Neiman Marcus 2007 Annual Report Download - page 110

Table of Contents
• 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 Acquisition, 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. NMG's 2028 Debentures mature on June 1, 2028.
The fair value of 2028 Debentures at August 2, 2008 was approximately $112.5 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 Acquisition, 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' 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.
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