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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-------------------------
Date of Report
November 7, 1996
NeoStar Retail Group, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 0-25272 75-2559376
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2250 William D. Tate Avenue, Grapevine, Texas 76051
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 424-2000
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Item 5. Other Events
Background
On September 16, 1996, NeoStar Retail Group, Inc., a Delaware corporation
(the "Company"), and its direct and indirect subsidiaries, Babbage's, Inc., a
Texas corporation ("Babbage's"), Software Etc. Stores, Inc., a Delaware
corporation ("Software"), Augusta Enterprises, Inc., a Delaware corporation,
and Chasada, a Pennsylvania business trust, filed voluntary petitions under
Chapter 11 of the United States Bankruptcy Code, Case No. 396-36648-SAF-11 in
the United States Bankruptcy Court, Northern District of Texas, Dallas Division
(the "Bankruptcy Court"), U.S. Bankruptcy Judge Steven A. Felsenthal presiding.
In connection with the Chapter 11 filings, the Company, Babbage's,
Software, as debtors-in-possession, entered into the Loan and Security
Agreement dated September 16, 1996 (the "Original Loan and Security
Agreement"), with Foothill Capital Corporation ("Foothill"), as agent ("Agent")
for itself and a group of bank lenders (the "DIP Lenders"), as amended by the
Interim Amendment to Loan and Security Agreement dated September 16, 1996 (the
"Interim Amendment"), as further amended by Amendment Number Two to Loan and
Security Agreement dated October 2, 1996 ("Amendment No. 2"), and as further
amended by Amendment Number Three to Loan and Security Agreement dated October
18, 1996 ("Amendment No. 3") (the Original Loan and Security Agreement, as
amended by the Interim Amendment, Amendment No. 2 and Amendment No. 3, is
hereinafter referred to as the "DIP Loan and Security Agreement").
On October 2, 1996, the Joint Stipulation and Agreed Order Authorizing
Final Financing, Granting Senior Liens and Superpriority Status, Providing for
Adequate Protection and Payment of Pre-Petition Secured Indebtedness, Modifying
the Automatic Stay, and Authorizing Debtors to Enter into Agreements with DIP
Lenders and Agent (the "Final Financing Order") was entered by the Bankruptcy
Court.
Copies of the Original Loan and Security Agreement, the Interim Amendment,
Amendment No. 2, Amendment No. 3 and the Final Financing Order, are filed as
Exhibit 99.2, Exhibit 99.3, Exhibit 99.4, Exhibit 99.5 and Exhibit 99.6,
respectively, to the Company's Form 8-K filed with the Securities and Exchange
Commission on November 5, 1996 and are incorporated herein by reference.
<PAGE> 3
Amendment Number Four to Loan and Security Agreement
The Company, Babbage's, Software and the DIP Lenders have entered into
Amendment Number Four to Loan and Security Agreement, dated as of November 4,
1996 ("Amendment No. 4"), amending the DIP Loan and Security Agreement.
Amendment No. 4 was entered into as a result of discussions with the DIP
Lenders regarding certain events of default under the DIP Loan and Security
Agreement which had occurred and remained uncured, as more specifically
described in Amendment No. 4 (the "Specific Events of Default"). As a result
of the Specific Events of Default, the DIP Lenders have terminated their
obligations under the DIP Loan and Security Agreement to make any further
advances. Any further advances that the DIP Lenders choose to make under the
Loan and Security Agreement will be strictly at the option of the DIP Lenders.
Under the terms of Amendment No. 4, the DIP Lenders agreed to forbear from
demanding payment of all amounts due under the DIP Loan and Security Agreement
as a result of the Specific Event of Default until the earliest to occur of (i)
5:00 p.m., November 8, 1996; (ii) the occurrence of any Material Adverse Change
(as defined in the DIP Loan and Security Agreement) to the lending proposal of
Leonard Riggio pertaining to an additional $10,000,000 junior subordinated
credit facility and a $10,000,000 junior subordinated letter of credit
facility; and (iii) any occurrence of an event of default other than the
Specific Events of Default. The Agent and the DIP Lenders also agreed, solely
as among themselves, that each DIP Lender will make the amount of such DIP
Lender's pro-rata share of advances under an Approved Budget (as defined in
Amendment No. 4)
The above description is qualified in its entirety by Amendment No. 4, a
copy of which is filed herewith as Exhibit 99.1, and is incorporated herein by
reference, and the Original Loan and Security Agreement, the Interim Amendment,
Amendment No. 2, Amendment No. 3 and the Final Financing Order.
Item 7. Financial Statements and Exhibits
(c) Exhibits
The following exhibits are filed as part of this report:
99.1 Amendment Number Four to Loan and Security Agreement, dated as of
November 4, 1996, among NeoStar Retail Group, Inc., Babbage's, Inc.
and Software Etc. Stores, Inc., as Borrowers, and certain financial
institutions named therein, as the Lenders, and Foothill Capital
Corporation, as Agent (without exhibits) (filed herewith).
<PAGE> 4
99.2 Loan and Security Agreement, dated September 16, 1996, among
NeoStar Retail Group, Inc., Babbage's, Inc. and Software Etc.
Stores, Inc., as Borrowers, and certain financial institutions
named therein, as the Lenders, and Foothill Capital Corporation, as
Agent including Schedules C-1, P-1, 5.10 and 6.11 attached thereto
and omitting other schedules and exhibits (filed as Exhibit 99.2 to
the Company's Form 8-K filed with the Securities and Exchange
Commission on November 5, 1996 and incorporated herein by
reference).
99.3 Interim Amendment to Loan and Security Agreement, dated September
16, 1996, among NeoStar Retail Group, Inc., Babbage's, Inc. and
Software Etc. Stores, Inc., as Borrowers, and certain financial
institutions named therein, as the Lenders, and Foothill Capital
Corporation, as Agent (filed as Exhibit 99.3 to the Company's Form
8-K filed with the Securities and Exchange Commission on November
5, 1996 and incorporated herein by reference).
99.4 Amendment Number Two to Loan and Security Agreement, dated October
2, 1996, among NeoStar Retail Group, Inc., Babbage's, Inc. and
Software Etc. Stores, Inc., as Borrowers, and certain financial
institutions named therein, as the Lenders, and Foothill Capital
Corporation, as Agent including Schedules P-1, 6.11 and 6.11(e)
attached thereto and omitting other schedules and exhibits (filed
as Exhibit 99.4 to the Company's Form 8-K filed with the Securities
and Exchange Commission on November 5, 1996 and incorporated herein
by reference).
99.5 Amendment Number Three to Loan and Security Agreement, dated
October 18, 1996, among NeoStar Retail Group, Inc., Babbage's, Inc.
and Software Etc. Stores, Inc., as Borrowers, and certain financial
institutions named therein, as the Lenders, and Foothill Capital
Corporation, as Agent (filed as Exhibit 99.5 to the Company's Form
8-K filed with the Securities and Exchange Commission on November
5, 1996 and incorporated herein by reference).
<PAGE> 5
99.6 Joint Stipulation and Agreed Order Authorizing Final Financing,
Granting Senior Liens and Superpriority Status, Providing for
Adequate Protection and Payment of Pre-Petition Secured
Indebtedness, Modifying the Automatic Stay, and Authorizing Debtors
to Enter into Agreements with DIP Lenders and Agent (filed as
Exhibit 99.2 to the Company's Form 8-K filed with the Securities
and Exchange Commission on November 5, 1996 and incorporated herein
by reference).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEOSTAR RETAIL GROUP, INC.
(Registrant)
By: /s/ OPAL P. FERRARO
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Opal P. Ferraro
Vice President and
Chief Financial Officer
Date: November 7, 1996
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
Exhibit Number Description Number
- -------------- -------------------------------------------------------- ------
<S> <C> <C>
99.1 Amendment Number Four to Loan and Security Agreement,
dated as of November 4, 1996, among NeoStar Retail
Group, Inc., Babbage's, Inc. and Software Etc. Stores,
Inc., as Borrowers, and certain financial institutions
named therein, as the Lenders, and Foothill Capital
Corporation, as Agent (without exhibits) (filed herewith).
99.2 Loan and Security Agreement, dated September 16, 1996,
among NeoStar Retail Group, Inc., Babbage's, Inc. and
Software Etc. Stores, Inc., as Borrowers, and certain
financial institutions named therein, as the Lenders,
and Foothill Capital Corporation, as Agent including
Schedules C-1, P-1, 5.10 and 6.11 attached thereto and
omitting other schedules and exhibits (filed as Exhibit
99.2 to the Company's Form 8-K filed with the
Securities and Exchange Commission on November 5, 1996
and incorporated herein by reference).
99.3 Interim Amendment to Loan and Security Agreement, dated
September 16, 1996, among NeoStar Retail Group, Inc.,
Babbage's, Inc. and Software Etc. Stores, Inc., as
Borrowers, and certain financial institutions named
therein, as the Lenders, and Foothill Capital
Corporation, as Agent (filed as Exhibit 99.3 to the
Company's Form 8-K filed with the Securities and
Exchange Commission on November 5, 1996 and
incorporated herein by reference).
99.4 Amendment Number Two to Loan and Security Agreement,
dated October 2, 1996, among NeoStar Retail Group,
Inc., Babbage's, Inc. and Software Etc. Stores, Inc.,
as Borrowers, and certain financial institutions named
therein,
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
as the Lenders, and Foothill Capital Corporation, as Agent
including Schedules P-1, 6.11 and 6.11(e) attached thereto and
omitting other schedules and exhibits (filed as Exhibit 99.4 to
the Company's Form 8-K filed with the Securities and Exchange
Commission on November 5, 1996 and incorporated herein by
reference).
99.5 Amendment Number Three to Loan and Security Agreement,
dated October 18, 1996, among NeoStar Retail Group,
Inc., Babbage's, Inc. and Software Etc. Stores, Inc.,
as Borrowers, and certain financial institutions named
therein, as the Lenders, and Foothill Capital
Corporation, as Agent (filed as Exhibit 99.5 to the
Company's Form 8-K filed with the Securities and
Exchange Commission on November 5, 1996 and
incorporated herein by reference).
99.6 Joint Stipulation and Agreed Order Authorizing Final
Financing, Granting Senior Liens and Superpriority
Status, Providing for Adequate Protection and Payment
of Pre-Petition Secured Indebtedness, Modifying the
Automatic Stay, and Authorizing Debtors to Enter into
Agreements with DIP Lenders and Agent (filed as Exhibit
99.6 to the Company's Form 8-K filed with the
Securities and Exchange Commission on November 5, 1996
and incorporated herein by reference).
</TABLE>
<PAGE> 1
EXHIBIT 99.1
AMENDMENT NUMBER FOUR TO LOAN AND SECURITY AGREEMENT
This Amendment Number Four to Loan and Security Agreement (this
"Amendment") is entered into as of November 4, 1996, by and among NEOSTAR
RETAIL GROUP, INC., operating as a debtor-in-possession, BABBAGE'S, INC.,
operating as a debtor-in-possession, and SOFTWARE ETC. STORES, INC., operating
as a debtor-in-possession (jointly, "Borrowers"), on the one hand, and the
financial institutions listed on the signature pages hereof (jointly,
"Lenders"), and FOOTHILL CAPITAL CORPORATION, as Agent for the Lenders
("Agent"), on the other hand.
RECITALS
A. Borrowers, Lenders and Agent have previously entered into that
certain Loan and Security Agreement, dated as of September 16, 1996 (as amended
by that certain Interim Amendment to Loan and Security Agreement, dated
September 16, 1996, as further amended by Amendment Number Two to Loan and
Security Agreement, dated October 2, 1996, and as further amended by Amendment
Number Three to Loan and Security Agreement, dated October 18, 1996 (as
amended, the "Agreement"). All initially capitalized terms used in this
Amendment shall have the meanings given to them in the Agreement unless
specifically defined herein.
B. Certain Events of Default have occurred under the Agreement by
reason of the following acts or omissions:
(1) Borrowers breached Section 6.11(d) of the Agreement in that
they failed to obtain the minimum amount of trade credit by
November 2, 1996; and
(2) a Material Adverse Change has occurred to the business,
prospects and operations of Borrowers in that the availability
of unsecured credit from Borrowers' suppliers and vendors is
materially less than that Borrowers are required to achieve
under the terms of the Agreement.
As of the date hereof, these Events of Default (the "Specific Events of
Default") remain uncured.
C. Borrowers acknowledge the existence of the Specific Events of
Default and further acknowledge that the Specific Events of Default remain
uncured.
D. Borrowers acknowledge that pursuant to Section 9.1 of the
Agreement, Agent and Lenders are authorized to exercise various rights and
remedies including, but not limited to, terminating the obligation to advance
any additional monies or create any letter of credit obligations to or for the
benefit of the Borrowers and/or declaring all Obligations due and payable.
AMENDMENT NUMBER FOUR
TO LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 2
E. As a result of the Specific Events of Default, Agent and
Lenders have terminated their obligations to advance any further monies as
provided in Section 9.1(b) of the Agreement.
F. Borrowers, Agent and Lenders desire to provide for terms and
conditions upon which Lenders, at their option, may choose to continue to
advance money and extend additional credit to Borrowers.
AGREEMENTS
NOW, THEREFORE, Borrowers, Lenders and Agent hereby amend the
Agreement as follows:
1. DEFINITIONS.
"Approved Budget" means an Operating Budget that has been
approved, in whole or in part, by the Required Lenders.
"Operating Budget" means a budget forecast of the necessary
and essential expenses and expected cash flows for the Borrowers' consolidated
operations for the two-week period beginning on Monday of each week through and
including Friday of the second following week (i.e., 12 days later). The
initial Operating Budget for the period from November 4, 1996 through November
15, 1996, is attached to the Fourth Amendment as Exhibit A.
2. AMENDMENTS.
(d) Section 6.18 is hereby added to the Agreement to
read in its entirety as follows:
6.18 WEEKLY REPORTING REQUIREMENTS. Deliver to
Agent: (i) every Friday of each week beginning November 5,
1996, an Operating Budget prepared by Debtor, assisted by
Debtors' financial advisors, Price Waterhouse LLP, and (ii)
the actual results for the period then ended covered by the
then most recently delivered Operating Budget.
3. ACKNOWLEDGMENTS OF BORROWERS.
(a) Borrowers hereby acknowledge the accuracy of all
Recitals included in this Amendment.
(b) Borrowers acknowledge that the Agent's and Lenders'
obligation to make Advances, issue L/C's, issue L/C Guaranties or extend further
credit to or for the benefit of the Borrower has been terminated and that any
Advances that the Lenders choose to make or L/C's or L/C Guaranties that the
Lenders choose to issue will be made strictly at the option of the Lenders.
AMENDMENT NUMBER FOUR
TO LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 3
(c) Borrowers acknowledge that any Advances that the
Lenders choose to make in the future, either as direct Advances or pursuant to
L/C's or L/C Guaranties, will be Obligations under the Agreement and subject to
all the terms and conditions in the Agreement.
(d) Borrowers acknowledge that no delay on the part of
Agent or Lenders in exercising any right, power or privilege hereunder, shall
operate as a waiver thereof, nor shall any waiver of any right, power or
privilege hereunder operate as a waiver of any other right, power or privilege
hereunder, nor shall any waiver of any right, power or privilege hereunder
operate as any indication that Agent or Lenders would waive any right, power or
privilege in the future, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof, or
the exercise of any other right, power or privilege hereunder.
4. AGREEMENTS OF AGENT AND LENDERS.
(a) Subject to the terms and conditions set forth in this
Amendment and Borrower's acknowledgments set forth in Section 3, above, and
expressly conditioned upon the absence of any additional Events of Default and
satisfaction and fulfillment of each of the condition precedent set forth in
Section 7, below, Agent and Lenders agree to forbear from demanding payment in
full of the Obligations and to forbear from exercising their rights and
remedies under Section 9.1 of the Agreement as a result of the Specific Events
of Default for a period beginning on the date of this Agreement and ending on
the earliest to occur of the following:
(1) at 5:00 p.m., November 8, 1996;
(2) the occurrence of any Material Adverse Change to the
lending proposal of Leonard Riggio pertaining to an additional
$10,000,000 junior subordinated credit facility and a $10,000,000
junior subordinated letter of credit facility; and
(3) any occurrence of an Event of Default other than the
Specific Events of Default;
provided, however, that Agent and Lenders do not forbear from exercising their
right under Section 9.1(b) to terminate their obligation to extend any further
credit from and after the occurrence of the Specific Events of Default.
Borrowers acknowledge that nothing in this Fourth Amendment shall be construed
as creating any obligation whatsoever on the part of Agent or Lenders to make
any further Advances; it being acknowledged that, as a result of the Specific
Events of Default, any further Advances are made solely at the option of Agent
and the Lenders.
(b) The Agent and Lenders agree, solely as among
themselves, that unless an objection is made to an Approved Budget and
communicated as such to Agent, then each Lender will make the amount of such
Lender's Pro Rata Share of advances under an Approved Budget, as indicated on
the line item styled "Foothill Advances."
AMENDMENT NUMBER FOUR
TO LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 4
(c) Agent and Lenders approve the initial Operating
Budget attached hereto as Exhibit A as an Approved Budget, but only for the
period from Monday, November 4, 1996 through Friday, November 8, 1996,
excluding the period from Monday, November 11, 1996 and thereafter.
5. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby affirms
to the Agent and Lenders that, except for Specific Events of Default, all of
such Borrower's representations and warranties set forth in the Agreement are
true, complete and accurate in all respects as of the date hereof.
6. NO FURTHER DEFAULTS. Borrowers hereby affirm to the Agent and
Lenders that no Event of Default, other than the Specific Events of Default,
has occurred and is continuing as of the date hereof.
7. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the receipt by Agent and Lenders of a copy of this
Amendment executed by Borrowers, Agent and Lenders.
8. COSTS AND EXPENSES. Borrowers shall pay to Agent all of
Agent's out-of-pocket costs and expenses (including, without limitation, the
fees and expenses of its counsel, which counsel may include any local counsel
deemed necessary) arising in connection with the preparation, execution, and
delivery of this Amendment and all related documents.
9. LIMITED EFFECT. In the event of a conflict between the terms
and provisions of this Amendment and the terms and provisions of the Agreement,
the terms and provisions of this Amendment shall govern. In all other respects,
the Agreement, as amended and supplemented hereby, shall remain in full force
and effect.
10. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original. All such counterparts, taken together, shall constitute but
one and the same Amendment. This Amendment shall become effective upon the
execution of a counterpart of this Amendment by each of the parties hereto.
11. SUCCESSORS AND ASSIGNS. This Amendment will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
12. SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of this Amendment, and the effect
thereof shall be confined to the provision so held to be invalid or
unenforceable.
13. WAIVER; MODIFICATION. NO PROVISION OF THIS AMENDMENT MAY BE
WAIVED, CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF
AMENDMENT NUMBER FOUR
TO LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 5
ACKNOWLEDGED, ORALLY, BUT ONLY BY AN AGREEMENT IN WRITING SIGNED BY THE PARTY
AGAINST WHOM THE ENFORCEMENT OF ANY WAIVER, CHANGE, MODIFICATION OR DISCHARGE
IS SOUGHT.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except for the
Specific Events of Default, all representations and warranties made in the
Agreement or any other Loan Document including, without limitation, any
document furnished in connection with this Amendment, shall survive the
execution and delivery of this Amendment, and no investigation by Lenders or
the Agent or any closing shall affect the representations and warranties or the
right of Lenders and the Agent to rely upon them.
15. FINAL AGREEMENT. THIS AMENDMENT REPRESENTS THE ENTIRE
EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE
THIS AMENDMENT IS EXECUTED. THIS AMENDMENT MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
NEOSTAR RETAIL GROUP, INC.,
a Delaware corporation
By: /s/ OPAL FERRARO
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Title: Vice President
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BABBAGE'S, INC.,
a Texas corporation
By: /s/ OPAL FERRARO
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Title: Vice President
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SOFTWARE ETC. STORES, INC.
a Delaware corporation
By: /s/ OPAL FERRARO
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Title: Vice President
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AMENDMENT NUMBER FOUR
TO LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 6
FOOTHILL CAPITAL CORPORATION,
a California corporation,
as Agent and a Lender
By: /s/ KURT MARSDEN
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Title: Assistant Vice President
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NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION,
a national banking association
By: /s/ WILLIAM E. LIVINGSTONE IV
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Title: Senior Vice President
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BANKERS TRUST COMPANY,
a New York banking corporation
By: /s/ MATTHEW SAVITZ
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Title: Vice President
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GUARANTY FEDERAL BANK F.S.B.,
a federal savings bank
By: /s/ CHARLES SEBESTA
-------------------------------------------------
Title: Vice President
---------------------------------------------
BANQUE FRANCAISE DU COMMERCE EXTERIEUR,
A French banking corporation
By: /s/ MARK A. HARRINGTON
------------------------------------------------
Title: Vice President and Regional Manager
---------------------------------------------
By: /s/ PAUL H. DIOURI
-----------------------------------------------
Title: Assistant Treasurer
--------------------------------------------
Exhibit
A - Initial Operating Budget
AMENDMENT NUMBER FOUR
TO LOAN AND SECURITY AGREEMENT - Page 6
<PAGE> 7
Each of the undersigned has executed a Continuing Guaranty in favor of
the Lender Group respecting the obligations of the Borrowers owing to the
Lender Group. Each of the undersigned acknowledges the terms of the above
Amendment and reaffirms and agrees that: (a) its Continuing Guaranty remains in
full force and effect; (b) nothing in such Continuing Guaranty obligates the
Lender Group to notify the undersigned of any changes in the financial
accommodations made available to the Borrowers or to seek reaffirmations of the
Continuing Guaranty; and (c) no requirement to so notify the undersigned or to
seek reaffirmations in the future shall be implied by the execution of this
reaffirmation.
CHASADA
By: /s/ OPAL FERRARO
------------------------------------------------
Title: Chairman
---------------------------------------------
AUGUSTA ENTERPRISES, INC.
By: /s/ OPAL FERRARO
------------------------------------------------
Title: Chairman
---------------------------------------------
AMENDMENT NUMBER FOUR
TO LOAN AND SECURITY AGREEMENT - Page 7
