AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER

among

HOME HOLDINGS, LLC,

HOME MERGER SUB, INC.

and

RESTORATION HARDWARE, INC.

Dated as of November 8, 2007

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AGREEMENT AND PLAN OF MERGER , dated as of November 8, 2007 (this “ Agreement ”), among Home Holdings, LLC, a Delaware limited liability company (“ Parent ”), Home Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“ Merger Sub ”), and Restoration Hardware, Inc., a Delaware corporation (the “ Company ”).

WHEREAS, the board of directors of the Company (the “ Board of Directors ”), after considering the unanimous recommendation of a committee (the “ Independent Committee ”) of the Board of Directors formed for the purpose of, among other things, evaluating and making a recommendation to the full Board of Directors with respect to this Agreement and the Merger, has by unanimous action of those directors who voted (i) determined that it is in the best interests of the Company and its stockholders that do not own Rollover Shares (as defined below), and declared it advisable, to enter into this Agreement with Parent and Merger Sub providing for the Merger, (ii) approved the execution, delivery and performance by the Company of and the consummation of the transactions contemplated hereby, including the Merger, and (iii) resolved and agreed to recommend adoption of this Agreement by the stockholders of the Company upon the terms and subject to the conditions set forth in this Agreement;

WHEREAS, the manager of Parent and the board of directors of Merger Sub have each approved this Agreement, the Merger and the other transactions contemplated by this Agreement;

WHEREAS, concurrently with the execution of this Agreement, as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, persons (each such person, a “ Rollover Participant ”) that are party to a Rollover Agreement (as hereinafter defined) have agreed that they will contribute, immediately prior to the Effective Time, all or a portion of the Shares (as defined below) owned beneficially or of record by such Rollover Participant to Parent or a Subsidiary thereof (the “ Rollover Shares ”) in a transaction intended to be governed by Section 721 of the Internal Revenue Code of 1986, as amended, in exchange for an equity interest in Parent or an affiliate of Parent, and upon the Effective Time such Rollover Shares shall be automatically cancelled and shall cease to exist pursuant to Section 2.1(b) hereof; and

WHEREAS, Parent, Merger Sub and the Company desire to make certain representations, warranties and agreements specified in this Agreement in connection with the Merger.

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties and agreements contained in this Agreement, and intending to be legally bound hereby, Parent, Merger Sub and the Company agree as follows:

ARTICLE I

THE MERGER

Section 1.1 The Merger . At the Effective Time, upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the applicable provisions of the General Corporation Law of the State of Delaware (the “ DGCL ”), Merger Sub shall be

merged with and into the Company (the “ Merger ”), whereupon the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation in the Merger (the “ Surviving Corporation ”) and a wholly owned subsidiary of Parent.

Section 1.2 Closing . The closing of the Merger (the “ Closing ”) shall take place at the offices of Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, New York at 9:00 a.m., local time, on the third business day after the satisfaction or waiver (to the extent permitted by applicable Law) of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), or at such other place, date and time as the Company and Parent may agree in writing. The date on which the Closing actually occurs is referred to as the “ Closing Date ”.

Section 1.3 Effective Time . On the Closing Date, immediately after the Closing, the parties shall cause the Merger to be consummated by executing and filing a certificate of merger (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of the DGCL, and make all other filings or recordings required under the DGCL in connection with the Merger. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware, or at such later time as the parties shall agree and as shall be set forth in the Certificate of Merger (such time as the Merger becomes effective, the “ Effective Time ”).

Section 1.4 Effects of the Merger . The effects of the Merger shall be as provided in this Agreement and in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation, all as provided under the DGCL and the other applicable Laws of the State of Delaware. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of the Company or Merger Sub, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Merger Sub, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of the Company.

Section 1.5 Certificate of Incorporation and Bylaws of the Surviving Corporation .

(a) At the Effective Time, the certificate of incorporation of the Company shall be amended so as to read in its entirety as is set forth on Exhibit A annexed hereto, and, as so amended, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended in accordance with its terms and as provided by Law.

(b) At the Effective Time, and without any further action on the part of the Company and Merger Sub, the bylaws of the Company shall be amended so as to read in their entirety in the form as is set forth in Exhibit B annexed hereto, and, as so amended, shall be the

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bylaws of the Surviving Corporation until thereafter amended in accordance with their terms, the certificate of incorporation of the Surviving Corporation and as provided by Law.

Section 1.6 Directors . The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

Section 1.7 Officers . The officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

ARTICLE II

CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES

Section 2.1 Effect on Capital Stock . At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or the holders of any securities of the Company, Parent or Merger Sub:

(a) Conversion of Company Common Stock . Each issued and outstanding share of common stock, par value $0.0001 per share, of the Company outstanding immediately prior to the Effective Time (such shares, collectively, “ Company Common Stock ,” and each, a “ Share ”), other than any Cancelled Shares (to the extent provided in Section 2.1(b)) and any Dissenting Shares (to the extent provided for in Section 2.1(e)), shall thereupon be converted automatically into and shall thereafter represent the right to receive $6.70 in cash (the “ Merger Consideration ”). All Shares that have been converted into the right to receive the Merger Consideration as provided in this Section 2.1(a) shall be automatically cancelled and shall cease to exist, and the holders of certificates which immediately prior to the Effective Time represented such Shares shall cease to have any rights with respect to such Shares other than the right to receive the Merger Consideration.

(b) Company, Parent and Merger Sub-Owned Shares . Each Share that is owned, directly or indirectly, by Parent or Merger Sub immediately prior to the Effective Time (including each Rollover Share owned, directly or indirectly, by Parent or Merger Sub) or held by the Company, or any Subsidiary of the Company, immediately prior to the Effective Time (in each case, other than any such Shares held on behalf of third parties) (the “ Cancelled Shares ”) shall, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(c) Conversion of Merger Sub Common Stock . At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

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From and after the Effective Time, all certificates representing the common stock of Merger Sub shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Corporation into which they were converted in accordance with the immediately preceding sentence.

(d) Adjustments . If at any time during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of capital stock of the Company, or securities exercisable for shares of such capital stock, shall occur as a result of any reclassification, recapitalization, stock split (including a reverse stock split) or combination, exchange or readjustment of shares, or any stock dividend or stock distribution with a record date during such period, the Merger Consideration shall be equitably adjusted to reflect such change; provided , that nothing in this Section 2.1(d) shall be construed as permitting the Company to take any action with respect to its securities that is prohibited by the terms of this Agreement.

(e) Dissenting Shares . (i) Notwithstanding anything contained in this Agreement to the contrary, no Shares issued and outstanding immediately prior to the Effective Time, the holder of which (A) has not voted in favor of the Merger or consented thereto in writing, (B) has demanded its rights to appraisal in accordance with Section 262 of the DGCL, and (C) has not effectively withdrawn or lost its rights to appraisal (the “ Dissenting Shares ”), shall be converted into or represent a right to receive the Merger Consideration pursuant to Section 2.1(a). By virtue of the Merger, all Dissenting Shares shall be cancelled and shall cease to exist and shall represent the right to receive only those rights provided under Section 262 of the DGCL. From and after the Effective Time, a holder of Dissenting Shares shall not be entitled to exercise any of the voting rights or other rights of a stockholder, member or equity owner of the Surviving Corporation. Any portion of the Merger Consideration made available to the Paying Agent pursuant to Section 2.2 to pay for Shares of Company Common Stock for which appraisal rights have been perfected shall be returned to Parent upon demand.

(ii) Notwithstanding the provisions of this Section 2.1(e), if any holder of Shares who demands dissenters’ rights shall effectively withdraw or lose (through failure to perfect or otherwise) the right to dissent or its rights of appraisal, then, as of the later of the Effective Time and the occurrence of such event, such holder’s Shares shall no longer be Dissenting Shares and shall automatically be converted into and represent only the right to receive the Merger Consideration, without any interest thereon and less any required withholding Taxes.

(iii) The Company shall give Parent (A) prompt written notice of any written demands for dissenters’ rights of any Shares, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by the Company which relate to any such demand for dissenters’ rights and (B) the opportunity to participate in and reasonably to direct all negotiations and proceedings with respect to demands for dissenters’ rights under the DGCL. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for dissenters’ rights or offer to settle or settle any such demands.

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Section 2.2 Exchange of Certificates .

(a) Paying Agent . At or prior to the Effective Time, Parent shall deposit, or shall cause to be deposited, with a bank or trust company designated by Parent and reasonably acceptable to the Company (as so designated pursuant to an agreement in form and substance reasonably acceptable to Parent and the Company, the “ Paying Agent ”), cash in U.S. dollars sufficient to pay the aggregate Merger Consideration, in accordance with Section 2.1, in exchange for all of the Shares outstanding immediately prior to the Effective Time (other than the Cancelled Shares and the Dissenting Shares), payable upon due surrender of the certificates that immediately prior to the Effective Time represented Shares (“ Certificates ”) or non-certificated Shares represented by book-entry (“ Book-Entry Shares ”) (or effective affidavits of loss in lieu thereof) pursuant to the provisions of this Article II (such cash being hereinafter referred to as the “ Exchange Fund ”).

(b) Payment Procedures . (i) As soon as reasonably practicable after the Effective Time and in any event not later than the third business day following the Effective Time, the Paying Agent shall mail to each holder of record of Shares whose Shares were converted into the Merger Consideration pursuant to Section 2.1(a), (A) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to Certificates shall pass, only upon delivery of Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares to the Paying Agent and shall be in such form and have such other provisions as Parent and the Company may mutually agree), and (B) instructions for use in effecting the surrender of Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares in exchange for the Merger Consideration. No interest shall be paid or accrued on such amounts. In the event that any Certificate represents both Rollover Shares and Shares entitled to receive the Merger Consideration, the Paying Agent shall take such action as necessary to split the Certificates accordingly.

(ii) Upon surrender of Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares to the Paying Agent together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required by the Paying Agent, the holder of such Certificates or Book-Entry Shares shall be entitled to receive in exchange therefor a check in an amount equal to the product of (x) the number of Shares represented by such holder’s properly surrendered Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares multiplied by (y) the Merger Consideration. No interest will be paid or accrued on any amount payable upon due surrender of Certificates or Book-Entry Shares. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, a check for any cash to be paid upon due surrender of the Certificate may be paid to such a transferee if the Certificate formerly representing such Shares is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and to evidence to the reasonable satisfaction of the Surviving Corporation that any applicable stock transfer Taxes have been paid or are not applicable. Until surrendered as contemplated by this Section 2.2(b), each Certificate and Book-Entry Share shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the applicable Merger Consideration as contemplated by this Article II.

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(iii) The Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable under this Agreement to any holder of Shares, such amounts as are required to be withheld or deducted under the Internal Revenue Code of 1986 (the “ Code ”) or any provision of state, local or foreign Tax Law with respect to the making of such payment. To the extent that amounts are so withheld or deducted and paid over to the applicable Governmental Entity, such withheld or deducted amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares, in respect of which such deduction and withholding were made.

(c) Closing of Transfer Books . At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time.

(d) Termination of Exchange Fund . Any portion of the Exchange Fund (including the proceeds of any investments thereof, unless previously demanded by Parent pursuant to Section 2.2(f)) that remains undistributed to the former holders of Shares for eighteen (18) months after the Effective Time shall be delivered to the Surviving Corporation upon demand, and any former holders of Shares who have not surrendered their Shares in accordance with this Section 2.2 shall thereafter look only to the Surviving Corporation for payment of their claim for the Merger Consideration, without any interest thereon, upon due surrender of their Shares.

(e) No Liability . Notwithstanding anything herein to the contrary, none of the Company, Parent, Merger Sub, the Surviving Corporation, the Paying Agent or any other person shall be liable to any former holder of Shares for any amount properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. Any portion of the Exchange Fund remaining unclaimed as of a date which is immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Entity shall, to the extent permitted by applicable Law, become the property of Parent, free and clear of any claims or interests of any person previously entitled thereto.

(f) Investment of Exchange Fund . The Paying Agent shall invest all cash included in the Exchange Fund as reasonably directed by Parent; provided , however , that any investment of such cash shall be limited to direct short-term obligations of, or short-term obligations fully guaranteed as to principal and interest by, the U.S. government or in commercial paper obligations rated P-1 or A-1 or better by Moody’s Investors Service, Inc. or Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., respectively, or in certificates of deposit, bank repurchase agreements or banker’s acceptances of commercial banks with capital exceeding $1 billion (based on the most recent financial statements of such bank which are then publicly available). Any interest and other income resulting from such investments shall be paid to Parent, upon demand.

(g) Lost Certificates . In the case of any Certificate or any certificate representing Rollover Shares that has been lost, stolen or destroyed, upon the making of an affidavit, in form and substance reasonably acceptable to Parent, of that fact by the person claiming such certificate to be lost, stolen or destroyed and, if required by Parent or the Paying

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Agent, the posting by such person of a bond in customary amount as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate a check in the amount of the number of Shares represented by such lost, stolen or destroyed Certificate multiplied by the Merger Consideration.

Section 2.3 Company Stock Options . At the Effective Time, each option or similar right (each, a “ Company Stock Option ”) to purchase Shares granted under any Company Stock Plan, whether vested or unvested, that is outstanding immediately prior to the Effective Time shall be cancelled and pursuant to the Company Stock Plans, shall be exchanged for a cash program such that the Surviving Corporation shall pay to each former holder of any such cancelled Company Stock Option as soon as reasonably practicable following the Effective Time and in no event later than the end of the first payroll cycle following the Effective Time, an amount in cash (without interest, and less any required withholding Tax) equal to the product of (i) the excess of the Merger Consideration over the exercise price per Share under such Company Stock Option and (ii) the number of Shares subject to such Company Stock Option; provided that if the exercise price per Share of any such Company Stock Option is equal to or greater than the Merger Consideration, such Company Stock Option shall be canceled without any cash payment being made in respect thereof. The Company shall take all reasonable actions necessary to effectuate the provisions of this Section 2.3; provided that the Company may not provide any consideration to any holder of Company Stock Options with respect to their cancellation other than as provided in this Section 2.3.

Section 2.4 Restricted Stock Units . Immediately prior to the Effective Time, each award of a right under any Company Stock Plan (other than awards of Company Stock Options, the treatment of which is specified in Section 2.3) entitling the holder thereof to Shares or cash equal to or based on the value of Shares (such awards, collectively, “ Restricted Stock Units ”) which, in each case, is outstanding and unvested as of the Effective Time shall either (i) be assumed with a comparable equity award of Parent or (ii) be replaced with a cash incentive program of the Company, which in either case preserves the compensation element of such Restricted Stock Units existing at the Effective Time and the vesting terms of the Restricted Stock Units and in the case of (ii) above provides for subsequent payout in cash on each subsequent vesting date of an amount equal to the product of (A) the number of Shares previously subject to such Restricted Stock Unit that then vest and (B) the Merger Consideration (or, if the Restricted Stock Unit provides for payments to the extent the value of the Shares exceed a specified reference price, the amount, if any, by which the value of the Merger Consideration exceeds such reference price), less any required withholding Tax. Parent’s assumption or replacement of the Restricted Stock Units shall not trigger the acceleration of vesting or release of the Restricted Stock Units from any repurchase or forfeiture rights as provided under Section 11 of the Company’s 2007 Stock Incentive Plan except as provided for Restricted Stock Units granted to the Company’s non-employee directors, which by their terms fully vest in connection with the Merger.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as and to the extent disclosed in the corresponding section or subsection of the disclosure schedule delivered by the Company to Parent immediately prior to the execution of this Agreement (the “ Company Disclosure Schedule ”) (it being agreed that disclosure of any information in a particular section or subsection of the Company Disclosure Schedule shall be deemed disclosure with respect to any other section or subsection of the Agreement to which the relevance of such information is reasonably apparent on its face), the Company represents and warrants to Parent and Merger Sub as follows:

Section 3.1 Qualification, Organization, Subsidiaries, etc . Each of the Company and its Subsidiaries is (a) a legal entity duly organized, validly existing and in good standing under the Laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted and (b) is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of its business requires such qualification, except in the case of clause (b) where the failure to be so qualified or in good standing would not have, individually or in the aggregate, a Company Material Adverse Effect. As used in this Agreement, any reference to any facts, circumstances, events or changes having a “ Company Material Adverse Effect ” means any facts, circumstances, events or changes that (A) are, or could reasonably be expected to be, materially adverse to the business, assets, liabilities, condition (financial or otherwise) or results of operation of the Company and its Subsidiaries, taken as a whole, or (B) materially impair the ability of the Company to consummate, or prevent, the Merger or would reasonably be expected to do so; provided , however , that in no event shall any of the following, alone or in combination, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been, a Company Material Adverse Effect: (a) facts, circumstances, events or changes generally affecting the home building industry or home furnishings retail industry in the United States or the economy or the financial or securities markets in the United States or elsewhere in the world, including regulatory and political conditions or developments (including any outbreak or escalation of hostilities or acts of war or terrorism) or changes in interest rates; (b) hurricanes or floods; (c) facts, circumstances, events or changes resulting from (x) the announcement or the pendency of this Agreement or the announcement of the Merger or any of the other transactions contemplated by this Agreement, or (y) changes in applicable Law, GAAP or accounting standards (provided that such changes are first announced after the date hereof); (d) changes in the market price or trading volume of the Company Common Stock; (e) changes in any analyst’s recommendations, any financial strength rating or any other recommendations or ratings as to the Company or its Subsidiaries (including, in and of itself, any failure to meet analyst projections); or (f) failure by the Company to meet any projections, estimates or budgets for any period prior to, on or after the date of this Agreement (including projections relating to the fourth quarter of 2007); provided , further , that (I) any change, effect, development, event or occurrence described in the foregoing clauses (a) and (c)(y) above shall not constitute or give rise to a Company Material Adverse Effect only if and to the extent that such change, effect, development, event or occurrence does not have a

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disproportionate effect on the Company and its Subsidiaries as compared to other persons in the home building industry or home furnishings retail industry and (II) the facts, circumstances or events underlying the change or failure in each of clauses (d), (e) and (f) shall not be excluded to the extent such facts, circumstances or events would otherwise constitute a Company Material Adverse Effect. The Company has made available to Parent prior to the date of this Agreement a true and complete copy of the Company’s second amended and restated certificate of incorporation and bylaws, and the certificate of incorporation and bylaws (or comparable organizational documents) of each of its Subsidiaries, in each case as amended through the date of this Agreement. Such certificates of incorporation, bylaws or similar organizational documents are in full force and effect. Neither the Company, nor any Subsidiary is in violation of any provisions of its certificate of incorporation or bylaws or similar organizational documents. As of the date hereof, the Company has made available to Parent true and complete copies of the minutes (or, in the case of draft minutes, the most recent drafts thereof as of the date of this Agreement), in each case to the extent prepared as of the date of this Agreement, of all meetings of the Company’s stockholders, the Board of Directors and each committee of the Board of Directors held since January 1, 2005.

Section 3.2 Capital Stock .

(a) The authorized capital stock of the Company consists of 60,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, par value $0.0001 per share (“ Company Preferred Stock ”). As of November 1, 2007 (the “ Measurement Date ”), (i) 38,828,806 shares of Company Common Stock (excluding treasury shares) were issued and outstanding (which number includes no shares of Company Common Stock subject to transfer restrictions or subject to forfeiture back to the Company or repurchase by the Company), (ii) no shares of Company Common Stock were held in treasury, (iii) 11,105,574 shares of Company Common Stock were reserved for issuance under the employee and director stock option, stock purchase or equity compensation plans, arrangements or agreements of the Company (the “ Company Stock Plans ”) of which 6,261,001 were subject to outstanding Company Stock Options and 401,200 were subject to outstanding Restricted Stock Units, and (iv) no shares of Company Preferred Stock were issued or outstanding or held as treasury shares. All outstanding shares of Company Common Stock, and all shares of Company Common Stock reserved for issuance as noted in clause (iii), when issued in accordance with the respective terms thereof, are or will be duly authorized, validly issued, fully paid and nonassessable and free of pre-emptive or similar rights.

(b) Except as set forth in subsection (a) above, (i) the Company does not have any shares of its capital stock or other voting securities issued or outstanding other than shares of Company Common Stock that have become outstanding after the Measurement Date, but were reserved for issuance under outstanding Company Stock Options and Restricted Stock Units as set forth in subsection (a) above, and (ii) there are no outstanding subscriptions, options, warrants, calls, convertible securities or other similar rights, agreements or commitments relating to the issuance of capital stock or voting securities to which the Company or any of its Subsidiaries is a party obligating the Company or any of its Subsidiaries to (A) issue, transfer or sell any shares of capital stock or other equity interests of the Company or any Subsidiary of the Company or securities convertible into or exchangeable for such shares or equity interests, (B) grant, extend or enter into any such subscription, option, warrant, call, convertible securities or

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other similar right, agreement or arrangement, (C) redeem or otherwise acquire, or vote or dispose of, any such shares of capital stock or other equity interests, or (D) provide a material amount of funds to, or make any material investment (in the form of a loan, capital contribution or otherwise) in, any Subsidiary.

(c) Section 3.2 of the Company Disclosure Schedule lists as of the Measurement Date, (i) each outstanding Company Stock Option, (ii) each Restricted Stock Unit, and (iii) each other right of any kind, contingent or accrued, to receive shares of Company Common Stock or benefits measured in whole or in part by the value of a number of shares of Company Common Stock granted under the Company Stock Plans, Company Benefit Plans or otherwise (“ Other Incentive Awards ”), and, with respect to each of items (i) through (iii) above, the number of Shares issuable thereunder or with respect thereto, the vesting schedule, the expiration date and the exercise price (if any) thereof, as applicable. From the close of business on the Measurement Date until the date of this Agreement, except for Shares issued pursuant to the exercise of Company Stock Options outstanding on the Measurement Date in accordance with their terms, no options to purchase shares of Company Common Stock or Company Preferred Stock have been granted, no Restricted Stock Units have been granted, no Other Incentive Awards have been granted and no shares of Company Common Stock or Company Preferred Stock have been issued. Except for awards to acquire or receive shares of Company Common Stock under any equity incentive plan of the Company and its Subsidiaries, neither the Company nor any of its Subsidiaries has outstanding bonds, debentures, notes or other obligations, the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter. Each Company Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies and the exercise price of each of such Company Stock Option is no less than the fair market value of a Share as determined on the date of grant of such Company Stock Option.

(d) There are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the voting or disposition of the capital stock or other equity interest of the Company or any of its Subsidiaries.

(e) All the outstanding shares of capital stock of, or other equity interests in, each Subsidiary of the Company are duly authorized, validly issued, fully paid and nonassessable, and were not issued in violation of any preemptive or similar rights, purchase option, call or right of first refusal or similar rights. All the outstanding shares of capital stock of, or other equity interests in, each Subsidiary of the Company are owned by the Company free and clear of all Liens or any other restrictions.

Section 3.3 Subsidiaries . Section 3.3 of the Company Disclosure Schedule sets forth a true and complete list of each Subsidiary of the Company, including its jurisdiction of incorporation or formation. Except for the capital stock of, or other equity or voting interests in, its Subsidiaries, the Company does not own, directly or indirectly, any equity, membership interest, partnership interest, joint venture interest, or other equity or voting interest in, or any interest convertible into, exercisable or exchangeable for any of the foregoing.

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Section 3.4 Corporate Authority Relative to This Agreement; No Violation .

(a) The Company has requisite corporate power and authority to enter into this Agreement and, subject to receipt of the Company Stockholder Approval, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly and validly authorized by the Board of Directors acting by unanimous action of those directors who voted, and, recommended unanimously by the Independent Committee and, except for (i) the Company Stockholder Approvals, and (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or the consummation of the transactions contemplated by this Agreement. The Independent Committee has unanimously determined and resolved (i) that the Merger is fair to, and in the best interests of, the Company and its stockholders that do not own Rollover Shares and other than Vardon and (ii) to recommend that the Board of Directors approve this Agreement and declare its advisability, propose this Agreement to the Company’s stockholders for adoption thereby and recommend that the Company’s stockholders adopt this Agreement and the transactions contemplated hereby (the “ Independent Committee Recommendation ”). The Board of Directors has, by unanimous action of those directors who voted, determined and resolved (i) that the Merger is fair to, and in the best interests of, the Company and its stockholders that do not own Rollover Shares and other than Vardon, (ii) to propose this Agreement for adoption by the Company’s stockholders and to declare the advisability of this Agreement and (iii) to recommend that the Company’s stockholders adopt this Agreement and the transactions contemplated by this Agreement (the “ Board Recommendation ” and, together with the Independent Committee Recommendation, the “ Recommendation ”), all of which determinations and resolutions have not been rescinded, modified or withdrawn in any way as of the date of this Agreement. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by Parent and Merger Sub, constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

(b) Other than (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL, (ii) such filings as are required pursuant to the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), (iii) the filing of a pre-merger notification form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “ HSR Act ”), (iv) any filings required to be made with the Nasdaq Global Market, Inc. (“ Nasdaq ”), and (v) the approvals set forth on Section 3.4(b) of the Company Disclosure Schedule (collectively, the “ Company Approvals ”), and subject to the accuracy of the representations and warranties of Parent and Merger Sub in Section 4.9, no authorization, consent, permit, action or approval of, or filing with, or notification to, any United States federal, state or local or foreign government or regulatory agency, commission, court, body, entity, arbitral panel or authority (each, a “ Governmental Entity ”) is necessary, under applicable Law, in connection with the execution, delivery and performance of this Agreement or the consummation by the Company of the transactions contemplated by this Agreement, except for such authorizations, consents, permits, actions, approvals, notifications or filings that, if not obtained or made, would not have, individually or in the aggregate, a Company Material Adverse Effect (without giving effect to clause (c)(x) thereof).

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(c) The execution and delivery by the Company of this Agreement does not, and except as described in Section 3.4(c) of the Company Disclosure Schedule, the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not (i) result in any violation of, conflict with or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, modification, amendment, cancellation or acceleration of any obligation or to the loss of a benefit under, or require any consent, waiver, approval, authorization or permit of, action by, registration, declaration or filing with or notification to any person pursuant to, any loan, guarantee of Indebtedness or credit agreement, note, bond, mortgage, indenture, lease, sublease, assignment of lease or occupancy agreement, agreement, contract, obligation, arrangement, understanding, undertaking, instrument, permit, franchise or license agreement, whether oral or written (collectively, “ Contracts ”) binding upon the Company or any of its Subsidiaries, or to which any of them is a party or any of their respective properties or assets are bound, or result in the creation of any liens, claims, mortgages, encumbrances, pledges, security interests, equities, options, rights of first refusal, or charges of any kind whatsoever (including any limitation on voting, sale, transfer or other disposition or exercise of any other attribute of ownership) (each, a “ Lien ”) upon any of the properties or assets of the Company or any of its Subsidiaries, (ii) conflict with or result in any violation of any provision of the certificate of incorporation or bylaws or other equivalent organizational document, in each case as amended, of the Company or any of its Subsidiaries or (iii) except as described in Section 3.4(b), conflict with or violate any applicable Laws, other than, in the case of clauses (i) and (iii), any such violation, conflict, default, termination, modification, amendment, cancellation, acceleration, loss or Lien that would not have, individually or in the aggregate, a Company Material Adverse Effect (without giving effect to clause (c)(x) thereof).

Section 3.5 Reports and Financial Statements .

(a) The Company has filed or furnished, on a timely basis, all forms, documents and reports (including exhibits) required to be filed or furnished by it with the Securities and Exchange Commission (the “ SEC ”) since January 1, 2006 (all such filed documents, together with the exhibits and schedules thereto and all information incorporated by reference therein, the “ Company SEC Documents ”). As of their respective dates, and, in the case of registration statements and proxy statements, as of the dates of effectiveness and the dates of mailing, respectively, or in case of any such filing, if amended prior to the date hereof, as of the date of the last such amendment, the Company SEC Documents complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (“ Securities Act ”), and the Exchange Act, as the case may be, and the applicable rules and regulations promulgated thereunder, and none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state or incorporate by reference any material fact required to be stated or incorporated by reference therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. No Subsidiary of the Company is required to file any form or report with the SEC. As of the date hereof, the Company does not intend to file with the SEC any amendments to any previously filed Company SEC Documents.

(b) The consolidated financial statements (including all related notes and schedules) of the Company included (or incorporated by reference) in the Company SEC

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Documents have been prepared in accordance with GAAP and fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries, as at the respective dates thereof, and the consolidated results of their operations and their consolidated cash flows for the respective periods then ended (subject, in the case of the unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein, including the notes thereto) in conformity with GAAP (except, in the case of the unaudited statements, as permitted by the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto). Since February 3, 2007 to the date hereof, there has been no material change in the Company’s accounting methods or principles that would be required to be disclosed in the Company’s financial statements in accordance with GAAP.

(c) As of the date of this Agreement, there are no outstanding or unresolved comments in the comment letters received from the SEC staff with respect to the Company SEC Documents. To the knowledge of the Company, as of the date hereof, none of the Company SEC Documents is subject to ongoing review or outstanding SEC comments or investigation.

Section 3.6 Internal Controls and Procedures . The Company has established and maintains disclosure controls and procedures and internal control over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15 under the Exchange Act. The Company’s disclosure controls and procedures are reasonably designed to ensure that all material information required to be disclosed by the Company in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such material information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”). The Company’s management has completed assessment of the effectiveness of the Company’s internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the year ended February 3, 2007, and such assessment concluded that such controls were effective. The Company has disclosed, based on its most recent evaluation prior to the date of this Agreement, to the Company’s auditors and the audit committee of the Board of Directors and Parent (a) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect in any material respect the Company’s ability to record, process, summarize and report financial information and (b) any fraud, whether or not material, that involves executive officers or employees who have a significant role in the Company’s internal controls over financial reporting. Since February 3, 2007, to the knowledge of the Company, the Company has not identified any material weaknesses in the design or operation of internal controls over financial reporting. There are no outstanding loans made by the Company or any of its Subsidiaries to any executive officer (as defined in Rule 3b-7 under the Exchange Act) or director of the Company.

Section 3.7 No Undisclosed Liabilities . Except (a) as reflected or reserved against in (i) the notes to the financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2007 or (ii) the Company’s latest unaudited consolidated balance sheet (or the notes thereto) in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 4, 2007 (but excluding in either case any disclosures set

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forth in any risk factor and similarly cautionary, predictive and forward-looking disclosure); (b) for liabilities expressly permitted and contemplated by this Agreement; and (c) for liabilities and obligations incurred in the ordinary course of business consistent with past practice since August 4, 2007 that are not material to the Company and its Subsidiaries taken as a whole, neither the Company nor any Subsidiary of the Company has any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that would be required by GAAP to be reflected on a consolidated balance sheet of the Company and its Subsidiaries (or in the notes thereto), other than those which would not have, individually or in the aggregate, a Company Material Adverse Effect.

Section 3.8 Compliance with Law; Permits .

(a) The Company and each of its Subsidiaries are, and since January 1, 2006, have been, in compliance with and are not in default under or in violation of any applicable federal, state, local or foreign law, statute, ordinance, rule, code, regulation, judgment, order, injunction, decree or agency requirement of any Governmental Entity (collectively, “ Laws ” and each, a “ Law ”), except where such non-compliance, default or violation would not have, individually or in the aggregate, a Company Material Adverse Effect. Notwithstanding anything contained in this Section 3.8(a), no representation or warranty shall be deemed to be made in this Section 3.8(a) in respect of the matters specifically covered in Section 3.5, Section 3.6, Section 3.9, Section 3.10, Section 3.14 or Section 3.15.

(b) The Company and its Subsidiaries are in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for the Company and each of its Subsidiaries to own, lease and operate their respective properties and assets or to carry on their respective businesses as they are now being conducted (the “ Company Permits ”), except where the failure to have any of the Company Permits would not have, individually or in the aggregate, a Company Material Adverse Effect. All Company Permits are in full force and effect and there is no suspension or cancellation of any of the Company Permits pending, or to the knowledge of the Company threatened, except where the failure to be in full force and effect would not have, individually or in the aggregate, a Company Material Adverse Effect.

(c) The Company and, to the Company’s knowledge, each of its officers and directors are in compliance with, and have complied in all material respects with, all applicable provisions of the Sarbanes-Oxley Act.

(d) (i) Each of the Company and its Subsidiaries is in material compliance with United States and international economic and trade sanctions, including those administered by the Office of Foreign Asset Control (“ OFAC ”) within the United States Department of Treasury; and (ii) each of the Company and its Subsidiaries is in material compliance with the antiboycott regulations administered by the United States Department of Commerce, the FCPA, and all laws and regulations administered by the Bureau of Customs and Border Protection in the United States Department of Homeland Security.

(e) To the knowledge of the Company, no director, officer or employee of the Company or any of its Subsidiaries is identified on any of the following documents: (i) the

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OFAC list of “Specially Designated Nationals and Blocked Persons” (“ SDNs ”); (ii) the Bureau of Industry and Security of the United States Department of Commerce “Denied Persons List”; or (iii) the Office of Defense Trade Controls of the United States Department of State “List of Debarred Persons”. Neither the Company nor any of its Subsidiaries are involved in business arrangements or otherwise engage in transactions with or involving sanctioned countries or SDNs in violation of the regulations maintained by the OFAC.

Section 3.9 Environmental Laws and Regulations .

(a) Except as set forth in Section 3.9 of the Company Disclosure Schedule and except as would not, individually or in the aggregate, have a Company Material Adverse Effect, (i) the Company and its Subsidiaries are conducting and have conducted their respective businesses in compliance with all applicable Environmental Laws and permits, (ii) no Hazardous Substance has been Released by the Company, its Subsidiaries or any of their respective predecessors in interest, or by any other Person, at, on, about or under (A) any of the properties now or formerly owned, operated or leased by the Company or its Subsidiaries or (B) any property to which the Company, its Subsidiaries or any of their respective predecessors in interest have sent waste for disposal, in either the case of (A) or (B) in an amount reasonably likely to give rise to liability under Environmental Law, (iii) since January 1, 2006, to the knowledge of the Company, neither the Company, its Subsidiaries, nor their respective predecessors in interest has received any notices, demand letters or requests for information from any Governmental Entity or any Person indicating that the Company, any of its Subsidiaries, or their respective predecessors in interest may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of their respective businesses or any of their respective current or former properties or assets, (iv) to the knowledge of the Company, no Hazardous Substance has been disposed of, Released or transported in violation of any applicable Environmental Law, or in a manner giving rise to any liability under Environmental Law, from any properties presently or formerly owned, leased or operated by the Company, any of its Subsidiaries, or any of their respective predecessors in interest as a result of any activity of the Company or any of its Subsidiaries, and (v) neither the Company, its Subsidiaries nor any of their respective properties are subject to any liabilities relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or written claim asserted or arising under any Environmental Law. The Company has provided to Parent true and complete copies of all material environmental records, reports, notifications, certificates of need, permits, engineering studies, and environmental studies or assessments (including without limitation Phase I and Phase II site assessments), relating to (i) any facilities or real property ever owned, operated or leased by the Company, the Subsidiaries or any of their respective predecessors in interest or (ii) any environmental liability of the Company, the Subsidiaries or any of their respective predecessors in interest. The representations and warranties in this Section 3.9 shall be the only representations and warranties in this Agreement applicable to environmental matters.

(b) As used herein, “ Environmental Law ” means any Law relating to (x) the protection, preservation or restoration of the environment (including air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of

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Hazardous Substances, or (z) occupational health and safety, in each case as in effect at the date of this Agreement.

(c) As used herein, “ Hazardous Substance ” means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any Governmental Entity or any Environmental Law including any toxic waste, pollutant, contaminant, hazardous substance (including toxic mold), toxic substance, hazardous waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos, or asbestos-containing material, urea formaldehyde, foam insulation or polychlorinated biphenyls.

(d) As used herein, “ Release ” when used in connection with Hazardous Substances, shall have the meaning ascribed to that term in 42 U.S.C. 9601(22) but not subject to the exceptions in Subsection (A) of 42 U.S.C. 9601(22).

Section 3.10 Employee Benefit Plans .

(a) Section 3.10(a) of the Company Disclosure Schedule sets forth a true and complete list of each material plan, arrangement, agreement or policy sponsored, maintained or contributed to by the Company or any of its Subsidiaries for the benefit of current or former employees, officers, directors or independent contractors (including their dependents) and with respect to which the Company has any liability, including, without limitation, any employee welfare benefit plan within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974 (“ ERISA ”), any employee pension benefit plan within the meaning of Section 3(2) of ERISA (in either case, whether or not such plan is subject to ERISA), and any material bonus, incentive, deferred compensation, vacation, stock purchase, stock option or other equity-based plan or arrangement, severance, retention, employment, change of control or fringe benefit plan, program, policy or agreement, in each case whether or not subject to ERISA and whether or not written (the “ Company Benefit Plans ”). Such list also identifies those Company Benefit Plans that are maintained or contributed to solely for the benefit of employees (or former employees or directors or independent contractors) of the Company or any of its Subsidiaries who are not resident in the United States (the “ Foreign Company Benefit Plans ”).

(b) The Company has made available to Parent true and complete copies of each of the Company Benefit Plans and material related documents, including, but not limited to, (i) the most recent two years’ annual reports on Form 5500, including any schedules thereto; and (ii) the most recent determination letter or opinion letter from the Internal Revenue Service (if applicable) for such Company Benefit Plan.

(c) (i) Each of the Company Benefit Plans has been operated and administered in all material respects in compliance with applicable Laws, including, but not limited to, ERISA, the Code and in each case the regulations thereunder; (ii) each of the Company Benefit Plans intended to be “qualified” within the meaning of Section 401(a) of the Code is so qualified, and to the knowledge of the Company there are no existing circumstances or any events that have occurred that could reasonably be expected to adversely affect the qualified status of any such plan that would, individually or in the aggregate, result in any

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material liability for the Company and its Subsidiaries taken as a whole; (iii) no Company Benefit Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code; (iv) no Company Benefit Plan that is a “welfare benefit plan” within the meaning of Section 3(1) of ERISA (whether or not such plan is subject to ERISA) provides benefits to former employees, directors or independent contractors of the Company or its ERISA Affiliates, other than pursuant to Section 4980B of the Code or any comparable provisions of state Law; (v) the Company and its ERISA Affiliates have complied in all material respects with the provisions of Part 6 of Title I of ERISA and Sections 4980B, 9801, 9802, 9811 and 9812 of the Code; (vi) no Company Benefit Plan is a “multiemployer pension plan” (as such term is defined in Section 3(37) of ERISA) or a plan that has two or more contributing sponsors, at least two of which are not under common control, within the meaning of Section 4063 of ERISA; (vii) all material contributions or other amounts payable by the Company or its Subsidiaries with respect to each Company Benefit Plan in respect of current or prior plan years have been paid or accrued in accordance with GAAP; (viii) neither the Company nor its Subsidiaries has engaged in a transaction in connection with which the Company or its Subsidiaries reasonably could be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code; and (ix) there are no pending, or to the knowledge of the Company, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Company Benefit Plans or any trusts related thereto which could individually or in the aggregate reasonably be expected to result in any material liability of the Company and its Subsidiaries taken as a whole. “ ERISA Affiliate ” means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same “controlled group” as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.

(d) Except as provided on Section 3.10(d) of the Company Disclosure Schedule, neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated by this Agreement (either alone or in conjunction with any other event) will (i) result in any payment (including, without limitation, severance, unemployment compensation and forgiveness of Indebtedness or otherwise) becoming due to any director or any employee of the Company or any of its Subsidiaries from the Company or any of its Subsidiaries under any Company Benefit Plan or otherwise, (ii) result in any “excess parachute payment” (within the meaning of Section 280G of the Code), (iii) increase any benefits otherwise payable under any Company Benefit Plan, (iv) result in acceleration of benefits or the time of payment or vesting of benefits, (v) require the funding of benefits or (vi) limit the ability to amend or terminate any Company Benefit Plan or related trust.

(e) Each Company Benefit Plan that is a non-qualified deferred compensation plan or arrangement subject to Section 409A of the Code has been operated and administered in good faith compliance with Section 409A of the Code, applicable Treasury regulations thereunder, and applicable Internal Revenue Service guidance (including Notice 2007-86 and Notice 2005-1) from the period beginning October 4, 2004 through the date hereof.

(f) Except as set forth on Section 3.10(f) of the Company Disclosure Schedule, (i) all Foreign Company Benefit Plans have been established, maintained and

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administered in compliance with their terms and all applicable statutes, laws, ordinances, rules, orders, decrees, judgments, writs and regulations of any controlling Governmental Entity; (ii) all Foreign Company Benefit Plans that are required to be funded are fully funded, and with respect to all other Foreign Company Benefit Plans, adequate reserves therefor have been established on the accounting statements of the applicable Company in accordance with GAAP; and (iii) the Company will not incur any liability or obligation under the Foreign Company Benefit Plans, including but not limited to any severance obligation, as a result of the transactions contemplated by this Agreement, either alone or in conjunction with any other event.

Section 3.11 Absence of Certain Changes or Events . Since February 3, 2007 to the date of this Agreement, (a) the businesses of the Company and its Subsidiaries have been conducted, in all material respects, in the ordinary course of business consistent with past practice, (b) there has not been any event, development or state of circumstances that, individually or in the aggregate, has had or could reasonably be expected to have a Company Material Adverse Effect, and (c) there has not been: (i) any declaration, setting aside or payment of any dividend or other distribution in cash, stock, property or otherwise in respect of the Company’s or any of its Subsidiaries’ capital stock, except for any dividend or distribution by a Subsidiary of the Company to the Company; (ii) any redemption, repurchase or other acquisition of any shares of capital stock of the Company or any of its Subsidiaries; (iii) any material change by the Company in its accounting principles, except as may be appropriate to conform to changes in statutory or regulatory accounting rules or GAAP or regulatory requirements with respect thereto; or (iv) any material Tax election made by the Company or any of its Subsidiaries or any settlement or compromise of any material Tax liability by the Company or any of its Subsidiaries.

Section 3.12 Investigations; Litigation . There is no action, suit, claim, arbitration, investigation, inquiry, grievance or other proceeding (each, an “ Action ”) pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, any of their respective properties or assets, or any present or former officer, director or employee of the Company or any of its Subsidiaries in such individual’s capacity as such, other than any Action that (a) does not involve an amount in controversy in excess of $250,000, (b) does not seek injunctive or other non-monetary relief or (c) individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries nor any of their respective properties or assets is subject to any outstanding judgment, order, injunction, rule or decree of any Governmental Entity. There is no Action pending or, to the knowledge of the Company, threatened seeking to prevent, hinder, modify, delay or challenge the transactions contemplated by this Agreement (including any such action under any Company Material Contract).

Section 3.13 Schedule 13E-3/Proxy Statement; Other Information . None of the information provided by the Company to be included in (a) the Rule 13e-3 transaction statement on Schedule 13E-3 (the “ Schedule 13E-3 ”) or (b) the Proxy Statement will, in the case of the Schedule 13E-3, as of the date of its filing and of each amendment or supplement thereto and, in the case of the Proxy Statement, (i) at the time of the mailing of the Proxy Statement or any amendments or supplements thereto and (ii) at the time of the Company Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which

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they were made, not misleading. Each of the Proxy Statement and the Schedule 13E-3 as to information supplied by the Company, will comply as to form in all material respects with the provisions of the Exchange Act. The letter to stockholders, notice of meeting, proxy statement and forms of proxy to be distributed to stockholders in connection with the Merger to be filed with the SEC are collectively referred to herein as the “ Proxy Statement .” Notwithstanding the foregoing, the Company makes no representation or warranty with respect to the information supplied in writing by Parent or Merger Sub or any of their respective Representatives that is contained or incorporated by reference in the Proxy Statement or the Schedule 13E-3.

Section 3.14 Tax Matters .

(a) The Company and each of its Subsidiaries have prepared and timely filed (taking into account any extension of time within which to file) all material Tax Returns required to be filed by any of them and all such Tax Returns are complete and accurate in all material respects.

(b) The Company and each of its Subsidiaries have paid all material Taxes that are required to be paid by any of them.

(c) There are not any pending or, to the knowledge of the Company, threatened, audits, examinations, investigations, actions, suits, claims or other proceedings in respect of any material amount of Taxes nor has any deficiency for any material amount of Tax been assessed by any Governmental Entity in writing against the Company or any of its Subsidiaries.

(d) Neither the Company nor any of its Subsidiaries has made any compensatory payments or has been or is a party to any compensatory agreement, contract, arrangement, or plan that provides for compensatory payments that were not deductible or could reasonably be expected to be nondeductible under Code section 162(m).

(e) All material Taxes required to be withheld by the Company and its Subsidiaries have been withheld and paid over to the appropriate Tax authority.

(f) The Company is not a party to or bound by any Tax sharing or Tax indemnity agreement or any other agreement of a similar nature, and neither the Company nor any of its Subsidiaries has entered into any transaction described in Sections 1.6011-4(b)(2), -4(b)(3) or -4(b)(4) of the Treasury Regulations promulgated under the Code.

(g) As used in this Agreement, (i) “ Taxes ” means any and all domestic or foreign, federal, state, local or other taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Entity, including taxes on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, unemployment, social security, workers’ compensation or net worth, and taxes in the nature of excise, withholding, ad valorem or value added, and (ii) “ Tax Return ” means any return, report or similar filing (including the attached schedules) required to be filed with respect to Taxes, including any information return or declaration of estimated Taxes.

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Section 3.15 Labor Matters .

(a) Neither the Company nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. To the Company’s knowledge, there are no labor unions or other organizations attempting to represent any employees of the Company or any of its Subsidiaries. There are no pending or, to the knowledge of the Company, threatened, representation petitions involving either the Company or any of its Subsidiaries before the National Labor Relations Board or any state labor board. Neither the Company nor any of its Subsidiaries has engaged or is engaging in any unfair labor practice. Neither the Company nor any of its Subsidiaries is subject to any unfair labor practice charge or complaint, dispute, strike or work stoppage, nor, to the knowledge of the Company, is any such charge or complaint, dispute, strike or work stoppage threatened. To the knowledge of the Company, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of the Company or any of its Subsidiaries.

(b) The Company and each of its Subsidiaries is in compliance, in all material respects, with all employment agreements, consulting and other service contracts, written employee or human resources personnel policies (to the extent they contain enforceable obligations), handbooks or manuals, and severance or separation agreements, except in each case that would not, individually or in the aggregate, be material to the Company and its Subsidiaries taken as a whole. The Company and its Subsidiaries are in compliance in all material respects with applicable Laws related to employment, employment practices, wages, hours and other terms and conditions of employment, except in each case that would not, individually or in the aggregate, be material to the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries has any grievance procedure, arbitration or litigation involving a labor or employment dispute pending, or to the knowledge of the Company, threatened against it. The Company and each of its Subsidiaries are, and since January 1, 2006, have been, in compliance with and are not in default under or in violation of any applicable federal, state, local or foreign law, statute, ordinance, rule, code, regulation, judgment, order, injunction, decree or agency requirement of any Governmental Entity, related to employment, employment practices, wages, hours and other terms and conditions of employment except where such non-compliance, default or violation would not have, individually or in the aggregate, a Company Material Adverse Effect.

Section 3.16 Intellectual Property . Except as would not have a Material Adverse Effect, either the Company or its Subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use, free and clear of all Liens other than Permitted Liens, the intellectual property of any type, registered or unregistered and however denominated, including (a) all material trademarks, trade names, and service marks, together with the goodwill associated therewith, domain names, and registrations and applications to register any of the foregoing (“ Marks ”); (b) copyrights and registrations and applications therefor (“ Copyrights ”); (c) patents or patent applications (“ Patents ”); and (d) trade secrets and other confidential and proprietary information (“ Trade Secrets ”) (collectively, the “ Intellectual Property ”), in each case as such Intellectual Property is used in their respective businesses as currently conducted. Section 3.16(a) of the Company Disclosure Schedules set forth an accurate and complete list of all Patents, registered Marks and applications to register Marks, in each case that are owned by

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or exclusively licensed to the Company (“ Registered Company Intellectual Property ”). Except as would not have a Company Material Adverse Effect or as set forth on Section 3.16 of the Company Disclosure Schedules, as of the date hereof (i) to the knowledge of the Company, there are no pending or threatened claims by any third party alleging infringement, dilution or misappropriation by the Company or any of its Subsidiaries of any intellectual property of any third party, and neither the Company nor any of its Subsidiaries has received any written notice or claim challenging the validity or enforceability of any of the Registered Company Intellectual Property; (ii) to the knowledge of the Company, neither the products owned by the Company or its Subsidiaries nor the conduct of the business of the Company and its Subsidiaries infringes any Intellectual Property rights of any third party and neither the Company nor any of its Subsidiaries has received within the last 12 months a written “invitation to license” or other written communication from any third party asserting that the Company or any of its Subsidiaries is or will be obligated to take a license under any intellectual property owned by any third party in order to continue to conduct their respective businesses as they are currently conducted in any material respect; (iii) neither the Company nor any of its Subsidiaries has made any claim of a violation or infringement by others of its rights to or in connection with the Intellectual Property owned by the Company or any of its Subsidiaries; (iv) to the knowledge of the Company, no person is infringing, diluting or misappropriating any Intellectual Property owned by the Company or any of its Subsidiaries and the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement shall not result in the loss or reduction in scope of Intellectual Property licensed to the Company or any of its Subsidiaries, whether by termination or expiration of such license, the performance of such license pursuant to its terms, or other means; and (v) the Company and its Subsidiaries have taken commercially reasonable actions required to protect and preserve, and maintain the validity and effectiveness of, all material Intellectual Property owned by the Company or any of its Subsidiaries, including without limitation paying all necessary fees related to the registration, maintenance and renewal of the Registered Company Intellectual Property and requiring each of their employees, consultants and contractors to enter into intellectual property assignment and confidentiality agreements. The Intellectual Property owned or licensed by the Company and its Subsidiaries, or which the Company otherwise has the right to use, constitutes all of the material Intellectual Property necessary for the conduct of the business of the Company and its Subsidiaries as such business is currently conducted. The Company or its Subsidiaries either own or have been granted necessary license rights in and to Software utilized in the conduct of the business of the Company or its Subsidiaries, except as would not have a Company Material Adverse Effect. For the purposes of this Section 3.16, “ Software ” means all computer programs, in source and object code, and all documentation related thereto.

Section 3.17 Property .

(a) Neither the Company nor any of its Subsidiaries owns any real property.

(b) Section 3.17 of the Company Disclosure Schedule contains a true, correct and complete list of all leases, subleases, franchises, licenses or occupancy agreements providing for the use or occupancy by the Company or any Subsidiary of the Company with reference to the addresses and the store number, if applicable, for all real property (the “ Leased Real Properties ”), including without limitation, all amendments, guarantees, modifications and supplements thereto (collectively, the “ Leases ”). True, correct and complete copies of all Leases

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have been delivered or made available to Parent and Merger Sub. The Company or a Subsidiary of the Company has good leasehold title with respect to each of the Leased Real Properties free and clear of all Liens subject only to (i) subleases to a Subsidiary of the Company that the Company or a Subsidiary of the Company may freely amend or terminate without the consent of any other person and without the payment of any penalty, premium or other amount, (ii) claims, liens, charges, security interests or encumbrances of any nature whatsoever that do not (A) materially affect the continued use of the property for the purposes for which the property is currently being used or (B) otherwise require the payment of any penalties or monetary amounts, and (iii) Permitted Liens.

(c) The Company or one of its Subsidiaries has good and valid title to, or in the case of leased tangible assets, a valid leasehold interest in, all of its tangible assets that are necessary for the Company and its Subsidiaries to conduct their respective businesses as currently conducted, free and clear of all Liens other than Permitted Liens.

Section 3.18 Opinion of Financial Advisor . The Independent Committee has received the opinion of UBS Securities LLC (the “ Advisor ”) dated the date of this Agreement, to the effect that, as of such date, the Merger Consideration to be received by the holders of the Company Common Stock (other than Rollover Participants and Vardon) is fair to such holders from a financial point of view. An executed copy of such opinion has been made available to Parent. As of the date of this Agreement, such opinion has not been withdrawn, revoked or modified.

Section 3.19 Required Vote of the Company Stockholders . Subject to the accuracy of the representations and warranties of Parent and Merger Sub in Section 4.9, and except for the Special Stockholder Approval contractually required by Section 6.1(a) hereof, the only votes of holders of securities of the Company which are required to approve this Agreement and the Merger are (i) the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock on the record date of t