Neiman Marcus 2006 Annual Report Download - page 124

• 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 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 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.
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 28, 2007 was approximately $130.0 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. To date, NMG has paid all interest obligations in cash. 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. 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'
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