<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 4, 1996,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.
COMMISSION FILE NUMBER 0-25272
NEOSTAR RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2559376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2250 WILLIAM D. TATE AVENUE, GRAPEVINE, TEXAS 76051
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 424-2000
Former address: 10741 KING WILLIAM DRIVE, DALLAS, TEXAS 75220
Former name and former fiscal year,
if changed since last report: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--- ---
Title of each class of common stock:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Number of shares of Common Stock outstanding as of the close of business on
June 17, 1996:
14,988,397
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets at May 4, 1996
and February 3, 1996 (unaudited)..................................... 3
Consolidated Statements of Operations for the three months
ended May 4, 1996 and April 29, 1995 (unaudited)..................... 4
Consolidated Statements of Cash Flows for the three months
ended May 4, 1996 and April 29, 1995 (unaudited)..................... 5
Notes to Consolidated Financial Statements............................... 6
</TABLE>
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<PAGE> 3
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
May 4, February 3,
1996 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,383 $ 5,186
Accounts receivable 1,484 1,650
Merchandise inventory 123,512 142,142
Income taxes receivable 1,654 1,654
Deferred tax assets 10,515 4,998
Prepaids and other 7,393 2,540
----------- ------------
Total current assets 145,941 158,170
Property and equipment, at cost, net of
accumulated depreciation and amortization 63,178 64,149
Other assets 4,185 4,187
----------- ------------
$ 213,304 $ 226,506
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 36,500 $ -
Accounts payable 67,035 106,045
Current maturities of long-term debt 4,000 4,000
Accrued liabilities 14,983 16,419
----------- ------------
Total current liabilities 122,518 126,464
Long-term debt 11,000 12,000
Deferred credits 4,192 4,128
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized; none issued - -
Common stock, $.01 par value;
50,000,000 shares authorized;
shares issued and outstanding:
May 4, 1996 - 14,938,397
February 3, 1996 - 14,938,397 149 149
Additional paid-in capital 70,492 70,492
Retained earnings 4,953 13,273
----------- ------------
Total stockholders' equity 75,594 83,914
----------- ------------
$ 213,304 $ 226,506
=========== ============
</TABLE>
See accompanying notes.
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<PAGE> 4
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
----------------------------
May 4, April 29,
1996 1995
----------- ------------
<S> <C> <C>
Net sales $ 97,847 $ 98,117
Cost of sales 75,476 70,050
----------- ------------
Gross profit 22,371 28,067
Store operating expenses 30,385 28,875
General and administrative expenses 4,515 4,404
Store closing expense 200 301
----------- ------------
Operating loss (12,729) (5,513)
Net interest expense (1,021) (335)
----------- ------------
Loss before income taxes (13,750) (5,848)
Income tax benefit (5,430) (2,254)
----------- ------------
Net loss $ (8,320) $ (3,594)
=========== ============
Net loss per share $ (.56) $ (.24)
=========== ============
Weighted average shares outstanding 14,938 14,736
=========== ============
</TABLE>
See accompanying notes.
- 4 -
<PAGE> 5
NEOSTAR RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
----------------------------
May 4, April 29,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,320) $ (3,594)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,325 3,057
Loss on disposition of property and equipment 30 27
Changes in operating assets and liabilities:
Accounts receivable 166 729
Merchandise inventory 18,630 (7,882)
Income taxes receivable or payable - (3,093)
Deferred tax assets (5,517) (2,254)
Prepaids and other (4,734) (229)
Other assets - 4
Accounts payable (39,010) (4,423)
Accrued liabilities (1,436) (3,269)
Deferred credits 64 148
------------ ------------
Total adjustments (28,482) (17,185)
------------ ------------
Net cash used in operating activities (36,802) (20,779)
Cash flows from investing activities:
Acquisitions of property and equipment (2,527) (2,061)
Proceeds from sales of property and equipment 26 5
------------ ------------
Net cash used in investing activities (2,501) (2,056)
Cash flows from financing activities:
Borrowings under credit facility with banks 53,500 16,050
Repayments of borrowings
under credit facility with banks (17,000) (4,850)
Repayment of principal of long-term debt (1,000) (1,000)
Proceeds from issuance of common stock
upon exercise of stock options - 195
------------ ------------
Net cash provided by financing activities 35,500 10,395
------------ ------------
Net decrease in cash and cash equivalents (3,803) (12,440)
Cash and cash equivalents at beginning of period 5,186 19,580
------------ ------------
Cash and cash equivalents at end of period $ 1,383 $ 7,140
============ ============
Supplemental cash flow information:
Income taxes paid $ 38 $ 3,115
============ ============
Interest paid $ 681 $ 434
============ ============
</TABLE>
See accompanying notes.
- 5 -
<PAGE> 6
NEOSTAR RETAIL GROUP, INC.
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation, Organization and Business
NeoStar Retail Group, Inc. (the "Company") was incorporated to serve as the
holding company for the business combination of Babbage's, Inc. ("Babbage's")
and Software Etc. Stores, Inc. ("Software"). The business combination was
completed on December 16, 1994, and was accounted for as a pooling of
interests. Babbage's and Software became wholly-owned subsidiaries of the
Company. The consolidated financial statements include the accounts of the
Company and all wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. All references herein to
fiscal 1997 and 1996 relate to the fiscal years ending February 1, 1997 and
February 3, 1996, respectively.
Babbage's and Software operate consumer software specialty retail stores.
The Company operated 836 and 722 retail locations at May 4, 1996 and April 29,
1995, respectively.
Certain fiscal 1996 amounts have been reclassified to conform to fiscal
1997 presentation.
2. Unaudited Interim Consolidated Financial Statements
The accompanying consolidated financial statements are unaudited and
reflect all adjustments (which include only normal, recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the Company's financial position as of May 4, 1996 and the results of its
operations and cash flows for the periods presented. These statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended February 3, 1996.
The results of operations for the three months ended May 4, 1996 are not
necessarily indicative of results to be expected for the full year due to the
seasonality of the Company's business.
3. Financing Arrangements
The Company has a credit agreement with a bank which provides for a
$20,000,000 term commitment (the "Commitment"). The Commitment has a maturity
date of December 14, 1997, and as amended, requires that the borrowings
thereunder be secured by all of the Company's merchandise inventory and
receivables from the sale of inventory. The terms of the Commitment require
quarterly payments which commenced March 31, 1995, consisting of $1,000,000 in
principal plus accrued and unpaid interest. The remaining principal balance and
all accrued and unpaid interest will be due upon maturity. Amounts borrowed
pursuant to the Commitment bear interest at the bank's prime interest rate
plus .25 percent or at the appropriate LIBOR interest rate plus two percent, at
the Company's option.
- 6 -
<PAGE> 7
NEOSTAR RETAIL GROUP, INC.
Notes to Consolidated Financial Statements
(unaudited)
(continued)
3. Financing Arrangements (continued)
On August 28, 1995 the Company entered into a new credit agreement with a
group of banks (the "New Credit Agreement") which provides for a $70,000,000
revolving line of credit secured by all of the Company's merchandise inventory
and receivables from the sale of inventory. Amounts borrowed bear interest at
the lead bank's prime interest rate plus .5 percent or at the appropriate LIBOR
interest rate plus two percent, at the Company's option. The maturity date of
any advances is August 25, 1996. Advances under the New Credit Agreement have
been generally limited to 45 percent of eligible inventory, less amounts
outstanding under the Commitment and outstanding obligations under issued
letters of credit. Pursuant to a recent amendment, the New Credit Agreement
increased the 45 percent advance rate to 50 percent at times when the Company's
inventory is less than $120,000,000.
The Company is currently engaged in discussions with its banks concerning
an extension of the term of the New Credit Agreement and certain modifications
of the terms thereof in order to increase the availability of amounts which may
be borrowed thereunder. The Company is also considering the proposal of another
lender to provide a credit facility which, if agreed upon, would replace the
credit facilities provided under the Commitment and the New Credit Agreement
and would provide greater availability of borrowings than currently provided
under the New Credit Agreement. Although no assurance to such effect can be
made, management believes that an agreement with the banks will be reached or
that a replacement credit facility will be obtained. If the Company is unable
to reach such an agreement with the banks or obtain a replacement credit
facility, a material adverse effect on the Company's liquidity and financial
position would likely result. Management will also pursue and consider other
forms of financing for the Company.
4. Income Taxes
The Company uses the liability method of accounting for income taxes.
Under the liability method, a deferred tax asset or liability is recognized for
estimated future tax effects attributable to temporary differences and
carryforwards. The measurement of deferred income tax assets is adjusted by a
valuation allowance, if necessary, to recognize future tax benefit only to the
extent, based on available evidence, it is more likely than not it will be
realized. Currently the Company's deferred tax assets are not adjusted by a
valuation allowance. However, if the Company continues to incur significant
losses before income taxes, the likelihood of realization of the net deferred
tax assets may decrease, and their carrying amounts may be adjusted by a
valuation allowance.
5. Subsequent Event
On May 23, 1996 the Company announced a realignment of its store management
organization whereby it combined its three retail concepts, each of which had
been operating with a separate field management structure, into one unified
organization headed by the new position of Executive Vice President-Store
Operations. As a result, the Company expects to incur approximately $2,600,000
in severance and related expenses which will be charged to operations in the
second quarter of fiscal 1997.
- 7 -
<PAGE> 8
PART I - FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
NeoStar Retail Group, Inc. (the "Company") was incorporated to serve
as the holding company for the business combination of Babbage's, Inc.
("Babbage's") and Software Etc. Stores, Inc. ("Software"). The business
combination was completed on December 16, 1994 and was accounted for as a
pooling of interests. All references herein to fiscal 1997, 1996 and 1995
relate to the fiscal years ending February 1, 1997, February 3, 1996 and
January 28, 1995, respectively. The following table sets forth, for the
periods indicated, certain items from the Company's statements of operations as
a percentage of net sales:
<TABLE>
<CAPTION>
Three months ended
-----------------------------
May 4, April 29,
1996 1995
----------- -----------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Cost of sales 77.1 71.4
----------- -----------
Gross profit 22.9 28.6
Store operating expenses 31.1 29.4
General and administrative expenses 4.6 4.5
Store closing expense 0.2 0.3
----------- -----------
Operating loss (13.0) % (5.6) %
=========== ===========
</TABLE>
Three Months Ended May 4, 1996 Compared to Three Months Ended April 29, 1995
Net sales decreased by $270,000, or .3 percent, in the first quarter
of fiscal 1997 as compared to the first quarter of fiscal 1996. This decrease
resulted from a decrease in comparable store sales of nine percent, partially
offset by the net addition of 114 new stores. The decrease in comparable store
sales was due to a substantial decline in comparable store sales of personal
computer software and related accessories. The Company believes that this
decline resulted primarily from growth in retail capacity that was
substantially in excess of growth in the market. The decrease in comparable
store sales of personal computer software and related accessories was partially
offset by a significant increase in comparable store sales of video game
systems, software for these systems and related accessories. Sales of the
32-bit Sony PlayStation and Sega Saturn systems and related software and
accessories more than offset the continuing decline in comparable store sales
of 16-bit video game systems and software.
- 8 -
<PAGE> 9
Cost of sales as a percentage of sales increased to 77.1 percent in
the first quarter of fiscal 1997 from 71.4 percent in the first quarter of
fiscal 1996. This increase was primarily due to an inventory clearance sale
beginning in late March, a change in the Company's policy for pricing newly
released personal computer software titles and a higher percentage of sales
from video game systems, which have lower gross margins than other components
of the Company's sales mix. In addition, video game systems had lower gross
margins in the first quarter of fiscal 1997 than in the same period last year.
Store operating expenses are generally fixed, and only a small portion vary
with sales. When average sales per store increase, store operating expenses do
not increase significantly, and as a result, store operating expenses decrease
as a percentage of sales. Conversely, a decrease in average sales per store
results in an increase in store operating expenses as a percentage of sales.
Average quarterly sales per store decreased 13 percent compared to the first
quarter of fiscal 1996, resulting in an increase in store operating expenses as
a percentage of sales.
General and administrative expenses, many of which are fixed on a per
store basis, increased as a percentage of sales due to the decline in average
quarterly sales per store, partially offset by certain economies of scale
resulting from the addition of new stores and productivity gains in the
Company's management and administration.
Operating loss for the first quarter of fiscal 1997 was $12,729,000
compared to $5,513,000 for the first quarter of fiscal 1996. The increase of
$7,216,000 was primarily due to the increases in cost of sales and store
operating expenses as a percentage of sales.
The Company uses the liability method of accounting for income taxes.
Under the liability method, a deferred tax asset or liability is recognized for
estimated future tax effects attributable to temporary differences and
carryforwards. The measurement of deferred income tax assets is adjusted by a
valuation allowance, if necessary, to recognize future tax benefit only to the
extent, based on available evidence, it is more likely than not it will be
realized. Currently the Company's deferred tax assets are not adjusted by a
valuation allowance. However, if the Company continues to incur significant
losses before income taxes, the likelihood of realization of the net deferred
tax assets may decrease, and their carrying amounts may be adjusted by a
valuation allowance.
- 9 -
<PAGE> 10
Seasonality and Quarterly Fluctuations
The Company's business, like that of many retailers, is highly
seasonal, with its stores generating a significant portion of their annual
sales during the fourth quarter due to the importance of the Christmas selling
season. In addition, sales in any fiscal quarter may fluctuate due to periods
of high demand following the release of popular software or video game
products. Average sales per store from period to period are also affected by
the number of stores opened during each period, since sales at newly opened
stores, which are still in the early stages of building customer awareness, are
typically lower than sales of more mature stores. The following table sets
forth, for the last nine fiscal quarters, the number of stores open the entire
quarter and the average net sales in each quarter for those stores:
<TABLE>
<CAPTION>
Number of Stores
Open Entire Quarter Average Quarterly Sales per Store
---------------------------- ----------------------------------
Fiscal Quarter 1997 1996 1995 1997 1996 1995
- ------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First 812 708 626 $119,371 $137,731 $176,826
Second 713 644 127,482 136,241
Third 735 669 155,266 149,397
Fourth 769 690 262,183 283,715
</TABLE>
The Company closed five stores in the first quarter of fiscal 1997 and
three stores in the first quarter of fiscal 1996.
Largely due to the seasonal concentration of sales in the fourth
quarter, the Company believes annual profitability will be heavily dependent on
fourth quarter results. The following table sets forth certain information
with respect to the Company's net sales and operating income (loss) for the
last nine fiscal quarters (in thousands):
<TABLE>
<CAPTION>
Fiscal Quarter
-------------------------------------------------
Fiscal Year First Second Third Fourth
- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
1997 Net sales $ 97,847 $ - $ - $ -
Operating income (loss) (12,729) - - -
1996 Net sales 98,117 91,957 115,298 208,176
Operating income (loss) (5,513) (8,853) (4,902) 22,561
1995 Net sales 111,635 89,472 102,019 200,530
Operating income (loss) (187) (6,814) (2,323) 3,058
</TABLE>
Operating income for the fourth quarter of fiscal 1995 was reduced by
$14,961,000 due to costs incurred in connection with the business combination
of Babbage's and Software.
Liquidity and Capital Resources
Net cash used in operating activities was $36,802,000 and $20,779,000
for the first quarter of fiscal 1997 and fiscal 1996, respectively. The
increase was primarily due to a larger decrease in accounts payable and an
increase in the net loss in fiscal 1997 compared to fiscal 1996, offset by a
decrease in merchandise inventory in fiscal 1997 compared to an increase in
merchandise inventory in fiscal 1996.
Capital expenditures in the first quarter of fiscal 1997, which
totaled $2,527,000, related primarily to leasehold improvements and fixtures
for 24 new stores opened during the period and stores under construction at May
4, 1996, and to equipment for the Company's new distribution center. The
Company plans to spend approximately $3,000,000 on capital expenditures during
the remainder of the fiscal year, primarily for leasehold improvements and
fixtures for new stores, and for leasehold improvements for its new corporate
headquarters and distribution center. In addition, the Company plans to lease
approximately $6,000,000 of equipment for
- 10 -
<PAGE> 11
its new distribution center, although other forms of financing for the equipment
may also be considered. As of June 17, 1996, the Company had 843 stores open
and six under construction.
The Company has a credit agreement with a bank which provides for a
$20,000,000 term commitment (the "Commitment"). The Commitment has a maturity
date of December 14, 1997, and as amended, requires that the borrowings
thereunder be secured by all of the Company's merchandise inventory and
receivables from the sale of inventory. The terms of the Commitment require
quarterly payments which commenced March 31, 1995, consisting of $1,000,000 in
principal plus accrued and unpaid interest. The remaining principal balance and
all accrued and unpaid interest will be due upon maturity. Amounts borrowed
pursuant to the Commitment bear interest at the bank's prime interest rate plus
.25 percent or at the appropriate LIBOR interest rate plus two percent, at the
Company's option.
On August 28, 1995 the Company entered into a new credit agreement
with a group of banks (the "New Credit Agreement") which provides for a
$70,000,000 revolving line of credit secured by all of the Company's
merchandise inventory and receivables from the sale of inventory. Amounts
borrowed bear interest at the lead bank's prime interest rate plus .5 percent
or at the appropriate LIBOR interest rate plus two percent, at the Company's
option. The maturity date of any advances is August 25, 1996. Advances under
the New Credit Agreement have been generally limited to 45 percent of eligible
inventory, less amounts outstanding under the Commitment and outstanding
obligations under issued letters of credit. Pursuant to a recent amendment,
the New Credit Agreement increased the 45 percent advance rate to 50 percent
at times when the Company's inventory is less than $120,000,000.
The Company is currently engaged in discussions with its banks
concerning an extension of the term of the New Credit Agreement and certain
modifications of the terms thereof in order to increase the availability of
amounts which may be borrowed thereunder. The Company is also considering the
proposal of another lender to provide a credit facility which, if agreed upon,
would replace the credit facilities provided under the Commitment and the New
Credit Agreement and would provide greater availability of borrowings than
currently provided under the New Credit Agreement. Although no assurance to
such effect can be made, management believes that an agreement with the banks
will be reached or that a replacement credit facility will be obtained. If the
Company is unable to reach such an agreement with the banks or obtain a
replacement credit facility, a material adverse effect on the Company's
liquidity and financial position would likely result. Management will also
pursue and consider other forms of financing for the Company.
On May 23, 1996 the Company announced a realignment of its store
management organization whereby it combined its three retail concepts, each
of which had been operating with a separate field management structure, into
one unified organization headed by the new position of Executive Vice
President-Store Operations. As a result, the Company expects to incur
approximately $2,600,000 in severance and related expenses which will be
charged to operations in the second quarter of fiscal 1997. The Company
anticipates that the majority of these expenses will also be expended in the
second quarter of fiscal 1997.
The Company believes that internally generated funds, trade credit,
funds currently available under the New Credit Agreement, funds expected to
be available under the planned extension and modification of the New Credit
Agreement or under a replacement credit facility, and the financing of the
equipment for its new distribution center will permit it to finance its planned
store openings, other capital expenditures and working capital requirements,
and to make scheduled principal and interest payments on outstanding debt,
through at least the end of fiscal 1997.
- 11 -
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Number Document
- ------ --------
<S> <C>
10.1 NeoStar Retail Group, Inc. 1996 Senior Executive Stock Option Plan
10.2 Fifth Amendment to Amended and Restated Credit Agreement dated as
of April 30, 1996 by and among the Registrant, the lenders from
time to time thereto and NationsBank of Texas, N.A. as
Administrative Lender
10.3 Second Amendment to $70,000,000 Credit Agreement dated as of April
30, 1996 by and among Babbage's, Inc., Software Etc. Stores, Inc.,
Certain Lenders, and NationsBank of Texas, N.A., as
Administrative Lender
10.4 Third Amendment to $70,000,000 Credit Agreement dated as of June
14, 1996 by and among Babbage's, Inc., Software Etc. Stores, Inc.,
Certain Lenders, and NationsBank of Texas, N.A., as
Administrative Lender
10.5 Employment Agreement dated as of May 23, 1996 between NeoStar
Retail Group, Inc. and Alan C. Bush
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this Report is filed.
- 12 -
<PAGE> 13
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 thereunto duly authorized.
Date: June 17, 1996 NEOSTAR RETAIL GROUP, INC.
By: /s/ OPAL P. FERRARO
-------------------------------------
Opal P. Ferraro,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
- 13 -
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Document
- ------ --------
<S> <C>
10.1 NeoStar Retail Group, Inc. 1996 Senior Executive Stock Option Plan
10.2 Fifth Amendment to Amended and Restated Credit Agreement dated as of
April 30, 1996 by and among the Registrant, the lenders from time to
time thereto and NationsBank of Texas, N.A. as Administrative Lender
10.3 Second Amendment to $70,000,000 Credit Agreement dated as of April
30, 1996 by and among Babbage's, Inc., Software Etc. Stores, Inc.,
Certain Lenders, and NationsBank of Texas, N.A., as Administrative
Lender
10.4 Third Amendment to $70,000,000 Credit Agreement dated as of June 14,
1996 by and among Babbage's, Inc., Software Etc. Stores, Inc.,
Certain Lenders, and NationsBank of Texas, N.A., as Administrative
Lender
10.5 Employment Agreement dated as of May 23, 1996 between NeoStar Retail
Group, Inc. and Alan C. Bush
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
NEOSTAR RETAIL GROUP, INC.
1996 SENIOR EXECUTIVE STOCK OPTION PLAN
NEOSTAR RETAIL GROUP, INC.
DALLAS, TEXAS
EFFECTIVE FEBRUARY 14, 1996
<PAGE> 2
NEOSTAR RETAIL GROUP, INC.
1996 SENIOR EXECUTIVE STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE SECTION PAGE
- -------- ------- ----
<C> <C> <S> <C>
I DEFINITIONS............................................................. A-1
1.01 Board or Board of Directors............................................. A-1
1.02 Change of Control....................................................... A-1
1.03 Change of Control Exercise Period....................................... A-1
1.04 Code.................................................................... A-1
1.05 Committee............................................................... A-1
1.06 Company................................................................. A-1
1.07 Disinterested Person.................................................... A-1
1.08 Effective Date.......................................................... A-1
1.09 Event Price............................................................. A-1
1.10 Exchange Act............................................................ A-1
1.11 Fair Market Value....................................................... A-1
1.12 Incentive Stock Option.................................................. A-1
1.13 Nonstatutory Stock Option............................................... A-1
1.14 Option.................................................................. A-1
1.15 Option Price............................................................ A-1
1.16 Outside Director........................................................ A-2
1.17 Participant............................................................. A-2
1.18 Plan.................................................................... A-2
1.19 Securities Act.......................................................... A-2
1.20 Senior Executive Officer................................................ A-2
1.21 Stock................................................................... A-2
1.22 Stock Option Agreement.................................................. A-2
1.23 Subsidiary.............................................................. A-2
1.24 Trigger Date............................................................ A-2
II PARTICIPATION........................................................... A-2
2.01 Participation........................................................... A-2
2.02 Limitation on Grants to Individual Participant.......................... A-2
III SHARES OF STOCK SUBJECT TO PLAN......................................... A-2
3.01 Limitations............................................................. A-2
3.02 Availability of Shares Once Issued Under Plan........................... A-2
3.03 Adjustments to Options Once Issued...................................... A-3
3.04 Grants and Agreement.................................................... A-3
IV OPTIONS................................................................. A-3
4.01 Options; Grant and Exercise............................................. A-3
4.02 Nonstatutory Stock Options.............................................. A-3
4.03 Vesting of Options...................................................... A-3
V INCENTIVE STOCK OPTIONS................................................. A-3
5.01 General................................................................. A-3
5.02 Terms and Conditions of Incentive Stock Options......................... A-3
VI STOCK CERTIFICATES...................................................... A-4
6.01 Stock Certificates...................................................... A-4
VII PLAN ADMINISTRATION..................................................... A-5
7.01 Plan Administration..................................................... A-5
</TABLE>
A-ii
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE SECTION PAGE
- -------- ------- ----
<C> <C> <S> <C>
VIII MISCELLANEOUS PROVISIONS................................................ A-5
8.01 Applicable Law.......................................................... A-5
8.02 Expenses................................................................ A-5
8.03 Gender and Number....................................................... A-5
8.04 Headings Not Part of Plan............................................... A-5
8.05 Indemnification......................................................... A-5
8.06 Limitation of Rights.................................................... A-5
8.07 No Distribution, Compliance with Legal Requirements..................... A-6
8.08 Timing of Grants........................................................ A-6
8.09 Non-Assignability....................................................... A-6
8.10 Nontransferability...................................................... A-6
8.11 Other Compensation Plans................................................ A-6
8.12 Plan Binding on Successors.............................................. A-6
8.13 Tax Withholding......................................................... A-6
8.14 Non-Contravention of Securities Laws.................................... A-6
8.15 Unenforceability of a Particular Provision.............................. A-6
IX CHANGE OF CONTROL....................................................... A-7
9.01 Acceleration............................................................ A-7
9.02 Special Rights.......................................................... A-7
9.03 Limitation on Special Rights............................................ A-7
9.04 Termination of Participant; Modification of Plan........................ A-7
9.05 Event Price............................................................. A-7
9.06 Change of Control....................................................... A-8
X PERMANENCY OF THIS PLAN AND PLAN TERMINATION............................ A-9
10.01 Effective Date.......................................................... A-9
10.02 Termination, Amendment, and Modification of Plan........................ A-9
</TABLE>
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<PAGE> 4
NEOSTAR RETAIL GROUP, INC.
1996 SENIOR EXECUTIVE STOCK OPTION PLAN
The purpose of this Plan is to advance the interests of the Company and its
stockholders by assuring that certain senior executive officers of the Company
and its Subsidiaries have a significant equity interest in the Company by the
grant of Options to them under the terms set forth herein. The Company seeks to
motivate and retain present senior executive officers as well as attract highly
competent individuals whose judgment, initiative, leadership, and continued
effort will contribute to the success of the Company and its Subsidiaries. The
Company believes that this Plan will contribute to that end.
ARTICLE I
DEFINITIONS
For purposes of the Plan:
1.01 Board or Board of Directors. The term "Board" or "Board of Directors"
shall mean the Board of Directors of the Company.
1.02 Change of Control. The term "Change of Control" shall mean that term
as defined in Section 9.06 hereof.
1.03 Change of Control Exercise Period. The term "Change of Control
Exercise Period" shall mean that term as defined in Section 9.02 hereof.
1.04 Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute, provided any specific reference herein to a
section of the Code will, to the extent applicable, refer to the corresponding
section or provision of any such successor statute.
1.05 Committee. The term "Committee" shall mean a Committee of the Board
appointed by the Board consisting of at least two (2) members of the Board of
Directors, each of whom is both a Disinterested Person and an Outside Director.
1.06 Company. The term "Company" shall mean NeoStar Retail Group, Inc., a
Delaware corporation, and any successor thereof.
1.07 Disinterested Person. The term "Disinterested Person" shall have the
meaning set forth in Rule 16b-3 promulgated under the Exchange Act.
1.08 Effective Date. The term "Effective Date" shall mean February 14,
1996.
1.09 Event Price. The term "Event Price" shall mean that term as defined in
Section 9.05 hereof.
1.10 Exchange Act. The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
1.11 Fair Market Value. The term "Fair Market Value" shall mean the closing
bid price on any given date or, if no Stock is traded on such date, the most
recent prior date on which Stock was traded, as quoted on the Nasdaq National
Market.
1.12 Incentive Stock Option. The term "Incentive Stock Option" shall have
the meaning given to it by Section 422 of the Code and as further defined in
Article V hereof.
1.13 Nonstatutory Stock Option. The term "Nonstatutory Stock Option" shall
mean any Option granted by the Company pursuant to this Plan which is not an
Incentive Stock Option.
1.14 Option. The term "Option" shall mean an option granted by the Company
to purchase Stock pursuant to the provisions of this Plan and the related Stock
Option Agreement executed pursuant hereto.
1.15 Option Price. The term "Option Price" shall mean the price per share
of Stock purchasable under an Option. The Option Price of an Option shall be
determined by the Committee at the time of grant but, in
<PAGE> 5
the case of an Incentive Stock Option, shall not be less than the Fair Market
Value on the date of grant, unless the Participant who is granted an Incentive
Stock Option owns more than ten percent (10%) of the Stock or more than ten
percent (10%) of the voting stock of any Subsidiary, in which case the Option
Price shall not be less than one hundred and ten percent (110%) of the Stock's
Fair Market Value on the date of grant.
1.16 Outside Director. The term "Outside Director" shall have the meaning
given to it in the regulations promulgated under Section 162(m) of the Code, as
may be modified or amended from time to time.
1.17 Participant. The term "Participant" shall mean a Senior Executive
Officer who has received an Option hereunder.
1.18 Plan. The term "Plan" shall mean the NeoStar Retail Group, Inc. 1996
Senior Executive Stock Option Plan.
1.19 Securities Act. The term "Securities Act" shall mean the Securities
Act of 1933, as amended from time to time.
1.20 Senior Executive Officer. The term "Senior Executive Officer" shall
mean a senior executive officer of the Company or any Subsidiary, including,
without limitation, the Chairman of the Board, President, any Vice President,
the Secretary and the Treasurer of the Company.
1.21 Stock. The term "Stock" shall mean common stock, par value $.01 per
share, issued by the Company.
1.22 Stock Option Agreement. The term "Stock Option Agreement" shall mean
the agreement as described in Section 3.04 of this Plan between the Company and
the Participant under which such Participant receives an Option pursuant to this
Plan.
1.23 Subsidiary. The term "Subsidiary" shall mean any corporation of which
more than fifty percent of the outstanding shares of voting stock are
beneficially owned directly or indirectly by the Company.
1.24 Trigger Date. The term "Trigger Date" shall mean the date on which a
Change of Control occurs.
ARTICLE II
PARTICIPATION
2.01 Participation. A grant under this Plan may be made by the Committee to
any Senior Executive Officer.
2.02 Limitations on Grants to Individual Participant. Subject to
adjustments pursuant to the provisions of Section 3.03 hereof, the number of
shares of Stock which may be covered by Options granted hereunder to any
Participant during any fiscal year shall not exceed 300,000 shares. If an Option
is cancelled, the cancelled Option shall continue to be counted toward such
300,000 share limit for the year granted. An Option that is repriced during any
fiscal year shall be treated as the cancellation of such Option and a grant of a
new Option for purposes of the 300,000 limit for that fiscal year.
ARTICLE III
SHARES OF STOCK SUBJECT TO PLAN
3.01 Limitations. Subject to Section 3.02 and adjustments pursuant to the
provisions of Section 3.03 hereof, the number of shares of Stock covered by
Options which may be granted hereunder to Participants under all Options shall
not exceed 800,000 shares.
3.02 Availability of Shares Once Issued Under Plan. Once an Option has
lapsed, terminated or been forfeited, the Committee shall have the sole
discretion to grant a new Option to any Senior Executive Officer, covering the
number of shares to which such lapsed, terminated or forfeited Option related.
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<PAGE> 6
3.03 Adjustments to Options Once Issued. In the event that the outstanding
shares of Stock are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation or other
entity by reason of merger, consolidation, other reorganization,
recapitalization, reclassification, combination of shares, stock split-up, or
stock dividend, the Committee shall make such corresponding adjustments, if any,
as deemed appropriate in its sole discretion. In such event, the Committee may
adjust the number and kind of shares which may be granted under this Plan, the
maximum number and kind of shares which may be granted to any one eligible
Participant, and the number, the Option Price, and the kind of shares or
property subject to each outstanding grant.
3.04 Grants and Agreement. Each grant of an Option under this Plan shall be
evidenced by a written Stock Option Agreement dated as of the date of the grant
and executed by the Company and the Participant. The Stock Option Agreement
shall set forth the terms and conditions of such Option, as may be determined by
the Committee consistent with this Plan, and shall indicate whether the Option
that it evidences is intended to be an Incentive Stock Option or a Nonstatutory
Stock Option.
ARTICLE IV
OPTIONS
4.01 Options; Grant and Exercise. The Committee shall have full and final
authority to select those Senior Executive Officers who will be granted Options.
Subject to Federal and state statutes then applicable, the terms and procedures
by which an Option may be exercised shall be set forth in the Participant's
Stock Option Agreement or in procedures established by the Committee. The
Committee may permit payment of the Option Price to be made through the tender
of cash or securities, the withholding of Stock, or any other arrangement
satisfactory to the Committee.
4.02 Nonstatutory Stock Options. The Committee may grant Nonstatutory Stock
Options to Senior Executive Officers under this Plan. The grant of Nonstatutory
Stock Options shall be designated as such in a Participant's Stock Option
Agreement. Such Nonstatutory Stock Options must comply with all requirements of
this Plan except for those contained in Article V hereof.
4.03 Vesting of Options. The Stock Option Agreement shall specify the date
or dates on which the Participant may begin to exercise all or a portion of his
Option. To the extent not exercised, the vested portion of the Option shall be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the Option terminates. Notwithstanding the terms of any
Stock Option Agreement, the Committee at any time may accelerate such date or
dates and otherwise waive or amend any conditions of the Option. A Participant's
subsequent transfer or disposition of any Stock secured through the exercise of
an Option shall be subject to any Federal and state laws then applicable,
specifically securities laws.
ARTICLE V
INCENTIVE STOCK OPTIONS
5.01 General. All Incentive Stock Options shall comply with all of the
restrictions and limitations set forth in Section 422 of the Code and this
Article. To the extent that any Option does not qualify as an Incentive Stock
Option, it shall constitute a Nonstatutory Stock Option.
5.02 Terms and Conditions of Incentive Stock Options. Notwithstanding any
other provision of this Plan, Incentive Stock Options shall be subject to such
terms and conditions as shall be determined by the Committee, which shall
include the following:
(a) The Option Price shall be an amount as provided in Section 1.15
hereof.
(b) No Incentive Stock Option shall be exercisable after the lapse of
ten (10) years from the date such Incentive Stock Option is granted;
provided, however, if the Participant owns more than ten percent (10%) of
the Stock or of the voting stock of any Subsidiary, such Participant's
Incentive Stock Option
A-3
<PAGE> 7
shall not be exercisable after the lapse of five (5) years from the date
such Incentive Stock Option is granted.
(c) Except as provided in this Subsection 5.02(c) and Subsections
5.02(d) and (e) hereof, all Incentive Stock Options granted to a
Participant shall terminate upon the lapse of three (3) months from the
date the Participant's service with the Company terminates; provided,
however, if the Participant's service with the Company terminates as a
result of the Participant's disability, such Incentive Stock Options shall
terminate upon the lapse of one year from the date that the Participant's
service with the Company terminates as a result of such disability.
(d) An Incentive Stock Option shall not be sold, assigned,
transferred, pledged, or otherwise encumbered or disposed of by the
Participant otherwise than by will or the laws of descent and distribution,
and an Incentive Stock Option may be exercisable, during the Participant's
lifetime, only by him. Upon the death of a Participant who has been granted
an Incentive Stock Option, any Incentive Stock Option exercisable on the
date of death may be exercised by the Participant's estate or by a person
who acquires the right to exercise such Incentive Stock Option pursuant to
the Participant's will or by the laws of descent and distribution, provided
that the exercise of the Incentive Stock Option occurs within both the
remaining term of the Incentive Stock Option and one year after the Senior
Executive Officer's death. The provisions of this Section 5.02(d)shall
apply notwithstanding that the Participant's employment may have terminated
prior to death, but only to the extent that such Incentive Stock Option is
exercisable on the date of death.
(e) The grant of an Incentive Stock Option may provide, in the
Committee's discretion, that if the provisions of this Article V are not
satisfied, the Option granted shall not lapse and the Option shall be
classified as a Nonstatutory Stock Option.
ARTICLE VI
STOCK CERTIFICATES
6.01 Stock Certificates. The Company shall not be required to issue or
deliver any certificate for shares of Stock upon the exercise of any Option or
of any portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing or quotation on all stock
exchanges or automated quotation systems on which the Stock is then listed
or quoted, if any;
(b) The completion of any registration or other qualification of such
shares under any Federal or state law, under the rulings or regulations of
the Securities and Exchange Commission, or under any other governmental
regulatory agency which the Committee shall in its sole discretion
determine to be necessary or advisable;
(c) The obtaining of any approval or other clearance from any Federal
or state governmental agency which the Committee shall in its sole
discretion determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Committee from time to time may establish for reasons
of administrative convenience.
If these conditions are not satisfied the Participant may lose his rights
to such Stock as determined by the Committee.
A-4
<PAGE> 8
ARTICLE VII
PLAN ADMINISTRATION
7.01 Plan Administration. This Plan and all Stock Option Agreements shall
be administered, and all Options granted to Senior Executive Officer under this
Plan shall be granted, by the Committee. The Committee shall have full authority
and absolute sole discretion:
(a) To determine, consistent with the provisions of this Plan, which
of the Senior Executive Officers shall be granted Options; the form and
terms of such Options; the timing of such grants; the number of shares
subject to each Option and the Option Price of Stock covered by each
Option; and the period over which the Option to Senior Executive Officers
shall become and remain exercisable;
(b) To construe and interpret this Plan and the Stock Option
Agreements;
(c) To determine the terms and provisions of each respective Stock
Option Agreement, which need not be identical.
(d) To make all other determinations and take all other actions deemed
necessary or advisable for the proper administration of this Plan; and
(e) To adopt, alter, and repeal such rules, guidelines, and practices
for administration of this Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of this Plan
and any Option (including related Stock Option Agreements); to make all
determinations it deems advisable for the administration of this Plan; to
decide all disputes arising in connection with this Plan; and to otherwise
supervise the administration of this Plan.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01 Applicable Law. To the extent that state law shall not have been
preempted by any laws of the United States, this Plan shall be construed,
regulated, interpreted and administered according to the laws of the State of
Delaware.
8.02 Expenses. The cost of benefit payments from this Plan and the expenses
of administering this Plan shall be borne by the Company.
8.03 Gender and Number. Unless the context clearly requires otherwise, the
masculine pronoun whenever used shall include the feminine and neuter pronoun,
the singular shall include the plural, and vice versa.
8.04 Headings Not Part of Plan. Headings of Articles and Sections are
inserted for convenience and reference; they constitute no part of this Plan.
8.05 Indemnification. No member of the Board of Directors or the Committee
shall be liable for any action or determination taken or made in good faith with
respect to this Plan nor shall any member of the Board of Directors or the
Committee be liable for any Stock Option Agreement issued pursuant to this Plan
or any grants under it. Without limiting any other rights to indemnification,
each member of the Board of Directors and of the Committee shall be indemnified
by the Company against any losses incurred in such administration of this Plan
to the fullest extent permitted by the Delaware General Corporation Law, as
amended.
8.06 Limitation of Rights. Neither the adoption and maintenance of this
Plan or Stock Option Agreement nor anything contained herein, shall with respect
to any Participant, be deemed to:
(a) limit the right of the Company or any Subsidiary to discharge or
discipline any such person, or otherwise terminate or modify the terms of
his employment, or
A-5
<PAGE> 9
(b) create any contract or other right or interest under this Plan or
in any funds hereunder other than as specifically provided in this Plan and
a Stock Option Agreement.
8.07 No Distribution, Compliance with Legal Requirements. The Committee may
require each Participant acquiring shares pursuant to the exercise of an Option
to represent to and agree with the Company in writing that such Participant is
acquiring the shares without a view to distribution thereof in violation of
applicable securities laws. No shares of Stock shall be issued pursuant to the
exercise of an Option until all applicable securities law and other legal and
stock exchange or other listing requirements have been satisfied. The Committee
may require the placing of such stop-orders and restrictive legends on
certificates for Stock and Options as it deems appropriate.
8.08 Timing of Grants. All Options granted under this Plan shall be granted
on or prior to February 13, 2006.
8.09 Non-Assignability. A Participant's interest under this Plan shall not
be subject at any time or in any manner to alienation, sale, transfer,
assignment, pledge, attachment, garnishment or encumbrance of any kind and any
attempt to deliver, sell, transfer, assign, pledge, attach, garnish or otherwise
encumber such interest shall be void and any interest so encumbered will
terminate.
8.10 Nontransferability. An Option shall not be transferable by the
Participant otherwise than by will or the laws of descent and distribution.
During the lifetime of the Participant, such Option shall be exercisable or
perfected only by the Participant in accordance with the terms of this Plan and
the Stock Option Agreement.
8.11 Other Compensation Plans. The adoption of this Plan shall not affect
any other existing or future incentive or compensation plans for directors,
officers or employees of the Company or its Subsidiaries. Moreover, the adoption
of this Plan shall not preclude the Company or its Subsidiaries from:
(a) Establishing any other forms of incentive or other compensation
for officers, employees, consultants or advisors or directors of the
Company or its Subsidiaries; or
(b) Assuming any forms of incentives or other compensation of any
person or entity in connection with the acquisition or the business or
assets, in whole or in part, of any person or entity.
8.12 Plan Binding on Successors. This Plan shall be binding upon the
successors and assigns of the Company.
8.13 Tax Withholding. Each Participant shall, no later than the date as of
which the value of an Option or of any Stock or other amount received thereunder
first becomes includable in the gross income of the Participant for Federal
income tax purposes, pay to the Company, or make arrangements satisfactory to
the Committee regarding payment of any Federal, state, or local taxes of any
kind required by law to be withheld with respect to such income. The Committee
may permit payment of such taxes to be made through the tender of cash or
securities, the withholding of Stock or any other arrangement satisfactory to
the Committee. The Company and its Subsidiaries shall, to the extent permitted
by law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Participant.
8.14 Non-Contravention of Securities Laws. Notwithstanding anything to the
contrary expressed in this Plan, any provisions hereof that vary from or
conflict with any applicable Federal or state securities laws (including any
regulations promulgated thereunder) shall be deemed to be modified to conform to
and comply with such laws.
8.15 Unenforceability of a Particular Provision. The unenforceability of
any particular provision of this document shall not affect the other provisions,
and this document shall be construed in all respects as if such unenforceable
provision were omitted.
A-6
<PAGE> 10
ARTICLE IX
CHANGE OF CONTROL
9.01 Acceleration. Unless the Committee shall otherwise expressly provide
in the Stock Option Agreement relating to an Option, upon the occurrence of a
Change of Control an Option shall automatically become fully exercisable.
9.02 Special Rights. Anything in this Plan to the contrary notwithstanding,
but subject to Section 9.03, during the 90-day period from and after a Change of
Control (the "Change of Control Exercise Period"), a Participant (other than a
Participant who initiated the event that resulted in the occurrence of such
Change of Control in a capacity other than as a director or an officer of the
Company) shall, unless the Committee shall otherwise expressly provide in the
Stock Option Agreement relating to an Option, have the right (by giving written
notice to the Company) to elect (within the Change of Control Exercise Period)
to surrender all or a portion of such Option to the Company and to receive in
cash, for each share of Stock in respect of which such Option is surrendered, an
amount equal to the amount by which the Event Price exceeds the Option Price for
such share.
9.03 Limitation on Special Rights. If a Participant is subject to the
restrictions of Section 16(b) of the Exchange Act and has been granted (or is
deemed to have been granted) an Option under this Plan during the six months
prior to the Trigger Date, then the Change of Control Exercise Period referred
to in Section 9.02 shall, in respect of such Option, begin on the Trigger Date
and end 90 days after the date six months after the date such Option was
granted. The Committee may at any time prior to the occurrence of a Change of
Control provide that any or all of the exercises, surrenders, elections and
other actions that may be taken by Participants pursuant to Section 9.02 shall
occur automatically with respect to Participants (or particular categories of
Participants) subject to the provisions of Section 16(b) of the Exchange Act.
9.04 Termination of Participant; Modification of Plan. The rights of a
Participant under Section 9.02 may be exercised during the Change of Control
Exercise Period referred to therein (or, if applicable, in Section 9.03)
notwithstanding the termination of the Participant's employment with the
Company, unless provided otherwise in the Stock Option Agreement relating to
such Option. Anything in this Plan to the contrary notwithstanding, no
termination, amendment or modification of this Plan after the occurrence of a
Change of Control shall in any manner adversely affect any Participant's rights
under this Article IX in respect of such Change of Control without the written
consent of the affected Participant.
9.05 Event Price. In connection with a Change of Control and an exercise,
surrender, election or other action contemplated by Section 9.02 with respect to
an Option, the term "Event Price" shall mean a price per share of Stock equal to
the higher of:
(a) the highest Fair Market Value of the Stock during the period
beginning 90 days prior to such Trigger Date and ending on and including
the last trading day prior to such exercise, surrender, election or other
action; and
(b) whichever of the following is applicable (or the highest if more
than one is applicable):
(1) the highest per share price paid or to be paid in any tender or
exchange offer which is in effect at any time during such period
referred to in clause (a);
(2) the fixed or formula price for the acquisition of shares of
Stock in a merger or similar agreement approved by the Company's
stockholders or the Board, if such price is determinable on the date of
such exercise, surrender, election or other action; and
(3) the highest price per share paid or to be paid to any
stockholder of the Company in a transaction or group of transactions
(including any tender or exchange offer) giving rise to the occurrence
of such Change of Control; provided, however, that a Participant may at
the time of an election pursuant to Section 9.02 request that certain of
the foregoing parameters be disregarded (which may include shortening
applicable time periods) in determining the Event Price applicable
A-7
<PAGE> 11
to one or more of the Options held by such Participant, so long as
disregarding such parameters does not increase the Event Price.
Any securities or property which are part or all of the consideration paid
or to be paid for shares of Stock in connection with any event contemplated by
clauses (1), (2), and (3) above shall be valued in determining the Event Price
at the higher of (x) the valuation placed on such securities or property by the
person or entity which paid or is to pay such price or (y) the valuation placed
on such securities or property by the Board of Directors.
9.06 Change of Control. The term "Change of Control" shall mean the
occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of the Stock of
the Company), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such person
any securities acquired directly from the Company or its affiliates)
representing more than 15% of the combined voting power of the Company's
then outstanding voting securities; provided, however, a Change of Control
shall not be deemed to occur solely because such person acquired beneficial
ownership of more than 15% of the combined voting power of the Company's
then outstanding voting securities as a result of the acquisition of voting
securities by the Company, which by reducing the number of voting
securities outstanding, increases the proportional number of shares
beneficially owned by such person, provided that if a Change of Control
would occur (but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such share
acquisition by the Company, such person becomes the beneficial owner of any
additional voting securities which increases the percentage of the then
outstanding voting securities beneficially owned by such person, then a
Change of Control shall occur;
(ii) during any period of 24 consecutive months (not including any
period prior to the Effective Date), individuals who at the beginning of
such period constitute the Board and any new director (other than a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in subsection (i), (iii) or (iv)
of this Section 9.06) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute
a majority of the Board;
(iii) the stockholders of the Company approve a merger, consolidation
or reorganization of the Company with any other corporation, other than a
merger, consolidation or reorganization which would result in the
stockholders of the Company immediately before such merger, consolidation
or reorganization, owning, directly or indirectly immediately following
such merger, consolidation or reorganization, at least 60% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger, consolidation or
reorganization in substantially the same proportion as their ownership of
the voting securities immediately before such merger, consolidation, or
reorganization; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
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<PAGE> 12
ARTICLE X
PERMANENCY OF THIS PLAN AND PLAN TERMINATION
10.01 Effective Date. This Plan shall become effective as of February 14,
1996, upon a resolution by the Board of Directors for its adoption. In order to
meet the requirements of Section 422 of the Code with respect to any Incentive
Stock Options, this Plan shall be submitted to the stockholders of the Company
for their approval on or prior to February 13, 1997.
10.02 Termination, Amendment, and Modification of Plan. The Board of
Directors may at any time terminate or suspend, and may at any time and from
time to time and in any respect amend or modify, this Plan; provided, however,
that no such action of the Board of Directors without approval of the
stockholders of the Company may increase the total number of shares of Stock
subject to this Plan except as contemplated in Section 3.03 hereof.
A-9
<PAGE> 1
EXHIBIT 10.2
FIFTH AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Fifth Amendment"), dated as of April 30, 1996, is entered into among NEOSTAR
RETAIL GROUP, INC., a Delaware corporation ("Borrower"), the banks listed on
the signature pages hereof (the "Lenders"), NATIONSBANK OF TEXAS, N.A., in its
capacity as administrative agent (in said capacity, the "Administrative
Lender").
BACKGROUND
A. Borrower, Lenders and Administrative Lender heretofore entered
into that certain Amended and Restated Credit Agreement, dated as of December
21, 1994, as amended by that certain First Amendment to Amended and Restated
Credit Agreement, dated as of December 31, 1994, that certain Second Amendment
to Amended and Restated Credit Agreement, dated as of April 28, 1995, that
certain Third Amendment to Amended and Restated Credit Agreement, dated as of
August 28, 1995, and that certain Fourth Amendment to Amended and Restated
Credit Agreement, dated as of January 30, 1996 (said Amended and Restated
Credit Agreement, as amended, the "Credit Agreement"; the terms defined in the
Credit Agreement and not otherwise defined herein shall be used herein as
defined in the Credit Agreement).
B. Borrower, Lenders and Administrative Lender desire to make an
amendment to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, Borrower,
Lenders and Administrative Lender covenant and agree as follows:
1. AMENDMENTS.
(a) Paragraph 10(k) of the Credit Agreement is hereby
amended to read as follows:
"Section 7.9 Fixed Charge Coverage Ratio.
Borrower shall not permit the Fixed Charge Coverage Ratio,
determined as of the end of each fiscal quarter of Borrower,
calculated for the four fiscal quarters preceding the date of
determination, to be less than the ratio set forth below
opposite the month in which (or the month nearest to which)
such fiscal quarter ends:
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- -----
<S> <C>
October, 1995 .75 to 1
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
January, 1996 .99 to 1
April, 1996 .85 to 1
July, 1996 1.10 to 1"
</TABLE>
(b) The Compliance Certificate is hereby amended to be in
the form attached to this Fifth Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By
its execution and delivery hereof, Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments contemplated by the
foregoing Section 1:
(a) the representations and warranties contained in the
Credit Agreement are true and correct on and as of the date hereof as
made on and as of such date;
(b) no event has occurred and is continuing which
constitutes a Default or an Event of Default;
(c) Borrower has full power and authority to execute and
deliver this Fifth Amendment, and this Fifth Amendment and the Credit
Agreement, as amended hereby, constitute the legal, valid and binding
obligations of Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as rights to
indemnity may be limited by federal or state securities laws; and
(d) no authorization, approval consent, or other action
by, notice to, or filing with, any governmental authority or other
Person is required for the execution, delivery or performance by
Borrower of this Fifth Amendment.
3. CONDITIONS OF EFFECTIVENESS. This Fifth Amendment shall be
effective as of April 30, 1996, subject to the following:
(i) Administrative Lender shall have received
counterparts of this Fifth Amendment executed by the Required Lenders;
(ii) Administrative Lender shall have received
counterparts of this Fifth Amendment executed by Borrower; and
- 2 -
<PAGE> 3
(iii) Administrative Lender shall have received, in form
and substance satisfactory to Administrative Lender and its counsel,
such other documents, certificates and instruments as Administrative
Lender shall require.
4. SUBSIDIARIES ACKNOWLEDGEMENT. By signing below, each of the
Subsidiaries executing a Guaranty (i) acknowledges consents and agrees to the
execution, delivery and performance by Borrower of this Fifth Amendment, (ii)
acknowledges and agrees that its obligations in respect of its Guaranty are not
released, diminished, waived, modified, impaired or affected in any manner by
this Fifth Amendment or any of the provisions contemplated herein, (iii)
ratifies and confirms its obligations under its Guaranty, and (iv) acknowledges
and agrees that it has no claims or offsets against, or defenses or
counterclaims to, its Guaranty.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Fifth Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", or
words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended hereby.
(b) The Credit Agreement, as amended by the amendment
referred to above, shall remain in full force and effect and is hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand all costs and expenses of Administrative Lender in connection with the
preparation, reproduction, execution and delivery of this Fifth Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for Administrative Lender
with respect thereto and with respect to advising Administrative Lender as to
its rights and responsibilities under the Credit Agreement, as hereby amended).
7. EXECUTION IN COUNTERPARTS. This Fifth Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which when taken together shall constitute
but one and the same instrument.
8. GOVERNING LAW: BINDING EFFECT. This Fifth Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon Borrower and each Lender and their respective successors
and assigns.
9. HEADINGS. Section headings in this Fifth Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Fifth Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS
FIFTH AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT
- 3 -
<PAGE> 4
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Fifth
Amendment as the date first above written.
NEOSTAR RETAIL GROUP, INC.
By: /s/ OPAL FERRARO
-------------------------------------
Name: Opal Ferraro
--------------------------------
Title: CFO
-------------------------------
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender and as a Lender
By: /s/ FRANK IZZO
-------------------------------------
Name: Frank Izzo
--------------------------------
Title: SVP
-------------------------------
ACKNOWLEDGED AND AGREED:
SOFTWARE ETC. STORES, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Vice President
----------------------
BABBAGES, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Vice President
----------------------
- 5 -
<PAGE> 6
AUGUSTA ENTERPRISES, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Chairman
----------------------
CHASADA
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Chairman
----------------------
- 6 -
<PAGE> 7
COMPLIANCE CERTIFICATE
TO: NationsBank of Texas, N.A., as Administrative Lender
FROM: NeoStar Retail Group, Inc.
DATE: __________, 19__
RE: Credit Agreement (defined below)
This Compliance Certificate is delivered pursuant to paragraph 9(g) of
the Amended and Restated Credit Agreement, dated December 21, 1994 (together
with any and all renewals, modifications, extensions, and amendments thereof,
the "Credit Agreement") among the lenders party thereto, NationsBank of Texas,
N.A., as Administrative Lender ("Administrative Lender") and NeoStar Retail
Group, Inc. ("Borrower"). All capitalized terms used herein and defined in the
Credit Agreement shall be used herein as so defined.
1. Compliance Certificate. The undersigned hereby certifies to
you as follows:
(a) I am, and at all times mentioned herein have been,
the duly elected qualified and acting chief financial officer
of Borrower.
(b) I have reviewed the provisions of the Credit
Agreement and the other loan documents, and a review of the
activities of Borrower during the period from __________, 19__
to __________, 19__ (the "Reporting Period") has been made
under my supervision with a view toward determining whether,
during the Reporting Period, Borrower has kept, observed,
performed and fulfilled all its obligations under the Credit
Agreement and such loan documents.
(c) To the best of my knowledge, based upon the foregoing
review, the representations and warranties made in paragraph 8
of the Credit Agreement are true and correct in all material
respects as of the date hereof as though made at and as of the
date hereof, except for such representations and warranties
which relate to a particular date, and no Event of Default has
occurred or is continuing or is imminent.
2. Financial Covenants. Borrower hereby represents and warrants
to NationsBank that as of the last day of the fiscal quarter ended __________,
19__ (the "Calculation Date"):
A. Section 10.(h) Total Liabilities to Net Worth
(a) Total Liabilities as of fiscal quarter
ended on the Calculation Date $__________
<PAGE> 8
(b) Tangible Net Worth as of fiscal quarter
ended on the Calculation Date $__________
(c) Ratio of Item (a) to Item (b) ____ to 1.00
Maximum permitted
Fiscal Quarter
--------------
October, 1995 3.50 to 1
January, 1996 2.50 to 1
April, 1996 2.00 to 1
July, 1996 1.75 to 1
B. Section 10.(i) Fixed Charge Coverage Ratio
(a) Net before tax income for preceding four
fiscal quarters ended on the
Calculation Date $__________
(b) Interest expenses (including interest
expense pursuant to capital leases) for
preceding four fiscal quarters ended on
the Calculation Date $__________
(c) Lease expense payable pursuant to operating
leases for preceding four fiscal quarters
ended on the Calculation Date $__________
(d) Sum of Items (a), (b) and (c) $__________
(e) Sum of Items (b) and (c) $__________
(f) Ratio of Item (d) to Item (e) ___ to 1.00
Required Minimum
Fiscal Quarter
--------------
October, 1995 .75 to 1
January, 1996 .99 to 1
- 2 -
<PAGE> 9
April, 1996 .85 to 1
July, 1996 1.10 to 1
C. Section 10.(l) Current Maturities Coverage Ratio
(a) Net income for preceding four $__________
fiscal quarters ended on the
Calculation Date
(b) Depreciation for preceding four $__________
fiscal quarters ended on the
Calculation Date
(c) Current portion paid or payable of $__________
principal on Funded Debt for
preceding four fiscal quarters
ended on the Calculation Date
(d) Sum of Items (a) and (b) $__________
(e) Ratio of Item (d) to (c) ____ to 1.00
Required Minimum 1.25 to 1.00
This Compliance Certificate is executed and delivered on the __ day of
__________, 19__.
----------------------------------------
----------------------------------------
(Print Name) (Print Title) of
NeoStar Retail Group, Inc.
- 3 -
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"),
dated as of April 30, 1996, is entered into among BABBAGES, INC., a Texas
corporation ("Babbages"), SOFTWARE ETC. STORES, INC., a Delaware corporation
("Software"; Babbages and Software are referred to collectively as the
"Borrowers" and individually as a "Borrower"), the banks listed on the
signature pages hereof (the "Lenders"), NATIONSBANK OF TEXAS, N.A., in its
capacity as administrative agent (in said capacity, the "Administrative
Lender").
BACKGROUND
A. Borrowers, Lenders and Administrative Lender heretofore
entered into that certain Credit Agreement, dated as of August 28, 1995, as
amended by that certain First Amendment to Credit Agreement, dated as of
January 30, 1996 (said Credit Agreement, as amended, the "Credit Agreement";
the terms defined in the Credit Agreement and not otherwise defined herein
shall be used herein as defined in the Credit Agreement).
B. Borrowers, Lenders and Administrative Lender desire to make an
amendment to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, Borrowers,
Lenders and Administrative Lender covenant and agree as follows:
1. AMENDMENTS.
(a) Section 2.16(a) of the Credit Agreement is hereby
amended by adding the following proviso and sentence after the first
complete sentence of Section 2.16(a) of the Credit Agreement on page
28.
"; provided, however, notwithstanding the immediately
preceding, Letters of Credit in aggregate face amount not in
excess of $900,000 may have expiration dates not to exceed
twelve months after the Maturity Date, provided that the
Borrower will, on the Maturity Date, provide the
Administrative Lender cash collateral in the form of
immediately available funds in the aggregate face amount of
Letters of Credit outstanding on the Maturity Date with
expiration dates beyond the Maturity Date. Such cash
collateral shall be placed in the L/C Cash Collateral Account
and shall be subject to the terms thereof as provided in
Section 2.16(g)."
(b) Section 7.9 of the Credit Agreement is hereby amended
to read as follows:
<PAGE> 2
"Section 7.9 Fixed Charge Coverage Ratio. The
Parent shall not permit the Fixed Charge Coverage Ratio,
determined as of the end of each fiscal quarter of the Parent,
calculated for the four fiscal quarters preceding the date of
determination, to be less than the ratio set forth below
opposite the month in which (or the month nearest to which)
such fiscal quarter ends:
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- -----
<S> <C>
October, 1995 .75 to 1
January, 1996 .99 to 1
April, 1996 .85 to 1
July, 1996 1.10 to 1"
</TABLE>
(c) The Borrowing Base Report and Compliance Certificate
is hereby amended to be in the form of Exhibit F hereto.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By
its execution and delivery hereof, each Borrower represents and warrants that,
as of the date hereof and after giving effect to the amendments contemplated by
the foregoing Section 1:
(a) the representations and warranties contained in the
Credit Agreement are true and correct on and as of the date hereof as
made on and as of such date;
(b) no event has occurred and is continuing which
constitutes a Default or an Event of Default;
(c) each Borrower has full power and authority to execute
and deliver this Second Amendment, and this Second Amendment and the
Credit Agreement, as amended hereby, constitute the legal, valid and
binding obligations of such Borrower, enforceable in accordance with
their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as rights to
indemnity may be limited by federal or state securities laws; and
(d) no authorization, approval consent, or other action
by, notice to, or filing with, any governmental authority or other
Person is required for the execution, delivery or performance by each
Borrower of this Second Amendment.
3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be
effective as of April 30, 1996, subject to the following:
- 2 -
<PAGE> 3
(i) Administrative Lender shall have received
counterparts of this Second Amendment executed by the Determining
Lenders;
(ii) Administrative Lender shall have received
counterparts of this Second Amendment executed by each Borrower; and
(iii) Administrative Lender shall have received, in form
and substance satisfactory to Administrative Lender and its counsel,
such other documents, certificates and instruments as Administrative
Lender shall require.
4. GUARANTY ACKNOWLEDGEMENT. By signing below, the Parent and
each of the Subsidiaries (i) acknowledges, consents and agrees to the
execution, delivery and performance by each Borrower of this Second Amendment,
(ii) acknowledges and agrees that its obligations in respect of its Guaranty
Agreement are not released, diminished, waived, modified, impaired or affected
in any manner by this Second Amendment or any of the provisions contemplated
herein, (iii) ratifies and confirms its obligations under its Guaranty
Agreement, and (iv) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Guaranty Agreement.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Second Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", or
words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended hereby.
(b) The Credit Agreement, as amended by the amendment
referred to above, shall remain in full force and effect and is hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrowers, jointly and
severally, agree to pay on demand all costs and expenses of Administrative
Lender in connection with the preparation, reproduction, execution and delivery
of this Second Amendment and the other instruments and documents to be
delivered hereunder (including the reasonable fees and out-of-pocket expenses
of counsel for Administrative Lender with respect thereto and with respect to
advising Administrative Lender as to its rights and responsibilities under the
Credit Agreement, as hereby amended).
7. EXECUTION IN COUNTERPARTS. This Second Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which when taken together shall constitute
but one and the same instrument.
8. GOVERNING LAW: BINDING EFFECT. This Second Amendment shall
be governed by and construed in accordance with the laws of the State of Texas
and shall be binding upon each Borrower and each Lender and their respective
successors and assigns.
- 3 -
<PAGE> 4
9. HEADINGS. Section headings in this Second Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Second Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS
SECOND AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as the date first above written.
BABBAGES, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Vice President
----------------------
SOFTWARE ETC. STORES, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Vice President
----------------------
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender and as a Lender
By: /s/ FRANK IZZO
----------------------------
Name: Frank Izzo
-----------------------
Title: SVP
----------------------
BANK ONE, TEXAS, N.A.
By: /s/ WYATT DICKSON
----------------------------
Name: Wyatt Dickson
-----------------------
Title: Banking Officer
----------------------
- 5 -
<PAGE> 6
GUARANTY FEDERAL BANK F.S.B.
By: /s/ ROBERT S. HAYS
----------------------------
Name: Robert S. Hays
-----------------------
Title: Vice President
----------------------
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: /s/ PAUL H. DIOURI
----------------------------
Name: Paul H. Diouri
-----------------------
Title: Assistant Treasurer
----------------------
ACKNOWLEDGED AND AGREED:
NEOSTAR RETAIL GROUP, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: CFO
----------------------
AUGUSTA ENTERPRISES, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Chairman
----------------------
- 6 -
<PAGE> 7
CHASADA
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Chairman
----------------------
- 7 -
<PAGE> 8
EXHIBIT F
BORROWING BASE REPORT AND COMPLIANCE CERTIFICATE
To: NationsBank of Texas, N.A.
From: Babbages, Inc.
Software Etc. Stores, Inc.
Date: _________________, 19____
Re: Credit Agreement, dated as of August 28, 1995 (as amended,
"Credit Agreement"), among Babbages, Inc. ("Babbages"),
Software Etc. Stores, Inc. ("Software"), certain Lenders, and
NationsBank of Texas, N.A. as administrative lender
This Borrowing Base Report and Compliance Certificate is delivered
pursuant to Section 6.1 of the Credit Agreement. All capitalized terms used
herein and defined in the Credit Agreement shall be used herein as so defined.
For purposes hereof, section references herein related to sections of the
Credit Agreement, and bracketed amounts or ratios refer to the maximum or
minimum amounts or ratios required under the relevant sections of the Credit
Agreement.
1. Borrowing Base. [To be completed monthly.]
Borrowers hereby represent and warrant to each Lender that the
following Borrowing Base Report is true and correct in all respects as of
__________, 199__ (the "Reporting Date"). The Borrowing Bases are determined
as follows:
C. BABBAGES BORROWING BASE
<TABLE>
<S> <C> <C>
Eligible Inventory of Babbages
1. All Inventory $____________
2. Less ineligible Inventory (without duplication)
(a) Inventory to which Borrower or any $____________
Subsidiary does not have lawful and
absolute title
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
(b) Inventory subject to a Lien or Negative $____________
Pledge in favor of any Person other than
(i) a Lien in favor of Administrative
Lender or (ii) a Permitted Lien which is
not a Consensual Lien
(c) Defective Inventory $____________
(d) Inventory located outside the United
States $____________
(e) Inventory not subject to a fully $____________
perfected first priority security
interest in favor of Administrative
Lender
(f) The sale of such Inventory is subject to $____________
any Necessary Authorization, restriction,
or limitation
Ineligible Inventory $____________
3. Eligible Inventory [(1) - (2)] $____________
4. Babbages Borrowing Base $____________
[(3) x (.45)]
</TABLE>
D. SOFTWARE BORROWING BASE
Eligible Inventory of Babbages
<TABLE>
<S> <C> <C> <C>
1. All Inventory $____________
2. Less ineligible Inventory (without duplication)
(a) Inventory to which Borrower or any $____________
Subsidiary does not have lawful and
absolute title
(b) Inventory subject to a Lien or Negative $____________
Pledge in favor of any Person other than
(i) a Lien in favor of Administrative
Lender or (ii) a Permitted Lien which is
not a Consensual Lien
(c) Defective Inventory $____________
</TABLE>
- 2 -
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
(d) Inventory located outside the United
States $____________
(e) Inventory not subject to a fully $____________
perfected first priority security
interest in favor of Administrative
Lender
(f) The sale of such Inventory is subject to $____________
any Necessary Authorization, restriction,
or limitation
Ineligible Inventory $____________
3. Eligible Inventory [(1) - (2)] $____________
4. Software Borrowing Base $____________
[(3) x (.45)]
</TABLE>
E. BABBAGES AVAILABILITY
1. Current outstanding Advances to Babbages $____________
2. Current outstanding Reimbursement Obligations $____________
for the account of Babbages
3. [1 + 2] $____________
4. Commitment $____________
5. Lesser of 4 or A.4. $____________
6. Babbages Availability $____________
[5 - 3]
F. SOFTWARE AVAILABILITY
1. Current outstanding Advances to Software $____________
2. Current outstanding Reimbursement Obligations $____________
for the account of Software
3. [1 + 2] $____________
4. Commitment $____________
5. Lesser of 4 or B.4. $____________
6. Software Availability $____________
[5 - 3]
- 3 -
<PAGE> 11
G. AGGREGATE AVAILABILITY
1. Current outstanding Advances to Babbages and $____________
Software
[C.1 + D.1]
2. Current outstanding Reimbursement Obligations $____________
for the account of Babbages and Software
[C.2 + D.2]
3. [1 + 2] $____________
4. Commitment $____________
5. Combined Borrowing Base $____________
[A.4 + B.4]
6. Obligations outstanding under Term Credit
Agreement $____________
7. [5 - 6] $____________
8. Lesser of 4 or 7 $____________
9. Aggregate Availability $____________
[8 - 3]
2. Inventory Summary. Borrowers represent and warrant to each
Lender that the attached Inventory Summary of Borrowers was prepared as of the
Reporting Date and is true and correct in all respects.
3. Compliance Certificate. [To be completed quarterly] The
undersigned hereby certifies to you as follows:
(a) I am, and at all times mentioned herein have been,
the duly elected, qualified and acting chief financial officer of
Borrowers.
(b) I have reviewed the provisions of the Credit
Agreement and the other loan documents, and a review of the activities
of Borrowers during the period from ___________, 19___ to
______________, 19___ (the "Reporting Period") has been made under my
supervision with a view toward determining whether, during the
Reporting Period, Borrowers have kept, observed, performed and
fulfilled all their obligations under the Credit Agreement and such
loan documents.
(c) To the best of my knowledge, based upon the foregoing
review, the representations and warranties made in Article 4 of the
Credit Agreement are true and correct in all material respects as of
the date hereof as though made at and as of the date
- 4 -
<PAGE> 12
hereof, except for such representations and warranties which relate to
a particular date, and no Event of Default has occurred or is
continuing or is imminent.
4. Financial Covenants. [To be completed quarterly] Borrowers
hereby represent and warrant to each Lender that as of the last day of the
fiscal quarter ended ______________, 19___ (the "Calculation Date"):
A. Section 7.8 Total Liabilities to Net Worth
(a) Total Liabilities as of fiscal quarter ended
on the Calculation Date $____________
(b) Tangible Net Worth as of fiscal quarter ended
on the Calculation Date $____________
(c) Ratio of Item (a) to Item (b) _____ to 1.00
Maximum permitted
Fiscal Quarter
--------------
October, 1995 3.50 to 1
January, 1996 2.50 to 1
April, 1996 2.00 to 1
July, 1996 1.75 to 1
B. Section 7.9 Fixed Charges Coverage Ratio
(a) Pretax Net Income for preceding four fiscal
quarters ended on the Calculation Date $____________
(b) interest expense (including interest expense $____________
pursuant to capital leases) for preceding
four fiscal quarters ended on the Calculation
Date
(c) lease expense payable pursuant to operating $____________
leases for preceding four fiscal quarters
ended on the Calculation Date
(d) Sum of Items (a), (b) and (c) $____________
(e) Sum of Items (b) and (c) $____________
(f) Ratio of Item (d) to Item (e) _____ to 1.00
Required Minimum
Fiscal Quarter
--------------
October, 1995 .75 to 1
- 5 -
<PAGE> 13
January, 1996 .99 to 1
April, 1996 .85 to 1
July, 1996 1.10 to 1
This Borrowing Base Report and Compliance Certificate is executed and
delivered on the ______ day of _________________, 1996.
--------------------------------------------
--------------------------------------------
(Print Name) (Print Title) of Babbages, Inc.
and Software Etc. Stores, Inc.
- 6 -
<PAGE> 1
EXHIBIT 10.4
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment"),
dated as of June 14, 1996, is entered into among BABBAGE'S, INC., a Texas
corporation ("Babbage's"), SOFTWARE ETC. STORES, INC., a Delaware corporation
("Software"; Babbage's and Software are referred to collectively as the
"Borrowers" and individually as a "Borrower"), the banks listed on the
signature pages hereof (the "Lenders"), NATIONSBANK OF TEXAS, N.A., in its
capacity as administrative agent (in said capacity, the "Administrative
Lender").
BACKGROUND
A. Borrowers, Lenders and Administrative Lender heretofore
entered into that certain Credit Agreement, dated as of August 28, 1995, as
amended by that certain First Amendment to Credit Agreement, dated as of
January 30, 1996, and that certain Second Amendment to Credit Agreement, dated
as of April 30, 1996 (said Credit Agreement, as amended, the "Credit
Agreement"; the terms defined in the Credit Agreement and not otherwise defined
herein shall be used herein as defined in the Credit Agreement).
B. Borrowers, Lenders and Administrative Lender desire to make an
amendment to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, Borrowers,
Lenders and Administrative Lender covenant and agree as follows:
1. AMENDMENTS.
(a) The definition of "Babbage's Borrowing Base" set
forth in Article 1 of the Credit Agreement is hereby amended to read
as follows:
"'Babbage's Borrowing Base' means (a) so long as the
Parent and/or the Borrowers have not obtained at least
$20,000,000 in aggregate principal of Indebtedness on terms
satisfactory to the Determining Lenders (the "Mezzanine
Debt"), (i) 50% of Eligible Inventory of Babbage's at such
time that the sum of the Eligible Inventory of Babbage's and
Software is less than $120,000,000 and (ii) 45% of Eligible
Inventory of Babbage's at such time that the sum of the
Eligible Inventory of Babbage's and Software is equal to or
greater than $120,000,000, and (b) after such time as the
Parent and/or the Borrowers have obtained the Mezzanine Debt,
45% of Eligible Inventory of Babbage's."
(b) The definition of "Software Borrowing Base" set forth
in Article 1 of the Credit Agreement is hereby amended to read as
follows:
<PAGE> 2
"'Software Borrowing Base' means (a) so long as the
Parent and/or the Borrowers have not obtained the Mezzanine
Debt, (i) 50% of Eligible Inventory of Software at such time
that the sum of Eligible Inventory of Software and Babbage's
is less than $120,000,000 and (ii) 45% of Eligible Inventory
of Software at such time that the sum of Eligible Inventory of
Software and Babbage's is equal to or greater than
$120,000,000 and (b) after such time as the Parent and/or the
Borrowers have obtained the Mezzanine Debt, 45% of Eligible
Inventory of Software."
(c) The Borrowing Base Report and Compliance Certificate
is hereby amended to be in the form of Exhibit F hereto.
(d) All references to "Babbages" and "Babbages, Inc." in
the Loan Documents shall be amended to refer to "Babbage's" and
"Babbage's, Inc.", respectively.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By
its execution and delivery hereof, each Borrower represents and warrants that,
as of the date hereof and after giving effect to the amendments contemplated by
the foregoing Section 1:
(a) the representations and warranties contained in the
Credit Agreement are true and correct on and as of the date hereof as
made on and as of such date;
(b) no event has occurred and is continuing which
constitutes a Default or an Event of Default;
(c) each Borrower has full power and authority to execute
and deliver this Third Amendment, and this Third Amendment and the
Credit Agreement, as amended hereby, constitute the legal, valid and
binding obligations of such Borrower, enforceable in accordance with
their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as rights to
indemnity may be limited by federal or state securities laws; and
(d) no authorization, approval consent, or other action
by, notice to, or filing with, any governmental authority or other
Person is required for the execution, delivery or performance by each
Borrower of this Third Amendment.
3. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be
effective as of June 14, 1996, subject to the following:
(i) Administrative Lender shall have received
counterparts of this Third Amendment executed by the Determining
Lenders;
- 2 -
<PAGE> 3
(ii) Administrative Lender shall have received
counterparts of this Third Amendment executed by each Borrower; and
(iii) Administrative Lender shall have received, in form
and substance satisfactory to Administrative Lender and its counsel,
such other documents, certificates and instruments as Administrative
Lender shall require.
4. GUARANTY ACKNOWLEDGEMENT. By signing below, the Parent and
each of the Subsidiaries (i) acknowledges, consents and agrees to the
execution, delivery and performance by each Borrower of this Third Amendment,
(ii) acknowledges and agrees that its obligations in respect of its Guaranty
Agreement are not released, diminished, waived, modified, impaired or affected
in any manner by this Third Amendment or any of the provisions contemplated
herein, (iii) ratifies and confirms its obligations under its Guaranty
Agreement, and (iv) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Guaranty Agreement.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Third Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", or
words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended hereby.
(b) The Credit Agreement, as amended by the amendment
referred to above, shall remain in full force and effect and is hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrowers, jointly and
severally, agree to pay on demand all costs and expenses of Administrative
Lender in connection with the preparation, reproduction, execution and delivery
of this Third Amendment and the other instruments and documents to be delivered
hereunder (including the reasonable fees and out-of- pocket expenses of counsel
for Administrative Lender with respect thereto and with respect to advising
Administrative Lender as to its rights and responsibilities under the Credit
Agreement, as hereby amended).
7. EXECUTION IN COUNTERPARTS. This Third Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which when taken together shall constitute
but one and the same instrument.
8. GOVERNING LAW: BINDING EFFECT. This Third Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon each Borrower and each Lender and their respective
successors and assigns.
- 3 -
<PAGE> 4
9. HEADINGS. Section headings in this Third Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Third Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS
THIRD AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as the date first above written.
BABBAGE'S, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Vice President
----------------------
SOFTWARE ETC. STORES, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Vice President
----------------------
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender and as a Lender
By: /s/ FRANK IZZO
----------------------------
Name: Frank Izzo
-----------------------
Title: Senior Vice President
----------------------
BANK ONE, TEXAS, N.A.
By: /s/ W. RUSS LESSMANN
----------------------------
Name: W. Russ Lessmann
-----------------------
Title: Vice President
----------------------
- 5 -
<PAGE> 6
GUARANTY FEDERAL BANK F.S.B.
By: /s/ ROBERT S. HAYS
----------------------------
Name: Robert S. Hays
-----------------------
Title: Vice President
----------------------
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: /s/ DAVID H. LERNER
----------------------------
Name: David H. Lerner
-----------------------
Title: Vice President
----------------------
ACKNOWLEDGED AND AGREED:
NEOSTAR RETAIL GROUP, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Vice President
----------------------
AUGUSTA ENTERPRISES, INC.
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Chairman
----------------------
- 6 -
<PAGE> 7
CHASADA
By: /s/ OPAL FERRARO
----------------------------
Name: Opal Ferraro
-----------------------
Title: Chairman
----------------------
- 7 -
<PAGE> 8
EXHIBIT F
BORROWING BASE REPORT AND COMPLIANCE CERTIFICATE
To: NationsBank of Texas, N.A.
From: Babbage's, Inc.
Software Etc. Stores, Inc.
Date: _________________, 19____
Re: Credit Agreement, dated as of August 28, 1995 (as amended,
"Credit Agreement"), among Babbage's, Inc. ("Babbage's"),
Software Etc. Stores, Inc. ("Software"), certain Lenders, and
NationsBank of Texas, N.A. as administrative lender
This Borrowing Base Report and Compliance Certificate is delivered
pursuant to Section 6.1 of the Credit Agreement. All capitalized terms used
herein and defined in the Credit Agreement shall be used herein as so defined.
For purposes hereof, section references herein related to sections of the
Credit Agreement, and bracketed amounts or ratios refer to the maximum or
minimum amounts or ratios required under the relevant sections of the Credit
Agreement.
1. Borrowing Base. [To be completed monthly.]
Borrowers hereby represent and warrant to each Lender that the
following Borrowing Base Report is true and correct in all respects as of
__________, 199__ (the "Reporting Date"). The Borrowing Bases are determined
as follows:
C. BABBAGE'S BORROWING BASE
Eligible Inventory of Babbage's
<TABLE>
<S> <C> <C> <C>
1. All Inventory $____________
2. Less ineligible Inventory (without duplication)
(a) Inventory to which Borrower or any $____________
Subsidiary does not have lawful and
absolute title
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
(b) Inventory subject to a Lien or Negative $____________
Pledge in favor of any Person other than
(i) a Lien in favor of Administrative
Lender or (ii) a Permitted Lien which is
not a Consensual Lien
(c) Defective Inventory $____________
(d) Inventory located outside the United
States $____________
(e) Inventory not subject to a fully perfected $____________
first priority security interest in favor
of Administrative Lender
(f) The sale of such Inventory is subject to $____________
any Necessary Authorization, restriction,
or limitation
Ineligible Inventory $____________
3. Eligible Inventory [(1) - (2)] $____________
4. Babbage's Borrowing Base
[(3) x (.45)] if the Mezzanine Debt has been issued $____________
or Eligible Inventory of Babbage's and Software is
greater than or equal to $120,000,000
or
[(3) x (.50)] if the Mezzanine Debt has not been $____________
issued and the Eligible Inventory of Babbage's and
Software is less than $120,000,000
</TABLE>
D. SOFTWARE BORROWING BASE
Eligible Inventory of Babbage's
<TABLE>
<S> <C> <C>
1. All Inventory $____________
</TABLE>
- 2 -
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
2. Less ineligible Inventory (without duplication)
(a) Inventory to which Borrower or any $____________
Subsidiary does not have lawful and
absolute title
(b) Inventory subject to a Lien or Negative $____________
Pledge in favor of any Person other than
(i) a Lien in favor of Administrative
Lender or (ii) a Permitted Lien which is
not a Consensual Lien
(c) Defective Inventory $____________
(d) Inventory located outside the United
States $____________
(e) Inventory not subject to a fully perfected $____________
first priority security interest in favor
of Administrative Lender
(f) The sale of such Inventory is subject to $____________
any Necessary Authorization, restriction,
or limitation
Ineligible Inventory $____________
3. Eligible Inventory [(1) - (2)] $____________
4. Software Borrowing Base
[(3) x (.45)] if the Mezzanine Debt has been issued $____________
or Eligible Inventory of Babbage's and Software is
greater than or equal to $120,000,000
or
[(3) x (.50)] if the Mezzanine Debt has not been $____________
issued and the Eligible Inventory of Babbage's and
Software is less than $120,000,000
</TABLE>
E. BABBAGE'S AVAILABILITY
1. Current outstanding Advances to Babbage's $____________
- 3 -
<PAGE> 11
2. Current outstanding Reimbursement Obligations $____________
for the account of Babbage's
3. [1 + 2] $____________
4. Commitment $____________
5. Lesser of 4 or A.4. $____________
6. Babbage's Availability $____________
[5 - 3]
F. SOFTWARE AVAILABILITY
1. Current outstanding Advances to Software $____________
2. Current outstanding Reimbursement Obligations $____________
for the account of Software
3. [1 + 2] $____________
4. Commitment $____________
5. Lesser of 4 or B.4. $____________
6. Software Availability $____________
[5 - 3]
G. AGGREGATE AVAILABILITY
1. Current outstanding Advances to Babbage's and $____________
Software
[C.1 + D.1]
2. Current outstanding Reimbursement Obligations $____________
for the account of Babbage's and Software
[C.2 + D.2]
3. [1 + 2] $____________
4. Commitment $____________
5. Combined Borrowing Base $____________
[A.4 + B.4]
6. Obligations outstanding under Term Credit
Agreement $____________
7. [5 - 6] $____________
8. Lesser of 4 or 7 $____________
- 4 -
<PAGE> 12
9. Aggregate Availability $____________
[8 - 3]
2. Inventory Summary. Borrowers represent and warrant to each
Lender that the attached Inventory Summary of Borrowers was prepared as of the
Reporting Date and is true and correct in all respects.
3. Compliance Certificate. [To be completed quarterly] The
undersigned hereby certifies to you as follows:
(a) I am, and at all times mentioned herein have been,
the duly elected, qualified and acting chief financial officer of
Borrowers.
(b) I have reviewed the provisions of the Credit
Agreement and the other loan documents, and a review of the activities
of Borrowers during the period from ___________, 19___ to
______________, 19___ (the "Reporting Period") has been made under my
supervision with a view toward determining whether, during the
Reporting Period, Borrowers have kept, observed, performed and
fulfilled all their obligations under the Credit Agreement and such
loan documents.
(c) To the best of my knowledge, based upon the foregoing
review, the representations and warranties made in Article 4 of the
Credit Agreement are true and correct in all material respects as of
the date hereof as though made at and as of the date hereof, except
for such representations and warranties which relate to a particular
date, and no Event of Default has occurred or is continuing or is
imminent.
4. Financial Covenants. [To be completed quarterly] Borrowers
hereby represent and warrant to each Lender that as of the last day of the
fiscal quarter ended ______________, 19___ (the "Calculation Date"):
- 5 -
<PAGE> 13
A. Section 7.8 Total Liabilities to Net Worth
(a) Total Liabilities as of fiscal quarter ended
on the Calculation Date $____________
(b) Tangible Net Worth as of fiscal quarter ended
on the Calculation Date $____________
(c) Ratio of Item (a) to Item (b) _____ to 1.00
Maximum permitted
Fiscal Quarter
--------------
October, 1995 3.50 to 1
January, 1996 2.50 to 1
April, 1996 2.00 to 1
July, 1996 1.75 to 1
B. Section 7.9 Fixed Charges Coverage Ratio
(a) Pretax Net Income for preceding four fiscal
quarters ended on the Calculation Date $____________
(b) interest expense (including interest expense $____________
pursuant to capital leases) for preceding four
fiscal quarters ended on the Calculation Date
(c) lease expense payable pursuant to operating $____________
leases for preceding four fiscal quarters
ended on the Calculation Date
(d) Sum of Items (a), (b) and (c) $____________
(e) Sum of Items (b) and (c) $____________
(f) Ratio of Item (d) to Item (e) _____ to 1.00
Required Minimum
Fiscal Quarter
--------------
October, 1995 .75 to 1
January, 1996 .99 to 1
April, 1996 .85 to 1
July, 1996 1.10 to 1
- 6 -
<PAGE> 14
This Borrowing Base Report and Compliance Certificate is executed and
delivered on the ______ day of _________________, 1996.
-----------------------------------------------
-----------------------------------------------
(Print Name) (Print Title) of Babbage's, Inc.
and Software Etc. Stores, Inc.
- 7 -
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 23rd day
of May, 1996, between NEOSTAR RETAIL GROUP, INC., a Delaware corporation (the
"Company"), and ALAN C. BUSH (the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive desires
to accept the Company's offer of employment;
WHEREAS, the Board of Directors of the Company (the "Board") has approved and
authorized the entry into this Agreement with the Executive; and
WHEREAS, the parties desire to enter into this Agreement setting forth the
terms and conditions for the employment relationship of the Executive with the
Company;
NOW, THEREFORE, it is agreed as follows:
1. Employment. The Executive is employed as the Executive Vice
President - Store Operations of the Company from the Effective Date (as
hereinafter defined) through the Term of this Agreement (as hereinafter
defined). In this capacity, the Executive shall have such duties and
responsibilities as provided in the By-Laws of the Company, in addition to such
other duties and responsibilities as the Board shall prescribe from time to
time and which are not inconsistent with the Executive's position with the
Company, including the performance of such other duties and responsibilities
with respect to Software Etc. Stores, Inc., a Delaware corporation and
wholly-owned subsidiary of the Company ("Software"), Babbage's, Inc., a Texas
corporation and wholly-owned subsidiary of the Company ("Babbage's"), and any
other direct or indirect subsidiaries of the Company, as may be directed by the
Board. The Executive shall devote his full business time, attention and
energies to the performance of his duties and responsibilities hereunder;
provided, however, the Executive may devote time to civic and community
activities and the management of personal investments so long as doing so does
not interfere with the performance of the Executive's duties and
responsibilities hereunder. During the Term of this Agreement, the Executive
shall be based in the principal offices of the Company in the Dallas/Fort
Worth, Texas metropolitan area, and shall not be required to be based anywhere
other than the Dallas/Fort Worth, Texas metropolitan area except for travel as
reasonably required in the performance of his duties and responsibilities
hereunder.
2. Term. The term of this Agreement shall be for the period
commencing on the date hereof (such commencement date herein the "Effective
Date") and terminating on January 31, 1998; provided, however, that in the
event a Change in Control (as hereinafter defined) occurs prior to the
expiration of the Term of this Agreement, this Agreement shall not expire prior
to the last day of the twenty-four (24) month period
<PAGE> 2
following the date of such Change in Control. The "Term of this Agreement" or
"Term" shall mean, for purposes of this Agreement, both the period described
above and any such additional period created by a Change of Control, and the
Term of this Agreement shall not be affected by the Executive's termination of
employment.
3. Salary; Expenses.
(a) Salary. Subject to the further provisions of this
Agreement, the Company agrees to pay the Executive during the Term of this
Agreement a salary at an annual rate equal to $280,000, with such salary to be
modified (at such times, if any, as the Board may deem appropriate during the
Term of this Agreement) to an amount determined by the Board (the "Base
Salary"). Notwithstanding the foregoing, the Base Salary of the Executive
shall not be decreased at any time during the Term of this Agreement from the
amount of Base Salary then in effect, except in connection with
across-the-board salary reductions similarly affecting all senior executives of
the Company and all senior executives of any person in control of the Company;
provided, however, that, following the occurrence of a Change in Control of the
Company the Executive's Base Salary shall not be decreased without his written
consent. Participation in any deferred compensation, discretionary bonus,
retirement, and other Executive benefit plans and in fringe benefits shall not
reduce the Base Salary payable to the Executive under this Section 3(a). The
Base Salary under this Section 3(a) shall be payable by the Company to the
Executive not less frequently than monthly. Without in any way limiting its
liability therefor, the Company may cause any one or more of its subsidiaries
to make payments to the Executive on account of the Executive's Base Salary and
other compensation payable hereunder.
(b) Reimbursement of Expenses. The Company shall reimburse
Executive, in accordance with the Company's policy in effect from time to time,
for all reasonable travel, entertainment and other business expenses incurred
by Executive in the performance of his duties and responsibilities hereunder.
(c) Net Payments. The amount of any gross payments provided
for in this Agreement shall be paid net of any applicable withholding required
under federal, state or local law.
4. Bonuses. Subject to the further provisions of this Agreement,
during the Term of this Agreement the Executive shall be entitled to
participate in an equitable manner with all other senior executives of the
Company in discretionary bonuses, including but not limited to, bonuses
provided pursuant to any management bonus plan that the Company may adopt
(based upon the performance of the Executive and the Company), as may be
authorized, declared, and paid by the Board to the Company's senior executives.
The Company agrees that the Executive shall be awarded a bonus for (i) the
fiscal year ending February 1, 1997 in the amount of not less than $15,000 and
(ii) the fiscal year ending January 31, 1998 in the amount of not less than
$20,000.
2
<PAGE> 3
No other compensation provided for in this Agreement shall be deemed a
substitute for the Executive's right to participate in such bonuses when and as
declared by the Board.
5. Participation in Retirement and Executive Benefit Plans; Life
Insurance. The Executive shall be entitled to participate in any plan of the
Company relating to stock options, stock purchases, pension, thrift, profit
sharing, life insurance, medical coverage, education, or other retirement or
employee benefits that the Company may adopt for the benefit of any of its
senior executives. The Company shall cause the Company's medical insurance
plan to include dependent coverage for the Executive's minor daughter,
regardless of whether such daughter resides with the Executive. The Company
shall provide a term life insurance policy on the Executive for the benefit of
such person as may be designated by the Executive with a death benefit of
$840,000.
6. Fringe Benefits; Section 16 Reports. (a) In addition to the
benefit plans referred to in Section 5 hereof, the Executive shall be entitled
to participate in any other fringe benefits which may be or become applicable
to any of the Company's senior executives, and any other benefits which are
commensurate with the duties and responsibilities to be performed by the
Executive under this Agreement. Notwithstanding the foregoing, the benefits
provided under this Section 6 shall not be decreased following a Change in
Control without the written consent of the Executive; provided, however, that
the benefits provided under this Section 6 shall cease upon the Executive's
Date of Termination.
(b) The Company and the Executive acknowledge that the
Executive will be an executive officer of the Company as such term is used in
Section 16 ("Section 16") of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company shall, at its own expense, prepare, and
assist the Executive in the filing of, all reports on Forms 3, 4 and 5 as the
Executive may be required to file under Section 16; provided that the Executive
shall be responsible for (i) timely notifying the Secretary of the Company of
transactions or events which may trigger such reporting requirements and (ii)
providing such other information as the Company may reasonably request in
connection with such filings.
7. Voluntary Absences; Vacations. The Executive shall be entitled,
without loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this Agreement.
All such voluntary absences of greater than one (1) consecutive day shall count
as paid vacation time, unless the Board otherwise determines. The Executive
shall be entitled to annual paid vacation of four weeks per fiscal year or such
longer period as the Board may approve; provided, however, that the Executive
may not carry over more than two week(s) of vacation time to any subsequent
year without the prior written approval of the Board. The timing of paid
vacations shall be scheduled in a manner acceptable to the Company.
3
<PAGE> 4
8. Termination.
(a) Disability. If the Executive has a physical or mental
disability (i) which renders him unable to perform his essential job functions
and no reasonable accommodation is available, and (ii) he shall have been
absent from the performance of his essential job functions with the Company for
180 consecutive days, and (iii) within thirty (30) days after written notice of
termination is given by the Company he shall not have returned to the
performance of his essential job functions with any necessary reasonable
accommodation, his employment may be terminated by the Company for
"Disability"."
(b) Cause. Subject to the notice provisions set forth below,
the Company may terminate the Executive's employment for "Cause" at any time.
"Cause" shall mean termination upon (i) the willful failure by the Executive to
substantially perform his duties hereunder (other than any such failure
resulting from his incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to him by the Board,
which demand specifically identifies the manner in which the Board believes
that he has not substantially performed his duties or (ii) the willful engaging
by the Executive in conduct which is demonstrably and materially injurious to
the Company, monetarily or otherwise. For purposes of this Section 8(b), no
act, or failure to act, on the Executive's part shall be deemed "willful"
unless done, or omitted to be done, by him not in good faith and without the
reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the entire membership of the Board at a meeting of such
Board (after reasonable notice to him and an opportunity for him, together with
his counsel, to be heard before such Board), finding that he has engaged in the
conduct set forth above in this Section 8(b) and specifying the particulars
thereof in detail.
(c) Discretionary Termination by the Company. During the Term
of this Agreement and subject to the notice provisions set forth below, this
Agreement may be terminated at any time by the Company in its sole discretion.
The rights and obligations of the Executive and the Company with respect to
such termination shall be solely as set forth herein.
(d) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 12.
"Notice of Termination" shall mean a notice that shall indicate the specific
Termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
the termination of the Executive's employment under the provision so indicated.
4
<PAGE> 5
(e) Date of Termination, Etc. "Date of Termination" shall
mean (i) if the Executive's employment is terminated by his death, the date of
his death; (ii) if the Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that he shall
not have returned to the performance of his essential job functions with any
reasonable accommodation during such thirty (30)-day period); (iii) if the
Executive's employment is terminated for Cause, the date specified in the
Notice of Termination (which date shall not be less than thirty (30) days from
the date such Notice of Termination is given), and (iv) if the Executive's
employment is terminated for any other reason, the date specified in the Notice
of Termination.
(f) Good Reason. At any time following the Effective Date,
the Executive may terminate his employment hereunder for "Good Reason." "Good
Reason" shall mean the occurrence (without the Executive's express written
consent) of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (i), (v) or (vii) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given
in respect thereof:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive of the Company
or a substantially adverse alteration in the nature or status of the
Executive's responsibilities, including those responsibilities being performed
for Software, Babbage's or any other subsidiary of the Company;
(ii) a reduction by the Company in the Executive's
annual Base Salary as in effect on the date hereof or as the same may be
increased from time to time;
(iii) the relocation of the Company's principal offices
to a location outside the Dallas/Fort Worth, Texas metropolitan area or the
Company's requiring the Executive to be based anywhere other than the Company's
principal executive offices, except for travel on the Company's business as
reasonably required in the performance of his duties and responsibilities
hereunder;
(iv) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an installment
of deferred compensation under any deferred compensation program of the
Company, within ten (10) business days after the date such compensation is due;
(v) the failure by the Company to continue in effect
any compensation plan in which the Executive participates which is material to
the Executive's total compensation, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue the Executive's
participation therein (or in such
5
<PAGE> 6
substitute or alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of the Executive's
participation relative to other participants;
(vi) the failure by the Company to continue to provide
the Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's life insurance, medical, health and
accident, or disability plans, the taking of any action by the Company which
would directly or indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefit enjoyed by the Executive, or the
failure by the Company to provide the Executive with the number of paid
vacation days to which the Executive is entitled pursuant to Section 7; or
(vii) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of this Agreement; for purposes of this Agreement, no such
purported termination shall be effective.
(g) Change of Control. At any time following the Effective
Date, the Executive may terminate his employment hereunder upon a Change in
Control. For purposes of this Agreement, a "Change of Control" shall be deemed
to have occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than (x) the Company; (y) any
trustee or other fiduciary holding securities under an executive benefit plan
of the Company; (z) or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of the stock of the Company; is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of the Company's then outstanding securities; or
(ii) at any time during any twelve-month period,
individuals who at the beginning of such period constitute the Board and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in subsection
(i), (iii) or (iv) of this Section 8(g)) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board; or
(iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than (x) a
merger or
6
<PAGE> 7
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an executive benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or (y) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets.
(h) Other Matters. The Executive's right to terminate the
Executive's employment pursuant to Sections 8(f) or 8(g) shall not be affected
by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver
of rights with respect to, any act or failure to act constituting Good Reason
hereunder.
9. Compensation Upon Termination or During Disability. The Executive
shall be entitled to the following benefits during a period of disability, or
upon termination of his employment, as the case may be, provided that such
period or termination occurs during the Term of this Agreement:
(a) During any period that the Executive fails to perform his
full-time duties with the Company as a result of incapacity due to physical or
mental illness, he shall continue to receive his Base Salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to him under the Company's disability plan or program or other similar
plan during such period, until his employment is terminated pursuant to Section
8(a) hereof. Thereafter, or in the event the Executive's employment shall be
terminated by reason of his death, his benefits shall be determined under the
Company's retirement, insurance and other compensation programs then in effect
in accordance with the terms of such programs.
(b) If at any time the Executive's employment shall be
terminated (i) by reason of his death, (ii) by the Company for Cause or
Disability or (iii) by him for any reason (other than pursuant to Sections 8(f)
or 8(g)), the Company shall pay him or the appropriate payee, as the case may
be (as determined in accordance with Section 10(c) hereof), (i) his full Base
Salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, (ii) the cash bonus provided for in the second
sentence of Section 4 hereof, prorated through the Date of Termination, and
(iii) all other amounts to which he is entitled under this Agreement and under
any
7
<PAGE> 8
compensation plan of the Company in each case at the time such payments are
due, and the Company shall have no further obligations to him under this
Agreement.
(c) If the Executive's employment should be terminated by (i)
the Company other than for Cause or Disability or (ii) by the Executive for
Good Reason pursuant to Section 8(f), or Change of Control pursuant to Section
8(g), and in lieu of any severance benefits which the Executive would be
eligible to receive under any severance plan or policy of the Company in effect
at the time, he shall be entitled to the benefits provided below:
(i) the Company shall pay to the Executive (x) his
full Base Salary through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, (y) the cash bonus provided for in the
second sentence of Section 4 hereof, prorated through the Date of Termination,
and (z) all other amounts to which he is entitled under this Agreement (other
than under clause (ii) below) and under any compensation plan of the Company
accrued through the Date of Termination, the timing and manner of payment of
such amounts to be in accordance with the payment arrangements with the
Executive in effect prior to the termination of his employment with the
Company;
(ii) the Company shall continue to pay the Executive
his Base Salary at the rate in effect at the time the Notice of Termination is
given for a period of twelve (12) months following the Date of Termination, the
timing and manner of such payments to be in accordance with the salary payment
arrangements with the Executive in effect prior to the termination of his
employment with the Company; and
(iii) the Company shall continue in effect for the
benefit of the Executive all insurance or other provisions for indemnification
and defense of officers or directors of the Company which are in effect on the
date the Notice of Termination is given with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation against actions which may be applicable to such acts or
omissions.
(d) The Executive shall not be required to mitigate the amount
of any payment provided for in this Section 9 by seeking and/or obtaining other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section 9 be reduced by any compensation earned by the
Executive as the result of employment by another employer after the Date of
Termination.
(e) In the event the employment of the Executive is terminated
(i) by the Company for any reason other than Cause or (ii) by the Executive
under conditions entitling him to payment hereunder, and the Company fails to
make timely payment of the amounts then owed to the Executive under this
Agreement, the Executive shall be entitled to interest on such amounts at the
rate of one percent (1%) above the prime
8
<PAGE> 9
rate (defined as the base rate on corporate loans at large U.S. money center
commercial banks as published by The Wall Street Journal), compounded monthly,
for the period from the date such amounts were otherwise due until payment is
made to the Executive (which interest shall be in addition to all rights which
the Executive is otherwise entitled to under this Agreement).
(f) Notwithstanding any other provision of this Agreement, if
any amount payable under this Section 9 would, individually or together with
any other amounts paid or payable, constitute an "excess parachute payment",
within the meaning of Section 280G of the Internal Revenue Code of 1986 and any
applicable regulations thereunder (the "Code"), such amount shall be reduced
such that the Executive will be entitled to receive only the portion thereof
that represents the maximum amount that, when aggregated with any other
"parachute payments" received by the Executive, within the meaning of Section
280G of the Code, would not cause him to be in receipt of any such "excess
parachute payment." The determination of whether any such reduction shall be
effected shall be made by a nationally recognized accounting firm selected by
the Executive and such determination shall be binding upon the Executive and
the Company for purposes of this Agreement.
10. No Assignments.
(a) This Agreement is personal to each of the parties hereto.
No party may assign or delegate any rights or obligations hereunder without
first obtaining the written consent of the other party hereto, except that this
Agreement shall be binding upon and inure to the benefit of any successor
corporation to the Company.
(b) The Company shall use its best reasonable efforts to
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes this Agreement by
operation of law, or otherwise.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisee's and
legatees. If the Executive should die while any amount would still be payable
to him hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to his devisee, legatee or other designee or, if there is no such designee, to
his estate.
9
<PAGE> 10
11. Additional Covenants.
(a) Noncompetition. The Executive agrees that during his
employment with the Company pursuant to this Agreement, and for a period of one
(1) year thereafter, he will not, directly or indirectly, without the prior
written consent of the Company, provide consultative service with or without
pay, own, manage, operate, join, control, advise, participate in, or be
connected as an officer, employee, stockholder, partner, consultant or
otherwise with, any business (whether an individual, partnership, firm,
corporation, limited liability company, or other entity), other than the
Company and any of its direct or indirect subsidiaries, which is then primarily
engaged (or which has a subsidiary, division or other business segment
primarily engaged) in the retail sale of personal computer software in any form
(including magnetic disk, compact disk and any other medium) and/or video games
(including hardware and software) through stores located in any county in any
state of the United States in which is located any store operated by the
Company, Babbage's, Software or any of their respective subsidiaries. It is
agreed that "beneficial ownership" by the Executive, either individually or as
a member of a "group," as such terms are used in Rule 13d of the General Rules
and Regulations under the Exchange Act, of not more than one percent (1%) of
the voting stock of any publicly held corporation shall not be a violation of
this Agreement.
(b) Confidential Matters. The Executive acknowledges that
before the Effective Date the Executive has had access to and become informed
of Confidential Information (as hereinafter defined) of the Company, Babbage's,
Software and their respective subsidiaries, and by reason of the nature of the
Executive's duties and responsibilities after the Effective Date, will have
access to and become informed of Confidential Information of the Company,
Babbage's, Software and their respective subsidiaries. The Executive agrees to
keep in strict confidence, and not, either directly or indirectly, to make
known, divulge, reveal, furnish, make available or use (except for use in the
regular course of the Executive's duties and responsibilities hereunder), any
Confidential Information of the Company, Babbage's, Software, or any of their
respective subsidiaries during the Term of this Agreement or at any time
thereafter, except with the Company's prior written consent. For purposes of
this Agreement, the term "Confidential Information" means and includes all
confidential and non-public information including, but not limited to,
information about purchasing, markets, marketing strategies, distribution
systems, management information systems, trade secrets, business ideas, plans
for future development, and information of any other kind not known generally,
but shall not include (i) any such Confidential Information which becomes,
through no fault of the Executive, generally known to the trade, (ii)
information which the Executive can demonstrate was known to him prior to the
commencement of his employment with Babbage's, (iii) information in the public
domain and (iv) information which the Executive is compelled to disclose by
judicial or administrative process or, in the opinion of counsel, other
mandatory requirements of law. The Executive's obligations under this Section
11(b) are in addition to, and not in limitation or preemption of, all other
obligations of confidentiality which the Executive may have under general legal
or equitable principles.
10
<PAGE> 11
(c) Right to Company Materials. Executive agrees that all
lists, materials, books, files, reports, correspondence, records, and other
documents ("Company Material") used, prepared, or made available to the
Executive, including those used, prepared or made available by Babbage's or
Software or any other subsidiary or affiliate of the Company, whether before or
after the Effective Date, shall be and shall remain the property of the
Company. Upon the termination of employment or the expiration of this
Agreement, all Company Materials shall be returned immediately to the Company,
and the Executive shall not make or retain any copies thereof.
(d) Antisolicitation. The Executive agrees that during the
Term of this Agreement, and for a period of one (1) year thereafter, he will
not influence or attempt to influence customers or suppliers of the Company,
Babbage's, Software or any of its present or future subsidiaries or affiliates
of any of them, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, Babbage's, Software, or any subsidiary or
affiliate of any of them; provided this prohibition shall not apply to general
advertisements in newspaper or other widely distributed publications, media, or
mail, whether electronic or otherwise.
(e) Soliciting Executives. The Executive agrees that during
the Term of this Agreement, and for a period of one (1) year thereafter, he
will not directly or indirectly solicit any of the employees of the Company,
Babbage's, Software or any subsidiary or affiliate of any of them to leave his
or her employment with any of them to work for any business, individual,
partnership, firm, corporation, or other entity then in competition with the
business of the Company, Software, Babbage's or any other subsidiary or
affiliate of any of them.
(f) Certain Remedies. If the Executive commits a breach of
the provisions of this Section 11, the Company shall have the right and remedy,
in addition to any other remedy that may be available, at law or in equity, to
have such provisions specifically enforced by any court having equity
jurisdiction together with an accounting for any benefit or gain by the
Executive in connection with any such breach, it being acknowledged and agreed
that any such breach or threatened breach will cause irreparable injury to the
Company and that money damages will not provide an adequate remedy to the
Company. Such injunction shall be available without the posting of any bond or
other security. If any covenant contained in Section 11(a) or any portion
thereof is hereafter construed to be invalid or unenforceable, the same shall
not affect the remainder of the covenant or covenants contained therein, which
shall be given full effect, without regard to the invalid portions, and any
court having jurisdiction shall have the power to reduce the duration and/or
area of such covenant and, in its reduced form, said covenant shall then be
enforceable. The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in this
11
<PAGE> 12
Section 11 upon the courts of any state or other jurisdiction in which any
alleged breach of any such covenant occurs. If the courts of any of one or
more of such states or other jurisdictions shall hold such covenants not wholly
enforceable by reason of the scope thereof or otherwise, it is the intention of
the parties hereto that such determination not bar or in any way affect the
Company's right to the relief provided above in the courts of any other states
or jurisdictions as to breaches of such covenants in such other respective
states or jurisdictions, and the above covenants as they relate to each state
or jurisdiction being, for this purpose, severable into diverse and independent
covenants.
12. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt; to the Company: 10741 King William Drive,
Dallas, Texas 75220, or after July 1, 1996, 2250 William D. Tate, Grapevine,
Texas 76051, to the attention of the Board, with a copy to the Secretary of the
Company; and to the Executive: 6417 Mesa Ridge Drive, Fort Worth, Texas 76137.
13. Amendments or Additions. No amendments or additions to this
Agreement shall be binding unless in writing and signed by all parties hereto.
14. Section Headings. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three (3) arbitrators in Tarrant County, Texas in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement; and provided further, that the Company shall be
entitled to seek injunctive relief for the enforcement of the provisions of
Section 11.
12
<PAGE> 13
18. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Texas without regard to its
conflicts of law principles. All references to sections of the Exchange Act
shall be deemed also to refer to any successor provisions to such sections.
19. Surviving Provisions. The obligations of the Company under
Section 9, of the Executive under Section 11, and of both the Company and the
Executive under Section 17 shall survive the expiration of the Term of this
Agreement.
20. Indemnification. The Company agrees, to the fullest extent
permitted by and in accordance with the Delaware General Corporation Law, to
(i) indemnify the Executive against all expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Executive in connection with any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and (ii) to
advance to the Executive expenses (including reasonable attorneys' fees)
incurred by him in defending any such action, suit or proceeding.
13
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement on
the date first indicated above.
NEOSTAR RETAIL GROUP, INC.
By: /s/ JAMES B. MCCURRY
--------------------------------------
James B. McCurry, Chairman and
Chief Executive Officer
EXECUTIVE:
/s/ ALAN C. BUSH
-----------------------------------------
Alan C. Bush
14
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