Neiman Marcus 2005 Annual Report Download - page 104

Although the credit agreement governing the Asset-Based Revolving Credit Facility does not require NMG to comply with any
financial ratio maintenance covenants, if less than $60.0 million were available to be borrowed under the Asset-Based Revolving Credit
Facility at any time, NMG would not be permitted to borrow any additional amounts unless its pro forma ratio of consolidated EBITDA
to consolidated Fixed Charges (as such terms are defined in the credit agreement) were at least 1.1 to 1.0. The credit agreement also
contains customary affirmative covenants and events of default.
Senior Secured Term Loan Facility. On October 6, 2005, in connection with the Transactions, NMG entered into a credit
agreement and related security and other agreements for a $1,975.0 million Senior Secured Term Loan Facility with Credit Suisse as
administrative agent and collateral agent. The full amount of the Senior Secured Term Loan Facility was borrowed on October 6, 2005. In
the second quarter of fiscal year 2006, NMG repaid $100.0 million principal amount of the loans under the Senior Secured Term Loan
Facility.
Borrowings under the Senior Secured Term Loan Facility bear interest at a rate per annum equal to, at NMG's option, either (a) a
base rate determined by reference to the higher of (1) the prime rate of Credit Suisse and (2) the federal funds effective rate plus 1¤2 of
1% or (b) a LIBOR rate, subject to certain adjustments, in each case plus an applicable margin. The applicable margin is 1.5% with
respect to base rate borrowings and 2.5% with respect to LIBOR borrowings. The interest rate on the outstanding borrowings pursuant to
the Senior Secured Term Loan Facility was 7.77% at July 29, 2006.
The credit agreement governing the Senior Secured Term Loan Facility requires NMG to prepay outstanding term loans with
50% (which percentage will be reduced to 25% if NMG's total leverage ratio is less than a specified ratio and will be reduced to 0% if
NMG's total leverage ratio is less than a specified ratio) of its annual excess cash flow (as defined in the credit agreement). For fiscal year
2006, NMG was not required to prepay any outstanding term loans pursuant to the annual excess cash flow requirements. If a change of
control (as defined in the credit agreement) occurs, NMG will be required to offer to prepay all outstanding term loans, at a prepayment
price equal to 101% of the principal amount to be prepaid, plus accrued and unpaid interest to the date of prepayment. The Company also
must offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the
proceeds of certain asset sales under certain circumstances.
The Company may voluntarily prepay outstanding loans under the Senior Secured Term Loan Facility at any time without
premium or penalty other than customary "breakage" costs with respect to LIBOR loans. If NMG repays all or any portion of the Senior
Secured Term Loan Facility prior to October 6, 2006 (other than a prepayment that is made with certain designated asset sale proceeds),
NMG must pay 101% of the principal amount to be repaid. There is no scheduled amortization under the Senior Secured Term Loan
Facility. The principal amount of the loans outstanding is due and payable in full on April 6, 2013.
All obligations under the Senior Secured Term Loan Facility are unconditionally guaranteed by the Company and each direct
and indirect domestic subsidiary of NMG that guarantees the obligations of NMG under its Asset-Based Revolving Credit Facility. All
obligations under the Senior Secured Term Loan Facility, and the guarantees of those obligations, are secured, subject to certain
significant exceptions, by substantially all of NMG's assets and the assets of the Company and the subsidiary guarantors, including:
• a first-priority pledge of 100% of NMG's capital stock and certain of the capital stock held by NMG, the Company or any
subsidiary guarantor (which pledge, in the case of any foreign subsidiary is limited to 100% of the non-voting stock (if any)
and 65% of the voting stock of such foreign subsidiary); and
• a first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of NMG, the
Company and each subsidiary guarantor, including a significant portion of NMG's material owned and leased real property
(which currently consists of approximately half of NMG's full-line retail stores) and equipment, but excluding, among other
things, the collateral described in the following bullet point; and
• a second-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts,
all payments received by NMG or the subsidiary guarantors from credit card clearinghouses and processors or otherwise in
respect of all credit card charges for sales of inventory by NMG and the subsidiary guarantors, certain related assets and
proceeds of the foregoing.
Capital stock and other securities of a subsidiary of NMG that are owned by NMG or any subsidiary guarantor will not
constitute collateral under NMG's Senior Secured Term Loan Facility to the extent that such securities cannot secure the 2028 Debentures
or other secured public debt obligations without requiring the preparation and filing of separate financial statements of such subsidiary in
accordance with applicable SEC rules. As a result, the collateral under NMG's Senior Secured Term Loan
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