Neiman Marcus 2005 Annual Report Download - page 105

Facility will include shares of capital stock or other securities of subsidiaries of NMG or any subsidiary guarantor only to the extent that
the applicable value of such securities (on a subsidiary-by-subsidiary basis) is less than 20% of the aggregate principal amount of the
2028 Debentures or other secured public debt obligations of NMG. Stock of Kate Spade LLC and its assets also will not constitute
collateral under NMG's Senior Secured Term Loan Facility.
The credit agreement governing the Senior Secured Term Loan Facility contains a number of negative covenants that are
substantially similar to those governing the Senior Notes and additional covenants related to the security arrangements for the Senior
Secured Term Loan Facility. The credit agreement also contains customary affirmative covenants and events of default.
2028 Debentures. In May 1998, NMG issued $125.0 million aggregate principal amount of its 7.125% 2028 Debentures. In
connection with the Transactions, NMG equally and ratably secured the 2028 Debentures by a first lien security interest on certain
collateral subject to liens granted under NMG's Senior Secured Credit Facilities constituting (a) (i) 100% of the capital stock of certain of
NMG's existing and future domestic subsidiaries, and (ii) 100% of the non-voting stock and 65% of the voting stock of certain of NMG's
existing and future foreign subsidiaries and (b) certain of NMG's principal properties that include approximately half of NMG's full-line
stores, in each case, to the extent required by the terms of the indenture governing the 2028 Debentures. The 2028 Debentures contain
covenants that restrict NMG's ability to create liens and enter into sale and lease back transactions. The collateral securing the 2028
Debentures will be released upon the release of liens on such collateral under NMG's Senior Secured Credit Facilities and any other debt
(other than the 2028 Debentures) secured by such collateral. Capital stock and other securities of a subsidiary of NMG that are owned by
NMG or any subsidiary will not constitute collateral under the 2028 Debentures to the extent such property does not constitute collateral
under NMG's Senior Secured Credit Facilities as described above. The 2028 Debentures are guaranteed on an unsecured, senior basis by
the Company.
The fair value of 2028 Debentures at July 29, 2006 was approximately $118.4 million.
Senior Notes. On October 6, 2005, Newton Acquisition Merger Sub, Inc. issued $700.0 million aggregate original principal
amount of 9.0% / 9.75% Senior Notes under a senior indenture (Senior Indenture) with Wells Fargo Bank, National Association, as
trustee. At the closing of the Transactions, as the surviving corporation in the Acquisition, NMG assumed all the obligations of Newton
Acquisition Merger Sub, Inc. under the Senior Indenture. The Senior Notes mature on October 15, 2015.
For any interest payment period through October 15, 2010, NMG may, at its option, elect to pay interest on the Senior Notes
entirely in cash (Cash Interest) or entirely by increasing the principal amount of the outstanding Senior Notes or by issuing additional
Senior Notes (PIK Interest). Cash Interest on the Senior Notes accrues at the rate of 9% per annum. PIK Interest on the Senior Notes
accrues at the rate of 9.75% per annum. After October 15, 2010, NMG will make all interest payments on the Senior Notes entirely in
cash. All Senior Notes mature on October 15, 2015 and have the same rights and benefits as the senior notes issued on October 6, 2005.
Interest on the Senior Notes is payable quarterly in arrears on each January 15, April 15, July 15 and October 15, commencing on
January 15, 2006.
The Senior Notes are fully and unconditionally guaranteed, on a joint and several unsecured, senior basis, by each of NMG's
wholly-owned domestic subsidiaries that guarantee NMG's obligations under its Senior Secured Credit Facilities and by the Company.
The Senior Notes and the guarantees thereof are NMG's and the guarantors' unsecured, senior obligations and rank (i) equal in the right of
payment with all of NMG's and the guarantors' existing and future senior indebtedness, including any borrowings under NMG's Senior
Secured Credit Facilities and the guarantees thereof and NMG's 2028 Debentures; and (ii) senior to all of NMG's and its guarantors'
existing and future subordinated indebtedness, including the Senior Subordinated Notes due 2015 and the guarantees thereof. The Senior
Notes also are effectively junior in priority to NMG's and its guarantors' obligations under all secured indebtedness, including NMG's
Senior Secured Credit Facilities, the 2028 Debentures, and any other secured obligations of NMG, in each case, to the extent of the value
of the assets securing such obligations. In addition, the Senior Notes are structurally subordinated to all existing and future liabilities,
including trade payables, of NMG's subsidiaries that are not providing guarantees.
The Company is not required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes, but
under certain circumstances, NMG may be required to offer to purchase Senior Notes as described below. The Company may from time
to time acquire Senior Notes by means other than a redemption, whether by tender offer, in open market purchases, through negotiated
transactions or otherwise, in accordance with applicable securities laws.
Except as described below, the Senior Notes are not redeemable at NMG's option prior to October 15, 2010. From and after
October 15, 2010, NMG may redeem the Senior Notes, in whole or in part, at a redemption price equal to 104.5% of
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