**Exhibit 10.14**
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FORM OF FIRST PRIORITY

 

LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITYAGREEMENT AND FINANCING STATEMENT

 

From

 

THE NEIMAN MARCUS GROUP, INC.

 

To

 

CREDIT SUISSE

 

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Dated: October         ,2005

Premises: [City], [State]                                County

 

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THIS FIRST PRIORITY LEASEHOLD MORTGAGE, ASSIGNMENTOF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT dated as ofOctober    , 2005 (this “*Mortgage*”),by THE NEIMAN MARCUS GROUP, INC., a Delaware corporation, having an officeat One Marcus Square, 1618 Main Street, Dallas,Texas  75201 (the “*Mortgagor*”),to CREDIT SUISSE, having an office at Eleven Madison Avenue, New York, NewYork 10010 (the “*Mortgagee*”)as Collateral Agent for the Secured Parties (as such terms are defined below).

 

WITNESSETH THAT:

 

Referenceis made to (i) the credit agreement dated as of even date hereof (asamended, supplemented or otherwise modified from time to time, the “*Term Loan Credit Agreement*”), among NEWTONACQUISITION MERGER SUB. INC. (“*Merger Sub*”and, prior to the Merger (as defined in the Term Loan Credit Agreement, the “*Borrower*”), a Delaware corporation to bemerged with and into THE NEIMAN MARCUS GROUP, INC., a Delaware corporation(“*Neiman Marcus*” and, after theMerger, the “*Borrower*”), NEWTONACQUISITION, INC., a Delaware corporation (“*Holdings*”), the subsidiaries of Neiman Marcus from time totime party thereto, the lenders from time to time party thereto (the “*Lenders*”*)*,including, inter alia, Credit Suisse as administrative agent (the “*Administrative Agent*”) for the Lenders,(ii) the credit agreement dated as of even date hereof (as amended,supplemented or otherwise modified from time to time, the “*Revolving Facility Credit Agreement*”)among Merger Sub, Neiman Marcus, Holdings, each subsidiary of Neiman Marcusfrom time to time party thereto, the lenders from time to time party thereto,and Deutsche Bank Trust Company Americas, as administrative agent,(iii) the Indenture, dated as of May 27, 1998 (as amended,supplemented or otherwise modified from time to time, the “*Existing Notes Indenture*”), between NeimanMarcus and The Bank of New York, (iv) the Pledge and SecurityAgreement dated as of even date hereof (as amended, supplemented or otherwisemodified from time to time, the “*SecurityAgreement*”) among Holdings, the Borrower, the Subsidiary Partiesidentified therein, the Mortgagee and the Administrative Agent, (v) thatcertain mortgage dated as of even date hereof by Mortgagor, in favor ofDeutsche Bank Trust Company Americas, as mortgagee (the “*Second Mortgage*”) granting to the SecondMortgagee a second priority lien and security interest in the MortgagedProperty (as described below) in connection with the Revolving Facility CreditAgreement and (vi) the Lien Subordination and Security Agreement, dated asof even date hereof, among Deutsche Bank Trust Company Americas, Credit Suisse,Merger Sub, Neiman Marcus, Holdings and the subsidiaries of Neiman Marcus fromtime to time party thereto as attached hereto as Exhibit B. Capitalized terms used but not defined herein have the meanings given to themin the Term Loan Credit Agreement and the Security Agreement.

 

Inthe Term Loan Credit Agreement, the Lenders have agreed to make term loans (the“*Loans*”) to the Borrower pursuantto, upon the terms, and subject to the conditions specified in, the CreditAgreement.

 

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Mortgagorwill be the Borrower subsequent to the Merger and will derive substantialbenefit from the making of the Loans by the Lenders.  In order to inducethe Lenders to make Loans, the Mortgagor has agreed to grant this Mortgage tosecure, among other things, the due and punctual payment and performance of allof the Obligations of the Borrower under the Security Agreement.

 

Theobligations of the Lenders to make Loans are conditioned upon, among otherthings, the execution and delivery by the Mortgagor of this Mortgage in theform hereof to secure the Obligations (as defined in the Security Agreement).

 

Asused in this Mortgage, the term “*SecuredParties*” has the meaning set forth in the Security Agreement.

 

Pursuantto the requirements of the Term Loan Credit Agreement, the Mortgagor isgranting this Mortgage to create a lien on and a security interest in theMortgaged Property (as hereinafter defined) to secure the performance andpayment by the Mortgagor of the Obligations.  The Term Loan CreditAgreement also require the granting by the Mortgagor or the other Loan Parties,as applicable, of mortgages, deeds of trust and/or deeds to secure debt (the “*Other Mortgages*”) that create liens on andsecurity interests in certain real and personal property other than theMortgaged Property to secure the performance of the Obligations.

 

*Granting Clauses*

 

NOW,THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure thedue and punctual payment and performance of the Obligations for the benefit ofthe Secured Parties, Mortgagor hereby grants, conveys, mortgages, assigns andpledges to the Mortgagee, a mortgage lien on and a security interest in,Mortgagor’s interest in all the following described property (the “*Mortgaged Property*”) whether now owned orheld or hereafter acquired:

 

(1) all of Mortgagor’s right, title and interest in and to thatcertain lease covering and encumbering that certain real property described onExhibit A hereto (the “*Land*”),which lease is more specifically described on Exhibit B hereto (as amendedor modified from time to time, the “*SubjectLease*”), together with all rights of Mortgagor under the SubjectLease;

 

(2) all of Mortgagor’s right, title and interest in and to theleasehold estate in the Land created by the Subject Lease, all buildings,improvements, structures, paving, parking areas, walkways and landscaping nowor hereafter erected or located upon the Land, and all fixtures of every kindand type affixed to the Premises or attached to or forming part of anystructures, buildings or improvements and replacements thereof now or hereaftererected or located upon the Land (the “*Improvements*”);

 

(3) all of Mortgagor’s right, title and interest in and to allapparatus, movable appliances, building materials, equipment, fittings,furnishings, furniture, machinery

 

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andother articles of tangible personal property of every kind and nature, andreplacements thereof, now or at any time hereafter placed upon or used in anyway in connection with the use, enjoyment, occupancy or operation of theImprovements or the Premises, including all of Mortgagor’s books and recordsrelating thereto and including all pumps, tanks, goods, machinery, tools,equipment, lifts (including fire sprinklers and alarm systems, fire preventionor control systems, cleaning rigs, air conditioning, heating, boilers,refrigerating, electronic monitoring, water, loading, unloading, lighting,power, sanitation, waste removal, entertainment, communications, computers,recreational, window or structural, maintenance, truck or car repair and allother equipment of every kind), restaurant, bar and all other indoor or outdoorfurniture (including tables, chairs, booths, serving stands, planters, desks,sofas, racks, shelves, lockers and cabinets), bar equipment, glasses, cutlery,uniforms, linens, memorabilia and other decorative items, furnishings,appliances, supplies, inventory, rugs, carpets and other floor coverings,draperies, drapery rods and brackets, awnings, venetian blinds, partitions,chandeliers and other lighting fixtures, freezers, refrigerators, walk-incoolers, signs (indoor and outdoor), computer systems, cash registers andinventory control systems, and all other apparatus, equipment, furniture,furnishings, and articles used in connection with the use or operation of theImprovements or the Premises, it being understood that the enumeration of anyspecific articles of property shall in no way result in or be held to excludeany items of property not specifically mentioned (the property referred to in thissubparagraph (3), the “*PersonalProperty*”);

 

(4) all of Mortgagor’s right, title and interest in and to allgeneral intangibles owned by Mortgagor and relating to design, development,operation, management and use of the Premises or the Improvements, allcertificates of occupancy, zoning variances, building, use or other permits,approvals, authorizations and consents obtained from and all materials preparedfor filing or filed with any governmental agency in connection with thedevelopment, use, operation or management of the Premises and Improvements, allconstruction, service, engineering, consulting, leasing, architectural andother similar contracts concerning the design, construction, management,operation, occupancy and/or use of the Premises and Improvements, allarchitectural drawings, plans, specifications, soil tests, feasibility studies,appraisals, environmental studies, engineering reports and similar materialsrelating to any portion of or all of the Premises and Improvements, and all paymentand performance bonds or warranties or guarantees relating to the Premises orthe Improvements, all to the extent assignable (the “*Permits, Plans and Warranties*”);

 

(5) all now or hereafter existing leases or licenses (under whichMortgagor is landlord or licensor) and subleases (under which Mortgagor issublandlord), concession, management, mineral or other agreements of a similarkind that permit the use or occupancy of the Premises or the Improvements forany purpose in return for any payment, or the extraction or taking of any gas,oil, water or other minerals from the Premises in return for payment of anyfee, rent or royalty (collectively, “*Leases*”),and all agreements or contracts for the sale or other disposition of all or

 

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anypart of the Premises or the Improvements, now or hereafter entered into byMortgagor, together with all charges, fees, income, issues, profits, receipts,rents, revenues or royalties payable thereunder (“*Rents*”);

 

(6) all real estate tax refunds and all proceeds of theconversion, voluntary or involuntary, of any of the Mortgaged Property intocash or liquidated claims (“*Proceeds*”),including, subject to the rights of Mortgagor under the Term Loan Agreement orother Term Loan Security Documents, Proceeds of insurance maintained by theMortgagor and condemnation awards, any awards that may become due by reason ofthe taking by eminent domain or any transfer in lieu thereof of the whole orany part of the Premises or Improvements or any rights appurtenant thereto, andany awards for change of grade of streets, together with any and all moneys nowor hereafter on deposit for the payment of real estate taxes, assessments orcommon area charges levied against the Mortgaged Property, unearned premiums onpolicies of fire and other insurance maintained by the Mortgagor covering anyinterest in the Mortgaged Property or required by the Term Loan CreditAgreement; and

 

(7) to the extent assignable, all extensions, improvements,betterments, renewals, substitutes and replacements of and all additions andappurtenances to, the Land, the Premises, the Improvements, the PersonalProperty, the Permits, Plans and Warranties and the Leases, hereinafteracquired by or released to the Mortgagor or constructed, assembled or placed bythe Mortgagor on the Land, the Premises or the Improvements, and allconversions of the security constituted thereby, immediately upon suchacquisition, release, construction, assembling, placement or conversion, as thecase may be, and in each such case, without any further mortgage, deed oftrust, conveyance, assignment or other act by the Mortgagor, all of which shallbecome subject to the lien of this Mortgage as fully and completely, and withthe same effect, as though now owned by the Mortgagor and specificallydescribed herein.

 

TOHAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its successors andassigns, for the ratable benefit of the Secured Parties, forever, subject onlyto Permitted Liens (as defined in the Term Loan Credit Agreement), and tosatisfaction and release as provided in Section 3.04.

 

ARTICLE I

 

*Representations,Warranties and Covenants of Mortgagor*

 

Mortgagoragrees, covenants, represents and/or warrants as follows:

 

SECTION 1.01.  *Mortgage Lien.*  Mortgagor willforever warrant and defend its title to the Mortgaged Property, the rights ofMortgagee therein under this Mortgage and the validity and priority of the lienof this Mortgage thereon against the claims of all persons and parties exceptthose having rights under Permitted Liens (but to the extent of those rights).

 

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SECTION 1.02.  *Term Loan Credit Agreement. *ThisMortgage is given pursuant to the Term Loan Credit Agreement.  Mortgagorexpressly covenants and agrees to pay when due, and to timely perform, and tocause the other Loan Parties to pay when due, and to timely perform, theObligations in accordance with the terms of the Loan Documents.

 

SECTION 1.03.  *Maintenance of Mortgaged Property.* Mortgagor will maintain the Improvements and the Personal Property in themanner required by the Term Loan Credit Agreement.

 

SECTION 1.04.  *Insurance.*  Mortgagor will keepor cause to be kept the Improvements and Personal Property insured against suchrisks, and in the manner, pursuant to the Term Loan Credit Agreement or theSecurity Agreement and shall purchase such additional insurance as may berequired from time to time pursuant to the Term Loan Credit Agreement and theSecurity Agreement.  Federal Emergency Management Agency Standard FloodHazard Determination Forms will be purchased by Mortgagor for each MortgagedProperty on which Improvements are located.  If any portion ofImprovements constituting part of the Mortgaged Property is located in an areaidentified as a special flood hazard area by Federal Emergency ManagementAgency or other applicable agency, Mortgagor will purchase flood insurance inan amount reasonably satisfactory to Mortgagee, but in no event less than themaximum limit of coverage available under the National Flood Insurance Act of1968, as amended.

 

SECTION 1.05.  *Casualty Condemnation/Eminent Domain.* Mortgagor shall give Mortgagee prompt written notice of any casualty or otherdamage to the Mortgaged Property or any proceeding for the taking of theMortgaged Property or any portion thereof or interest therein under power ofeminent domain or by condemnation or any similar proceeding in accordance with,and to the extent required by, the Term Loan Credit Agreement.  Any netproceeds received by or on behalf of the Mortgagor in respect of any suchcasualty, damage or taking shall constitute trust funds held by the Mortgagorfor the benefit of the Secured Parties to be applied to repair, restore orreplace the Mortgaged Property or, if a prepayment event shall occur withrespect to any such net proceeds, to be applied in accordance with the TermLoan Credit Agreement.

 

SECTION 1.06.  *Assignment of Leases and Rents.* (a)  Mortgagor hereby irrevocably and absolutely grants, transfers andassigns all of its right title and interest in all Leases, together with anyand all extensions and renewals thereof for purposes of securing anddischarging the performance by Mortgagor of the Obligations.  Mortgagorhas not assigned or executed any assignment of, and will not assign or executeany assignment of, any Leases or the Rents payable thereunder to anyone otherthan Mortgagee.

 

(b)  All Leases entered into by Mortgagor atthe Mortgaged Property following the date hereof shall be subordinate to thelien of this Mortgage unless otherwise contemplated under the Term Loan CreditAgreement.  Mortgagor will not enter into, any Lease if such Lease, asentered into, will not be subordinate to the lien of this Mortgage unless otherwisecontemplated under the Term Loan Credit Agreement.

 

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(c)  Subject to Section 1.06(d), Mortgagorhas assigned and transferred to Mortgagee all of Mortgagor’s right, title andinterest in and to the Rents now or hereafter arising from each Leaseheretofore or hereafter made or agreed to by Mortgagor, it being intended thatthis assignment establish, subject to Section 1.06(d), an absolutetransfer and assignment of all Rents and all Leases to Mortgagee and not merelyto grant a security interest therein.  Subject to Section 1.06(d),Mortgagee may in Mortgagor’s name and stead (with or without first takingpossession of any of the Mortgaged Property personally or by receiver asprovided herein) operate the Mortgaged Property and rent, lease or let all orany portion of any of the Mortgaged Property to any party or parties at suchrental and upon such terms as Mortgagee shall, in its sole discretion,determine, and may collect and have the benefit of all of said Rents arisingfrom or accruing at any time thereafter or that may thereafter become due underany Lease.

 

(d)  So long as an Event of Default shall nothave occurred and be continuing, Mortgagee will not exercise any of its rightsunder Section 1.06(c), and Mortgagor shall receive and collect the Rentsaccruing under any Lease; but after the occurrence and during the continuanceof any Event of Default, Mortgagee may, at its option, receive and collect allRents and enter upon the Premises and Improvements through its officers,agents, employees or attorneys for such purpose and for the operation andmaintenance thereof.  Mortgagor hereby irrevocably authorizes and directseach tenant, if any, and each successor, if any, to the interest of any tenantunder any Lease, respectively, to rely upon any notice of a claimed Event ofDefault sent by Mortgagee to any such tenant or any of such tenant’s successorsin interest, and thereafter to pay Rents to Mortgagee without any obligation orright to inquire as to whether an Event of Default actually exists and even ifsome notice to the contrary is received from the Mortgagor, who shall have noright or claim against any such tenant or successor in interest for any suchRents so paid to Mortgagee.  Each tenant or any of such tenant’ssuccessors in interest from whom Mortgagee or any officer, agent, attorney oremployee of Mortgagee shall have collected any Rents, shall be authorized topay Rents to Mortgagor only after such tenant or any of their successors ininterest shall have received written notice from Mortgagee that the Event ofDefault is no longer continuing, unless and until a further notice of an Eventof Default is given by Mortgagee to such tenant or any of its successors ininterest.

 

(e)  Mortgagee will not become a mortgagee inpossession so long as it does not enter or take actual possession of theMortgaged Property.  In addition, Mortgagee shall not be responsible orliable for performing any of the obligations of the landlord under any Lease,for any waste by any tenant, or others, for any dangerous or defectiveconditions of any of the Mortgaged Property, for negligence in the management,upkeep, repair or control of any of the Mortgaged Property or any other act oromission by any other person unless and until it enters or takes actualpossession of the Mortgaged Property.

 

(f)  Mortgagor shall furnish to Mortgagee,within 30 days after a request by Mortgagee to do so, a written statementcontaining the names of all tenants, subtenants and concessionaires of thePremises or Improvements, and a copy of any Lease.

 

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SECTION 1.07.  *Security Agreement.*  ThisMortgage is both a mortgage of real property and a grant of a security interestin personal property, and shall constitute and serve as a “Security Agreement”within the meaning of the uniform commercial code as adopted in the statewherein the Premises are located (“*UCC*”). Mortgagor has hereby granted unto Mortgagee a security interest in and to allthe Mortgaged Property described in this Mortgage that is not real property,and simultaneously with the recording of this Mortgage, Mortgagor has filed orwill file UCC financing statements, and will file continuation statements priorto the lapse thereof, at the appropriate offices in the jurisdiction offormation of the Mortgagor to perfect the security interest granted by thisMortgage in all the Mortgaged Property that is not real property. Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact andagent, for Mortgagor and in its name, place and stead, in any and allcapacities, to execute any document and to file the same in the appropriateoffices (to the extent it may lawfully do so), and to perform each and everyact and thing reasonably requisite and necessary to be done to perfect thesecurity interest contemplated by the preceding sentence.  Mortgagee shallhave all rights with respect to the part of the Mortgaged Property that is thesubject of a security interest afforded by the UCC in addition to, but not inlimitation of, the other rights afforded Mortgagee hereunder and under theSecurity Agreement.  In the case of any conflict between this Mortgage andthe Security Agreement, the Security Agreement shall govern.

 

SECTION 1.08.  *Filing and Recording.*  Mortgagorwill cause this Mortgage, the UCC financing statements referred to inSection 1.09, any other security instrument creating a security interestin or evidencing the lien hereof upon the Mortgaged Property and each UCC continuationstatement and instrument of further assurance to be filed, registered orrecorded and, if necessary, refiled, rerecorded and reregistered, in suchmanner and in such places as may be required by any present or future law inorder to publish notice of and fully to perfect the lien hereof upon, and thesecurity interest of Mortgagee in, the Mortgaged Property until this Mortgageis terminated and released in full in accordance with Section 3.04hereof.  Mortgagor will pay all filing, registration and recording fees,all Federal, state, county and municipal recording, documentary or intangibletaxes and other taxes, duties, imposts, assessments and charges, and allreasonable expenses incidental to or arising out of or in connection with theexecution, delivery and recording of this Mortgage, UCC continuation statementsany mortgage supplemental hereto, any security instrument with respect to thePersonal Property, Permits, Plans and Warranties and Proceeds or any instrumentof further assurance.

 

SECTION 1.09.  *Further Assurances.*  Upon demandby Mortgagee, Mortgagor will, at the cost of Mortgagor and without expense toMortgagee, do, execute, acknowledge and deliver all such further acts, deeds,conveyances, mortgages, assignments, notices of assignment, transfers andassurances as Mortgagee shall from time to time reasonably require for thebetter assuring, conveying, assigning, transferring and confirming untoMortgagee the property and rights hereby conveyed or assigned or intended nowor hereafter so to be, or which Mortgagor may be or may hereafter become boundto convey or assign to Mortgagee, or for carrying out the intention orfacilitating the performance of the terms of this Mortgage, or for filing,registering or recording this Mortgage, and on demand, Mortgagor will also

 

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executeand deliver and hereby appoints Mortgagee, following the occurrence and duringthe continuance of an Event of Default, as its true and lawful attorney-in-factand agent, for Mortgagor and in its name, place and stead, in any and allcapacities, to execute and file to the extent it may lawfully do so, one ormore financing statements, chattel mortgages or comparable security instrumentsreasonably requested by Mortgagee to evidence more effectively the lien hereofupon the Personal Property and to perform each and every act and thingrequisite and necessary to be done to accomplish the same.

 

SECTION 1.10.  *Additions to Mortgaged Property.* All right, title and interest of Mortgagor in and to all extensions,improvements, betterments, renewals, substitutes and replacements of, and alladditions and appurtenances to, the Mortgaged Property hereafter acquired by orreleased to Mortgagor or constructed, assembled or placed by Mortgagor upon thePremises or the Improvements, and all conversions of the security constitutedthereby, immediately upon such acquisition, release, construction, assembling,placement or conversion, as the case may be, and in each such case without anyfurther mortgage, conveyance, assignment or other act by Mortgagor, shallbecome subject to the lien and security interest of this Mortgage as fully andcompletely and with the same effect as though now owned by Mortgagor andspecifically described in the grant of the Mortgaged Property above, but at anyand all times Mortgagor will execute and deliver to Mortgagee any and all suchfurther assurances, mortgages, conveyances or assignments thereof as Mortgageemay reasonably require for the purpose of expressly and specifically subjectingthe same to the lien and security interest of this Mortgage.

 

SECTION 1.11.  *No Claims Against Mortgagee.* Nothing contained in this Mortgage shall constitute any consent or request byMortgagee, express or implied, for the performance of any labor or services orthe furnishing of any materials or other property in respect of the MortgagedProperty or any part thereof, nor as giving Mortgagor any right, power orauthority to contract for or permit the performance of any labor or services orthe furnishing of any materials or other property in such fashion as wouldpermit the making of any claim against Mortgagee in respect thereof.

 

SECTION 1.12.  *Fixture Filing.*  (a) Certain portions of the Mortgaged Property are or will become “fixtures” (asthat term is defined in the UCC) on the Land, and this Mortgage, upon beingfiled for record in the real estate records of the county wherein such fixturesare situated, shall operate also as a financing statement filed as a fixture filingin accordance with the applicable provisions of said UCC upon such portions ofthe Mortgaged Property that are or become fixtures.

 

(b)  The real property to which the fixturesrelate is described in Exhibit A attached hereto.  The record ownerof the real property described in Exhibit A attached hereto isMortgagor.  The name, type of organization and jurisdiction oforganization of the debtor for purposes of this financing statement are thename, type of organization and jurisdiction of organization of the Mortgagorset forth in the first paragraph of this Mortgage, and the name of the securedparty for purposes of this financing statement is the name of the Mortgagee setforth in the first paragraph of this Mortgage.  The mailing address of theMortgagor/debtor is

 

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theaddress of the Mortgagor set forth in the first paragraph of thisMortgage.  The mailing address of the Mortgagee/secured party from whichinformation concerning the security interest hereunder may be obtained is theaddress of the Mortgagee set forth in the first paragraph of thisMortgage.  Mortgagor’s organizational identification number is 95-4119509.

 

SECTION 1.13.  INTENTIONALLY OMITTED

 

SECTION 1.14.  *Conflicts*.  In the event of aconflict between any provision of this First Priority Mortgage and anyprovision of the Security Agreement, the Security Agreement shall govern. In the event of a conflict between any provision of this First PriorityMortgage and any provision of the Term Loan Credit Agreement, the Term LoanCredit Agreement shall govern.

 

SECTION 1.15.  *Performance Under First Mortgage.*  TheMortgagor shall perform or observe all covenants and conditions to be performedor observed by the Mortgagor under the First Mortgage and shall not permit anEvent of Default under the First Mortgage to occur and continue.

 

SECTION 1.16.  *Copies of Communication*.  If atany time the Mortgagor provides the First Mortgagee with any writtencommunication, information, documentation, notice or demand of any kind(including regular monthly loan payments) relevant to the First Mortgage,including any appraisal or other similar material, then the Mortgagor shall atthe same time and by the same means provide the Mortgagee with a copy of thesame.  If at any time the Mortgagor receives any written communication,information, documentation, notice or demand of any kind from the FirstMortgagee relevant to the First Mortgage or the loan or other obligationsecured thereby, then the Mortgagor shall immediately provide the Mortgageewith a copy of the same.

 

SECTION 1.17.  *Savings Clause.*  Anyprovision herein to the contrary notwithstanding, Mortgagor makes no assignmentor grant of rights with respect to any (i) personal property or(ii) any general intangibles or any other rights to any Leases, ManagementAgreements, contracts, insurance proceeds, instruments, licenses or otherdocuments (collectively, “*Contract Rights*”),as to which the grant of a security interest therein would constitute a violationof applicable law or of any valid and enforceable obligation in favor of athird party relating to such personal property or under such Contract Rights.

 

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ARTICLE II

 

*Defaultsand Remedies*

 

SECTION 2.01.  *Events of Default.*  Any Event ofDefault under the Term Loan Credit Agreement (as such term is defined therein)shall constitute an Event of Default under this Mortgage.

 

SECTION 2.02.  *Demand for Payment.*  If an Eventof Default shall occur and be continuing, then, upon written demand ofMortgagee, Mortgagor will pay to Mortgagee all amounts due hereunder and underthe Term Loan Credit Agreement and the Security Agreement and such furtheramount as shall be sufficient to cover the costs and expenses of collection,including attorneys’ fees, disbursements and expenses incurred by Mortgagee,and Mortgagee shall be entitled and empowered to institute an action orproceedings at law or in equity for the collection of the sums so due andunpaid, to prosecute any such action or proceedings to judgment or finaldecree, to enforce any such judgment or final decree against Mortgagor and tocollect, in any manner provided by law, all moneys adjudged or decreed to be payable.

 

SECTION 2.03.  *Rights To Take Possession, Operate and ApplyRevenues.*  (a)  Subject to the terms of the SecurityAgreement, if an Event of Default shall occur and be continuing, Mortgagorshall, upon demand of Mortgagee, forthwith surrender to Mortgagee actualpossession of the Mortgaged Property and, if and to the extent not prohibitedby applicable law, Mortgagee itself, or by such officers or agents as it mayappoint, may then enter and take possession of all the Mortgaged Propertywithout the appointment of a receiver or an application therefor, excludeMortgagor and its agents and employees wholly therefrom, and have access to thebooks, papers and accounts of Mortgagor.

 

(b)  If Mortgagor shall for any reason fail tosurrender or deliver the Mortgaged Property or any part thereof after suchdemand by Mortgagee, Mortgagee may to the extent not prohibited by applicablelaw, obtain a judgment or decree conferring upon Mortgagee the right toimmediate possession or requiring Mortgagor to deliver immediate possession ofthe Mortgaged Property to Mortgagee, to the entry of which judgment or decreeMortgagor hereby specifically consents.  Mortgagor will pay to Mortgagee,upon demand, all reasonable expenses of obtaining such judgment or decree, includingreasonable compensation to Mortgagee’s attorneys and agents with interestthereon at the rate per annum applicable to overdue amounts under the Term LoanCredit Agreement (the “*Interest Rate*”);and all such expenses and compensation shall, until paid, be secured by thisMortgage.

 

(c)  Upon every such entry or taking ofpossession, Mortgagee may, to the extent not prohibited by applicable law,hold, store, use, operate, manage and control the Mortgaged Property, conductthe business thereof and, from time to time, (i) make all necessary andproper maintenance, repairs, renewals, replacements, additions, betterments andimprovements thereto and thereon, (ii) purchase or otherwise acquireadditional fixtures, personalty and other property, (iii) insure or keepthe Mortgaged Property insured,

 

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(iv) manageand operate the Mortgaged Property and exercise all the rights and powers ofMortgagor to the same extent as Mortgagor could in its own name or otherwisewith respect to the same, or (v) enter into any and all agreements withrespect to the exercise by others of any of the powers herein grantedMortgagee, all as may from time to time be directed or determined by Mortgageeto be in its best interest and Mortgagor hereby appoints Mortgagee as its trueand lawful attorney-in-fact and agent, following the occurrence and during thecontinuance of an Event of Default for Mortgagor and in its name, place andstead, in any and all capacities, to perform any of the foregoing acts.Mortgagee may collect and receive all the Rents, issues, profits and revenuesfrom the Mortgaged Property, including those past due as well as those accruingthereafter, and, after deducting (i) all expenses of taking, holding, managingand operating the Mortgaged Property (including compensation for the servicesof all persons employed for such purposes), (ii) the costs of all suchmaintenance, repairs, renewals, replacements, additions, betterments,improvements, purchases and acquisitions, (iii) the costs of insurance,(iv) such taxes, assessments and other similar charges as Mortgagee may atits option pay, (v) other proper charges upon the Mortgaged Property orany part thereof and (vi) the compensation, expenses and disbursements ofthe attorneys and agents of Mortgagee, Mortgagee shall apply the remainder ofthe moneys and proceeds so received first to the payment of the Mortgagee forthe satisfaction of the Obligations, and, if there is any surplus, toMortgagor, subject to the entitlement of others thereto under applicable law.

 

(d)  Whenever, before any sale of the MortgagedProperty under Section 2.06, all Obligations that are then due shall havebeen paid and all Events of Default fully cured, Mortgagee will surrenderpossession of the Mortgaged Property back to Mortgagor, its successors orassigns.  The same right of taking possession shall, however, arise againif any subsequent Event of Default shall occur and be continuing.

 

SECTION 2.04.  *Right To Cure Mortgagor’s Failure to Perform.* Subject to the terms of the Security Agreement, should Mortgagor fail in thepayment, performance or observance of any term, covenant or condition requiredby this Mortgage or the Term Loan Credit Agreement or the Existing NotesIndenture (with respect to the Mortgaged Property), Mortgagee may pay, performor observe the same, and all payments made or costs or expenses incurred byMortgagee in connection therewith shall be secured hereby and shall be, withoutdemand, immediately repaid by Mortgagor to Mortgagee with interest thereon atthe Interest Rate.  Mortgagee shall be the judge using reasonablediscretion of the necessity for any such actions and of the amounts to bepaid.  Mortgagee is hereby empowered to enter and to authorize others toenter upon the Premises or the Improvements or any part thereof for the purposeof performing or observing any such defaulted term, covenant or conditionwithout having any obligation to so perform or observe and without therebybecoming liable to Mortgagor, to any person in possession holding underMortgagor or to any other person.

 

SECTION 2.05.  *Right to a Receiver.*  If an Eventof Default shall occur and be continuing, Mortgagee, shall be entitled to makeapplication to a court of competent jurisdiction for, and (to the extentpermitted by law) obtain from such a court, as a matter of right to theappointment of a receiver to take possession of and to operate the Mortgaged

 

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Propertyand to collect and apply the Rents.  The receiver shall have all of therights and powers permitted under the laws of the state wherein the MortgagedProperty is located.  Mortgagor shall pay to Mortgagee upon demand allreasonable expenses, including receiver’s fees, reasonable attorney’s fees anddisbursements, costs and agent’s compensation incurred pursuant to theprovisions of this Section 2.05; and all such expenses shall be secured bythis Mortgage and shall be, without demand, immediately repaid by Mortgagor toMortgagee with interest thereon at the Interest Rate.

 

SECTION 2.06.  *Foreclosure and Sale.*  (a) Subject to the terms of the Security Agreement, if an Event of Default shalloccur and be continuing, Mortgagee may elect to sell the Mortgaged Property orany part of the Mortgaged Property by exercise of the power of foreclosure orof sale granted to Mortgagee by applicable law or this Mortgage.  In suchcase, Mortgagee may commence a civil action to foreclose this Mortgage, or itmay proceed and sell the Mortgaged Property to satisfy any Obligation. Mortgagee or an officer appointed by a judgment of foreclosure to sell theMortgaged Property, may sell all or such parts of the Mortgaged Property as maybe chosen by Mortgagee at the time and place of sale fixed by it in a notice ofsale, either as a whole or in separate lots, parcels or items as Mortgageeshall deem expedient, and in such order as it may determine, at public auctionto the highest bidder.  Mortgagee or an officer appointed by a judgment offoreclosure to sell the Mortgaged Property may postpone any foreclosure orother sale of all or any portion of the Mortgaged Property by publicannouncement at such time and place of sale, and from time to time thereaftermay postpone such sale by public announcement or subsequently noticedsale.  Without further notice, Mortgagee or an officer appointed to sellthe Mortgaged Property may make such sale at the time fixed by the lastpostponement, or may, in its discretion, give a new notice of sale.  Anyperson, including Mortgagor or Mortgagee or any designee or affiliate thereof,may purchase at such sale.

 

(b)  The Mortgaged Property may be sold subjectto unpaid taxes and Permitted Liens, and, after deducting all costs, fees andexpenses of Mortgagee (including costs of evidence of title in connection withthe sale), Mortgagee or an officer that makes any sale shall apply the proceedsof sale in the manner set forth in Section 2.08.

 

(c)  Any foreclosure or other sale of less thanthe whole of the Mortgaged Property or any defective or irregular sale madehereunder shall not exhaust the power of foreclosure or of sale provided forherein; and subsequent sales may be made hereunder until the Obligations havebeen satisfied, or the entirety of the Mortgaged Property has been sold.

 

(d)  If an Event of Default shall occur and becontinuing, Mortgagee may instead of, or in addition to, exercising the rightsdescribed in Section 2.06(a) above and either with or without entryor taking possession as herein permitted, proceed by a suit or suits in law orin equity or by any other appropriate proceeding or remedy (i) tospecifically enforce payment of some or all of the Obligations, or theperformance of any term, covenant, condition or agreement of this Mortgage orany other Loan Document or any other right, or (ii) to pursue any otherremedy available to Mortgagee, all as Mortgagee shall determine most effectualfor such purposes.

 

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(e)  Notwithstanding anything in thisSection 2.06 to the contrary, the exercise of the rights granted in thisSection 2.06 are subject to the Security Agreement.

 

SECTION 2.07.  *Other Remedies.*  (a) Subject to the terms of the Security Agreement, in case an Event of Defaultshall occur and be continuing, Mortgagee may also exercise, to the extent notprohibited by law, any or all of the remedies available to a secured partyunder the UCC.

 

(b)  In connection with a sale of the MortgagedProperty or any Personal Property and the application of the proceeds of saleas provided in Section 2.08, Mortgagee shall be entitled to enforcepayment of and to receive up to the principal amount of the Obligations, plusall other charges, payments and costs due under this Mortgage, and to recover adeficiency judgment for any portion of the aggregate principal amount of theObligations remaining unpaid, with interest.

 

SECTION 2.08.  *Application of Sale Proceeds and Rents.* Subject to the terms of the Security Agreement, after any foreclosure sale ofall or any of the Mortgaged Property, Mortgagee shall receive and apply theproceeds of the sale together with any Rents that may have been collected andany other sums that then may be held by Mortgagee under this Mortgage inaccordance with the Security Agreement, subject to the terms of the SecurityAgreement.

 

SECTION 2.09.  *Mortgagor as Tenant Holding Over.* Subject to the terms of the Security Agreement, if Mortgagor remains inpossession of any of the Mortgaged Property after any foreclosure sale byMortgagee, at Mortgagee’s election Mortgagor shall be deemed a tenant holdingover and shall forthwith surrender possession to the purchaser or purchasers atsuch sale or be summarily dispossessed or evicted according to provisions oflaw applicable to tenants holding over.

 

SECTION 2.10.  *Waiver of Appraisement, Valuation, Stay, Extensionand Redemption Laws. *Subject to the terms of the SecurityAgreement, Mortgagor waives, to the extent not prohibited by law, (i) thebenefit of all laws now existing or that hereafter may be enacted(x) providing for any appraisement or valuation of any portion of theMortgaged Property and/or (y) in any way extending the time for theenforcement or the collection of amounts due under any of the Obligations orcreating or extending a period of redemption from any sale made in collectingsaid debt or any other amounts due Mortgagee, (ii) any right to at anytime insist upon, plead, claim or take the benefit or advantage of any law nowor hereafter in force providing for any homestead exemption, stay, statute oflimitations, extension or redemption, or sale of the Mortgaged Property asseparate tracts, units or estates or as a single parcel in the event offoreclosure or notice of deficiency, and (iii) all rights of redemption,valuation, appraisement, stay of execution, notice of election to mature ordeclare due the whole of or each of the Obligations and marshaling in the eventof foreclosure of this Mortgage.

 

SECTION 2.11.  *Discontinuance of Proceedings.* Subject to the terms of the Security Agreement, in case Mortgagee shall proceedto enforce any right, power or remedy under this

 

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Mortgageby foreclosure, entry or otherwise, and such proceedings shall be discontinuedor abandoned for any reason, or shall be determined adversely to Mortgagee,then and in every such case Mortgagor and Mortgagee shall be restored to theirformer positions and rights hereunder, and all rights, powers and remedies ofMortgagee shall continue as if no such proceeding had been taken.

 

SECTION 2.12.  *Suits To Protect the Mortgaged Property.* Subject to the terms of the Security Agreement, Mortgagee shall have power(a) to institute and maintain suits and proceedings to prevent anyimpairment of the Mortgaged Property by any acts that may be unlawful or inviolation of this Mortgage, (b) to preserve or protect its interest in theMortgaged Property and in the Rents arising therefrom and (c) to restrainthe enforcement of or compliance with any legislation or other governmentalenactment, rule or order that may be unconstitutional or otherwise invalidif the enforcement of or compliance with such enactment, rule or orderwould impair the security or be prejudicial to the interest of Mortgageehereunder.

 

SECTION 2.13.  *Filing Proofs of Claim.*  Subjectto the terms of the Security Agreement, in case of any receivership,insolvency, bankruptcy, reorganization, arrangement, adjustment, composition orother proceedings affecting Mortgagor, Mortgagee shall, to the extent permittedby law, be entitled to file such proofs of claim and other documents as may benecessary or advisable in order to have the claims of Mortgagee allowed in suchproceedings for the Obligations secured by this Mortgage at the date of theinstitution of such proceedings and for any interest accrued, late charges andadditional interest or other amounts due or that may become due and payablehereunder after such date.

 

SECTION 2.14.  *Possession by Mortgagee.*  Subjectto the terms of the Security Agreement, notwithstanding the appointment of anyreceiver, liquidator or trustee of Mortgagor, any of its property or theMortgaged Property, Mortgagee shall be entitled, to the extent not prohibitedby law, to remain in possession and control of all parts of the MortgagedProperty now or hereafter granted under this Mortgage to Mortgagee inaccordance with the terms hereof and applicable law.

 

SECTION 2.15.  *Waiver.*  (a)  Subject to theterms of the Security Agreement, no delay or failure by Mortgagee to exerciseany right, power or remedy accruing upon any breach or Event of Default shallexhaust or impair any such right, power or remedy or be construed to be awaiver of any such breach or Event of Default or acquiescence therein; andevery right, power and remedy given by this Mortgage to Mortgagee may beexercised from time to time and as often as may be deemed expedient byMortgagee.  No consent or waiver by Mortgagee to or of any breach or Eventof Default by Mortgagor in the performance of the Obligations shall be deemedor construed to be a consent or waiver to or of any other breach or Event ofDefault in the performance of the same or of any other Obligations by Mortgagorhereunder.  No failure on the part of Mortgagee to complain of any act orfailure to act or to declare an Event of Default, irrespective of how long suchfailure continues, shall constitute a waiver by Mortgagee of its rightshereunder or impair any rights, powers or remedies consequent on any futureEvent of Default by Mortgagor.

 

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(b)  Even if Mortgagee (i) grants someforbearance or an extension of time for the payment of any sums secured hereby,(ii) takes other or additional security for the payment of any sumssecured hereby, (iii) waives or does not exercise some right grantedherein or under the Loan Documents, (iv) releases a part of the MortgagedProperty from this Mortgage, (v) agrees to change some of the terms,covenants, conditions or agreements of any of the Loan Documents, (vi) consentsto the filing of a map, plat or replat affecting the Premises,(vii) consents to the granting of an easement or other right affecting thePremises or (viii) makes or consents to an agreement subordinatingMortgagee’s lien on the Mortgaged Property hereunder; no such act or omissionshall preclude Mortgagee from exercising any other right, power or privilegeherein granted or intended to be granted in the event of any breach or Event ofDefault then made or of any subsequent default; nor, except as otherwiseexpressly provided in an instrument executed by Mortgagee, shall this Mortgagebe altered thereby.  In the event of the sale or transfer by operation oflaw or otherwise of all or part of the Mortgaged Property, Mortgagee is herebyauthorized and empowered to deal with any vendee or transferee with referenceto the Mortgaged Property secured hereby, or with reference to any of theterms, covenants, conditions or agreements hereof, as fully and to the sameextent as it might deal with the original parties hereto and without in any wayreleasing or discharging any liabilities, obligations or undertakings.

 

SECTION 2.16.  *Waiver of Trial by Jury.*  To thefullest extent permitted by applicable law, Mortgagor and Mortgagee each herebyirrevocably and unconditionally waive trial by jury in any action, claim, suitor proceeding relating to this Mortgage and for any counterclaim broughttherein.  Mortgagor hereby waives all rights to interpose any counterclaimin any suit brought by Mortgagee hereunder and all rights to have any such suitconsolidated with any separate suit, action or proceeding.

 

SECTION 2.17.  *Remedies Cumulative.*  No right,power or remedy conferred upon or reserved to Mortgagee by this Mortgage isintended to be exclusive of any other right, power or remedy, and each andevery such right, power and remedy shall be cumulative and concurrent and inaddition to any other right, power and remedy given hereunder or now orhereafter existing at law or in equity or by statute.

 

ARTICLE III

 

*Miscellaneous*

 

SECTION 3.01.  *Partial Invalidity.*  In the eventany one or more of the provisions contained in this Mortgage shall for anyreason be held to be invalid, illegal or unenforceable in any respect, suchvalidity, illegality or unenforceability shall, at the option of Mortgagee, notaffect any other provision of this Mortgage, and this Mortgage shall beconstrued as if such invalid, illegal or unenforceable provision had never beencontained herein or therein.

 

SECTION 3.02.  *Notices.*  All notices andcommunications hereunder shall be in writing and given to Mortgagor inaccordance with the terms of the Term Loan Credit

 

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Agreementat the address set forth on the first page of this Mortgage and to theMortgagee as provided in the Term Loan Credit Agreement.

 

SECTION 3.03.  *Successors and Assigns.*  All ofthe grants, covenants, terms, provisions and conditions herein shall run withthe Premises and the Improvements and shall apply to, bind and inure to, thebenefit of the permitted successors and assigns of Mortgagor and the successorsand assigns of Mortgagee.

 

SECTION 3.04.  *Satisfaction and Cancelation.* (a)  This Mortgage shall continue in effect until (i) the Term LoanCredit Agreement has terminated pursuant to its express terms and (ii) allof the Specified Obligations have been indefeasibly paid and performed in full.

 

(b)  Subject to the terms of the SecurityAgreement, upon any sale or other transfer by Mortgagor of the MortgagedProperty that is permitted under Section 4.1(d) of the SecurityAgreement to any Person that is not another Grantor or, upon the effectivenessof any written consent to the release of the security interest granted herebyin the Mortgaged Property pursuant to Section 10.02 of the Term LoanCredit Agreement, the security interest in the Mortgaged Property shall beautomatically released.

 

(c)  In connection with any termination orrelease pursuant to paragraph (a) or (b), the Mortgage shall bemarked “satisfied” by the Mortgagee, and this Mortgage shall be canceled ofrecord at the request and at the expense of the Mortgagor.  Mortgageeshall execute any documents reasonably requested by Mortgagor to accomplish theforegoing or to accomplish any release contemplated by this Section 3.04and Mortgagor will pay all costs and expenses, including reasonable attorneys’fees, disbursements and other charges, incurred by Mortgagee in connection withthe preparation and execution of such documents.

 

SECTION 3.05.  *Definitions.*  As used in thisMortgage, the singular shall include the plural as the context requires and thefollowing words and phrases shall have the following meanings: (a) “*including*” shall mean “including but notlimited to”; (b) “*provisions*”shall mean “provisions, terms, covenants and/or conditions”; (c) “*lien*” shall mean “lien, charge,encumbrance, security interest, mortgage or deed of trust”; (d) “*obligation*” shall mean “obligation, duty,covenant and/or condition”; and (e) “any of the Mortgaged Property” shall mean“the Mortgaged Property or any part thereof or interest therein”.  Any actthat Mortgagee is permitted to perform hereunder may be performed at any timeand from time to time by Mortgagee or any person or entity designated byMortgagee.  Any act that is prohibited to Mortgagor hereunder is alsoprohibited to all lessees of any of the Mortgaged Property.  Eachappointment of Mortgagee as attorney-in-fact for Mortgagor under the Mortgageis irrevocable, with power of substitution and coupled with an interest. Subject to the applicable provisions hereof, Mortgagee has the right to refuseto grant its consent, approval or acceptance or to indicate its satisfaction,in its sole discretion, whenever such consent, approval, acceptance orsatisfaction is required hereunder.

 

SECTION 3.06.  *Multisite Real Estate Transaction.* Mortgagor acknowledges that this Mortgage is one of a number of Other Mortgagesand Term Loan Security Documents that secure the Obligations.  Mortgagoragrees that the lien of this Mortgage shall be absolute

 

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andunconditional and shall not in any manner be affected or impaired by any actsor omissions whatsoever of Mortgagee, and without limiting the generality ofthe foregoing, the lien hereof shall not be impaired by any acceptance by theMortgagee of any security for or guarantees of any of the Obligations herebysecured, or by any failure, neglect or omission on the part of Mortgagee torealize upon or protect any Secured Obligation or indebtedness hereby securedor any collateral security therefor including the Other Mortgages and otherTerm Loan Security Documents.  The lien hereof shall not in any manner beimpaired or affected by any release (except as to the property released), sale,pledge, surrender, compromise, settlement, renewal, extension, indulgence,alteration, changing, modification or disposition of any of the Obligationssecured (unless all Specified Obligations are satisfied) or of any of thecollateral security therefor, including the Other Mortgages and other Term LoanSecurity Documents or of any guarantee thereof, and Mortgagee may at itsdiscretion foreclose, exercise any power of sale, or exercise any other remedyavailable to it under any or all of the Other Mortgages and other Term LoanSecurity Documents without first exercising or enforcing any of its rights andremedies hereunder.  Such exercise of Mortgagee’s rights and remediesunder any or all of the Other Mortgages and other Term Loan Security Documentsshall not in any manner impair the indebtedness hereby secured or the lien ofthis Mortgage and any exercise of the rights or remedies of Mortgagee hereundershall not impair the lien of any of the Other Mortgages and other Term LoanSecurity Documents or any of Mortgagee’s rights and remedies thereunder. Mortgagor specifically consents and agrees that Mortgagee may exercise itsrights and remedies hereunder and under the Other Mortgages and other Term LoanSecurity Documents separately or concurrently and in any order that it may deemappropriate and waives any rights of subrogation.

 

SECTION 3.07.  *No Oral Modification.*  ThisMortgage may not be changed or terminated orally.

 

SECTION 3.08.  *Subject to Security Agreement.* Notwithstanding anything herein to the contrary, the second-priority lien andsecurity interest granted to the Collateral Agent pursuant to this FirstPriority Mortgage and the exercise of any right or remedy by the CollateralAgent hereunder are subject to the provisions of the Security Agreement. In the event of any conflict between the terms of the Security Agreement andthis First Priority Mortgage, the terms of the Security Agreement shallgovern.  So long as the First Mortgage, or other senior mortgages are,outstanding, Mortgagor shall not be in default hereunder for the failure tocomply with any term or provision contained in this First Priority Mortgage ifsuch compliance would result in a default under the terms and provisions of theFirst Mortgage or other senior mortgages.

 

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ARTICLE IV

 

*ParticularProvisions*

 

ThisMortgage is subject to the following provisions relating to the particular lawsof the state wherein the Premises are located:

 

SECTION 4.01.  *Applicable Law; Certain Particular Provisions.* This Mortgage shall be governed by and construed in accordance with theinternal law of the state where the Mortgaged Property is located, except thatMortgagor expressly acknowledges that by their terms, the Term Loan CreditAgreement and other Loan Documents (aside from those Other Mortgages to berecorded outside New York) shall be governed by the internal law of theState of New York, without regard to principles of conflict of law. Mortgagor and Mortgagee agree to submit to jurisdiction and the laying of venuefor any suit on this Mortgage in the state where the Mortgaged Property islocated.  The terms and provisions set forth in Appendix A attachedhereto are hereby incorporated by reference as though fully set forth herein. In the event of any conflict between the terms and provisions contained in thebody of this Mortgage and the terms and provisions set forth inAppendix A, the terms and provisions set forth in Appendix A shallgovern and control.

 

ARTICLE V

 

*SubjectLease*

 

SECTION 5.01.  *The Subject Lease.*  (a)  TheSubject Lease is a valid and subsisting lease of that portion of the Premisesdemised thereunder for the term therein set forth, is in full force and effectin accordance with the terms thereof, and has not been modified except asexpressly set forth herein.  No material default exists, and to the bestknowledge of Mortgagor, no event or act has occurred and no condition existswhich with the passage of time or the giving of notice or both would constitutea material default, under the Subject Lease.

 

(b)  Without the prior written consent ofMortgagee, Mortgagor will not modify, amend, or in any way alter the terms ofthe Subject Lease if such modification, amendment or alteration would increasethe monetary obligations of the Mortgagor under the Subject Lease in anymaterial respect or otherwise be adverse in any material respect to theinterests of Mortgagee or the value of the Mortgaged Property.  Except tothe extent permitted under the Term Loan Credit Agreement, without the priorwritten consent of Mortgagee, Mortgagor will not (i) in any way cancel,release, terminate, surrender or reduce the term of the Subject Lease,(ii) fail to exercise any option to renew or extend the term of theSubject Lease, (iii) waive, excuse, condone or in any way release ordischarge the lessor under the Subject Lease of or from any materialobligations, covenants, conditions and agreements by said lessor to be done andperformed and (iv) consent to the subordination of the Subject Lease toany mortgage unless such subordination is conditioned upon the non-disturbanceof

 

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Mortgagor,as tenant, by the applicable mortgagee.  Any attempt on the part ofMortgagor to do any of the foregoing without such written consent of Mortgageeshall be null and void and of no effect and shall constitute a defaulthereunder.

 

(c)  Mortgagor shall at all times promptly andfaithfully keep and perform in all material respects, or cause to be kept andperformed in all material respects, all the covenants and conditions containedin the Subject Lease by the lessee therein to be kept and performed and shallin all material respects conform to and comply with the terms and conditions ofthe Subject Lease and Mortgagor further covenants that it will not do or permitanything to be done, the doing of which, or refrain from doing anything, theomission of which, would reasonably be expected to impair the security of thisMortgage.

 

(d)  Mortgagor shall promptly send Mortgagee acopy of any notice of default that it sends to the lessor under the SubjectLease and shall promptly provide to Mortgagee a copy of any notice of defaultreceived by Mortgagor from such lessor and this shall be done without regard tothe fact that Mortgagee may be entitled to such notice directly from thelessor.  Mortgagor shall promptly notify Mortgagee of any default underthe Subject Lease by lessor or giving of any notice by the lessor to Mortgagorof such lessor’s intention to end the term thereof or the exercise of an earlytermination right under the Subject Lease.

 

(e)  To the extent that Mortgagee is not giventhe right by the lessor to cure any defaults of Mortgagor under the SubjectLease pursuant to the terms thereof, then notwithstanding any other provisionof this Mortgage, following written notice of default sent by the lessor toMortgagor and the completion of one-half of Mortgagor’s cure period withrespect to such default, Mortgagee may (but shall not be obligated to) take anysuch action Mortgagee deems reasonably necessary or desirable to cure, in wholeor in part, any failure of compliance by Mortgagor under the Subject Lease; andupon the receipt by Mortgagee from Mortgagor or the lessor under the SubjectLease of any written notice of default by Mortgagor as the lessee thereunder,Mortgagor may rely thereon, and such notice and conclusion of one-half ofMortgagor’s cure period shall constitute full authority and protection toMortgagee for any action taken or omitted to be taken in good faith reliancethereon.  All sums, including reasonable attorneys’ fees, so reasonablyexpended by the Mortgagee to cure or prevent any such default, or expended tosustain the lien of this Mortgage or its priority, shall be deemed secured bythis Mortgage and shall be paid by the Mortgagor on demand, with interestaccruing thereon at the Interest Rate.  Upon the vesting of Mortgagee’sright to cure defaults under the Subject Lease as set forth pursuant to thisparagraph, Mortgagor hereby expressly grants to Mortgagee (subject to the termsof the Subject Lease), and agrees that Mortgagee shall, upon prior notice toMortgagor, have, the absolute and immediate right to enter in and upon the Landand the Improvements or any part thereof to such extent and as often asMortgagee, deems reasonably necessary or desirable in order to cure any suchdefault or alleged default by Mortgagor, provided, that, Mortgagee agrees thatit shall not interfere with Mortgagor’s business conducted on the Land and Improvementsand shall comply with Mortgagor’s reasonable security requirements.

 

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(f)  Upon the occurrence and during thecontinuance of any Event of Default, all options, election, consents andapproval rights conferred upon Mortgagor as lessee under the Subject Lease,together with the right of termination, cancelation, modification, change,supplement, alteration or amendment of the Subject Lease, all of which havebeen assigned for collateral purposes to Mortgagee, shall automatically vestexclusively in and be exercisable solely by Mortgagee, provided, that, if thelessor under the Subject Lease is not obligated to accept Mortgagee’s exerciseof such options, elections, consents and approval rights, then Mortgagor shallhave the right to exercise the same, subject to Mortgagee’s consent.

 

(g)  Mortgagor will give Mortgagee prompt writtennotice of the commencement of any arbitration or appraisal proceeding under andpursuant to the provisions of the Subject Lease.  Following the occurrenceand during the continuance of an Event of Default, Mortgagee shall have theright, but not the obligation, to intervene and participate in any suchproceeding and Mortgagor shall confer with Mortgagee to the extent whichMortgagee deems reasonably necessary for the protection of Mortgagee. Mortgagor may compromise any dispute or approval which is the subject of anarbitration or appraisal proceeding, provided that Mortgagor shall first getthe prior written consent of Mortgagee which approval will not be unreasonablywithheld or delayed with respect to any such material disputes or approvals.

 

(h)  So long as this Mortgage is in effect,there shall be no merger of the Subject Lease or any interest therein, or ofthe leasehold estate created thereby, with the fee estate in the Land or anyportion thereof by reason of the fact that the Subject Lease or such interesttherein may be held directly or indirectly by or for the account of any personwho shall hold the lessor’s fee estate in the Land or any portion thereof orany interest of the lessor under the Subject Lease.  In case the Mortgagoracquires fee title to the Land, this Mortgage shall attach to and cover and bea lien upon the fee title acquired, and such fee title shall, without furtherassignment, mortgage or conveyance, become and be subject to the lien of andcovered by this Mortgage.  Mortgagor shall notify Mortgagee of any suchacquisition and, on written request by Mortgagee, shall cause to be executedand recorded all such other and further assurances or other instruments inwriting as may in the reasonable opinion of Mortgagee be necessary orappropriate to effect the intent and meaning hereof and shall deliver toMortgagee an endorsement to Mortgagee’s loan title insurance policy insuringthat such fee title or other estate is subject to the lien of this Mortgage.

 

(i)  If any action or proceeding shall beinstituted to evict Mortgagor or to recover possession of any leasehold parcelor any part thereof or interest therein or any action or proceeding otherwiseaffecting the Subject Lease or this Mortgage shall be instituted, then Mortgagorwill, promptly upon service thereof on or to Mortgagor, deliver to Mortgageecopies of any notice of motion, order to show cause and of all otherprovisions, pleadings, and papers, however designated, served in any suchaction or proceeding.

 

(j)  The lien of this Mortgage shall attach toall of Mortgagor’s rights and remedies at any time arising under or pursuant toSubsection 365(h) of the Bankruptcy Code, 11

 

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U.S.C. 365(h),as the same may hereafter be amended (the “Bankruptcy Code”), including,without limitation, all of Mortgagor’s rights to remain in possession of eachleasehold parcel.

 

(k)  Mortgagor hereby unconditionally assigns,transfers and sets over to Mortgagee all of Mortgagor’s claims and rights tothe payment of damages arising from any rejection of the Subject Lease by thelessor or any other fee owner of any leasehold parcel or any portion thereofunder the Bankruptcy Code. Mortgagee shall have the right to proceed in its ownname or in the name of Mortgagor in respect of any claim, suit, action orproceeding relating to the rejection of the Subject Lease, including, withoutlimitation, the right to file and prosecute, without joining or the joinder ofMortgagor, any proofs of claim, complaints, motions, applications, notices andother documents, in any case with respect to the lessor or any fee owner of allor a portion of any leasehold parcel under the Bankruptcy Code.  Thisassignment constitutes a present, irrevocable and unconditional assignment ofthe foregoing claims, rights and remedies, and shall continue in effect untilall of the Obligations shall have been satisfied and discharged in full. Mortgagor shall promptly make, execute, acknowledge and deliver, in form and substancesatisfactory to Mortgagee, a UCC financing statement (Form UCC-1) and allsuch additional instruments, agreements and other documents, as may at any timehereafter be required by Mortgagee to effectuate and carry out the assignmentpursuant to this paragraph.  Notwithstanding the foregoing,  so longas no Event of Default has occurred and is continuing, in the event of arejection of the Subject Lease by the lessor or any other fee owner of anyleasehold parcel or any portion thereof under the Bankruptcy Code,(a) Mortgagee shall not seek to treat the Subject Lease as terminatedwithout the prior written consent of Mortgagor and any such termination byMortgagee without Mortgagor’s consent shall be void, and (b)  Mortgageeshall have the right to retain any amounts it receives as damages arising outof the rejection of the Subject Lease and Mortgagee shall promptly pay toMortgagor any such amounts it receives.

 

(l)  If pursuant toSubsection 365(h)(1) of the Bankruptcy Code, 11 U.S.C.§ 365(h)(1), Mortgagor shall seek to offset against the rent reserved inthe Subject Lease the amount of any damages caused by the nonperformance by thelessor or any fee owner of any of their respective obligations under suchSubject Lease after the rejection by the lessor or any fee owner of suchSubject Lease under the Bankruptcy Code, then Mortgagor shall, prior toeffecting such offset, notify Mortgagee of its intent to do so, setting forththe amount proposed to be so offset and the basis therefor.  Mortgageeshall have the right to object to all or any part of such offset that, in thereasonable judgment of Mortgagee, would constitute a breach of such SubjectLease, and in the event of such objection, Mortgagor shall not effect anyoffset of the amounts to the extent objected to by Mortgagee.  NeitherMortgagee’s failure to object as aforesaid nor any objection relating to suchoffset shall constitute an approval of any such offset by Mortgagee.

 

(m)  If any action, proceeding, motion ornotice shall be commenced or filed in respect of the lessor or any fee owner ofany leasehold parcel, or any portion thereof or interest therein, or theSubject Lease in connection with any case under the Bankruptcy Code, thenMortgagee shall have the option, exercisable upon written notice from Mortgageeto Mortgagor, to conduct and control any such litigation with counsel ofMortgagee’s choice.

 

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Mortgageemay proceed in its own name or in the name of Mortgagor in connection with anysuch litigation, and Mortgagor agrees to execute any and all powers,authorizations, consents or other documents required by Mortgagee in connectiontherewith.  Mortgagor shall, upon demand, pay to Mortgagee all reasonablecosts and expenses (including attorneys’ fees) paid or incurred by Mortgagee inconnection with the prosecution or conduct of any such proceedings. Mortgagor shall not commence any action, suit, proceeding or case, or file anyapplication or make any motion, in respect of the Subject Lease in any suchcase under Bankruptcy Code without the prior written consent ofMortgagee.  Notwithstanding the foregoing, so long as no Event of Defaulthas occurred and is continuing, Mortgagee shall not preclude Mortgagor fromelecting to retain its possessory interest and rights under the Subject Leasepursuant to Section 365(h)(1)(A)(ii) of the Bankruptcy Code.

 

(n)  Mortgagor shall, after obtaining knowledgethereof, promptly notify Mortgagee of any filing by or against the lessor orfee owner of any leasehold parcel of a petition under the Bankruptcy Code.Mortgagor shall promptly deliver to Mortgagee, following receipt, copies of anyand all notices, summonses, pleadings, applications and other documentsreceived by Mortgagor in connection with any such petition and any proceedingsrelating thereto.

 

(o)  If there shall be filed by or againstMortgagor a petition under the Bankruptcy Code and Mortgagor, as lessee under aSubject Lease, shall determine to reject such Subject Lease pursuant toSection 365(a) of the Bankruptcy Code, then Mortgagor shall giveMortgagee not less than twenty days’ prior notice of the date on whichMortgagor shall apply to the Bankruptcy Court for authority to reject suchSubject Lease.  Mortgagee shall have the right, but not the obligation, toserve upon Mortgagor within such twenty day period a notice stating thatMortgagee demands that Mortgagor assume and assign such Subject Lease toMortgagee pursuant to Section 365 of the Bankruptcy Code.  IfMortgagee shall serve upon Mortgagor the notice described in the precedingsentence, Mortgagor shall not seek to reject such Subject Lease and shallcomply with the demand provided for in the preceding sentence.

 

(p)  Effective upon the entry of an order forrelief with respect to Mortgagor under the Bankruptcy Code, Mortgagor herebyassigns and transfers to Mortgagee a non-exclusive right to apply to theBankruptcy Court under subsection 365(d)(4) of the Bankruptcy Codefor an order extending the period during which the Subject Lease may berejected or assumed.

 

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INWITNESS WHEREOF, this Mortgage has been duly executed and delivered toMortgagee by Mortgagor on the date of the acknowledgment attached hereto.

 
|   | THE  NEIMAN MARCUS GROUP, INC., a  Delaware corporation, |
|--------|---------------------------------------------------------------|
|   |                                                          |
|   | by:                                                           |
|   |                                                          |
|   |                                                          |   |
|   |                                                          | Name: |
|   |                                                          | Title: |

 

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**[ADD LOCAL FORM OF ACKNOWLEDGMENT]**

 

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Exhibit Ato Mortgage

 

Description of the Land

 

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Exhibit Bto Mortgage

 

Description of the Subject Lease

 

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Exhibit Cto Mortgage

 

Security Agreement

 

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Appendix Ato Mortgage

 

Local Law Provisions

 

None

 

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