1
EXHIBIT 99.4
AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT
This Amendment Number Two to Loan and Security Agreement ("Amendment")
is entered into as of October 2, 1996, by and among NEOSTAR RETAIL GROUP, INC.,
operating as a debtor-in-possession, BABBAGE'S, INC., operating as a debtor-in-
possession, and SOFTWARE, ETC. STORES, INC., operating as a
debtor-in-possession (jointly "Borrowers"), on the one hand, and the financial
institutions listed on the signature pages hereof (jointly "Lenders"), and
FOOTHILL CAPITAL CORPORATION, as Agent for the Lenders, on the other hand, in
light of the following:
A. Borrowers, Lenders and Agent have previously entered into that
certain Loan and Security Agreement, dated as of September 16, 1996 (as amended
by that certain Interim Amendment to Loan and Security Agreement dated
September 16, 1996, the "Agreement").
B. Borrowers, Lenders and Agent desire to further amend the
Agreement as provided for and on the conditions herein.
NOW, THEREFORE, Borrowers, Lenders and Agent hereby amend the
Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this
Amendment shall have the meanings given to them in the Agreement unless
specifically defined herein.
2. AMENDMENTS.
(a) Section 1.1 of the Agreement is amended by changing
the definitions of "General Intangibles" and "Voidable Transfer" to read as
follows:
"General Intangibles" means all of a Person's
present and future general intangibles and other
personal property (including contract rights, rights
arising under common law, statutes, or regulations,
choses or things in action, goodwill, patents, trade
names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer
lists, monies due or recoverable from pension funds,
route lists, rights to payment and other rights under
any royalty, franchise, or licensing agreements,
infringement claims, computer programs, information
contained on computer disks or tapes, literature,
reports, catalogs, deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims
other than claims of any Borrower to transfers that
are avoidable pursuant to provisions of the
Bankruptcy Code), Accounts, and Negotiable
Collateral.
"Voidable Transfer" has the meaning set forth
in Section 18.7.
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT - Page 1
2
(b) Section 1.1 of the Agreement is hereby amended by
adding the definition of "Amendment No. 2" in its entirety to read as follows:
"Amendment No. 2" means that certain
Amendment Number Two to Loan and Security Agreement,
dated as of October 2, 1996, by and between Borrowers
and Lenders.
(c) Section 2.1(b) of the Agreement is hereby amended to
read as follows:
(b) Advance Rate Adjustments and
Reserves. Anything to the contrary in Section 2.1(a)
above notwithstanding, Agent may create reserves
against or reduce its advance rates based upon
Eligible Inventory for: (i) unpaid ad valorem taxes
and sales taxes that may have priority over the
Lenders' security interests; (ii) the Unpaid Amounts
of the Carve-Out Amount as provided in the Bankruptcy
Court Order; and (iii) upon three (3) Business Days'
advance notice to Borrowers that Agent intends to do
so because Agent has reasonably determined that there
has occurred a Material Adverse Change.
(d) Section 2.11 (f) is hereby added to the Agreement in
its entirety to read as follows:
(f) Waiver Fee. A waiver fee for each waiver
of the financial covenant(s) set forth in Section
6.11 that the Lenders, at their option, determine to
grant, such fees not to exceed $175,000 per quarter,
exclusive of a $175,000 waiver fee, which will be
charged for the amendments to and waivers of the
financial covenants as contemplated by Amendment No.
2. The first waiver fee following the transaction
contemplated by Amendment No. 2 will be payable with
the first waiver that the Lenders determine to grant.
Notwithstanding the foregoing, the waiver fee will
not be payable in connection with a waiver or
amendment to the financial covenants set forth in
Section 6.11, so long as the waiver or amendment is
necessitated as a response to the Borrowers' closing
of more than two hundred (200) stores.
(e) Sections 4.5(b), (f), and (g) of the Agreement are
hereby amended to read as follows:
(b) At any time that an Event of Default
has occurred and is continuing, sign such Borrower's
name on any invoice or ▇▇▇▇ of lading relating to any
Account, drafts against Account Debtors, schedules
and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors,
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT - Page 2
3
(f) At any time that an Event and Default has
occurred and is continuing, make, settle, and adjust
all claims under such Borrower's policies of
insurance, subject to landlord's rights regarding
fixtures, and make all determinations and decisions
with respect to such policies of insurance, and
(g) At any time that any Event of Default has
occurred and is continuing, settle and adjust
disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms that
Agent determines to be reasonable, and Agent may
cause to be executed and delivered any documents and
releases that Agent determines to be necessary.
(f) Section 6.11(e) of the Agreement is hereby amended to
read as follows:
(e) Reorganization Expenses. Not pay
cumulative reorganization expenses in the Cases,
excluding non-cash items, in excess of $3,850,000, as
itemized in Schedule 6.11(e) attached hereto;
(g) Section 6.16 of the Agreement is hereby amended by
deleting the last sentence thereof.
(h) Section 6.17 of the Agreement is hereby deleted in
its entirety.
(i) Section 8.12 of the Agreement is hereby amended to
read as follows:
8.12 If the obligation of any Guarantor
under any Loan Document is limited or terminated by
operation of law or by such Guarantor thereunder.
(j) Sections 9.1(k)(1) and (2) of the Agreement are
hereby amended to read as follows:
(1) Agent shall give each Borrower with
rights in the Collateral that is being disposed of,
each holder of a security interest in the Collateral
who has filed with Agent a written request for notice
and the Unsecured Creditors' Committee, a notice in
writing of the time and place of public sale, or, if
the sale is a private sale or some other disposition
other than a public sale is to be made of the
Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally
delivered or mailed, postage prepaid, to (i) the
applicable Borrower as provided in Section 12, at
least five (5) days before the date fixed for the
sale, or at least five (5) days
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT - Page 3
4
before the date on or after which the private sale or
other disposition is to be made and (ii) the
Unsecured Creditors' Committee c/▇ ▇▇▇▇▇, Bonacquist
& Fox, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇., ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq., at
least three (3) Business Days before the date fixed
for the sale, or at least three (3) Business Days
before the date on or after which the private sale or
other disposition is to be made; no notice needs to
be given prior to the disposition of any portion of
the Collateral that is perishable or threatens to
decline speedily in value or that is of a type
customarily sold on a recognized market;
(k) Schedule 6.11 to the Agreement is amended in its
entirety and replaced by Schedule 6.11 attached to this Amendment.
(l) Schedule 6.11(e) attached to this Amendment is hereby
incorporated in its entirety into the Agreement as Schedule 6.11(e)
(Professional Fees and Reorganization Expenses) thereto.
3. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby affirms
to the Lender Group that all of such Borrower's representations and warranties
set forth in the Agreement are true, complete and accurate in all respects as
of the date hereof.
4. NO DEFAULTS. Borrowers hereby affirm to the Lender Group that
no Event of Default has occurred and is continuing as of the date hereof.
5. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the following, each of which shall be a condition
precedent hereto:
(a) Payment by Borrowers to Agent of an amendment fee in
the aggregate amount of $175,000, such fee to be charged to Borrowers' loan
account pursuant to Section 2.6(d) of the Agreement;
(b) Receipt by Agent of an executed copy of this
Amendment;
(c) Entry by the Bankruptcy Court of the Bankruptcy Court
Order; and
(d) Receipt by Agent of a copy of the support letter from
the Unsecured Creditors' Committee ("Committee") to the Borrowers for
presentation to the Borrowers' trade creditors to the effect that (i) the
Committee supports the Agreement, as amended, and (ii) the Committee believes
the Agreement, as amended, is fair and reasonable for the Borrowers.
6. COSTS AND EXPENSES. Borrowers shall pay to Agent all of
Agent's out-of-pocket costs and expenses (including, without limitation, the
fees and expenses of its counsel, which counsel may include any local counsel
deemed necessary) arising in connection with the preparation, execution, and
delivery of this Amendment and all related documents.
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT - Page 4
5
7. LIMITED EFFECT. In the event of a conflict between the terms
and provisions of this Amendment and the terms and provisions of the Agreement,
the terms and provisions of this Amendment shall govern. In all other
respects, the Agreement, as amended and supplemented hereby, shall remain in
full force and effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original. All such counterparts, taken together, shall constitute but
one and the same Amendment. This Amendment shall become effective upon the
execution of a counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
NEOSTAR RETAIL GROUP, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------------
Title: Vice President
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BABBAGE'S, INC.,
a Texas corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------------
Title: Vice President
------------------------------------------
SOFTWARE ETC. STORES, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------------
Title: Vice President
------------------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation,
as Agent and a Lender
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------------
Title: Assistant Vice President
------------------------------------------
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT -Page 5
6
NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION,
a national banking association
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇
----------------------------------------
Title: Senior Vice President
-------------------------------------
BANKERS TRUST COMPANY,
a New York banking corporation
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------
Title:
-------------------------------------
GUARANTY FEDERAL BANK F.S.B.,
a federal savings bank
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------
Title: Vice President
-------------------------------------
BANQUE FRANCAISE DU COMMERCE EXTERIEUR,
a French banking corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------
Title: Assistant Vice President
-------------------------------------
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
----------------------------------------
Title: Vice President and Regional Manager
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AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT- Page 6
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Each of the undersigned has executed a Continuing Guaranty in favor of
the Lender Group respecting the obligations of the Borrowers owing to the
Lender Group. Each of the undersigned acknowledges the terms of the above
Amendment and reaffirms and agrees that: (a) its Continuing Guaranty remains in
full force and effect; (b) nothing in such Continuing Guaranty obligates the
Lender Group to notify the undersigned of any changes in the financial
accommodations made available to the Borrowers or to seek reaffirmations of the
Continuing Guaranty; and (c) no requirement to so notify the undersigned or to
seek reaffirmations in the future shall be implied by the execution of this
reaffirmation.
CHASADA
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Title: Chairman
-------------------------------
AUGUSTA ENTERPRISES, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Title: Chairman
-------------------------------
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT-Page 7
8
SCHEDULE P-1
PERMITTED LIENS
NEOSTAR RETAIL GROUP, INC.
BABBAGE'S, INC.
SOFTWARE ETC. STORES, INC.
1. Property subject to lien: Xerox 5390 copier.
Lienholder: Xerox Financing Corp.
Amount of debt secured: $265,320
2. Property subject to lien: Leased computer equipment.
Lienholder: Verifone Financing, Inc., Portland, Oregon
Amount of debt secured: $373,032
3. Property subject to lien: Leased warehouse equipment, including
forklift trucks, exide batteries, orderpicker trucks, walkie rider,
exide chargers, battery changing equipment, wire guidance system, and
epoxy floor coating.
Lienholder: ▇▇▇▇▇▇▇ Leasing Corporation
Amount of debt secured: approximately $402,000
4. Property subject to contested mechanic's lien claim: Warehouse
equipment, including conveyor system, crossbelt sorter and related
equipment.
Lienholder: Western Atlas, Inc.
Amount of claim: $2,758,578.08
5. Property subject to contested mechanic's lien claim: Warehouse
equipment, including high bay pallet storage racks, high density pallet
flow racks, pick module structures, shelving and related equipment.
Lienholder: UNARCO Material Handling, Inc.
Amount of claim: $603,034.87
6. Reclamation claims of trade creditors.
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SCHEDULE 6.11
FINANCIAL COVENANTS
Schedule 6.11
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5-Oct-96 ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ 1-Mar-97
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TOTAL MARGIN TEST
----------------------
--------------------------------------------------------------------------------------------------
Minimum Total Margin $ 5,560,782 $10,183,213 $18,044,242 $37,255,826 $40,007,739 $36,324,535
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5-Oct-96 ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ 1-Mar-97
--------------------------------------------------------------------------------------------------
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EBITDA TEST
----------------------
--------------------------------------------------------------------------------------------------
Minimum EBITDA ($3,432,270) ($9,510,445) ($6,351,167) $16,567,814 $19,797,377 $17,789,299
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5-Oct-96 ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ 1-Mar-97
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NET WORTH TEST
----------------------
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Minimum Net Worth $11,304,822 $ 7,830,363 $ 8,523,561 $25,340,507 $26,093,647 $24,693,895
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5-Oct-96 19-Oct-96 ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇
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TRADE CREDIT TEST
----------------------
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Minimum Trade Credit $ 1,000,000 $ 6,000,000 $20,000,000 $30,000,000 $17,179,586 $18,781,903
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5-Apr-97 3-May-97 31-May-97 5-Jul-97 2-Aug-97 30-Aug-97
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TOTAL MARGIN TEST
----------------------
--------------------------------------------------------------------------------------------------
Minimum Total Margin $19,404,672 $15,189,296 $14,099,622 $12,532,726 $11,847,323 $11,667,779
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
5-Apr-97 3-May-97 31-May-97 5-Jul-97 2-Aug-97 30-Aug-97
--------------------------------------------------------------------------------------------------
----------------------
EBITDA TEST
----------------------
---------------------------------------------------------------------------------------------------
Minimum EBITDA $ 1,698,763 ($ 2,058,172) ($5,238,372) ($9,377,204) ($11,467,254) ($10,896,071)
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
5-Apr-97 3-May-97 31-May-97 5-Jul-97 2-Aug-97 30-Aug-97
---------------------------------------------------------------------------------------------------
----------------------
NET WORTH TEST
----------------------
---------------------------------------------------------------------------------------------------
Minimum Net Worth $24,876,384 $22,665,839 $19,859,615 $18,222,439 $14,705,684 $11,448,707
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
5-Apr-97 3-May-97 31-May-97 5-Jul-97 2-Aug-97 30-Aug-97
---------------------------------------------------------------------------------------------------
----------------------
TRADE CREDIT TEST
----------------------
---------------------------------------------------------------------------------------------------
Minimum Trade Credit $13,113,205 $10,573,786 $14,949,300 $13,674,375 $13,783,347 $16,976,911
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4-Oct-97 ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇
----------------------------------------------------------------------------------
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TOTAL MARGIN TEST
----------------------
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Minimum Total Margin $11,600,295 $11,858,238 $15,934,445 $32,025,546 $36,358,337
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4-Oct-97 ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇
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EBITDA TEST
----------------------
----------------------------------------------------------------------------------
Minimum EBITDA ($11,341,465) ($10,584,693) ($1,990,227) $15,819,764 $20,424,722
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4-Oct-97 ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇
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NET WORTH TEST
----------------------
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Minimum Net Worth $9,277,132 $5,949,026 $7,080,914 $23,397,209 $25,163,108
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4-Oct-97 ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇ ▇-▇▇▇-▇▇ ▇▇-▇▇▇-▇▇
----------------------------------------------------------------------------------
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TRADE CREDIT TEST
----------------------
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Minimum Trade Credit $16,365,291 $30,029,715 $37,675,694 $36,241,469 $20,030,005
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10
SCHEDULE 6.11(E)
PROFESSIONAL FEES & REORGANIZATION EXPENSES
PROFESSIONAL RETAINER ADDITIONAL TOTAL
--------------------------------------------------------------------------------------------------
Price Waterhouse $250,000 $ 600,000 $ 850,000
Ernst & Young* $ 50,000 $ 150,000 $ 200,000
Coopers & ▇▇▇▇▇▇▇ $ 0 $ 250,000 $ 250,000
▇▇▇▇▇, Bonacquist & Fox $ 0 $ 600,000 $ 600,000***
▇▇▇ & ▇▇▇▇▇** $500,000 $1,300,000 $1,800,000
Equity $ 0 $ 100,000 $ 100,000
Committee Expenses $ 0 $ 50,000 $ 50,000
-------- ---------- -----------
Totals: $800,000 $2,700,000 $3,850,000
* Not a Reorganization Expense.
** A portion of fees will not be Reorganization Expenses. The total of
fees failing to qualify as Reorganization Expenses payable to ▇▇▇ &
▇▇▇▇▇ and to Ernst & Young shall not exceed $350,000.
*** Further limitations:
1. Total fees and expenses for Committee Expenses and to ▇▇▇▇▇,
Bonacquist & Fox and to Coopers & ▇▇▇▇▇▇▇ (collectively, the
"Committee Group") shall not exceed, in the aggregate,
$900,000, subject to the terms and restrictions of the Final
Financing Order.
2. As a sub-limit within the limit in Item 1, above, the total
fees and expenses of the Committee Group to investigate the
claims and liens of the pre-petition lender group will not
exceed $75,000, in the aggregate.
3. The Final Financing Order will provide that the Committee
Group and each of the professionals referenced above may not
seek payment of their respective fees and
Schedule 6.11(e)
11
expenses in excess of their individual caps as set forth in this
Schedule 6.11(e), except as specifically provided in Item 1
above, and shall not have any right to any amounts from other
professionals who have not used the full amount of their
individual caps or "carve out" amounts set forth in this Schedule
6.11(e).
Schedule 6.11(e)