EXECUTION COPY LIEN SUBORDINATION AND INTERCREDITOR AGREEMENT

 

LIEN SUBORDINATION AND INTERCREDITOR AGREEMENT dated as of October 6, 2005, among DEUTSCHE BANK TRUST COMPANY AMERICAS, as agent for the Revolving Facility Secured Parties referred to herein; CREDIT SUISSE, as agent for the Term Loan Secured Parties and the Existing Notes Secured Parties referred to herein; NEWTON ACQUISITION, INC.; NEWTON ACQUISITION MERGER SUB, INC. (to be merged with and into The Neiman Marcus Group, Inc.); and the subsidiaries of The Neiman Marcus Group, Inc. named herein.

 

Reference is made to (a) the Revolving Facility Credit Agreement (such term and each other capitalized term used and not otherwise defined herein having the meaning assigned to it in Article I), under which the Revolving Facility Lenders have extended and agreed to extend credit to the Company, (b) the Term Loan Credit Agreement, under which the Term Loan Lenders have extended credit to the Company and (c) the Existing Notes Indenture governing the Existing Notes.

 

In consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Revolving Facility Agent (for itself and on behalf of the Revolving Facility Secured Parties), the Term Loan Agent (for itself and on behalf of the Term Loan Secured Parties and the Existing Notes Secured Parties), Holdings, the Company, NM Nevada Trust, a Massachusetts business trust, and the subsidiaries of the Company identified on Schedule I hereto agree as follows:

 

ARTICLE I

Definitions

 

SECTION 1.01.  Construction; Certain Defined Terms .  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, (ii) any reference herein to any person shall be construed to include such person’s successors and permitted assigns, but shall not be deemed to include the subsidiaries of such person unless express reference is made to such subsidiaries, (iii) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iv) all references herein to Articles and Sections shall be construed to refer to Articles and Sections of this Agreement and (v) unless otherwise expressly qualified herein, the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and

 

 

all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

 

SECTION 1.02.  As used in this Agreement, the following terms have the meanings specified below:

 

“Bankruptcy Code” means Title 11 of the United States Code.

 

“Collateral” means the Revolving Facility Collateral and the Term Loan Collateral.

 

“Company” means The Neiman Marcus Group, Inc., a Delaware corporation, as the surviving corporation of the merger with Newton Acquisition Merger Sub, Inc.

 

“ Excluded Assets ” has the meaning set forth (a) in the Term Loan Security Agreement, in the case of Term Loan First Lien Collateral, and (b) in the Revolving Facility Security Agreement, in the case of Revolving Facility First Lien Collateral.

 

“Existing Noteholders” means the Securityholders under and as defined in the Existing Notes Indenture.

 

“Existing Notes” means the 2008 Notes and the 2028 Debentures.

 

“Existing Notes Designated Collateral” has the meaning set forth in the Term Loan Security Agreement.

 

“Existing Notes Event of Default” means any “Event of Default”, as defined in the Existing Notes Indenture.

 

“Existing Notes Indenture” means the Indenture dated as of May 27, 1998, between the Company and the Existing Notes Trustee, pursuant to which the Existing Notes were issued.

 

“Existing Notes Obligations” has the meaning set forth in the Term Loan Security Agreement.

 

“Existing Notes Secured Parties” has the meaning set forth in the Term Loan Security Agreement.

 

“Existing Notes Trustee” means The Bank of New York, in its capacity as trustee under the Existing Notes Indenture, and its successors in such capacity.

 

“Grantor” means Holdings, the Company and each subsidiary of the Company that shall have created any Lien on any of its assets or properties to secure any of the Obligations.

 

2

 

“Holdings” means Newton Acquisition, Inc., a Delaware corporation.

 

“Junior Documents” means (a) in respect of the Term Loan First Lien Collateral, the Revolving Facility Documents, and (b) in respect of the Revolving Facility First Lien Collateral, the Term Loan/Notes Documents.

 

“Junior Liens” means (a) in respect of the Revolving Facility First Lien Collateral, the Term Loan Liens on such Collateral, and (b) in respect of the Term Loan First Lien Collateral, the Revolving Facility Liens on such Collateral.

 

“Junior Obligations” means (a) with respect to the Term Loan Obligations and the Existing Notes Obligations (to the extent such Obligations are secured by the Term Loan First Lien Collateral), the Revolving Facility Obligations, and (b) with respect to Revolving Facility Obligations (to the extent such Obligations are secured by the Revolving Facility First Lien Collateral), the Term Loan Obligations and the Existing Notes Obligations.

 

“Junior Obligations Collateral” means, with respect to any Senior Obligations, the Collateral securing the related Junior Obligations.

 

“Junior Obligations Event of Default” means (a) with respect to the Term Loan First Lien Collateral, any Revolving Facility Event of Default, and (b) with respect to the Revolving Facility First Lien Collateral, any Term Loan Event of Default or Existing Notes Event of Default.

 

“Junior Obligations Secured Parties” means (a) with respect to the Term Loan First Lien Collateral, the Revolving Facility Secured Parties, and (b) with respect to the Revolving Facility First Lien Collateral, the Term Loan Secured Parties and the Existing Notes Secured Parties.

 

“Junior Obligations Security Documents” means (a) with respect to the Revolving Facility First Lien Collateral, the Term Loan Security Documents, and (b) with respect to the Term Loan First Lien Collateral, the Revolving Facility Security Documents.

 

“Junior Representative” means (a) with respect to the Term Loan First Lien Collateral, the Revolving Facility Agent, and (b) with respect to the Revolving Facility First Lien Collateral, the Term Loan Agent.

 

“Lien” means any pledge, security interest, mortgage or other lien or encumbrance created to secure any indebtedness or other obligation.

 

“Mortgages” means the Term Loan Mortgages and the Revolving Facility Mortgages.

 

“Obligations” means the Term Loan Obligations, the Existing Notes Obligations and the Revolving Facility Obligations.

 

3

 

“Refinance” means, in respect of any indebtedness, to refinance, extend, renew, defease, amend, modify, supplement, restructure, replace, refund or repay, or to issue other indebtedness, in exchange or replacement for, such indebtedness in whole or in part; provided that the Refinancing indebtedness is secured by Liens in respect of the same assets and properties that secured the Refinanced indebtedness prior to such Refinancing. “ Refinanced ” and “ Refinancing ” shall have correlative meanings.

 

“Representative” means (a) in the case of any Revolving Facility Obligations, the Revolving Facility Agent, and (b) in the case of any Term Loan Obligations and Existing Notes Obligations, the Term Loan Agent.

 

“Revolving Facility Agent” means Deutsche Bank Trust Company Americas, in its capacity as administrative agent and collateral agent under the Revolving Facility Credit Agreement.

 

“Revolving Facility Collateral” means all assets and properties subject to Liens created by the Revolving Facility Security Documents to secure the Revolving Facility Obligations.

 

“Revolving Facility Credit Agreement” means the Credit Agreement dated as of October 6, 2005, among Holdings, the Company, the subsidiaries of the Company from time to time party thereto, the Revolving Facility Lenders and the Revolving Facility Agent, as amended, extended, renewed, restated, supplemented or otherwise modified from time to time, with the same or different lenders and agents.

 

“Revolving Facility Documents” means the Revolving Facility Credit Agreement and the Revolving Facility Security Documents.

 

“Revolving Facility Event of Default” means any “Event of Default”, as defined in the Revolving Facility Credit Agreement.

 

“Revolving Facility First Lien Collateral” means any and all of the following assets and properties now owned or at any time hereafter acquired by any Grantor: (a) all Accounts arising from the sale or other disposition of Inventory; (b) all Inventory; (c) to the extent evidencing, governing, securing or otherwise related to the items referred to in the preceding clauses (a) and (b), all (i) General Intangibles, (ii) Chattel Paper, (iii) Instruments and (iv) Documents; (d) all Payment Intangibles (including corporate tax refunds), other than any Payment Intangibles that represent tax refunds in respect of or otherwise relate to real property, Fixtures or Equipment; (e) all payments received from the Grantors’ credit card clearinghouses and processors or otherwise in respect of all credit card charges for sales of Inventory by the Company and its subsidiaries; (f) all collection accounts, deposit accounts and commodity accounts and any cash or other assets in any such accounts (excluding any net cash proceeds from the sale or other disposition of any Term Loan First Lien Collateral held in trust by the Term Loan Agent pending application in accordance with the Term Loan Credit Agreement); (g) all books and records related to the foregoing; and (h) all Products and Proceeds of any and all of the foregoing in whatever form received, including proceeds of insurance

 

4

 

policies related to Inventory of any Grantor and business interruption insurance; provided , however , under no circumstances shall Excluded Assets be Revolving Facility First Lien Obligations.  All capitalized terms used in this definition and not defined elsewhere in this Agreement have the meanings assigned to them in the UCC.

 

“Revolving Facility First Lien Collateral Transition Date” means the earlier of (a) the date on which all the Revolving Facility Obligations shall have been paid in full (other than unripened or contingent indemnity obligations under the relevant Revolving Facility Documents for which no demand has been made) and the Revolving Facility Credit Agreement shall have been terminated and (b) the date on which the Revolving Facility First Lien Collateral shall have been released from the Liens created under the Revolving Facility Documents.

 

“Revolving Facility Lenders” means the Lenders under and as defined in the Revolving Facility Credit Agreement.

 

“Revolving Facility Liens” means the Liens on the Revolving Facility Collateral created under Revolving Facility Security Documents to secure the Revolving Facility Obligations.

 

“Revolving Facility Mortgages” means any mortgage, deed of trust or other agreement which conveys or evidences a Lien in favor of the Revolving Facility Agent, for the benefit of the Revolving Facility Agent and the Revolving Facility Secured Parties, on real property of a Grantor, including any amendment, modification or supplement thereto.

 

“Revolving Facility Obligations” means all “Secured Obligations” as such term is defined in the Revolving Facility Credit Agreement.

 

“Revolving Facility Required Parties” means the “Required Secured Parties” as such term is defined in the Revolving Facility Security Agreement.

 

“Revolving Facility Secured Parties” means, at any time, the Revolving Facility Agent, each Revolving Facility Lender and each other holder of, or obligee in respect of, any Revolving Facility Obligations outstanding at such time.

 

“Revolving Facility Security Agreement” means the Pledge and Security Agreement dated as of October 6, 2005, among Holdings, the Company, the subsidiaries of the Company from time to time party thereto and the Revolving Facility Agent, as amended, extended, renewed, restated, supplemented or otherwise modified from time to time.

 

“Revolving Facility Security Documents” means the Revolving Facility Security Agreement, the Revolving Facility Mortgages, and any other documents now existing or entered into after the date hereof that create Liens on any assets or properties of Holdings, the Company or any of its subsidiaries to secure any Revolving Facility Obligations.

 

5

 

“Secured Parties” means the Term Loan Secured Parties, the Existing Notes Secured Parties the Revolving Facility Secured Parties.

 

“Security Documents” means the Term Loan Security Documents and the Revolving Facility Security Documents.

 

“Senior Liens” means (a) in respect of the Revolving Facility First Lien Collateral, the Revolving Facility Liens on such Collateral, and (b) in respect of the Term Loan First Lien Collateral, the Term Loan Liens on such Collateral (in the case of the Existing Notes Obligations, solely to the extent such Collateral constitutes Existing Notes Designated Collateral).

 

“Senior Obligations” means (a) with respect to the Revolving Facility Obligations (to the extent such Obligations are secured by the Term Loan First Lien Collateral), the Term Loan Obligations and the Existing Notes Obligations, and (b) with respect to Term Loan Obligations and the Existing Notes Obligations (to the extent such Obligations are secured by the Revolving Facility First Lien Collateral), the Revolving Facility Obligations.

 

“Senior Obligations Collateral” means (a) with respect to the Term Loan Obligations and the Existing Notes Obligations, the Revolving Facility First Lien Collateral, and (b) with respect to the Revolving Facility Obligations, the Term Loan First Lien Collateral.

 

“Senior Obligations Required Parties” means (a) with respect to the Revolving Facility First Lien Collateral, the Revolving Facility Required Parties, and (b) with respect to the Term Loan First Lien Collateral, the Term Loan Required Parties.

 

“Senior Obligations Secured Parties” means (a) with respect to the Term Loan First Lien Collateral, the Term Loan Secured Parties and the Existing Notes Secured Parties, and (b) with respect to the Revolving Facility First Lien Collateral, the Revolving Facility Secured Parties.

 

“Senior Obligations Security Documents” means (a) with respect to the Revolving Facility First Lien Collateral, the Revolving Facility Security Documents, and (b) with respect to the Term Loan First Lien Collateral, the Term Loan Security Documents.

 

“Senior Representative” means (a) with respect to the Term Loan First Lien Collateral, the Term Loan Agent, and (b) with respect to the Revolving Facility First Lien Collateral, the Revolving Facility Agent.

 

“subsidiary” means, with respect to any person (herein referred to as the “parent”), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, or (b) that is, at the time any determination is made, otherwise controlled, by the parent or

 

6

 

one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

 

“Term Loan Agent” means Credit Suisse, in its capacity as collateral agent for the Term Loan Secured Parties and the Existing Notes Secured Parties.

 

“Term Loan Collateral” means all assets and properties subject to Liens created by the Term Loan Security Documents to secure the Term Loan Obligations and the Existing Notes Obligations.

 

“Term Loan Credit Agreement” means the Credit Agreement dated as of October 6, 2005, among Holdings, the Company, the subsidiaries of the Company from time to time party thereto, the Term Loan Lenders and the Term Loan Agent, as amended, extended, renewed, restated, supplemented or otherwise modified from time to time, with the same or different lenders and agents.

 

“Term Loan Event of Default” means any “Event of Default”, as defined in the Term Loan Credit Agreement.

 

“Term Loan First Lien Collateral” means any and all of the following assets and properties now owned or at any time hereafter acquired by any Grantor (in the case of the Existing Notes Obligations, solely to the extent such assets or property constitute Existing Notes Designated Collateral): (a) all Accounts (but not including Accounts arising from the sale or other disposition of Inventory); (b) all real property, Fixtures and Equipment; (c) all Intellectual Property; (d) all Equity Interests in the Company and its subsidiaries; (e) all General Intangibles, Chattel Paper, Instruments and Documents (other than General Intangibles, Chattel Paper, Instruments and Documents that are Revolving Facility First Lien Collateral); (f) all Payment Intangibles that represent tax refunds in respect of or otherwise relate to real property, Fixtures or Equipment; (g) all intercompany indebtedness of Holdings and its subsidiaries; (h) all permits and licenses related to any of the foregoing (including any permits or licenses related to the ownership or operation of real property, Fixtures or Equipment of any Grantor); (i) all proceeds of insurance policies (other than any such proceeds that are Revolving Facility First Lien Collateral); (j) all books and records related to the foregoing and not constituting Revolving Facility First Lien Collateral; (k) all Products and Proceeds of any and all of the foregoing; and (l) all other Collateral not constituting Revolving Facility First Lien Collateral; provided , however , under no circumstances shall Excluded Assets be Term Loan First Lien Collateral.  All capitalized terms used in this definition and not defined elsewhere in this Agreement have the meanings assigned to them in the UCC.

 

“Term Loan First Lien Collateral Transition Date” means the earlier of (a) the date on which all the Term Loan Obligations shall have been paid in full (other than unripened or contingent indemnity obligations under the relevant Term Loan/Notes Documents for which no demand has been made) and the Term Loan Credit Agreement shall have been terminated and (b) the date on which the Term Loan First Lien Collateral shall have been released from the Liens created under the Term Loan/Notes Documents.

 

7

 

“Term Loan Lenders” means the Lenders under and as defined in the Term Loan Credit Agreement.

 

“Term Loan Liens” means the Liens on the Term Loan Collateral created under the Term Loan Security Documents to secure the Term Loan Obligations and the Existing Notes Obligations.

 

“Term Loan Mortgages” means any mortgage, deed of trust or other agreement which conveys or evidences a Lien in favor of the Term Loan Agent, for the benefit of the Term Loan Agent, Term Loan Secured Parties and the Existing Notes Secured Parties, on real property of a Grantor, including any amendment, modification or supplement thereto.

 

“Term Loan Obligations” has the meaning set forth in the Term Loan Security Agreement.

 

“Term Loan Pari Passu Indebtedness” means indebtedness of the Company or its subsidiaries that is equally and ratably secured on a pari passu basis with the Term Loan Obligations, the Existing Notes Obligations and Refinancings thereof and is permitted to be so incurred in accordance with the Revolving Facility Credit Agreement and the Term Loan Credit Agreement.

 

“Term Loan Required Parties” means the “Required Secured Parties” as such term is defined in the Term Loan Security Agreement.

 

“Term Loan Secured Parties” has the meaning set forth in the Term Loan Security Agreement .

 

“Term Loan Security Agreement” means the Pledge and Security and Intercreditor Agreement dated as of October 6, 2005, among Holdings, the Company, the subsidiaries of the Company from time to time party thereto and the Term Loan Agent, as amended, extended, renewed, restated, supplemented or otherwise modified from time to time.

 

“Term Loan Security Documents” means the Term Loan Security Agreement, the Term Loan Mortgages, and any other documents now existing or entered into after the date hereof that creates Liens on any assets or properties of Holdings, the Company or any of its subsidiaries to secure any Term Loan Obligations and Existing Notes Obligations.

 

“Term Loan/Notes Documents” means the Existing Notes Indenture, the Term Loan Credit Agreement and the Term Loan Security Documents.

 

“2008 Notes” means the Company’s 6.65% Senior Notes due 2008 in an initial aggregate principal amount of $125,000,000.

 

“2028 Debentures” means the Company’s 7.125% Debentures due 2028 in an initial aggregate principal amount of $125,000,000.

 

8

 

“ UCC ” means the Uniform Commercial Code as from time to time in effect in the State of New York.

 

ARTICLE II

Subordination of Junior Liens; Certain Agreements

 

SECTION 2.01.  Subordination of Junior Liens.   (a)  All Junior Liens in respect of any Collateral are expressly subordinated and made junior in right, priority, operation and effect to any and all Senior Liens in respect of such Collateral, notwithstanding anything contained in this Agreement, the Term Loan/Notes Documents, the Revolving Facility Documents or any other agreement or instrument to the contrary, and irrespective of the time, order or method of creation, attachment or perfection of such Junior Liens and such Senior Liens or any defect or deficiency or alleged defect or deficiency in any of the foregoing.

 

(b)  It is acknowledged that (i) the aggregate amount of the Senior Obligations may, subject to the limitations set forth in the Existing Notes Indenture, the Term Loan Credit Agreement and the Revolving Facility Credit Agreement, be increased, (ii) a portion of the Senior Obligations consists or may consist of indebtedness that is revolving in nature, and the amount thereof that may be outstanding at any time or from time to time may be increased or reduced and subsequently reborrowed, and (iii) the Senior Obligations may be increased, extended, renewed or otherwise amended or modified from time to time, all without affecting the subordination of the Junior Liens hereunder or the provisions of this Agreement defining the relative rights of the Revolving Facility Secured Parties, the Term Loan Secured Parties and the Existing Notes Secured Parties.  The lien priorities provided for herein shall not be altered or otherwise affected by any amendment, modification, supplement, extension, increase, replacement, renewal, restatement or refinancing of either the Junior Obligations or the Senior Obligations, by the release of any Collateral or guarantees securing any Senior Obligations or by any action that any Representative or Secured Party may take or fail to take in respect of any Collateral.

 

SECTION 2.02.  No Action With Respect to Junior Obligations Collateral Subject to Senior Liens.   No Junior Representative or other Junior Obligations Secured Party shall commence or instruct any Junior Representative to commence any judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interest in or realize upon, or take any other action available to it in respect of, any Junior Obligations Collateral under any Junior Obligations Security Document, applicable law or otherwise, at any time when such Junior Obligations Collateral shall be subject to any Senior Lien and any Senior Obligations secured by such Senior Lien shall remain outstanding or any commitment to extend credit that would constitute Senior Obligations secured by such Senior Lien shall remain in effect, it being agreed that only the Senior Representative, acting in accordance with the applicable Senior Obligations Security Documents, shall be entitled to take any such actions or

 

9

 

exercise any such remedies.  Notwithstanding the foregoing, any Junior Representative may, subject to Section 2.05, take all such actions as it shall deem necessary to perfect or continue the perfection of its Junior Liens.

 

SECTION 2.03.  No Duties of Senior Representative.   Each Junior Obligations Secured Party acknowledges and agrees that neither the Senior Representative nor any other Senior Obligations Secured Party shall have any duties or other obligations to such Junior Obligations Secured Party with respect to any Senior Obligations Collateral, other than to transfer to the Junior Representative any proceeds of any such Collateral that constitutes Junior Obligations Collateral remaining in its possession following any sale, transfer or other disposition of such Collateral, the payment and satisfaction in full of the Senior Obligations secured thereby and the termination of any commitment to extend credit that would constitute Senior Obligations secured thereby, or, if the Senior Representative shall be in possession of all or any part of such Collateral after such payment and satisfaction in full and termination, such Collateral or any part thereof remaining, in each case without representation or warranty on the part of the Senior Representative or any Senior Obligations Secured Party.  In furtherance of the foregoing, each Junior Obligations Secured Party acknowledges and agrees that until the Senior Obligations secured by any Collateral shall have been paid and satisfied in full and any commitment to extend credit that would constitute Senior Obligations secured thereby shall have been terminated, the Senior Representative shall be entitled, for the benefit of the holders of such Senior Obligations, to sell, transfer or otherwise dispose of or deal with such Collateral as provided herein and in the Senior Obligations Security Documents without regard to any Junior Lien or any rights to which the holders of the Junior Obligations would otherwise be entitled as a result of such Junior Lien.  Without limiting the foregoing, each Junior Obligations Secured Party agrees that neither the Senior Representative nor any other Senior Obligations Secured Party shall have any duty or obligation first to marshall or realize upon any type of Collateral (or any other collateral securing the Senior Obligations), or to sell, dispose of or otherwise liquidate all or any portion of the Collateral (or any other collateral securing the Senior Obligations), in any manner that would maximize the return to the Junior Obligations Secured Parties, notwithstanding that the order and timing of any such realization, sale, disposi