Neiman Marcus 2006 Annual Report Download - page 123

• engage in transactions with NMG's affiliates;
• sell assets, including capital stock of NMG's subsidiaries;
• consolidate or merge;
• create liens; and
• enter into sale and lease back transactions.
The covenants limiting dividends and other restricted payments; investments, loans, advances and acquisitions; and prepayments
or redemptions of other indebtedness, each permit the restricted actions in an unlimited amount, subject to the satisfaction of certain
payment conditions, principally that NMG must have at least $75.0 million of pro forma excess availability under the Asset-Based
Revolving Credit Facility and that NMG must be in pro forma compliance with the fixed charge coverage ratio described below.
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 voluntarily repaid $100.0 million principal amount of the loans under the Senior Secured
Term Loan Facility and in fiscal year 2007, NMG voluntarily repaid $250.0 million principal amount.
At July 28, 2007, borrowings under the Senior Secured Term Loan Facility bore 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. At July
28, 2007, the applicable margin with respect to base rate borrowings was 0.75% and the applicable margin with respect to LIBOR
borrowings was 1.75%. The interest rate on the outstanding borrowings pursuant to the Senior Secured Term Loan Facility was 7.36%
at July 28, 2007.
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
2007, 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. NMG 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.
NMG 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. 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 the assets of the Company, NMG 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
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