DEBT

Debt as of February 2, 2013 and January 28, 2012 included the following components (in thousands):


	February 2, 2013		January 28, 2012

Long-term debt:
Senior secured term loan facility due 2014	$	—	$	1,154,310
Senior fixed rate notes due 2015		220,270		220,270
Senior toggle notes due 2015		302,190		302,190
Senior subordinated notes due 2017		259,612		259,612
Senior secured first lien notes due 2019 ⁽¹⁾		1,141,294		—
Senior secured second lien notes due 2019		450,000		450,000

Long-term debt	$	2,373,366	$	2,386,382


Obligation under capital lease	$	17,232	$	17,290

(1)	Amount includes unamortized premium of $16,294 as of February 2, 2013.

As of February 2, 2013, the Company’s total debt maturities are as follows for each of the following fiscal years (in thousands):


	Capital Leases			Debt
2013	$	2,266		$	—
2014		2,311			—
2015		2,357			522,460
2016		2,404			—
2017		2,453			—
Thereafter		32,774			1,834,612

Total		44,565		$	2,357,072

Imputed interest		(27,279	)

Present value of minimum capital lease principal payments		17,286
Current portion		54

Long-term capital lease obligation	$	17,232

The Company’s interest expense, net for Fiscal 2012, Fiscal 2011 and Fiscal 2010 included the following components (in thousands):


	Fiscal 2012			Fiscal 2011			Fiscal 2010
Term loan facility	$	17,644		$	38,226		$	53,255
Revolving credit facility		935			1,576			6,110
Senior fixed rate notes		20,663			20,663			22,605
Senior toggle notes		29,493			32,263			36,881
Senior subordinated notes		27,642			27,118			27,620
Senior secured first lien notes		62,504			—			—
Senior secured second lien notes		40,716			36,120			—
Note payable to bank		—			5,535			85
Capital lease obligation		2,203			2,151			1,232
Amortization of deferred debt issue costs		9,927			13,106			10,005
Accretion of debt premium		(831	)		—			—
Other interest expense		99			98			57
Interest income		(198	)		(381	)		(144	)

Interest expense, net	$	210,797		$	176,475		$	157,706

Accrued interest payable as of February 2, 2013 and January 28, 2012 consisted of the following components (in thousands):


	February 2, 2013		January 28, 2012
Term loan facility	$	—	$	4,409
Revolving credit facility		75		93
Senior fixed rate notes		3,582		3,303
Senior toggle notes		5,114		4,714
Senior subordinated notes		4,793		4,418
Senior secured first lien notes		39,220		—
Senior secured second lien notes		15,470		14,922

Total accrued interest payable	$	68,254	$	31,859

LONG-TERM DEBT

Credit Facility

The Former Credit Facility was with a syndication of lenders and consisted of a $1.45 billion senior secured Former Term Loan and a $200.0 million senior secured Former Revolver. The Former Credit Facility contained customary provisions relating to mandatory prepayments, voluntary prepayments, affirmative covenants, negative covenants, and events of default. At the consummation of the Merger, the Company drew the full amount of the Former Term Loan and was issued a $4.5 million letter of credit. The letter of credit was subsequently increased to $6.0 million and later reduced to $4.8 million.

During Fiscal 2012, we issued $1,142.1 million of the 9.0% Senior Secured First Lien Notes that mature on March 15, 2019. We used the net proceeds from the note offerings, together with cash on hand, to repay $1,154.3 million of indebtedness under the Former Term Loan and to terminate the Former Credit Facility.

On September 20, 2012, the Company entered into an Amended and Restated Credit Agreement by and among Claire’s Inc. (“Parent”), the Company, Credit Suisse AG, as Administrative Agent, and the other Lenders named therein (the “Credit Facility”), pursuant to which the Company replaced its existing $200.0 million senior secured Former Revolver maturing May 29, 2013 with a $115.0 million five-year senior secured revolving credit facility.

Borrowings under the Credit Facility will bear interest at a rate equal to, at the Company’s option, either (a) an alternate base rate determined by reference to the higher of (1) the prime rate in effect on such day, (2) the federal funds effective rate plus 0.50% and (3) the one-month LIBOR rate plus 1.00%, or (b) a LIBOR rate with respect to any Eurodollar borrowing, determined by reference to the costs of funds for U.S. dollar deposits in the London Interbank Market for the interest period relevant to such borrowing, adjusted for certain additional costs, in each case plus an applicable margin of 4.50% for LIBOR rate loans and 3.50% for alternate base rate loans. The Company will also pay a facility fee of 0.50% per annum of the committed amount of the Credit Facility whether or not utilized.

All obligations under the Credit Facility are unconditionally guaranteed by (i) Parent, prior to an initial public offering of the Company’s stock, and (ii) the Company’s existing and future direct or indirect wholly-owned domestic subsidiaries, subject to certain exceptions.

All obligations under the Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions and permitted liens, by a first priority lien on, (i) all of the Company’s capital stock, prior to an initial public offering of its stock, and (ii) substantially all of the Company’s material owned assets and the material owned assets of subsidiary guarantors, limited in the case of equity interests held by the Company or any subsidiary guarantor in a foreign subsidiary, to 100% of the non-voting equity interests and 65% of the voting equity interests of such foreign subsidiary held directly by the Company or a subsidiary guarantor. The liens securing the Credit Facility rank equally to the liens securing the 9.0% Senior Secured First Lien Notes.

The Credit Facility contains customary provisions relating to mandatory prepayments, voluntary payments, affirmative and negative covenants, and events of default; however, it does not contain any covenants that require the Company to maintain any particular financial ratio or other measure of financial performance except that so long as the revolving loans and letters of credit outstanding exceed $15 million, the Company will be required to comply with a maximum Total Net Secured Leverage Ratio of 5.5 to 1.0 based upon the ratio of its net senior secured debt to adjusted earnings before interest, taxes, depreciation and amortization for the period of four consecutive fiscal quarters most recently ended.

The Company must also pay customary letter of credit fees and agency fees. At February 2, 2013, there was no amount outstanding under the Credit Facility. At January 28, 2012, the weighted average interest rate for borrowings outstanding under the Former Credit Facility was 3.07%.

The Credit Facility does not contain any covenants that require the Company to maintain any particular financial ratio or other measure of financial performance; however, it does contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit the Company’s Parent’s and the Company’s restricted subsidiaries’ ability to, among other things:

•

incur additional indebtedness or issue certain preferred shares;

•

pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

•

make certain investments;

•

sell certain assets;

•

create liens;

•

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

•

enter into certain transactions with our affiliates.

A breach of any of these covenants could result in an event of default. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding under the Credit Facility to be immediately due and payable and terminate all commitments to extend further credit. Such actions by those lenders could cause cross defaults under the Company’s other indebtedness. If the Company were unable to repay those amounts, the lenders under the Credit Facility could proceed against the collateral granted to them to secure that indebtedness.

Senior Notes

In connection with the Transactions, the Company issued $600 million of senior notes in two series:

$250.0 million of 9.25% Senior Notes due 2015 (the “Senior Fixed Rate Notes”), and

$350.0 million of 9.625%/10.375% Senior Toggle Notes due 2015 (the “Senior Toggle Notes” and together with the Senior Fixed Rate Notes, the “Senior Notes”)

The Senior Fixed Rate Notes are unsecured obligations of the Company and mature on June 1, 2015. Interest is payable semi-annually at 9.25% per annum, which commenced on December 1, 2007.

The Senior Toggle Notes are unsecured obligations of the Company and mature on June 1, 2015. Interest is payable semi-annually commencing on December 1, 2007. For any interest period through June 1, 2011, the Company may, at its option, elect to pay interest on the Senior Toggle Notes (i) entirely in cash (“Cash Interest”), (ii) entirely by increasing the principal amount of the outstanding Senior Toggle Notes or by issuing PIK Notes (“PIK Interest”) or (iii) 50% as Cash Interest and 50% of PIK Interest.

Cash Interest on the Senior Toggle Notes accrues at 9.625% per annum and is payable in cash. PIK Interest on the Senior Toggle Notes accrues at the Cash Interest Rate per annum plus 0.75% and increases the amount outstanding of the Senior Toggle Notes.

The Company elected to pay interest in kind on its Senior Toggle Notes for the interest periods beginning June 2, 2008 through June 1, 2011. This election, net of reductions for note repurchases, increased the principal amount on the Senior Toggle Notes by $109.5 million as of February 2, 2013 and January 28, 2012, respectively. The accrued payment in kind interest is included in “Long-term debt” in the Consolidated Balance Sheets. Effective June 2, 2011, the Company began accruing cash interest.

Each of the Company’s wholly-owned domestic subsidiaries that guarantee indebtedness under the Credit Facility jointly and severally irrevocably and unconditionally guarantee on a senior basis the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Company under the Senior Notes, expenses, indemnification or otherwise.

The Company may redeem the Senior Notes at its option, subject to certain notice provisions at the following redemption prices (expressed as percentage of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period commencing on June 1 of the years set forth below:


Period	Senior Fixed Rate Notes			Senior Toggle Notes

2012		102.313	%		102.406	%
2013 and thereafter		100.000	%		100.000	%

Upon the occurrence of a change of control, each holder of the Senior Notes has the right to require the Company to repurchase all or any part of such holder’s Senior Notes, at a price in cash equal to 101% of the principal amount of the Senior Notes redeemed plus accrued and unpaid interest, if any.

Senior Subordinated Notes

In connection with the Transactions, the Company issued $335.0 million of Senior Subordinated Notes. The Senior Subordinated Notes are senior subordinated obligations of the Company and will mature on June 1, 2017. Interest is payable semi-annually at 10.50% per annum, which commenced on December 1, 2007.

Each of the Company’s wholly-owned domestic subsidiaries that guarantee indebtedness under the Credit Facility jointly and severally irrevocably and unconditionally guarantee on a senior subordinated basis the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Company under the Senior Subordinated Notes, expenses, indemnification or otherwise.

The Company may redeem the Senior Subordinated Notes at its option, subject to certain notice provisions, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period commencing on June 1 of the years set forth below:


Period	Redemption Price
2012		105.25	%
2013		103.50	%
2014		101.75	%
2015 and thereafter		100.00	%

Upon the occurrence of a change of control, each holder of the Senior Subordinated Notes has the right to require the Company to repurchase all or any part of such holder’s Senior Subordinated Notes, at a price in cash equal to 101% of the principal amount of the Senior Subordinated Notes redeemed plus accrued and unpaid interest, if any.

Senior Secured Second Lien Notes

On March 4, 2011, the Company issued $450.0 million aggregate principal amount of 8.875% senior secured second lien notes that mature on March 15, 2019 (the “Senior Secured Second Lien Notes”). Interest on the Senior Secured Second Lien Notes is payable semi-annually to holders of record at the close of business on March 1 or September 1 immediately preceding the interest payment date on March 15 and September 15 of each year, commencing on September 15, 2011.

The Senior Secured Second Lien Notes are guaranteed on a second-priority senior secured basis by all of the Company’s existing and future direct or indirect wholly-owned domestic subsidiaries that guarantee the Credit Facility. The Senior Secured Second Lien Notes and related guarantees are secured by a second-priority lien on substantially all of the assets that secure the Company’s and its subsidiary guarantors’ obligations under the Credit Facility. The Company used the net proceeds of the offering of the Senior Secured Second Lien Notes to reduce the entire $194.0 million outstanding under the Former Revolver (without terminating the commitment) and $241.0 million indebtedness under the Former Term Loan.

On or after March 15, 2015, the Company may redeem the Senior Secured Second Lien Notes at its option, subject to certain notice provisions, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period commencing on March 15 of the years set forth below:


Period	Redemption Price
2015		104.438	%
2016		102.219	%
2017 and thereafter		100.000	%

In addition, prior to March 15, 2014, the Company may redeem in the aggregate up to 35% of the original aggregate principal amount of the Senior Secured Second Lien Notes with the net cash proceeds of certain equity offerings at a redemption price of 108.875%, plus accrued unpaid interest. The Company may also redeem Senior Secured Second Lien Notes prior to March 15, 2015, subject to certain notice periods, at a price equal to 100% of the principal amount of the Senior Secured Second Lien Notes redeemed plus an applicable premium and accrued and unpaid interest, if any.

9.0% Senior Secured First Lien Notes

On February 28, 2012, the Company issued $400.0 million aggregate principal amount of 9.00% senior secured first lien notes that mature on March 15, 2019 (the “9.0% Senior Secured First Lien Notes”). The notes were issued at a price equal to 100.00% of the principal amount. On March 12, 2012, the Company issued an additional $100.0 million aggregate principal amount of the same series of 9.0% Senior Secured First Lien Notes at a price equal to 101.50% of the principal amount. On September 20, 2012, the Company issued an additional $625.0 million aggregate principal amount of the same series of 9.0% Senior Secured First Lien Notes at a price equal to 102.50% of the principal amount. Interest on the 9.0% Senior Secured First Lien Notes is payable semi-annually to holders of record at the close of business on March 1 or September 1 immediately preceding the interest payment date on March 15 and September 15 of each year, commencing on September 15, 2012.

The 9.0% Senior Secured First Lien Notes are guaranteed on a first-priority senior secured basis by all of the Company’s existing and future direct or indirect wholly-owned domestic subsidiaries. The 9.0% Senior Secured First Lien Notes and related guarantees are secured, subject to certain exceptions and permitted liens, by a first priority lien on substantially all of the Company’s material owned assets and the material owned assets of subsidiary guarantors, limited in the case of equity interests held by the Company or any subsidiary guarantor in a foreign subsidiary, to 100% of the non-voting equity interests and 65% of the voting equity interests of such foreign subsidiary held directly by the Company or a subsidiary guarantor. The liens securing the 9.0% Senior Secured First Lien Notes rank equally to the liens securing the Credit Facility. The 9.0% Senior Secured First Lien Notes are subject to customary covenants, (described below), and events of default. The Company used the proceeds of the offerings of the 9.0% Senior Secured First Lien Notes to reduce $1,154.3 million of indebtedness under the Former Term Loan, and to pay $28.0 million in financing costs which have been recorded as Deferred Financing Costs, Net in the accompanying Consolidated Balance Sheets.

On or after March 15, 2015, the Company may redeem the 9.0% Senior Secured First Lien Notes at its option, subject to certain notice provisions, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period commencing on March 15 of the years set forth below:


Period	Redemption Price
2015		106.750	%
2016		104.500	%
2017		102.250	%
2018 and thereafter		100.000	%

In addition, prior to March 15, 2015, the Company may redeem in the aggregate up to 35% of the original aggregate principal amount of the 9.0% Senior Secured First Lien Notes with the net cash proceeds of certain equity offerings at a redemption price of 109.000%, plus accrued unpaid interest. The Company may also redeem 9.0% Senior Secured First Lien Notes prior to March 15, 2015, subject to certain notice periods, at a price equal to 100% of the principal amount of the 9.0% Senior Secured First Lien Notes redeemed plus an applicable premium and accrued and unpaid interest, if any.

Covenants

The Senior Fixed Rate Notes, Senior Toggle Notes, Senior Subordinated Notes, Senior Secured Second Lien Notes and 9.0% Senior Secured First Lien Notes (collectively, the “Notes”) and Credit Facility contain certain covenants that, among other things, and subject to certain exceptions and other basket amounts, restrict the ability of the Company and its subsidiaries to:

•

incur additional indebtedness;

•

pay dividends or distributions on its capital stock, repurchase or retire its capital stock and redeem, repurchase or defease any subordinated indebtedness;

•

make certain investments;

•

create or incur certain liens;

•

create restrictions on the payment of dividends or other distributions to us from the Company’s subsidiaries;

•

transfer or sell assets;

•

engage in certain transactions with its affiliates; and

•

merge or consolidate with other companies or transfer all or substantially all of its assets.

Certain of these covenants, such as limitations on the Company’s ability to make certain payments such as dividends, or incur debt, will no longer apply if the Notes have investment grade ratings from both of the rating agencies of Moody’s Investor Services, Inc. (“Moody’s”) and Standard & Poor’s Ratings Group (“S&P”) and no event of default has occurred. Since the date of issuance of the Notes, the Notes have not received investment grade ratings from Moody’s or S&P. Accordingly, all of the covenants under the Notes currently apply to the Company. None of these covenants, however, require the Company to maintain any particular financial ratio or other measure of financial performance except as previously disclosed herein for the Credit Facility. As of February 2, 2013, the Company is in compliance with the covenants under its Notes.

Europe Credit Facilities

The Company’s non-U.S. subsidiaries have bank credit facilities totaling approximately $2.5 million. The facilities are used for working capital requirements, letters of credit and various guarantees. These credit facilities have been arranged in accordance with customary lending practices in the respective country of operation. As of February 2, 2013, the entire amount of $2.5 million was available for borrowing by the Company, subject to a reduction of $2.2 million for outstanding bank guarantees.

Note Repurchases and Gain (Loss) in Early Debt Extinguishment

During Fiscal 2012, the Company recognized a $9.7 million loss on early debt extinguishment attributed to the write-off of unamortized debt issuance costs associated with the early repayment of $1,154.3 million of indebtedness under the Former Term Loan and replacement of the Former Revolver with the Credit Facility.

The following is a summary of the Company’s note repurchase activity during Fiscal 2011 and Fiscal 2010 (in thousands): There was no debt repurchase activity during Fiscal 2012.


	Fiscal 2011
	Principal		Repurchase		Recognized
Notes Repurchased	Amount		Price		Gain (1)
Senior Fixed Rate Notes	$	15,730	$	15,213	$	260
Senior Toggle Notes		69,617		63,130		6,145

	$	85,347	$	78,343	$	6,405

(1)	Net of deferred issuance cost write-offs of $257 for the Senior Fixed Rate Notes and $796 for the Senior Toggle Notes, and accrued interest write-off of $455 for the Senior Toggle Notes.


	Fiscal 2010
	Principal		Repurchase		Recognized
Notes Repurchased	Amount		Price		Gain (1)
Senior Fixed Rate Notes	$	14,000	$	12,268	$	1,467
Senior Toggle Notes		57,173		49,798		7,612
Senior Subordinated Notes		22,625		17,799		4,309

	$	93,798	$	79,865	$	13,388

(1)	Net of deferred issuance cost write-offs of $265 for the Senior Fixed Rate Notes, $922 for the Senior Toggle Notes and $517 for the Senior Subordinated Notes, and accrued interest write-off of $1,159 for the Senior Toggle Notes.