**EXHIBIT 2.1**

 

 

** **

**AGREEMENTAND PLAN OF MERGER**

 

 

among

 

 

**NEWTONACQUISITION, INC.**

 

 

and

 

** **

**THE NEIMANMARCUS GROUP, INC.**

 

 

Dated as of May 1, 2005

 

 

 

**TABLE OFCONTENTS**

 
| ** **                                                            | **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 *                |     |
|                                                                  |     |

 

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| 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 A Certificate of Incorporation of the  Surviving Corporation                             |   |
|                                                                                                  |   |
| Exhibit B Bylaws of Merger Sub                                                                   |   |

 

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** **

**INDEX OFDEFINED 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 |

 

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**AGREEMENTAND 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 hasunanimously (i) determined that it is in the best interests of the Companyand the stockholders of the Company, and declared it advisable, to enter intothis Agreement with Parent and Merger Sub providing for the merger (the “Merger”)of Merger Sub with and into the Company in accordance with the GeneralCorporation Law of the State of Delaware (the “DGCL”), upon the termsand subject to the conditions set forth herein, (ii) approved thisAgreement in accordance with the DGCL, upon the terms and subject to theconditions set forth herein, and (iii) resolved to recommend adoption ofthis Agreement by the stockholders of the Company;

 

WHEREAS, the Boards of Directors of Parent andMerger Sub have each approved, and the Board of Directors of Merger Sub hasdeclared it advisable for Merger Sub to enter into, this Agreement providingfor the Merger in accordance with the DGCL, upon the terms and subject to theconditions set forth herein; and

 

WHEREAS, in order to induce Parent and Merger Sub toenter into this Agreement, and as a condition to their doing so, simultaneouslywith the execution and delivery of this Agreement, Parent and the Company areentering into a Stockholder Agreement with certain stockholders of the Company(the “Stockholder Agreement”) pursuant to which such stockholders haveirrevocably agreed, among other things, to vote or cause to be voted in favorof the adoption of this Agreement all shares of Company Common Stockbeneficially owned by such stockholder in accordance with and subject to theterms set forth in the Stockholder Agreement.

 

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NOW, THEREFORE, in consideration of the foregoingand the mutual covenants and agreements herein contained, and intending to belegally bound hereby, Parent, Merger Sub and the Company hereby agree asfollows:

 

ARTICLE I

 

THE MERGER

 

SECTION 1.1     TheMerger.  Upon the terms and subject to the conditions of thisAgreement and in accordance with the DGCL, at the Effective Time (as definedbelow), Merger Sub shall be merged with and into the Company. As a result ofthe Merger, the separate corporate existence of Merger Sub shall cease and theCompany shall continue as the surviving corporation of the Merger (the “SurvivingCorporation”).

 

SECTION 1.2     ClosingEffective Time.  Subject to the provisions of Article VII,the closing of the Merger (the “Closing”) shall take place at theoffices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, NewYork, New York, as soon as reasonably practicable after the satisfaction orwaiver of the conditions set forth in Article VII (excluding conditionsthat, by their terms, cannot be satisfied until the Closing, but subject to thesatisfaction or waiver of such conditions at the Closing); provided, however,that notwithstanding the satisfaction or waiver of the conditions set forth in Article VII,the parties shall not be required to effect the Closing until the earlier of (a) adate during the Marketing Period specified by Merger Sub on no less than threebusiness days’ notice to the Company and (b) the final day of theMarketing Period; and providedfurther,however, thatnotwithstanding the satisfaction or waiver of the conditions set forth in Article VII,the parties shall not be required to effect the Closing, and this Agreement maybe terminated pursuant to and in accordance with Section 8.1 hereof, inthe event that the final day of the Marketing Period shall not have occurredbefore such termination (or the Closing may be consummated at such other placeor on such other date as Parent and the Company may mutually agree). The dateon which the Closing actually occurs is hereinafter referred to as the “ClosingDate”. At the Closing, the parties hereto shall cause the Merger to beconsummated by filing a certificate of merger (the “Certificate of Merger”)with the Secretary of State of the State of Delaware, in such form as requiredby, and executed in accordance with, the relevant provisions of the DGCL (thedate and time of the filing of the Certificate of Merger with the Secretary ofState of the State of Delaware, or such later time as is specified in theCertificate of Merger and as is agreed to by the parties hereto, beinghereinafter referred to as the “Effective Time”) and shall make allother filings or recordings required under the DGCL in connection with theMerger.

 

SECTION 1.3   Effects of theMerger. The Merger shall have the effects set forth herein and in theapplicable provisions of the DGCL. Without limiting the generality of theforegoing and subject thereto, at the Effective Time, all the property, rights,privileges, immunities, powers and franchises of the Company and Merger Sub shallvest in the Surviving Corporation and all debts, liabilities and duties of theCompany and Merger Sub shall become the debts, liabilities and duties of theSurviving Corporation.

 

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SECTION 1.4   Certificate ofIncorporation; 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 EffectiveTime, and without any further action on the part of the Company and Merger Sub,the by-laws of the Company shall be amended so as to read in their entirety inthe form as is set forth in Exhibit B annexed hereto, and, as soamended, shall be the by-laws of the Surviving Corporation until thereafteramended in accordance with their terms, the certificate of incorporation of theSurviving Corporation and as provided by Law.

 

SECTION 1.5  Directors andOfficers. The directors of the Company immediately prior to the EffectiveTime shall submit their resignations to be effective as of the Effective Time.Immediately after the Effective Time, Parent shall take the necessary action tocause the directors of Merger Sub immediately prior to the Effective Time to bethe directors of the Surviving Corporation, each to hold office in accordancewith the certificate of incorporation and by-laws of the Surviving Corporation.The officers of the Company immediately prior to the Effective Time shall bethe initial officers of the Surviving Corporation, each to hold office untilthe earlier of their resignation or removal.

 

ARTICLE II

 

EFFECT OF THE MERGER ON THE CAPITAL STOCKOF THE CONSTITUENT CORPORATIONS

 

SECTION 2.1  Conversion ofSecurities. At the Effective Time, by virtue of the Merger and without anyaction on the part of Merger Sub, the Company or the holders of any of thefollowing securities:

 

(a)  Each share of Class A CommonStock, par value $0.01 per share, of the Company (the “Class A CommonStock”), Class B Common Stock, par value $0.01 per share, of theCompany (the “Class B Common Stock”), and Class C CommonStock, par value $0.01 per share, of the Company (the “Class C CommonStock” 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) andany Dissenting Shares (as defined in Section 2.3(a)) shall be convertedinto the 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)  Each Share held in the treasury ofthe Company and each Share owned by Parent, Merger Sub or any direct orindirect wholly-owned subsidiary of Parent or the Company immediately prior tothe Effective Time shall be canceled and retired without any conversion thereofand no payment or distribution shall be made with respect thereto; and

 

(c)  Each share of common stock of MergerSub issued and outstanding immediately prior to the Effective Time shall beconverted into one share of common stock of the Surviving Corporation.

 

SECTION 2.2  Treatment of 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)  Each Share granted subject to vestingor other lapse restrictions pursuant to any Company Stock Plan (collectively, “RestrictedShares”) which is outstanding immediately prior to the Effective Time shallvest and become free of such restrictions as of the Effective Time to theextent provided by the terms thereof (as such plans may be amended prior to theEffective Time in accordance with the terms hereof) and at the Effective Timethe holder thereof shall, subject to this Article II, be entitled toreceive the Merger Consideration with respect to each such Restricted Share,less any required withholding taxes.

 

(c)  The Company shall provide that,immediately prior to the Effective Time, each award of a right under anyCompany Stock Plan or Deferred Compensation Plan entitling the holder thereofto Restricted Shares, Shares or cash equal to or based on the value of Shares(including any right to “Deferred Common Stock” pursuant to, and as such termis defined in, the Company’s Key Employee Bonus Plan) (collectively, “StockUnits”) which, in each case, is outstanding as of the Effective Time(whether vested or unvested) shall be canceled by the Company (providedthat any such Stock Unit shall be canceled by the Company only to the extentpermitted by the terms of the Company Stock Plans, the Deferred CompensationPlans and any agreements governing the Stock Units, and otherwise the Companyshall use its reasonable best efforts to cancel any such Stock Units) and the holderthereof shall be entitled to receive at the Effective 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)  All account balances under theCompany’s Key Employee Bonus Plan, Key Employee Deferred Compensation Plan andDeferred Compensation Plan for Non-Employee Directors (collectively, the “DeferredCompensation Plans”) will be paid out in cash to participants therein bythe Company at the Effective Time, or as soon as practicable thereafter (but inno event later than 5 days after the Effective Time) by the SurvivingCorporation, less any required withholding taxes.

 

SECTION 2.3  Dissenting Shares.(a) Notwithstanding anything in this Agreement to the contrary, Sharesthat are issued and outstanding immediately prior to the Effective Time andwhich are held by holders of Shares who have not voted in favor of or consentedto the Merger and who have properly demanded and perfected their rights to bepaid the fair value of such Shares in accordance with Section 262 of theDGCL (the “Dissenting Shares”) shall not be converted into the right toreceive the Merger Consideration, and the holders thereof shall be entitled toonly such rights as are granted by Section 262 of the DGCL; provided,however, that if any such holder shall fail to perfect or shalleffectively waive, withdraw or lose such holder’s rights under Section 262of the DGCL, such holder’s shares of Company Common Stock shall thereupon bedeemed to have been converted, at the Effective Time, into the right to receivethe Merger Consideration, as set forth in Section 2.1 of this Agreement,without any interest thereon.

 

(b)  The Company shall give Parent (i) promptnotice of any appraisal demands received by the Company, withdrawals thereofand any other instruments served pursuant to Section 262 of the DGCL andreceived by the Company and (ii) the opportunity to direct allnegotiations and proceedings with respect to the exercise of appraisal rightsunder Section 262 of the DGCL. The Company shall not, except with theprior written consent of Parent or as otherwise required by applicable Law,make any payment with respect to any such exercise of appraisal rights or offerto settle or settle any such rights.

 

SECTION 2.4  Surrender of Shares. (a) Prior to the Effective Time, Merger Sub shall enter into an agreementwith the Company’s transfer agent (or another entity reasonably acceptable tothe Company) to act as agent for the stockholders of the Company in connectionwith the Merger (the “Paying Agent”) and to receive the MergerConsideration to which the stockholders of the Company shall become entitledpursuant to this Article II. At the Effective Time, Parent shall deposit(or cause to be deposited) with the Paying Agent sufficient funds to make allpayments pursuant to Section 2.4(b). Such funds may be invested by thePaying Agent as directed by Merger Sub or, after the Effective Time, theSurviving Corporation; provided that (i) no such investment orlosses thereon shall affect the Merger Consideration payable to the holders ofCompany Common Stock and following any losses Parent shall promptly provideadditional funds to the Paying Agent for the benefit of the stockholders of theCompany 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)  Promptly after the Effective Time,the Surviving Corporation shall cause to be mailed to each record holder, as ofthe Effective Time, of (i) an outstanding certificate or certificateswhich immediately prior to the Effective Time represented Shares (the “Certificates”)or (ii) Shares represented by book-entry (“Book-Entry Shares”), aform of letter of transmittal (which shall be in customary form and shallspecify that delivery shall be effected, and risk of loss and title to theCertificates shall pass, only upon proper delivery of the Certificates to thePaying Agent or, in the case of Book-Entry Shares, upon adherence to theprocedures set forth in the letter of transmittal or have such other provisionsas Parent may reasonably specify) and instructions for use in effecting thesurrender of the Certificates or, in the case of Book-Entry Shares, thesurrender of such Shares for payment of the Merger Consideration therefor. Uponsurrender to the Paying Agent of a Certificate or of Book-Entry Shares,together with such letter of transmittal, duly completed and validly executedin accordance with the instructions thereto, and such other documents as may berequired pursuant to such instructions, the holder of such Certificate orBook-Entry Shares shall be entitled to receive in exchange therefor the MergerConsideration for each Share formerly represented by such Certificate orBook-Entry Shares and such Certificate or book-entry shall then be canceled. Nointerest shall be paid or accrued for the benefit of holders of theCertificates or Book-Entry Shares on the Merger Consideration payable inrespect of the Certificates or Book-Entry Shares. If payment of the MergerConsideration is to be made to a person other than the person in whose name thesurrendered Certificate is registered, it shall be a condition of payment thatthe Certificate so surrendered shall be properly endorsed or shall be otherwisein proper form for transfer and that the person requesting such payment shallhave paid any transfer and other Taxes required by reason of the payment of theMerger Consideration to a person other than the registered holder of theCertificate surrendered or shall have established to the satisfaction of theSurviving Corporation that such Tax either has been paid or is not applicable.Until surrendered as contemplated by this Section 2.4(b), each Certificateand each Book-Entry Share shall be deemed at any time after the Effective Timeto represent only the right to receive upon such surrender the applicableMerger Consideration as contemplated by this Article II.

 

(c)  At any time following the date thatis twelve months after the Effective Time, the Surviving Corporation shall beentitled to require the Paying Agent to deliver to it any funds (including anyinterest received with respect thereto) which have been made available to thePaying Agent and which have not been disbursed to holders of Certificates orBook-Entry Shares and thereafter such holders shall be entitled to look toParent and the Surviving Corporation (subject to abandoned property, escheat orother similar laws) only as general creditors thereof with respect to theMerger 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)  After the Effective Time, the stocktransfer books of the Company shall be closed and thereafter there shall be nofurther registration of transfers of Shares that were outstanding prior to theEffective Time. After the Effective Time, Certificates or Book-Entry Sharespresented to the Surviving Corporation for transfer shall be canceled andexchanged for the consideration provided for, and in accordance with theprocedures set forth in, this Article II.

 

(e)  Notwithstanding anything in thisAgreement to the contrary, Parent, the Surviving Corporation and the PayingAgent shall be entitled to deduct and withhold from the consideration otherwisepayable to any former holder of Shares pursuant to this Agreement any amount asmay be required to be deducted and withheld with respect to the making of suchpayment under applicable Tax (as defined below) Laws. To the extent thatamounts are so properly withheld by the Paying Agent, the Surviving Corporationor Parent, as the case may be, such withheld amounts shall be treated for allpurposes of this Agreement as having been paid to the holder of the Shares inrespect of which such deduction and withholding was made by the Paying Agent,the Surviving Corporation or Parent, as the case may be.

 

(f)  In the event that any Certificateshall have been lost, stolen or destroyed, upon the holder’s compliance withthe replacement requirements established by the Paying Agent, including, ifnecessary, the posting by the holder of a bond in customary amount as indemnityagainst any claim that may be made against it with respect to the Certificate,the Paying Agent will deliver in exchange for the lost, stolen or destroyedCertificate the applicable Merger Consideration payable in respect of theShares represented by such Certificate pursuant to this Article II.

 

(g)  Notwithstanding anything in thisAgreement to the contrary, if, between the date of this Agreement and theEffective Time, the issued and outstanding Shares shall have been changed intoa different number of shares or a different class by reason of any stock split,reverse stock split, stock dividend, reclassification, redenomination,recapitalization, split-up, combination, exchange of shares or other similartransaction, the Merger Consideration and any other dependent items shall beappropriately adjusted to provide to the holders of the Shares the sameeconomic effect as contemplated by this Agreement prior to such action and asso 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

 

The Company hereby represents and warrants to Parentand Merger Sub that, except as set forth on the corresponding section of theCompany Disclosure Schedule delivered by the Company to the Parent and MergerSub prior to the execution of this Agreement (the “Company DisclosureSchedule”) and, with respect to representations and warranties other thanthe representations and warranties set forth in Section 3.3, except asdisclosed in the SEC Reports (as defined below) filed prior to the date of thisAgreement (other than disclosures referred to in “Factors That May AffectFuture Results” sections of such SEC Reports):

 

SECTION 3.1  Organization andQualification; Subsidiaries. The Company and each of its subsidiaries isduly 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  Certificate ofIncorporation 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)  The authorized capital stock of theCompany consists of (i) 100,000,000 Class A Shares, (ii) 100,000,000Class B Shares, (iii) 50,000,000 Class C Shares and (iv) 50,000,000shares of preferred stock, par value $0.01 per share (the “Preferred Stock”),of which (x) 100,000 of such shares are designated as Series A JuniorParticipating Preferred Stock and have been reserved for issuance upon theexercise of the rights distributed to the holders of Class A Common Stockpursuant to the Company’s Amended and Restated Rights Agreement, dated as of August 8,2002 (the “Rights Plan”), between the Company and Mellon InvestorServices LLC, as Rights Agent, (y) 100,000 of such shares are designatedas Series B Junior Participating Preferred Stock and have been reservedfor issuance upon the exercise of the rights distributed to the holders of Class BCommon Stock pursuant to the Rights Plan and (z) 50,000 of such shares aredesignated as Series C Junior Participating Preferred Stock (collectively,the “Junior Participating Preferred Stock”) and have been reserved forissuance upon the exercise of the rights (collectively with the rights issued toholders of Class A Common Stock and Class B Common Stock pursuant tothe Rights Plan, the “Company Rights”) distributed to the holders of Class CCommon Stock pursuant to the Rights Plan. As of April 28, 2005 (the “CapitalizationDate”), (i) 29,525,199 shares of Class A Common Stock were issuedand outstanding, all of which were validly issued, fully paid and nonassessableand were issued free of preemptive rights, (ii) 19,422,379 shares of Class BCommon Stock were issued and outstanding, all of which were validly issued,fully paid 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)  Each of the outstanding shares ofcapital stock, voting securities or other equity interests of each MaterialSubsidiary is duly authorized, validly issued, fully paid, nonassessable andfree of any preemptive rights, and all such securities are owned by the Companyor another wholly-owned subsidiary of the Company and are owned free and clearof 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 interests of any nature orkind 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)  As of the date of this Agreement, theonly principal amount of outstanding indebtedness for borrowed money of theCompany and its subsidiaries (not including intercompany amounts or operatingor capital leases) is (i) $187,500,000 Class A Floating Rate AssetBacked Certificates, Series 2000-1, issued by the Neiman Marcus GroupCredit Card Master Trust, (ii) $125,000,000 of the Company’s 6.65% SeniorNotes Due 2008, and (iii) $125,000,000 of the Company’s 7.125% SeniorDebentures Due 2028. As of the date of this Agreement, there are no outstandingamounts 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. TheCompany has all necessary corporate power and authority to execute and deliverthis Agreement, to perform its obligations hereunder and to consummate thetransactions contemplated hereby. The execution, delivery and performance ofthis 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  No Conflict; RequiredFilings and Consents. (a) The execution, delivery and performance ofthis Agreement by the Company do not and will not (i) conflict with orviolate the Certificate of Incorporation, By-Laws of the Company, (ii) conflictwith or violate the certificate of incorporation, bylaws or other constituentdocuments of the subsidiaries of the Company, (iii) assuming that allconsents, approvals and authorizations contemplated by clauses (i) through(v) of subsection (b) below have been obtained, and all filingsdescribed 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)  The execution, delivery andperformance of this Agreement by the Company and the consummation of the Mergerby the Company do not and will not require any consent, approval, authorizationor permit of, action by, filing with or notification to, any federal, state, localor foreign governmental or regulatory (including stock exchange) authority,agency, court commission, or other governmental body (each, a “GovernmentalEntity”), except for (i) applicable requirements of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) and the rules andregulations promulgated thereunder (including the filing of the Proxy Statement(as defined below)), the Hart-Scott-Rodino Antitrust Improvements Act of 1976,as amended (the “HSR Act”), and state securities, takeover and “blue sky”laws, (ii) the applicable requirements of the New York Stock Exchange, (iii) thefiling with the Secretary of State of the State of Delaware of the Certificateof Merger 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  SEC Filings;Financial Statements; No Undisclosed Liabilities. (a) The Company hasfiled or otherwise transmitted all forms, reports, statements, certificationsand other documents (including all exhibits, amendments and supplementsthereto) required to be filed by it with the Securities and Exchange Commission(the “SEC”) since August 1, 2003 (all such forms, reports,statements, certificates and other documents filed since August 1, 2003,collectively, the “SEC Reports”). None of the Company’s subsidiaries isrequired to file periodic reports with the SEC pursuant to the Exchange Act.Each of the SEC Reports, as amended, complied as to form in all materialrespects with the applicable requirements of the Securities Act of 1933, asamended (the “Securities Act”) and the rules and regulationspromulgated thereunder and the Exchange Act and the rules and regulationspromulgated thereunder, each as in effect on the date so filed. None of the SECReports contained, when filed or, if amended prior to the date hereof, as ofthe date of such amendment, any untrue statement of a material fact or omittedto state a material fact required to be stated or incorporated by referencetherein or necessary in order to make the statements therein, in the light ofthe circumstances under which they were made, not misleading. The Company hasmade available to Parent true, correct and complete copies of all writtencorrespondence between the SEC, on the one hand, and the Company and any of itssubsidiaries, on the other hand, occurring since July 31, 2004 and priorto the date hereof. As of the date of this Agreement, there are no outstandingor unresolved comments in comment letters received from the SEC staff withrespect to the SEC Reports. To the knowledge of the Company, none of the SECReports is the subject of ongoing SEC review or outstanding SEC comment.

 

(b)  The audited consolidated financialstatements of the Company (including any related notes thereto) included in theSEC Reports filed with the SEC have been prepared in accordance with generallyaccepted accounting principles in all material respects applied on a consistentbasis throughout the periods involved (except as may be indicated in the notesthereto) and fairly present in all material respects the consolidated financialposition of the Company and its subsidiaries at the respective dates thereofand the consolidated statements of operations, cash flows and changes instockholders’ equity for the periods indicated. The unaudited consolidatedfinancial statements of the Company (including any related notes thereto) forall interim periods included in the SEC Reports have been prepared inaccordance with generally accepted accounting principles in all materialrespects applied on a consistent basis throughout the periods involved (exceptas may be indicated in the notes thereto) and fairly present in all materialrespects the consolidated financial position of the Company and itssubsidiaries at of the respective dates thereof and the consolidated statementsof operations and cash flows for the periods indicated (subject to normalperiod-end adjustments).

 

(c)  Since the enactment of theSarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Company hasbeen and is in compliance in all material respects with (i) the applicableprovisions of the Sarbanes-Oxley Act and the rules and regulationspromulgated thereunder and (ii) the applicable listing and corporategovernance rules and

 

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regulationsof the NYSE.

 

(d)  The Company has designed disclosurecontrols and procedures to ensure that material information relating to theCompany, including its subsidiaries, is made known to the Chief ExecutiveOfficer and the Chief Financial Officer of the Company by others within thoseentities.

 

(e)  The Company has disclosed, based onits most recent evaluation prior to the date hereof, to the Company’s auditorsand the audit committee of the Company’s Board of Directors (i) anysignificant deficiencies and material weaknesses in the design or operation ofinternal controls over financial reporting which are reasonably likely toadversely affect in any material respect the Company’s ability to record,process, summarize and report financial information and (ii) any fraud orallegation of fraud, whether or not material, that involves management or otheremployees who have a significant role in the Company’s internal controls overfinancial reporting. As of the date hereof, to the knowledge of the Company,the Company has not received any complaints since July 31, 2004 regardingaccounting, internal accounting controls or auditing matters, including anysuch complaint regarding questionable accounting or auditing matters.

 

(f)  As of the date hereof, to theknowledge of the Company, the Company has not identified any materialweaknesses in the design or operation of internal controls over financialreporting. To the knowledge of the Company, there is no reason to believe thatits auditors and its Chief Executive Officer and Chief Financial Officer willnot be able to give the certifications and attestations required pursuant tothe rules and regulations adopted pursuant to Section 404 of theSarbanes-Oxley Act, when first due.

 

(g)  There are no outstanding loans madeby the Company or any of its subsidiaries to any executive officer (as definedin Rule 3b-7 under the Exchange Act) or director of the Company.

 

(h)  Neither the Company nor any of itssubsidiaries has any liabilities of a nature required by generally acceptedaccounting principles to be reflected in a consolidated balance sheet or thenotes thereto, except liabilities that (i) are accrued or reserved againstin the most recent financial statements included in the SEC Reports filed priorto the date hereof or are reflected in the notes thereto, (ii) wereincurred in the ordinary course of business since the date of such financialstatements, (iii) are incurred pursuant to the transactions contemplatedby this Agreement, (iv) have been discharged or paid in full prior to thedate of this Agreement in the ordinary course of business or (v) as wouldnot reasonably be expected to have, individually or in the aggregate, aMaterial Adverse Effect.

 

SECTION 3.8  Absence of CertainChanges or Events. Since July 31, 2004, except as contemplated by thisAgreement, the Company and its subsidiaries have conducted their business inthe ordinary course consistent with past practice, and, since such date, therehas not been: (i) any change, event, condition, development or occurrencewhich 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  Absence of Litigation.There are no suits, claims, actions, proceedings, arbitrations, mediations orinvestigations (an “Action”) pending or, to the knowledge of the Company,threatened against the Company, any of its subsidiaries, other than any suchsuit, claim, action, proceeding, arbitration, mediation or investigation that (i) doesnot involve, in any individual case, a claim for monetary damages in excess of$10,000,000, (ii) would not prohibit or materially restrict the Companyand its subsidiaries from operating their business as they have historically,and (iii) would not (A) prevent or materially delay the Company fromperforming its obligations under this Agreement in any material respect or (B) reasonablybe expected to have, individually or in the aggregate, a Material AdverseEffect. As of the date hereof, to the knowledge of the Company, no officer ordirector of the Company is a defendant in any Action in connection with his orher status as an officer or director of the Company or any of its subsidiaries.As of the date hereof, neither the Company nor any of its subsidiaries nor anyof their respective properties is or are subject to any order, writ, judgment,injunction, decree or award except for those that would not (A) prevent ormaterially 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

 

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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  Employee BenefitPlans. (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)  With respect to each Company Plan,the Company has made available to the Parent a current, accurate and completecopy thereof (or, if a plan is not written, a written description thereof) and,to the extent applicable, (i) any related trust or custodial agreement orother funding instrument, (ii) the most recent determination letter, ifany, received from the Internal Revenue Service (the “IRS”), (iii) anysummary plan description or employee handbook, (iv) for the most recentyear (A) the Form 5500 and attached schedules, (B) auditedfinancial statements and (C) actuarial valuation reports, if any, and (v) copiesof any material 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)  Except as would not, individually orin the aggregate, reasonably be expected to result in a Material AdverseEffect, each Company Plan has been established and administered in accordancewith its terms and in compliance with the applicable provisions of ERISA, theInternal Revenue Code of 1986, as amended (the “Code”), and other Law.

 

(d)  Section 3.10(d) of theCompany 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 liability underTitle IV of ERISA that remains unsatisfied as would have, individually or inthe 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 theEffective Time, the Company or any of its subsidiaries were to engage in acomplete withdrawal (as defined in ERISA section 4203) or partial withdrawal(as defined in ERISA section 4205) from any such Multiemployer Plan; and (ii) tothe knowledge of the Company, no such Multiemployer Plan is in reorganizationor insolvent (as those terms are defined in sections 4241 and 4245 of ERISA,respectively).

 

(e)  Except as would not, individually orin the aggregate, reasonably be expected to result in a Material AdverseEffect, with respect to each Company Plan, no actions, suits or claims (otherthan routine claims for benefits in the ordinary course) are pending or, to theknowledge of the Company, threatened.

 

(f)  Except as would not, individually orin the aggregate, reasonably be expected to result in a Material AdverseEffect, (i) neither the Company nor any of its subsidiaries has incurredany liability under Title IV of ERISA that has not been satisfied in full, and (ii) tothe knowledge of the Company, no condition exists that presents a risk to theCompany of incurring any such liability other than liability for premiums duethe Pension Benefit Guaranty Corporation.

 

(g)  None of the Company Plans providesfor post-employment life or health insurance, benefits or coverage for anyparticipant, except as may be required under the Consolidated OmnibusReconciliation Act of 1995, as amended.

 

(h)  Except as would not, individually orin the aggregate, be reasonably expected to result in a Material Adverse Effect,each Company Plan which is intended to be qualified under Section 401(a) ofthe Code is so qualified and has received a determination letter to that effectfrom the Internal Revenue Service and, to the knowledge of the Company, nocircumstances exist which would reasonably be expected to materially adverselyaffect such qualification or exemption.

 

(i)  The execution, delivery of andperformance by the Company of its obligations under the transactionscontemplated by this Agreement will not (either alone or upon occurrence of anyadditional or subsequent events) (i) constitute an event under any CompanyPlan or any trust or loan related to any of those plans or agreements that willor may result in any payment, acceleration, forgiveness of indebtedness,vesting, distribution, increase in benefits or obligation to fund benefits withrespect to any Company Employee, or (ii) result in the triggering orimposition of (x) any restrictions or limitations on the right of theCompany or any of its subsidiaries to amend or terminate any Company Plan, or (y) resultin “excess parachute payments” within the meaning of Section 280G(b)(1) ofthe Code.

 

SECTION 3.11  Labor and EmploymentMatters. As of the date of this Agreement, there are no unfair laborpractice charges, grievances or complaints pending, or to the knowledge of theCompany, threatened against the Company or any subsidiary before 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. Exceptas would not, individually or in the aggregate, reasonably be expected to havea Material Adverse Effect, (a) all material insurance policies of theCompany and its subsidiaries are in full force and effect and provide insurancein such amounts and against such risks the management of the Company reasonablyhas determined to be prudent, taking into account the industries in which theCompany and its subsidiaries operate, or as is sufficient to comply withapplicable Law, (b) neither the Company nor any of its subsidiaries is inbreach or default, and neither the Company nor any of its subsidiaries hastaken any action or failed to take any action which, with notice or the lapseof time, would constitute such a breach or default, or permit termination ormodification of, any of such insurance policies, (c) to the knowledge ofthe 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) ofthe Company Disclosure Schedule contains a true and complete list of all realproperty owned by the Company or any subsidiary (collectively, the “OwnedReal Property”) and for each parcel of Owned Real Property, contains acorrect street address of such Owned Real Property.

 

(b)  Section 3.13(b) of theCompany 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)  Except as would not have,individually or in the aggregate, a Material Adverse Effect, the Company or oneof its subsidiaries has good fee simple title to all Owned Real Property andvalid leasehold estates in all Leased Real Property free and clear of allLiens, except (i) statutory liens securing payments not yet due, (ii) suchimperfections or irregularities of title, claims, liens, charges, securityinterests, easements, covenants and other restrictions or encumbrances as donot materially affect the use of the properties or assets subject thereto oraffected thereby or otherwise materially impair business operations at suchproperties, and (iii) mortgages, or deeds of trust, security interests orother encumbrances on title related to indebtedness reflected on theconsolidated

 

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

 

(d)  Except as would not have,individually or in the aggregate, a Material Adverse Effect, other than theReal Property Leases, none of the Owned Real Properties or the Leased RealProperties is subject to any lease, sublease, license or other agreementgranting to any other Person any right to the use, occupancy or enjoyment of suchOwned Real Property or Leased Real Property or any part thereof.

 

(e)  Except as would not have,individually or in the aggregate, a Material Adverse Effect, each Real PropertyLease is in full force and effect and is valid and enforceable in accordancewith its terms, and there is no material default under any Real Property Leaseeither by the Company or its subsidiaries party thereto or, to the knowledge ofthe Company, by any other party thereto.

 

(f)  Except as would not have,individually or in the aggregate, a Material Adverse Effect, there does notexist any pending condemnation or eminent domain proceedings that affect anyOwned Real Property or, to the knowledge of the Company, any such proceedingsthat affect any Leased Real Property or, to the knowledge of the Company, anythreatened condemnation or eminent domain proceedings that affect any OwnedReal Property or Leased Real Property, and neither the Company nor itssubsidiaries have received any written notice of the intention of any GovernmentalEntity or other Person to take or use any Owned Real Property or Leased RealProperty.

 

SECTION 3.14  Tax Matters. (a) Exceptas would not, individually or in the aggregate, reasonably be expected to havea Material Adverse Effect, (i) all Tax Returns required to be filed by, orwith respect to any activities of, the Company and its subsidiaries have beentimely filed (except those under valid extension), (ii) all Taxes of theCompany and its subsidiaries have been timely paid except to the extent such Taxesare being contested in good faith or have been adequately provided for inaccordance with generally accepted accounting principles, (iii) withouttaking into account any transactions contemplated by this Agreement and basedupon activities, including outside the ordinary course of business, to date,adequate reserves in accordance with generally accepted accounting principleshave been established by the Company and its subsidiaries for all Taxes not yetdue and payable in respect of taxable periods ending on the date hereof, (iv) nodeficiency for any Tax has been asserted or assessed by any Governmental Entityin writing against the Company or any of its subsidiaries (or, to the knowledgeof the Company, has been threatened or proposed), except for deficiencies whichhave been satisfied by payment, settled or been withdrawn or which are beingcontested in good faith, (v) all Taxes required to be withheld by theCompany and its subsidiaries have been withheld and paid over to theappropriate Tax authority, (vi) neither the Company nor any of itssubsidiaries has waived any statute of limitations in respect of any Taxes oragreed to any extension of time with respect to an assessment or deficiency forTaxes (other than pursuant to extensions of time to file Tax Returns obtainedin the ordinary course), (vii) neither the Company nor any of itssubsidiaries has received written notice of any action, suit, proceeding,investigation, claim or audit against, or with respect to, any Taxes, and nosuch 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 notrelate to 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)  For purposes of this Agreement, “Taxes”shall mean any taxes of any kind, including but not limited to those on ormeasured by or referred to as income, gross receipts, capital, sales, use, advalorem, franchise, profits, license, withholding, payroll, employment, excise,severance, stamp, occupation, premium, value added, property or windfallprofits taxes, customs, duties or similar fees, assessments or charges of anykind whatsoever, together with any interest and any penalties, additions to taxor additional amounts imposed by any governmental authority, domestic or foreign.For purposes of this Agreement, “Tax Return” shall mean any return,report or statement required to be filed with any governmental authority withrespect to Taxes, including any schedule or attachment thereto or amendmentthereof.

 

SECTION 3.15  Proxy Statement.None of the information supplied or to be supplied by the Company for inclusionor incorporation by reference in the proxy statement to be sent to theshareholders of the Company in connection with the Stockholders Meeting (suchproxy statement, as amended or supplemented, the “Proxy Statement”)will, 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. The Proxy Statement will, at the date it is firstmailed to stockholders and at the time of the Stockholders Meeting, comply asto form in all material respects with the requirements of the Exchange Act andthe rules and regulations promulgated thereunder. Notwithstanding theforegoing, the Company makes no representation or warranty with respect to anyinformation supplied by Parent or Merger Sub or any of their respectiverepresentatives which is contained or incorporated by reference in the ProxyStatement.

 

SECTION 3.16  Opinion of FinancialAdvisors. 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. Nobroker, 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 oron behalf of the Company or any of its subsidiaries.

 

SECTION 3.18  Takeover Statutes;Rights Plans. (a) Assuming the accuracy of the representations andwarranties of Parent and Merger Sub set forth in Section 4.9, no “fairprice”, “moratorium”, “control share acquisition”, “business combination” orother similar antitakeover statute or regulation enacted under state or federallaws in the United States applicable to the Company, including Section 203of the DGCL, is applicable to the Merger or the other transactions contemplatedhereby.

 

(b)  Prior to the date of this Agreement,the Company has amended the Rights Plan so that (a) neither the execution,delivery or performance of this Agreement nor the consummation of thetransactions contemplated hereby will (i) cause the Company Rights tobecome 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  Environmental Matters.(a) Except as would not reasonably be expected to have, individually or inthe aggregate, a Material Adverse Effect: (i) the Company and each of itssubsidiaries have complied and currently comply with all applicableEnvironmental Laws (as defined below), and possess and have possessed andcomply and have complied with all applicable Environmental Permits (as definedbelow) required under such laws to operate as the Company and its subsidiariespresently operate; (ii) to the knowledge of the Company, there are noMaterials of Environmental Concern (as defined below) at any property owned oroperated by the Company or any of its subsidiaries, under circumstances thatare reasonably likely to result in liability of the Company or any of itsSignificant 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 toParent copies of all material environmental, health and safety reports, audits,assessments or other material communications or documentation relating toenvironmental, health or safety matters in its possession relating to theCompany and any of the Company’s subsidiaries and any real property owned,operated or leased by or for the Company or any subsidiary of the Company,including but not limited to any Phase I or Phase II Environmental SiteAssessments, asbestos surveys or abatement reports, indoor air quality studiesor remediation reports, in any case to the extent any of the issues identifiedin such reports, audits, assessments or other material communications ordocumentation would reasonably be expected to result in a material liability tothe Company or its subsidiaries.

 

(c)  Notwithstanding any otherrepresentations and warranties in this Agreement, the representations andwarranties 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, thefollowing terms shall have the meanings assigned below:

 

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

 

“EnvironmentalPermits” shall mean all permits, licenses, registrations, and otherauthorizations required under applicable Environmental Laws.

 

“Materialsof Environmental Concern” shall mean any material, substance or wastedefined and regulated as hazardous, toxic, pollutant, contaminant or words ofsimilar meaning under Environmental Laws, petroleum, petroleum byproducts orwaste products, asbestos, PCBs, mold of the type and in concentrations thatwould reasonably be likely to affect human health or occupation or use of anyowned or leased real property, or formaldehyde.

 

SECTION 3.21  Contracts.

 

(a)  As of the date hereof, exceptfor this Agreement, none of the Company or any of its subsidiaries is a partyto 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); |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (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  No OtherRepresentations 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 OFPARENT AND MERGER SUB

 

Parent and Merger Sub hereby, jointly and severally,represent and warrant to the Company that, except as set forth on thecorresponding section of the Disclosure Schedule delivered by Parent and MergerSub to the Company prior to the execution of this Agreement (the “ParentDisclosure 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. Eachof Parent and Merger Sub has all necessary corporate power and authority toexecute and deliver this Agreement, to perform its obligations hereunder and toconsummate 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 laws relatingto or affecting creditors’ rights generally, general equitable principles(whether considered in a proceeding in equity or at law) and any impliedcovenant of good faith and fair dealing.

 

SECTION 4.3  No Conflict; RequiredFilings and Consents. The execution, delivery and performance of thisAgreement by Parent and Merger Sub, do not and will not (i) conflict withor violate the respective certificates of incorporation or by-laws of Parent orMerger Sub, (ii) 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 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)  The execution, delivery andperformance of this Agreement by each of Parent and Merger Sub and theconsummation of the transactions contemplated hereby by each of Parent andMerger Sub do not and will not require any consent, approval, authorization orpermit of, action by, filing with or notification to, any Governmental Entity,except for (i) the applicable requirements, if any, of the Exchange Actand the rules and regulations promulgated thereunder, the HSR Act andstate securities, takeover and “blue sky” laws, (ii) the applicablerequirements of the New York Stock Exchange, (iii) the filing with theSecretary of State of the State of Delaware of the Certificate of Merger asrequired by the DGCL, (iv) the applicable requirements of ForeignAntitrust Laws and (v) any such consent, approval, authorization, permit,action, filing or notification the failure of which to make or obtain would notprevent or materially delay the consummation of the transactions contemplatedhereby.

 

SECTION 4.4  Absence of Litigation.There are no suits, claims, actions, proceedings, arbitrations, mediations orinvestigations pending or, to the knowledge of Parent, threatened againstParent or any of its subsidiaries, other than any such suit, claim, action,proceeding or investigation that would not, or would not reasonably be expectedto, prevent or materially delay the consummation of the transactionscontemplated hereby. As of the date hereof, neither Parent nor any of itssubsidiaries nor any of their respective properties is or are subject to anyorder, 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  Proxy Statement.None of the information supplied or to be supplied by Parent or Merger Sub forinclusion or incorporation by reference in the Proxy Statement will, at thedate it is first mailed to the stockholders of the Company and at the time ofthe Stockholders Meeting or at the date of any amendment thereof or supplement thereto,contain any untrue statement of a material fact or omit to state any materialfact required to be stated therein or necessary in order to make the statementstherein, in the light of the circumstances under which they are made, notmisleading. Notwithstanding the foregoing, Parent and Merger Sub make norepresentation or warranty with respect to any information supplied by theCompany or any of its representatives which is contained or incorporated byreference in the Proxy Statement.

 

SECTION 4.6  Brokers. Nobroker, 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. Parenthas 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  Parent and Merger Sub.(a) Each of Parent and Merger Sub has been formed solely for the purposeof engaging in the transactions contemplated hereby and prior to the EffectiveTime will have engaged in no other business activities and will have incurredno liabilities or obligations other than as contemplated herein.

 

(b)  Prior to the Effective Time, Parentshall deliver to the Company a complete and correct description of its capitalstructure and ownership and that of its equity holders (excluding theInvestors). On the date set for Closing, the Investors shall cause Merger Subto be capitalized with an initial capitalization of not less than$1,550,000,000. At the Closing, the Investors and their affiliates shall,directly or indirectly, own all of the outstanding equity securities of Parent.

 

SECTION 4.9  Ownership of Shares.As of the date of this Agreement, none of Parent, Merger Sub or theirrespective controlled affiliates owns (directly or indirectly, beneficially orof record) any Shares and none of Parent, Merger Sub or their respectivecontrolled affiliates holds any rights to acquire any Shares except pursuant tothis 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  No OtherRepresentations 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  Conduct of Businessof the Company Pending the Merger.  The Company covenants andagrees that, during the period from the date hereof until the Effective Time,except as contemplated by this Agreement or as required by Law, or unlessParent shall otherwise agree in writing, the business of the Company and itssubsidiaries shall be conducted in its ordinary course of business and theCompany shall use its reasonable best efforts to preserve substantially intactits business organization, and to preserve its present relationships withcustomers, suppliers and other persons with which it has significant businessrelations. Without limiting the generality of the foregoing, between the dateof this Agreement and the Effective Time, except as otherwise contemplated bythis Agreement, as set forth in Section 5.1 of the Company DisclosureSchedule or as required by Law, neither the Company nor any of its subsidiariesshall without the prior written consent of Parent (which consent shall not beunreasonably 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  Consultation Rights.The Company shall keep Parent reasonably apprised of the status of, and allother material matters regarding, the Credit Card Business Transaction and theKate 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  Conduct of Businessof Parent and Merger Sub Pending the Merger. Each of Parent and Merger Subagrees that, between the date of this Agreement and the Effective Time, itshall not, directly or indirectly, take any action (i) to cause itsrepresentations and warranties set forth in Article IV to be untrue in anymaterial respect; or (ii) that would, or would reasonably be expected to,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  No Control of OtherParty’s Business. Nothing contained in this Agreement shall give Parent,directly or indirectly, the right to control or direct the Company’s or itssubsidiaries’ operations prior to the Effective Time, and nothing contained inthis Agreement shall give the Company, directly or indirectly, the right tocontrol or direct Parent’s or its subsidiaries’ operations prior to the EffectiveTime. 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  Stockholders Meeting.As soon as reasonably practicable following the date of this Agreement, theCompany, acting through its Board of Directors, shall (i) take all actionnecessary to duly call, give notice of, convene and hold a meeting of itsstockholders for the purpose of adopting this Agreement (the “StockholdersMeeting”), (ii) include in the Proxy Statement the recommendation of theBoard of Directors that the stockholders of the Company vote in favor of theadoption of this Agreement and, subject to the approval of each FinancialAdvisor, as applicable, the written opinions of the Financial Advisors, datedas of the date hereof, that, as of such date, the Merger Consideration is fair,from a financial point of view, to the holders of the Class A Common Stockand Class B Common Stock (other than members of the Smith Family Group)and (iii) use its reasonable best efforts to obtain the Company RequisiteVote; provided that the Board of Directors of the Company may fail to make orwithdraw, modify or change such recommendation and/or may fail to use suchefforts (subject to the Company having (A) provided Parent at least threebusiness days’ prior written notice of the Company’s Board of Directors’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.

 

Notwithstanding anything to the contrary containedin this Agreement, the Company shall not be required to hold the StockholdersMeeting if this Agreement is terminated in accordance with Section 8.1.

 

SECTION 6.2  Proxy Statement.As soon as reasonably practicable following the date of this Agreement, theCompany shall, with the assistance and approval (not to be unreasonablywithheld or delayed) of Parent, prepare and file with the SEC the ProxyStatement. Parent, Merger Sub and the Company will cooperate and consult witheach 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.The Company 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  Resignation ofDirectors. 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  Access toInformation; Confidentiality. From the date hereof to the Effective Time orthe 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 its subsidiariesshall be required to provide access to or to disclose information where suchaccess or disclosure would jeopardize the attorney-client privilege of theCompany or its subsidiaries or contravene any Law or binding agreement enteredinto prior to the date of this Agreement (it being agreed that the partiesshall use their reasonable best efforts to cause such information to beprovided in a manner that does not cause such violation or jeopardization).

 

(b)  Each of Parent and Merger Sub willhold and treat and will cause its officers, employees, auditors and otherauthorized representatives to hold and treat in confidence all documents andinformation concerning the Company and its subsidiaries furnished to Parent orMerger Sub in connection with the transactions contemplated by this Agreementin accordance with the Confidentiality Agreement, dated January 28, 2005,between the Company and Warburg Pincus LLC and the Confidentiality Agreement,dated February 4, 2005, between the Company and TPG Partners IV, L.P.(collectively, the “Confidentiality Agreements”) which ConfidentialityAgreements shall remain in full force and effect in accordance with its terms.

 

SECTION 6.5  Acquisition Proposals.(a)The Company agrees that (i) it and its officers, directors andemployees shall not, (ii) its subsidiaries and its subsidiaries’

 

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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 applicableLaw and 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 Acquisition Proposaland provide a copy of all written materials provided to or by the Company inconnection with such Acquisition Proposal. Except as otherwise permitted bythis Agreement, the Company and its subsidiaries shall not enter into anyContract that is inconsistent with their respective obligations under this Section 6.5.

 

(b)  Notwithstanding anything in this Section 6.5to the contrary, if, at any time prior to the adoption of this Agreement by theCompany’s stockholders in accordance with this Agreement, the Company’s Boardof Directors determines in good faith, after consultation with its financialadvisors and outside legal counsel, in response to a bona fide writtenAcquisition Proposal that was unsolicited and that did not otherwise resultfrom a breach of Section 6.5(a) in any material respect, that suchproposal is a Superior Proposal, (i) the Company may terminate thisAgreement, (ii) its Board of Directors may approve or recommend suchSuperior Proposal to its stockholders, and/or (iii) immediately prior toor 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 penultimate sentenceof Section 6.5(a) (it being understood that neither the delivery of aNotice of a Superior Proposal nor any subsequent public announcement thereof initself shall entitle Parent to terminate this Agreement pursuant to Section 8.1(e)),and (B) Parent does not, within three business days following its receiptof the Notice of Superior Proposal, make an offer that, as determined by theBoard of Directors of the Company in good faith after consultation with itsoutside legal counsel and financial advisors, results in the applicableAcquisition Proposal no longer being a Superior Proposal (provided that,during such three business day period, the Company shall negotiate in goodfaith with Parent, to the extent Parent wishes to negotiate, to enable Parent tomake such offer).

 

SECTION 6.6  Employment andEmployee Benefits Matters. (a) Without limiting any additional rightsthat any Company Employee may have under any Company Plan, Parent shall causethe Surviving Corporation and each of its subsidiaries, for a period commencingat the Effective Time and ending on the second anniversary thereof, to maintainthe severance-related provisions of existing Company Plans and to provide 100%of the severance payments and benefits required thereunder to be provided anyCurrent Employee (as defined below) terminated during that twenty-four monthperiod. In respect of the annual bonus payable to the Company Employees forservice rendered in fiscal year 2005, Parent shall, or shall cause theSurviving Corporation to, continue to honor the terms and conditions of andobligations (whether existing as of the date of this Agreement or thereafter)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)  Without limiting any additionalrights that any Company Employee not covered by a Collective BargainingAgreement and employed by the Company or any of its subsidiaries at theEffective Time (Current Employee”) may have under any Company Plan,Parent shall cause the Surviving Corporation and each of its subsidiaries, forthe period commencing at the Effective Time and ending on the secondanniversary thereof, to maintain for any Current Employee (i) subject toparagraph (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)  As of and after the Effective Time,Parent will, or will cause the Surviving Corporation to, give Current Employeesfull credit for purposes of eligibility and vesting (but not benefit accruals,except for vacation and severance, if applicable, under the Company Plans),under any employee compensation and incentive plans, benefit (includingvacation) plans, programs, policies and arrangements maintained for the benefitof Current Employees as of and after the Effective Time by Parent, itssubsidiaries or the Surviving Corporation for the Company Employees’ servicewith the Company, its subsidiaries and their predecessor entities (each, a “ParentPlan”) to the same extent recognized by the Company immediately prior tothe Effective Time. With respect to each Parent Plan that is a “welfare benefitplan” (as defined in Section 3(1) of ERISA), the Parent or itssubsidiaries shall (i) cause there to be waived any pre-existing conditionor eligibility limitations and (ii) give effect, for the fiscal year inwhich the Closing occurs, in determining any deductible and maximumout-of-pocket limitations, to claims incurred and amounts paid by, and amountsreimbursed to, Current Employees under similar plans maintained by the Companyand its subsidiaries immediately prior to the Effective Time.

 

(d)  From and after the Effective Time,Parent will cause the Surviving Corporation and all of their subsidiaries tohonor, in accordance with its terms, (x) each existing employment, changein control, severance and termination plan, policy or agreement of or betweenthe Company or any of its subsidiaries and any officer, director or employee ofthat company, (y) equity-based plans, programs or agreements, bonus plansor programs and (z) all obligations pursuant to outstanding restorationplans, equity-based plans, programs or agreements, bonus plans or programs,bonus deferral plans, vested and accrued benefits under any employee benefitplan, program or arrangement of the Company or its subsidiaries and similaremployment compensation and benefit arrangements and agreements in effect as ofthe Effective Time, in each case to the extent legally binding on the Companyor any of its subsidiaries.

 

SECTION 6.7  Directors’ andOfficers’ 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) mattersexisting 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)  The certificate of incorporation andby-laws of the Surviving Corporation shall contain provisions no less favorablewith respect to indemnification, advancement of expenses and exculpation ofindividuals who were directors and officers prior to the Effective Time thanare presently set forth in the Company’s Certificate of Incorporation andBy-laws, which provisions shall not be amended, repealed or otherwise modifiedfor a period of six years from the Effective Time in any manner that would adverselyaffect the rights thereunder of any such individuals.

 

(c)  Prior to the Effective Time, theCompany shall endeavor to (and if it is unable to, Parent shall cause theSurviving Corporation to after the Effective Time) obtain and fully pay (up toa maximum cost of 300% of the current annual premium paid by the Company forits existing coverage in the aggregate) for “tail” insurance policies(providing only for the Side A coverage for Indemnified Parties where theexisting policies also include coverage for the Company) with a claims periodof at least six years from the Effective Time from an insurance carrier withthe same or better credit rating as the Company’s current insurance carrierwith respect to directors’ and officers’ liability insurance in an amount andscope at least as favorable as the Company’s existing policies with respect tomatters existing or occurring at or prior to the Effective Time. Parent shall,and shall cause the Surviving Corporation to, honor and perform under (i) allindemnification agreements entered into by the Company or any of itssubsidiaries and (ii) the obligations set forth on Section 6.7(c) ofthe Company Disclosure Schedule.

 

(d)  Notwithstanding anything herein tothe contrary, if any claim, action, suit, proceeding or investigation (whetherarising before, at or after the Effective Time) is made against any IndemnifiedParty on or prior to the sixth anniversary of the Effective Time, theprovisions of this Section 6.7 shall continue in effect until the finaldisposition of such claim, action, suit, proceeding or investigation.

 

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(e)  This covenant is intended to be forthe benefit of, and shall be enforceable by, each of the Indemnified Partiesand their respective heirs and legal representatives. The indemnificationprovided for herein shall not be deemed exclusive of any other rights to whichan Indemnified Party is entitled, whether pursuant to Law, contract orotherwise.

 

(f)  In the event that the SurvivingCorporation or Parent or any of their respective successors or assigns (i) consolidateswith or merges into any other person and shall not be the continuing orsurviving corporation or entity of such consolidation or merger or (ii) transfersor conveys all or substantially all of its properties and assets to any person,then, and in each such case, proper provision shall be made so that thesuccessors and assigns of the Surviving Corporation or Parent, as the case maybe, shall succeed to the obligations set forth in Section 6.6 and this Section 6.7.In addition, 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  Further Action;Efforts. (a) Subject to the terms and conditions of this Agreement,each party will use its reasonable best efforts to take, or cause to be taken,all actions and to do, or cause to be done, all things necessary, proper oradvisable under applicable Law to consummate the Merger and the other transactionscontemplated by this Agreement. In furtherance and not in limitation of theforegoing, each party hereto agrees to make an appropriate filing of aNotification and Report Form pursuant to the HSR Act with respect to thetransactions contemplated hereby as promptly as practicable and in any eventwithin five business days of the date hereof and to supply as promptly asreasonably practicable any additional information and documentary material thatmay be requested pursuant to the HSR Act and use its reasonable best efforts totake or cause to be taken all other actions necessary, proper or advisableconsistent with this Section 6.8 to cause the expiration or termination ofthe applicable waiting periods under the HSR Act as soon as practicable.Without limiting the foregoing, the parties shall request and shall usereasonable best efforts to obtain early termination of the waiting periodprovided for in the HSR Act.

 

(b)  Each of Parent and Merger Sub, on theone hand, and the Company, on the other hand, shall, in connection with theefforts referenced in Section 6.8(a) to obtain all requisiteapprovals and authorizations for the transactions contemplated by thisAgreement under the HSR Act or any other Antitrust Law, use its reasonable bestefforts to (i) cooperate in all respects with each other in connectionwith any filing or submission and in connection with any investigation or otherinquiry, including any proceeding initiated by a private party; (ii) keepthe other party reasonably informed of any communication received by such partyfrom, or given by such party to, the Federal Trade Commission (the “FTC”),the Antitrust Division of the Department of Justice (the “DOJ”) or anyother U.S. or foreign Governmental Entity and of any communication received orgiven in connection with any proceeding by a private party, in each caseregarding any of the transactions contemplated hereby; and (iii) permitthe other party to review any communication given by it to, and consult witheach other in advance of any meeting or conference with, the FTC, the DOJ orany 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)  In furtherance and not in limitationof the covenants of the parties contained in Sections 6.8(a) and (b), ifany objections are asserted with respect to the transactions contemplatedhereby under any Antitrust Law or if any suit is instituted (or threatened tobe instituted) by the FTC, the DOJ or any other applicable Governmental Entityor any private party challenging any of the transactions contemplated hereby asviolative of any Antitrust Law or which would otherwise prevent, materiallyimpede or materially delay the consummation of the transactions contemplatedhereby, each of Parent, Merger Sub and the Company shall use its reasonablebest efforts to resolve any such objections or suits so as to permitconsummation of the transactions contemplated by this Agreement, including inorder to resolve such objections or suits which, in any case if not resolved,would reasonably be expected to prevent, materially impede or materially delaythe consummation of the Merger or the other transactions contemplated hereby,including selling, holding separate or otherwise disposing of or conducting itsbusiness in a manner which would resolve such objections or suits or agreeingto sell, hold separate or otherwise dispose of or conduct its business in amanner which would resolve such objections or suits or permitting the sale,holding separate or other disposition of, any of its assets or the assets ofits subsidiaries or the conducting of its business in a manner which wouldresolve such objections or suits. Without excluding other possibilities, thetransactions contemplated by this Agreement shall be deemed to be materiallydelayed if unresolved objections or suits delay or would reasonably be expectedto delay the consummation of the transactions contemplated hereby beyond theTermination Date.

 

(d)  Subject to the obligations under Section 6.8(c),in the event that any administrative or judicial action or proceeding isinstituted (or threatened to be instituted) by a Governmental Entity or privateparty challenging the Merger or any other transaction contemplated by thisAgreement, or any other agreement contemplated hereby, each of Parent, MergerSub and the Company shall cooperate in all respects with each other and use itsrespective reasonable best efforts to contest and resist any such action orproceeding and to have vacated, lifted, reversed or overturned any decree,judgment, injunction or other order, whether temporary, preliminary orpermanent, that is in effect and that prohibits, prevents or restricts consummationof the transactions contemplated by this Agreement.

 

(e)  Notwithstanding anything to thecontrary in this Agreement, in connection with obtaining any approval orconsent from any person (other than a Governmental Entity) with respect to theMerger, (i) without the prior written consent of Parent (which shall notbe unreasonably withheld or delayed), none of the Company or any of itssubsidiaries

 

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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 tomake such payments).

 

(f)  Notwithstanding the foregoing or anyother provision of this Agreement, nothing in this Section 6.8 shall limita 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  Public Announcements.Each of the Company, Parent and Merger Sub agrees that no public release orannouncement concerning the transactions contemplated hereby shall be issued byany party without the prior written consent of the Company and Parent (whichconsent shall not be unreasonably withheld or delayed), except as such releaseor announcement may be required by Law or the rules or regulations of anyapplicable United States securities exchange or regulatory or governmental bodyto which the relevant party is subject or submits, wherever situated, in whichcase the party required to make the release or announcement shall use itsreasonable best efforts to allow each other party reasonable time to comment onsuch release or announcement in advance of such issuance, it being understoodthat the final form and content of any such release or announcement, to theextent so required, shall be at the final discretion of the disclosing party.

 

SECTION 6.10  Financing. (a) Priorto the Closing, the Company shall provide to Parent and Merger Sub, and shallcause its subsidiaries to, and shall use its reasonable best efforts to causethe respective officers, employees, Representatives and advisors, includinglegal and accounting, of the Company and its subsidiaries to, provide to Parentand Merger Sub all cooperation requested by Parent that is necessary, proper oradvisable in connection with the Financing and the other transactionscontemplated by this Agreement, including (i) participation in meetings,presentations, road shows, due diligence sessions and sessions with ratingagencies, (ii) assisting with the preparation of materials for ratingagency presentations, offering documents, private placement memoranda, bankinformation memoranda, prospectuses and similar documents required inconnection with the Financing, (iii) executing and delivering any pledgeand security 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)  Parent shall use its reasonable bestefforts to take, or cause to be taken, all actions and to do, or cause to bedone, all things necessary, proper or advisable to arrange the Debt Financingon the terms and conditions described in the Debt Financing Commitments(provided that Parent and Merger Sub may replace or amend the Debt FinancingCommitments to add lenders, lead arrangers, bookrunners, syndication agents orsimilar entities who had not executed the Debt Financing Commitments as of thedate hereof, or otherwise so long as the terms are not materially lessbeneficial to Merger Sub, including with respect to conditionality, than thosein the Debt Financing Commitments as in effect on the date hereof as determinedin the reasonable judgment of Parent), including using reasonable best effortsto (i) maintain in effect the Financing commitments, (ii) satisfy ona timely basis all conditions applicable to Parent and Merger Sub to obtainingthe Financing set forth therein (including by consummating the Equity Financingpursuant to the terms of the Equity Financing Commitments), (iii) enterinto definitive agreements with respect thereto on the terms and conditionscontemplated by the Debt Financing Commitments (including the related flexprovisions) or on other terms not materially less beneficial to Merger Sub,including with respect to conditionality, as determined in the reasonablejudgment of Parent and (iv) consummate the Financing at or prior toClosing. In the event any portion of the Debt Financing

 

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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 PrincipalCommitment Letter to the extent necessary to arrange the Debt Financing on theterms and conditions described in the Debt Financing Commitments in order toborrow the full amount available pursuant to the proviso to clause (a) ofsuch numbered 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  Conditions toObligation of Each Party to Effect the Merger. The respective obligationsof each party to effect the Merger shall be subject to the satisfaction orwaiver at or prior to the Effective Time of the following conditions:

 

(a)  this Agreement shall have beenadopted by the stockholders of the Company by the Company Requisite Vote;

 

(b)  no Law (whether temporary,preliminary or permanent) shall have been enacted, entered, promulgated orenforced by any United States or state court or United States GovernmentalEntity which prohibits, restrains or enjoins the consummation of the Merger; provided,however, that prior to invoking this condition each party agrees tocomply with Section 6.8; and

 

(c)  the waiting period (and any extensionthereof) applicable to the Merger under the HSR Act shall have been terminatedor shall have expired.

 

SECTION 7.2  Conditions toObligations of Parent and Merger Sub. The obligations of Parent and MergerSub to effect the Merger shall be further subject to the satisfaction or waiverat or prior to the Effective Time of the following conditions:

 

(a)  (i) the representations andwarranties set forth in Sections 3.3 (a) and 3.18 shall be true andcorrect as of the date of this Agreement and as of the Effective Time as thoughmade on and as of the Effective Time (except to the extent expressly made as ofan earlier date, in which case as of such earlier date), except for any failureto be true and correct that would be immaterial to Parent and Merger Sub; and (ii) theother representations and warranties of the Company contained in this Agreementshall be true and correct (without giving effect to any limitation on anyrepresentation or warranty indicated by the words “Material Adverse Effect”, “inall material respects”, “in any material respect”, “material” or “materially,”except for the limitation set forth in clause (i) of Section 3.8) asof the date of this Agreement and as of the Effective Time, as though made onand as of the Effective Time (except to the extent expressly made as of anearlier date, in which case as of such earlier date), except where the failureof any such representations and warranties to be so true and correct would notreasonably be expected to have, individually or in the aggregate, a MaterialAdverse Effect.

 

(b)  the Company shall have performed inall material respects the obligations, and complied in all material respectswith the agreements and covenants, required to be

 

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

 

(c)  Parent shall have received acertificate of the Chief Executive Officer or the Chief Financial Officer ofthe Company, certifying that the conditions set forth in Sections 7.2(a) and(b) have been satisfied.

 

SECTION 7.3  Conditions toObligations 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)  the representations and warranties ofParent and Merger Sub set forth in this Agreement shall be true and correct inall material respects, in each case as of the Effective Time as though made onand as of such date (unless any such representation or warranty is made only asof a specific date, in which event such representation and warranty shall betrue and correct in all material respects as of such specified date);

 

(b)  each of Parent and Merger Sub shallhave performed in all material respects the obligations, and complied in allmaterial respects with the agreements and covenants, required to be performedby or complied with by it under this Agreement at or prior to the Closing Date;and

 

(c)  the Company shall have receivedcertificates of the Chief Executive Officer or the Chief Financial Officer ofeach of Parent and Merger Sub, certifying that the conditions set forth inSections 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)  by mutual written consent of Parent,Merger Sub and the Company;

 

(b)  by Parent or the Company if any courtof competent jurisdiction or other Governmental Entity located or havingjurisdiction within the United States shall have issued a final order, decreeor ruling or taken any other final action restraining, enjoining or otherwiseprohibiting the Merger and such order, decree, ruling or other action is orshall have become final and nonappealable;

 

(c)  by either Parent or the Company ifthe Effective Time shall not have occurred on or before the date which is sixmonths from the date hereof (the “Termination Date”); provided, however,that if the Marketing Period has not ended on or before August 15, 2005,the Termination Date shall be the earlier of (A) the tenth business dayfollowing

 

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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) by the Company (i) if there shall havebeen a breach of any representation, warranty, covenant or agreement on thepart of Parent or Merger Sub contained in this Agreement such that thecondition set forth in Sections 7.3(a) or 7.3(b) would not besatisfied and, in either such case, such breach is not capable of being curedor, if capable of being cured, shall not have been cured prior to the earlierof (A) 20 business days following notice of such breach to Parent, (B) theTermination Date and (C) with respect to any breach by Parent or MergerSub in connection with obtaining the proceeds pursuant to the Financing orusing such proceeds as contemplated hereunder, the final day of the MarketingPeriod; provided that the Company shall not have the right to terminatethis Agreement pursuant to this Section 8.1(d)(i) if the Company isthen in material breach of any of its covenants or agreements contained in thisAgreement, or (ii) prior to the adoption of this Agreement by thestockholders of the Company, in accordance with, and subject to the terms andconditions of, Section 6.5(b);

 

(e)  by Parent (i) if there shallhave been a breach of any representation, warranty, covenant or agreement onthe part of the Company contained in this Agreement such that the conditionsset forth in Sections 7.2(a) or 7.2(b) would not be satisfied and, ineither such case, such breach is not capable of being cured or, if capable ofbeing cured, shall not have been cured prior to the earlier of (A) 20business days following notice of such breach to the Company and (B) theTermination Date; provided that Parent shall not have the right toterminate this Agreement pursuant to this Section 8.1(e)(i) if Parentor Merger Sub is then in material breach of any of its covenants or agreementscontained in this Agreement, or (ii) if the Board of Directors of theCompany (A) shall have withdrawn, modified or changed (it being understoodand agreed that any “stop-look-and-listen” communication by the Board ofDirectors of the Company to the stockholders of the Company pursuant to Rule 14d-9(f) ofthe Exchange Act, or any substantially similar communication to thestockholders of the Company in connection with the commencement of a tenderoffer or exchange offer, shall not be deemed to constitute a withdrawal,modification or change of its recommendation of this Agreement or the Merger)in a manner adverse to Parent or Merger Sub its approval or recommendation ofthis Agreement or the Merger or (B) shall have recommended to thestockholders of the Company an Acquisition Proposal other than the Merger, orshall have resolved to effect

 

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anyof the foregoing; or

 

(f)  by either Parent or the Company if,upon a vote taken thereon at the Stockholders Meeting or any postponement oradjournment thereof, this Agreement shall not have been adopted by the CompanyRequisite Vote.

 

SECTION 8.2  Effect of Termination.(a) In the event of the termination of this Agreement pursuant to Section 8.1,this Agreement shall forthwith become void and there shall be no liability orobligation on the part of any party hereto, except with respect to Sections6.4(b), 6.9, 6.10, this Section 8.2, Section 8.3 and Article IX,which shall survive such termination; provided, however, that,except as set forth in Section 8.2(g), nothing contained herein shallrelieve any party from liability for any willful and material breach hereof.

 

(b)  If this Agreement is terminatedpursuant to Section 8.1(f), then the Company shall pay Parent an amountequal to the sum of Parent’s Expenses (not to exceed $20,000,000 in theaggregate) for which Parent has not theretofore been reimbursed by the Company.“Expenses” includes all reasonable out-of-pocket expenses (including allfees and expenses of financing sources, counsel, accountants, investmentbankers, experts and consultants to a party hereto and its affiliates) incurredby a party or on its behalf in connection with or related to the authorization,preparation, negotiation, execution and performance of this Agreement. Paymentof Parent’s Expenses pursuant to this Section 8.2(b) shall be madenot later than two business days after delivery to the Company of notice ofdemand for payment and a documented itemization setting forth in reasonabledetail all such Expenses of Parent (which itemization may be supplemented andupdated from time to time by Parent until the ninetieth day after Parentdelivers such notice of demand for payment).

 

(c)  In the event that this Agreement isterminated by the Company pursuant to Section 8.1(d)(ii) or by Parentpursuant to Section 8.1(e)(ii), then the Company shall pay $140,300,000(such amount, the “Termination Fee”) to Parent or as directed by Parent,at or prior to the time of termination in the case of a termination pursuant toSection 8.1(d)(ii) or as promptly as reasonably practicable (and, inany event, within two business days following such termination) in the case ofa termination pursuant to Section 8.1(e)(ii), payable by wire transfer ofsame day funds.

 

(d)  In the event that (i) thisAgreement is terminated (A) by Parent or the Company pursuant to Section 8.1(f) and,at any time after the date of this Agreement and prior to the StockholdersMeeting, 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 StockholdersMeeting, (B) by Parent pursuant to Section 8.1(e)(i) and, at anytime after the date of this Agreement and prior to the breach giving rise toParent’s right to terminate under Section 8.1(e)(i), an AcquisitionProposal shall have been publicly disclosed or otherwise communicated to thesenior management or Board of Directors of the Company and shall not have beenirrevocably withdrawn prior to the 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)  In the event that (i) thisAgreement is terminated by the Company pursuant to Section 8.1(d)(i) asa result of a breach by Parent or Merger Sub of its respective obligation toeffect the Closing pursuant to Section 1.2 hereof and satisfy itsobligations under Article II including depositing (or causing to bedeposited) with the Paying Agent sufficient funds to make all payments pursuantto Section 2.4(b) and (ii) Parent and Merger Sub fail to effectthe Closing and satisfy such obligations because of a failure to receive theproceeds of one or more of the debt financings contemplated by the DebtFinancing Commitments or because of their refusal to accept debt financing onterms materially less beneficial to Merger Sub than the terms set forth in oneor more of the Debt Financing Commitments, then Merger Sub shall pay$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)  Each of the Company and Merger Subacknowledges that the agreements contained in this Section 8.2 are anintegral part of the transactions contemplated by this Agreement. In the eventthat the Company shall fail to pay the Termination Fee or Parent’s Expenseswhen due or Merger Sub shall fail to pay the Merger Sub Termination Fee whendue, the Company or Merger Sub and Parent, as the case may be, shall reimbursethe other party for all reasonable costs and expenses actually incurred oraccrued by such other party (including reasonable fees and expenses of counsel)in connection with the collection under and enforcement of this Section 8.2.

 

(g)  Notwithstanding anything to thecontrary in this Agreement, (i) (A) in the event that Parent orMerger Sub breaches its respective obligation to effect the Closing pursuant toSection 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 damagesuffered as a result of the breach of any representation, warranty, covenant oragreement contained in this Agreement by Parent or Merger Sub and the failureof the Merger to be consummated, and upon payment of the Merger Sub TerminationFee in accordance with Section 8.2(e), none of Parent, Merger Sub or anyof their respective affiliates, stockholders, partners, members, directors,officers or agents shall have any further liability or obligation relating toor arising out of this Agreement or the transactions contemplated by thisAgreement, and (ii) in no event shall Parent, Merger Sub and theiraffiliates, stockholders, partners, members, directors, officers and agents besubject to liability in excess of $500,000,000 in the aggregate for all lossesand damages arising from or in connection with breaches by Parent or Merger Subof the representations, warranties, covenants and agreements contained in thisAgreement.

 

SECTION 8.3  Expenses. Exceptas 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. ThisAgreement may be amended by the parties hereto by action taken by or on behalfof their respective Boards of Directors at any time prior to the EffectiveTime, whether before or after adoption of this Agreement by the stockholders ofthe Company; provided, however, that, after adoption of thisAgreement by the stockholders of the Company, no amendment may be made which byLaw requires the further approval of the stockholders of the Company withoutsuch further approval. This Agreement may not be amended except by aninstrument in writing signed by the parties hereto.

 

SECTION 8.5  Waiver. At anytime prior to the Effective Time, any party hereto may (i) extend the timefor the performance of any of the obligations or other acts of the otherparties hereto, (ii) waive any inaccuracies in the representations andwarranties contained herein or in any document delivered pursuant hereto and (iii) subjectto the requirements of applicable Law, waive compliance with any of theagreements 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-Survival of Representations,Warranties, Covenants and Agreements. None of the representations,warranties, covenants and agreements in this Agreement or in any instrumentdelivered pursuant to this Agreement, including any rights arising out of anybreach of such representations, warranties, covenants and agreements, shallsurvive the Effective Time, except for (i) those covenants and agreementscontained herein that by their terms apply or are to be performed in whole orin part after the Effective Time and (ii) this Article IX.

 

SECTION 9.2  Notices. Allnotices, requests, claims, demands and other communications hereunder shall bein writing and shall be given (and shall be deemed to have been duly given uponreceipt) by delivery in person, by facsimile or by registered or certified mail(postage prepaid, return receipt requested) to the respective parties at thefollowing addresses (or at such other address for a party as shall be specifiedby 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  Certain Definitions.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. Ifany term or other provision of this Agreement is invalid, illegal or incapableof 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  Entire Agreement;Assignment. This Agreement (including the Exhibits hereto), the CompanyDisclosure Schedule, the Parent Disclosure Schedule and the ConfidentialityAgreements constitute the entire agreement among the parties with respect tothe subject matter hereof and supersede all prior agreements and undertakings,both written and oral, among the parties, or any of them, with respect to thesubject matter hereof. This Agreement shall not be assigned by operation of lawor otherwise without the prior written consent of each of the other parties,except that Parent may assign all or any of its rights and obligationshereunder to any direct or indirect wholly-owned subsidiary of Parent; provided,however, that no such assignment shall relieve the assigning part of itsobligations hereunder.

 

SECTION 9.6  Parties in Interest.This Agreement shall be binding upon and inure solely to the benefit of eachparty hereto, and nothing in this Agreement, express or implied, is intended toor shall confer upon any other person any rights, benefits or remedies of anynature whatsoever under or by reason of this Agreement, other than with respectto the provisions of Section 6.7 which shall inure to the benefit of thepersons or entities benefiting therefrom who are intended to be third-partybeneficiaries thereof.

 

SECTION 9.7  Governing Law.This Agreement shall be governed by, and construed in accordance with, the lawsof the State of Delaware (without giving effect to choice of law principlesthereof).

 

SECTION 9.8  Headings. Thedescriptive headings contained in this Agreement are included for convenienceof reference only and shall not affect in any way the meaning or interpretationof 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 ofDelaware, this being in addition to any other remedy to which such party isentitled at law or in equity. In addition, each of the parties hereto (i) consentsto submit 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 ofDelaware or, if under applicable law exclusive jurisdiction over such matter isvested in the federal courts, any court of the United States located in theState of Delaware and (iv) consents to service being made through thenotice procedures set forth in Section 9.2. Each of the Company, Parentand Merger 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  Parent Guarantee.Parent agrees to take all action necessary to cause Merger Sub or the SurvivingCorporation, as applicable, to perform all of its respective agreements,covenants and obligations under this Agreement. Parent unconditionallyguarantees to the Company the full and complete performance by Merger Sub orthe Surviving Corporation, as applicable, of its respective obligations underthis Agreement and shall be liable for any breach of any representation,warranty, covenant or obligation of Merger Sub or the Surviving Corporation, asapplicable, under this Agreement. This is a guarantee of payment andperformance 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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IN WITNESS WHEREOF, Parent, Merger Sub and theCompany have caused this Agreement to be executed as of the date first writtenabove by their respective officers thereunto 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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