Neiman Marcus 2009 Annual Report Download - page 114

Table of Contents
2028 Debentures. In May 1998, NMG issued $125.0 million aggregate principal amount of its 7.125% 2028 Debentures.
NMG equally and ratably secures its 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 2028 Debentures are not guaranteed by certain subsidiaries of NMG. The 2028 Debentures include a cross-
acceleration provision in respect of any other indebtedness that has an aggregate principal amount exceeding $15 million. NMG's
2028 Debentures mature on June 1, 2028.
The fair value of the 2028 Debentures was approximately $114.1 million at July 31, 2010 and $95.6 million at August 1,
2009 based on quoted market prices.
Senior Notes. NMG has $752.4 million aggregate principal amount of 9.0% / 9.75% Senior Notes under a senior indenture
(Senior Indenture). NMG's 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. 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 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. We negotiated for the right to include the PIK feature in our Senior Notes because of our belief that this feature
could be a useful tool to enhance liquidity under appropriate circumstances. In the second quarter of fiscal year 2009, given the
dislocation in the financial markets and the uncertainty as to when reasonable conditions would return, we believed that it was
appropriate to utilize this feature, even though we had available borrowing capacity under our $600.0 million revolving credit facility.
Accordingly, we elected to pay PIK Interest for the three quarterly interest periods ending October 14, 2009 and to make such interest
payments with the issuance of additional Senior Notes at the PIK Interest rate of 9.75% instead of paying interest in cash. As a result,
the original principal amount of Senior Notes of $700.0 million increased by $17.1 million in April 2009, $17.4 million in July 2009
and $17.9 million in October 2009. We have elected to pay cash interest since the first quarter of fiscal year 2010. After October 15,
2010, we are required to make all interest payments on the Senior Notes entirely in cash.
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.
NMG is not required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes. The
indenture governing the Senior Notes contains a number of customary negative covenants and events of default, including a cross-
default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $50 million, which, if any of
them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all outstanding
Senior Notes to be due and payable immediately.
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 principal amount,
declining annually to 100% of the principal amount on October 15, 2013, plus accrued and unpaid interest, and Additional Interest (as
defined in the Senior Indenture), if any, thereon to the applicable redemption date.
F-21