Neiman Marcus 2005 Annual Report Download - page 14

Regulation
Our operations are affected by numerous federal and state laws that impose disclosure and other requirements upon the
origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged
by a credit provider. In addition to our proprietary credit cards, credit to our customers is also provided primarily through third parties
such as American Express, Visa and MasterCard. Any change in the regulation of credit that would materially limit the availability of
credit to our customer base could adversely affect our results of operations or financial condition.
Our practices, as well as our competitors, are subject to review in the ordinary course of business by the Federal Trade
Commission and are subject to numerous federal and state laws. Additionally, we are subject to certain customs, truth-in-advertising and
other laws, including consumer protection regulations that regulate retailers generally and/or govern the importation, promotion and sale
of merchandise. We undertake to monitor changes in these laws and believe that we are in material compliance with all applicable state
and federal regulations with respect to such practices.
Investment in Kate Spade LLC
We currently own a 56% interest in Kate Spade LLC, which designs and markets high-end designer handbags and accessories.
A minority investor owns the remaining 44% interest. Our investment in and relationship with Kate Spade LLC is governed by an
operating agreement that provides for an orderly transition process in the event either investor wishes to sell its interest, or purchase the
other investor's interest. Among other things, this operating agreement contains currently exercisable put option provisions entitling the
minority investor to put its interest to us, and currently exercisable call option provisions entitling us to purchase the minority investor's
interest, at a purchase price mutually agreed to by the parties. The purchase price will be determined by the parties or, in the event the
parties are unable to agree on a mutually acceptable price, by a mutually acceptable nationally recognized investment banking firm,
subject to certain conditions. We may elect to defer the consummation of a put option for a period of six months by cooperating with the
minority investor in seeking either a sale of Kate Spade LLC to a third party or a public offering of Kate Spade LLC's securities. If a sale
to a third party or public offering of Kate Spade LLC's securities is not consummated within six months after the exercise of the put
option (which period may be automatically extended for an additional two months if a registration statement for Kate Spade LLC is filed
with the Securities and Exchange Commission), we are obligated to consummate the put option. Under the terms of the Kate Spade LLC
operating agreement, consummation of the put option shall occur within thirty days after the determination of the valuation with respect
to the exercise of the put option, unless we have elected to defer the consummation of the put option for the six-month period referred to
above, and should a third party sale or public offering of Kate Spade LLC occur within such six-month period, we are required to pay the
minority investor the excess, if any, of the put option valuation price for its interest over the amount it realizes through the third party sale
or public offering.
In April 2005, the minority investor in Kate Spade LLC exercised the put option described above with respect to the full amount
of its stake in such company. We subsequently entered into a standstill agreement to postpone the put process while we engaged in
discussions with the minority investor in Kate Spade LLC regarding certain strategic alternatives, including the possible sale of such
company. The standstill agreement, as extended, expired on March 21, 2006, but the parties are continuing to pursue discussions
regarding a possible sale of such company while the put valuation process proceeds. Although such discussions are ongoing, no assurance
can be given that they will ultimately lead to any transaction. It is possible that we may be required to purchase the shares of the minority
investor in Kate Spade LLC pursuant to the option as early as the second quarter of fiscal year 2007.
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