**Exhibit 10.16**

 
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FORM OF

 

SECOND PRIORITY LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND

RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT

 

From

 

THE NEIMAN MARCUS GROUP, INC.

 

To

 

DEUTSCHE BANK TRUST COMPANY AMERICAS

 

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Dated: October       , 2005

Premises: [City], [State]

                     County

 

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THIS SECOND PRIORITY LEASEHOLD MORTGAGE, ASSIGNMENTOF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT dated as ofOctober     , 2005 (this “*Mortgage*”), by THE NEIMAN MARCUS GROUP, INC., aDelaware corporation, having an office at One Marcus Square,1618 Main Street, Dallas, Texas 75201 (the “*Mortgagor*”), to DEUTSCHE BANK TRUSTCOMPANY AMERICAS, having an office at 60 Wall Street, New York,New York 10005 (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 “*Revolving Facility**Credit Agreement*”), among NEWTONACQUISITION MERGER SUB., INC. (“*MergerSub*” and, prior to the Merger (as defined in the Revolving FacilityCredit Agreement, the “*Borrower*”),a Delaware corporation to be merged with and into THE NEIMAN MARCUS GROUP, INC.,a Delaware corporation (“*Neiman Marcus*”and, after the Merger, the “*Borrower*”),NEWTON ACQUISITION, INC., a Delaware corporation (“*Holdings*”), the subsidiaries of NeimanMarcus from time to time party thereto, the lenders from time to time partythereto (the “*Lenders*”*)*, including, inter alia, Deutsche BankTrust Company Americas as administrative agent (the “*Administrative Agent*”) for the Lenders and as collateralagent (the “*Collateral Agent*”)for the Secured Parties, swingline lender (the “*Swingline Lender*”) and issuing bank (the “*Issuing Bank*”) with respect to any lettersof credit (the “*Letters of Credit*”)issued pursuant to the terms of the Revolving Facility Credit Agreement,(ii) the credit agreement dated as of even date hereof (as amended,supplemented or otherwise modified from time to time, the “*Term Loan Credit Agreement*”) among MergerSub, Neiman Marcus, Holdings, each subsidiary of Neiman Marcus from time totime party thereto, the lenders from time to time party thereto, and CreditSuisse, as administrative agent, (iii) the Indenture, dated as ofMay 27, 1998 (as amended, supplemented or otherwise modified from time totime, the “*Existing Notes Indenture*”),between Neiman Marcus and The Bank of New York, (iv) the Pledge andSecurity Agreement dated as of even date hereof (as amended, supplemented orotherwise modified from time to time, the “*SecurityAgreement*”) among Holdings, the Borrower, the Subsidiary Partiesidentified therein and Deutsche Bank Trust Company Americas, (v) thatcertain mortgage dated as of even date hereof by Mortgagor, in favor of CreditSuisse, as mortgagee (the “*First Mortgage*”)granting to the First Mortgagee a first priority lien and security interest inthe Mortgaged Property (as described below) in connection with the Term LoanCredit Agreement and the Existing Notes Indenture and (vi) the LienSubordination and Intercreditor Agreement, dated as of even date hereof, amongthe Collateral Agent, Credit Suisse, Merger Sub, Neiman Marcus, Holdings andthe subsidiaries of Neiman Marcus from time to time party thereto as attachedhereto as Exhibit C.  Capitalized terms used but not defined hereinhave the meanings given to them in the Revolving Facility Credit Agreement andthe Security Agreement.

 

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Inthe Revolving Facility Credit Agreement, (i) the Lenders have agreed tomake revolving loans (the “*Revolving Loans*”)to the Borrower, (ii) the Swingline Lender has agreed to make swinglineloans (the “*Swingline Loans*”,together with Revolving Loans, the “Loans”) to the Borrower and (iii) theIssuing Bank has issued or agreed to issue from time to time Letters of Creditfor the account of the Borrower, in each case pursuant to, upon the terms, andsubject to the conditions specified in, the Revolving Facility CreditAgreement.  Subject to the terms of the Revolving Facility CreditAgreement, Borrower may borrow, prepay and reborrow Revolving Loans.

 

Mortgagorwill be the Borrower subsequent to the Merger and will derive substantialbenefit from the making of the Loans by the Lenders and the issuance of theLetters of Credit by the Issuing Bank.  In order to induce the Lenders tomake Loans and the Issuing Bank to issue Letters of Credit, the Mortgagor hasagreed to grant this Mortgage to secure, among other things, the due andpunctual payment and performance of all of the obligations of the Borrowerunder the Revolving Facility Credit Agreement.

 

Theobligations of the Lenders to make Loans and of the Issuing Bank to issueLetters of Credit are conditioned upon, among other things, the execution anddelivery by the Mortgagor of this Mortgage in the form hereof to secure theSecured Obligations (as defined in the Revolving Facility Credit Agreement).

 

Asused in this Mortgage, the term “*SecuredParties*” shall mean (a) the Lenders, (b) the CollateralAgent, (c) the Issuing Banks, (d) each counterparty to any SwapAgreement with a Loan Party the obligations under which constitute Secured SwapObligations, (e) the beneficiaries of each indemnification obligationsundertaken by any Loan Party under any Loan Document and (f) thesuccessors and permitted assigns of each of the foregoing.

 

Pursuantto the requirements of the Revolving Facility Credit Agreement, the Mortgagoris granting 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 Secured Obligations.  The Revolving FacilityCredit Agreement also requires the granting by the Mortgagor or the other LoanParties, as applicable, of mortgages, deeds of trust and/or deeds to securedebt (the “*Other Mortgages*”) thatcreate liens on and security interests in certain real and personal propertyother than the Mortgaged Property to secure the performance of the SecuredObligations.

 

*Granting Clauses*

 

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

 

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(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 kind andtype affixed to the Premises or attached to or forming part of any structures,buildings or improvements and replacements thereof now or hereafter erected orlocated 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 and other articles of tangible personalproperty of every kind and nature, and replacements thereof, now or at any timehereafter placed upon or used in any way in connection with the use, enjoyment,occupancy or operation of the Improvements or the Premises, including all ofMortgagor’s books and records relating thereto and including all pumps, tanks,goods, machinery, tools, equipment, lifts (including fire sprinklers and alarmsystems, fire prevention or 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 all other equipment of every kind), restaurant, bar andall other indoor or outdoor furniture (including tables, chairs, booths,serving stands, planters, desks, sofas, racks, shelves, lockers and cabinets),bar equipment, glasses, cutlery, uniforms, linens, memorabilia and otherdecorative items, furnishings, appliances, supplies, inventory, rugs, carpetsand other floor coverings, draperies, drapery rods and brackets, awnings,venetian blinds, partitions, chandeliers and other lighting fixtures, freezers,refrigerators, walk-in coolers, signs (indoor and outdoor), computer systems,cash registers and inventory control systems, and all other apparatus, equipment,furniture, furnishings, and articles used in connection with the use oroperation of the Improvements or the Premises, it being understood that theenumeration of any specific articles of property shall in no way result in orbe held to exclude any items of property not specifically mentioned (theproperty referred to in this subparagraph (3), the “*Personal Property*”);

 

(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

 

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Premisesand Improvements, all construction, service, engineering, consulting, leasing,architectural and other similar contracts concerning the design, construction,management, operation, occupancy and/or use of the Premises and Improvements,all architectural drawings, plans, specifications, soil tests, feasibilitystudies, appraisals, environmental studies, engineering reports and similarmaterials relating to any portion of or all of the Premises and Improvements,and all payment and performance bonds or warranties or guarantees relating tothe Premises or the 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 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 Revolving FacilityCredit Agreement or other Collateral Documents, Proceeds of insurancemaintained by the Mortgagor and condemnation awards, any awards that may becomedue by reason of the taking by eminent domain or any transfer in lieu thereofof the whole or any part of the Premises or Improvements or any rightsappurtenant thereto, and any awards for change of grade of streets, togetherwith any and all moneys now or hereafter on deposit for the payment of real estatetaxes, assessments or common area charges levied against the MortgagedProperty, unearned premiums on policies of fire and other insurance maintainedby the Mortgagor covering any interest in the Mortgaged Property or required bythe Revolving Facility Credit Agreement; 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.

 

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TOHAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its successors andassigns, for the ratable benefit of the Secured Parties, forever, subject onlyto Liens (as defined in the Revolving Facility Credit Agreement), expresslypermitted under Section 6.02 of the Revolving Facility Credit Agreementand to satisfaction 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 will foreverwarrant and defend its title to the Mortgaged Property, the rights of Mortgageetherein under this Mortgage and the validity and priority of the lien of thisMortgage thereon against the claims of all persons and parties except thosehaving rights under Liens expressly permitted under Section 6.02 of theRevolving Facility Credit Agreement (but to the extent of those rights).

 

SECTION 1.02.  *Revolving Facility Credit Agreement. *This Mortgage is given pursuant to the Revolving Facility Credit Agreement. Mortgagor expressly covenants and agrees to pay when due, and to timelyperform, and to cause the other Loan Parties to pay when due, and to timelyperform, the Secured Obligations in accordance with the terms of the LoanDocuments.

 

SECTION 1.03.  *Maintenance of Mortgaged Property.* Mortgagor will maintain the Improvements and the Personal Property in themanner required by the Revolving Facility 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 Revolving Facility Credit Agreementor the Security Agreement and shall purchase such additional insurance as maybe required from time to time pursuant to the Revolving Facility CreditAgreement and the Security Agreement.  Federal Emergency Management AgencyStandard Flood Hazard Determination Forms will be purchased by Mortgagor foreach Mortgaged Property on which Improvements are located.  If any portionof Improvements constituting part of the Mortgaged Property is located in anarea identified 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

 

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thereinunder power of eminent domain or by condemnation or any similar proceeding inaccordance with, and to the extent required by, the Revolving Facility CreditAgreement.  Any net proceeds received by or on behalf of the Mortgagor inrespect of any such casualty, damage or taking shall constitute trust funds heldby the Mortgagor for the benefit of the Secured Parties to be applied torepair, restore or replace the Mortgaged Property or, if a prepayment eventshall occur with respect to any such net proceeds, to be applied in accordancewith the Revolving Facility 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 Secured Obligations. Mortgagor has not assigned or executed any assignment of, and will not assignor execute any assignment of, any Leases or the Rents payable thereunder toanyone other than 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 RevolvingFacility Credit Agreement.  Mortgagor will not enter into, any Lease ifsuch Lease, as entered into, will not be subordinate to the lien of thisMortgage unless otherwise contemplated under the Revolving Facility CreditAgreement.

 

(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

 

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receivedfrom the Mortgagor, who shall have no right or claim against any such tenant orsuccessor in interest for any such Rents so paid to Mortgagee.  Eachtenant or any of such tenant’s successors in interest from whom Mortgagee orany officer, agent, attorney or employee of Mortgagee shall have collected anyRents, shall be authorized to pay Rents to Mortgagor only after such tenant orany of their successors in interest shall have received written notice fromMortgagee that the Event of Default is no longer continuing, unless and until afurther notice of an Event of Default is given by Mortgagee to such tenant orany of its successors in interest.

 

(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.

 

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 appropriate offices(to the extent it may lawfully do so), and to perform each and every act andthing reasonably requisite and necessary to be done to perfect the securityinterest contemplated by the preceding sentence.  Mortgagee shall have allrights with respect to the part of the Mortgaged Property that is the subjectof 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 UCCcontinuation statement and instrument of further assurance to be filed,registered or

 

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recordedand, if necessary, refiled, rerecorded and reregistered, in such manner and insuch places as may be required by any present or future law in order to publishnotice of and fully to perfect the lien hereof upon, and the security interestof Mortgagee in, the Mortgaged Property until this Mortgage is terminated andreleased in full in accordance with Section 3.04 hereof.  Mortgagorwill pay all filing, registration and recording fees, all Federal, state,county and municipal recording, documentary or intangible taxes and othertaxes, duties, imposts, assessments and charges, and all reasonable expensesincidental to or arising out of or in connection with the execution, deliveryand recording of this Mortgage, UCC continuation statements any mortgagesupplemental hereto, any security instrument with respect to the PersonalProperty, Permits, Plans and Warranties and Proceeds or any instrument offurther 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 alsoexecute and deliver and hereby appoints Mortgagee, following the occurrence andduring the continuance of an Event of Default, as its true and lawfulattorney-in-fact and agent, for Mortgagor and in its name, place and stead, inany and all capacities, to execute and file to the extent it may lawfully doso, one or more financing statements, chattel mortgages or comparable securityinstruments reasonably requested by Mortgagee to evidence more effectively thelien hereof upon the Personal Property and to perform each and every act andthing requisite 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.

 

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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 fixturefiling in accordance with the applicable provisions of said UCC upon suchportions of the 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 the address of the Mortgagor set forth in the firstparagraph of this Mortgage.  The mailing address of the Mortgagee/securedparty from which information concerning the security interest hereunder may beobtained is the address of the Mortgagee set forth in the first paragraph ofthis Mortgage.  Mortgagor’s organizational identification number is 95-4119509.

 

SECTION 1.13.  *Second Mortgage*.  The terms andconditions set forth herein and the security interest granted hereby shall besubject, in all respects, to the terms of the Intercreditor Agreement.

 

SECTION 1.14.  *Conflicts*.  In the event of a conflictbetween any provision of this Second Priority Mortgage and any provision of theIntercreditor Agreement, the Intercreditor Agreement shall govern.  In theevent of a conflict between any provision of this Second Priority Mortgage andany provision of the Revolving Facility Credit Agreement, the RevolvingFacility Credit 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

 

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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 aviolation of applicable law or of any valid and enforceable obligation in favorof a third party relating to such personal property or under such ContractRights.

 

ARTICLE II

 

*Defaultsand Remedies*

 

SECTION 2.01.  *Events of Default.*  Any Event ofDefault under the Revolving Facility Credit Agreement (as such term is definedtherein) 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 Revolving Facility Credit Agreement and the Security Agreement and suchfurther amount as shall be sufficient to cover the costs and expenses ofcollection, including attorneys’ fees, disbursements and expenses incurred byMortgagee, and Mortgagee shall be entitled and empowered to institute an actionor proceedings 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)  If an Event of Default shall occur andbe continuing, Mortgagor shall, upon demand of Mortgagee, forthwith surrenderto Mortgagee actual possession of the Mortgaged Property and, if and to theextent not prohibited by applicable law, Mortgagee itself, or by such officersor agents as it may appoint, may then enter and take possession of all theMortgaged Property without the appointment of a receiver or an application therefor,exclude Mortgagor and its agents and employees wholly therefrom, and haveaccess to the books, papers and accounts of Mortgagor.

 

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(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,including reasonable compensation to Mortgagee’s attorneys and agents withinterest thereon at the rate per annum applicable to overdue amounts under theRevolving Facility Credit Agreement as provided in Section 2.13(c) ofthe Revolving Facility Credit Agreement (the “*InterestRate*”); and all such expenses and compensation shall, until paid, besecured by this Mortgage.

 

(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, (iv) manage and operate the MortgagedProperty and exercise all the rights and powers of Mortgagor to the same extentas Mortgagor could in its own name or otherwise with respect to the same, or(v) enter into any and all agreements with respect to the exercise byothers of any of the powers herein granted Mortgagee, all as may from time totime be directed or determined by Mortgagee to be in its best interest andMortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact andagent, following the occurrence and during the continuance of an Event of Defaultfor Mortgagor and in its name, place and stead, in any and all capacities, toperform any of the foregoing acts. Mortgagee may collect and receive all theRents, issues, profits and revenues from the Mortgaged Property, includingthose past due as well as those accruing thereafter, and, after deducting(i) all expenses of taking, holding, managing and operating the MortgagedProperty (including compensation for the services of all persons employed forsuch purposes), (ii) the costs of all such maintenance, repairs, renewals,replacements, additions, betterments, improvements, purchases and acquisitions,(iii) the costs of insurance, (iv) such taxes, assessments and othersimilar charges as Mortgagee may at its option pay, (v) other propercharges upon the Mortgaged Property or any part thereof and (vi) thecompensation, expenses and disbursements of the attorneys and agents ofMortgagee, Mortgagee shall apply the remainder of the moneys and proceeds soreceived first to the payment of the Mortgagee for the satisfaction of theSecured Obligations, and, if there is any surplus, to Mortgagor, subject to theentitlement of others thereto under applicable law.

 

(d)  Whenever, before any sale of the MortgagedProperty under Section 2.06, all Secured Obligations that are then dueshall have been paid and all Events of Default fully cured, Mortgagee willsurrender possession of the Mortgaged Property back to Mortgagor, itssuccessors or assigns.  The same right of taking possession shall,however, arise again if any subsequent Event of Default shall occur and becontinuing.

 

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SECTION 2.04.  *Right To Cure Mortgagor’s Failure to Perform.* Should Mortgagor fail in the payment, performance or observance of any term,covenant or condition required by this Mortgage or the Revolving FacilityCredit Agreement (with respect to the Mortgaged Property), Mortgagee may pay,perform or observe the same, and all payments made or costs or expensesincurred by Mortgagee in connection therewith shall be secured hereby and shallbe, without demand, immediately repaid by Mortgagor to Mortgagee with interestthereon at the Interest Rate.  Mortgagee shall be the judge usingreasonable discretion of the necessity for any such actions and of the amountsto be paid.  Mortgagee is hereby empowered to enter and to authorizeothers to enter upon the Premises or the Improvements or any part thereof forthe purpose of performing or observing any such defaulted term, covenant orcondition without having any obligation to so perform or observe and withoutthereby becoming 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 MortgagedProperty and to collect and apply the Rents.  The receiver shall have allof the rights and powers permitted under the laws of the state wherein theMortgaged Property is located.  Mortgagor shall pay to Mortgagee upondemand all reasonable expenses, including receiver’s fees, reasonable attorney’sfees and disbursements, 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) If an Event of Default shall occur and be continuing, Mortgagee may elect tosell the Mortgaged Property or any part of the Mortgaged Property by exerciseof the power of foreclosure or of sale granted to Mortgagee by applicable lawor this Mortgage.  In such case, Mortgagee may commence a civil action toforeclose this Mortgage, or it may proceed and sell the Mortgaged Property tosatisfy any Obligation.  Mortgagee or an officer appointed by a judgmentof foreclosure to sell the Mortgaged Property, may sell all or such parts ofthe Mortgaged Property as may be chosen by Mortgagee at the time and place ofsale fixed by it in a notice of sale, either as a whole or in separate lots,parcels or items as Mortgagee shall deem expedient, and in such order as it maydetermine, at public auction to the highest bidder.  Mortgagee or anofficer appointed by a judgment of foreclosure to sell the Mortgaged Propertymay postpone any foreclosure or other sale of all or any portion of theMortgaged Property by public announcement at such time and place of sale, andfrom time to time thereafter may postpone such sale by public announcement or subsequentlynoticed sale.  Without further notice, Mortgagee or an officer appointedto sell the 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 Liens expressly permitted under Section 6.02 of theRevolving Facility Credit Agreement, and, after

 

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deductingall costs, fees and expenses of Mortgagee (including costs of evidence of titlein connection with the sale), Mortgagee or an officer that makes any sale shallapply the proceeds of 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 SecuredObligations have been satisfied, or the entirety of the Mortgaged Property hasbeen 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 Secured 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.

 

SECTION 2.07.  *Other Remedies.*  (a)  Incase an Event of Default shall occur and be continuing, Mortgagee may alsoexercise, to the extent not prohibited by law, any or all of the remediesavailable to a secured party under 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 SecuredObligations, plus all other charges, payments and costs due under thisMortgage, and to recover a deficiency judgment for any portion of the aggregateprincipal amount of the Secured Obligations remaining unpaid, with interest.

 

SECTION 2.08.  *Application of Sale Proceeds and Rents.* After any foreclosure sale of all or any of the Mortgaged Property, Mortgageeshall receive and apply the proceeds of the sale together with any Rents thatmay have been collected and any other sums that then may be held by Mortgageeunder this Mortgage as pursuant to Section 2.18(b) of the RevolvingFacility Credit Agreement, subject to the terms of the Intercreditor Agreement.

 

SECTION 2.09.  *Mortgagor as Tenant Holding Over.* If Mortgagor remains in possession of any of the Mortgaged Property after anyforeclosure sale by Mortgagee, at Mortgagee’s election Mortgagor shall bedeemed a tenant holding over and shall forthwith surrender possession to thepurchaser or purchasers at such sale or be summarily dispossessed or evictedaccording to provisions of law applicable to tenants holding over.

 

SECTION 2.10.  *Waiver of Appraisement, Valuation, Stay, Extensionand Redemption Laws. *Mortgagor waives, to the extent notprohibited by law, (i) the benefit of all laws now existing or thathereafter may be enacted (x) providing for any appraisement or valuationof any portion of the Mortgaged Property and/or (y) in any way extendingthe time for the enforcement or the collection of amounts due under any of theSecured Obligations or

 

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creatingor extending a period of redemption from any sale made in collecting said debtor any other amounts due Mortgagee, (ii) any right to at any time insistupon, plead, claim or take the benefit or advantage of any law now or hereafterin force providing for any homestead exemption, stay, statute of limitations,extension or redemption, or sale of the Mortgaged Property as separate tracts,units or estates or as a single parcel in the event of foreclosure or notice ofdeficiency, and (iii) all rights of redemption, valuation, appraisement,stay of execution, notice of election to mature or declare due the whole of oreach of the Secured Obligations and marshaling in the event of foreclosure ofthis Mortgage.

 

SECTION 2.11.  *Discontinuance of Proceedings.* In case Mortgagee shall proceed to enforce any right, power or remedy underthis Mortgage by foreclosure, entry or otherwise, and such proceedings shall bediscontinued or abandoned for any reason, or shall be determined adversely toMortgagee, then and in every such case Mortgagor and Mortgagee shall berestored to their former positions and rights hereunder, and all rights, powersand remedies of Mortgagee shall continue as if no such proceeding had beentaken.

 

SECTION 2.12.  *Suits To Protect the Mortgaged Property.* Mortgagee shall have power (a) to institute and maintain suits andproceedings to prevent any impairment of the Mortgaged Property by any actsthat may be unlawful or in violation of this Mortgage, (b) to preserve orprotect its interest in the Mortgaged Property and in the Rents arisingtherefrom and (c) to restrain the enforcement of or compliance with anylegislation or other governmental enactment, rule or order that may beunconstitutional or otherwise invalid if the enforcement of or compliance withsuch enactment, rule or order would impair the security or be prejudicialto the interest of Mortgagee hereunder.

 

SECTION 2.13.  *Filing Proofs of Claim.*  In caseof any receivership, insolvency, bankruptcy, reorganization, arrangement,adjustment, composition or other proceedings affecting Mortgagor, Mortgageeshall, to the extent permitted by law, be entitled to file such proofs of claimand other documents as may be necessary or advisable in order to have theclaims of Mortgagee allowed in such proceedings for the Secured Obligationssecured by this Mortgage at the date of the institution of such proceedings andfor any interest accrued, late charges and additional interest or other amountsdue or that may become due and payable hereunder after such date.

 

SECTION 2.14.  *Possession by Mortgagee.* Notwithstanding the appointment of any receiver, liquidator or trustee ofMortgagor, any of its property or the Mortgaged Property, Mortgagee shall beentitled, to the extent not prohibited by law, to remain in possession andcontrol of all parts of the Mortgaged Property now or hereafter granted underthis Mortgage to Mortgagee in accordance with the terms hereof and applicablelaw.

 

SECTION 2.15.  *Waiver.*  (a)  No delay orfailure by Mortgagee to exercise any right, power or remedy accruing upon anybreach or Event of Default shall exhaust or impair any such right, power orremedy or be construed to be a waiver of any such breach or Event of Default oracquiescence therein; and every right, power and remedy given by this Mortgageto Mortgagee may be exercised from time to time and as often as may be deemedexpedient

 

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byMortgagee.  No consent or waiver by Mortgagee to or of any breach or Eventof Default by Mortgagor in the performance of the Secured Obligations shall bedeemed or construed to be a consent or waiver to or of any other breach orEvent of Default in the performance of the same or of any other SecuredObligations by Mortgagor hereunder.  No failure on the part of Mortgageeto complain of any act or failure to act or to declare an Event of Default,irrespective of how long such failure continues, shall constitute a waiver byMortgagee of its rights hereunder or impair any rights, powers or remediesconsequent on any future Event of Default by Mortgagor.

 

(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) consents to the filing of a map, plat or replat affecting thePremises, (vii) consents to the granting of an easement or other rightaffecting the Premises or (viii) makes or consents to an agreementsubordinating Mortgagee’s lien on the Mortgaged Property hereunder; no such actor omission shall preclude Mortgagee from exercising any other right, power orprivilege herein granted or intended to be granted in the event of any breachor Event of Default then made or of any subsequent default; nor, except asotherwise expressly provided in an instrument executed by Mortgagee, shall thisMortgage be altered thereby.  In the event of the sale or transfer by operationof law or otherwise of all or part of the Mortgaged Property, Mortgagee ishereby authorized and empowered to deal with any vendee or transferee withreference to the Mortgaged Property secured hereby, or with reference to any ofthe terms, 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.

 

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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 Revolving Facility Credit Agreement at theaddress set forth on the first page of this Mortgage and to the Mortgageeas provided in the Revolving Facility 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 (notwithstanding the fact thatfrom time to time there may be no Secured Obligations outstanding) until(i) the Revolving Facility Credit Agreement has terminated pursuant to itsexpress terms and (ii) all of the Secured Obligations have beenindefeasibly paid and performed in full (or with respect to any outstandingLetters of Credit, have been cash collateralized as required by the RevolvingFacility Credit Agreement) and no commitments of the Agent or the Lenders whichwould give rise to any Secured Obligations are outstanding.

 

(b)  Upon any sale or other transfer byMortgagor of the Mortgaged Property that is permitted underSection 4.1(d) of the Security Agreement to any Person that is notanother Grantor or, upon the effectiveness of any written consent to therelease of the security interest granted hereby in the Mortgaged Propertypursuant to Section 9.02 of the Revolving Facility Credit Agreement, thesecurity interest in the Mortgaged Property shall be automatically 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

 

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meanings:(a) “*including*” shall mean “includingbut not limited 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” shallmean “the Mortgaged Property or any part thereof or interest therein”. Any act that Mortgagee is permitted to perform hereunder may be performed atany time and from time to time by Mortgagee or any person or entity designatedby Mortgagee.  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 Collateral Documents that secure the Secured Obligations.  Mortgagoragrees that the lien of this Mortgage shall be absolute and unconditional andshall not in any manner be affected or impaired by any acts or omissionswhatsoever of Mortgagee, and without limiting the generality of the foregoing,the lien hereof shall not be impaired by any acceptance by the Mortgagee of anysecurity for or guarantees of any of the Secured Obligations hereby secured, orby any failure, neglect or omission on the part of Mortgagee to realize upon orprotect any Secured Obligation or indebtedness hereby secured or any collateralsecurity therefor including the Other Mortgages and other CollateralDocuments.  The lien hereof shall not in any manner be impaired oraffected 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 Secured Obligations secured(unless all Secured Obligations are satisfied pursuant to the RevolvingFacility Credit Agreement) or of any of the collateral security therefor,including the Other Mortgages and other Collateral Documents or of anyguarantee thereof, and Mortgagee may at its discretion foreclose, exercise anypower of sale, or exercise any other remedy available to it under any or all ofthe Other Mortgages and other Collateral Documents without first exercising orenforcing any of its rights and remedies hereunder.  Such exercise ofMortgagee’s rights and remedies under any or all of the Other Mortgages andother Collateral Documents shall not in any manner impair the indebtedness herebysecured or the lien of this Mortgage and any exercise of the rights or remediesof Mortgagee hereunder shall not impair the lien of any of the Other Mortgagesand other Collateral Documents or any of Mortgagee’s rights and remediesthereunder.  Mortgagor specifically consents and agrees that Mortgagee mayexercise its rights and remedies hereunder and under the Other Mortgages andother Collateral Documents separately or concurrently and in any order that itmay deem appropriate and waives any rights of subrogation.

 

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

 

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SECTION 3.08.  *Subject to Intercreditor Agreement.* Notwithstanding anything herein to the contrary, the second-priority lien andsecurity interest granted to the Collateral Agent pursuant to this SecondPriority Mortgage and the exercise of any right or remedy by the CollateralAgent hereunder are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the terms of the Intercreditor Agreementand this Second Priority Mortgage, the terms of the Intercreditor Agreementshall govern.  So long as the First Mortgage, or other senior mortgagesare, outstanding, Mortgagor shall not be in default hereunder for the failureto comply with any term or provision contained in this Second Priority Mortgageif such compliance would result in a default under the terms and provisions ofthe First Mortgage or other senior mortgages.

 

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 Revolving FacilityCredit Agreement and other Loan Documents (aside from those Other Mortgages tobe recorded 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 forthherein.  In the event of any conflict between the terms and provisionscontained in the body of this Mortgage and the terms and provisions set forthin Appendix 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 as expresslyset forth herein.  No material default exists, and to the best knowledgeof Mortgagor, no event or act has occurred and no condition exists which withthe passage of time or the giving of notice or both would constitute a materialdefault, under the Subject Lease.

 

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(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 Revolving Facility Credit Agreement, without theprior written consent of Mortgagee, Mortgagor will not (i) in any waycancel, 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 Mortgagor, as tenant, by the applicable mortgagee.  Any attempt on thepart of Mortgagor to do any of the foregoing without such written consent ofMortgagee shall be null and void and of no effect and shall constitute adefault hereunder.

 

(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

 

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Mortgageor its priority, shall be deemed secured by this Mortgage and shall be paid bythe Mortgagor on demand, with interest accruing thereon at the InterestRate.  Upon the vesting of Mortgagee’s right to cure defaults under theSubject Lease as set forth pursuant to this paragraph, Mortgagor herebyexpressly grants to Mortgagee (subject to the terms of the Subject Lease), andagrees that Mortgagee shall, upon prior notice to Mortgagor, have, the absoluteand immediate right to enter in and upon the Land and the Improvements or anypart thereof to such extent and as often as Mortgagee, deems reasonablynecessary or desirable in order to cure any such default or alleged default byMortgagor, provided, that, Mortgagee agrees that it shall not interfere withMortgagor’s business conducted on the Land and Improvements and shall complywith Mortgagor’s reasonable security requirements.

 

(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 promptwritten notice of the commencement of any arbitration or appraisal proceedingunder and pursuant to the provisions of the Subject Lease.  Following theoccurrence and during the continuance of an Event of Default, Mortgagee shallhave the right, but not the obligation, to intervene and participate in anysuch proceeding and Mortgagor shall confer with Mortgagee to the extent whichMortgagee deems reasonably necessary for the protection of Mortgagee.  Mortgagormay compromise any dispute or approval which is the subject of an arbitrationor appraisal proceeding, provided that Mortgagor shall first get the priorwritten consent of Mortgagee which approval will not be unreasonably withheldor 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 in writingas may in the reasonable opinion of Mortgagee be necessary or appropriate toeffect the intent and meaning hereof and shall

 

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deliverto Mortgagee 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, thenMortgagor will, promptly upon service thereof on or to Mortgagor, deliver toMortgagee copies 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 U.S.C. 365(h), asthe same may hereafter be amended (the “Bankruptcy Code”), including, withoutlimitation, all of Mortgagor’s rights to remain in possession of each leaseholdparcel.

 

(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 andsubstance satisfactory to Mortgagee, a UCC financing statement(Form UCC-1) and all such additional instruments, agreements and otherdocuments, as may at any time hereafter be required by Mortgagee to effectuateand carry out the assignment pursuant to this paragraph.  Notwithstanding the foregoing, so long as no Event of Default has occurred andis continuing, in the event of a rejection of the Subject Lease by the lessoror any other fee owner of any leasehold parcel or any portion thereof under theBankruptcy Code, (a) Mortgagee shall not seek to treat the Subject Leaseas terminated without the prior written consent of Mortgagor and any suchtermination by Mortgagee without Mortgagor’s consent shall be void, and(b)  Mortgagee shall have the right to retain any amounts it receives asdamages arising out of the rejection of the Subject Lease and Mortgagee shallpromptly pay to Mortgagor 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

 

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proposedto be so offset and the basis therefor.  Mortgagee shall have the right toobject to all or any part of such offset that, in the reasonable judgment ofMortgagee, would constitute a breach of such Subject Lease, and in the event ofsuch objection, Mortgagor shall not effect any offset of the amounts to theextent objected to by Mortgagee.  Neither Mortgagee’s failure to object asaforesaid nor any objection relating to such offset shall constitute anapproval 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.  Mortgagee may proceed in its own name or in the nameof Mortgagor in connection with any such litigation, and Mortgagor agrees toexecute any and all powers, authorizations, consents or other documentsrequired by Mortgagee in connection therewith.  Mortgagor shall, upondemand, pay to Mortgagee all reasonable costs and expenses (including attorneys’fees) paid or incurred by Mortgagee in connection with the prosecution orconduct of any such proceedings.  Mortgagor shall not commence any action,suit, proceeding or case, or file any application or make any motion, inrespect of the Subject Lease in any such case under Bankruptcy Code without theprior written consent of Mortgagee.  Notwithstanding the foregoing, solong as no Event of Default has occurred and is continuing, Mortgagee shall notpreclude Mortgagor from electing to retain its possessory interest and rightsunder the Subject Lease pursuant to Section 365(h)(1)(A)(ii) of theBankruptcy 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

 

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rightto apply to the Bankruptcy Court under subsection 365(d)(4) of theBankruptcy Code for an order extending the period during which the SubjectLease may be rejected 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 A

to Mortgage

 

Description of the Land

 

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Exhibit B

to Mortgage

 

Description of the Subject Lease

 

28

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Exhibit C

to Mortgage

 

Intercreditor Agreement

 

29

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Appendix A

to Mortgage

 

Local Law Provisions

 

None

 

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**Acceptance of Offer to Acquire Shares of Newco (the “AcceptanceForm”)**

 

Pursuantto the terms and conditions set forth in letter to me dated September 30,2005, I,                                            ,hereby elect make an investment in Newco and purchase Shares in the amount andmanner below:

 

1. $                          ,which will be satisfied through a contribution of                          NMG shares (at $100 per share).

 

2. $                          ,which will be satisfied through a reduction in my after-tax proceeds from anycash payment of the Merger Consideration I will receive in exchange equity orequity-based interests other than those being rolled over pursuant to thisAgreement.

 

3. $                          ,which will be satisfied by wire transfer (wire instructions to be supplied).

 

**Aggregate Investment =$                          (sum of 1, 2 and 3 above cannot be less than $50,000)**

 
|      |   |   |
|-----------|--------|--------|
| Signature |   |   |
|      |   |   |
|      |   |   |
| Date      |   |   |

 

F-1

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