Neiman Marcus 2013 Annual Report Download - page 21

Table of Contents
As a result of all of these restrictions, we may be:
• limited in how we conduct our business;
• unable to raise additional debt or equity financing to operate during general economic or business downturns; or
• unable to compete effectively or to take advantage of new business opportunities.
These restrictions might hinder our ability to grow in accordance with our strategy.
In addition, the springing financial covenant in the credit agreement governing our Asset-Based Revolving Credit Facility requires the maintenance
of a minimum fixed charge coverage ratio, which covenant is triggered when excess availability under our Asset-Based Revolving Credit Facility is less than
the greater of $50.0 million and 10% of the Line Cap, as defined in the credit agreement, then in effect. Our ability to meet the financial covenant could be
affected by events beyond our control.
A breach of the covenants under the indentures governing the Notes or under the credit agreements governing our Senior Secured Credit Facilities
could result in an event of default under the applicable debt document. Such a default, if not cured or waived, may allow the creditors to accelerate the
related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. In addition, an
event of default under the credit agreements governing our Senior Secured Credit Facilities would permit the lenders under our Senior Secured Credit
Facilities to terminate all commitments to extend further credit under the facilities. Furthermore, if we were unable to repay the amounts due and payable
under our Senior Secured Credit Facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our
lenders or holders of the Notes accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
Based on the foregoing factors, the operating and financial restrictions and covenants in our current debt agreements and any future financing
agreements could adversely affect our ability to finance future operations or capital needs or to engage in other business activities.
We are a holding company with no operations and may not have access to sufficient cash to make payments on our outstanding indebtedness.
We are a holding company and do not have any direct operations. Our only significant assets are the equity interests we directly and indirectly hold
in our subsidiaries. As a result, we are dependent upon dividends and other payments from our subsidiaries to generate the funds necessary to meet our
outstanding debt service and other obligations and such dividends may be restricted by law or the instruments governing our indebtedness, including the
indentures governing the Notes, the credit agreements governing our Senior Secured Credit Facilities or other agreements of our subsidiaries. Our
subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness. In addition, our
subsidiaries are separate and distinct legal entities and, except for our existing and future subsidiaries that will be the guarantors of our indebtedness, any
payments on dividends, distributions, loans or advances to us by our subsidiaries could be subject to legal and contractual restrictions on dividends. In
addition, payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings. Additionally, we may be limited in our ability to cause any
future joint ventures to distribute their earnings to us. Subject to certain qualifications, our subsidiaries are permitted under the terms of our indebtedness to
incur additional indebtedness that may restrict payments from those subsidiaries to us. There can be no assurance that agreements governing the current and
future indebtedness of our subsidiaries will permit those subsidiaries to provide us with sufficient cash to fund payments of principal, premiums, if any, and
interest on our indebtedness when due. In the event that we do not receive distributions or other payments from our subsidiaries, we may be unable to make
required payments on our debt.
Despite our level of indebtedness after the Acquisition, we and our subsidiaries may still incur substantially more debt. This could further exacerbate the
risks to our financial condition described above.
We and our subsidiaries may incur significant additional indebtedness in the future. Although the indentures governing the Notes and the credit
agreements governing our Senior Secured Credit Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a
number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. As of August 2,
2014, our Asset-Based Revolving Credit Facility provides for borrowings of the lesser of unused commitments of $720.0 million, subject to the borrowing
base. Additionally, (i) our Senior Secured Term Loan Facility may be increased by an amount equal to (x) $650.0 million plus (y) an unlimited amount so
long as, in the case of new indebtedness secured on a pari passu basis with
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