLAN OF MERGER, dated as of May 1, 2005 (this “Agreement”),among NEWTON ACQUISITION, INC., a Delaware corporation (“Parent”),NEWTON ACQUISITION MERGER SUB, INC., a Delaware corporation and a directwholly-owned subsidiary of Parent (“Merger Sub”), and THE NEIMAN MARCUSGROUP, INC., a Delaware corporation (the “Company”).

 

WHEREAS,the Board of Directors of the Company has unanimously (i) determined thatit is in the best interests of the Company and the stockholders of the Company,and declared it advisable, to enter into this Agreement with Parent and MergerSub providing for the merger (the “Merger”) of Merger Sub with and intothe Company in accordance with the General Corporation Law of the State ofDelaware (the “DGCL”), upon the terms and subject to the conditions setforth herein, (ii) approved this Agreement in accordance with the DGCL,upon the terms and subject to the conditions set forth herein, and(iii) resolved to recommend adoption of this Agreement by the stockholdersof the Company;

 

WHEREAS,the Boards of Directors of Parent and Merger Sub have each approved, and theBoard of Directors of Merger Sub has declared it advisable for Merger Sub toenter into, this Agreement providing for the Merger in accordance with theDGCL, upon the terms and subject to the conditions set forth herein; and

 

WHEREAS,in order to induce Parent and Merger Sub to enter into this Agreement, and as acondition to their doing so, simultaneously with the execution and delivery ofthis Agreement, Parent and the Company are entering into a StockholderAgreement with certain stockholders of the Company (the “StockholderAgreement”) pursuant to which such stockholders have irrevocably agreed,among other things, to vote or cause to be voted in favor of the adoption ofthis Agreement all shares of Company Common Stock beneficially owned by suchstockholder in accordance with and subject to the terms set forth in theStockholder Agreement.

 

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NOW,THEREFORE, in consideration of the foregoing and the mutual covenants andagreements herein contained, and intending to be legally bound hereby, Parent,Merger Sub and the Company hereby agree as follows:

 

ARTICLE I

 

THE MERGER

 

SECTION 1.1          TheMerger.  Upon the terms and subjectto the conditions of this Agreement and in accordance with the DGCL, at theEffective Time (as defined below), Merger Sub shall be merged with and into theCompany. As a result of the Merger, the separate corporate existence of MergerSub shall cease and the Company shall continue as the surviving corporation ofthe Merger (the “Surviving Corporation”).

 

SECTION 1.2          ClosingEffective Time.  Subject to theprovisions of Article VII, the closing of the Merger (the “Closing”)shall take place at the offices of Simpson Thacher & Bartlett LLP, 425Lexington Avenue, New York, New York, as soon as reasonably practicable afterthe satisfaction or waiver of the conditions set forth in Article VII(excluding conditions that, by their terms, cannot be satisfied until the Closing,but subject to the satisfaction or waiver of such conditions at the Closing); provided,however, that notwithstanding the satisfaction or waiver of theconditions set forth in Article VII, the parties shall not be required toeffect the Closing until the earlier of (a) a date during the MarketingPeriod specified by Merger Sub on no less than three business days’ notice tothe Company and (b) the final day of the Marketing Period; and providedfurther,however, that notwithstanding the satisfaction or waiverof the conditions set forth in Article VII, the parties shall not berequired to effect the Closing, and this Agreement may be terminated pursuantto and in accordance with Section 8.1 hereof, in the event that the finalday of the Marketing Period shall not have occurred before such termination (orthe Closing may be consummated at such other place or on such other date asParent and the Company may mutually agree). The date on which the Closingactually occurs is hereinafter referred to as the “Closing Date”. At theClosing, the parties hereto shall cause the Merger to be consummated by filinga certificate of merger (the “Certificate of Merger”) with the Secretaryof State of the State of Delaware, in such form as required by, and executed inaccordance with, the relevant provisions of the DGCL (the date and time of thefiling of the Certificate of Merger with the Secretary of State of the State ofDelaware, or such later time as is specified in the Certificate of Merger andas is agreed to by the parties hereto, being hereinafter referred to as the “EffectiveTime”) and shall make all other filings or recordings required under theDGCL in connection with the Merger.

 

SECTION 1.3          Effectsof the Merger.  The Merger shall havethe effects set forth herein and in the applicable provisions of the DGCL.Without limiting the generality of the foregoing and subject thereto, at theEffective Time, all the property, rights, privileges, immunities, powers andfranchises of the Company and Merger Sub shall vest in the SurvivingCorporation and all debts, liabilities and duties of the Company and Merger Subshall become the debts, liabilities and duties of the Surviving Corporation.

 

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SECTION 1.4          Certificateof Incorporation; By-Laws. At the Effective Time, the certificate ofincorporation of the Company shall be amended so as to read in its entirety asis set forth on Exhibit A annexed hereto, and, as so amended, shallbe the certificate of incorporation of the Surviving Corporation untilthereafter amended in accordance with its terms and as provided by Law.

 

(b)    At the Effective Time, and without anyfurther action on the part of the Company and Merger Sub, the by-laws of theCompany shall be amended so as to read in their entirety in the form as is setforth in Exhibit B annexed hereto, and, as so amended, shall be theby-laws of the Surviving Corporation until thereafter amended in accordancewith their terms, the certificate of incorporation of the Surviving Corporationand as provided by Law.

 

SECTION 1.5          Directorsand Officers. The directors of the Company immediately prior to theEffective Time shall submit their resignations to be effective as of theEffective Time. Immediately after the Effective Time, Parent shall take thenecessary action to cause the directors of Merger Sub immediately prior to theEffective Time to be the directors of the Surviving Corporation, each to holdoffice in accordance with the certificate of incorporation and by-laws of theSurviving Corporation. The officers of the Company immediately prior to theEffective Time shall be the initial officers of the Surviving Corporation, eachto hold office until the earlier of their resignation or removal.

 

ARTICLE II

 

EFFECT OF THE MERGER ON THE CAPITAL STOCKOF THE CONSTITUENT CORPORATIONS

 

SECTION 2.1          Conversionof Securities. At the Effective Time, by virtue of the Merger and withoutany action on the part of Merger Sub, the Company or the holders of any of thefollowing securities:

 

(a)  Eachshare of Class A Common Stock, par value $0.01 per share, of the Company(the “Class A Common Stock”), Class B Common Stock, par value$0.01 per share, of the Company (the “Class B Common Stock”), and Class CCommon Stock, par value $0.01 per share, of the Company (the “Class CCommon Stock” and together with the Class A Common Stock and Class BCommon Stock, the “Company Common Stock”) issued and outstandingimmediately prior to the Effective Time (other than any shares of Class ACommon Stock (“Class A Shares”), shares of Class B CommonStock (“Class B Shares”) or shares of Class C Common Stock (“Class CShares” and together with the Class A Shares and Class B Shares,the “Shares”) to be canceled pursuant to Section 2.1(b) and anyDissenting Shares (as defined in Section 2.3(a)) shall be converted intothe right to receive $100.00 (one hundred dollars) in cash (the “MergerConsideration”) payable to the holder thereof, without interest, uponsurrender of such Shares in the manner provided in Section 2.4, less anyrequired withholding taxes;

 

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(b)  EachShare held in the treasury of the Company and each Share owned by Parent,Merger Sub or any direct or indirect wholly-owned subsidiary of Parent or theCompany immediately prior to the Effective Time shall be canceled and retiredwithout any conversion thereof and no payment or distribution shall be madewith respect thereto; and

 

(c)  Eachshare of common stock of Merger Sub issued and outstanding immediately prior tothe Effective Time shall be converted into one share of common stock of theSurviving Corporation.

 

SECTION 2.2          Treatmentof Options, Restricted Shares, Stock Units, and Deferred Compensation Plans.  (a) TheCompany shall provide that, immediately prior to the Effective Time, eachoption to purchase Shares (an “Option”) and each stock appreciationright (a “SAR”) granted under any Company Plan that, in each case, isoutstanding and unexercised as of the Effective Time (whether vested orunvested) shall be canceled (provided that any such Options and SARsshall be canceled by the Company only to the extent permitted by the terms ofthe Company Stock Plans (as defined in Section 3.3) and any agreementsgoverning the Options or SARs, as the case may be, and otherwise the Companyshall use its reasonable best efforts to cancel any such Options and SARs), andthe holder thereof shall receive at the Effective Time from the Company, or assoon as practicable thereafter (but in no event later than 5 days after theEffective Time) from the Surviving Corporation, in consideration for suchcancellation, an amount in cash equal to the product of (A) the number ofShares previously subject to such Option or SAR and (B) the excess, ifany, of the Merger Consideration over the exercise price per Share previouslysubject to such Option or SAR, less any required withholding taxes.

 

(b)  EachShare granted subject to vesting or other lapse restrictions pursuant to anyCompany Stock Plan (collectively, “Restricted Shares”) which isoutstanding immediately prior to the Effective Time shall vest and become freeof such restrictions as of the Effective Time to the extent provided by theterms thereof (as such plans may be amended prior to the Effective Time inaccordance with the terms hereof) and at the Effective Time the holder thereofshall, subject to this Article II, be entitled to receive the MergerConsideration with respect to each such Restricted Share, less any requiredwithholding taxes.

 

(c)  TheCompany shall provide that, immediately prior to the Effective Time, each awardof a right under any Company Stock Plan or Deferred Compensation Plan entitlingthe holder thereof to Restricted Shares, Shares or cash equal to or based onthe value of Shares (including any right to “Deferred Common Stock” pursuantto, and as such term is defined in, the Company’s Key Employee Bonus Plan)(collectively, “Stock Units”) which, in each case, is outstanding as ofthe Effective Time (whether vested or unvested) shall be canceled by theCompany (provided that any such Stock Unit shall be canceled by theCompany only to the extent permitted by the terms of the Company Stock Plans,the Deferred Compensation Plans and any agreements governing the Stock Units,and otherwise the Company shall use its reasonable best efforts to cancel anysuch Stock Units) and the holder thereof shall be entitled to receive at theEffective Time from the

 

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Company,or as soon as practicable thereafter (but in no event later than 5 days afterthe Effective Time) from the Surviving Corporation, in consideration for suchcancellation, an amount in cash equal to the product of (A) the number ofShares previously subject to such Stock Unit and (B) the MergerConsideration, less any required withholding taxes.

 

(d)  Allaccount balances under the Company’s Key Employee Bonus Plan, Key EmployeeDeferred Compensation Plan and Deferred Compensation Plan for Non-EmployeeDirectors (collectively, the “Deferred Compensation Plans”) will be paidout in cash to participants therein by the Company at the Effective Time, or assoon as practicable thereafter (but in no event later than 5 days after theEffective Time) by the Surviving Corporation, less any required withholdingtaxes.

 

SECTION 2.3          DissentingShares. (a) Notwithstanding anything in this Agreement to thecontrary, Shares that are issued and outstanding immediately prior to theEffective Time and which are held by holders of Shares who have not voted infavor of or consented to the Merger and who have properly demanded andperfected their rights to be paid the fair value of such Shares in accordancewith Section 262 of the DGCL (the “Dissenting Shares”) shall not beconverted into the right to receive the Merger Consideration, and the holdersthereof shall be entitled to only such rights as are granted by Section 262of the DGCL; provided, however, that if any such holder shallfail to perfect or shall effectively waive, withdraw or lose such holder’srights under Section 262 of the DGCL, such holder’s shares of CompanyCommon Stock shall thereupon be deemed to have been converted, at the EffectiveTime, into the right to receive the Merger Consideration, as set forth in Section 2.1of this Agreement, without any interest thereon.

 

(b)  TheCompany shall give Parent (i) prompt notice of any appraisal demandsreceived by the Company, withdrawals thereof and any other instruments servedpursuant to Section 262 of the DGCL and received by the Company and (ii) theopportunity to direct all negotiations and proceedings with respect to theexercise of appraisal rights under Section 262 of the DGCL. The Companyshall not, except with the prior written consent of Parent or as otherwiserequired by applicable Law, make any payment with respect to any such exerciseof appraisal rights or offer to settle or settle any such rights.

 

SECTION 2.4          Surrenderof Shares.  (a) Prior to the Effective Time, Merger Sub shallenter into an agreement with the Company’s transfer agent (or another entityreasonably acceptable to the Company) to act as agent for the stockholders ofthe Company in connection with the Merger (the “Paying Agent”) and toreceive the Merger Consideration to which the stockholders of the Company shallbecome entitled pursuant to this Article II. At the Effective Time, Parentshall deposit (or cause to be deposited) with the Paying Agent sufficient fundsto make all payments pursuant to Section 2.4(b). Such funds may beinvested by the Paying Agent as directed by Merger Sub or, after the EffectiveTime, the Surviving Corporation; provided that (i) no suchinvestment or losses thereon shall affect the Merger Consideration payable tothe holders of Company Common Stock and following any losses Parent shallpromptly provide additional funds to the Paying Agent for the benefit of thestockholders of the Company in the amount of

 

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anysuch losses and (ii) such investments shall be in short-term obligationsof the United States of America with maturities of no more than 30 days orguaranteed by the United States of America and backed by the full faith andcredit of the United States of America or in commercial paper obligations ratedA-1 or P-1 or better by Moody’s Investors Service, Inc. or Standard &Poor’s Corporation, respectively. Any interest or income produced by suchinvestments will be payable to the Surviving Corporation or Parent, as Parentdirects.

 

(b)  Promptlyafter the Effective Time, the Surviving Corporation shall cause to be mailed toeach record holder, as of the Effective Time, of (i) an outstandingcertificate or certificates which immediately prior to the Effective Timerepresented Shares (the “Certificates”) or (ii) Shares representedby book-entry (“Book-Entry Shares”), a form of letter of transmittal(which shall be in customary form and shall specify that delivery shall beeffected, and risk of loss and title to the Certificates shall pass, only uponproper delivery of the Certificates to the Paying Agent or, in the case ofBook-Entry Shares, upon adherence to the procedures set forth in the letter oftransmittal or have such other provisions as Parent may reasonably specify) andinstructions for use in effecting the surrender of the Certificates or, in thecase of Book-Entry Shares, the surrender of such Shares for payment of theMerger Consideration therefor. Upon surrender to the Paying Agent of aCertificate or of Book-Entry Shares, together with such letter of transmittal,duly completed and validly executed in accordance with the instructionsthereto, and such other documents as may be required pursuant to suchinstructions, the holder of such Certificate or Book-Entry Shares shall beentitled to receive in exchange therefor the Merger Consideration for eachShare formerly represented by such Certificate or Book-Entry Shares and suchCertificate or book-entry shall then be canceled. No interest shall be paid oraccrued for the benefit of holders of the Certificates or Book-Entry Shares onthe Merger Consideration payable in respect of the Certificates or Book-EntryShares. If payment of the Merger Consideration is to be made to a person otherthan the person in whose name the surrendered Certificate is registered, itshall be a condition of payment that the Certificate so surrendered shall beproperly endorsed or shall be otherwise in proper form for transfer and thatthe person requesting such payment shall have paid any transfer and other Taxesrequired by reason of the payment of the Merger Consideration to a person otherthan the registered holder of the Certificate surrendered or shall haveestablished to the satisfaction of the Surviving Corporation that such Taxeither has been paid or is not applicable. Until surrendered as contemplated bythis Section 2.4(b), each Certificate and each Book-Entry Share shall bedeemed at any time after the Effective Time to represent only the right toreceive upon such surrender the applicable Merger Consideration as contemplatedby this Article II.

 

(c)  Atany time following the date that is twelve months after the Effective Time, theSurviving Corporation shall be entitled to require the Paying Agent to deliverto it any funds (including any interest received with respect thereto) whichhave been made available to the Paying Agent and which have not been disbursedto holders of Certificates or Book-Entry Shares and thereafter such holdersshall be entitled to look to Parent and the Surviving Corporation (subject toabandoned property, escheat or other similar laws) only as general creditorsthereof with respect to the Merger Consideration

 

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payableupon due surrender of their Certificates or Book-Entry Shares. The SurvivingCorporation shall pay all charges and expenses, including those of the PayingAgent, in connection with the exchange of Shares for the Merger Consideration.Any Merger Consideration remaining unclaimed as of a date which is immediatelyprior to such time as such amounts would otherwise escheat to or becomeproperty of any Governmental Entity shall, to the extent permitted byapplicable Law, become the property of Parent free and clear of any claims orinterests of any person previously entitled thereto. Neither the SurvivingCorporation, Parent nor the Paying Agent will be liable to any person entitledto payment under this Article II for any consideration which is deliveredto a public official pursuant to any abandoned property, escheat or similarLaw.

 

(d)  Afterthe Effective Time, the stock transfer books of the Company shall be closed andthereafter there shall be no further registration of transfers of Shares thatwere outstanding prior to the Effective Time. After the Effective Time,Certificates or Book-Entry Shares presented to the Surviving Corporation fortransfer shall be canceled and exchanged for the consideration provided for,and in accordance with the procedures set forth in, this Article II.

 

(e)  Notwithstandinganything in this Agreement to the contrary, Parent, the Surviving Corporationand the Paying Agent shall be entitled to deduct and withhold from theconsideration otherwise payable to any former holder of Shares pursuant to thisAgreement any amount as may be required to be deducted and withheld withrespect to the making of such payment under applicable Tax (as defined below)Laws. To the extent that amounts are so properly withheld by the Paying Agent,the Surviving Corporation or Parent, as the case may be, such withheld amountsshall be treated for all purposes of this Agreement as having been paid to theholder of the Shares in respect of which such deduction and withholding wasmade by the Paying Agent, the Surviving Corporation or Parent, as the case maybe.

 

(f)  Inthe event that any Certificate shall have been lost, stolen or destroyed, uponthe holder’s compliance with the replacement requirements established by thePaying Agent, including, if necessary, the posting by the holder of a bond incustomary amount as indemnity against any claim that may be made against itwith respect to the Certificate, the Paying Agent will deliver in exchange forthe lost, stolen or destroyed Certificate the applicable Merger Considerationpayable in respect of the Shares represented by such Certificate pursuant tothis Article II.

 

(g)  Notwithstandinganything in this Agreement to the contrary, if, between the date of thisAgreement and the Effective Time, the issued and outstanding Shares shall havebeen changed into a different number of shares or a different class by reasonof any stock split, reverse stock split, stock dividend, reclassification,redenomination, recapitalization, split-up, combination, exchange of shares orother similar transaction, the Merger Consideration and any other dependentitems shall be appropriately adjusted to provide to the holders of the Sharesthe same economic effect as contemplated by this Agreement prior to such actionand as so adjusted shall, from and after the date of such

 

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event,be the Merger Consideration or other dependent item, subject to furtheradjustment in accordance with this Section 2.4(g).

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

TheCompany hereby represents and warrants to Parent and Merger Sub that, except asset forth on the corresponding section of the Company Disclosure Scheduledelivered by the Company to the Parent and Merger Sub prior to the execution ofthis Agreement (the “Company Disclosure Schedule”) and, with respect torepresentations and warranties other than the representations and warrantiesset forth in Section 3.3, except as disclosed in the SEC Reports (asdefined below) filed prior to the date of this Agreement (other thandisclosures referred to in “Factors That May Affect Future Results”sections of such SEC Reports):

 

SECTION 3.1          Organizationand Qualification; Subsidiaries. The Company and each of its subsidiariesis duly organized, validly existing and in good standing (with respect tojurisdictions that recognize the concept of good standing) under the laws ofthe jurisdiction of its organization and has all requisite corporate or similarpower and authority to own, lease and operate its properties and to carry onits business as it is now being conducted, except where any such failure to beso organized, existing or in good standing or to have such power or authoritywould not, individually or in the aggregate, reasonably be expected to have aMaterial Adverse Effect (as defined below). The Company and each subsidiary setforth in Section 3.1 of the Company Disclosure Schedule (each, a “MaterialSubsidiary”) is duly qualified or licensed to do business, and is in goodstanding, in each jurisdiction where the character of properties owned, leasedor operated by it or the nature of its activities makes such qualification orlicensing necessary, except for any such failure to be so qualified or licensedor in good standing which would not, individually or in the aggregate,reasonably be expected to have a Material Adverse Effect. “Material AdverseEffect”“ means any change, circumstance, effect, event or occurrence thatwould be materially adverse to the assets, liabilities, business, financialcondition or results of operations of the Company and its subsidiaries taken asa whole, other than any change or effect resulting from (i) changes ingeneral economic conditions, (ii) general changes or developments in theindustries in which the Company and its subsidiaries operate, (iii) theannouncement of this Agreement and the transactions contemplated hereby,including any termination of, reduction in or similar negative impact onrelationships, contractual or otherwise, with any customers, suppliers,distributors, partners or employees of the Company and its subsidiaries to theextent due to the announcement and performance of this Agreement or theidentity of the parties to this Agreement, or the performance of this Agreementand the transactions contemplated hereby, including compliance with thecovenants set forth herein, (iv) any actions required under this Agreementto obtain any approval or authorization under applicable antitrust orcompetition laws for the consummation of the Merger or (v) changes in anytax laws or regulations or applicable accounting regulations or principles,unless, in the

 

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caseof the foregoing clauses (i) and (ii), such changes referred to thereinhave a disproportionate effect on the Company and its subsidiaries taken as awhole relative to other participants in the industries in which the Company andits subsidiaries operate.

 

SECTION 3.2          Certificateof Incorporation and By-laws. The Company has heretofore furnished orotherwise made available to Parent a complete and correct copy of the restatedcertificate of incorporation (the “Certificate of Incorporation”) andthe by-laws (the “By-Laws”) of the Company and the organizationaldocuments of each Material Subsidiary, in each case as currently in effect. TheCertificate of Incorporation, By-Laws and other organizational documents of theCompany and each Material Subsidiary are in full force and effect and no otherorganizational documents are applicable to or binding upon the Company. TheCompany is not in violation of any provisions of its Certificate ofIncorporation or By-Laws. None of the Material Subsidiaries is in violation ofits certificate of incorporation, bylaws or other organizational document inany material respect.

 

SECTION 3.3          Capitalization

 

(a)  Theauthorized capital stock of the Company consists of (i) 100,000,000 Class AShares, (ii) 100,000,000 Class B Shares, (iii) 50,000,000 Class CShares and (iv) 50,000,000 shares of preferred stock, par value $0.01 pershare (the “Preferred Stock”), of which (x) 100,000 of such sharesare designated as Series A Junior Participating Preferred Stock and havebeen reserved for issuance upon the exercise of the rights distributed to theholders of Class A Common Stock pursuant to the Company’s Amended andRestated Rights Agreement, dated as of August 8, 2002 (the “Rights Plan”),between the Company and Mellon Investor Services LLC, as Rights Agent, (y) 100,000of such shares are designated as Series B Junior Participating PreferredStock and have been reserved for issuance upon the exercise of the rightsdistributed to the holders of Class B Common Stock pursuant to the RightsPlan and (z) 50,000 of such shares are designated as Series C JuniorParticipating Preferred Stock (collectively, the “Junior ParticipatingPreferred Stock”) and have been reserved for issuance upon the exercise ofthe rights (collectively with the rights issued to holders of Class A CommonStock and Class B Common Stock pursuant to the Rights Plan, the “CompanyRights”) distributed to the holders of Class C Common Stock pursuantto the Rights Plan. As of April 28, 2005 (the “Capitalization Date”),(i) 29,525,199 shares of Class A Common Stock were issued andoutstanding, all of which were validly issued, fully paid and nonassessable andwere issued free of preemptive rights, (ii) 19,422,379 shares of Class BCommon Stock were issued and outstanding, all of which were validly issued, fullypaid and nonassessable and were issued free of preemptive rights, (iii) noshares of Class C Common Stock were outstanding and (iv) no shares ofPreferred Stock were outstanding. As of April 28, 2005, an aggregate of5,019,656 Class A Shares were reserved for issuance upon or otherwisedeliverable in connection with the grant of equity-based awards or the exerciseof outstanding Options issued pursuant to the Company’s 2005 Stock IncentivePlan, 1997 Incentive Plan and 1987 Stock Incentive Plan (the “Company StockPlans”) and the Deferred Compensation Plans. Section 3.3(a) ofthe Company Disclosure Schedule sets forth, as of the date specified thereon,each equity-based award and Option outstanding

 

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underthe Company Stock Plans or Deferred Compensation Plans, as applicable, thenumber of shares issuable thereunder and the vesting schedules, expiration dateand exercise or conversion price relating thereto. From the close of businesson the Capitalization Date until the date of this Agreement, no shares ofCompany Common Stock or Preferred Stock have been issued, except for Class AShares issued pursuant to the exercise of Options in accordance with theirterms (and the issuance of Company Rights attached to such Shares). Except asset forth above, as of the date hereof: (A) there are no outstandingoptions or other rights of any kind which obligate the Company or any of itssubsidiaries to issue or deliver any shares of capital stock, voting securitiesor other equity interests of the Company or any securities or obligationsconvertible into or exchangeable into or exercisable for any shares of capitalstock, voting securities or other equity interests of the Company(collectively, “Company Securities”); (B) there are no outstandingobligations of the Company or any of its subsidiaries to repurchase, redeem orotherwise acquire any Company Securities; and (C) there are no otheroptions, calls, warrants or other rights, agreements, arrangements orcommitments of any character relating to the issued or unissued capital stockof the Company to which the Company or any of its subsidiaries is a party.

 

(b)  Eachof the outstanding shares of capital stock, voting securities or other equityinterests of each Material Subsidiary is duly authorized, validly issued, fullypaid, nonassessable and free of any preemptive rights, and all such securitiesare owned by the Company or another wholly-owned subsidiary of the Company andare owned free and clear of all options, rights of first refusal, agreements,limitations on voting, dividend or transfer rights, or any lien, pledge,charge, mortgage, encumbrance, adverse rights or claims or security interestsof any nature or kind whatsoever (each, a “Lien”). There are no (i) outstandingoptions or other rights of any kind which obligate the Company or any of itssubsidiaries to issue or deliver any shares of capital stock, voting securitiesor other equity interests of any Material Subsidiary or any securities orobligations convertible into or exchangeable into or exercisable for any sharesof capital stock, voting securities or other equity interests of a MaterialSubsidiary, (ii) outstanding obligations of the Company or any of itssubsidiaries to repurchase, redeem or otherwise acquire any securities orobligations convertible into or exchangeable into or exercisable for any sharesof capital stock, voting securities or other equity interests of a MaterialSubsidiary; or (iii) other options, calls, warrants or other rights,agreements, arrangements or commitments of any character relating to the issuedor unissued capital stock of any Material Subsidiary to which the Company orany of its Material Subsidiaries is a party. None of the subsidiaries of theCompany owns any Shares.

 

(c)  Asof the date of this Agreement, the only principal amount of outstandingindebtedness for borrowed money of the Company and its subsidiaries (notincluding intercompany amounts or operating or capital leases) is (i) $187,500,000Class A Floating Rate Asset Backed Certificates, Series 2000-1, issuedby the Neiman Marcus Group Credit Card Master Trust, (ii) $125,000,000 ofthe Company’s 6.65% Senior Notes Due 2008, and (iii) $125,000,000 of theCompany’s 7.125% Senior Debentures Due 2028. As of the date of this Agreement,there are no outstanding amounts under (A) the

 

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Company’s$350,000,000 Credit Agreement, dated as of June 9, 2004, with certainlenders and agents named therein, (B) the Credit Agreement, dated as of November 2,2001, between Gurwitch Products, L.L.C. and JPMorgan Chase Bank, as amended or (C) theagreement, dated as of January 6, 2003, between Kate Spade LLC and HSBCBank USA, as amended.

 

SECTION 3.4          Authority.The Company has all necessary corporate power and authority to execute anddeliver this Agreement, to perform its obligations hereunder and to consummatethe transactions contemplated hereby. The execution, delivery and performanceof this Agreement by the Company and the consummation by the Company of thetransactions contemplated hereby have been duly and validly authorized by allnecessary corporate action and no other corporate proceedings on the part ofthe Company are necessary to authorize this Agreement or to consummate thetransactions so contemplated (other than adoption of this Agreement by theholders of at least a majority in combined voting power of the outstandingShares (the “Company Requisite Vote”), and the filing with the Secretaryof State of the State of Delaware of the Certificate of Merger as required bythe DGCL). This Agreement has been duly and validly executed and delivered bythe Company and, assuming the due authorization, execution and delivery hereofby Parent and Merger Sub, constitutes a legal, valid and binding obligation ofthe Company enforceable against the Company in accordance with its terms,subject to the effects of bankruptcy, insolvency, fraudulent conveyance,reorganization, moratorium and other similar laws relating to or affectingcreditors’ rights generally, general equitable principles (whether consideredin a proceeding in equity or at law) and any implied covenant of good faith andfair dealing. The Board of Directors of the Company has unanimously authorizedthe execution, delivery and performance of this Agreement and approved theconsummation of the transactions contemplated hereby, and taken all corporateactions required to be taken by the Board of Directors of the Company for theconsummation of the transactions, including the Merger, contemplated hereby.The Board of Directors of the Company has unanimously, by resolutions dulyadopted at a meeting duly called and held (i) approved, and declaredadvisable, the agreement of merger (within the meaning of Section 251 ofthe DGCL) contained within this Agreement, (ii) determined that theterms of this Agreement are fair to, and in the best interests of, the Companyand its stockholders, and (iii) subject to Section 6.1(a),recommended that the stockholders of the Company adopt this Agreement at theStockholders Meeting, which resolutions have not as of the date hereof beensubsequently rescinded, modified or withdrawn in any way. The only votes of thestockholders of the Company required to adopt this Agreement and approve thetransactions contemplated hereby are the Company Requisite Vote.

 

SECTION 3.5          NoConflict; Required Filings and Consents. (a) The execution, deliveryand performance of this Agreement by the Company do not and will not(i) conflict with or violate the Certificate of Incorporation, By-Laws ofthe Company, (ii) conflict with or violate the certificate ofincorporation, bylaws or other constituent documents of the subsidiaries of theCompany, (iii) assuming that all consents, approvals and authorizationscontemplated by clauses (i) through (v) of subsection (b) belowhave been obtained, and all filings described in such clauses have been made,conflict with or

 

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violateany federal, state, local or foreign statute, law, ordinance, rule, regulation,order, judgment, decree or legal requirement (“Law”) applicable to theCompany or any of its subsidiaries or by which its or any of their respectiveproperties are bound or (iv) (A) result in any breach or violation ofor constitute a default (or an event which with notice or lapse of time or bothwould become a default) or result in the loss of a benefit under, or (B) giverise to any right of termination, cancellation, amendment or acceleration of or(C) result in the creation of any Lien on any of the properties or assetsof the Company or its subsidiaries under, any loan or credit agreement, note,bond, mortgage, indenture, contract, agreement, lease, license, permit or otherinstrument or obligation (each, a “Contract”) to which the Company orany of its subsidiaries is a party or by which the Company or any of itssubsidiaries or its or any of their respective properties are bound, except, inthe case of clauses (iii) and (iv), for any such conflict, violation,breach, default, loss, right or other occurrence which would not, individuallyor in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(b)  Theexecution, delivery and performance of this Agreement by the Company and theconsummation of the Merger by the Company do not and will not require anyconsent, approval, authorization or permit of, action by, filing with ornotification to, any federal, state, local or foreign governmental orregulatory (including stock exchange) authority, agency, court commission, orother governmental body (each, a “Governmental Entity”), except for(i) applicable requirements of the Securities Exchange Act of 1934, asamended (the “Exchange Act”) and the rules and regulationspromulgated thereunder (including the filing of the Proxy Statement (as definedbelow)), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended(the “HSR Act”), and state securities, takeover and “blue sky” laws, (ii) theapplicable requirements of the New York Stock Exchange, (iii) the filingwith the Secretary of State of the State of Delaware of the Certificate ofMerger as required by the DGCL, (iv) the applicable requirements ofantitrust or other competition laws of jurisdictions other than the UnitedStates or investment laws relating to foreign ownership (“Foreign AntitrustLaws”) and (v) any such consent, approval, authorization, permit,action, filing or notification the failure of which to make or obtain wouldnot, (A) prevent or materially delay the Company from performing itsobligations under this Agreement in any material respect or (B) individuallyor in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

SECTION 3.6          Compliance.Neither the Company nor any of its subsidiaries is (and has not been since July 31,2004) in violation of any Law applicable to the Company or any of itssubsidiaries or by which its or any of their respective properties are bound(including, without limitation, Laws relating to consumer finance or theextension of credit), except for any such violation which would not,individually or in the aggregate, reasonably be expected to have a MaterialAdverse Effect; and the Company and its subsidiaries have all grants,easements, variances, certificates, permits, licenses, authorizations,exemptions, orders, consents, approvals and franchises (“Licenses”) fromGovernmental Entities required to conduct their respective businesses as nowbeing conducted and all such Licenses are valid and in full force and effect,except for any such Licenses the absence of which, or the failure of which tobe in full force and effect,

 

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wouldnot, individually or in the aggregate, reasonably be expected to have aMaterial Adverse Effect.

 

SECTION 3.7          SECFilings; Financial Statements; No Undisclosed Liabilities. (a) TheCompany has filed or otherwise transmitted all forms, reports, statements,certifications and other documents (including all exhibits, amendments andsupplements thereto) required to be filed by it with the Securities andExchange Commission (the “SEC”) since August 1, 2003 (all suchforms, reports, statements, certificates and other documents filed since August 1,2003, collectively, the “SEC Reports”). None of the Company’ssubsidiaries is required to file periodic reports with the SEC pursuant to theExchange Act. Each of the SEC Reports, as amended, complied as to form in allmaterial respects with the applicable requirements of the Securities Act of1933, as amended (the “Securities Act”) and the rules andregulations promulgated thereunder and the Exchange Act and the rules andregulations promulgated thereunder, each as in effect on the date so filed.None of the SEC Reports contained, when filed or, if amended prior to the datehereof, as of the date of such amendment, any untrue statement of a materialfact or omitted to state a material fact required to be stated or incorporatedby reference therein or necessary in order to make the statements therein, inthe light of the circumstances under which they were made, not misleading. TheCompany has made available to Parent true, correct and complete copies of allwritten correspondence between the SEC, on the one hand, and the Company andany of its subsidiaries, on the other hand, occurring since July 31, 2004and prior to the date hereof. As of the date of this Agreement, there are nooutstanding or unresolved comments in comment letters received from the SECstaff with respect to the SEC Reports. To the knowledge of the Company, none ofthe SEC Reports is the subject of ongoing SEC review or outstanding SECcomment.

 

(b)  Theaudited consolidated financial statements of the Company (including any relatednotes thereto) included in the SEC Reports filed with the SEC have beenprepared in accordance with generally accepted accounting principles in allmaterial respects applied on a consistent basis throughout the periods involved(except as may be indicated in the notes thereto) and fairly present in allmaterial respects the consolidated financial position of the Company and itssubsidiaries at the respective dates thereof and the consolidated statements ofoperations, cash flows and changes in stockholders’ equity for the periodsindicated. The unaudited consolidated financial statements of the Company(including any related notes thereto) for all interim periods included in theSEC Reports have been prepared in accordance with generally accepted accountingprinciples in all material respects applied on a consistent basis throughoutthe periods involved (except as may be indicated in the notes thereto) andfairly present in all material respects the consolidated financial position ofthe Company and its subsidiaries at of the respective dates thereof and theconsolidated statements of operations and cash flows for the periods indicated(subject to normal period-end adjustments).

 

(c)  Sincethe enactment of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),the Company has been and is in compliance in all material respects with (i) theapplicable provisions of the Sarbanes-Oxley Act and the rules andregulations promulgated thereunder and (ii) the applicable listing andcorporate governance rules and

 

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regulationsof the NYSE.

 

(d)  TheCompany has designed disclosure controls and procedures to ensure that materialinformation relating to the Company, including its subsidiaries, is made knownto the Chief Executive Officer and the Chief Financial Officer of the Companyby others within those entities.

 

(e)  TheCompany has disclosed, based on its most recent evaluation prior to the datehereof, to the Company’s auditors and the audit committee of the Company’sBoard of Directors (i) any significant deficiencies and materialweaknesses in the design or operation of internal controls over financialreporting which are reasonably likely to adversely affect in any materialrespect the Company’s ability to record, process, summarize and reportfinancial information and (ii) any fraud or allegation of fraud, whetheror not material, that involves management or other employees who have asignificant role in the Company’s internal controls over financial reporting.As of the date hereof, to the knowledge of the Company, the Company has notreceived any complaints since July 31, 2004 regarding accounting, internalaccounting controls or auditing matters, including any such complaint regardingquestionable accounting or auditing matters.

 

(f)  Asof the date hereof, to the knowledge of the Company, the Company has notidentified any material weaknesses in the design or operation of internalcontrols over financial reporting. To the knowledge of the Company, there is noreason to believe that its auditors and its Chief Executive Officer and ChiefFinancial Officer will not be able to give the certifications and attestationsrequired pursuant to the rules and regulations adopted pursuant to Section 404of the Sarbanes-Oxley Act, when first due.

 

(g)  Thereare no outstanding loans made by the Company or any of its subsidiaries to anyexecutive officer (as defined in Rule 3b-7 under the Exchange Act) ordirector of the Company.

 

(h)  Neitherthe Company nor any of its subsidiaries has any liabilities of a naturerequired by generally accepted accounting principles to be reflected in aconsolidated balance sheet or the notes thereto, except liabilities that (i) areaccrued or reserved against in the most recent financial statements included inthe SEC Reports filed prior to the date hereof or are reflected in the notesthereto, (ii) were incurred in the ordinary course of business since thedate of such financial statements, (iii) are incurred pursuant to thetransactions contemplated by this Agreement, (iv) have been discharged orpaid in full prior to the date of this Agreement in the ordinary course ofbusiness or (v) as would not reasonably be expected to have, individuallyor in the aggregate, a Material Adverse Effect.

 

SECTION 3.8          Absenceof Certain Changes or Events. Since July 31, 2004, except ascontemplated by this Agreement, the Company and its subsidiaries have conductedtheir business in the ordinary course consistent with past practice, and, sincesuch date, there has not been: (i) any change, event, condition,development or occurrence which has had,

 

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orwould reasonably be expected to have, individually or in the aggregate, aMaterial Adverse Effect; (ii) prior to the date of this Agreement, anydeclaration, setting aside or payment of any dividend or other distribution incash, stock, property or otherwise in respect of the Company’s or any of itssubsidiaries’ capital stock, except for (x) regular quarterly cashdividends on Company Common Stock and (y) any dividend or distribution bya subsidiary of the Company to the Company or a direct or indirect wholly-ownedsubsidiary of the Company; (iii) prior to the date of this Agreement, anyredemption, repurchase or other acquisition of any shares of capital stock ofthe Company or any of its subsidiaries; (iv) prior to the date of thisAgreement, (x) any granting by the Company or any of its subsidiaries toany of their directors, officers, employees, independent contractors orconsultants of any increase in compensation or fringe benefits, except forincreases in the ordinary course of business with respect to employees who arenot directors or officers or increases required under any Company Plan, (y) anygranting to any director, officer, employee, independent contractor orconsultant of the Company or its subsidiaries of the right to receive any severanceor termination pay not provided for under any Company Plan, or (z) anyentry by the Company or any of its subsidiaries into any employment,consulting, change of control or severance agreement or arrangement with anydirector, officer, employee, independent contractor or consultant of theCompany or its subsidiaries, or any material amendment of any Company Plan; (v) priorto the date of this Agreement, any material change by the Company in itsaccounting principles, except as may be appropriate to conform to changes instatutory or regulatory accounting rules or generally accepted accountingprinciples or regulatory requirements with respect thereto; (vi) prior tothe date of this Agreement, any material Tax election made or revoked by theCompany or any of its subsidiaries or any settlement or compromise of anymaterial Tax liability by the Company or any of its subsidiaries; or (vii) priorto the date of this Agreement, any material change in tax accounting principlesby the Company or any of its subsidiaries, except insofar as may have beenrequired by applicable law.

 

SECTION 3.9          Absenceof Litigation. There are no suits, claims, actions, proceedings,arbitrations, mediations or investigations (an “Action”) pending or, tothe knowledge of the Company, threatened against the Company, any of itssubsidiaries, other than any such suit, claim, action, proceeding, arbitration,mediation or investigation that (i) does not involve, in any individualcase, a claim for monetary damages in excess of $10,000,000, (ii) wouldnot prohibit or materially restrict the Company and its subsidiaries fromoperating their business as they have historically, and (iii) would not (A) preventor materially delay the Company from performing its obligations under thisAgreement in any material respect or (B) reasonably be expected to have,individually or in the aggregate, a Material Adverse Effect. As of the datehereof, to the knowledge of the Company, no officer or director of the Companyis a defendant in any Action in connection with his or her status as an officeror director of the Company or any of its subsidiaries. As of the date hereof,neither the Company nor any of its subsidiaries nor any of their respectiveproperties is or are subject to any order, writ, judgment, injunction, decreeor award except for those that would not (A) prevent or materially delaythe Company from performing its obligations under this Agreement in anymaterial respect or (B) reasonably be expected to have, individually or inthe aggregate, a Material

 

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AdverseEffect. There are no SEC legal actions, audits, inquiries or investigations,other governmental actions, audits, inquiries or investigations by otherGovernmental Entities or material internal investigations pending or, to theknowledge of the Company, threatened, in each case regarding any accountingpractices of the Company or any of its subsidiaries or any malfeasance by anyexecutive officer of the Company.

 

SECTION 3.10        EmployeeBenefit Plans. (a) Section 3.10(a) of the Company DisclosureSchedule contains a true and complete list of each material “employeebenefit plan” (within the meaning of Section 3(3) of the EmployeeRetirement Income Security Act of 1974, as amended (“ERISA”), butexcluding any plan that is a “multiemployer plan,” as defined in Section 3(37)of ERISA (“Multiemployer Plan”)), and each other material director andemployee plan, program, agreement or arrangement, vacation or sick pay policy,fringe benefit plan, compensation, severance or employment agreement, stockbonus, stock purchase, stock option, restricted stock, stock appreciation rightor other equity-based plan, and bonus or other incentive compensation or salarycontinuation plan or policy contributed to, sponsored or maintained by or withrespect to which the Company or any of its subsidiaries has any liability(contingent or otherwise) as of the date hereof for the benefit of any current,former or retired employee, officer, consultant, independent contractor ordirector of the Company or any of its subsidiaries (collectively, the “CompanyEmployees” and such plans, programs, policies, agreements and arrangements,collectively, the “Company Plans”).

 

(b)  Withrespect to each Company Plan, the Company has made available to the Parent acurrent, accurate and complete copy thereof (or, if a plan is not written, awritten description thereof) and, to the extent applicable, (i) anyrelated trust or custodial agreement or other funding instrument, (ii) themost recent determination letter, if any, received from the Internal RevenueService (the “IRS”), (iii) any summary plan description or employeehandbook, (iv) for the most recent year (A) the Form 5500 andattached schedules, (B) audited financial statements and(C) actuarial valuation reports, if any, and (v) copies of anymaterial correspondence from the IRS, SEC, Pension Benefit GuarantyCorporation, Department of Labor (or any agency thereof) or any comparableGovernmental Entity in Canada relating to any compliance issues with respect toany Company Plan.

 

(c)  Exceptas would not, individually or in the aggregate, reasonably be expected toresult in a Material Adverse Effect, each Company Plan has been established andadministered in accordance with its terms and in compliance with the applicableprovisions of ERISA, the Internal Revenue Code of 1986, as amended (the “Code”),and other Law.

 

(d)  Section 3.10(d) ofthe Company Disclosure Schedule contains a true and complete list of eachMultiemployer Plan with respect to which the Company or any of its subsidiarieshas any liability or contributes (or has at any time contributed) or had anobligation to contribute. With respect to any such Multiemployer Plan: (i) neitherthe Company nor any of its subsidiaries has incurred any withdrawal liabilityunder Title IV of ERISA that remains unsatisfied as would have, individually orin the aggregate, a

 

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MaterialAdverse Effect, or would be subject to any such liability as would have,individually or in the aggregate, a Material Adverse Effect if, as of the EffectiveTime, the Company or any of its subsidiaries were to engage in a completewithdrawal (as defined in ERISA section 4203) or partial withdrawal (as definedin ERISA section 4205) from any such Multiemployer Plan; and (ii) to theknowledge of the Company, no such Multiemployer Plan is in reorganization orinsolvent (as those terms are defined in sections 4241 and 4245 of ERISA,respectively).

 

(e)  Exceptas would not, individually or in the aggregate, reasonably be expected toresult in a Material Adverse Effect, with respect to each Company Plan, noactions, suits or claims (other than routine claims for benefits in theordinary course) are pending or, to the knowledge of the Company, threatened.

 

(f)  Exceptas would not, individually or in the aggregate, reasonably be expected toresult in a Material Adverse Effect, (i) neither the Company nor any ofits subsidiaries has incurred any liability under Title IV of ERISA that hasnot been satisfied in full, and (ii) to the knowledge of the Company, nocondition exists that presents a risk to the Company of incurring any suchliability other than liability for premiums due the Pension Benefit GuarantyCorporation.

 

(g)  Noneof the Company Plans provides for post-employment life or health insurance,benefits or coverage for any participant, except as may be required under theConsolidated Omnibus Reconciliation Act of 1995, as amended.

 

(h)  Exceptas would not, individually or in the aggregate, be reasonably expected toresult in a Material Adverse Effect, each Company Plan which is intended to bequalified under Section 401(a) of the Code is so qualified and hasreceived a determination letter to that effect from the Internal RevenueService and, to the knowledge of the Company, no circumstances exist which wouldreasonably be expected to materially adversely affect such qualification orexemption.

 

(i)  Theexecution, delivery of and performance by the Company of its obligations underthe transactions contemplated by this Agreement will not (either alone or uponoccurrence of any additional or subsequent events) (i) constitute an eventunder any Company Plan or any trust or loan related to any of those plans oragreements that will or may result in any payment, acceleration, forgiveness ofindebtedness, vesting, distribution, increase in benefits or obligation to fundbenefits with respect to any Company Employee, or (ii) result in thetriggering or imposition of (x) any restrictions or limitations on theright of the Company or any of its subsidiaries to amend or terminate anyCompany Plan, or (y) result in “excess parachute payments” within themeaning of Section 280G(b)(1) of the Code.

 

SECTION 3.11        Laborand Employment Matters. As of the date of this Agreement, there are nounfair labor practice charges, grievances or complaints pending, or to theknowledge of the Company, threatened against the Company or any subsidiarybefore the

 

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NationalLabor Relations Board or any other labor relations tribunal or authority. As ofthe date of this Agreement, there are no strikes, work stoppages, slowdowns,lockouts, material arbitrations or material grievances, or other material labordisputes pending or, to the knowledge of the Company, threatened in writingagainst or involving the Company or any of its subsidiaries. Neither theCompany nor any of its subsidiaries is a party to any collective bargainingagreements, and there are not, to the knowledge of the Company, any unionorganizing activities concerning any Company Employees.

 

SECTION 3.12        Insurance.Except as would not, individually or in the aggregate, reasonably be expectedto have a Material Adverse Effect, (a) all material insurance policies ofthe Company and its subsidiaries are in full force and effect and provideinsurance in such amounts and against such risks the management of the Companyreasonably has determined to be prudent, taking into account the industries inwhich the Company and its subsidiaries operate, or as is sufficient to complywith applicable Law, (b) neither the Company nor any of its subsidiariesis in breach or default, and neither the Company nor any of its subsidiarieshas taken any action or failed to take any action which, with notice or thelapse of time, would constitute such a breach or default, or permit terminationor modification of, any of such insurance policies, (c) to the knowledgeof the Company, no insurer on any such policy has been declared insolvent orplaced in receivership, conservatorship or liquidation, and (d) no noticeof cancellation or termination has been received with respect to any suchpolicy.

 

SECTION 3.13        Properties.(a) Section 3.13(a) of the Company Disclosure Schedule containsa true and complete list of all real property owned by the Company or anysubsidiary (collectively, the “Owned Real Property”) and for each parcelof Owned Real Property, contains a correct street address of such Owned RealProperty.

 

(b)  Section 3.13(b) ofthe Company Disclosure Schedule contains a true and complete list of all realproperty leased, subleased, licensed or otherwise occupied (whether as tenant,subtenant or pursuant to other occupancy arrangements) by the Company or anysubsidiary (collectively, including the improvements thereon, the “LeasedReal Property”), and for each Leased Real Property, identifies the streetaddress of such Leased Real Property. True and complete copies of allagreements under which the Company or any subsidiary is the landlord,sublandlord, tenant, subtenant, or occupant (each a “Real Property Lease”)that have not been terminated or expired as of the date hereof have been madeavailable to Parent.

 

(c)  Exceptas would not have, individually or in the aggregate, a Material Adverse Effect,the Company or one of its subsidiaries has good fee simple title to all OwnedReal Property and valid leasehold estates in all Leased Real Property free andclear of all Liens, except (i) statutory liens securing payments not yetdue, (ii) such imperfections or irregularities of title, claims, liens,charges, security interests, easements, covenants and other restrictions orencumbrances as do not materially affect the use of the properties or assetssubject thereto or affected thereby or otherwise materially impair businessoperations at such properties, and (iii) mortgages, or deeds of trust,security interests or other encumbrances on title related to indebtednessreflected on the consolidated

 

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financialstatements of the Company (collectively, “Permitted Liens”).

 

(d)  Exceptas would not have, individually or in the aggregate, a Material Adverse Effect,other than the Real Property Leases, none of the Owned Real Properties or theLeased Real Properties is subject to any lease, sublease, license or otheragreement granting to any other Person any right to the use, occupancy orenjoyment of such Owned Real Property or Leased Real Property or any partthereof.

 

(e)  Exceptas would not have, individually or in the aggregate, a Material Adverse Effect,each Real Property Lease is in full force and effect and is valid andenforceable in accordance with its terms, and there is no material defaultunder any Real Property Lease either by the Company or its subsidiaries partythereto or, to the knowledge of the Company, by any other party thereto.

 

(f)  Exceptas would not have, individually or in the aggregate, a Material Adverse Effect,there does not exist any pending condemnation or eminent domain proceedingsthat affect any Owned Real Property or, to the knowledge of the Company, anysuch proceedings that affect any Leased Real Property or, to the knowledge ofthe Company, any threatened condemnation or eminent domain proceedings thataffect any Owned Real Property or Leased Real Property, and neither the Companynor its subsidiaries have received any written notice of the intention of anyGovernmental Entity or other Person to take or use any Owned Real Property orLeased Real Property.

 

SECTION 3.14        TaxMatters. (a) Except as would not, individually or in the aggregate,reasonably be expected to have a Material Adverse Effect, (i) all TaxReturns required to be filed by, or with respect to any activities of, theCompany and its subsidiaries have been timely filed (except those under validextension), (ii) all Taxes of the Company and its subsidiaries have beentimely paid except to the extent such Taxes are being contested in good faithor have been adequately provided for in accordance with generally acceptedaccounting principles, (iii) without taking into account any transactionscontemplated by this Agreement and based upon activities, including outside theordinary course of business, to date, adequate reserves in accordance withgenerally accepted accounting principles have been established by the Companyand its subsidiaries for all Taxes not yet due and payable in respect oftaxable periods ending on the date hereof, (iv) no deficiency for any Taxhas been asserted or assessed by any Governmental Entity in writing against theCompany or any of its subsidiaries (or, to the knowledge of the Company, hasbeen threatened or proposed), except for deficiencies which have been satisfiedby payment, settled or been withdrawn or which are being contested in goodfaith, (v) all Taxes required to be withheld by the Company and itssubsidiaries have been withheld and paid over to the appropriate Tax authority,(vi) neither the Company nor any of its subsidiaries has waived anystatute of limitations in respect of any Taxes or agreed to any extension oftime with respect to an assessment or deficiency for Taxes (other than pursuantto extensions of time to file Tax Returns obtained in the ordinary course), (vii) neitherthe Company nor any of its subsidiaries has received written notice of anyaction, suit, proceeding, investigation, claim or audit against, or withrespect to, any Taxes, and no such action, suit, proceeding, investigation,

 

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claimor audit is pending, (viii) there are no liens for Taxes (other than Taxesnot yet due and payable) upon any of the assets of the Company or any of itssubsidiaries, (ix) since August 1, 1998, neither the Company nor anyof its subsidiaries (A) has been a member of an affiliated group filing aconsolidated federal income tax return (other than a group the common parent ofwhich was the Company), (B) has any liability for the Taxes of any Person(other than the Company, or any subsidiary of the Company) under Treasuryregulation section 1.1502-6 (or any similar provision of state, local orforeign law) as a transferee or successor or pursuant to any indemnification,allocation or sharing agreement with respect to Taxes that could give rise to apayment or indemnification obligation (other than agreements among the Companyand its subsidiaries and other than customary Tax indemnifications contained incredit or other commercial agreements the primary purpose of which does not relateto Taxes), or (C) has distributed the stock of another company in atransaction that was purported or intended to be governed by Section 355or Section 361 of the Code, and (x) neither the Company nor any ofits subsidiaries is required to make any disclosure to the Internal RevenueService with respect to a “listed transaction” pursuant to Section 1.6011-4(b)(2) ofthe Treasury Regulations promulgated under the Code.

 

(b)  Forpurposes of this Agreement, “Taxes” shall mean any taxes of any kind,including but not limited to those on or measured by or referred to as income,gross receipts, capital, sales, use, ad valorem, franchise, profits, license,withholding, payroll, employment, excise, severance, stamp, occupation,premium, value added, property or windfall profits taxes, customs, duties orsimilar fees, assessments or charges of any kind whatsoever, together with anyinterest and any penalties, additions to tax or additional amounts imposed byany governmental authority, domestic or foreign. For purposes of thisAgreement, “Tax Return” shall mean any return, report or statementrequired to be filed with any governmental authority with respect to Taxes,including any schedule or attachment thereto or amendment thereof.

 

SECTION 3.15        ProxyStatement. None of the information supplied or to be supplied by theCompany for inclusion or incorporation by reference in the proxy statement tobe sent to the shareholders of the Company in connection with the StockholdersMeeting (such proxy statement, as amended or supplemented, the “ProxyStatement”) will, at the date it is first mailed to the stockholders of theCompany and at the time of the Stockholders Meeting or at the date of anyamendment thereof or supplement thereto, contain any untrue statement of a materialfact or omit to state any material fact required to be stated therein ornecessary in order to make the statements therein, in the light of thecircumstances under which they are made, not misleading. The Proxy Statementwill, at the date it is first mailed to stockholders and at the time of theStockholders Meeting, comply as to form in all material respects with therequirements of the Exchange Act and the rules and regulations promulgatedthereunder. Notwithstanding the foregoing, the Company makes no representationor warranty with respect to any information supplied by Parent or Merger Sub orany of their respective representatives which is contained or incorporated byreference in the Proxy Statement.

 

SECTION 3.16        Opinionof Financial Advisors. J.P. Morgan Securities Inc. (the

 

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“FinancialAdvisor”) has delivered to the Board of Directors of the Company itswritten opinion (or oral opinion to be confirmed in writing), dated as of thedate hereof, that, as of such date, the Merger Consideration is fair, from afinancial point of view, to the holders of the Class A Common Stock and Class BCommon Stock (other than members of the Smith Family Group).

 

SECTION 3.17        Brokers.No broker, finder or investment banker (other than the Financial Advisor andGoldman, Sachs & Co., true and complete copies of whose engagementagreements have been provided to Parent) is or will become entitled to anybrokerage, finder’s or other fee or commission in connection with thetransactions contemplated by this Agreement based upon arrangements made by or onbehalf of the Company or any of its subsidiaries.

 

SECTION 3.18        TakeoverStatutes; Rights Plans. (a) Assuming the accuracy of therepresentations and warranties of Parent and Merger Sub set forth in Section 4.9,no “fair price”, “moratorium”, “control share acquisition”, “businesscombination” or other similar antitakeover statute or regulation enacted understate or federal laws in the United States applicable to the Company, includingSection 203 of the DGCL, is applicable to the Merger or the other transactionscontemplated hereby.

 

(b)  Priorto the date of this Agreement, the Company has amended the Rights Plan so that (a) neitherthe execution, delivery or performance of this Agreement nor the consummationof the transactions contemplated hereby will (i) cause the Company Rightsto become exercisable, (ii) cause Parent or any of its Affiliates orAssociates (each as defined in the Rights Plan) to become an Acquiring Person(as defined in the Rights Plan) or (iii) give rise to a Distribution Dateor Stock Acquisition Date (each as defined in the Rights Plan), and (b) theCompany Rights will expire in their entirety immediately prior to the EffectiveTime without any payment being made in respect thereof. The Company has madeavailable to Parent a complete and correct copy of such amendment.

 

SECTION 3.19        IntellectualProperty. Section 3.19 of the Company Disclosure Schedule contains atrue and complete list of all material U.S. and foreign Intellectual Propertyregistrations and applications for registration and all material unregisteredIntellectual Property owned by the Company or its subsidiaries. Except as wouldnot reasonably be expected to have, individually or in the aggregate, aMaterial Adverse Effect: (i) the Company and its subsidiaries own (freeand clear of all Liens other than those exceptions listed in Section 3.13)or have the right to use all patents, inventions, copyrights, software,trademarks, service marks, brand names, logos, domain names, trade dress, tradesecrets, know-how, confidential or proprietary information (and allapplications, registrations, continuations, divisionals, renewals and reissuesrelating thereto) and all other intellectual property rights of any kind ornature arising under U.S. or foreign law (“Intellectual Property”) asare necessary for their businesses as currently conducted; (ii) suchIntellectual Property does not infringe, dilute or misappropriate theIntellectual Property of any third party and, to the knowledge of the Company,is not being infringed, misappropriated or diluted by any third party; (iii) theCompany and its subsidiaries make reasonable efforts to protect and maintaintheir Intellectual Property

 

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andthe security of their systems and software; (iv) neither the Company norany of its subsidiaries is a party to any claim, suit or other action, and tothe knowledge of the Company, no claim, suit or other action is threatened,that challenges the validity, enforceability, ownership, or right to use, sellor license their Intellectual Property; and (v) to the knowledge of theCompany, neither the Company or any of its subsidiaries have suffered anymaterial violation of the security of their systems or software.

 

SECTION 3.20        EnvironmentalMatters. (a) Except as would not reasonably be expected to have,individually or in the aggregate, a Material Adverse Effect: (i) theCompany and each of its subsidiaries have complied and currently comply withall applicable Environmental Laws (as defined below), and possess and havepossessed and comply and have complied with all applicable EnvironmentalPermits (as defined below) required under such laws to operate as the Companyand its subsidiaries presently operate; (ii) to the knowledge of theCompany, there are no Materials of Environmental Concern (as defined below) atany property owned or operated by the Company or any of its subsidiaries, undercircumstances that are reasonably likely to result in liability of the Companyor any of its Significant Subsidiaries under any applicable Environmental Law; (iii) neitherthe Company nor any of its subsidiaries has received any written notificationrequesting information under or alleging that it may have liability pursuant toany Environmental Law concerning any release or threatened release of Materialsof Environmental Concern at any location; and (iv) neither the Company norany of its subsidiaries has received any written claim, notice or complaint, orbeen subject to any proceeding, relating to noncompliance with EnvironmentalLaws or any other liabilities or obligations arising from Materials ofEnvironmental Concern or pursuant to Environmental Laws, and no such matter hasbeen threatened to the knowledge of the Company.

 

(b)  The Company has made available to Parent copies of allmaterial environmental, health and safety reports, audits, assessments or othermaterial communications or documentation relating to environmental, health orsafety matters in its possession relating to the Company and any of the Company’ssubsidiaries and any real property owned, operated or leased by or for theCompany or any subsidiary of the Company, including but not limited to anyPhase I or Phase II Environmental Site Assessments, asbestos surveys orabatement reports, indoor air quality studies or remediation reports, in anycase to the extent any of the issues identified in such reports, audits,assessments or other material communications or documentation would reasonablybe expected to result in a material liability to the Company or itssubsidiaries.

 

(c)  Notwithstandingany other representations and warranties in this Agreement, the representationsand warranties in this Section 3.20 are the only representations andwarranties in this Agreement with respect to Environmental Laws or Materials ofEnvironmental Concern.

 

(d)  For purposes of this Agreement, the following termsshall have the meanings assigned below:

 

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|   | “Environmental  Laws” shall mean all applicable Laws relating to the protection of (i) indoor  or ambient air, soil, surface water or groundwater, or natural resources,  (ii) human health and safety as affected by exposure to Materials of  Environmental Concern or (iii) the use and occupancy of structures or  buildings with respect to the presence or management of Materials of  Environmental Concern.

 

“Environmental  Permits” shall mean all permits, licenses, registrations, and other  authorizations required under applicable Environmental Laws.

 

“Materials  of Environmental Concern” shall mean any material, substance or waste  defined and regulated as hazardous, toxic, pollutant, contaminant or words of  similar meaning under Environmental Laws, petroleum, petroleum byproducts or  waste products, asbestos, PCBs, mold of the type and in concentrations that  would reasonably be likely to affect human health or occupation or use of any  owned or leased real property, or formaldehyde. |
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SECTION 3.21        Contracts.

 

(a)      As ofthe date hereof, except for this Agreement, none of the Company or any of itssubsidiaries is a party to or bound by any Contract:

 
| (i)    | that  would be required to be filed by the Company as a “material contract”  pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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| (ii)   | containing  covenants binding upon the Company or any of its subsidiaries that materially  restrict the ability of the Company or any of its subsidiaries (or which,  following the consummation of the Merger, could materially restrict the  ability of the Surviving Corporation) to compete in any business or with any  person or in any geographic area that could reasonably be expected to be  material to the Company and its subsidiaries, taken as a whole, except for  Real Property Leases and any such Contract that may be canceled without any  penalty or other liability to the Company or any of its subsidiaries upon  notice of 60 days or less; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (iii)  | with  respect to a joint venture, partnership, limited liability or other similar  agreement or arrangement (excluding information technology  Contracts) relating to the formation, creation, operation, management or  control of any partnership or joint venture that is material to the business  of the Company and the subsidiaries, taken as a whole;                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (iv)   | other  than among wholly-owned subsidiaries of the Company, relating to  (A) indebtedness for borrowed money and having an outstanding principal  amount in excess of $10,000,000 or (B) conditional sale arrangements or  interest rate or currency hedging activities, in each case in connection with  which the aggregate actual or contingent obligations of the Company and its  subsidiaries under such Contract are greater than $10,000,000;                                                                                                                                                                                                       |

 

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| (v)    | entered  into after July 31, 2004 or not yet consummated for the acquisition or  disposition, directly or indirectly (by merger or otherwise), of assets or  capital stock or other equity interests of another person for aggregate  consideration under such Contract in excess of $20,000,000 (other than  acquisitions or dispositions of assets in the ordinary course of business,  including acquisitions and dispositions of inventory); |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (vi)   | which  by its terms calls for aggregate payments by the Company and its subsidiaries  under such Contract of more than $20,000,000 over the remaining term of such  Contract (other than this Agreement, purchase orders for the purchase of  inventory in the ordinary course of business or Real Property Leases); or                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (vii)  | with  respect to any acquisition pursuant to which the Company or any of its  subsidiaries has continuing indemnification, “earn-out” or other contingent  payment obligations, in each case, that would reasonably be expected to  result in payments in excess of $10,000,000.                                                                                                                                                            |

 

Eachsuch Contract described in clauses (i) through (vii) is referred toherein as a “Material Contract”.

 

(b)  Each of the Material Contracts isvalid and binding on the Company and each of its subsidiaries party theretoand, to the knowledge of the Company, each other party thereto, and is in fullforce and effect, except for such failures to be valid and binding or to be infull force and effect that would not, individually or in the aggregate,reasonably be expected to have a Material Adverse Effect. There is no defaultunder any Material Contract by the Company or any of its subsidiaries or, tothe knowledge of the Company, by any other party, and no event has occurredthat with the lapse of time or the giving of notice or both would constitute adefault thereunder by the Company or any of its subsidiaries or, to theknowledge of the Company, by any other party, in each case except as would not,individually or in the aggregate, reasonably be expected to have a MaterialAdverse Effect.

 

SECTION 3.22        AffiliateTransactions. No executive officer or director of the Company or any of itssubsidiaries or any person who beneficially owns 5% or more of the CompanyCommon Stock (or any of such person’s immediate family members or affiliates)is a party to any Contract with or binding upon the Company or any of itssubsidiaries or any of their respective properties or assets or has anymaterial interest in any material property owned by the Company or any of itssubsidiaries or has engaged in any material transaction with any of theforegoing within the last twelve months, in each case, that is of the type thatwould be required to be disclosed under Item 404 of Regulation S-K under theSecurities Act.

 

SECTION 3.23        NoOther Representations or Warranties. Except for the representations andwarranties contained in this Article III, each of Parent and Merger Subacknowledges that neither the Company nor any other person on behalf of the

 

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Companymakes any other express or implied representation or warranty with respect tothe Company or with respect to any other information provided to Parent orMerger Sub in connection with the transaction contemplated hereunder. Neitherthe Company nor any other person will have or be subject to any liability orindemnification obligation to Parent, Merger Sub or any other person resultingfrom the distribution to Parent or Merger Sub, or Parent’s or Merger Sub’s useof, any such information, including any information, documents, projections,forecasts or other material made available to Parent or Merger Sub in certain “datarooms” or management presentations in expectation of the transactionscontemplated by this Agreement, unless any such information is expresslyincluded in a representation or warranty contained in this Article III orin the corresponding section of the Company Disclosure Schedule.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF

PARENT AND MERGER SUB

 

Parentand Merger Sub hereby, jointly and severally, represent and warrant to theCompany that, except as set forth on the corresponding section of theDisclosure Schedule delivered by Parent and Merger Sub to the Company prior tothe execution of this Agreement (the “Parent Disclosure Schedule”):

 

SECTION 4.1          Organization.Each of Parent and Merger Sub is a corporation duly organized, validly existingand in good standing under the laws of the jurisdiction in which it isincorporated and has the requisite corporate power and authority to own,operate or lease its properties and to carry on its business as it is now beingconducted, except where the failure to be so organized, existing or in goodstanding or to have such power or authority would not prevent or materiallydelay the consummation of the transactions contemplated by this Agreement.Parent owns beneficially and of record all of the outstanding capital stock ofMerger Sub free and clear of all Liens (other than any Liens created pursuantto the Financing). Prior to the date hereof, Parent has provided to the Companythe name of the “ultimate parent entity” for purposes of obtaining theapprovals of the Governmental Entities contemplated by this Agreement.

 

SECTION 4.2          Authority.Each of Parent and Merger Sub has all necessary corporate power and authorityto execute and deliver this Agreement, to perform its obligations hereunder andto consummate the transactions contemplated hereby. The execution, delivery andperformance of this Agreement by each of Parent and Merger Sub and theconsummation by each of Parent and Merger Sub of the transactions contemplatedhereby have been duly and validly authorized by all necessary action by theBoards of Directors of Parent and Merger Sub and, prior to the Effective Time,will be duly and validly authorized by all necessary action by Parent as thesole stockholder of Merger Sub, and no other corporate proceedings on the partof Parent or Merger Sub are necessary to authorize this Agreement, to performtheir respective obligations hereunder, or to consummate the transactionscontemplated hereby (other than the filing with the

 

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Secretaryof State of the State of Delaware of the Certificate of Merger as required bythe DGCL). This Agreement has been duly and validly executed and delivered byParent and Merger Sub and, assuming due authorization, execution and deliveryhereof by the Company, constitutes a legal, valid and binding obligation ofeach of Parent and Merger Sub enforceable against each of Parent and Merger Subin accordance with its terms, subject to the effects of bankruptcy, insolvency,fraudulent conveyance, reorganization, moratorium and other similar lawsrelating to or affecting creditors’ rights generally, general equitableprinciples (whether considered in a proceeding in equity or at law) and anyimplied covenant of good faith and fair dealing.

 

SECTION 4.3           NoConflict; Required Filings and Consents. The execution, delivery andperformance of this Agreement by Parent and Merger Sub, do not and will not (i) conflictwith or violate the respective certificates of incorporation or by-laws ofParent or Merger Sub, (ii) assuming that all consents, approvals andauthorizations contemplated by clauses (i) through (v) of subsection (b) belowhave been obtained, and all filings described in such clauses have been made,conflict with or violate any Law applicable to Parent or Merger Sub or by whicheither of them or any of their respective properties are bound or (iii) resultin any breach or violation of or constitute a default (or an event which withnotice or lapse of time or both would become a default) or result in the lossof a benefit under, or give rise to any right of termination, cancellation,amendment or acceleration of, any Contracts to which Parent or Merger Sub is aparty or by which Parent or Merger Sub or its or any of their respectiveproperties are bound, except, in the case of clauses (ii) and (iii), forany such conflict, violation, breach, default, acceleration, loss, right orother occurrence which would not prevent or materially delay the consummationof the transactions contemplated hereby.

 

(b)  Theexecution, delivery and performance of this Agreement by each of Parent andMerger Sub and the consummation of the transactions contemplated hereby by eachof Parent and Merger Sub do not and will not require any consent, approval,authorization or permit of, action by, filing with or notification to, anyGovernmental Entity, except for (i) the applicable requirements, if any,of the Exchange Act and the rules and regulations promulgated thereunder,the HSR Act and state securities, takeover and “blue sky” laws, (ii) theapplicable requirements of the New York Stock Exchange, (iii) the filingwith the Secretary of State of the State of Delaware of the Certificate ofMerger as required by the DGCL, (iv) the applicable requirements ofForeign Antitrust Laws and (v) any such consent, approval, authorization,permit, action, filing or notification the failure of which to make or obtainwould not prevent or materially delay the consummation of the transactionscontemplated hereby.

 

SECTION 4.4          Absenceof Litigation. There are no suits, claims, actions, proceedings,arbitrations, mediations or investigations pending or, to the knowledge ofParent, threatened against Parent or any of its subsidiaries, other than anysuch suit, claim, action, proceeding or investigation that would not, or wouldnot reasonably be expected to, prevent or materially delay the consummation ofthe transactions contemplated hereby. As of the date hereof, neither Parent norany of its subsidiaries nor any of their respective properties is or aresubject to any order, writ, judgment, injunction, decree or award that

 

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would,or would reasonably be expected to, prevent or materially delay theconsummation of the transactions contemplated hereby.

 

SECTION 4.5          ProxyStatement. None of the information supplied or to be supplied by Parent orMerger Sub for inclusion or incorporation by reference in the Proxy Statementwill, at the date it is first mailed to the stockholders of the Company and atthe time of the Stockholders Meeting or at the date of any amendment thereof orsupplement thereto, contain any untrue statement of a material fact or omit tostate any material fact required to be stated therein or necessary in order tomake the statements therein, in the light of the circumstances under which theyare made, not misleading. Notwithstanding the foregoing, Parent and Merger Submake no representation or warranty with respect to any information supplied bythe Company or any of its representatives which is contained or incorporated byreference in the Proxy Statement.

 

SECTION 4.6          Brokers.No broker, finder or investment banker (other than Credit Suisse First Boston,whose fees shall be paid by the Surviving Corporation) is entitled to anybrokerage, finder’s or other fee or commission in connection with thetransactions contemplated by this Agreement based upon arrangements made by andon behalf of Parent or Merger Sub.

 

SECTION 4.7          Financing.Parent has delivered to the Company true and complete copies of (i) (A) thecommitment letter (as the same may be amended pursuant to Section 6.10(b),the “Principal Commitment Letter”), dated as of the date hereof, betweenMerger Sub and Credit Suisse First Boston, (B) the forward underwritingcommitment letter (as the same may be amended pursuant to Section 6.10(b),the “Forward Underwriting Commitment Letter”), dated as of the datehereof, between Merger Sub and Credit Suisse First Boston LLC and (C) thecommitment letter, dated as of the date hereof, between Merger Sub and GoldmanSachs Mortgage Company (as the same may be amended pursuant to Section 6.10(b) andtogether with the Principal Commitment Letter and the Forward UnderwritingCommitment Letter, the “Debt Financing Commitments”), pursuant to whichthe financing parties thereto have agreed to lend the amounts set forth therein(the “Debt Financing”), and (ii) the equity commitment letters,dated as of the date hereof (the “Equity Financing Commitments” andtogether with the Debt Financing Commitments, the “Financing Commitments”),between Parent and Newton Holding, LLC, between Newton Holding, LLC and TPGPartners III, L.P. and TPG Partners IV, L.P. (collectively, “TPG”) andbetween Newton Holding, LLC and Warburg Pincus Private Equity VIII, L.P.,Warburg Pincus Netherlands Private Equity VIII I, C.V. and Warburg PincusGermany Private Equity VIII K.G. (collectively, “WP” and, together withTPG, the “Investors”) pursuant to which the Investors have committed toinvest the amount set forth therein (the “Equity Financing” and togetherwith the Debt Financing, the “Financing”). Except as permitted pursuantto Section 6.10(b), none of the Financing Commitments has been amended ormodified prior to the date of this Agreement, and the respective commitmentscontained in the Financing Commitments have not been withdrawn or rescinded inany respect. The Financing Commitments are in full force and effect. There areno conditions precedent or other contingencies related to the funding of thefull amount of the Financing, other than as set forth in or contemplated by the

 

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FinancingCommitments. The aggregate proceeds contemplated by the Financing Commitments,together with available cash of the Company, will be sufficient for Merger Suband the Surviving Corporation to pay the aggregate Merger Consideration and anyother repayment or refinancing of debt contemplated in this Agreement or theFinancing Commitments and to pay all related fees and expenses. As of the dateof this Agreement, Parent does not have any reason to believe that any of theconditions to the Financing will not be satisfied or that the Financing willnot be available to Merger Sub on the Closing Date.

 

SECTION 4.8          Parentand Merger Sub. (a) Each of Parent and Merger Sub has been formedsolely for the purpose of engaging in the transactions contemplated hereby andprior to the Effective Time will have engaged in no other business activitiesand will have incurred no liabilities or obligations other than as contemplatedherein.

 

(b)  Prior to the Effective Time, Parent shall deliver to theCompany a complete and correct description of its capital structure andownership and that of its equity holders (excluding the Investors). On the dateset for Closing, the Investors shall cause Merger Sub to be capitalized with aninitial capitalization of not less than $1,550,000,000. At the Closing, theInvestors and their affiliates shall, directly or indirectly, own all of theoutstanding equity securities of Parent.

 

SECTION 4.9          Ownershipof Shares. As of the date of this Agreement, none of Parent, Merger Sub ortheir respective controlled affiliates owns (directly or indirectly,beneficially or of record) any Shares and none of Parent, Merger Sub or theirrespective controlled affiliates holds any rights to acquire any Shares exceptpursuant to this Agreement.

 

SECTION 4.10                Vote/Approval Required.No vote or consent of the holders of any class or series of capital stock ofParent is necessary to approve this Agreement or the Merger or the transactionscontemplated hereby. The vote or consent of Parent as the sole stockholder ofMerger Sub (which shall have occurred prior to the Effective Time) is the onlyvote or consent of the holders of any class or series of capital stock ofMerger Sub necessary to approve this Agreement or the Merger or thetransactions contemplated hereby.

 

SECTION 4.11        NoOther Representations or Warranties. Except for the representations andwarranties contained in this Article IV, the Company acknowledges thatnone of Parent, Merger Sub or any other person on behalf of Parent or MergerSub makes any other express or implied representation or warranty with respectto Parent or Merger Sub or with respect to any other information provided tothe Company.

 

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ARTICLE V

 

CONDUCT OF BUSINESS PENDING THE MERGER

 

SECTION 5.1          Conductof Business of the Company Pending the Merger.  The Companycovenants and agrees that, during the period from the date hereof until theEffective Time, except as contemplated by this Agreement or as required by Law,or unless Parent shall otherwise agree in writing, the business of the Companyand its subsidiaries shall be conducted in its ordinary course of business andthe Company shall use its reasonable best efforts to preserve substantiallyintact its business organization, and to preserve its present relationshipswith customers, suppliers and other persons with which it has significantbusiness relations. Without limiting the generality of the foregoing, betweenthe date of this Agreement and the Effective Time, except as otherwisecontemplated by this Agreement, as set forth in Section 5.1 of the CompanyDisclosure Schedule or as required by Law, neither the Company nor any of itssubsidiaries shall without the prior written consent of Parent (which consentshall not be unreasonably withheld or delayed):

 
| (a)    | amend  or otherwise change its Certificate of Incorporation or By-laws or any  similar governing instruments or amend or grant any waiver under the Rights  Plan (provided that this clause (a) shall not prevent the Company’s  Board of Directors from taking the action set forth in the first  parenthetical in clause (ii) of Section 3(a) of the Rights  Plan);                                                                                                                                                                                                                                                                                                                                                                      |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (b)    | issue,  deliver, sell, pledge, transfer, convey, dispose of or encumber any shares of  capital stock, voting securities or other equity interest, or any options,  warrants, convertible securities or other rights of any kind to acquire or  receive any shares of capital stock, voting securities or other equity  interests (including but not limited to stock appreciation rights, phantom  stock or similar instruments) of the Company or any of its subsidiaries,  except for (A) the issuance of Shares upon the exercise of Options or in  connection with other stock-based awards outstanding as of the date hereof,  in each case, in accordance with the terms of any Company Plan, or  (B) issuances in accordance with the Rights Plan; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (c)    | declare,  set aside, make or pay any dividend or other distribution, payable in cash,  stock, property or otherwise, with respect to any of its capital stock  (except for (i) regular quarterly cash dividends on Company Common Stock  or (ii) any dividend or distribution by a subsidiary of the Company to  the Company or a direct or indirect wholly-owned subsidiary of the Company);                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (d)    | adjust,  recapitalize, reclassify, combine, split, subdivide, redeem, purchase or  otherwise acquire any shares of capital stock of the Company (other than the  acquisition of Shares tendered by employees or former employees in connection  with a cashless exercise of Options or in order to pay taxes in connection  with the exercise of Options or the lapse of restrictions in respect of  Restricted Stock or Stock Units, in each case, pursuant to the terms of a  Company Plan), or adjust, recapitalize, reclassify, combine, split or subdivide  any capital stock or other ownership interests of any of the Company’s  subsidiaries;                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (e)    | (i)   acquire or license (whether by merger, consolidation or acquisition of stock  or assets or otherwise) any corporation, partnership or other business  organization or division                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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|   | thereof  or any assets thereof or equity interests therein, other than (x) acquisitions  and licenses having a value (including the amount of any assumed  indebtedness) less than $20,000,000 in the aggregate, (y) purchases of  inventory and other assets in the ordinary course of business consistent with  past practice or as required by existing Contracts and (z) pursuant to  the exercise of the put provisions set forth in Sections 7.10(c) and  7.10(d) of the Amended and Restated Limited Liability Company Agreement  for Gurwitch Products, L.L.C., dated as of November 2, 1998, and the put  provisions (the “Kate Spade Put”) of Sections 7.10(C), 7.10(D) and  7.10(I) of the Amended and Restated Limited Liability Company Agreement  for Kate Spade LLC, dated as of February 1, 1999 (the “Kate Spade  Agreement”) (provided, that, notwithstanding anything herein to  the contrary, the Company shall not submit a proposed valuation of Kate Spade  LLC pursuant to Section 7.10(F) of the Kate Spade Agreement in excess  of the amount set forth on Section 5.1 of the Company Disclosure  Schedule); or (ii) pledge, sell, license, encumber or otherwise subject  to a Lien (other than a Permitted Lien) or dispose of (whether by merger,  consolidation or sale of stock or assets or otherwise) any corporation,  partnership or other business organization or division thereof or any assets  thereof or equity interests therein, other than (x) pledges, sales,  licenses and encumbrances for less than $20,000,000 in the aggregate, and (y) sales  or dispositions of inventory and other assets in the ordinary course of  business consistent with past practice or as required by Contracts; |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (f)    | dispose of (whether by merger, consolidation or sale of stock or  assets or otherwise) or enter into any other material transaction outside the  ordinary course of business with respect to the Company’s credit operations,  Neiman Marcus Credit Services, the Company’s proprietary card accounts or the  receivables balances thereunder or any related business, other than a  transaction (i) that would be treated as a sale under generally accepted  accounting principles and (ii) the aggregate proceeds from which shall  equal or exceed the par value of the credit card receivables (other than in  respect of any such receivables as may have been written off in the ordinary  course of business consistent with past practice prior to such a  transaction), whether securitized or not (which, for the avoidance of doubt,  shall include the outstanding unpaid indebtedness incurred by credit card  holders, including any finance charges, accrued fees, penalties or other  charges, but excluding any allowance for bad debt) (such transaction, the “Credit  Card Business Transaction”);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (g)    | (i) other than in the ordinary course of business consistent  with past practice, enter into or renew or amend in any material respect any  Contract that is or would be a Material Contract or any Real Property Lease;  (ii) authorize any material new capital expenditures which are, in the  aggregate, in excess of the Company’s capital expenditure budget set forth on  Section 5.1 of the Company Disclosure Schedule or (iii) enter into  any new line of business outside of its existing business segments;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (h)    | redeem, repurchase, prepay, defease, cancel, incur or otherwise  acquire, or modify in any material respect the terms of, any indebtedness for  borrowed money, or assume, guarantee or endorse, or otherwise become  responsible for, whether directly, contingently or otherwise, the obligations  of any person, or make any loans, advances or capital contributions to, or  investments in, or grant any security interest in any of its assets to,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

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|   | any  other person (other than a wholly-owned subsidiary of the Company), in each  case, other than (x) in the ordinary course of business consistent with  past practice, including any borrowings under the existing credit facilities  of the Company and its subsidiaries to fund working capital needs, or  (y) any letter of credit entered into in the ordinary course of business  consistent with past practice for an amount less than $10,000,000  individually or in the aggregate;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| (i)    | offer,  place or arrange any issue of debt securities or commercial bank or other  credit facilities that could be reasonably expected to compete with or impede  the Debt Financing or cause the breach of any provisions of the Debt  Financing Commitments or cause any condition set forth in the Debt Financing  Commitments not to be satisfied;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (j)    | except  as contemplated by this Agreement or except to the extent required under any  Company Plan or as required by applicable Law, (i) increase or decrease  the compensation or fringe benefits of any of its directors, officers or  employees, independent contractors or consultants (except in the ordinary  course of business with respect to independent contractors, consultants and  employees who are not directors or officers), (ii) grant any severance  or termination pay not provided for under any Company Plan, (iii) enter  into any employment, consulting, change of control or severance agreement or  arrangement with any of its present or former directors, officers or other  employees, independent contractors or consultants, enter into any collective  bargaining agreement or establish, adopt, enter into any new, or amend in any  material respect or terminate any existing Company Plan, (iv) exercise  any discretion to accelerate the vesting or payment of any compensation or  benefit under any Company Plan, (v) materially change any actuarial or  other assumption used to calculate funding obligations with respect to any  Company Plan or change the manner in which contributions to any Company Plan  are made or the basis on which such contributions are determined, or  (vi) hire or terminate any executive officer other than termination for  cause; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (k)    | make  any material change in any accounting principles, practice, policy or  procedure except as may be appropriate to conform to changes in statutory or  regulatory accounting rules or generally accepted accounting principles  or regulatory requirements with respect thereto;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (l)    | other  than in the ordinary course of business consistent with past practice or as  required by applicable Law, (i) make, change or revoke any material Tax  election or change any method of accounting, (ii) enter into any  settlement or compromise of any material Tax liability, (iii) file any  amended Tax Return with respect to any material Tax, (iv) change any  annual Tax accounting period, (v) enter into any closing agreement  relating to any material Tax, (vi) surrender any right to claim a  material Tax refund or (vii) waive or extend the statute of limitations  in respect of any material Tax (other than pursuant to extensions of time to  file Tax Returns in the ordinary course of business);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (m)    | settle  or compromise any material litigation or claim against the Company, its  subsidiaries, or any of their respective directors or officers other than  settlements or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

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|   | compromises  of litigation in the ordinary course of business consistent with past  practice which in any event (i) do not exceed, in any individual case,  $10,000,000 and (ii) would not prohibit or materially restrict the  Company and its subsidiaries from operating their business as they have  historically;                                 |
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|   |                                                                                                                                                                                                                                                                                                                                                             |
| (n)    | adopt  or enter into a plan of complete or partial liquidation, dissolution, merger,  consolidation, restructuring, recapitalization or other reorganization of the  Company or any of its subsidiaries (other than the Merger);                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                             |
| (o)    | open  or close, or commit to open or close, any retail locations other than any  such openings or closings disclosed in the SEC Reports;                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                             |
| (p)    | enter  into or amend any transaction, arrangement, understanding or Contract with  any executive officer, director or other affiliate of the Company or any of  its subsidiaries or any person beneficially owning 5% or more of the Company  Common Stock that would be required to be disclosed under Item 404 of  Regulation S-K under the Securities Act; or |
|   |                                                                                                                                                                                                                                                                                                                                                             |
| (q)    | agree  to take any of the actions described in Sections 5.1(a) through  5.1(p) or any action which, to the knowledge of the Company, would  reasonably be expected to prevent, materially delay or materially impede the  consummation of the Merger or the other transactions contemplated by this  Agreement.                                        |

 

SECTION 5.2  ConsultationRights. The Company shall keep Parent reasonably apprised of the status of,and all other material matters regarding, the Credit Card Business Transactionand the Kate Spade Put, and the Company shall consult with Parent in good faithregarding all such material matters a reasonable period of time prior to makingany payment or entering into any Contract, settlement or other bindingarrangement regarding such material matters. The Company shall afford Parentthe right to participate in any negotiation regarding such material matters tothe extent reasonably requested by Parent.

 

SECTION 5.3  Conductof Business of Parent and Merger Sub Pending the Merger. Each of Parent andMerger Sub agrees that, between the date of this Agreement and the EffectiveTime, it shall not, directly or indirectly, take any action (i) to causeits representations and warranties set forth in Article IV to be untrue inany material respect; or (ii) that would, or would reasonably be expectedto, individually or in the aggregate, prevent, materially delay or materiallyimpede the ability of Parent or Merger Sub to consummate the Merger or theother transactions contemplated by this Agreement.

 

SECTION 5.4  NoControl of Other Party’s Business. Nothing contained in this Agreementshall give Parent, directly or indirectly, the right to control or direct theCompany’s or its subsidiaries’ operations prior to the Effective Time, andnothing contained in this Agreement shall give the Company, directly orindirectly, the right to control or direct Parent’s or its subsidiaries’operations prior to the Effective Time. Prior

 

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tothe Effective Time, each of the Company and Parent shall exercise, consistentwith the terms and conditions of this Agreement, complete control andsupervision over its and its subsidiaries’ respective operations.

 

ARTICLE VI

 

ADDITIONAL AGREEMENTS

 

SECTION 6.1  StockholdersMeeting. As soon as reasonably practicable following the date of thisAgreement, the Company, acting through its Board of Directors, shall(i) take all action necessary to duly call, give notice of, convene andhold a meeting of its stockholders for the purpose of adopting this Agreement(the “Stockholders Meeting”), (ii) include in the Proxy Statement therecommendation of the Board of Directors that the stockholders of the Companyvote in favor of the adoption of this Agreement and, subject to the approval ofeach Financial Advisor, as applicable, the written opinions of the FinancialAdvisors, dated as of the date hereof, that, as of such date, the MergerConsideration is fair, from a financial point of view, to the holders of the Class ACommon Stock and Class B Common Stock (other than members of the SmithFamily Group) and (iii) use its reasonable best efforts to obtain theCompany Requisite Vote; provided that the Board of Directors of the Company mayfail to make or withdraw, modify or change such recommendation and/or may failto use such efforts (subject to the Company having (A) provided Parent atleast three business days’ prior written notice of the Company’s Board ofDirectors’ intention to do so and (B) complied with its obligations under Section 6.5in all material respects) if it shall have determined in good faith, afterconsultation with outside counsel to the Company, that such action is requiredin order for the Board of Directors to comply with its fiduciary duties underapplicable Law.

 

Notwithstandinganything to the contrary contained in this Agreement, the Company shall not berequired to hold the Stockholders Meeting if this Agreement is terminated inaccordance with Section 8.1.

 

SECTION 6.2  ProxyStatement. As soon as reasonably practicable following the date of thisAgreement, the Company shall, with the assistance and approval (not to beunreasonably withheld or delayed) of Parent, prepare and file with the SEC theProxy Statement. Parent, Merger Sub and the Company will cooperate and consultwith each other in the preparation of the Proxy Statement. Without limiting thegenerality of the foregoing, each of Parent and Merger Sub will furnish to theCompany the information relating to it required by the Exchange Act and the rules andregulations promulgated thereunder to be set forth in the Proxy Statement. TheCompany shall use its reasonable best efforts to resolve all SEC comments withrespect to the Proxy Statement as promptly as practicable after receipt thereofand to cause the Proxy Statement to be mailed to the Company’s Stockholders assoon as practicable after the Proxy Statement is cleared by the SEC. Each ofParent, Merger Sub and the Company agree to correct any information provided byit for use in the Proxy Statement which shall have become false or misleading. TheCompany shall as soon as reasonably practicable (i) notify Parent and

 

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MergerSub of the receipt of any comments from the SEC with respect to the ProxyStatement and any request by the SEC for any amendment to the Proxy Statementor for additional information and (ii) provide Parent with copies of allcorrespondence between the Company and its Representatives, on the one hand,and the SEC, on the other hand, with respect to the Proxy Statement.

 

SECTION 6.3  Resignationof Directors. At the Closing, the Company shall deliver to Parent evidencereasonably satisfactory to Parent of the resignation of all directors of theCompany and, as specified by Parent reasonably in advance of the Closing, alldirectors of each subsidiary of the Company, in each case, effective at theEffective Time.

 

SECTION 6.4  Accessto Information; Confidentiality. From the date hereof to the Effective Timeor the earlier termination of this Agreement, upon reasonable prior notice, theCompany shall, and shall use its reasonable best efforts to cause itssubsidiaries, officers, directors and employees to, afford the officers,employees, auditors and other authorized representatives of Parent and theprospective lenders involved in the Financing (and their counsel and advisors)reasonable access, consistent with applicable Law, at all reasonable times toits officers, employees, properties, offices, plants and other facilities andto all books and records of the Company and its subsidiaries, and shall furnishsuch persons with all financial, operating and other data and information asParent or the prospective lenders involved in the Financing, through theirrespective officers, employees or authorized representatives, may from time totime reasonably request. Notwithstanding the foregoing, Parent and theprospective lenders shall use their best reasonable efforts to conduct any suchinvestigation or consultation in such a manner as not to interfere unreasonablywith the business or operations of the Company or its subsidiaries or otherwiseresult in any unreasonable interference with the prompt and timely discharge bysuch employees of their normal duties. Neither the Company nor any of itssubsidiaries shall be required to provide access to or to disclose informationwhere such access or disclosure would jeopardize the attorney-client privilegeof the Company or its subsidiaries or contravene any Law or binding agreemententered into prior to the date of this Agreement (it being agreed that theparties shall use their reasonable best efforts to cause such information to beprovided in a manner that does not cause such violation or jeopardization).

 

(b)  Eachof Parent and Merger Sub will hold and treat and will cause its officers,employees, auditors and other authorized representatives to hold and treat inconfidence all documents and information concerning the Company and itssubsidiaries furnished to Parent or Merger Sub in connection with thetransactions contemplated by this Agreement in accordance with theConfidentiality Agreement, dated January 28, 2005, between the Company andWarburg Pincus LLC and the Confidentiality Agreement, dated February 4,2005, between the Company and TPG Partners IV, L.P. (collectively, the “ConfidentialityAgreements”) which Confidentiality Agreements shall remain in full forceand effect in accordance with its terms.

 

SECTION 6.5  AcquisitionProposals. (a)The Company agrees that (i) it and its officers,directors and employees shall not, (ii) its subsidiaries and itssubsidiaries’

 

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officers,directors and employees shall not and (iii) it shall use its best effortsto ensure that its and its subsidiaries’ accountants, consultants, financialadvisors, attorneys, employees and other agents, advisors and representatives (“Representatives”)shall not, (A) directly or indirectly, initiate, solicit or knowinglyencourage or facilitate any inquiries or the making of any proposal or offerwith respect to a tender offer or exchange offer, proposal for a merger,consolidation or other business combination involving the Company and itssubsidiaries or any proposal or offer to acquire in any manner an equityinterest representing a 20% or greater economic or voting interest in theCompany, or the assets, securities or other ownership interests of or in theCompany or any of its subsidiaries representing 20% or more of the consolidatedassets of the Company and its subsidiaries, other than the transactionscontemplated by this Agreement (any such proposal or offer being hereinafterreferred to as an “Acquisition Proposal”), (B) directly orindirectly, engage in any negotiations or discussions concerning, or provideaccess to its properties, books and records or any confidential information ordata to any person relating to, an Acquisition Proposal, (C) take anyaction to render the Company Rights inapplicable to an Acquisition Proposal orthe transactions contemplated thereby, exempt or exclude any person from theapplicability of the Company Rights in connection with any Acquisition Proposalor transactions contemplated thereby (provided that nothing herein shallprevent the Company’s Board of Directors from taking the action set forth inthe first parenthetical in clause (ii) of Section 3(a) of theRights Plan) or, other than as contemplated by this Agreement in connectionwith the Merger, allow the Company Rights to expire prior to their expirationdate, or take any action to exempt any person from the restrictions on “businesscombinations” contained in Section 203 of the DGCL or otherwise cause suchrestrictions not to apply or (D) waive, terminate, modify or fail toenforce any provision of any contractual “standstill” or similar obligation ofany person other than Parent or its affiliates unless the Board of Directors ofthe Company shall have determined in good faith, after consultation with itsoutside legal counsel, that such waiver, termination, modification or failureto enforce is required in order for the Board of Directors to comply with itsfiduciary duties under applicable Law. Notwithstanding the foregoing, nothingcontained in this Agreement shall prevent the Company or its Board of Directorsfrom (i) taking and disclosing to its stockholders a position contemplatedby Rule 14d-9 and Rule 14e-2(a) promulgated under the ExchangeAct (or any similar communication to stockholders in connection with the makingor amendment of a tender offer or exchange offer) or from making any legallyrequired disclosure to stockholders with regard to an Acquisition Proposal(provided that neither the Company nor its Board of Directors may recommend anyAcquisition Proposal unless permitted by Section 6.5(b) and theCompany may not fail to make or withdraw, modify or change in a manner adverseto Parent, all or any portion of its recommendation of this Agreement or theMerger unless permitted by Section 6.1(a)), (ii) prior to theadoption of this Agreement by the Company’s stockholders in accordance withthis Agreement, providing access to its properties, books and records andproviding information or data (provided that such access, information or dataalso is given to Parent to the extent not previously given to Parent) inresponse to a request therefor by a person who has made an unsolicited bonafide written Acquisition Proposal not in violation of the immediately precedingsentence if the Board of Directors receives from the person so requesting suchinformation an executed confidentiality agreement on terms substantiallysimilar to those 

 

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containedin the Confidentiality Agreements (except for such changes specificallynecessary in order for the Company to be able to comply with its obligationsunder this Agreement) or (iii) prior to the adoption of this Agreement bythe Company’s stockholders in accordance with this Agreement, engaging in anynegotiations or discussions with any person who has made an unsolicited bonafide written Acquisition Proposal not in violation of the immediately precedingsentence; if and only to the extent that in connection with the foregoingclauses (ii) and (iii), the Board of Directors of the Company shall havedetermined in good faith, after consultation with its outside legal counsel andfinancial advisors that, such action is required in order for the Board ofDirectors of the Company to comply with its fiduciary duties under applicable Lawand that such Acquisition Proposal will result in, or would reasonably beexpected to result in, a Superior Proposal. A “Superior Proposal” meansan Acquisition Proposal for more than 50% of the equity interest in, or morethan 50% of the consolidated assets of, the Company and its subsidiaries that,if accepted, is reasonably capable of being consummated, taking into accountlegal, financial, regulatory, timing and similar aspects of the proposal andthe person making the proposal and would, if consummated, result in atransaction more favorable to the Company’s stockholders from a financial pointof view than the transaction contemplated by this Agreement. The Company andits subsidiaries will and will cause their respective Representatives toimmediately cease and cause to be terminated any existing activities,discussions or negotiations with any persons conducted heretofore with respectto any Acquisition Proposal. The Company shall also promptly (and in any eventwithin 48 hours) notify Parent of the receipt of each Acquisition Proposalafter the date hereof, which notice shall include the identity of the personmaking such Acquisition Proposal and set forth in reasonable detail itsmaterial terms and conditions (including without limitation informationrelating to the financing thereof), and thereafter shall keep Parent reasonablyinformed of the status and material terms and conditions of such AcquisitionProposal and provide a copy of all written materials provided to or by theCompany in connection with such Acquisition Proposal. Except as otherwisepermitted by this Agreement, the Company and its subsidiaries shall not enterinto any Contract that is inconsistent with their respective obligations underthis Section 6.5.

 

(b)  Notwithstandinganything in this Section 6.5 to the contrary, if, at any time prior to theadoption of this Agreement by the Company’s stockholders in accordance withthis Agreement, the Company’s Board of Directors determines in good faith,after consultation with its financial advisors and outside legal counsel, inresponse to a bona fide written Acquisition Proposal that was unsolicited andthat did not otherwise result from a breach of Section 6.5(a) in anymaterial respect, that such proposal is a Superior Proposal, (i) theCompany may terminate this Agreement, (ii) its Board of Directors mayapprove or recommend such Superior Proposal to its stockholders, and/or (iii) immediatelyprior to or concurrently with the termination of this Agreement, enter into anyagreement, understanding, letter of intent or arrangement with respect to suchSuperior Proposal; provided, however, that the Company shall notterminate this Agreement or approve or recommend such Superior Proposalpursuant to this sentence, and any purported termination or approval pursuantto this sentence shall be void and of no force or effect, unless the Companyprior to or concurrently with such action pursuant

 

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tothis Section 6.5(b) pays to Parent the fee payable pursuant to Section 8.2(c);and provided, further, however, that the Company shall notexercise its right to terminate this Agreement pursuant to this Section 6.5(b) andits Board of Directors may not approve or recommend any Superior Proposalunless (A) the Company has provided a written notice to Parent (a “Noticeof Superior Proposal”) advising Parent that the Company has received aSuperior Proposal and including all information required by the penultimatesentence of Section 6.5(a) (it being understood that neither thedelivery of a Notice of a Superior Proposal nor any subsequent publicannouncement thereof in itself shall entitle Parent to terminate this Agreementpursuant to Section 8.1(e)), and (B) Parent does not, within threebusiness days following its receipt of the Notice of Superior Proposal, make anoffer that, as determined by the Board of Directors of the Company in goodfaith after consultation with its outside legal counsel and financial advisors,results in the applicable Acquisition Proposal no longer being a SuperiorProposal (provided that, during such three business day period, theCompany shall negotiate in good faith with Parent, to the extent Parent wishesto negotiate, to enable Parent to make such offer).

 

SECTION 6.6  Employmentand Employee Benefits Matters. (a) Without limiting any additionalrights that any Company Employee may have under any Company Plan, Parent shallcause the Surviving Corporation and each of its subsidiaries, for a periodcommencing at the Effective Time and ending on the second anniversary thereof,to maintain the severance-related provisions of existing Company Plans and toprovide 100% of the severance payments and benefits required thereunder to beprovided any Current Employee (as defined below) terminated during thattwenty-four month period. In respect of the annual bonus payable to the CompanyEmployees for service rendered in fiscal year 2005, Parent shall, or shallcause the Surviving Corporation to, continue to honor the terms and conditionsof and obligations (whether existing as of the date of this Agreement orthereafter) under the Company’s year 2005 annual bonus program and the award orparticipation agreements thereunder (the “2005 Bonus Program”), which2005 Bonus Program shall be administered in a manner consistent with theCompany’s historic annual bonus programs and any individual agreements withCompany Employees.

 

(b)  Withoutlimiting any additional rights that any Company Employee not covered by aCollective Bargaining Agreement and employed by the Company or any of itssubsidiaries at the Effective Time (Current Employee”) may have underany Company Plan, Parent shall cause the Surviving Corporation and each of itssubsidiaries, for the period commencing at the Effective Time and ending on thesecond anniversary thereof, to maintain for any Current Employee (i) subjectto paragraph (a) above, salary or hourly wage rate, target cash bonusopportunities under annual programs and commissions, but excluding equity andequity equivalents (collectively, “Compensation”), that in the aggregateare no less favorable than, and (ii) benefits provided under Company Plansthat in the aggregate are no less favorable than, the Compensation and benefitsmaintained for and provided to such Current Employees immediately prior to theEffective Time; provided, however, subject to the foregoing, thatnothing herein shall prevent the amendment or termination of any Company Planor interfere with the Surviving Corporation’s right or obligation to make suchchanges as are necessary to conform with applicable Law. Nothing in this Section 6.6shall limit the right of Parent, the Surviving

 

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Corporationor any of their subsidiaries to terminate the employment of any CurrentEmployee at any time.

 

(c)  Asof and after the Effective Time, Parent will, or will cause the SurvivingCorporation to, give Current Employees full credit for purposes of eligibilityand vesting (but not benefit accruals, except for vacation and severance, ifapplicable, under the Company Plans), under any employee compensation andincentive plans, benefit (including vacation) plans, programs, policies andarrangements maintained for the benefit of Current Employees as of and afterthe Effective Time by Parent, its subsidiaries or the Surviving Corporation forthe Company Employees’ service with the Company, its subsidiaries and theirpredecessor entities (each, a “Parent Plan”) to the same extentrecognized by the Company immediately prior to the Effective Time. With respectto each Parent Plan that is a “welfare benefit plan” (as defined in Section 3(1) ofERISA), the Parent or its subsidiaries shall (i) cause there to be waivedany pre-existing condition or eligibility limitations and (ii) giveeffect, for the fiscal year in which the Closing occurs, in determining anydeductible and maximum out-of-pocket limitations, to claims incurred andamounts paid by, and amounts reimbursed to, Current Employees under similarplans maintained by the Company and its subsidiaries immediately prior to theEffective Time.

 

(d)  Fromand after the Effective Time, Parent will cause the Surviving Corporation andall of their subsidiaries to honor, in accordance with its terms, (x) eachexisting employment, change in control, severance and termination plan, policyor agreement of or between the Company or any of its subsidiaries and anyofficer, director or employee of that company, (y) equity-based plans,programs or agreements, bonus plans or programs and (z) all obligationspursuant to outstanding restoration plans, equity-based plans, programs oragreements, bonus plans or programs, bonus deferral plans, vested and accruedbenefits under any employee benefit plan, program or arrangement of the Companyor its subsidiaries and similar employment compensation and benefitarrangements and agreements in effect as of the Effective Time, in each case tothe extent legally binding on the Company or any of its subsidiaries.

 

SECTION 6.7  Directors’and Officers’ Indemnification and Insurance. (a) Without limiting anyadditional rights that any employee may have under any employment agreement orCompany Plan, from the Effective Time through the sixth anniversary of the dateon which the Effective Time occurs, Parent shall, or shall cause the SurvivingCorporation to, indemnify and hold harmless each present (as of the EffectiveTime) and former officer, director or employee of the Company and itssubsidiaries in their capacity as such and not as stockholders or optionholdersof the Company or its subsidiaries (the “Indemnified Parties”), againstall claims, losses, liabilities, damages, judgments, inquiries, fines andreasonable fees, costs and expenses, including attorneys’ fees anddisbursements (collectively, “Costs”), incurred in connection with anyclaim, action, suit, proceeding or investigation, whether civil, criminal,administrative or investigative, arising out of or pertaining to (i) thefact that the Indemnified Party is or was an officer, director, employee,fiduciary or agent of the Company or any of its subsidiaries or(ii) matters existing or occurring at or prior to the Effective Time(including this

 

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Agreementand the transactions and actions contemplated hereby), whether asserted orclaimed prior to, at or after the Effective Time, to the fullest extentpermitted under applicable Law. In the event of any such claim, action, suit,proceeding or investigation, (x) each Indemnified Party will be entitledto advancement of reasonable expenses incurred in the defense of any claim,action, suit, proceeding or investigation from Parent or the SurvivingCorporation within ten business days of receipt by Parent or the SurvivingCorporation from the Indemnified Party of a reasonably detailed requesttherefor; provided that any person to whom expenses are advancedprovides an undertaking to repay such advances if it is ultimately determinedthat such person is not entitled to indemnification, (y) neither Parentnor the Surviving Corporation shall settle, compromise or consent to the entryof any judgment in any proceeding or threatened action, suit, proceeding,investigation or claim (and in which indemnification could be sought by suchIndemnified Party hereunder), unless such settlement, compromise or consentincludes an unconditional release of such Indemnified Party from all liabilityarising out of such action, suit, proceeding, investigation or claim or suchIndemnified Party otherwise consents, and (z) the Surviving Corporationshall cooperate in the defense of any such matter.

 

(b)  Thecertificate of incorporation and by-laws of the Surviving Corporation shall containprovisions no less favorable with respect to indemnification, advancement ofexpenses and exculpation of individuals who were directors and officers priorto the Effective Time than are presently set forth in the Company’s Certificateof Incorporation and By-laws, which provisions shall not be amended, repealedor otherwise modified for a period of six years from the Effective Time in anymanner that would adversely affect the rights thereunder of any suchindividuals.

 

(c)  Priorto the Effective Time, the Company shall endeavor to (and if it is unable to,Parent shall cause the Surviving Corporation to after the Effective Time)obtain and fully pay (up to a maximum cost of 300% of the current annualpremium paid by the Company for its existing coverage in the aggregate) for “tail”insurance policies (providing only for the Side A coverage for IndemnifiedParties where the existing policies also include coverage for the Company) witha claims period of at least six years from the Effective Time from an insurancecarrier with the same or better credit rating as the Company’s currentinsurance carrier with respect to directors’ and officers’ liability insurancein an amount and scope at least as favorable as the Company’s existing policieswith respect to matters existing or occurring at or prior to the EffectiveTime. Parent shall, and shall cause the Surviving Corporation to, honor andperform under (i) all indemnification agreements entered into by theCompany or any of its subsidiaries and (ii) the obligations set forth on Section 6.7(c) ofthe Company Disclosure Schedule.

 

(d)  Notwithstandinganything herein to the contrary, if any claim, action, suit, proceeding orinvestigation (whether arising before, at or after the Effective Time) is madeagainst any Indemnified Party on or prior to the sixth anniversary of theEffective Time, the provisions of this Section 6.7 shall continue ineffect until the final disposition of such claim, action, suit, proceeding orinvestigation.

 

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(e)  Thiscovenant is intended to be for the benefit of, and shall be enforceable by,each of the Indemnified Parties and their respective heirs and legalrepresentatives. The indemnification provided for herein shall not be deemedexclusive of any other rights to which an Indemnified Party is entitled,whether pursuant to Law, contract or otherwise.

 

(f)  Inthe event that the Surviving Corporation or Parent or any of their respectivesuccessors or assigns (i) consolidates with or merges into any otherperson and shall not be the continuing or surviving corporation or entity ofsuch consolidation or merger or (ii) transfers or conveys all orsubstantially all of its properties and assets to any person, then, and in eachsuch case, proper provision shall be made so that the successors and assigns ofthe Surviving Corporation or Parent, as the case may be, shall succeed to theobligations set forth in Section 6.6 and this Section 6.7. Inaddition, the Surviving Corporation shall not distribute, sell, transfer orotherwise dispose of any of its assets in a manner that would reasonably beexpected to render the Surviving Corporation unable to satisfy its obligationsunder this Section 6.7.

 

SECTION 6.8  FurtherAction; Efforts. (a) Subject to the terms and conditions of thisAgreement, each party will use its reasonable best efforts to take, or cause tobe taken, all actions and to do, or cause to be done, all things necessary,proper or advisable under applicable Law to consummate the Merger and the othertransactions contemplated by this Agreement. In furtherance and not inlimitation of the foregoing, each party hereto agrees to make an appropriatefiling of a Notification and Report Form pursuant to the HSR Act withrespect to the transactions contemplated hereby as promptly as practicable andin any event within five business days of the date hereof and to supply aspromptly as reasonably practicable any additional information and documentarymaterial that may be requested pursuant to the HSR Act and use its reasonablebest efforts to take or cause to be taken all other actions necessary, properor advisable consistent with this Section 6.8 to cause the expiration ortermination of the applicable waiting periods under the HSR Act as soon aspracticable. Without limiting the foregoing, the parties shall request andshall use reasonable best efforts to obtain early termination of the waitingperiod provided for in the HSR Act.

 

(b)  Eachof Parent and Merger Sub, on the one hand, and the Company, on the other hand,shall, in connection with the efforts referenced in Section 6.8(a) toobtain all requisite approvals and authorizations for the transactionscontemplated by this Agreement under the HSR Act or any other Antitrust Law,use its reasonable best efforts to (i) cooperate in all respects with eachother in connection with any filing or submission and in connection with anyinvestigation or other inquiry, including any proceeding initiated by a privateparty; (ii) keep the other party reasonably informed of any communicationreceived by such party from, or given by such party to, the Federal TradeCommission (the “FTC”), the Antitrust Division of the Department ofJustice (the “DOJ”) or any other U.S. or foreign Governmental Entity andof any communication received or given in connection with any proceeding by aprivate party, in each case regarding any of the transactions contemplatedhereby; and (iii) permit the other party to review any communication givenby it to, and consult with each other in advance of any meeting or conferencewith, the FTC, the DOJ or any other Governmental Entity or, in connection

 

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withany proceeding by a private party, with any other person, and to the extentpermitted by the FTC, the DOJ or such other applicable Governmental Entity orother person, give the other party the opportunity to attend and participate insuch meetings and conferences. For purposes of this Agreement, “AntitrustLaw” means the Sherman Act, as amended, the Clayton Act, as amended, theHSR Act, the Federal Trade Commission Act, as amended, and all other Laws thatare designed or intended to prohibit, restrict or regulate actions having thepurpose or effect of monopolization or restraint of trade or lessening ofcompetition through merger or acquisition.

 

(c)  Infurtherance and not in limitation of the covenants of the parties contained inSections 6.8(a) and (b), if any objections are asserted with respect tothe transactions contemplated hereby under any Antitrust Law or if any suit isinstituted (or threatened to be instituted) by the FTC, the DOJ or any otherapplicable Governmental Entity or any private party challenging any of thetransactions contemplated hereby as violative of any Antitrust Law or whichwould otherwise prevent, materially impede or materially delay the consummationof the transactions contemplated hereby, each of Parent, Merger Sub and theCompany shall use its reasonable best efforts to resolve any such objections orsuits so as to permit consummation of the transactions contemplated by thisAgreement, including in order to resolve such objections or suits which, in anycase if not resolved, would reasonably be expected to prevent, materiallyimpede or materially delay the consummation of the Merger or the othertransactions contemplated hereby, including selling, holding separate orotherwise disposing of or conducting its business in a manner which wouldresolve such objections or suits or agreeing to sell, hold separate orotherwise dispose of or conduct its business in a manner which would resolvesuch objections or suits or permitting the sale, holding separate or otherdisposition of, any of its assets or the assets of its subsidiaries or theconducting of its business in a manner which would resolve such objections orsuits. Without excluding other possibilities, the transactions contemplated bythis Agreement shall be deemed to be materially delayed if unresolvedobjections or suits delay or would reasonably be expected to delay theconsummation of the transactions contemplated hereby beyond the TerminationDate.

 

(d)  Subjectto the obligations under Section 6.8(c), in the event that anyadministrative or judicial action or proceeding is instituted (or threatened tobe instituted) by a Governmental Entity or private party challenging the Mergeror any other transaction contemplated by this Agreement, or any other agreementcontemplated hereby, each of Parent, Merger Sub and the Company shall cooperatein all respects with each other and use its respective reasonable best effortsto contest and resist any such action or proceeding and to have vacated,lifted, reversed or overturned any decree, judgment, injunction or other order,whether temporary, preliminary or permanent, that is in effect and thatprohibits, prevents or restricts consummation of the transactions contemplatedby this Agreement.

 

(e)  Notwithstandinganything to the contrary in this Agreement, in connection with obtaining anyapproval or consent from any person (other than a Governmental Entity) withrespect to the Merger, (i) without the prior written consent of Parent(which shall not be unreasonably withheld or delayed), none of the Company orany of its subsidiaries

 

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shallpay or commit to pay to such person whose approval or consent is beingsolicited any cash or other consideration, make any commitment or incur anyliability or other obligation due to such person and (ii) no party or itsaffiliates shall be required to pay or commit to pay to such person whoseapproval or consent is being solicited any cash or other consideration, makeany commitment or to incur any liability or other obligation (provided, however,that such party shall give the other parties hereto the opportunity to makesuch payments).

 

(f)  Notwithstandingthe foregoing or any other provision of this Agreement, nothing in this Section 6.8shall limit a party’s right to terminate this Agreement pursuant to Section 8.1(b) solong as such party has up to then complied in all material respects with itsobligations under this Section 6.8.

 

SECTION 6.9  PublicAnnouncements. Each of the Company, Parent and Merger Sub agrees that nopublic release or announcement concerning the transactions contemplated herebyshall be issued by any party without the prior written consent of the Companyand Parent (which consent shall not be unreasonably withheld or delayed),except as such release or announcement may be required by Law or the rules orregulations of any applicable United States securities exchange or regulatoryor governmental body to which the relevant party is subject or submits,wherever situated, in which case the party required to make the release orannouncement shall use its reasonable best efforts to allow each other partyreasonable time to comment on such release or announcement in advance of suchissuance, it being understood that the final form and content of any suchrelease or announcement, to the extent so required, shall be at the finaldiscretion of the disclosing party.

 

SECTION 6.10  Financing.(a) Prior to the Closing, the Company shall provide to Parent and MergerSub, and shall cause its subsidiaries to, and shall use its reasonable bestefforts to cause the respective officers, employees, Representatives andadvisors, including legal and accounting, of the Company and its subsidiariesto, provide to Parent and Merger Sub all cooperation requested by Parent thatis necessary, proper or advisable in connection with the Financing and theother transactions contemplated by this Agreement, including (i) participationin meetings, presentations, road shows, due diligence sessions and sessionswith rating agencies, (ii) assisting with the preparation of materials forrating agency presentations, offering documents, private placement memoranda,bank information memoranda, prospectuses and similar documents required inconnection with the Financing, (iii) executing and delivering any pledge andsecurity documents, other definitive financing documents, or othercertificates, legal opinions or documents as may be reasonably requested byParent (including a certificate of the chief financial officer of the Companyor any subsidiary with respect to solvency matters and consents of accountantsfor use of their reports in any materials relating to the Debt Financing), (iv) furnishingParent and Merger Sub and their Financing sources with financial and otherpertinent information regarding the Company as may be reasonably requested byParent, including all financial statements and financial data of the typerequired by Regulation S-X and Regulation S-K under the Securities Act and oftype and form customarily included in private placements under Rule 144Aof the Securities Act,

 

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toconsummate the offerings of debt securities contemplated by the Debt FinancingCommitments at the time during the Company’s fiscal year such offerings will bemade (the “Required Financial Information”), (v) satisfying theconditions set forth in clause (e) of the first sentence of Section 6of the Principal Commitment Letter, numbered paragraphs 5 and 8 of Exhibit Eof the Principal Commitment Letter and clause (e) of the first sentence ofSection 7 of the Forward Underwriting Commitment Letter (to the extent thesatisfaction of such conditions requires actions by or cooperation of theCompany), (vi) using reasonable best efforts to obtain accountants’comfort letters, legal opinions, surveys and title insurance as reasonablyrequested by Parent; provided that nothing herein shall require suchcooperation to the extent it would interfere unreasonably with the business oroperations of the Company or its subsidiaries, (vii) using itscommercially reasonable efforts to provide monthly financial statements(excluding footnotes) within 25 days of the end of each month prior the ClosingDate, (viii) taking all actions necessary to (A) permit theprospective lenders involved in the Financing to evaluate the Company’s currentassets, cash management and accounting systems, policies and proceduresrelating thereto for the purposes of establishing collateral arrangements and (B) establishbank and other accounts and blocked account agreements and lock boxarrangements in connection with the foregoing, (ix) obtaining anynecessary rating agencies’ confirmations or approvals for the Debt Financingrelating to the Company’s existing credit card receivables financing facility,and (x) taking all corporate actions necessary to permit the consummationof the Debt Financing and to permit the proceeds thereof to be made availableto the Company, including, without limitation, by means of a dividend ordistribution from Neiman Marcus Funding Corporation, as of the Closing Date.Parent shall, promptly upon request by the Company, reimburse the Company forall reasonable and documented out-of-pocket costs incurred by the Company orits subsidiaries in connection with such cooperation. The Company herebyconsents to the use of its and its subsidiaries’ logos in connection with theDebt Financing.

 

(b)  Parentshall use its reasonable best efforts to take, or cause to be taken, allactions and to do, or cause to be done, all things necessary, proper oradvisable to arrange the Debt Financing on the terms and conditions describedin the Debt Financing Commitments (provided that Parent and Merger Sub mayreplace or amend the Debt Financing Commitments to add lenders, lead arrangers,bookrunners, syndication agents or similar entities who had not executed theDebt Financing Commitments as of the date hereof, or otherwise so long as theterms are not materially less beneficial to Merger Sub, including with respectto conditionality, than those in the Debt Financing Commitments as in effect onthe date hereof as determined in the reasonable judgment of Parent), includingusing reasonable best efforts to (i) maintain in effect the Financingcommitments, (ii) satisfy on a timely basis all conditions applicable toParent and Merger Sub to obtaining the Financing set forth therein (includingby consummating the Equity Financing pursuant to the terms of the EquityFinancing Commitments), (iii) enter into definitive agreements withrespect thereto on the terms and conditions contemplated by the Debt Financing Commitments(including the related flex provisions) or on other terms not materially lessbeneficial to Merger Sub, including with respect to conditionality, asdetermined in the reasonable judgment of Parent and (iv) consummate theFinancing at or prior to Closing. In the event any portion of the DebtFinancing

 

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becomesunavailable on the terms and conditions contemplated in the Debt FinancingCommitments, Parent shall use its reasonable best efforts to arrange to obtainalternative financing from alternative sources in an amount sufficient toconsummate the transactions contemplated by this Agreement on terms notmaterially less beneficial to Merger Sub (as determined in the reasonablejudgment of Parent) as promptly as practicable following the occurrence of suchevent but no later than the last day of the Marketing Period. For the avoidanceof doubt, in the event that (x) all or any portion of the Debt Financingstructured as high yield financing has not been consummated, (y) allclosing conditions contained in Article VII shall have been satisfied orwaived (other than those contained in Sections 7.2(c) and 7.3(c)) and (z) thebridge facilities contemplated by the Debt Financing Commitments (oralternative bridge financing obtained in accordance with this Section 6.10(b))are available on the terms and conditions described in the Debt FinancingCommitments (or replacements thereof as contemplated by this Section 6.10(b)),then Merger Sub shall use the proceeds of such bridge financing to replace suchhigh yield financing no later than the last day of the Marketing Period. Forpurposes of this Agreement, “Marketing Period” shall mean the firstperiod of 40 consecutive calendar days after the Initiation Date (A) throughoutwhich (1) Merger Sub shall have the Required Financial Information thatthe Company is required to provide to Merger Sub pursuant to Section 6.10(a) and(2) nothing has occurred and no condition exists that would cause any ofthe conditions set forth in Section 7.2(a) and 7.2(b) to fail tobe satisfied assuming the Closing were to be scheduled for any time during such40-consecutive-calendar-day period, and (B) at the end of which theconditions set forth in Section 7.1 shall be satisfied. For purposes ofthis Agreement, “Initiation Date” shall mean the twentieth day after thedate the definitive Proxy Statement is first mailed to the Company’sstockholders; provided, however, that such twenty-day periodshall not commence unless and until the Company has provided the RequiredFinancial Information to Merger Sub pursuant to a good faith request thereforby Merger Sub prior to such mailing, and provided, further, thatif the Marketing Period would end on or after August 15, 2005, theInitiation Date shall be the later of (A) September 1, 2005 and (B) thedate the Company’s Annual Report on Form 10-K for the fiscal year ended July 31,2005 is filed with the SEC. Parent shall give the Company prompt notice of anymaterial breach by any party of the Debt Financing Commitments of which Parentor Merger Sub becomes aware or any termination of the Debt FinancingCommitments. Parent shall keep the Company informed on a reasonably currentbasis in reasonable detail of the status of its efforts to arrange the DebtFinancing and provide to the Company copies of all documents related to theDebt Financing (other than any ancillary documents subject to confidentialityagreements). In addition, Merger Sub agrees to exercise its rights under thelast sentence of numbered paragraph 6 of Exhibit E to the Principal CommitmentLetter to the extent necessary to arrange the Debt Financing on the terms andconditions described in the Debt Financing Commitments in order to borrow thefull amount available pursuant to the proviso to clause (a) of suchnumbered paragraph 6.

 

SECTION 6.11  Notification.From and after the date of this Agreement until the earlier of the EffectiveTime or the termination of this Agreement pursuant to and in accordance with Section 8.1,the Company and Parent shall promptly notify each other orally and in writingof the occurrence, or non-occurrence, of any event that, individually

 

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orin the aggregate, would make the timely satisfaction of any of the conditionsset forth in Sections 7.1, 7.2 and 7.3 impossible or unlikely. This Section 6.11shall not constitute a covenant or agreement for purposes of Section 7.2(b),7.3(b), 8.1(d) or 8.1(e).

 

ARTICLE VII

 

CONDITIONS OF MERGER

 

SECTION 7.1  Conditionsto Obligation of Each Party to Effect the Merger. The respectiveobligations of each party to effect the Merger shall be subject to thesatisfaction or waiver at or prior to the Effective Time of the followingconditions:

 

(a)  thisAgreement shall have been adopted by the stockholders of the Company by theCompany Requisite Vote;

 

(b)  noLaw (whether temporary, preliminary or permanent) shall have been enacted,entered, promulgated or enforced by any United States or state court or UnitedStates Governmental Entity which prohibits, restrains or enjoins theconsummation of the Merger; provided, however, that prior toinvoking this condition each party agrees to comply with Section 6.8; and

 

(c)  thewaiting period (and any extension thereof) applicable to the Merger under theHSR Act shall have been terminated or shall have expired.

 

SECTION 7.2  Conditionsto Obligations of Parent and Merger Sub. The obligations of Parent andMerger Sub to effect the Merger shall be further subject to the satisfaction orwaiver at or prior to the Effective Time of the following conditions:

 

(a)  (i) therepresentations and warranties set forth in Sections 3.3 (a) and 3.18shall be true and correct as of the date of this Agreement and as of theEffective Time as though made on and as of the Effective Time (except to theextent expressly made as of an earlier date, in which case as of such earlierdate), except for any failure to be true and correct that would be immaterialto Parent and Merger Sub; and (ii) the other representations andwarranties of the Company contained in this Agreement shall be true and correct(without giving effect to any limitation on any representation or warrantyindicated by the words “Material Adverse Effect”, “in all material respects”, “inany material respect”, “material” or “materially,” except for the limitationset forth in clause (i) of Section 3.8) as of the date of thisAgreement and as of the Effective Time, as though made on and as of theEffective Time (except to the extent expressly made as of an earlier date, inwhich case as of such earlier date), except where the failure of any suchrepresentations and warranties to be so true and correct would not reasonablybe expected to have, individually or in the aggregate, a Material AdverseEffect.

 

(b)  theCompany shall have performed in all material respects the obligations, andcomplied in all material respects with the agreements and covenants, requiredto be

 

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performedby, or complied with by, it under this Agreement at or prior to the EffectiveTime; and

 

(c)  Parentshall have received a certificate of the Chief Executive Officer or the ChiefFinancial Officer of the Company, certifying that the conditions set forth inSections 7.2(a) and (b) have been satisfied.

 

SECTION 7.3  Conditionsto Obligations of the Company. The obligation of the Company to effect theMerger shall be further subject to the satisfaction or waiver at or prior tothe Effective Time of the following conditions:

 

(a)  therepresentations and warranties of Parent and Merger Sub set forth in thisAgreement shall be true and correct in all material respects, in each case asof the Effective Time as though made on and as of such date (unless any suchrepresentation or warranty is made only as of a specific date, in which eventsuch representation and warranty shall be true and correct in all materialrespects as of such specified date);

 

(b)  eachof Parent and Merger Sub shall have performed in all material respects theobligations, and complied in all material respects with the agreements andcovenants, required to be performed by or complied with by it under this Agreementat or prior to the Closing Date; and

 

(c)  theCompany shall have received certificates of the Chief Executive Officer or theChief Financial Officer of each of Parent and Merger Sub, certifying that theconditions set forth in Sections 7.3(a) and (b) have been satisfied.

 

ARTICLE VIII

 

TERMINATION, AMENDMENT AND WAIVER

 

SECTION 8.1  Termination.  ThisAgreement may be terminated and the Merger contemplated hereby may be abandonedat any time prior to the Effective Time, notwithstanding adoption thereof bythe stockholders of the Company:

 

(a)  bymutual written consent of Parent, Merger Sub and the Company;

 

(b)  byParent or the Company if any court of competent jurisdiction or otherGovernmental Entity located or having jurisdiction within the United Statesshall have issued a final order, decree or ruling or taken any other finalaction restraining, enjoining or otherwise prohibiting the Merger and suchorder, decree, ruling or other action is or shall have become final andnonappealable;

 

(c)  byeither Parent or the Company if the Effective Time shall not have occurred onor before the date which is six months from the date hereof (the “TerminationDate”); provided, however, that if the Marketing Period hasnot ended on or before August 15, 2005, the Termination Date shall be theearlier of (A) the tenth business day following

 

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thefinal day of the Marketing Period and (B) December 16, 2005; providedfurther, that the right to terminate this Agreement pursuant to this Section 8.1(c) shallnot be available to the party seeking to terminate if any action of such party(or, in the case of Parent, Merger Sub) or the failure of such party (or, inthe case of Parent, Merger Sub) to perform any of its obligations under thisAgreement required to be performed at or prior to the Effective Time has beenthe cause of, or resulted in, the failure of the Effective Time to occur on orbefore the Termination Date and such action or failure to perform constitutes abreach of this Agreement; and providedfurther, that, if on adate that otherwise would have been a Termination Date the conditions set forthin Section 7.1(c) are the only conditions in Article VII, otherthan conditions that cannot be satisfied until the Closing, that shall not havebeen satisfied on such date, either Parent or the Company may unilaterallyextend the Termination Date by three months, in which case the Termination Dateshall be deemed for all purposes to be such later date;

 

(d) bythe Company (i) if there shall have been a breach of any representation,warranty, covenant or agreement on the part of Parent or Merger Sub containedin this Agreement such that the condition set forth in Sections 7.3(a) or7.3(b) would not be satisfied and, in either such case, such breach is notcapable of being cured or, if capable of being cured, shall not have been curedprior to the earlier of (A) 20 business days following notice of suchbreach to Parent, (B) the Termination Date and (C) with respect toany breach by Parent or Merger Sub in connection with obtaining the proceedspursuant to the Financing or using such proceeds as contemplated hereunder, thefinal day of the Marketing Period; provided that the Company shall nothave the right to terminate this Agreement pursuant to this Section 8.1(d)(i) ifthe Company is then in material breach of any of its covenants or agreementscontained in this Agreement, or (ii) prior to the adoption of thisAgreement by the stockholders of the Company, in accordance with, and subjectto the terms and conditions of, Section 6.5(b);

 

(e)  byParent (i) if there shall have been a breach of any representation,warranty, covenant or agreement on the part of the Company contained in thisAgreement such that the conditions set forth in Sections 7.2(a) or 7.2(b) wouldnot be satisfied and, in either such case, such breach is not capable of beingcured or, if capable of being cured, shall not have been cured prior to theearlier of (A) 20 business days following notice of such breach to theCompany and (B) the Termination Date; provided that Parent shallnot have the right to terminate this Agreement pursuant to this Section 8.1(e)(i) ifParent or Merger Sub is then in material breach of any of its covenants oragreements contained in this Agreement, or (ii) if the Board of Directorsof the Company (A) shall have withdrawn, modified or changed (it beingunderstood and agreed that any “stop-look-and-listen” communication by theBoard of Directors of the Company to the stockholders of the Company pursuantto Rule 14d-9(f) of the Exchange Act, or any substantially similarcommunication to the stockholders of the Company in connection with thecommencement of a tender offer or exchange offer, shall not be deemed toconstitute a withdrawal, modification or change of its recommendation of thisAgreement or the Merger) in a manner adverse to Parent or Merger Sub itsapproval or recommendation of this Agreement or the Merger or (B) shallhave recommended to the stockholders of the Company an Acquisition Proposalother than the Merger, or shall have resolved to effect

 

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anyof the foregoing; or

 

(f)  byeither Parent or the Company if, upon a vote taken thereon at the StockholdersMeeting or any postponement or adjournment thereof, this Agreement shall nothave been adopted by the Company Requisite Vote.

 

SECTION 8.2  Effectof Termination. (a) In the event of the termination of this Agreementpursuant to Section 8.1, this Agreement shall forthwith become void andthere shall be no liability or obligation on the part of any party hereto,except with respect to Sections 6.4(b), 6.9, 6.10, this Section 8.2, Section 8.3and Article IX, which shall survive such termination; provided, however,that, except as set forth in Section 8.2(g), nothing contained hereinshall relieve any party from liability for any willful and material breachhereof.

 

(b)  Ifthis Agreement is terminated pursuant to Section 8.1(f), then the Companyshall pay Parent an amount equal to the sum of Parent’s Expenses (not to exceed$20,000,000 in the aggregate) for which Parent has not theretofore beenreimbursed by the Company. “Expenses” includes all reasonableout-of-pocket expenses (including all fees and expenses of financing sources,counsel, accountants, investment bankers, experts and consultants to a partyhereto and its affiliates) incurred by a party or on its behalf in connectionwith or related to the authorization, preparation, negotiation, execution andperformance of this Agreement. Payment of Parent’s Expenses pursuant to this Section 8.2(b) shallbe made not later than two business days after delivery to the Company ofnotice of demand for payment and a documented itemization setting forth inreasonable detail all such Expenses of Parent (which itemization may besupplemented and updated from time to time by Parent until the ninetieth dayafter Parent delivers such notice of demand for payment).

 

(c)  Inthe event that this Agreement is terminated by the Company pursuant to Section 8.1(d)(ii) orby Parent pursuant to Section 8.1(e)(ii), then the Company shall pay$140,300,000 (such amount, the “Termination Fee”) to Parent or asdirected by Parent, at or prior to the time of termination in the case of atermination pursuant to Section 8.1(d)(ii) or as promptly asreasonably practicable (and, in any event, within two business days followingsuch termination) in the case of a termination pursuant to Section 8.1(e)(ii),payable by wire transfer of same day funds.

 

(d)  Inthe event that (i) this Agreement is terminated (A) by Parent or theCompany pursuant to Section 8.1(f) and, at any time after the date ofthis Agreement and prior to the Stockholders Meeting, an Acquisition Proposalshall have been publicly disclosed or otherwise communicated to the seniormanagement or Board of Directors of the Company and shall not have beenirrevocably withdrawn prior to the Stockholders Meeting, (B) by Parentpursuant to Section 8.1(e)(i) and, at any time after the date of thisAgreement and prior to the breach giving rise to Parent’s right to terminateunder Section 8.1(e)(i), an Acquisition Proposal shall have been publiclydisclosed or otherwise communicated to the senior management or Board ofDirectors of the Company and shall not have been irrevocably withdrawn prior tothe breach giving rise to Parent’s right to

 

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terminateunder Section 8.1(e)(i), or (C) by Parent or the Company pursuant to Section 8.1(c) andat any time after the date of this Agreement and prior to the termination ofthis Agreement, an Acquisition Proposal shall have been publicly disclosed orotherwise communicated to the senior management or Board of Directors of theCompany and shall not have been irrevocably withdrawn prior to the terminationof this Agreement, and (ii) within twelve months after this termination,the Company enters into an agreement in respect of any Acquisition Proposal ora transaction pursuant to which any Acquisition Proposal is consummated, thenthe Company shall pay the Termination Fee (minus the amount, if any, previouslypaid pursuant to Section 8.2(b)) to Parent, by wire transfer of same dayfunds, on the date of the agreement in respect of the Acquisition Proposal or,if earlier, consummation of the transaction in respect of the AcquisitionProposal, as may be applicable; provided that, for purpose of this Section 8.2(d),the term “Acquisition Proposal” shall have the meaning assigned to such term inSection 6.5(a), except that the references to “20% or greater” and “20% ormore” shall be deemed to be references to “50% or greater” and “50% or more”,respectively).

 

(e)  Inthe event that (i) this Agreement is terminated by the Company pursuant toSection 8.1(d)(i) as a result of a breach by Parent or Merger Sub ofits respective obligation to effect the Closing pursuant to Section 1.2hereof and satisfy its obligations under Article II including depositing(or causing to be deposited) with the Paying Agent sufficient funds to make allpayments pursuant to Section 2.4(b) and (ii) Parent and MergerSub fail to effect the Closing and satisfy such obligations because of a failureto receive the proceeds of one or more of the debt financings contemplated bythe Debt Financing Commitments or because of their refusal to accept debtfinancing on terms materially less beneficial to Merger Sub than the terms setforth in one or more of the Debt Financing Commitments, then Merger Sub shallpay $140,300,000 (the “Merger Sub Termination Fee”) to the Company or asdirected by the Company as promptly as reasonably practicable (and, in anyevent, within two business days following such termination), payable by wiretransfer of same day funds.

 

(f)  Eachof the Company and Merger Sub acknowledges that the agreements contained inthis Section 8.2 are an integral part of the transactions contemplated bythis Agreement. In the event that the Company shall fail to pay the TerminationFee or Parent’s Expenses when due or Merger Sub shall fail to pay the MergerSub Termination Fee when due, the Company or Merger Sub and Parent, as the casemay be, shall reimburse the other party for all reasonable costs and expensesactually incurred or accrued by such other party (including reasonable fees andexpenses of counsel) in connection with the collection under and enforcement ofthis Section 8.2.

 

(g)  Notwithstandinganything to the contrary in this Agreement, (i) (A) in the event thatParent or Merger Sub breaches its respective obligation to effect the Closingpursuant to Section 1.2 hereof and satisfy its obligations under Article IIincluding depositing (or causing to be deposited) with the Paying Agentsufficient funds to make all payments pursuant to Section 2.4(b), (B) Parentand Merger Sub fail to effect the Closing and satisfy such obligations becauseof a failure to receive the proceeds of one or more of the debt financingscontemplated by the Debt Financing Commitments (other than as a

 

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resultof a reduction in such proceeds to be made available to Merger Sub pursuant tothe terms of the Debt Financing Commitments, including for this purpose afailure to satisfy any condition relating to a leverage ratio or otherfinancial test contained in such Debt Financing Commitments) that, togetherwith the amount of equity financing committed pursuant to the Equity FinancingCommitments, are sufficient to fund the transactions contemplated hereby orbecause of their refusal to accept debt financing on terms materially lessbeneficial to Merger Sub than the terms set forth in one or more of the DebtFinancing Commitments, and (C) Parent and Merger Sub are not otherwise inbreach of this Agreement (including their respective obligations pursuant to Section 6.10)except as contemplated by clauses (i)(A) and (i)(B) above such thatthe condition set forth in Section 7.3(b) would not be satisfied,then the Company’s right to terminate this Agreement pursuant to Section 8.1(d)(i) andreceive payment of the Merger Sub Termination Fee pursuant to Section 8.2(e) shallbe the sole and exclusive remedy of the Company and its subsidiaries againstParent, Merger Sub and any of their respective affiliates, stockholders, partners,members, directors, officers or agents for any loss or damage suffered as aresult of the breach of any representation, warranty, covenant or agreementcontained in this Agreement by Parent or Merger Sub and the failure of theMerger to be consummated, and upon payment of the Merger Sub Termination Fee inaccordance with Section 8.2(e), none of Parent, Merger Sub or any of theirrespective affiliates, stockholders, partners, members, directors, officers oragents shall have any further liability or obligation relating to or arisingout of this Agreement or the transactions contemplated by this Agreement, and (ii) inno event shall Parent, Merger Sub and their affiliates, stockholders, partners,members, directors, officers and agents be subject to liability in excess of$500,000,000 in the aggregate for all losses and damages arising from or inconnection with breaches by Parent or Merger Sub of the representations,warranties, covenants and agreements contained in this Agreement.

 

SECTION 8.3  Expenses.Except as otherwise specifically provided herein, each party shall bear its ownexpenses in connection with this Agreement and the transactions contemplatedhereby. Expenses incurred in connection with the filing, printing and mailingof the Proxy Statement shall be shared equally by Parent and the Company.

 

SECTION 8.4  Amendment.This Agreement may be amended by the parties hereto by action taken by or onbehalf of their respective Boards of Directors at any time prior to theEffective Time, whether before or after adoption of this Agreement by thestockholders of the Company; provided, however, that, afteradoption of this Agreement by the stockholders of the Company, no amendment maybe made which by Law requires the further approval of the stockholders of theCompany without such further approval. This Agreement may not be amended exceptby an instrument in writing signed by the parties hereto.

 

SECTION 8.5  Waiver.At any time prior to the Effective Time, any party hereto may (i) extendthe time for the performance of any of the obligations or other acts of theother parties hereto, (ii) waive any inaccuracies in the representationsand warranties contained herein or in any document delivered pursuant heretoand (iii) subject to the requirements of applicable Law, waive compliancewith any of the agreements or conditions contained

 

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herein.Any such extension or waiver shall be valid if set forth in an instrument inwriting signed by the party or parties to be bound thereby. The failure of anyparty to assert any rights or remedies shall not constitute a waiver of suchrights or remedies.

 

ARTICLE IX

 

GENERAL PROVISIONS

 

SECTION 9.1  Non-Survivalof Representations, Warranties, Covenants and Agreements. None of therepresentations, warranties, covenants and agreements in this Agreement or inany instrument delivered pursuant to this Agreement, including any rightsarising out of any breach of such representations, warranties, covenants andagreements, shall survive the Effective Time, except for (i) thosecovenants and agreements contained herein that by their terms apply or are tobe performed in whole or in part after the Effective Time and (ii) this Article IX.

 

SECTION 9.2  Notices.All notices, requests, claims, demands and other communications hereunder shallbe in writing and shall be given (and shall be deemed to have been duly givenupon receipt) by delivery in person, by facsimile or by registered or certifiedmail (postage prepaid, return receipt requested) to the respective parties atthe following addresses (or at such other address for a party as shall bespecified by like notice):

 
| (a)    | if  to Parent or Merger Sub:                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                   |
|   | c/o  Texas Pacific Group  301 Commerce Street, Suite 3300  Fort Worth, TX 76102  Attention: David Spuria  Facsimile: 817-871-4088 |
|   |                                                                                                                                   |
|   | and                                                                                                                                    |
|   |                                                                                                                                   |
|   | c/o  Warburg Pincus Partners LLC  466 Lexington Avenue  New York, NY 10017  Attention: Scott Arenare  Facsimile: 212-922-0933          |
|   |                                                                                                                                   |
|   | with  an additional copy (which shall not constitute notice) to:                                                                       |
|   |                                                                                                                                   |
|   | Cleary  Gottlieb Steen & Hamilton LLP  One Liberty Plaza  New York, NY 10006  Attention: David Leinwand, Esq.            |

 

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|   |                                                                                                                                              |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Facsimile:  212-225-3999                                                                                                                          |
|   |                                                                                                                                              |
| (b)    | if  to the Company:                                                                                                                               |
|   |                                                                                                                                              |
|   | The  Neiman Marcus Group, Inc.  One Marcus Square  1618 Main Street  Dallas, TX 75201  Attention: General Counsel  Facsimile: 214-743-7611   |
|   |                                                                                                                                              |
|   | with  an additional copy (which shall not constitute notice) to:                                                                                  |
|   |                                                                                                                                              |
|   | Simpson  Thacher & Bartlett LLP  425 Lexington Avenue  New York, NY 10017  Attention: John G. Finley, Esq.  Facsimile: 212-455-2502 |

 

SECTION 9.3  CertainDefinitions. For purposes of this Agreement, the term:

 
| (a)    | “affiliate:” of a person  means a person that directly or indirectly, through one or more  intermediaries, controls, is controlled by, or is under common control with,  the first mentioned person;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (b)    | “beneficial  owner” with respect to any Shares has the meaning ascribed to such term  under Rule 13d-3 of the Exchange Act and includes any person who shall  be deemed to be the beneficial owner of such Shares (i) which such  person or any of its affiliates or associates (as such term is defined in  Rule 12b-2 under the Exchange Act) beneficially owns, directly or indirectly,  (ii) which such person or any of its affiliates or associates (as such  term is defined in Rule 12b-2 of the Exchange Act) has, directly or  indirectly, (A) the right to acquire (whether such right is exercisable  immediately or subject only to the passage of time), pursuant to any  agreement, arrangement or understanding or upon the exercise of consideration  rights, exchange rights, warrants, options or otherwise, or (B) the  right to vote pursuant to any agreement, arrangement or understanding or (iii) which  are beneficially owned, directly or indirectly, by any other persons with  whom such person or any of its affiliates or associates has any agreement,  arrangement or understanding for the purpose of acquiring, holding, voting or  disposing of any Shares (and the term “beneficially owned” shall have  a corresponding meaning); |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (c)    | “business  day” means any day on which the principal offices of the SEC in  Washington, D.C. are open to accept filings or, in the case of determining a  date when any payment is due, any day on which banks are not required or  authorized by                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

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|   | law  to close in New York, New York;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (d)    | “control” (including  the terms “controlled”, “controlled by” and “under common  control with”) means the possession, directly or indirectly or as trustee  or executor, of the power to direct or cause the direction of the management  policies of a person, whether through the ownership of stock, as trustee or  executor, by contract or credit arrangement or otherwise;                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (e)    | “corresponding  section” means the section of the Company Disclosure  Schedule or Parent Disclosure Schedule, as applicable, which corresponds to  the section number of the representation or warranty qualified and each other  section of the Company Disclosure Schedule or Parent Disclosure Schedule, as  applicable, that contains a disclosure where it is reasonably apparent that  it should be an exception to such representation or warranty;                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (f)    | “generally  accepted accounting principles” means the 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 may be approved by a  significant segment of the accounting profession in the United States, in  each case, as applicable, as of the time of the relevant financial statements  referred to herein                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (g)    | “industries  in which the Company and its subsidiaries operate” means the  luxury retail segments of the apparel, accessories, jewelry, beauty and  decorative home products industries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (h)    | “knowledge”  (i) with respect to the Company means the actual knowledge of any of the  persons set forth in Section 9.3(g) of the Company Disclosure  Schedule and (ii) with respect to Parent or Merger Sub means the actual  knowledge of any of the officers of Parent;                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (i)    | “person”  means an individual, corporation, partnership, limited liability company,  association, trust, unincorporated organization, other entity or group (as  defined in Section 13(d)(3) of the Exchange Act); and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (j)    | “subsidiary”  or “subsidiaries” of the Company, the Surviving Corporation, Parent or  any other person means any corporation, partnership, joint venture or other  legal entity of which the Company, the Surviving Corporation, Parent or such  other person, as the case may be (either alone or through or together with  any other subsidiary), owns, directly or indirectly, 50% or more of the stock  or other equity interests the holder of which is generally entitled to vote  for the election of the board of directors or other governing body of such  corporation or other legal entity, including, in the case of the Company, the  subsidiaries listed in Section 3.1 of the Company Disclosure Schedule. |

 

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SECTION 9.4  Severability.If any term or other provision of this Agreement is invalid, illegal orincapable of being enforced by any rule of law or public policy, all otherconditions and provisions of this Agreement shall nevertheless remain in fullforce and effect so long as the economic or legal substance of the transactionscontemplated hereby is not affected in any manner adverse to any party. Uponsuch determination that any term or other provision is invalid, illegal orincapable of being enforced, the parties hereto shall negotiate in good faithto modify this Agreement so as to effect the original intent of the parties asclosely as possible in an acceptable manner to the end that the transactionscontemplated hereby are fulfilled to the fullest extent possible.

 

SECTION 9.5  EntireAgreement; Assignment. This Agreement (including the Exhibits hereto), theCompany Disclosure Schedule, the Parent Disclosure Schedule and theConfidentiality Agreements constitute the entire agreement among the partieswith respect to the subject matter hereof and supersede all prior agreementsand undertakings, both written and oral, among the parties, or any of them,with respect to the subject matter hereof. This Agreement shall not be assignedby operation of law or otherwise without the prior written consent of each ofthe other parties, except that Parent may assign all or any of its rights andobligations hereunder to any direct or indirect wholly-owned subsidiary ofParent; provided, however, that no such assignment shall relievethe assigning part of its obligations hereunder.

 

SECTION 9.6  Partiesin Interest. This Agreement shall be binding upon and inure solely to thebenefit of each party hereto, and nothing in this Agreement, express orimplied, is intended to or shall confer upon any other person any rights,benefits or remedies of any nature whatsoever under or by reason of thisAgreement, other than with respect to the provisions of Section 6.7 whichshall inure to the benefit of the persons or entities benefiting therefrom whoare intended to be third-party beneficiaries thereof.

 

SECTION 9.7  GoverningLaw. This Agreement shall be governed by, and construed in accordance with,the laws of the State of Delaware (without giving effect to choice of lawprinciples thereof).

 

SECTION 9.8  Headings.The descriptive headings contained in this Agreement are included forconvenience of reference only and shall not affect in any way the meaning orinterpretation of this Agreement.

 

SECTION 9.9  Counterparts.This Agreement may be executed and delivered (including by facsimiletransmission) in one or more counterparts, and by the different parties heretoin separate counterparts, each of which when executed shall be deemed to be anoriginal but all of which taken together shall constitute one and the sameagreement.

 

SECTION 9.10  SpecificPerformance; Jurisdiction. The parties agree that irreparable damage wouldoccur in the event that any of the provisions of this Agreement were notperformed in accordance with their specific terms or were otherwise breached.It is

 

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accordinglyagreed that the parties shall be entitled to an injunction or injunctions toprevent breaches of this Agreement and to enforce specifically the terms andprovisions of this Agreement in the Court of Chancery of the State of Delawareor, if under applicable law exclusive jurisdiction over such matter is vestedin the federal courts, any court of the United States located in the State of Delaware,this being in addition to any other remedy to which such party is entitled atlaw or in equity. In addition, each of the parties hereto (i) consents tosubmit itself to the personal jurisdiction of the Court of Chancery of theState of Delaware or any court of the United States located in the State ofDelaware in the event any dispute arises out of this Agreement or any of thetransactions contemplated by this Agreement, (ii) agrees that it will notattempt to deny or defeat such personal jurisdiction by motion or other requestfor leave from any such court, (iii) agrees that it will not bring anyaction relating to this Agreement or any of the transactions contemplated bythis Agreement in any court other than the Court of Chancery of the State of Delawareor, if under applicable law exclusive jurisdiction over such matter is vestedin the federal courts, any court of the United States located in the State ofDelaware and (iv) consents to service being made through the noticeprocedures set forth in Section 9.2. Each of the Company, Parent andMerger Sub hereby agrees that service of any process, summons, notice ordocument by U.S. registered mail to the respective addresses set forth in Section 9.2shall be effective service of process for any suit or proceeding in connectionwith this Agreement or the transactions contemplated hereby.

 

SECTION 9.11  ParentGuarantee. Parent agrees to take all action necessary to cause Merger Subor the Surviving Corporation, as applicable, to perform all of its respectiveagreements, covenants and obligations under this Agreement. Parentunconditionally guarantees to the Company the full and complete performance byMerger Sub or the Surviving Corporation, as applicable, of its respectiveobligations under this Agreement and shall be liable for any breach of anyrepresentation, warranty, covenant or obligation of Merger Sub or the SurvivingCorporation, as applicable, under this Agreement. This is a guarantee ofpayment and performance and not collectibility. Parent hereby waives diligence,presentment, demand of performance, filing of any claim, any right to requireany proceeding first against Merger Sub or the Surviving Corporation, asapplicable, protest, notice and all demands whatsoever in connection with theperformance of its obligations set forth in this Section 9.11.

 

SECTION 9.12  Interpretation.When reference is made in this Agreement to a Section, such reference shall beto a Section of this Agreement unless otherwise indicated. Whenever thewords “include”, “includes” or “including” are used in this Agreement, theyshall be deemed to be followed by the words “without limitation.” The words “hereof,”“herein,” “hereby” and “hereunder” and words of similar import when used inthis Agreement shall refer to this Agreement as a whole and not to anyparticular provision of this Agreement. The word “or” shall not be exclusive.This Agreement shall be construed without regard to any presumption or rule requiringconstruction or interpretation against the party drafting or causing anyinstrument to be drafted.

 

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INWITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreementto be executed as of the date first written above by their respective officersthereunto duly authorized.

 
| ** ** | ** ** | **THE NEIMAN MARCUS GROUP, INC**.    |
|------------|------------|-------------------------------------------|
|       |       |                                      |
|       | By:        | /s/  Burton M. Tansky                     |
|       | Name:      | Burton  M. Tansky                         |
|       | Title:     | President  and Chief Executive Officer    |
|       |       |                                      |
|       |       | NEWTON  ACQUISITION, INC.            |
|       |       |                                      |
|       | By:        | /s/  Jonathan Coslet                      |
|       | Name:      | Jonathan  Coslet                          |
|       | Title:     | Senior  Vice President                    |
|       |       |                                      |
|       |       |                                      |
|       | By:        | /s/  Kewsong Lee                          |
|       | Name:      | Kewsong  Lee                              |
|       | Title:     | Senior  Vice President                    |
|       |       |                                      |
|       |       | NEWTON  ACQUISITION MERGER SUB, INC. |
|       |       |                                      |
|       | By:        | /s/  Jonathan Coslet                      |
|       | Name:      | Jonathan  Coslet                          |
|       | Title:     | Senior  Vice President                    |
|       |       |                                      |
|       |       |                                      |
|       | By:        | /s/  Kewsong Lee                          |
|       | Name:      | Kewsong  Lee                              |
|       | Title:     | Senior  Vice President                    |

 

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